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Author: 


Reid,  William  A. 


Title: 


A  treatise  on  the  law 
pertaining  to...2V. 

Place: 

Albany 

Date: 

1896 


MASTER    NEGATIVE   # 


COLUMBIA  UNIVERSITY  LIBRARIES 
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iusnreis 

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Reid,  WUliam  A. 

A  treatise  on  the  law  pertaining  to  corporate  finance  includ- 
ing the  financial  operations  and  arrangements  of  public  and 
private  corporations  as  determined  by  the  courts  and  statutes 
of  the  United  States  and  England,  by  William  A.  Reid  ... 
Albany,  H.  B.  Parsons,  1896. 

2v.    24i-. 

Paged  continuously. 


1^  Corporations — Finance.    2.  Corporation  law — U.  S.    3.  Corporation 
law— Gt  Brit  *~ 


Library  of  Congress 


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A  TEEATISE  ON  THE  LAW 


PERTAINING   TO 


CORPORATE    FINANCE 


INCLUDINO 


THE  FINANCIAL  OPERATIONS  AND  ARRANGEMENTS 
OF  PUBLIC  AND  PRIVATE  CORPORATIONS 


AS   DETERMINED   BY 


THE  COURTS  AND  STATUTES 
OF  THE  UNITED  STATES  AND  ENGLAND 


By 

WILLIAM    A.    EEID 


OF  THE  NEW  TORK  KAM^ 


-  •  •  '    '    ^     . 


•  §  * 


•    >  . 


.-   .  ,vaL.i 


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ALBANY 
H   B.  PARSONS.  LAW  PUBLISHER 

1896 


Nl.V 


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Copyright,  1896, 

BY 

HENRY  B.   PARSONS. 


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I 


PREFACE. 


This  work  is  a  practical  treatise  upon  the  law  of  "  Corporate 
Finance"  — The    Financial    Operations    and  Arrangements  of 
Public  and  Private  Corporations  —  as  declared  by  the  courts  in 
a  large  collection  of  cases.     The  idea  in  the  preparation  of  the 
work  has  been  that  a  lawyer  searching  for  law  adapted  to  his  case 
would  be  aided  by  a  work  giving  the  rules  declared  by  the  courts 
and,  as   far   as  necessary,  showing  how  these  conclusions  were 
reached,  the  reasoning  of  the  courts,  and  the  application  of  the 
law  to  the  particular  cases  as  exemplified  by  the  facts  therein.    In 
the  text  such  a  statement  of  facts,  when  necessary,  has  been  made 
as  will  give  an  accurate  idea  of  the  case  presented  to  the  court, 
and  the  rules  declared.     The  notes  contain,  in   many  cases,  thJ 
full  reasoning  or  argument  of  the  courts  in  support  of  the  rules, 
and  frequently  a  differentiation  of  cases  which  may  be  assumed 
to  be  in  conflict  with  the  rules  declared. 

Especially  ha«  the  author  thought  a  work  prepared  upon  this 
plan  would  be  of  great  use  to  those  who  have  not  access  to  large 
libraries.  I  trust  it  may  prove  a  ready  and  useful  help  to  those 
who  may  use  it. 

WM.  A.  REID. 
New  York  City,  Jamuiry,  1896. 


TABLE  OF  CONTENTS. 


TABLE  OF  CONTENTS. 


VOLUME  I. 


CHAPTER  I. 


GENERAL    POWER  TO  INCUR  PECUNIARY  LIABILITY  -  PUBLIC  CORPORAnONS. 


j^    1.  General  rules  applicable  to  public  corporations 

2.  Distinction  between  public  and  private  corporations.  ^.,.....][ 

3.  Borrowing  money 

4.  The  United  States  Supreme  Court  on  borrowing  money. 

5.  The  New  Jersey   Court  of  Errors  and  Appeals  on  b'oniwinff 

money 

6.  Issue  of  negotiable  securities ] 

7.  Power  of  Indiana  cities  to  issue  bonds ....!...!. 

8.  Miscellaneous  rules  as  to  issuing  bonds ........' 

9.  Bonds  issued  for  the  erection  of  a  county  court  house! . .  "... 

10.  Funding  county  indebtedness  by  issuing  interest-bearing  bonds 

11.  Issue  of  bonds  to  pay  subscription  to  stock  of  railroad  corpo- 

rations   

12.  Notes  or  warrants  to  cover  funds  to  be  set  aside  in  future 

taxation 

13.  The  issue  of  scrip 

14.  Purchase  of  real  estate  for  erection  of  public  buildings  on  time 

15.  Erection  of  town  buildings 

16.  Purchase  of  sites  for  erection  of  and  repair  of  school  buildings 

17.  The  same  subject  continued 

18.  Purchasing  on  credit 

19.  Building  and  repair  of  bridges 

20.  Incurring  liability  under  California  statutes 

21.  Incurring  liability  under  Indiana  statutes .,........[., 

22.  Incurring  liability  under  Kansas  statutes 

23.  For  lighting  the  streets  of  a  city ."....!....'!.*!.' 

24.  Contract  on  time  for  lighting  streets ,,, 

25.  Caring  for  the  indigent,  etc .......' 

26.  Employment  of  physicians  for  the  poor -Indiana 'statute"  con- 

strued 

27.  Expenses  connected  with  epidemic  diseases'  ^ 

28.  For  what  towns  may  not  be  made  liable 

29.  Expenses  of  a  committee  to  secure  legislation.  ' . . . . . .  .....* 

30.  For  the  payment  of  bounties  to  volunteers 

31.  Validating  a  contract  of  village  trustees. 

32.  Illustrations  of  liabilities  incurred  for  a  "corporate*  purpose*"! ! ! 


PAOB. 
4 

5 
6 

7 

8 
9 
12 
12 
15 
15 

16 

18 

18 

19 

30 

21 

28 

24 

24 

25 

26 

27 

28 

29 

30 

31 
31 
32 
34 
35 
36 
36 


•  •  • 

^^"  TABLE  OF  CONTENTS  —  VOLUME  I. 

§  33.  Purchase  of  fire  engines  and  apparatus  ''^"• 

34.  ^lustrations  of  wrongfully  incurred  liability  .* ?! 

<».  Purchase  of  cemetery  grounds                          ^ 

36.  Erectionof  crematory  for  garbage.... ^ 

37.  Useof  private  property  for  sewers..!..]! ^^ 

38.  Detection  of  criminals ^ 

39.  Aiding  private  corporations      ^^ 

40.  Subscription  to  capital  stock  of'  miiroad'  io^poration ^ 

41.  Power  of  the  legislature  as  to  compensation  in  such  matters ^ 

42.  Cons^.tutionality  of  legislation  authorizing  such  dd             tl 

47.  Constitutional  provisions  construed                 °® 

49.  What  is  such  a  work ^ 

50.  Contracts  of  guaranty ^ 

51.  Employment  of  agents  or  attorneys ^ 

52.  Contracts  for  legal  services  -  when  allowed ? 

53.  Contracts  for  legal  services  -  how  made  

S'  ^Zl  P"^"7^^^^«°°  i«  bound  for  legal  serviies: .' .' .' S 

55.  Employment  of  counsel  for  defense  of  officers. . .         !? 

56.  Indemmty  for  expenses  of  litigation                         **" 

58.  The  same  subject  continued        ^ 

^  liH^T""^  "^'^  attorneys'a;e  coat„.ry' to  "public  policy « 

60.  Lumtations  upon  the  indebtedness  to  be  incurred.              ^ !J 

61.  The  same  subject  continued "'* 

63.  I^^^«o-;U»npowertoincu;inde"bt«i-„ess-p:^u^^^  " 

63.  The  same  subject  continued «* 

61  Donationof  bonds  to  aid  in  developing  ^.terpower." :;:::.::;;:  TO 


CHAPTER  II. 
OKKKB..  Pow^  ^  «c™  rKc™,.„  u.,„,„,_r^,„  COB«>«.r,0», 

'I  ^"^^z^;:"!'':'""'''^'- « 

67.  Aiding  other  corporations  '^^ 

68.  Contracts  of  suretyship        ''• 

80 


TABLE  OF  CONTENTS  —  VOLUME  I.  Jj^ 

§   73.  Guaranty  Of  dividend  upon  preferred  stock  of  another  corpo™-  "«■ 

75.  Banking  associations ^ 

76.  A  savings  bank's  powers....!...' ^ 

77.  Corporationsdealing  in  lands!!!!!! ^ 

78.  Insurance  corporations ^ 

79.  Manufacturing  corporations. ! ! ! ^ 

80.  Mining  corporations ! ^1 

81.  Railroad  corporations ! ! ! ^ 

82.  The  same  subject  continued ^^ 

s  ^.;rroTarre:-rrs""^  - 

85.  More  rules  on  this  subject ^ 

86.  Bonds  of  a  banking  association ^ 

87.  Power  to  secure  their  indebtedness. ?^ 

88.  Limitation  of  indebtedness                      ^"^ 

89.  Debt  limited  by  par  value  of  ;*pUaI  s^k.' : : . !  i Z 

90.  Whe-a^tatutorylimitationofindebtednessdoesnoiapply.:::.  m 

CHAPTER  m. 


POWERS  OF  AGENTS  AND  OFFICERS  -  PCBUC  CORPOKATION8. 

^    91.  General  rules.. 

92.  More  general  rules!!!!!! ^^ 

93.  Illustrations  of  thp  dnf..  o«^  .i i HO 

Ai   P«Hfi    ,.^    ^®  °"*^  ^°<^  powers  of  municipal  officers  iio 
9*.  Ratification  by  municipal  corporations  of  contractTZde' hv 

their  agents  and  officers  cooiracts  made  by 

96.  Agents  and  officers  of  counties  -generally! ! ! ! ]]l 

96.  Power  of  county  officers  in  California.                ]^^ 

97.  Power  of  county  boards  in  Illinois        ^^^ 

^.  Power  of  county  commissioners  in'indiana JJ? 

99.  Power  of  supervisors  of  counties  in  Iowa. . ! ! Jf! 

100.  Power  of  county  commissioners  in  Kansas. ??? 

101.  Power  of  County  Courts  in  Kentucky               ^^ 

m.  Power  of  supervisors  in  Michigan        ^^ 

m   Power  of  County  Courts  in  Missouri ^^ 

104.  Power  of  county  supervisors  in  New  York l^ 

105.  Power  of  county  commissioners  in  Pennsylvania J^ 

106.  Power  of  county  board  in  Wisconsin. .                   ^^ 

107.  Power  of  township  trustees  in  Indiana ^^ 

08.  Powerof  selectmen  of  towns  in  Massachusetts!! Jf? 

09.  Powero    selectmen  of  towns  in  New  Hampshire Jff 

0.  Power  o    supervisor,  of  townships  in  Pem^ylvania If, 

2   IZZ   f  T""'Z"  '°^  '''''''  ^^  '^^"^  '-  Vermont! i2 

1  '2.  Power  of  town  officers  in  Wisconsin                            ^^ 

118.  Power  of  officers  of  school  districts    ^^ 

138 


TABLE  OP  CONTENTS VOLUME  I. 


CHAPTER  IV. 

POWER  OP  AGENTS  AND  OPFICEB8  -  PRIVATE  CORPORATIONS. 

§  114.  Agency  in  general *^ 

115.  Rules  as  to  an  agent's  acts !^ 

116.  To  wlmt  the  iK)wers  conferred  onan  agent  maybe  extended  m 

117.  Illustrations  of  the  binding  force  of  an  agent's  act ... .  [Z 

118.  Power  of  general  agents :T: 

119.  Whentheauthorityof  ageneralagentwiilnotbe'implied.;;   '      m 

120.  Power  of  officers  generally !  * 

121.  The  same  subject  continued. ]^ 

122.  Power  of  directors  — general  rules!  ,..'..... J„ 

12C.  Directorc  for  the  first  year 

124.  Directors  do  facto. ........[.[....[ ^^^ 

125.  Illustrations  of  the  power  of  directors. !f? 

125.  More  illustrations  on  this  subject.   ...        !«i 

127.  Illustrations  of  a  lack  of  power  in  directore! J^ 

128.  When  notes  will  be  held  to  have  been  authorized  by  a  board '  of 

directors 

120.  Waiver  by  directors' oUheir  power  to'repudiate  a  contract.' ." ." ."  [      m 
130.  Power  ox  trustees  of  a  corporation  .^ 

]ll'  wT'  1 ''®''''  ""^  ^  corporation  to  employ  attorneys.' .'  .* .' ." [  [  ]  [  m 

132.  When  ofticerc  mcy  use  bonds  as  collateral  i^a 

133.  When  the  execution  of  a  note  is  not  authorized       17" 

134.  Execution  of  promissory  notes  and  transfer  of  choses  in  action .'  172 

135.  Notes  signed  by  officers  of  corporation. ...  \lt 

13G.  Power  of  bank  officers '^ 

137.  Power  of  a  bank  cashier .*..*.'. ll^ 

^^'  ^Ik^^  ^"tJ^ority  of  its  cashier  '^nnot'l,;'  'questioned   by'a 

139.  Indorsement  of  a  draft  by  ^a^ieV  and  president  of  a  ba'nk '."  "  m 

140.  Power  of  a  treasurer  of  a  savings  bank.                                   *  *  170 

141.  Power  of  officers  of  mining  corporations. ...    Jon 

142.  General  rules  as  to  the  power  of  a  president igj 

143.  Rule  as  to  evidence  in  such  cases jg. 

144.  Power  of  president  as  to  transfer  of  assets ir- 

145.  When  a  president'c  act  is  binding t^ 

146.  niustrations  of  the  power  of  a  president  l^ 

147.  Ulustrationsofalackof  nower....                   Jg., 

148.  What  would  show  the  authority  of  a  president '.'.'. lol 

149.  Question  of  authority  for  the  jury jag 

150.  Power  of  a  president  as  to  execution  of  notes  '.   ioa 

152    OwTn ''  ""'?  '^'  ?'^^"'^'  ^^  "  P'^^*^^°^  "^y  ^^'  ^  questioned:       197 
152.  Giving  a  ludgmcnt  note  —  New  Jersey .  1  qo 

163.  The  same  subject -Illinoic ^ 

\^'  I?7^!>^'"^<^'«^P«'-ehase  includes  giving  a  judgment' note:;.*      202 
155.  What  raises  a  presumption  of  authority .  ^ 

166.  Power  of  officers  acting  conjointly ........[..[ 2H 


TABLE  OF  CONTENTS —  VOLUME  L 


XI 


§  157.  An  illustration  on  this  subject ""^ 

158.  One  holding  several  offices 207 

159.  Note  executed  by  a  secretary :::::::::::: 208 

160.  Power  of  superintendents,  etc 209 

161.  A  manager's  power ::::." 01 1 

162.  Manager  of  a  foreign  corporation 212 

163.  Authority  of  a  manager „^ . 

164.  What  is  not  within  the  duties  of  a  cashier  of  a  corporation 216 

165.  Auditing  board  of  a  corporation *      217 

166.  Power  of  a  treasurer  generally 017 

167.  Power  of  a  treasurer  as  to  transfer  of  a  note 21B 

168.  Power  of  a  treasurer  as  to  execution  of  a  note  ...:::::: 219 

169.  Authority  of  a  treasurer  to  borrow  money  by  means  of  steriinff 

contracts ®      ^^ 

170.  Power  of  a  treasurer  te  indorse  in  name  of  corporation  a  note 

for  accommodation g^^ 

171.  Power  of  a  treasurer  to  indorse  a  note  of  another  corporation  "  '  *  223 

172.  When  a  corporation  will  be  bound  by  a  note  executed  by  its 

treasurer ^^ 

173.  When  a  corporation  is  bound  by  acts  of  its  treasurer  226 

174.  When  a  corporation  will  not  be  bound  by  the  act  of  its  treas'urer'. '  228 

175.  Another  illustration  of  such  a  case oqa 

176.  When  contracts  of  a  chief  engineer  will  bind  a  railroad  corpora- 

tion   230 

21'  J^^l^^^^^o"  ^y  corporation  of  agent's  acts  -  general  rules *  233 

178.  Modes  of  ratification ^^ 

179.  Illustration  of  ratification  of  conduct  of  agent  [......[., 236 

180.  What  does  not  amount  to  a  ratification "'....,,.[[,.  237 

CHAPTER  V. 


\  181. 
182. 
183. 
184. 
185. 

186. 

187. 
188. 
189. 
190. 
191. 

192. 


FRAUDULENT  ACTS  OF  OFFICERS. 

General  rules 

241 

General  rules  continued ^Z 

Breaches  of  trust f^ 

......a...,. 247 

Officers  interested  in  contracts  with  a  corporation 249 

Directors  of  an  insolvent  corporation  preferring  themselves  t^ 

other  creditors ^  «^„ 

253 

Directors  contracting  with  a  syndicate  composed  of  themselves 

—  when  such  a  contract  cannot  be  rescinded 255 

Directors  issuing  shares  of  stock  to  themselves. . .  . : : : 257 

Officers  profiting  by  their  relation  to  the  corporation :::::: 258 

Repudiating  or  avoiding  such  contracts 264 

Rules  as  to  such  contracts ^ 

Circumstances  under  which  the  directors  cannot  avail  them: 

selves  of  the  defense  of  the  invalidity  of  the  contract  267 
Purchase  by  officers  of  debts  due  by,  or  property  of,  corpo'ra- 

.  -  tion *^  „„^ 

269 


Jdl 


TABLE  OF  CX)NTENT8  —  VOLUME  I, 


TABLE  OF  CONTENTS VOLUME  I. 


xm 


§  193.  Purchase  and  sale  of  property  of  corporations  by  oflScers 272 

194.  Illustrations  of  a  sale  of  property  to  corporation  which  was  not 

fraudulent 2«4 

195.  When  a  transfer  of  property  of  corporation  will  be  upheld '. . . . .  276 
196..  Officers  voting  themselves  salaries  or  compensation 278 

197.  Interest  upon  exorbitant  salary  voted  officer  recoverable 281 

1 98.  Contracts  between  corporations  having  the  same  directors  in  part.  282 

199.  Issue  of  worthless,  or  overissue  of,  stock [  286 

200.  False  representations  of  officers  —  deceit * .  288 

'201.  A  leading  English  decision  on  this  subject 292 

*  202.  The  rule  adhered  to  in  England ........]  293 

203.  Officers  conspiring  to  wreck  a  corporation 294 

204.  President  conspiring  against  a  corporation  —  terms  on  which  the 

corporation  could  rescind  the  contract  made  by  him 295 

205.  Promoters  of  corporations  accountable  for  profits 296 

206.  Promoters  obtaining  stock  of  corporation  for  nothing » . . .  298 

207.  Jurisdiction  of  equity  courts  as  to  breaches  of  trust,  etc 300 

208.  "When  a  court  of  equity  is  not  open  to  the  complaints  of  stock- 

onn   „*^^^^^^ 303 

209.  Remedy  in  equity 3Q5 

210.  Malfeasance  of  the  president  of  a  corporation  —  a  stockholder's 

remedy 3^2 

211.  When  a  demand  upon  a  directory  to  bring  suit  is  not  required . .  313 

212.  When  a  stockholder  may  bring  an  action qiq 

213.  Dissolution  of  a  corporation  by  a  scheme  of  stockholders  and  a 

sale  of  property  to  themselves 321 

214.  The  rights  of  the  minority  in  such  a  case 334 

215.  Principles  applied  to  this  particular  case 326 

216.  When  a  fraudulent  assignment  of  a  mortgage  by  the  treasurer 

of  a  corporation  will  bind  it 327 

217.  When  a  corporation  may  recover  money  fraudulently  paid  out 

by  its  treasurer 32g 

218.  When  a  corporation  must  respond  for  damages  resulting  from  a 

fraudulent  issue  of  its  stock 330 

219.  The  same  subject  —  a  Massachusetts  decision 334 

320.  The  same  subject  —  a  Pennsylvania  decision 836 

221.  When  a  corporation  may  not  respond  for  damages 839 

222.  A  Massachusetts  decision  on  this  subject 341 

• 

CHAPTER  VI. 

PERSONAL  LIABILITY  OF  OFFICERS. 

§22a  Directors*Uability  — general  rules 346 

224.  Liabihty  of  other  officers  —  general  rules aW 

225.  Rules  as  to  liabiUty  of  officers  for  diversion  of  property  of  cor- 

poration    ^nA 

226.  Liability  of  officers  arising  from  manner  of  execution  of  com- 

mercial paper 35^ 


■ 


§  227.  Liability  of  officers  arising  from  indorsement  of  commercial 
paper 

228.  Liability  of  officers  of  savings  banks  

229.  Liability  of  a  treasurer  of  a  corporation  for  payment  of  orders 

on  forged  indorsements 

230.  Liability  on  contract  made  before  complete  organization  of  the 

corporation 

281.  Rule  as  to  recovery  in  such  a  case 

232.  County  treasurer  liable  upon  his  receipts  to  collector  for  money. 

233.  County  treasurer  liable  as  bailee  of  county  funds 

234.  County  treasurer  paying  court  orders  on  forged  instruments 

235.  Arbitration  as  to  liability  of  a  treasurer  of  a  township 

236.  Liability  under  special  provisions  of  charter  or  statute 

237.  Liability  under  provisions  of  charter  —  Pennsylvania 

238.  Statutory  liability  —  California  statutes 

239.  Statutory  liability  —  Colorado  statutes 

240.  Statutory  liability  —  Iowa  statutes 

241.  Statutory  liability  —  Massachusetts  statutes 

242.  Statutory  liability  —  Minnesota  statutes 

243.  Statutory  liability  —  Missouri  statutes 

244.  Statute  of  New  York  —  liability  for  failure  to  file  annual  report. 

245.  Actions  to  enforce  this  liability 

246.  What  are,  and  what  are  not,   "debts"  for  which  liability  under 

this  statute  may  arise 

247.  A  United  States  Supreme  Court  decision  on  this  subject 

248.  Statute  of  New  York  —  liability  for  creation  of  debts  in  excess  of 

capital  stock 

249.  Liability  for  incurring  indebtedness  in  excess  of  capital  stock  — 

Illinois  statute 

250.  United  States  Supreme  Court  decision  on  a  similar  statute  — the 

proper  action  in  such  a  case 

251.  New  York  statute  — liability  for  false  statement  in  certificate, 

etc.,  filed 

252.  Illustrations 

253.  Statutory  liability  —  Rhode  Island  statutes 

254.  Statutory  liability  —  various  states 

255.  Liability  of  directors  or  officers  under  an  English  statute 

CHAPTER  VII. 


ULTRA  VIRES— PUBLIC  CORPORATIONS. 

§  256.  Issue  of  negotiable  securities 424 

257.  Borowing  money  by  school  districts 425 

258.  Incurring  liability  in  excess  of   funds    in    the  treasury  and 

amount  of  tax  allowed  for  one  year 427 

259.  Incurring  a  debt  without  provision  by  taxation  for  interest  and 

sinking  fund 409 

260.  Employment  of  an  agent  to  negotiate  bonds 430 


PAOK. 

360 
363 

366 

367 

372 

373 

374 

376 

377 

379 

382 

383 

384 

385 

386 

387 

388 

389 

393 

395 
397 

399 

402 

406 

407 
410 
414 
414 
418 


f 


XIV 


TABLE  OF  CONTENTS  —  VOLUME  I. 


%  261.  Investment  of  sinking  funds 431 

263.  Contract  with  corporation  attorney  for  legal  services 433 

263.  Discount  of  its  warrants  by  a  corporation 434 

264.  Illustrations  of  ultra  vires  contracts 437 

265.  Estoppel  of  a  public  corporation  to  deny  its  liability  on  an  ultra 

vires  contract 439 

266.  Estoppel  of  a  contractor  with  a  public  corporation  to  enforce  an 

ultra  vires  contract 442 

967.  Injunction  of  public  officials  —  rules 445 


CHAPTER  VIII. 

ULTRA   VIRES — PRIVATE  COUPORATION8. 

The  doctrine  of  ultra  vires  as  explained  by  English  courts.  . .        447 
These  rules  applied  by  English  courts  to  special  acts  of  corpora- 
tions       443 

The  doctrine  of  ultra  vires  as  explained  by    United    States 

courts 450 

Illustrations  of  acts  not  ultra  vires  the  corporation 453 

Illustrations  of  acts  ultra  vires  the  corporation 463 

Leasing  corporation's  property  and  franchises  for  a  term  of 

years 469 

Loaning  funds  of  a  corporation 476 

Investing  funds  of  corporation  in  stock  of  others  478 

Directors  of  an  insurance  company  raising  a  guaranty  capital. . .  480 

C'on verting  common  into  preferred  stock 482 

The  effect  of  laches  on  the  part  of  complaining  stockholders  in 

such  cases 435 

Rules  declared  by  courts  as  to  estoppel  of  corporations  to  plead 

ultra  vires 487 

When  the  doctrine  of  ultra  vires  is  not  applicable 492 

Rules  declared  by  courts  as  to  estoppel  of  parties  to  contracts 

with  corporations  to  plead  ultra  vires 492 

Financial  arrangements  contrary  to  public  policy  —  rules  govern- 
ing proceedings  on  the  part  of  the  state,  etc 497 


§  268. 
369. 

270. 

371. 
372. 
373. 

274. 
375. 
376. 

377. 
378. 

279. 

280. 
281. 

383. 


CHAPTER  IX. 

BANKS   AND  BANKING. 

§  383.  Powers  of  banks  generally Q04 

384.  The  guaranty  of  commercial  paper  by  a  bank 607 

385.  Acts  ultra  vires  a  bank 608 

386.  Taking  mortgage  on  and  purchase  of  real  estate 500 

387.  Purchasing  notes 612 

388.  Purchasing  stock  of  corporations   616 

389.  Increase  of  capital  stock 519 


1' 


i 


g  290. 
391. 
392. 
293. 


294. 
295. 
296. 
297. 
298. 


TABLE  OF  CONTENTS VOLUME  I, 


Loans *•^■• 

Dividends  on  bank  shares .^ ^^* 

Lien  of  a  bank  on  moneys  and  securities  of  its  customers 5S 

Lien  of  a  bank  on  shares  of  stockholders  for  their  debts  to  the 
bank 

Interest  received  by  banks ^ 

A  bank's  duty  as  to  securities  deposited  with  it 535 

The  rights  of  a  bank  as  to  securities  pledged  to  it 53a 

Personal  guaranty  of  a  bank  by  stockholders  and  directors 545 

Misrepresentations  by  a  bank  as  to  solvency  of  a  customer  ".'.'..'.  545 

CHAPTER  X. 


OFFICERS   OF   BANKS. 

Directors  —  their  powers  and  duty 5^ 

Jurisdiction  of  state  courts  in  cases  of  directors  of  national  banks 

violating  their  duty ^ 

.Jurisdiction  of  courts  of  equity  in  such  cases 555 

Statutory  liability  of  directors  of  national  banks  -  actions  '  to 

enforce  it  —  rules ^«. 

President  —  his  power  and  duty ^ai 

President's  acts  binding  on  bank  —  illustrations. 554 

President's  acts  not  binding  on  bank  —  illustrations 566 

When  a  bank  is  not  chargeable  with  constructive  notice  and 

knowledge  of  its  president -gj. 

Cashier  —  his  power  and  duty ^^j. 

Cashier's  liability  for  his  acts 573 

Knowledge  of  its  cashier  not  imputable  to  bank  -  illustrations'  583 

Rules  as  to  ratification  of  a  cashier's  act  by  the  bank.  533 

Act  of  cashier  binding  on  bank kq« 

Estoppel  of  a  bank  to  deny  the  validity  of  an  act  of  its  "cashier 

in  drawing  drafts  on  its  correspondent  and  fraudulently  indors- 

»°g  tbem 

Promise  by  cashier  to  pay  draft  of  a  customer  to  be  drawn  at 'a 

future  day  not  binding  on  the  bank 500 

Teller  and  bookkeeper -their  powers  and  duties. ...... .".".'.'.'.'.'      593 

CHAPTER  XL  ^ 


DEPOSITS   AND  CHECKS. 

8  315.  (General  deposits 

316.  Depositors  — duty  and  rights      ??I 

817.  Whentheownershipof  adepositis'questioned-rules:::::::    *      6^ 

318.  Passing  of  title  by  deposit  of  check ^' 

319.  Deposits  in  savings  banks.  

320.  Receiving  deposits  by  a  bank  knowing  ite  insolvency. :.';:; l\l 

321.  Certificates  of  deposit 


§299. 
300 

301, 
302. 

303. 
804. 
305. 
306. 

307. 
308. 
309. 
310. 
311. 
312. 


318. 
314. 


XVI 

323. 

324. 
825. 
326. 
327. 
328. 
329. 
880. 

881. 


TABLE  OF  CONTENTS  —  VOLUME  II. 

Special  deposits gg^ 

The  duty  of  a  bank  as  to  deposits  and  its  right  as  to  thdr 

application «g« 

Checks  generally g^ 

Certification  of  checks g^j 

Acceptance  of  a  check  by  a  bank  —  illustration 654 

Presentment  of  checks  for  payment (J55 

When  a  draft  on  a  bank  fails  to  bind  the  fund  in  bank 661 

Forged  checks  —  rules ^5^ 

Payment  of  forged  checks  or  payment  of  checks  on  forged 

indorsements g^^ 

Payment  of  raised  checks (J75 

CHAPTER  Xn. 


§832. 
833. 
334. 
835. 
888. 

337. 
338. 
839. 
840. 


COLLBCTIOirS. 

Ckneral  rules 

Duty  of  bank !..!.*!!!!* 

Rules  as  to  notes  payable  at  bank ' 

When  a  bank  is  liable  for  failure  to  collect  notes * 

What  action  on  its  part  will  relieve  a  collecting  bank  from 

liability 

Rules  as  to  checks  and  drafts 

Negligence  of  a  bank  as  to  check  held  for  collection 

When  a  bank  collecting  a  draft  is  liable  to  the  owner 

When  indorser  of  check  is  relieved  from  liability .[, 


681 
685 
689 
692 

693 
695 
703 
705 
706 


VOLUME   II. 

CHAPTER  Xni. 

INSOLVKNCY  OP  BANK. 

841.  Rules  generally ,^ 

842.  Appointment  of  a  receiver  for  a  national  bank '.*.,*      713 

343.  When  an  appointment  of  a  receiver  is  not  authorized 714 

344.  Powers  of  a  receiver  for  a  national  bank ] .  714 

345.  Actions  of  such  receivers —  rules 7^5 

846.  Action  to  control  the  conduct  of  such  receivers 7ig 

347.  What  a  receiver   cannot   set  off  in  an  action  to  recover  trust 

funds  coming  into  his  hands 720 

348.  When  a  receiver  cannot  question  the  disposition  of  funds  com- 

ing into  the  hands  of  a  clearing  house  association  721 

849.  Attachment  of  property  of  an  insolvent   bank  retains  its  lien 

against  a  receiver  of  the  bank  subsequently  appointed 722 


TABLE  OF  CONTENTS  —  VOLUME  II.  xvii 

§  360.  Claims    against    an    insolvent    bank  -  jurisdiction    of   court  ^^^''' 

appointing  receiver „a, 

351 .  For  what  amount  claim  should  be  made  and  allowed ....!..'""  727 

352.  What  a  claimant  may  be  charged  with * '  * " '  739 

853.  Claim  of  an  indorser  who  paid  a  note  not  surrendered  to  him'  730 

354.  Debts  due  savings  banks  preferred  under  New  York  statute  732 

355.  Claims  of  municipal  corporations  for  moneys  deposited  by  their 

<>fficers ^^ 

356.  Claims  preferred  to  general  creditors  —  illustrations ....  738 
857.  Claims  not  preferred  to  those  of  general  creditors  -  illustrations  747 


CHAPTER  XIV. 

LIABILITY  OP  BANK  8HAREH0LDEBS. 

Rules  generally ^^ 

Rule  under  Minnesota  statute 759 

Rule  under Michi^^an statute [     [[ ^-^ 

Stockholder  relieved  from  liability  by  a  sale  ofMs  stock  through 

a  broker *  ^^^ 

Pledgee  of  stock  incurs  no  liability 763 

When  a  stockholder  is  relieved  from  liability .........].] .  * .    .  *  766 

The  rule  where  shares  are  transferred  to  avoid  liability .....     "  766 

When  a  transfer  of  shares  does  not  relieve  the  stockholder 767 

Liability  of  stockholder  survives '  ^gg 

Liability  of  a  married  woman  upon  shares  of  stock  held  by  her 

in  her  own  right ^^^ 

Rules  as  to  actions  to  enforce  liability  of  stockholders! . . . '. . . . .  772 


§  358. 
a59. 
360. 
361. 

362. 
363. 
364. 
365. 
366. 
367. 

368. 


CHAPTER  XV. 

OFFICERS  OF  NATIONAL  BANKS  —  CRIMINAL   ACTO. 

§  369.  Misapplication  of  funds  by  officers 770 

370.  Making  ' '  false  entries  "  in  reports,  etc  ..*.".'.'.*'.'"' .' 774 

371.  Improper  certification  of  check ^gj 

372.  Restrictions  of  banking  law  of  New  York  upon  banks"  and  their 

officers 

783 

CHAPTER  XVI. 

FISCAL    MANAGEMENT  — PUBLIC  CORPORATIONS. 

§  373.  The  power  of  county  commissioners  under  statutes  of  Nebraska 

as  to  purchase  of  lands  for  a  poor  farm ... .  70^ 

374.  Power  of  a  building  commission  of  a  town  in  Connecti;u;: !  .* .' "      788 

375.  For  what  purposes  a  board  of  education  in  Connecticut  cannot 

use  the  pubhc  funds _, 

876.  Managementof  school  funds;f\he;;atVby  an  auditor  of  a  county 

under  Indiana  statutes ^     „^, 

791 


xvm 


TABLE  OF  CONTENTS  —  VOLUME  11. 


PiSB. 

§  377.  Erroneous  payments  into  the  treasury  of  a  county  by  a  county 
treasurer  under  Indiana  statutes— his  right  to   recover  the 

same '^** 

878.  For  what  a  school  district  may  settle  account  of  an  ex-assessor. .  794 
'879.  The  board  of  auditors  of  a  town  may  be  ordered  to  pay  a  judg- 
ment against  the  town  for  interest  on  its  bonds 794 

380.  The  right  of  a  de  facto  county  treasurer  to  salary 796 

381.  Payments  to  city  official  in  excess  of  his  salary  may  be  recovered 

of  him '^^ 

382.  Compelling  a  ministerial  officer  to  distribute  the  fund  in  his 

hands ''^ 

383.  County  warrants  —  their  issue  and  validity  —  rules  governing. . .      801 

384.  Statute  of  Limitations  not  applicable  to  county  warrants 803 


CHAPTER  XVII. 

FISCAL  MANAGEMENT  — PRIVATE  C0RP0KATI0N8. 

§  385.  Execution  of  contn\cts  by  corporations 805 

386.  What  would  be  conclusive  of  the  execution  of  a  contract 810 

387.  Declaring  dividends • •  •  •  ^^^ 

388.  Rules  as  to  declaring  dividends  by  a  mining  corporation 811 

389.  Borrowing  money  to  pay  dividends 814 

390.  Rescinding  a  declaration  of  dividend 815 

391.  Contracts  within  and  outside  the  power  of  private  corporations. .  317 

392.  Rules  as  to  estoppel  to  plead  that  contents  are  ultra  vires 830 


§  393. 
394. 
395. 

396. 
397. 

398. 
399. 

400. 
401. 

402. 

403. 
404. 

405. 
406. 


CHAPTER  XVIII. 

COUNTY  BONDS. 

County  bonds  generally 824 

Bonds  issued  for  refunding  indebtedness. 827 

Bonds  not  within  the  power  of  a  Texas  county  to  issue  for  the 

erection  of  court  houses 828 

Rights  of  holders  of  such  bonds •  •  •  820 

The  effect  of  a  statute  of  Texas  as  to  county  bonds  in  which 

school  funds  may  be  invested 830 

Validity  of  bonds  as  affected  by  the  place  of  execution 831 

Validity  of  bonds  as  affected  by  constitutional  requirements 832 

Validity  of  bonds  as  affected  by  limitations  as  to  indebtedness. .  833 
The  validity  of  judgments  against  a  county  for  which  the  bonds 

were  issued  cannot  be  questioned  in  actions  on  the  bonds 840 

The  statements  of  a  county's  agent  in  sale  of  the  bonds  not 

operative  as  an  estoppel  upon  the  county  to  refund 841 

When  a  county  may  plead  an  overissue 842 

When  the  defense  that  a  county  was  not  fully  organized  when 

the  bonds  were  issued  is  not  open  to  the  courts 843 

Counties  suable  in  federal  courts 846 

Plea  of  Statute  of  Limitations  on  county  bonds 846 


TABLE  OF  CONTENTS  —  VOLUME  H. 

§  407.  When  statute  as  to  presentation  of  claims  is  not  applicable  to 

judgments  upon  bonds  and  coupons 

408.  The  proper  proceeding  of  courts  v^heresome  of  the'bonds'of 'a 
senes  are  valid  and  others  invalid. . . 


XIX 


PAOS. 


846 


847 


§  409. 
410. 
411. 
412. 
413. 
414. 
415. 
416. 

417. 

418. 


CHAPTER  XIX. 

CITY  BONDS. 

City  bonds  generally 

Extension  of  a  bonded  debt  of  a  city  .....!.*.  .* gZ? 

Bonds  for  funding  indebtedness .......*.* off 

Effect  of  a  statutory  limitation  on  bonds qkq 

Bonds  in  compromise  of  outstanding  indebtedness 858 

The  effect  of  a  statute  legalizing  an  issue  of  bonds  859 

Bonds  for  public  improvements  -  limitations  on  power  to'i'ssue'.  860 
Effect  of  an  order  by  resolution  of  council  of  a  city  for  an 

election  to  authorize  the  issue  of  bonds. . .  861 

Bonds  valid  when  issued  as  a  part  of  the  general' indebtedness 
of  a  city 

Validity  of  bonds  as  affected  by*a  restriction  in" the  charter'of  "a      ^^ 

city 

863 


CHAPTER  XX. 

TOWNSHIP  BONDS. 

«  419,  Effect  of  ordinance  of  town  council  not  being  pubUshed  upon 

the  validity  of  the  bonds...  mk 

*^'  '^"Z?/''^  f.TT  "'  «™''"  road 'under 'Indiana' statute- 

statute  held  to  be  constitutional  .  p.. 

421.  The  duty  and  power  of  county  authorities' where  ihe'vote'ofa; 

towns  13  favorable  in  such  cases 

422.  Effect  upon  bonds  of  a  constitutional  limitation'upon'the  indebt'- 

edncss  to  bo  incurred  by  towns.  „-, 

*^'  '^Tt^'To^  for  improvement  of  public '  paik'  "und;;  ';e's;;iu'tion 
extent  "'  legislature- when  authorized  and  to  what 

424.Theeffectof're;itals'i'niown'b'ondsa'sto'estop'pel'of'th;'tow^to     ^* 
^«   m^   ™  tliey  were  issued  without  authority .  «.« 

425.  What  IS  required  of  a  bona  fido  purchaser  ^ 


CHAPTER  XXI. 

SCHOOL  DISTRICT  BONDS. 

§  426.  School  district  bonds  generally 

Z  ?^et?^''"^''  "^ " ^^  ^^''"' i^*^' Of ■edu;ation.' .■.';;:.■:; Z 

:.ZT^^  ^''  '"  ^"^^""^  '°  --  "--^^  for  building     "^ 
880 


§  429. 
430. 
431. 

■ 

432. 
433. 
434. 

435. 

436. 

487. 

438. 
439. 


TABLE  OF  CONTENTS  —  VOLUME  II. 

PAOB. 

The  power  to  issue  bonds  under  Nebraska  statutes 882 

When  such  bonds  are  void  under  Nebraska  statutes 883 

Validity  of  bonds  as  affected  by  constitutional  restriction  upon 

indebtedness  of  municipal  corporations 884 

Bonds  secured  by  a  pledge  of  school  fund  and  property 887 

Conditions  precedent  to  the  issue  of  bonds 888 

The  adoption  of  a  statute  to  obtain  authority  to  issue  bonds  — 

mode  of  calling  election .***:"      ^^ 

When  non-compliance  with  the  requirements  of  the  Constitution 

of  the  state  is  not  a  defense  against  bona  fide  purchasers 892 

When  the  defense  that  the  site  of  the  school  house  was  not 

owned  by  the  district  is  not  open  in  a  bona  fide  holder's  action 

on  the  bonds ^93 

When  the  defense  that  the  proceeds  of  the  bonds  were  used  for 

another  purpose  is  not  open  in  such  an  action 894 

What  does  not  create  an  estoppel  of  the  district  to  defend 895 

One  of  the  latest  decisions  on  the  effect  of  recitals  in  bonds 896 


CHAPTER  XXII. 


TABLE  OF  CONTENTS  —  VOLUME  H. 


XXI 


CHAPTER  XXIII. 

MUNICIPAL  AID  BONDS  — CITY. 

§  459.  City  aid  bonds,  generally  *^°*- 

Tl    W^T.T!^r"^'  ^°^'  ''"^"^'^  "^^'"^  sVales'suprem;  Court'      ^5 
cLJ^       ~'  ''""'^  °"'  '""'^^^  ^°^^^  States  Supreme 

T^   W?'\V^'^«T"^'^^^"°^^^^^  958 

rZ     .T!  ""  "'''°'''^'  ''^  '"  '"''  ^^  ^''""^  '"^  constru;ting 

464.  Theelectionastoaidand;jiVeff;;;ofcumtiveleglslation Tl 

465.  This  case  distinguished  from  others ^ 

466.  Aid  to  railrouds  outside  the  state 

467.  Estoppel  of  a  city  to  claim  that  bonds  were  wrongfuily  issued ' '  ^ 

468.  What  will  not  affect  the  rights  of  bona  fide  bondhydel       "^^  *  Z 

469.  T^  hen  a  purchaser  of  void  municipal  bonds  cannot  maintain  'an 

action  for  money  had  and  received 

470.  Miscellaneous  rules  as  to  railroad  aid  bonds.".*.'.'.".' *.*.*.*;;;; ';.';;  '      ^g 


§  440. 
441. 

442. 
443. 

444 
445. 

446. 

447. 

448. 


449. 
450. 
451. 
452. 
453. 
454. 
455. 

456. 
457. 
458. 


MUNICIPAL   AID   BONDS  —  COUNTY. 

County  aid  bonds,  generally •  •  •  • 

Elections  to  authorize  aid  bonds  — how  called  — how  questions 

must  be  submitted  to  voters— how  result  determined,  etc. . . 

Conditions  to  subscription  —  the  right  to  prescribe,  etc 

When  authority  to  subscribe  to  stock  gives  no  power  to  issue 

bonds  in  payment 

When  a  donation  of  bonds  is  authorized 

When  county  bonds  donated  to  a  railroad  company  cannot  be 

scaled  down 

Bonds  of  an  Illinois  county  secured  by  mortgage  of  its  swamp 


lands 


•  •  •  •  « 


Precinct  aid  bonds 

The  denomination  of  bonds  changed  from  those  named  in  the 
proposal  under  Alabama  statutes  —  their  validity  not  affected 

thereby 

What  amounts  to  a  gift  of  bonds  in  aid  not  authorized 

Consolidation  of  railroads— effect  as  to  county  aid 

Constitutionality  of  a  Tennessee  aid  statute 

Ratification  of  bonds 

Rules  as  to  statutes  legalizing  a  prior  issue  of  bonds 

Recitals  on  face  of  aid  bonds  —  their  effect 

Bonds  and  coupons  not  claims  which  require  presentation  to 

county  authorities  before  suit 

Coupons — rules  governing 

A  county  suable  on  precinct  bonds 

Rules  as  to  pleading  in  such  cases 


898 

904 
918 

920 
922 

924 

925 
931 


932 
933 
934 
937 
938 
939 
941 

943 
944 
946 
947 


CHAPTER  XXIV. 

MUNICIPAL  AID  BONDS  —  TOWNS. 

§  471.  Aid  by  towns,  generally 
472.  Bonds  invalid  unless  condi'ttons  are  compVi;^  'with; .' .' .' !J? 

«4   EZt  n^  .",'^  °'  f'"'""''  """"'  *«  '''"'•"y  of  bonds ! .' ." ' ' ' '      ^ 
474.  iiiffect  of  recitals  on  face  of  bond  

*""'  '^tr  v'  "CT""''"'-""  °'  •«'^°«'  fo^  *'»"ing  aid  'bonds      '^ 
under  New  York  statutes 

476.  The  sealing  of  such  bonds      ^^ 

'"■  """"f  """"  """^  Y°A"«tatutes'preiimina;y-toissueof     "^ 
'''•  ^"th^t^s ''"" '^^"^^  -  -Vauthorizing achange  in      "" 

'''■  ^tuho^'':':"."'.''  ''°"'-'-  -■""boni's-what-iliJy-need    '"^ 

«4.  Bonds  absolutely  void  -  effeiiupon  holders ^"°* 

485.  When  a  curative  act  of  the  legislature  win  n„,' ' '  'r^  V '  v ^"^ 

486.  Effect  of  cmutive  act  of  New  ?ork  "^        ''  """^  '  •     »«*« 

1006 


ill 


xxu 


TABLE  OF  CONTENTS  —  VOLUME  H. 


tl 


III 


I 


§  487.  Township  aid  bonds  under  South  CaroUna  laws  made  a  legal  ^^'' 

indebtedness  by  subsequent  legislation iq^j 

488.  An  Ohio  statute  as  to  town  aid  held  unconstitutional lOll 

481).  Miscellaneous  rules  as  to  town  aid  bonds [,  joil 

CHAPTER  XXV. 


BOXDS  AND  COUPONS  — PRIVATE  CORPORATIONS. 

§  490.  Bonds  of  private  corporations,  generally 

491.  Meeting  of  stockholders  to  authorize  the  issuance  of  bonds  ~ 

when  legally  held 

492.  Interest  on  bonds  —  what  rate,  etc '..'.'....'. 

493.  When  principal  becomes  due 

494.  Bonds— when  "  issued  "  under  Wisconsin  statute 

495.  When  a  mortgage  trustee  should  countersign  bonds 

496.  Pledge  of  its  bonds  by  a  corporation  —  rights  of  pledgee,  etc. . . 

497.  Validity  of  bonds  as  affected  by  statutory  or  constitutional  pro- 

visions  

498.  Validity  of  bonds  as  affected  by  the  manner  of  sale  and  charac- 

ter of  purchasers 

499.  Reorganization— surrender  of  old  bonds  and  stock  for  new 

bonds  —  rules 

500.  Bondholders  —  when  bona  fide  holders  and  when  not  —  the  rights 

of  such 

501.  Headers  of  income  bonds  — rules  as  to  an  accounting  with  them. 

502.  Detached,  uncanceled  coupons  —  rules  governing 

503.  Actions  on  coupons —  rules  governing 

504.  Guaranty  of  bonds  of  one  corporation  by  another  — rules 

505.  Lease  of  a  bonded  railroad  —  when  lessee  is  not  bound  on  the 

bonds 


1018 

1019 
1020 
1021 
1023 
1022 
1023 

1027 

1031 

1035 

1037 
1044 
1046 
1047 
1049 

1061 


CHAPTER  XXVI. 

MORTGAGES  AND  TRUST  DEEDS  —  PRIVATE  CORPORATIONS^ 

§  506.  Power  of  corporations  to  execute  mortgages  and  trust  deeds  upon 

their  property jQg^ 

507.  Statutes  requiring  assent  of  stockholders  to  mortgages  con- 

st^^ed IQgj 

508.  Mortgages  and  trust  deeds  — rules  to  as  place  of  execution, 

authorization  —  mode  of  execution,  to  whom  executed,  etc. . .     1069 

509.  Estoppel  of  corporation  to  deny  authority  of  officers  to  mort- 

gage   1077 

510.  Effect  of  laches  of  corporation  in  repudiating  a  mortgage 1079 

511.  What  are  reasonable  provisions  in  a  mortgage 1079 

512.  Chattel  mortgages  of  corporations joqi 

513.  Deeds  of  trust  and  mortgages  securing  directors  —  when  properly 

gi^en 1003 


TABLE  OF  CONTENTS  — VOLUME  II. 


XXIU 


Uonal,  statutory,  or  in  charter  upon  indebtedness  to  be  incur- 
5,6.  A^mortgageof  corporaUon  pro^^^  '"^ 

516.  Illustration  of  an  equi'toble  mortgage l^ 

ptf^l^         ^'         """ '"'  '='>'^"<1»«0''  '^a^  not  legally 

818.  Illustration  of  a  fraudulent  mortgage! \^ 

519.  What  corporation  mortgages  cover,  and  what  they  do  notcover '  iZ 

520.  Trustees  of  such  mortffaffes  —  thpiv  ,!.,*„  ■•  u^  "=0' ""  noi  cover.  1094 

u  mongages  —  their  duty,  rights  and  powers. . . .     HOI 

CHAPTER  XXVII. 

mSOLVBNCT  OF  PRIVATE  C0BP0RATI0N8. 

522.  The  power  of  director,  of  a  corporation  to  execute'  anassignment    ""* 
of  the  corporation's  property  for  the  benefit  of  credito^  111. 

^  ^iT'^f^'^^""  "^y  '"'o'^^"'  corpomions J  J3 

524.  Attachmentof  property  of  insolvent  corpomtion  -  the  rights'of 

-.2.^   p '"."'^"o' »'"'«»«''-"«■' of  its  attachment,  eto...      ^  „„ 

^25.  Receivers-rules  as  to  appointment ...   JJ" 

526.  Removal  of  receivers  and  assignees ,  ,?* 

m  Other  rights  of  receiVereandassigneesof  insolvent  corporations '  Im 

629.  Insolvent  beneficial  association  -  rules                       "rporanons.  1129 
580.  Liability  of  stockholders  on  unpaid  subscriptions  ■-the  court's 

nght  to  enforce  and  how  enforced  . 

681.  Creditors' bills-equitable  jurisdiction.::::: f^ 

Z  R^TinT"''  T'T*  ''"■P°'"«°°  -  '"'«^  -  to  aliowances:  eto:      m 
««.  Kules  m  cases  of  insolvent  banks. .  tt 

• 1144 

CHAPTER  XXVIII. 


§534. 
535. 
536. 
537. 
538. 
539. 
540. 
541. 
542. 
543. 


FORECLOSURE  OP  MORTGAGES  AND  TRUST  DEEDS. 

Jurisdiction  of  actions  to  foreclose 

Bringing  such  actions  —  rules 

Parties  to  such  actions .\^ 

General  rules  as  to  such  actions. 

Decrees  in  such  actions  —  general  rules 

Decrees  for  sale  of  property 

Purchasers  at  sales  under  the  decrees  -  their  rights  and  liabilities' 
Who  may  be  heard  on  petition  in  foreclosure  suits 

Disposition  m  decree  of  proceeds  of  sale. .  

Allowances  in  foreclosure  suits  ...  


1147 

1150 

1153 

1158 

1163 

1166 

1172 

1176 

1179 

1182 


XXIY 


m 


ill 


TABLE  OF  CONTENTS  —  VOLUME  II. 


CHAPTER  XXIX. 


BECEIVEBS  m  FORECLOSUBK  SUITS. 


§  544. 

545. 
546. 

547. 

648. 
549. 

550. 

551. 

552. 
553. 
554. 

555. 
556. 


557. 


PAOK. 


Receivers— their  appointment— when  they  should  be  appointed 

—  who  may  be  appointed — their  discharge  and  removal 1186 

Conditions  attached  to  the  appointment  of  a  receiver.   1193 

Receiver's  right  as  to  possession  of  the  property  of  the  insolvent 

corporation 1194 

The  rektion  of  the  receiver  to  property  leased  by  the  corporation 

coming  into  his  hands 1197 

Powers  of  receivers  as  to  contracts,  etc 1203 

Power  of  the  court  and  its  receivers  as  to  regulating  wages  of 

employees 12O8 

Receiver's  certificates  —  when  they  will  be  authorized  —  the  lien 

of  such  certificates  and  its  enforcement 1210 

Rules  as  to  claims  against  receiver  growing  out  of  rolling  stock 

coming  into  his  possession *  1315 

Application  of  earnings  of  the  road  during  receivership 1219 

Jurisdiction  of  actions  against  receivers 1323 

Claims  against  receivers  for  injuries  to  persons  or  property  dur- 
ing receivership 1337 

Rules  as  to  actions  for  injuries  to  persons  during  receivership  . .     1231 
Rules  as  to  allowances  to  receivers  for  counsel  and  expenses  of 

parties  in  actions  where  receivers  are  appointed  —  what  will 

be  allowed  and  what  not 1333 

Actions  allowed  a  receiver  for  the  protection  and  benefit  of  the 

property  in  bis  hands 1335 


TABLE  OF  CONTENTS  —  VOLUME  II. 


CHAPTER  XXXI. 


I  569. 
570. 
571. 
572. 
573. 
574. 
575. 
576. 
577. 


TAXATION  BY  PUBLIC  CORPORATIONS. 

(General  rules 

Exemption  from  taxes 

License  tax 

Assessment  of  taxes  for  benefits  

Wnf  l7^.^1,^r  ^^  "  '"^""^  distric'tis'n;;  authorized: 
Irregulanty  m  the  levy  of  taxes 

When  an  assessment  cannot  be  attacked! 

Federal  taxation  of  incomes 

Injunction  of  a  collection  of  taxes. . 


PAOE. 

1262 

1264 

1267 

1268 

1271 

1271 

1272 

1273 

1278 


CHAPTER  XXXII. 

TAXATION  OP  PRIVATE  CORPORATIONS. 

§  578.  General  rules 

679.  Exemption  from  taxation  I'ruies ^^^ 

m   Taxation  of  corporations  -  rules  in  Ne^  Yo;k. ". ! ! '. \Z 

z.  p^rgrj;™^^^^^  ^^ 

683.  Compntation  of  such  rule       ^^^ 

m  Taxation  of  banks  and  sharesof  bank  stock'::  rules.'  .'i .' J^ 

085.  Taxation  of  railroad  corporations  -  rules ]^ 

586.  TaxaUon  of  insurance  corporations !^ 


CHAPTER  XXX. 


I  I 


PRIORITIES  OF  LIENS  IN  FORECLOSURE  SUITS. 

§  558.  Priorities  of  liens  —  general  rules 1338 

559.  Debts  contracted  for  construction 1345 

560.  Presumption  as  to  preferential  character  of  a  claim 1346 

561.  Mechanic's  lien  as  viewed  by  the  United  States  Supreme  Court.  1347 

562.  Furnishers  of  supplies  —  Kentucky  statutes  construed 1349 

563.  The  rule  under  Ohio  statutes 1353 

564.  Contractors — Tennessee  statutes  construed 1353 

665.  Furnishers    of   supplies  —  Virginia    statutes  on  this    subject 

construed ^  , ,  1354 

566.  Loans  of  money  to  corporation  before  receivership 1356 

567.  Claims    for    services    rendered    the    corporation    prior  to  the 

appointment  of  a  receiver 1353 

568.  When  cases  are  not  properly  removable  to  United  States  court 

from  state  court 1350 


TABLE  OF  CASES 


il 


TABLE  OF  CASES. 


grhe  references  are  to  pages:  vol.  I  contains  pp.  1-7OT;  vol.  II,  pp.  70^1807.] 


A. 

Abbot  V.  American  Hard  Rubber  Co 
258.  274,  470,  476,  1111 

Abbott  V.  Baltimore  &  Rappahannocki 
Steam  Packet  Co.,  464 

Abbott  V.  Packet  Co.,  1232 

Abby  V.  Billups,  153 

Aberdeen  Railway  Co.  v.  Blakie.  242 
251,  259,  264,  283,  316 

Ackerman  v.  Halsey,  847,  553 

Ackley  School  District  v.  Hall,  879 

Adair  v.  Brimmer,  365 

Adair  v.  Robinson,  1299 

Adams    v.    Crosswood  Printing  Co  . 
203  ^         ' 

Adams  v.  Davis,  1272 

Adams  v.  East  River  Savings  Institu- 
tion, 838 

Adams  v.  Hackensack  Improvement 
Commission,  711 

Adams  v.  Manning,  551 

Adams  v.  Milling  Co.,  254,  255,  1087, 

Adams  v.  Mills,  393 

Adams  v.  Spokane  Drug  Co.,  716 

Adams  Cotton  Mills  v.  Dimmick.  1057 

1066,  1075 

Adams  Mining  Co.  v.  Senter,  92,  180, 
209,  233  »      '       . 

Adams  &  Westlake  Co.   v.   Deyette, 

Adamson  v.  Auditor,  133 

Adderiey  v   Storm,  757 

Addis  V.  City,  109 

Addison  V.  Lewis,  263, 1096, 1108, 1258 

Adelbert  College  of  Western  Reserve 

University  v.  Toledo,  W.   &  W 

Ry.  Co.,  1261 
Adrian  Water  Works  v.  City  of  Adrian, 

Adriance  v.  Rome,  151 

Advertiser  &  Tribune  Co.  v.  Detroit, 
ll« 

-^tna  Insurance  Co.  v.  Wires,  173 

-^tna    Life    Insurance    Co.   v.   Lvon 
County.  839.  840,  841,  848  | 

-«*tna  Life  Insurance  Co.  v.  Middle- 
port,  930 

-fitna  Nat.  Bank  v.  Charter  Oak  Life 
Ins.  Co.,  80,  465 

^tna  Nat  Bank  v.  Fourth  Nat.  Bank 
598,  640,  653,  666 


Agawam  Nat.  Bank  v.  South  Hadley, 

Agricultural  Bank  v.  Bissell,  529 

Ahem  v.  Goodspeed,  984 

Ahl  V.  Rhoads,  1088,  1090 

Aiken  v.  Marine  Bank,  561 

Aikman  v.  School   district,  889,  891 

Aimen  v.  Hardin,  416 

Akin  V.  Jones,  665,  666 

Alabama  &  Georgia  Mfg.  Co.  v  Rob- 

mson,  1022,  1154 
Alabama  Gold  Life  Ins.  Co.  v.  Central 

etc.,  Assn.,  74,  102 
Alabama  Great  So.  R.  R.  Co.  v.  South 

&No.  Ala.  R.  R.  Co.,  234 
Alabama  Iron  &  Ry.  Co.  v.  Annistou 

Loan  &  Trust  Co.,  1213 
Albany  v.  Abbott,  135 
Albany  v.  Cunliff,  446 
Alberger  v.  National  Bank  of  Com- 

merce,  1111,  1114 
Albers  v.  Commercial  Bank  644 

!Sq^'  ^^^°S®  ^°k  of  Baltimore, 

Albitzue  V.  Guadelupe  y.  Caloo  Min- 

mg  Co.,  1124 
Alderson  v.  Charles  County  138 
Aldrich  V.  Dunham,  603      ' 
Alexander  v.  Brown,  151   197 
Alexander  v.  Burchfield,  658 
Alexander  v.  Central  Railroad  of  Iowa 

1152  * 

Alexander  v.  Cauldwell,  146, 466,  469 
567  ' 

Alexander  v.  Learey,  316 

Alexander  v.  Tolleston  Club  of  Chi- 

cago,  494 
Alford  V.  Miller,  250 
Allard  v.  Gaston,  975 

Allegheny  City  v.  McClurksan,  65. 
lUo.  943 

Alleghenv  County  v.  McKeesport  Dia- 
mond Market,  1367 

Allegheny  County  v.  Western  Penn- 
sylvania  Hospital,  132 

Allen  V.  Addington,  294 

Allen  V.  Bank,  576 

?4l,'2^"''°''^^-  ^*^-   ^^"^^^' 
Allen  V.'  CMty  of  Janesville.  65 
Allen  V.  Clark,  395,  396 
Allen  V.  Commercial  Bank,  050 
Allen  V.  Curtis,  306,  311.  660 


H-rn 


' 


XXX 


TABLE  OF  CASES. 


tThe  references  are  to  pages:  vol.  I  contains  pp.  1-707;  vol.  n,  pp.  708-1807.] 


Allen  V.  First  Nat.  Bank,  Xenia,  510, 

520 
Allen  V.  Fourth  Nat.  Bank,  672 
Allen  V.  Inhabitants  of  Jay,  43,  44 
Allen  V.  Louisiana,  71 
Allen  V.  Montgomery  R,  R.  Co.,  91, 

1054,  1077 
Allen  V.  St.  Louis  Bank,  539 
Allen  V.  South  Boston  R.  R.  Co.,  335, 

343 
Allen  V.  Sullivan  R.  R.  Co.,  1014 
Allen  V.  Suydam,  681 
Allen  V.  Tail n ton,  33 
Allen  V.  Walsh,  388 
Allen  V.  Wilson,  316 
Alley  V.  Adams  County,  919,  974 
AUis  V.  Jones,  235,  806,  807,  821,  1112 
Allison  V.  Coal  Company,  392 
Allison  V.  Hubbell,  188 
Allison  V.  L.  H.  C.  &  W.  R.  Co.,  46 
Allison  V.  Railway  Company,  946 
Alston  V.  State,  754 
Alta  Silver  Mining  Co.  v.  Alta  Placer 

Mining  Co.,  1075 
Alton  V.  MuUedy,  445 
Alves  V.  Bank,  528 
Alvord  V.  Syracuse  Sav.  Bank,  986 
American  Bridge  Co.  v.  Heidelbach, 

1222 
American  Central  R.  R.  Co.  v.  Miles, 

279,  356 
American  Construction  Co.  v.  Jackson- 
ville, T.  &  K.  W.  Rv.  Co.,  1196, 

1197 
American  Exchange   Nat.    Bank    v. 

Oregon  Pottery  Co.,  174,  206 
American  Express  Co.  v.  Haire,  687 
American  Ins.  Co.  v.  Oakley,  191 
American  Loan  &  Trust  Co.  v.  East 

&  West  R.  R.  Co.  of  Ala.  (Jersey 

City  Iron  Co.,  Intervener),  1246 
American  Loan  Trust  Co,  v.  St.  Louis 

&  Chicago  Ry.  Co.,  1048 
American  Loan  &  Trust  Co.  v.  Toledo, 

C.  &S.  Rjr.  Co.,  1018 
American  National  Bank  v.  American 

Wood  Paper  Co.,  1042 
American  Sunday  School   Union  v. 

Philadelphia,  1265 
American  Sunday  School   Union    v. 

City  of  Philadelphia,  1265 
American  Nat.  Bank  v.  Bushey,  602 
American    Pig  Iron  Storage  Co.   v. 

State  Board  of  Assessors,  1279 
American  Preservers'  Trust  v.  Taylor 

Mfg.  Co.,  501 
American    Trust    &   Sav.    Bank   v. 

Gueder&  Paeschke  Manufg.  Co., 

619,  1146 
American  Tube  &  Iron  Co.  v.  Ken- 
tucky Southern  Oil  &  Gas  Co., 

1156,  1157 


Ames  V.  Merriam,  649,  658 

Ames  V.  Union  Pacific  Ry.  Co.,  1209 

Amey  v.  Mayor,  etc.,  49 

Anderson  v.  Armstead,  627 

Anderson  v.  Blattau,  627 

Anderson  v.  Kerns  Draining  Co.,  870 

Anderson  v.  Kinley,  239 

Anderson  v.  Kissam,  568 

Anderson  v.  Lemon,  251 

Anderson  v.  Leverick,  600 

Anderson  v.  Linn,  771 

Anderson  v.  Philadelphia  Warehouse 

Co.,  764,  765 
Anderson  v.  Railroad  Company,  1177 
Anderson  v.  Rogers,  704 
Anderson  v.  Santa  Anna,  939 
Anderson  v.  Sibley,  995 
Anderson  v,  Speers,  400 
Anderson  County  v.  Pocola   &   Fall 

River  Ry.  Co.,  899 
Anderson  Count v  Comrs.  v.  Beal,  966 
Andover  v.  Grafton,  134,  185 
Andover  v.  Kendrick,  1^ 
Andrew  v.  Blachley,  656 
Andrews  v.    Board    of    Supervisors 

Knox  County,  121 
Andrews  v.  Insurance  Co.,  493 
Andrews  v.  Kings  County,  1297 
Andrews  v.  National  Foundry  &  Pipe 

Works,  1099 
Andrews  v.  Suffolk  Bank,  688 
Anfenger  v.  Anzeiger  Publishing  Co., 

384 
Angel  V.  Town  of  Hume,  993 
Angle  V.   Chicago,   St.   P.,  Minn.  & 

Omaha  Ry.  Co.,  462 
Anheuser-Busch  Brewing  Co.  v,  Clay- 
ton, 753,  754 
Anh?u8er-Bu8ch    Brewing    Assn,    vj 

Morris,  747 
Anonymous,  620,  720 
Anonymous  Case,  624 
Antietam  Paper  Co.  v.  Chronicle  Pub. 

Co.,  1074 
Anthony  v.  Adams,  33,  34 
Anthony  v.  Jasper  County,  866 
Appeal  of  Hopkins.  752 
Appleby  V.  Mayor,  etc.,  446 
Arapahoe  Cattle  &  Land  Co.  v.  Stevens, 

163 
Ardher  v.  Waterworks  Company,  1121 
Ardesco  Oil  Co,  v.  North  American 

Co.,  473 
Argente  v.  San  Francisco,  5,  65,  233, 

441,  444,  788,  942 
Arkansas  Valley  Agr.  Society  v,  Eich- 

holtz,  257 
Armour  Bros.  Bkg.  Co.  v.  Board,  etc., 

of  Finney  County,  803 
Armstrong    v.    American    Exchange 

Nat.  Bank,  628 
Armstrong  v.  Chemical  Nat.  Bank,  544 


TABLE  OP  CASES. 


2.r::rr.rr-^  ™'- '  -.--  -  --.•  - «.  p.  r^.^, 


xxxi 


Armstrong  v.  Cowles,  418 

Armstrong  v.  Ettlesohn  720 

Armstrong  v.  Exchange  Nat.  Bank, 

oUl  ' 

Armstrong  v.  National  Bank  of  Bover- 
town,  744  ^ 

Armstrong  v.  Scott,  712 

Armstrong  v.  Trautman,  720 

Armstrong  v. Warner,  720 

Arnold  v.  JVIayor  of  Poole,  98 

Arnold  v.  Suffolk  Bank  536 

Arnold  v.  Weimer,  723  ' 

Arnotv.  Erie  Ry.  Co.,  1052 

Arnott  V.  City  of  Spokane,  437 

Arthur  v.  Griswold,  410 

Arthur    V.    School    District  of  Polk 
Borough,  1263 

Ascherman  v.  Bank,  1129 

Ashburg  Railway  Carriage  &  Iron  Co. 

V.  Riche,  449,  451 
Asher  v.  Bank,  600 
Asher  v.  Sutton,  193,  562 
Asher  v.  Texas,  1267 
Ashhurst's  Appeal,  1084,  1112 
Ashley  v.  Board,  880 


AH*  ?•  ^  5-  ^^-  ^-  St.  Louis,  493 
^'rjSnfy,^^3^02^^-  "^'  ^^  ^^^P^ 

^'"^SaV^er^^^^"  ''  ^^^^^^^  - 

Atlantic  Trust  Co.  v.  Proceeds  of  the 

Vigilancia,  1066 
Atlantic  Trust  Co.  of  New  York  v 
^,^J?^\^  Darlington,  1012 

CiJy,  .%**''  ^^'^'    ^-    ^^^°«^ 
^JJ^s  gank  V.  Nahant  Bank,  1118 
Atlas  Nat.  Bank  v.  Savery,  515  516 
Atta^y    V.    Third    National    Bank. 

Attoraey-General    v.    Aspinall,    121, 

^"^^Jl^-C^eneral  v.  Bank  of  Niagaiu. 

Attorney^^neral  v.  Bay  State  Mining 


Ashlev  V    BoftM  r^f    a»«^     •  *  Co.,  1073  ^ 

^  ,  pUue  iX'countyXr'sT  "'   ^""^yO-eml  v.  Bay  Supervisors, 

AshleV  V    Kinnor.    oon  *^  '  I  A-w 


Ashley  v.  Kinnan,  280 
Ashley  V.  Ryan,  1294 
Ashenbrodel  Club  v.  Finlay  470 
Ashue  ot  Manufg.  Co.  v.  Marsh.  198 

S.i?^  ,??*;  .?*°^    ^f   Keeie    V. 
ghool  Dist.  No.  7,  Valley  County, 

Ashudot    Railroad     v.    Elliot.     265, 

Ashurst's  Appeal,  283 
Aspmwall  v.  Butler,  519 
Aspinwall  v.  Sacchi,  390 
Association  v.  Austin   738 


Attorney-^General  v.  Continental  Life 

Ins,  Co.,  664,  666 
Attorney^General  v.  Corp.  of  Leicester, 

Attorney-General  v.  Kell    249 
Atto™ey^Gene™i  v.  Life*  Fire  Ins. 

Attorney-General  v.  Lichfield,  121 
Attorney-General  v.  Norwich,  121 
Attorney-General  v.  Poole.  121 
Attorney-General  v.  Sefton,  1275 
Attorney-General   v.    Tudor  Ice  Co 


Atchison  Board  of  Education   v    n^  (  ^l^^^^^  ^-  Huntington,  413 

Kay.  888.  889     ^^'"^^^^^^  ^-  I>e   Atwater  v    AmeScan  Exchange  Nat 
Atchison,    T     &    8      p     o     p  L      Bank,  1124  6*^  x^ai. 

^      Comrs..  318        *       "  ^"-    "^^  ^J^^od  v.  Merry  weather.  298  324 


Atkins  ;.  Petorsburgl:  RcrilS 

Atlanta  &  Florida  R  R.  Co.  v  Western 
Ry.  Co.  of  Alabama  iui  "''^'*™ 

AMa^  l,i„  Mining  Co.- v.'Undrews. 
Atlamic  Bank    v.   Merchants'  Bank. 

Atlantic  Cotton  Mills  v    TnrJiar,  r» 
chard  Mills,  329  33^"    ^'°  ^' 

r2^.'70^  '''''''  ^^-^^  Co.    V. 


Auerbachv^Lrsrur^nSo^^^i  iol 
August  V  Fourth  Nat.  Bank    667 
Augusta  Bank  v.  Augusta,  923 
Augusta  Bank  v.  Hamlin  i75 
Augusta,   T.   &  G.  R  Co    v    Kitt^l 
.      236,  254,  826,  1076   1079   10^7       ' 
Aurora  Agr.  &  Hort.  Society  v    Pad- 
dock, 163,  1078  ^ 

Aurora  &  Cincinnati  R.  Co.  v.  City  of 

Laurenceburgh,  455  ^ 

Aurora  City  v.  West,  946.  955 
Austin  V.  Beriin,  384 
Austin  V.  Daniels,  247,  365 


ji     I  I  t 


I    ! 


tilil 


lltiii 


1 1 


XXXn  TABLE  OF  CASES. 

rme  references  are  to  pages:  vol.  I  contiOns  pp.  1-707;  vol.  n,  pp.  708-1807.) 


Amtiii  V.  District  Township  of  Col- 
ony, 140,  840 

Austin  V.  Qtia  Compairy,  1264 

Australian  Steamship  Co.  v.  Mounsey, 
102 

Auxiliary  Company  v  Vickers,   1121 

Averell  v.  Second  Nat.  Bank,  595 

Averill  V.  Barber,  310,  316 

Avery  v.  Ladd,  1145 

Avery  v.  Job,  445 

Axt  V.  Jackson  School  Township,  133 

Ayers  v.  McCalla,  1262 

Ay  mar  v.  Boers,  702 

Ayraiilt  v.  Pacific  Bank,  688 

Ayres  v.  Bank,  601 

B. 

Babbitt  v.  Savoy,  35,  60 

Babcockv.  Goodrich,  118 

J^achellor  v.  Priest,  702 

Bachrach  v.  Norton,  720 

Bacon  v.  Irvine,  316 

Bacon  v.  Mississippi  Ins.  Co.,  9Q,  182 

Bacon  v.  Poraeroy,  769 

Badger  v.  Badger,  168 

Badger  v.  Bank  of  Cumberland,  571 

Baer  v.  En^ish,  1146 

Bagaley  v.  Pittsburg  Iron  Co.,  198 

Bagnall  v.  Carlton,  260,  297,  298,  299 

Bagnall  v.  State  of  Wisconsin.  1299 

Bagshaw  v.  Eastern  Union  Railway 
Co.,  300,  450,  471 

Bagshaw  v.  Seymour,  271,  294 

Bailey  v.  Bidwell,  621 

Bailey  v.  Mayor,  etc.,  29,  294 

Bailey  v.  Murphy,  530 

Bailey  v.  Pittsburg  «fe  Connellsville 
Gas,  Coal  &  Coke  Co.,  166 

Bailey  v.  Sawyer,  772 

Bailey,  Receiver,  v.  Burgess,  349 

Bain  v.  Peters,  713 

Bain  v.  Bank  of  Washington,  459 

Baird  v.  Todd.  67 

Baker  v.  Boston,  19 

Baker  v.  Guarantee  Trust  &  Safe  De- 
posit Co.,  1018,  1055 

Baker  v.  Harpster,  155 

Baker  v.  Inhabitants  of  Windham,  62 

Baker  v,  Johnson  County,  124 

Baker  v.  North  Western  Guaranty 
Loan  Co.,  490.  821 

Baker  v.  Railroad  Co.,  305 

Bakewell  v.  Police  Jury,  871 

Balbach  v.  Frelinghuysen,  613,  614, 
709,712  6     J      .         .         > 

Balch  V.  Wilson,  710.  712. 
Baldwin  v.  Bank  of  Newbury,  359 
Baldwin   v.    School  City  of  Logans- 
port,  63 
Ball  V.  Allen,  660 
Ball  V.  Presidio  County,  831 


Ballard  v.  Carmichae/,  809 

Ballin  v.  Loeb,  1125 

Ballou  V.  Campbell,  218 

Ballston  Spa  Bank  v.  Marine  Bank, 
574 

Baltimore  City  R.  R.  Co.  v.  Sewell. 
198 

Baltimore  &  Ohio  R.  R.  Co.  v.  Glenn, 
1137 

Baltimore  &  Philadelphia  Steamboat 
Co.  V.  McCutcheon,  191,  210 

Bait.,  etc.,   R.  R.  Co.  v.  Wilkens,  334 

Bainbrick  v.  Campbell,  191,  210 

Bancroft  v.  Lynnfield,  35,  61     • 

Bancroft  v.  Wilmington  Conf.  Acad- 
emy, 574,  895 

Bangor  Boom  Corporation  v.  Whiting, 
145 

Bangor  Savings  Bank  v.  City  of  Still- 
water, 37,  424 

Bangs  V.  Lincoln,  387,  769 

Bank  v.  Alexander,  608 

Bank  v.  Armstrong,  706,  731,  737,  750, 
758,  754 

Bank  v.  Baker,  513 

Bank  v.  Bank,  170,  209,  644,  655,  692 

Bank  v.  Beal,  731 

Bank  v.  Bergen  County,  857 

Bank  v.  Bletz,  529 

Bank  v.  Bouny,  1285 

Bank  v.  Bridges.  1086 

Bank  v.  Burkhardt,  1213 

Bank  v.  Bums,  692,  705 

Bank  v.  Butchers',  etc.,  Bank,  170 

Bank  v.  Butler,  545 

Bank  v.  Calder.  572 

Bank  v.  Carpenter,  527 

Bank  v.  Case,  772 

Bank  v.  Childs,  527 

Bank  v.  Christopher.  571,  583 

Bank  v.  Church,  209 

Bank  v.  City  of  St.  Joseph,  866 

Bank  v.  Colby,  545 

Bank  v.  Comegys,  207 

Bank  v.  Cortright,  807 

Bank  v.  Cunningham,  571 

Bank  v.  Cupps,  670 

Bank  v.  Davis,  535 

Bank  v.  Dearing,  775 

Bank  v.  Diefendorf,  620 

Bank  v.  Dowd,  626,  731,  750,  753 

Bank  v.  Dunn,  192,  193,  216,  217,  588 

Bank  v.  Flagg,  690 

Bank  v.  Foreman,  642 

Bank  v.  Gillespie,  736 

Bank  v.  Goetz,  752 

Bank  v.  Goodman,  682,  692,  705 

Bank  v.  Grace,  433 

Bank  v.  Graham,  546 

Bank  v.  Green,  620,  668 

Bank  v.  Gruber,  529 

Bank  v.  Headley,  600 


TABLE  OF  CASES. 


XXXlll 


Bank  v. 
Bank  v. 
Bank  v. 
Bank  v. 
Bank  v. 


[The  references  are  to  pages:  vol. 
Bank  v.  Henninger,  523,  642 
Bank  v.  Higbee,  f.05 
Bank  v.  Hoch,  562 
Bank  v.  Hooper,  359 
Bank  v.  Howard,  655 

Hubbell,  613,  706 
Hughes,  523 
Johnson,  527 
Jones,  172,  216,  641 
.  Keavy,  5b"0 
Bank  v.  Keim,  561 
Bank  v.  Kennedy,  555 
Bank  v.  Kidder,  1155 
Bank  v.  King,  721,  731 
Bank  v.  Lanier,  517,  763 
Bank  v.  Leach,  651 
Bank  v.  Le  Grand,  642 
Bank  v.  Littell,  528 
Bank  v.  Lovitt,  583 
Bank  v.  Loyped,  583 
Bank  v.  Mason,  609 
Bank  v.  Matthews,  495.  942 
Bank  v.  Miller,  617 
Bank  v.  Mixter,  716 
Bank  v.  Neaso,  583 
Bank  v.  North,  942 
Bank  v.  Noxon,  620 

^^"l46    26^'"''°'  ^^'  ^'^'  ^-'  ^**^'  ^^^• 

Bank  v.'  Peck,  523 

Bank  v.  Pepom,  577 

Bank  v.  Poisart,  562 

Bank  v.  Porter  Township.  866 

Bank  v.  Railway  Co.,  665 

Bank  v.  Richards,  655 

Bank  v.  Russell,  753,  754 

Bank  v.  Savery,  583 

Bank  v.  Schaumburg,  583 

Bank  v.  Schrauck,  1117 

Bank  v.  Schreiner,  640 

Bank  v.  Schuler.  645 


Bank 

Bank 

Bank 

Bank 

Bank 

Bank 

Bank 

Bank 

Bank 

Bank 

Bank 

Bank 

Bank 

Bank 

Rank 

Bank 


Sherburne,  514 

Simpson,  514 

Smith,  535.  600,  617 

South  Hadley,  114 

Strauffer.  527 

Stover,  535 

Sullivan.  504 

Tennessee,  1101 

Walker,  736 

Wallace,  690 

Wasson,  1084 

Weems,  523 

Weil,  659 

Whittle,  1084,  1112 

^  iegand,  562 
,  Williams,  629 
Bank  v.  Winchester,  227 
Bank  v.  Wulfekuhler  241  III7 
R^nV  ?!f  Alexandria  v.  Saiders,  508 

^A^l^  1"^^^"^^  ^-  Indiana  Bkg  Co 
645,  656,  657  ^'       ' 


V. 

V. 

V. 

V. 

V. 

V. 
V. 
V. 
V. 
V. 
V 


V. 
V. 
V. 
V. 
V. 


I  contains  pp.  1-707;  vol.  n,  pp.  708-1307.] 

Bank  of  America  v.  McNeil,  527 

Mfg.  Co.,  151.1.56.197         ^ 
«ank  of  Auburn  v.  Putnim   229 
Bank  of  Augusta  v.  Earle.  95.  478 

w  ^P^*^""'^^-  ^ew  York,  L.  E.  & 

B«nJ^f  ^-  ^^'•^''"  ^^^'  2^^'  3^3,  986 
Bank  of  Bennington  v.  Raymond,  700 
B'-^nk  of   British   North    Americk  v 

Merchants'   Nat.    Bank    of    New 

iTork,  667.  672 

Bank  of  Carlisle  v.  Graham.  366 

«  of  Chillicothe  V.   Chillicothe,  5 
o,  102 

Bank  of  Chillicothe  v.  Swavne  90  52<» 

Bank  of  Columbia  v.McSey' 6^ 
Bank  of  Columbrs  v.  Bruce,  76 
Bank  of  Commerce  v.  Hart,  517.  577 
Bank    Comrs.    v.    Bank    of  Buffalo 
5o0  ' 

Bank  of  Genesee  v.  Patchin.  78    173 
322.360.465,508  '         ' 

579  ^^^^^^^"^^  ^  •  Bailliacke,  174, 

Bank  of  Holly  SpHngs  v.  Pinson,  525 
Bank  of  Huntsville  v.  Hill.  580 
Bank  of  Ireland  v.  Evans'  Charities, 
o44  ' 

Bank  of  Lindsborg  v.  Ober.  680 
Bank  of  Louisiana  V.  Strusburg  527 
Bank  of  Louisiana  v.  Sterling  527 
Bank  of  Maryland  v.  Ruff,  158 
Bank  of  Metropolis  V.  Guttschlick,  1^6 
Bank  of  3Ietropolis  v.  Jones.  576 
Bank  of  the; Metropolis  v.  First  Nal 

Bankof  Jersey  City,  706 
Bank  of  Middlebury  v.  Binffham    '^oa 
Bank  of  Middlebury  v    Ed#eS  47? 

Bankof  Middlebur^W.  Ruflandli  R 
t/O.,  144,  195 

Bank  of  Mobile  v.  Huggins.  681 
Bank  ot  Montreal  V.  Dewar  6'>7 
Bank  of  Montreal  v.  J.  E.   Potts  Salt 

1115  ^''"  ^'^^'    ^^^^'   ^^^1' 

Bank  of  Montreal  v.  White,  644 

R?nt  nf""^^^  Redemption  v.  Hill.  551 
Bank  of  New  Hanover  v  Kenan  fiQ7 
Ba.kof  New  York  v.  AmeS Do'ck 

&  Trust  Co.,  157 
Bank  of  New  York  v.  Bank  of  Ohio 

Bank^of  North  America  v.  Tamblyn, 

R^nt  ""l  Pennsylvania's  Estate,  713 
^1^  H  E^^"  ^-  Farnsworth    627 

Bank'of^p"^^?[^^^-^^^^^''9^ 

380     ^^"^^^^^^Psie   V.    Ibbotson, 

Baak  of  Republic  v.  Baxter.  631 


If' 


Il  I 


•t' 


t 


■a 


W 


I   ' 


ti:l) 


ill 


XXXIV 


TABLE  OF  CASES. 


[The  references  are  to  pages:  vol,  I  contains  pp.  1-707;  vol.  11,  op.  708-1307.1 


Bank  of  the  Republic  v.  Millard,  597, 

645,  651,  662,  664 
Bank  of  Rome  v.  Village  of  Rome,  49, 

985,  1()07 
Bank  of  St.  Albans  v.  Farmers'  Bank, 

670 
Bank  of  Mary's  v.  Calder,  563 
Bank  of  8t.  'Murys  v.   St.   John,  241, 

249.  303 
Bank  of  San  Luis  Obispo  v.  Wicker- 
sham,  295 
Bank   of    Springfield    v.   First    Nat. 

Bank  of  Springfield,  652 
Bank  of  U.    S.   v.  Bank  of  Georgia, 

673,  677 
Bank  of  United  States  v.  Dandridgc. 

32. 146,  204.  340 
Bank  of  U.  8.  v.  Davis,  361 
Bank  of  United  States  v.  Lane,  686 
Bank  of  the  United  States  v.  Macales- 

ter,  603 
l^nk  of  the  Uuiversity  v.  Hamilton, 

363 
Bank  of  Utica  v.  Smalley,  763 
Bank  of  Vergcnnes  v.  Warren,  154 
Bank  of  Washington   v.    Triplett  «fc 

Neale,  681 
Bank  of  Yolo  v.  Weaver.  151 
liinks  V.  New  York  Club.  157 
Bannock  County  v.  Jaunting,  13 
Banque  Franco-Egyptienne  v.  Brown, 

1016,  1017 
Barber  v.  City  of  Saginaw.  112 
Barbour  v.  Riyon,  644,  656 
Barb  Wire  Co.  V.  Chicago  B.,  etc.,  Rv., 

890 
Barcalow  v.  Totten,  1140 
Barclay  v.  Culver,  1289 
Barcus  v.  Hannibal,  Rolls  County  & 

P.  P.  R.  Co..  180 
Bareno  v.  Hannibal,  RoUo  Co.  &  P.  R. 

R.  Co.,  180 
Bard  V.  City  of  Augusta.  45,  952 
liard  V.  JMaimfacturiug  Co.,  495 
Bardstown  &  Louisville  R.  R.  Co.  v. 

Metcalfe,  1054.  1096.  1169 
Barker  v.  Chesterfield,  134 
Barker  v.  Mechanics'  Ins.  Co.,  97,  101 
Barker  v.  Rochester  Nat.  Bank,  528 
Barlow  v.  Planters'  Bank,  688 
Barnard  v.  Knox  County,  67 
Btirnert  v.  Mayor,  etc.,  62 
Barnes  v.  Brown,  242,  260,  268.  278. 

283,  286,  309 
Barnes  v.  Chicago,  Milwaukee,  etc., 

Ry.  Co.,  1163 
Barnes  v.  Gas  Light  Co.,  569,  570,  583 
Barnes  v.  Kornegav.  1283.  1281 
I?jirnes  v.  Ontario  bank.  75,  102 
Ikrnes  v.  Suddard,  494 
Barnes  v.  Town  of  I^acon,  852,  941, 

973,  1004 


Barnet  v.  National  Bank,  527,  528,  531 

Bjirnet  v.  Smith,  657 

Barnett  v.  Denison,  872 

Barney  v.  Dewey,  294 

Barnum  v.   Board  of  Supervisors  of 

Sullivan  County,  997 
Barnum  v.  Okolona,  ICOO 
Barr  v.  New  York,  L.  E.  &  W.  R.  R. 

Co.,  257,  268,  278.  1023 
Barr  v.  Pittsburgh  Plate  Glass  Co., 

252,  260 
Barry  v.   Merchants'  Exchange  Co., 

1289 
Barrett  v.  City  of  East  St.  Louis,  851 
Barrick  v.  Austin,  573 
Barrow  v.  N.  &  C.  T.  Co..  494 
Barry  v.  Merchants'  Exchange  Co.,  73, 

75,  85,  102,  153,  1289 
Barry  v.  Missouri,  Kansas,  etc.,  Ry. 

Co..  1045 
Bartemeyer  v.  Rohefs,  900,  906.  953 
Bartholomew  v.  Bentley,  248,  369 
Bartlett  v.  Drew,  1133 
Bartlett  v.  Remington,  617 
Bartlett  v.  Kinsley,  790 
Barton  v.  Barbour,  1223 
Barton  v.   P.  J.  &  U.  F.  Plank  Road 

Co..  75,  1117 
Barton  v.  Swepston,  445 
Bash  V.  Culver  Gold  Aline  Co.,  300 
Bason  v.  King's  Mining  Co..  1075 
Bassett  v.  Citv  of  El  Paso,  1262 
Bassett  v.  St.*Albans  Hotel  Co.,  388 
Bateman  v.  City  of  Covington,  438 
Bates  V.   Androscoggin   River  R.   R. 

Co.,  485 
Bates  V.  Boston  &  N.  Y.  Central  R.  R. 

Co.,  1014 
Bates  V.  Independent  School  District, 

Bates  V.  Iron  Co.,  147,227 

Bates  V.  Short,  520 

Bates  V.  State  Bank,  459 

Bates  County  v.  Winter,  446,  935 

Bath  County  v.  Amy,  944 

Butler  v.  Brandy  wine.  135 

Battle  V.  North  Western  Cement  Co., 
263 

Biittle  V.  Corporation  of  Mobile,  48 

Bjuier  V.  Franklin  County,  129,  437 

Bauer  v.  Piatt.  379.  380 

Baumgartner  v.  Hasty,  38 

Bay  City  Bridge  Co.  v.  Van  Etten,  312 

Bay  less  v.  Orne,  305 

Bay  or  v.  SchafFner  &  Co.'s  Estate, 
1145 

Bay  Vifw  Homestead  Assn.  v.  Wil- 
liams, 353 

Beach  v.  Inhabitants  of  Conway, 
133 

Beach  V.  Miller,  239.  253,  1087 

Be»U  V.  City  of  SomerviUe,  611 


TABLE  OF  CASES. 


[The  references  are  to  Da^ps-  vrii   t  -,^,.*  • 
T>     1        T.T     .  pages,  vol.  I  contains  pp.  1-707:  vol.  n  nn  70R-1W?  i 

""•linrrTo"'  ^^•^'•'"'^^  ^^"^  of  I  Bennett.  Glenn,  Tr'tr.^' 
Ronl  V    w..n-,.„j  i-i_     «.^   .._-  rJennett  v.  Grp«t  w^ocfo».T^  rr„i„ 


XXXV 


Dallas,  710 
Beal  V.  Railroad  Co..  348,  1162 
Real  V.  St.  Croix  County   132 
Bearaan  v.  Leake  County.  920 
Beman  v.  Ruiford,  471 
Bearee  v.  Township,  135 
Beardsley  v.  Ontario  Bank,  1096 

232 ''233''^*'  ^'  *  ^^-  ^'''^'oadCo., 
Beaty  v.  Lessee  of  Knowler.  50  478 
Beaver  v.  Armstrong,  946 
Beaver  Dam  v.  Frings,  138 
Beck  V.  Kantorowicz,  298 
Beck  with   v.  Windsor  Manufg.   Co., 

^^^^oJ^  ?•  R-  Co.  V.  Bowser,  166,  258 
obi),  471  '        ' 

Beebe  v.  Board,  etc.,  57 


Beebe  v.    Richmond  Light    Heif    i^   ^fj^^'j^^^  %  Railroad  Co.,  476 

Power  Co..  1066      ^    '  ^   Beverley  v.  Lincoln  Gas  Co.,  98,  234 


Power  Co.,  1066 
Beecher  v.  Dacy,  92 

to"*,  loeJ^"'"'"""  ^«"  ^'-P-y. 

Beecher  v.  Schieffelin,  309  310 

Beeman  v.  Black,  1012 

im   ^'"'"''^^  Treasurer,  v.  Irwin, 
Beers  v.  Bridgeport  Spring  Co..  816 
Beers  v.  New  York  Life  Ins.  Co    263 
Beers^v.  PhoBnix  Glass  Co ,  73.'lot 

Belden  v.  Burke.  263,  1057 
Be  knap  v.  Davis,  218,  365 

ms     ""'   ^""'^^   American    Bank. 

Bell  y.  Chicago,  St.  L.  &  N  O  R   R 
„ Co.,  964,  1055  *^^^-^-l^-  R. 

Be    V.  Hagerstown  Bank,  686 
Bell^v^  Hanover  National  Bank,  525, 

Be11;:S,'2^r^^-^'^^ 

Bc:ll  ;•  fc^lvX%^'^^^  ^'^•' ''' 


O)    1140  ""^^^  Western  Telegraph 

Benoit  v.  Inhabitants  of  Conway   134 
Benseik  v.  Thomas.  491  ^' 

Benson  v.  Heathorn,  242 
Benson  v.  Waukesha.  42 
Bentley  v.  Columbia  Ins.  Co.,  342 

''"Bank:-583^"'^^'^^-^-^"-°    ^-*- 

ie^rco^un'lf  ^pJ?eT3r'  '''' 

Berlm  v.  New  Britain,  790 

Berlin  Iron  Bridge  Co.  v.  City  of  San 

Antonio,  429  ^ 

Bernard_s  Township  v.  Stebbins,  991 
Berry,  Recr.,  v.  Yates,  478 
Boston  V.  Walten.  250 
Beveridge  v.  Railroad  Co.   476 


Bezon,  Comr.,  v.  Pike,  89 
Bibby  v.  Hall,  234 

Bickford  v.  First  Nat.  Bank  of  Chi- 
cago,  357,  645,  652,  697 

2o!"l33  ™'''''  ^''^''''^  Township. 

Biddle'v.  City'of  Terrell.  429 

Bien  V.  Bear  River  &  Auburn  W  & 
M.  Co.,  174.  190 

Biggs  v.  Pennsylvania  &  New  Eng- 
land R.  R.  Co.,  1034  ^ 

Bill  V.  National  Park  Bank.  653 

323        *'''''  Union  Tel.  Co..  316, 

Bingham  v.  Stewart,  358 
Binney's  Case,  72 

u^'a  I-  ^Y^e".  152,  210.  227 

Bird  Coal  &  Iron  Co.  v  Humes  249 

Birdsall  V.  Clark,  59  '  ^ 

Bischoffsheim  v.  Brown.  1016 

Bishop  V.  Houghton,  312 

BLshop  V.  Moorman,  874 

Bi-Spool    Sewing    Machine    Co     v 

Acme  Mfg.  Co..  156  " 

p-     "iP  ^-  City  of  Jeffersonville.  897 
'9^-  ^'^^  ^^  Kankakee,  567  852 


Be.,ev.ne  Savings  BanU  v.  Wins.ow,    BisseTv.  MiC.  So.  *  ^•o  Ind    R    R 


Belmont  v.  Erie  Ry.  Co     1043 

"^T^c;-..%-"oi^'^^^^^^^^^ 

Benedi^c^t   v.   Construction   Company, 

Benedict  V.  Lansing,  98  150   t^2  179 
Benedict  v.  Rose.  690  '    '^^'  ^^^ 

Benefit  Assn.  v.  Blue.  496 
Benjamin  v.  Elmira,  Jefferson  &  Can- 

andaigua  R.  R.  Co..  1014 
Benjamin  v.  Wheeler   19 


Bjssell.  Receiver,  v.  Heath,  761 
Blacky V.   Delaware,  etc..  Canal  Co.. 

Black  V.  Skreeve,  1051 
B  ackley  v.  Andrew,  658 

""m:\l7l  ^^"^  H«--^-d  C.., 

Bjain  v.  Agar,  294 
Blame  v.  Brown,  706 


!tt 


XXXVl 


TABLE  OF  CASES. 


TABLE  OF  CASES. 


XXX  VU 


[The  references  are  to  pages:  vol.  I  contains  pp.  1-707;  vol,  n,  pp.  708-1807.] 


Blair  V.  Lewis,  Hannibal,  etc.,  R.  R. 

Co.,  1173,  1193,  1194.  1221,  1238 
Blake  v.  Buffalo  Creek  R.  R.  Co.,  251, 

260,  282 
Blake  v.  Griswold,  413 
Blake  v.  Holley,  155.  173 
Blanchard  v.  Kaull,  350 
Blanchard's  Gun-Stock  Turning  Fac- 
tory V.  Warner,  74 
Bland  v.  Commercial  &  Railroad  Bank, 

688 
Blanding  v.  Burr,  49.  923 
Blanding  v.  Davenport,  I.  &  D.  R. 

Co.,  151 
Blanton  v.  Board  of  County  Comrs., 

907 
Blasdel  v.  Locke,  617 
Blatchford  v.  Ross,  248.  260 
Bletz  V.  Columbia  Nat.  Bank,  554 
Bliss  V.  Andei-son.  463 
Bliss  V.  Kaweah  Canal  &  Irrigation 

Co.,  192,  204 
Bliss  V.  Matteson,  260,  282 
Block  V,  Commissioners,  955 
Blod^ett  V.  Gardiner,  522 
Blood  V.  JIareuse,  180 
Blood  good  V.  Mohawk  &  Hudson  R. 

R.  R.  Co.,  958 
Bloomington  v.  Chicago  &  Alton  R. 

R.  Co.,  U268 
Blount  V.  Windlev,  718 
Bloxham  v.  Florida  Central  4&  P.  R. 

R.  Co.,  1305 
Blum  V.  Looney,  831 
Board  v.  Senn,  1272 
Board,  etc.,  v.  Applewhite,  121 
Board,  etc.,  v.  Arrghi,  801 
Board,  etc.,  v.  Boyle,  122 
Board,  etc.,  v.  Boynton,  31 
Board,  etc.,  v.  Bradford,  122 
Botird,  etc.,  v.  Brown.  825 
Board,  etc.,  v.  City  of  Lincoln,  793 
Boiird,  etc.,  v.  Cole,  57,  123 
Board,  etc.,  v.  Crook  County,  67 
Board,  etc.,  v.  Everett,  29 
Board,  etc.,  v.  Grogorv,  123 
Board,  etc.,  v.  Hill,  22,  874 
Board,  etc.,  v.  Hon,  31 
Board,  etc. ,  v,  Jennings,  31 
Board,  etc..  v.  La  Fayette,  M.  &  B. 

R.  R.  Co.,  470.  471 
Board,  etc.,  v.  Lomax,  121 
Board,  etc.,  v.  McClintock,  17 
Board,  etc.,  v.  Nelson,  376 
Board,  etc.,  v.  O'Connor,  123 
Board,  etc.,  v.  People  ex  rel.,  800 
Board,  etc.,  v.  Roenner,  126 
Board,  etc.,  v.  Reynolds,  471 
Boani,  etc.,  v.  Richardson,  122 
Board,  etc.,  v.  Seaton,  31 
Board,  etc.,  v.  Taylor,  63.  U 
Board,  etc.,  v.  Verburg,  121 


Board,  etc.,  v.  Ward,  122 
Board,  etc.,  v.  Webb,  126,  442 
Boanl.  etc.,  v.  Weider,  826 
B  )ard  of  Comrs.  v.  Bright,  949 
Board  of  Commissioners  v.  State.  971 
Board  of  Comrs.  of  Gilson  County  v. 

Tichenor,  793 
Board  Comrs.    Hamilton    County  v. 

State,  935 
Board  of  Comrs.  of  Kingman  County 

V.  Cornell  University,  942 
Board  of  Education  v.  Fonda,  990 
Board  of  Education  v.  Fowler,  882 
Board  of  Education  v.  Martin,  882 
Board  of  Supervisors  v.  Deyoe,  380 
Board  of    Supervisors,    etc.,   v.   Ed- 
wards, 120 
Board    of    Supervisors    of    Madison 

County  V.  Brown,  913 
Board  of  Supervisors  v.  Weider.  1004 
Board     of     Supervisors     of    Mercer 

County  V.  Hubbard,  899,  910,  918, 

945 
Board  of  Trustees  v.  Smith,  100 
Board    of    Trustees    of    Augusta    v. 

Maysville  &  B.  8.  R.  R.  Co.. 969 
Boehm  v.  Rail.  1086 
Bohau  V.  Township,  135 
Bohm    V.    V.     Loewer's    Gambriuus 

Brewery  Co.,  1()3,  172 
Bohn  V.  Brown,  415 
Bohu  Mfg.  Co.  V.  Lewis,  961 
Bolles  V.  Brimlield,  939 
Bolles  V.  Town  of  Amboy.  976 
Bolton  V.  Board  of  Education,  879 
Bolton  V.  Richard,  600 
Bommer  v.  S.  8.  Co..  234 
Bonaparte  v.  Tax  Court.  1277 
Bond  v.  Manufc:.  Co.,  490,  495 
Bond  v.  Terrell  Cotton  &  Woolen  Mfg. 

Co.,  821 
Bonesteel  v.  City  of  New  York,  113 
Bonnell  v.  County  of  Nuckolls,  67 
Bonnell  v.  Griswold,  393,  412 
Booe  v.  Junction  R.  R.  Co.,  471 
Book  Company  v.  De  Golyer,  1118 
Boom  v.  Utica,  5,  114 
Booth  V.  Bank.  183,  190.  321 
Booth  V.  Robinson,  76,  97,  102,  282 
Booth  V.  Welles.  755 
Brock  V.  Perkins,  720 
Borough  of  Henderson  v.  County  of 

Sibley,  895 
Borough  of  York  v.  Forscht,  125 
Borup  v.  Nininger.  6S2 
Bosler's  Admr.  v.  B^nk,  712 
Boston  &  Albany  Railroad  v,  Richard- 
son. 335,  a36 
Boston  &  P.  R.  R.  Co.  v.  New  York 

&N.  E.  R.  Co.,  278 
Boston,  etc.,  R.  R.   Corp.  v.  Salem, 

etc.,  R.  R.Co.,  471 


'• 


' 


[The  references  are  to  pages:  voL  I  contains  pp.  l-W;  vol.  II,  pp.  rog-isov  I 
Boston    C.  &  M.  R.  R.  Co.  v.  State,  ' 

loOO 

Boston  &Roxbury  Mill  Corporation  v 

Newman,  917 
Boston   Safe   Deposit    Trust    Co.    v 

Adrian,     Mich.,    Water     Works, 

■1183 
BoLton   Safe  Deposit  &  Trust  Co    v 

Bankers  &  Merchants'  TeletrraDh 

Co.,  1096  ^    ^ 

Bothwell  v.  3Iinikan,  1272 
Botsford  v.  New  Haven,  Middletown 

etc.,  R.  R.  Co.,  1249 
Bottomley  v.  Fisher,  360 
Bou^hton  V.  Otis,  384,  390 
Bound  V.    South   Carolina    Ry.    Co 

1103,  1160,  1167,  1171,  1184,  1185, 

1219,1241.1260 
Bound  V.  South  Carolina  Ry.  Co    Ex 

parte  Mitchell,  1234 
Bound  V.  South  Carolina  R.  R.  Co 

Ex  parte  Walker ;  Ex  parte  Cai- 

der,  1184 

Co. 


Co. 


Bound    V.    South    Carolina  Ry. 

(Mayfield,  Intervener),  1172 

Bound    V.    South   Carolina    Ry. 

(Quintard,  Intervener),  1260 
Bourdeaux  v.  Cognard,  438 
Bowden  v.  Johnson.  764,  767 
Bowen  v.  Morris,  98 
Bowers  v.  Evans,  753 
Bowen  v.  Newell,  656 
Bowles  v.  I^mbert,  359 
Bowles  V.  State.  870 
Bowman  Dairy  Co.  v.  Mooney,  820 
Bowyer  v.  Camden,  1086 
Boyce  v.  Montauk  Coal  &  Gas  Co. 

1069 
Boyce  v.  Tabb,  982 
Boyd  v.  Beck,  568 
Boyd  V.  Emmei-son.  601,  G98 
Boyd  V.  Mexico  Southern  Bank,  650 
Boyd  V.  Sims,  316 
Boyden   v.  Bank  of  Cape  Fear.  597 

635 
Boydston  v.  Rockwall  County,  117 
Boyer  v.  Boyer,  1297 
Boyington  v.  Wilson  Sewing  Machine 

Co.,  195 
Boyle  V.  Thurber,  413 
Boynton  v.  Hatch,  166 
Brackett  v.  Griswold.  393,  413 
Bradbury  v.  Boston  Canoe  Co..  85 
Bradlee    v.    Warren    Savings    Bank, 

ml  196^^9"^  ■  ''•  '''■  '''■  »^' 
Bradley  v.  Farwell.  1108 
Bradley  v.  Poole,  291 
Brady  v.  Mayor,  etc.,  995 
Brady  v.  Supervisors,  etc.,  57 
Brady  v.  Mayor,  etc.,  of  Brooklyn,  379 


Brady  v.  Mayor,  etc.,  5,  20,  103 
grady  v.  Mayor  of  New  York  444 
Brady  v.  Mayor,  etc..  821 
Brahm  v.  Aukins,  598,  600,  604,  649 
Brainard  v.  New  York  &  Harlem  R 

R.  Co.,  955,  1014 
Brainerd  v.  New  York  Central  R.  R. 

Bnnch  v.  Jessup,  93,  473,  1096 
Branch  Bank  at  Huntsville  v.  Steele, 
5oo 

Branch  Bank  at  Mobile    v.   Collins, 
549 

Branch  Bank  at  Mobile  v.   Scott.  549 
Kranch  Bank  at  Montgomery  v  Har- 
rison, 528 

Branch  Bank  at  Montgomery  V  Knox 

515,681,699,700  ^  ' 

Sraiich  Bank  at  Mobile  v.  Strother, 

528 
Branch    Sons  &  Co.   v.  Atlantic    & 

Gulf  R.  R.  Co.,  1077 
Brandt  v.  Goodwin,  397,  411 
Brandao  v.  Barrett,  524 ' 
Braslin  v.  Somerville  Horse  R.  R  Co 

465  * 

Breckenridge  County  v.  McCracken. 

920,  931.  946,  947.  948 
Breene  v.  Bank,  726 
Breitung  v.  Lindauer,  416 
Breuaen    Savings    Bank    v.     Branch 

Crookes  Law  Co.,  361 
Brenham  v.  German-American  Bank 

12,  14.  864,  884,  1000 
Brennan  v.  Mississippi  Home  Ins.  Co., 

Brennan  v.  Titusville,  1267 

Brent  v.  Bank  of  Washington,   525, 

Brewer  v.  Boston  Theatre,   306,   317, 

Brewer  v.  Otoe  County,  788  804 
Brewster  v.  Hatch,  260 
Brewster  v.  Hyde.  857 
Brewster  v.  Stretman,  271 
Bridenbecker  v.  Lowell,  170  574 
Bridgepart  v.  Railroad,  979  ' 
Bridgeport  Bank  v.  Dyer,  658 
Bridgeport  City  Bank  v.  Empire  Stone 

,  Dressing  Co.,  78,  152,  465 
Briggs  V.  Bank,  692 
Briggs  V.  Partridge,  360 
Briggs  v.    Spaulding.  303,   347,   351, 

OOo 

Briggs  V.  Whipple,  62 
Bright  V.  Banking  Co.,  506 
Bnght  V.  McCullough,  870 
Bright  V.   Metairie  Cemetery    Assn., 

181 
Brinckerhoff  v.  Marvin.  1058 
Bnnkerhoff  v.  Bostwick,  348,  556,  556, 

ooO 


I 


xxxviu 


TABLE  OF  CASES. 


[Tl.e  references  «re  to  pages:  vol.  I  cntains  pp.  1-707;  vol.  Il,  pp.  70B-180I  J 
Bnnkman  v.  Hunter.  654  i  Bruff  v  Mali   om  Jj  ' 

Bnscoe  v.  Allison.  929  d...„k  !"V. '.  ^''^.  ^    .       . 


TABLE  OF  CASES. 


XXXI X 


Briscoe  V.  Allison,  929 
Bristol  V.  Scninton,  259 

T^K^n^^icX'^"*"  Mortgage  Co.  v. 
liDoalls,  687 

British  Coral.  Life  Ins.  Co.  v.  Comrs. 

of  Taxes,  1287 
Briton  V.  Mayor,  etc. .  29 

^^o^  V-    Central  Iowa  Ry.   Co.. 
I««7 

Brockman  v.  3Ietcalf.  154 

Brock  way   v.  Allen,  359 

Brode  V.  Firemen's  Ins.  Co..  13,  100 

Broudhead  v.  Milwaukee  49  957 

Brodie  v.  3IcCabe,  837      '      ' 

Brome  v.  Cuming  C^ounty,  57 

Bronson  v.  Rulroad  Company,  1042 

Brooke  V.  Railroad  Company    1079 

Brooklyn  v.  Breslin.  59 

Brooklyn  v.  Insurance  Company,  965 

Brooklyn       Gravel       Road    Co.     v 
daughter,  182 

Bou^hton      V.      Manchester     Water 
Works,  73,  90,  98 

Broughton  v.  Pensacola.  844 

Brouwer  v.  Applebv,  193 

Brouwcr  V.  Ilnrbeck,  111.  1117 

Brower  v.  Brooklyn  Trust  Co..  234 

Brower  v.  Ilaight.  527 

Brown  v.  Bank.  536 

Brown  V.  Board,  etc.,  15 

Brown  v.  Bon  Homme  County.  857 

Brown  v.  Districtof  Columbia.  Ill 

Brown  v.  Dounell,  173.  494 

287,  49.5,  1030  ^ 

Brown  v.  Grand  Rapids  Parlor  Furni- 

\m.  &.  1^20  ""'■  '""■  ''''■ 

Brown  v.  Houston,  1293 
Brown  v.  Leckie.  645,  648,  652 
Brown  v.  McElroy,  605 
Brown  v.  Montgomery,  624 
Brown  v.  Pierce,  645 
Brown  v.  Point  Pleas^mt,  1004 
Brown  v.  Spofford,  980 

To75''"    ^"^^^^    Company.    1057. 

Brown  v.  Maryland,  1013,  1267 

Tr99;  i^of ''  ^-  *  ^^-  ^-  ^  ^''- 

Brown  v.  Weymouth,  180 
Brown  v.  Winnisimmet  93 
Brown  v.  Wright,  197,  239 

1\^  m  ^*^*^°*^    ^'"^^^'^  Printing 
^""^  oJif "oL '^'''^°  ""^  Greenwich.  983, 

Brownlie  v.  Campbell,  293 
Bruce  v.  Piatt,  394.  398,  399 


Brush  V.  City  of  Carbondalc.  121 

Bryan  v.  Page.  446 

Buchanan  v.  Litchfield,  66.  839  855 

897.  929,  968  *        ' 

Buck  V.  Barder.  390 
Buck  V.  Memphis  &  Litth-  Rock  R.  R. 

Co.,  1096 
Buck  V.  Seymour,  1096 
Buckeye  Engine  Co.  v.  Donran  Brew- 

mgCo.,  1125 
Buckeye  Marble  &  Freestone  Co    v 

Harvey.  470 
Buckley  v.  Briggs,  455 
Budd  V.  Budd,  429 

I  lOo,  1 1  I  ,i 

Buffalo  v.  Bcttinger,  996 

Buffalo  &  Allegany  Railroad  Co    v 

Carey,  390 
Buffab,  etc.,  R.  R.  Co.  v.  Board,  etc., 

Buffalo  etc..  R.  R.  Co.  v.  Lamp.son. 

Buftit  v.  Troy  &  Boston  R.   H    Co 
153  ' 

Buford  V.    Keokuk   L.    T^i.  ket  Co., 
2^8 

Building  Fund  Trustees  v.  Bossioux 
554  ' 

Bull  V.  Bjink  of  Kasson.  645.  655,  657 

Bullani  v.  Randall,  664 

Bullene  v.  Coatcs,  601 

Buller  V.  Harrison,  616 

Bullock  V.  Currv.  46,  90S 

^^"chTs  Exr.   V.   Fluvanna  County, 

Buncombe  Turnpike  Co.  v.  McCarson 
145  ' 

Bundy  v.  Jackson,  263 

Bunting  v.  Camden  &  Atlantic  R  R 
Co..  1043 

Burbank  v.  Dennis.  300 

Burch  V.  Paper  Companv.  144 

Burdon  v.  Association,  1*118 

Burger  v.  Burger,  608 

Burges  v.  3Iabin.  906 

Burgess  v.  Pue.  143.  144 

Burgess  v.  Seligman,  983 

Burke  v.  Smith.  258 

Burkhalter  v.  Second  National  Bank 

Burkinshaw  v.  Nicolls,  328 

Burley  v.  Marsh,  260 

B.  G.  &  M.  R.  R.  Co.  V.  Warren,  126 

Burlington  Water  Co.  v.  Woodward 

68.  69  v^wnaiu, 

Burnes  v.  Atchison,  953 
Burns  v.  Mayor  of  N.  Y    114 
Burnett  v.  Abbott,  27,  121,  437 


i 


>i' 


[The  references  are  to  pages:  vol.  I  contains  pp.  1-707;  vol.  II,  pp.  70&-1.W  ] 
Bu^SZ  ;■  s^Z"h  "^^  '"''■  '^  ^■'"^.-^i'     - .  N^t.    Mobawk    Valley 


Burnham  v.  Strafford,  137 

Burnham  v.  Webster,  571.  681 

Burr  V.    City  of  Carbondalc,  37,  70, 

Burr  V.  McDonald,  75,  1108 

Burrall  v.  Bushwick  R.  R.  Co.,  1289 

Burnll   V.   Nahant  Bank,   671,    1074 
1075 

Burrill  V.  Boston,  446 

Burroughs  v.  Richmond  County,  946 

Burroughs  &  Springs  v.  Commission- 
ers, 1047 

Burrow  v.  Zapp,  525 

Burrows  v.  Bangs,  630 

Burt  v.  Railroad  Co.,  880 

Burt  V.  Rattle,  94,  1055 

Burton  v.  Norwich,  138 

Bush  V.  Sprague.  547 

Burnett  v.  First  Nat.  Bank,  609 

Bush  V.  Wolf,  116 

Bushnell  v.  Beloit,  48,  49,  958 
Bushwick,  etc.,  Turnpike  Co.  v.  Eb- 

betts,  348 
Bussey  v.  Gilmorc,  21 
Butchers',  etc.,  Bank  v.  Hubbell,   744 
Butler  v.  Cornwall  Iron  Co.,  262 
Butler  V.  Dunham,  953 
Butler  V.  Eaton,  519,  756 
Butler  V.  Passaic,  890,  1270 
Butler  V.  Poole,  772 
Butler  V.  Rahm,  1096 
Butler  V.  Smalley,  391,  392,  413 
Butler  V.  Sullivan  County,  57 
Butte  Hardware  Co.  v.  Schwab,  470 
Butte  County  v.  Morgan,  374 
Butternut  v.  O'Malley,  138 
Butts  V.  Little,  67 
Butts  V.  Wood,  242,  247,  250,  279,  280 

282,  283,  309.  365,  556 
Butts  V.  Cuthbertsou,  142 
Butz  V.  City  of  Muscatine,  982 
Byer  v.  Rollins,  316 


c. 

Cabaniss  v.  Hill,  67 

Cable  V.  Gatv,  389,  415 

Cable  V.  McCanc,  389,  415 

Cady  V.  Sanford,  417 

Cady  V.  Watertown,  139 

Cagwin  v.  Town  of  Hancock.  985,  986 

Cagswell  V.  Ball,  311 

Cahill  V.  Kal.  Mut.  Ins.  Co.,  144, 161 

CJairo  V.  Vane,  893,  966 

Cairo  &  St.  Louis  R.  R.  Co.  v  Citv  of 

Sparta,  954 
Cairo,  V.  &  C.   Ry.  Co.  v.  Mathews. 

1304 
Cake  V  Bouck.  562 
Caldwell  v.  Justices  of  Burke,  49 


Bank,  571 

Caledonia  &   Dumbartonville  Ry.  v. 
Magistrates  of  Helensburgh,  450 

Calhoun  v.  3Iemphis  «fc  Paducah  R  R 
Co.,  1096 

California  Safe  Deposit  &  Trust  Co 
V.  Cheney  Electric  Light.  Tele- 
phone &  Power  Co.,  1149 

California    State    Telegraph    Co.    v 
Alta  Telegraph  Co.,  454 

Callanan  v.  Brown,  824 

Callaway  M.  *fe  M.   Co.  v."  Clark,  92, 
819 

Calumet  Paper  Co.  v.  Stotts  Invest- 
ment Co.,  1140 
Calvert  v.  Idaho  Stage  Company  144 
Cambridge  Water  Works  v.  Somer- 
ville  Dyeing  &  Bleaching  Co.,  387 
Camden  v.  Stuart,  1028 
Camden  &  Atlantic  R.  R.  Co.  v.  May's 

Landing  «fc  Egg  Harbor  City  R. 

R.  Co.,  822 
Cameron  v.  First  Nat.  Bank,  470 
Cameron  v.  Seaman.  391,  393 
Campbell  v.   American  Zylonite  Co., 

485 
Campbell  v.  Argenta   Gold   &  Silver 

Mining  Co.,  821 
Campbell   v.    Merchants  <fc    Farmers' 

Ins.  Co.,  158 
Campbell  v.  Mississippi  Union  Bank, 

505 
Campbell  v.  Morgan,  310 
Campbell  v.  Paris  &  Decatur  R    R 

Co.,  971,  973 
Campbell  v.  Pope,  158,  333,  234 
Campbell  v.  Texas  &  N.  D.  R.  R  Co 

1054 
Canada  Southern  R.   R.   Co    v   Gcb- 

hard,  1080 
Canal  Bridge  v.  Gordon,  263 
Cantillon  v.  Dubuque  &  N  W  R   R 

Co.,  976  •       .     .     . 

Capitol  State  Bank  v.  Lane,  628 

Carey  v.  Giles,  98,  173 

Carey  v.  Houston  &  Texas  Central 

Ry.  Co.,  1147,  1165 
Carley  v.  Graves,  749 
Cariing's  Case.  299 
Carman  v.  Prcst..  etc.,  Franklin  Bank 

of  Baltimore.  509 
Carpenter  v.  Briggs,  152,  180 
Carpenter  v.  Bucna  Vista  County, 
Carpenter  v.  Farnsworth,  810 
Carpenter  v.  Union,  440 
Carr  v.  Hamilton,  718 
Carr  v.  Le  Fevre,  1014 
Carr  v.  Risher,  390 
Carr  V.  State,  1146 
Carrigan  v.  Port  Crescent  Imp.  Com- 

pany,  155 


1 


11  I 


xl 


TABLE  OF  CASES. 


[The  references  are  to  pages:  vol 
Carroll  v.  Siebenhaler,  118 
Carroll  County  v.  Smith,  911,  912,  957 
Carson  City  8av.  Bk.  v.  Carson  City 

Elevator  Co..  470.  489.  496 
Carter  v.  City  of  Dubuque.  56 
Carter  v.  City  of  New  Orleans,  1177 
Carter  v.  Ford,  etc..  Co.,  315 
Carter  v.  Glass  Co.,  560 
Carter  v.  Hightower,  1129 
Carter  v.  Palmer,  251 
Carter  County  v,  Slaton.  946 
Cartwri^ht  v.  Dickinson,  1132 
Carver  v.  Braintree  Manufg.  C^o    414 
Cary  Holiday  Lumber  Co.    v.   (Cain. 

809 
Cary,  Assignee,  v.  McDougald,  573 
Caryl  v.  McElrnth.  191 
Casco  Nat.  Bank  of  Portland  v.  Clark. 
359  • 

Case  V.  Bank.  226,  567,  729 

Case  V.  Beauregard.  750,  1140 

Case  V.  Hawkins,  191 

(-ase  V.  Morris,  657 

Case  V.  Wresler,  800 

Case  of  Bowton.  615 

Case  of  Sargeant.  615 

Casey  v.  Galli.  772 

Casey  v.  People.  y.>4,  976 

Casey,  Receiver,  v.  Societc  de  Credit 
Mobilier,  733 

C^ash  V.  Auditor  of  Clark  County  26 

Cass  V.  Dillon,  4U 

Cass  County  v.  Chicago,  B.  &  Q.  R 
R.  Co..  1302 

Cass  County  v.  Johnston,  803,  957 

Castle  V.  Belfast  Foundry  Company, 
154 

Castle  V.  Lewis,  234 

Cate  V.  Patterson.  631 

Cates  V.  Allen.  1139 
J?atlett  V.  Starr,  809 

Catlin  V.  Eagle  Bank,  1108 

Catron  v.  La  Fayette  Countv   14 

Cave  V.  Cave.  338 

(^avin  V.  Gleason,  751 

Caylus  V.  New  York,  K.  &  S    R  R 
Co.,  1042, 1043 

Cazeaux  v.  Mali,  287.  291.  309 

^'-  ^  ^-  ^-  ^   Co-  V-  Smith.  899. 

Ceeder  v.  H.  M.  Loud  &  Sons  Lumber 

Co.,  198,  210,  232 
Central  Bank  v.  Empire  Stone  Dress 

ing  Co.,  78,  152,  465 
Central  Bank  v.  Pratt,  529 
Central  Bank  v.  St.  John,  528 
Central  Building  &  Loan    Assn.    v 

Lampson,  491 
Central  Gold   Mining    Co.    v    Piatt 

1054  ^  ' 

Central  Nat.   Bank   v.   North  River 

Bank,  667 


TABLE  OF  CASES. 


xli 


I  contains  pp.  1~707;  vol.  H,  pp.  708-1.307.] 

Central  Nat.  Bank  v.  Valentine,  616 
Central  R.  R.  Co.  v.  Collins.  517 
Central  liailroad  v.  Georgia    1"82 
Central  R.  R.  Co.  v.  Pennsylvania  R. 

Central  Ra'ilroad  v.  State  Board  of 
Assesaors,  1300,  1301 

Central  R.  R.  &  Bkg.  Co.  of  Georgia 
V.  farmers'  Loan  &  Trust  Co.  of 
Newlork,  1196,  1206 

Central  Transportation    Co.    v    Pull- 
man's Palace  Car  Co..  473    477 
488,  1178  '  ' 

C«°tral^  Trust    Co.    v.    Bridges.   260. 

Central  trust  Co.  v.  Condon,  1075 
a;     ^^^^^  Co-   ^-  Florida  Ry.  & 
ii«T'  (Hawkins,   Intervener), 

llo4 

Central  Trust  Co.  v.  Kneoland,  1095 
Central  Trust   Co.  v.   N.   Y.  City  & 

Nortliern  R.  R.  Co.,  264,  1162 
Central  Trust  Co.  v.  Ohio  Central  R 

R.  Co.,  1179 
Central  Trust  Co.  v.  Richmond   N  I 

&,i^.K.  R.  Co..  1249,  1251  ' 
Central  Trust  Co.  v.   St.  Louis,  A.  & 

T.  Ry.  Co.,  1194 
Central  Trust  Co.  v.  Wabash,  St.  L.  & 

Y^t   ^^y-    ^"•'   11^'^>'   1-'^'-    1206, 
1222,  1225,  1233.  1236 


[The  references  are  to  pages:  vol.  I  contains  pp.  1-707;  vol.  U,  pp.  708-1307.] 


Central  Trust  Co.  v.'  Wabash,  St.  L.  & 
Pac.  Ry.  Co.  (Swayne,  Intervener), 

Central  Trust  Co.  of   New  York  v 

Bridges,  1238,  1253,  1^54 
Central  Trust   Co.   of  New   York  v 

Chattanooga,  Rome  &  Columbus 

R.  R.  Co.,  1195 
Central  Trust   Co.   of  New  York  v 

Chicago.  K.  &  T.  Ry.  Co.  (Holton- 

VVarren  Lumber  Co..  Intervener) 

1179 
Central  Trust  Co.   of  New  York  v 

Cinciiinati,  J.  &  M.  Ry.  Co.  1243 
Central  Trust  of  New  York  v.  East 

Tennessee,  Va.  &  Ga.  R.  R.  Co 

1223.  1225 
Central   Trust  Co.  of   New  York  v 

Marietta  &  Nor.   Ga.   R.  R.  Co., 

1158 
Central  Trust  Co.  v.  Marietta  &  North 

Ga.  Ry.  Co.  (Blue  Ridge  Marble 

Co.,  Interveners),  1204 
Central  Trust    Co.  of  New  York  v 

3Iarietta    &   No.    Ga.    Ry.    Co 
(Groome,   Intervener).  1216,  1218 
Central  Trust  Co.   of  New  York  v 
Marietta  &  No.  Ga.  Ry.  Co.  (Hia- 
wassee  Co.,  Intervener),  1216 
Central  Trust  Co.   of  New   York  v 
Marietta  &  No.   Ga.   R.   R.   Co. 


(Jackson  &  Sharp  Co.,  Intervener), 
1217 
Central  Trust  Co.  of  New   York  v. 
Marietta  &  No.  Ga.  Ry.  Co.  (Jack- 
son &  Word  in   Mfg.    Co.,  Inter- 
vener), 1216,  1218 
Central   Trust   Co.    of  New  York  v. 
Port  Royal  &  Western  Carolina 
R.  R.  Co.,  1093 
Central  Trust  Co.  of  New  York  v.  St. 
Ix)uis.  A.  «fc  T.  Ry.  Co.,  1230 

Central  Trust  Co.  of  New  York  v. 
Sheffield  &  Birmingham  Coal,  Iron 
&Ry.  Co.,  1170 

Central  Trust  Co.  v.  Sheffield  &  Birm- 
ingham Coal,  Iron  &  Ry.  Co. 
(Anniston  Loan  &  Trust  Co.,  Inter- 
vener), 1211 

Central  Trust  Co.  of  New  York  v. 
Valley  Ry.  Co..  1234,  1235 

Central  'trust  Co.  of  New  York  v. 
Wabash.  St.  L.  &  Pac.  Ry.  Co. 
(St.  Louis.  K.  &  N.  W.  Ry.  Co., 
Intervener).  1208 

Central  Trust  Co.  of  New  York  v. 
United  States  Rolling  Stock  Co. . 
1166 

Centre  Township  v.  Board,  etc.,  935 

Chable  v.  Nicaraugua  Canal  Construc- 
tion Co.,  1197 

Chaffee  v.  Fort,  619,  624 

Chaffey  County  v.  Potter,  828,  835, 
836,  837,  842,  897.  972 

('haffin  V.  Cummings.  756 

C^hallis  V.  Parker,  87 1 

Chamberlain  v.  Board  of  Education  of 
Cranberry  Township,  etc.,  1263 

('hamberlain  v.  City  of  lUirlington,  46 

Chamberlain  v.  Monmouth  "Minintj 
Company,  203 

('hambers  v.  Falkner.  477,  497 

Chambers  v.  Miller,  600 

Chambers  v.  St.  Louis,  493,  494 

Chambers  County  v.  Clews,  830 

Chambliss  v.  Robertson,  530 

Champion  v.  Gordon.  657 

Chandler  v.  Hoag,  390 

(/handler,  Receiver,  v.  Bacon,  299 

('hapin  v.  D.ike,  979 

Chapin  v.  Vermont  &  Massachusetts 
Rulroad,  1000,  1014,  1043 

Chapman  v.  Comstock,  397 

Chapman  v.   County  of  Douglas.  37 
786,  788,  860 

Chapman  v.  Derby.  720 

Chapman  v.  McCrea,  686 

Chapman  v.  White,  598,  664 

Charles  v.  Hoboken,  112 

Charles  River  Bridge  v.  Warren  Bridge 
958 

Charlotte  Building  &  Loan  Assn.  v. 
Board  Comrs.,  etc.,  1300 

vi 


Charter  Gas  Engine  Co.   v.  Charter. 

260 
Chase  v.  Cannon,  716 
Chase  v.  Curtis,  393,  415 
Chase  v.  Hat  horn,  207 
Chaska  Company  v.  Board  of  Super- 
visors of  Carver  County,  74 
Chattahoochee  Nat.   Bank  v.  Schley, 

636 
Chattanooga,  R.  &  C.  R.  R.  Co.    v. 

Evans,  1111 
Chautauqua  County  Bank  v.  Risley, 

309 
Cheaney  v.  Ilooser,  49 
Cheeney  v.  Brooktield,  448 
Cheeney  v.  La  Fayette,  B.  <fc  W.  Ry. 

Co.,  279,  356 
Chemical  Nat.   Bank  v.    Armstrong, 

729,  730 
Chemical  Nat.  Bank  v.   Kohner,  154, 

170,  571,  579 
Chemical  National  Bank  v.  Wagner 
151  ' 

Chemical   Nat.   Bank  of  Chicago  v. 

City  Bank  of  Portage,  519,  574 
Chemung  Canal  Bank  v.  Supervisors 

of  Chemung,  130,  131.  995 
Cheney  v.  Libby.  690 
Chesapeake  Bank  v.  Swain,  034 
Chesapeake  <fc  Ohio  Canal  Co.  v.  Blair, 

1047 
C.  &  O.  R.  R.  Co.  V.  Barren  County 

Court,  908 
Chesapeake  &  Ohio  Railroad  v.  Vir- 
ginia. 1282 
Chester  County  v.  Barber,  434 
Chester  Glass  'Co.  v.  Dewey,  460.  494 

756 
Chestnut  Hill,  etc.,  Co.  v.  Rutter,  1079 
Chetlain   v.   Republic  Life   Ins.    Co., 

302,  460 
Chew  V.  Ellingwood.  596,  1111,   1112 
Chewacla  Lime  Works  v.  Dismukes,  82 
Chicago  V.  Sheldon,  29 
Chicago  V.    Shober,   etc., 

801 
Chicago  &  Atl.   R.   Co., 
498 

R.  R.  Co. 

1302 
Chicago  &  A.  R.  R.  Co.  v.   People, 

1263,  1264,  1302 
Chicago  Building  Society  v.  Crowell, 

loo 
Chicago,  B.  &  K.  C.  R.  R.  Co.  v.  Guf- 

fey,  1280 
Chicago,  B.  &  Q.  R.  R.  Co.  v.  Lewis. 

805 
Chicago,  B.  &  Q.  R.  R.  Co.  v.  School 

Dist.  No.  1,  1302 
Chicago,  D.  &  V.  R.  R.  Co.  v.  Cover, 

975 


Chicago  &  A 


Co.,    445, 
^   Derkes, 
V.  Lamkin, 


xlii 


TABLE  OF  CASES. 


CThe  references  are  to  pages:  vol.  I  contains  pp.  1-707;  vol.  n,  pp.  708-l.Wr.] 


Chicago,  D.  &  V.  R.  R.  Co.  v.  Fos- 

dick,  1080,  1151,  U53,  Um 
Chicago,  D.  &  V.  R.  R.  Co.  v.  Smith, 

Chicago  Deposit  Vault  Co.    v.    Mc- 

Nulta,  120(} 
Chicago  &  Esistorn  III.   K.  R.  Co.  v 

Hay,  357 
Chicago  F.  &  M.  Ins.  Co.  v.  Keiron, 

Chicago  Gas  Light  Co.   v.   People's 
Gas  Light  Co..  503,  1178 

Chicago  &  Grand  Trunk  Ry.  Co    v 
Turner,  1047 

Chicago  &  Iowa  R.  R,  Co.  v.  Pyne 
1015  ^     ' 

Chicago,  K.  &  W.  Ry.  Co.  v.  Comrs. 

Chicago,  K.  &  W.  R.  R.  Co.  v.  Comrs., 

ol  1 

Chicago,  K.  &  W.  R.  R.  Co.  v.  Ozark 

Townshij),  51 
Chicago  M.  &F.  Ins.  Co.  v.  Carpenter. 

627 

Chicago  F.  M.  Ins.  Co.  v.  Stanford, 

Chicago,   M.  &  8t.  Paul  R.   Co.  v 
Hartshorn,  1KK» 

Chicago,  M.  &  St.  P.  Rv.   Co.  v.  Wa- 
bash, St.  L.  &  Pac.liy.  Co.,  1177. 

Chicago  &  N.  W.  R.  R.  Co.  v.  James 

167 
Chicago,  Pekin  &  S.  W.  R.  R.  Co.  v. 

Prest..  etc.,  Town  of  Marseilles, 

455,  503 
Chicago,  R.  I.  &  P.  R.  Co.  v.  Union 

Pftc.  Ry.  Co.,  83 
Chicago,  etc.,  v.  Boone  County,  210 
Chicago,  etc..  R.  R.  Co.  v.  Coleman 

210 

Chicago,  etc.,R.  R.  Co.  v.  President, 

etc.,  460 
Chicago.  St.  Paul,  M.  &  O.  Ry.  Co.  v. 
.,,..,?*^^*^^^  County,  1305,  1306 
Child  V.   Boston  &   Fairhaven    Iron 

Works,  414,  415 
Childs  V.  Alexander,  529 
Childs  V.  Brown  Township,  136 
Clhilds  V.  City  of  Anacosta,  68 
Chilton  V.  People,  1014 
Chipman  v.  Foster,  810 
Chittenden  v.  Thaunhauser,  414 
Choisser  v.  People,  934,  940,  966.  967 
Chouteau  v.  Allen,  241,  245,  1098 
Chouteau  v.  Rowse,  647,  660 
Christian  County  Court  v.  Smith.  907, 

oil 

Christopher  v.   Mayor  of  New  York, 

445 
(^hrystie  v.  Foster,  567 
Chubb  V.  Upton,  762,  1028 


Church  V.  Imp.  Gas  Light  Co.,  98 
Church  V.  Sterling.  235 
Cincinnati,  etc..  Co.  v.   Clarkson,  144 
Cincinnati  R.  R.  Co.  v.  Clinton  Countv 

49 
Citizeas'  JJank  v.  City  of  Terrell,  832. 

Citizens'  Bank  of  Baltimore  v   How- 
ell, 686 
Citizens'  Bank  of  Louisiana  v.  Boanl 
of  Assessors  for  the  Parish  of  Or 
leans,  1285,  1280 

Citizens'  Rank  of  Steubenville  v  Car- 
son. (MO 

Citizens'  B.  L.  &  S.  Assn.  v.  Coriell 
,     347.553  ' 

Citizens'  Loan  Assn.  v.  Lyon   366 

Citizens*  Nat.  Bank  of  Cincinnati  v 
Cincinnati,  N.  O.  &  T.  R  Rv 
Co.,  287  • 

Citizens'  Nat.   Bank  of  Davenport  v 
Importers',  etc.,  Nat.  Bank  of  New 
York,  648 

Citizens'  Pass.    Ry.   Co.   v.   Philadel- 
phia. 104 

Citizens'  Savings  &  Lo»in  Association 
V.  Topeka.  27.  930,  932 

Citizens'  Savings  Bank  v.  Person  Cir  • 
cuit  Judge.  726 

Citizens'  Sav.  &  Lmn  Assn.  v.  l>crrv 
County,  948 

City  V.  Commonwealth.  954 

City  V.  Lamson.  1047 

City  of  Aberdeen  v.  Honey,  438 

City  of  Alma  v.  Guaranty  Savin "S 
Bank,  801 

City  of  Aurora  v.  West,  49.  S(;4,  94'.) 

951 
City  of  Austin  v.  Nallo,  857 
City  of  Beatrice  v.  Brethren  Church 

1280 
City  of  Brazil  v.  McBride,  27 
City  of  Bridgeport  v.  Housatonuc  R. 

R.  Co.,  16.  45.  49 
City  of  Bryan  v.  Page,  430 
City  of  Buffalo  v.  Balcom,  445 
City  of  Buffalo  v.  Hollowav.  294 
City  of  Cardillac  v.  Woodsmket  InsI i- 

tution.  14,  827 
City  of  Cairo  v.  Campbell,  795 
City  of  Cariyle  v.  County  of  Clinton, 

1270  *^ 

City  of  Champaign  v.  Harmon,  5,  437 

438 
City  of  Chicago  v.  Blair.  1270 
City    of    Chicago    v.    Cameron,    316. 

1015 
City  of  Chicago  v.  Gage,  232 
('ity  of  Chicago  v.  Hasley,  795 
City  of  (Chicago  v.  The  People.  65 
City  of  Cleburne  v.  Brown.  44 
City  of  Columbus  v.  Dennison,  969 


TABLE  OF  CASES. 

^^^^.?i  <^'orpus  Christi  v.  Woessner 
429 

City  of  Crawfordsville  v.  Hays.  39 
City  of  Delphi  v.  Bo  wen,  1271 
City  of  Detroit  v.  Dean,  316 
City  of  Detroit  v.  Whittemore,  62 
^-i^J^.of  East  St.  Louis  v.  Albrecht, 

City  of  East  St  Louis  v.  East  St 
Louis  Gas,  Light  &  Coke  Co., 
487 

City  of  East  St.  Louis  v.  Maxwell   13 
City  of  East  St.  Louis  v.  Thomas,'  59 
City  of  Last  St.  Louis  v.  Wehruno-  59 
City  of  Ellsworth  v.  Rochester,  442 
City  of  Eufaula  v.  McNab,  43 
City  of  Evansville  v.  Woodbury,  12 
City  of  Findlay  v.  Pertz.  113 
City  of  Galena  v.  Cor  with,  20,  121 
City  of  Geneseo  v.  Geneseo  Natural 
""    Gas,  Coal  Oil,  Salt  &  Mineral  Co., 

^*^n^^  5/^°^  Rapids   v.  Hydraulic 
Co.,  <0 

City  of  Greencastle  v.  Hazlett,  19 
City  of  Indianola  v.  Jones,  108 
City  of  Indianapolis  v.  Bly.  29 
City  of  Indianapolis  v.   Indianapolis 
etc.,  Co.,  28,  30,  69 


xliii 


City  of  Indianapolis  v.  Miller,  39 

City  of  La  Fayette  v.  Cox,  5,  20,  952 

yny  of  Learned  v.  Jordan,  1145 

^^^yjll^^ing^on  V.  Butler,  IOC,  555, 
o97 

City    of    Lexington     v.    McQuillan's 
Heirs,  946 

^l^  of  Logansport  v.  Dykeman,  59 

^^^^^T.^*^^"  ^-  East  Tenn.,  V.  & 
G.  Ry.  Co.,  953  ' 

City  of  Madison  v.  Smith,  8.50 

» *^*^y  of  Mt.  Vernon  v.  Hovey,  949, 
yoO 

^^*^j?f  j^uscatine  v.  Chicago,  R.  I.  & 

City  of  Nashville  'v.  Sutherland,  438 
)^][y  of  Oakland  v.  Carpenter,  29 
City  of  Paris  v.  Cracraft,  795 
City  of  Paterson  v.  Board  of  Chosen 

Freeholders,  117 
City  of  Pekin  v.  Reynolds,  950 
cul  If  P^V^^^keepsie  v.  Quintard,  853 
City  of  Qiiincy  v.  Steel,  316,  320 

c\tl  ^f  8-","''^  T-  Garfield,  850,  929 
City  of  Richmond  v.  McGirr,  19  850 
City  of  Richmond'  v.    Richmond    & 

DanvilleR.  R.  Co..  1234 
City  of  Rochester  v.  Quintard.  857 
<-ity  of  St.  Louis    V.    Alexander    49 

1114  ' 


City  of  Sherman  v.  Williams,  433 
City  of  Shreveport  v.  Flounioy,  13 
City  of  Somerville  v.  Real,  611  624 

^^^«i^  oA^.P"°^®^^  V-    Edwards,  40, 
ob,  801 

Sl^y  of  Tacoma  v.  Lillis.  798.  799 
City  of  Terrell  v.  Dessaint,  429 

^^o%*  Va'P^raiso  v.  Gardner,  30  69 

874  '      * 

City  of  Vincennes  v.  Callender,  69 
City    of    Williamsport    v.    Common- 
wealth, 20 
City  Bank  v.  Bateman,  561 
City  Bank  v.  Bruce,  76,  455 
City  Bank  v.  Cutter,  685 
City  Bank  v.  First  Nat.  Bank,  661 
City  Bank  v.  Girard  Bank.  657 
City  Bank  of  Baltimore  v.  Bateman 
145  ' 

City   Bank   of  Hartford  v.  Press  Co 
(Lim.),  809 

City  Bank  of  New  Haven  v.  Perkins 
572  ' 

City  Bank  of  Sherman  v.  Weiss.  741 
City  Council   of  Montfl:omerv  v   We 
tumpka  Plank  Road  Co.*,  50.   74, 

City  &  County  of  St.  Loui.s  v    Hex- 

ander,  286 
City  Nat.  Bank  v.  Burnes,  600 


&  Citizens'  Banl 


IV, 


R.  R.   Co. 


Claflin  V.  Farmers 

250,  334,  342 
Claflin  V.  Houseman,  554 
Claflin  V.  South  Carolina 

171 

^^^'^orne  County  v.  Brooks,  125.  862, 
^^*^iioo   ^°^c^tate    Street    Ry.  Co., 

1  Xtfli 

Clapp  V.  City  of  Spokane,  1044 

Ih/'  ^°"°*^  of  Cedar.  115,  8;}2, 

Clapp  V.  Peterson,  455.  1117 
Clark  V.  American  Coal  Co.,  2m.  2H7 
Clark  V.  Bever,  1028 
Clark  V.  Central  R.  R.  &  Bkg.  Co  of 
Georgia,  1222  ^ 

%8'^q'1{  of  Janesville,  4H,    949, 

Clark  v.  City  of  South  Bend,  38 

Clark  V.  Columbus.  67 

Clark  V.  Davenport,  4 

Clark  V.  Des  Moines,  25.  11 1   437 

C  arit  V.  Edgar.  248 

169  ■  ■^''"^^''*''  ^^'o'^l^'n  Mfg.  Co., 
Clark  V.  Farrington.  74.  463 

Cn'-  oil!"'  ^^''"^  ^Marquette  R.  R. 
Clark  V.  Iowa  City,  1047 


xliv 


TABLE  OF  CASES. 


TABLE  OF  CASES. 


xlv 


[The  references  are  to  pages:  vol.  I  contains  pp.  1-707;  vol.  II,  pp.  7(»-1807.] 


It 


Ciark  v.  Polk  County,  446 
Clark  V.  Saline  County,  788,  860 
Clark  V.  Sheldon,  995,  997 
Clark  V.  Stackhou.se,  650 
Clark  V.  Titcomb,  75,  103,  188 
Clark  V.  Town  of  Nobleville,  22,  878 
Clark  V.  Nat.  Metropolitan  Bank,  659 
Cnark  Nat.   Bank  v.  Bank  of  Albia, 

575 
Clarke  v.  City  of  Rochester,  69,  1007. 
Clarke  v.  Hawkins,  712 
Clarke  v.  School  District,  41 
Clarke    v.    Supervisors   of   Hancock 

County.  898,  1004 
Clarke  v.  White,  323 
Clauser  v.  Stone,  655 
Claussen  v.  United  States,  778 
Cltvy  V.  Towle,  244 
Clay  V.  Wright.  137 
Clearwater  v.  3Ieredith,  325,  499 
Clement  v.  Everest.  880 
Clements  v.  Empire  Lumber  Co.,  1233 
Clerks'  Savings  Bank  v.  Thomas,  549 
Cleveland  v.  Amy,  140 
Cleveland  v.  State  Bank  of  Ohio,  445 
Cleveland,    C.    &    S.    K.    R.   Co.  v. 

Knickerbocker  Trust  Co.,  1222 
Cleveland    Rolling  Mill  Co.  v.  Joliet 

Enterprise  Co.,  1129 
Clews  V.  Biink  of  New  York,  595 
Clinch  v.  Financial  Corporation,  325 
(ninton  Company  v.  Kernan,  176,  527 
C,  W.  &  Z.  R.  R.  Co.  V.  Comrs.  of 

Clinton  County,  53 
Chugh  V.  Hart,  57 
Clow  V.  Brown,  415 
Clvde  V.  Richmond  &  Danville  R.  R. 

'  Co.,  1157,  1222,  1223,  1236 
Coal  Company  v.  Lotspeich,  296 
Coates  V.  Preston,  645 
Coatesville    Gas    Co.    v.    County    of 

Chester,  1266 
Coates  V.  Donnell,  565 
Cocheco  Nat.  Bank  v.  Haskell,  571, 

575  579 
Cochran  v.  Anglo-American  Dry  Dock 

&  Warehouse  Co.,  1018 
Cockerell  v.  Cholmeley.  991 
Coddington  v.  Gilbert,  984 
Codman  v.  Vermont  &  Canada  R.  R. 

Co.,  1052 
(^ody  V.  City  Nat.  Bank,  682 
Coe  v.  Columbus,  Piqua  &  Ind.  R.  R. 

Co.,  1013,  1021.  1054,  1077 
Coe  V.  East  &  West  R.  R.  Co.  of  Ala., 

1020,  1029,  1031,  1034,  1035,  1040, 

1041 
Coe  V.  Errol,  1294 
Coe  V.  New  Jersey  Midland  Ry.  Co., 

1055,  1198,  1258 
Coffin  V.  Anderson.  634 
Coffin  V.  City  Council,  69 


Coffin  V.  City  of  Indianapolis,  13,  856, 

863 
Coffin  V.  Henshaw,  638 
Coffin  V.  Nantucket,  111 
Cogan  V.  Mayor,  etc.,  of  New  York, 

131 
Coggeshall  v.  City  of  Des  Moines,  66, 

67 
Coghlan  v.  South  Carolina  R.  R.  Co., 

1020,  1163 
Cogswell     V.     Rockingham    Savings 

Bank,  617 
Cohea  v.  Hunt,  691 
Coit  V.  Gold  Amalgamating  Co.,  1029 
Coit  V.  Noble,  681 
Colby  V.  Copp,  1108 
Cole  V.  Northwestern  Bank,  539 
Coleman  v.  Coleman,  371 
Coleman  v.  Ewing,  641 
Coleman  v.  Second  Avenue  R.  R.  Co., 

260,  279 
Coler  v.  Cleburne,  872 
Coler  V.  School  Township,  880 
Coles  V.  Cleburne,  857 
Collector  v.  Day,  1276 
Collen  v.  Wright.  372 
Colling  wood  v.  Merchants'  Bank,  696 
Collins  V.  Gilbert,  980 
Collins  V.  Hatch,  5 
Colman  V.  Eastern  Counties  Ry.,  84, 

95,  451,  471 
Colman  v.  Riches,  294 
Colman  v.  Eaves,  828 
Colorado  C.  R.  R.  Co.  v.  Lea,  46 
Colusa  County  v.  De  Jarnett,  118 
Colt  V.  Barnes,  952 
Colt  V.  Brown,  720 
Colt  V.  Wollaston,  294 
Colter  V.  Frese,  1250 
Columbia  Bank  v.  Gospel  Tabernacle 

Church,  218 
Columbia  &  P.  S.  R.  R.  Co.  v.  Chil- 

berg,  1305 
Columbia  Electric  Co.  v.  Dixon,  821 
Columbia   Finance    &   Trust    Co.  v. 

Kentucky  Union  Ry.   Co.,   1050, 

1095,  1168 
Columbian  Bank's  Estate,  752 
Columbian  Southern  Railway  Co.  v. 

Wright,  1304 
Colwell  V.  Keystone  Iron  Co.,  233 
Coman  v.  Lakey,  1068 
Coman  v.  State  ex  rel.  Annstrong,  123 
Comanche  County  v.  Lewis,  12,  844 
Combination  Trust  Co.  v.  Weed,  102, 

307 
Combs  v.  Scott,  172 
Commercial  Bank  v.  Newport  Mfg. 

Co.,  102 
Commercial  Bank  v.  Union  Bank,  695 
Commercial     Bank     of    Albany    v. 

Hughes.  598,  637 


[The  references  are  to  pages:  vol.  I  contains  pp.  1-707;  vol.  II,  pp.  708-1307.] 


Commercial  Bank  of  Buffalo  v.  Kort- 

right,  763 
Commercial    Bank    of    Danville    v. 

Burgwyn.  570 
Commercial  Bank  of  Erie  v.  Norton, 

222 
Commercial    Bank   of    Kentucky    v. 

Varnum,  687 
Commercial  Bank  of    Manchester  v. 

Bonner,  648 
Commercial   Bank  of  Manchester  v. 

Nolan,  530 
Commercial  Bank  of  Pennsylvania  v, 

Armstrong,  744,  745,  753 
Commercial  «&  Farmers'  Nat.  Bank  v. 

First  Nat.  Bank,  668,  671 
Commercial  Fire  Ins.  Co.  v.  Board  of 

Revenue  of  Montgomery  County, 

91 
Commercial  Nat.  Bank  v.  lola,  27 
Commercial   Nat.   Bank    v.   Proctor, 

602,  642 
Commercial  Nat.  Bank  of  Cincinnati 

V.    Hamilton    Nat.   Bank  of  Ft. 

Wayne.  706 
Commercial     &    Railroad    Bank    v. 

Hamer,  691 
Commissioner  v.  Winkley,  803 
Commissioners    v,    Bolles,    897,    982, 

1002 
Commisioners  v.  Clark,  353,  897,  965, 

980 
Comrs.  V.  January,  328,  888,  897,  965, 

982 
Commissioners  v.  Kelley,  437 
Commissioners  v.  Lee,  116 
Commissioners  v.  Thaj^er,  915 
Comrs.,  etc.,  v.  Holman.  31 
Comrs.  of  Craven  County  v.  Atlantic 

&N.  C.  R.  R.  Co.,  97 
Comrs.  of  Highways  v.  Newell,  16 
Comrs.  of  Knox  County  v.  Aspinwall, 

71,  328,  897,  913,  956,  980 
Comrs.  of  Knox  County  v.  Wallace, 

49  ^ 

Comrs.    of    Leavenworth   County  v. 

Brewer,  442 
Comrs.   of  Leavenworth     County  v. 

Miller,  55 
Comrs.    ex    rel.    Thomas    v.   Comrs. 

Allegheny  County,  49 
Comrs.  Court  of  Limestone  County  v. 

Rather,  943 
Common    Council  of  City    of    Mus- 
kegon V.  Gore,  852 
Commonwealth  v.  American  Life  Ins. 

Co.,  1292 
Commonwealth  v.  American  Machine 

Co.,  1292 
Commonwealth  v.  Bank,  334 
Commonwealth  v.  R.  R.  Co.,  1306 
Commonwealth  v.  Canal  Co.,  1292 


Commonwealth  v.    Comrs.    of   Alle- 
gheny, 954.  1000 
Commonwealth   v.  Commissioners  of 

Philadelphia,  132 
Commonwealth  v.  East  Bangor  Con- 
solidated Slate  Co.,  1280 
Commonwealth  v.  Edgerton  Coal  Co  , 

1279,  1292 
Commonwealth  v.  Erie  &  Northeast 

Rjiilroad,  1097 
Commonwealth  v.   Essex    Company, 

917 
Commonwealth  v.   Fall  Brook   Coal 

Co.,  1279 
Commonwealth  v.  Franklin  Insurance 

Co.,  1203 
Commonwealth  v.    J.   B.    Lippincott 

Co.,  1280 
Commonwealth    v.    Judge,    etc.,    of 

Lebanon  County,  48 
Commonwealth  v.  .Juniata  Coke  Co., 

1280 
Commonwealth    v.  Keystone  Bridge 

Co.,  1280 
Commonwealth  v.  Lehigh  Avenue  Ry. 

Co.,  104 
Commonwealth    v.    Lehigh    Coal    & 

Navigation  Co.,  1279 
Commonwealth   v.  Lehigh  Valley  R. 

R.  Co.,  1302 
Commonwealth     v.    Louisville,     St. 

Louis  &K.  Ry.  Co.,  1305 
Commonwealth  v.  Lowell  Gas  Light 

Co.,  1064 
Commonwealth  v.  McWilliams,  48,  49, 

901 
Commonwealth  v.  Minersville  Water 

Co.,  1279 
Common wejilth  v.  Pennsylvania  Coal 

Co.,  1292 
Commonwealth  v.  Penn.  Gas  Coal  Co., 

1292 
Commonwealth   v.  Pittsburgh  &  W. 

R.  Co.,  1279 
Commonwealth  v.  Painter,  48 
Commonwealth  v.  Philadelphia  &  E. 

R.  R.  Co.,  1279 
Commonwealth  v.  Pittsburgh,  954,  955 
Commonwealth  v.  Pittsburgh  Bridge 

Co.,  1280 
Commonwealth  v.  Pottsville  Iron  & 

Steel  Co.,  1280 
Commonwealth  v.  Railway  Co.,  1306 
Commonwealth  v.  Savage  Fire  Brick 

Co.,  1280 
Commonwealth   v.   Sharon  Coal  Co. 

(Lim.),  1292 
Commonwealth  v.  Smith,  93,  97, 1013, 

1063 
Commonwealth  v.  Sponster,  1146 
Commonwealth  v.  Standard  Oil  Co., 

1292 


xlvi 


TABLE  OF  CASES. 


TABLE  OF  CASES. 


xlvii 


[The  references  are  to  pai?e8:  vol.  I  contains  pp.  1-707;  vol.  n,  pp.  70ft-iaw.] 


Ovrnmon wealth  v.  SuflFolk  Trust  Co  . 

('oinmonwealth     v.     Supervisors    of 

Colley,  136 
Cpnimonwealth  v.  Thackara  Mfg.  Co.. 

1280 
Commonwealth    v.    Western    Union 

Telegraph  Co.,  1292 
(Commonwealth  v.  Williamstown,  1000 
Commonwealth     v.    Wilkesbarre     & 

Seranton  Railway  Co.,  1290 
Commonwealth  v.  Wilmin«rton  &  N. 

li.  H.  Co..  1104 
Commonwealth    v.   Wm.   Mann  Co. 

1280 
Commonwealth  ex  rel.  Armstrong  v. 

Perkinn  et  al.,   Comrs.   of  Alle- 
ghany County,  46 
Commonwealth   e.v  rel.    Reinboth  v. 

Councils  of  Pittsburgh,  17 
Compton  V.  Jesup,  1055 
Conaut  V.  Seneca  County  Bank,  525 
Concord  v.  Robinson,  if,  872 
Cone  V.  City  of  Hartfonl.  42 
Conine  v.  J.  &  B.  R.  R.  Co.,  805 
Conklin  v.  School  District,  40 

Conley  v.  Directors  of  West  Deer,  138  i  Corneii  v.  CorbVn,  3(S 
Connecticut  Mut.  ]..  Ins.  Co.  v.  Cleve-  I  Cornell  v.  Roach.  396 

land.  Col.  &  Cin.  R.  R.  Co.,  79,    Cornell  University  v.  Maumee,  969 

9.W,  1014  Corning  v.  Cullogh,  400 

Conner  v.  Drake,  1152  ~ 

Connett  v.  City  of  Chicago.  236 
Conover  v.  Insurance  Comjmnv 


Coolidge  V.  Brookline,  35 
Coons  V.  Tome,  250 
Coons  &  Braine  v.  Tome,  1108 
Cooper  v.  Corbin,  1082.  1096 
Cooper  V.  Delevan,  58 
Cooper  V.  Frederick,  76 
Cooper  v.  Lampeter  Township,  135 
Coote  &  .Tones  v.  Bank  U.  8.,  638 
Coots  V.  MeConnell,  638 
Copelaud  v.  Copeland,  1169 
Copeland  v.   Johnson  Mfg.  Co.,  263. 
278  6         »        . 

Copes  V.  Charleston,  49,  964 

Coppin  V.  (Ireenlees,  1116 

Co(iu:ird  v.  St.  Louis  Cotton  Com- 
press Co.,  811 

Corbit  v.  Bank  of  Smyrna,  598,  600 

Corbit  v.  Nicoll,  188 

Corcoran  v.  Snow  Cattle  Co.,  227,  571 

Corey  v.  Morrill,  418 

Corev  V.  Wads  worth,  1111,  1124 

Cork  V.  Bacon,  646 

Corn  Exchange  Bank  v.  American 
Dock  &  Trust  Co.,  235 

Cornell  v.  Clark.  273 

Cornell  v.  Guilford.  445 


.  183. 
226 

Conrad  v.  Trustees  of  Ithaca,  121 
(!onro  v.  Port  Henry  Iron  Co..  250 
Conshohocken  Tube  Co.  v.  Iron  Car 

Equipment  Co.,  1048 
Consolidated  Tank  Line  Co.  v.  Kansas 

City  Varnish  Co.,  254 
Consolidated  Trust  Co.  of  New  York 

V.  TolcHlo,  St.  L.  &  K.  C.  R.  R. 

Co..  1208 
Continental  Nat.  Bank  v.  Nat.   Bank 

of  the  Commonwealth,  595 
Continental  Nat.  Bank  of  New  York 

V.  Weems,  731,  739.  741,  742,  743 
Conway  v.  Halsey.  311 
Cook  V.  Berlin  Woolen  M.  Co.,  250 
Cook  v.  City  of  Burlington,  1298 
Cook  v.  Deerfield.  135 
Cook  v.   East  Trenton  Pottery  Co.. 

1124 
Cook  V.  Pennsylvania,  1293 
Cook  V.  Putnam  County,  130 
Cook  V.  State  Bank  of  Boston,  651,  653 
Cook  V.  Tullis,  748 
Cook  County  v.  McCrea,  4,  5,  432 
Cook  Mfg.  Co.  V.  Randall,  455 
Cooke  V.  State  Nat.  Bank  of  Boston. 

554,  655 
Cooke  V.  United  States,  674.  677 


Corning  v.  Mohawk  Valley  Ins.  Co.. 

1141 
Coming  v.  Walker,  210 
Cornwell  v.  Kinney,  524,  608 
Corporation  of  BluflFton  v.  Studabaker. 

37 
Corrugating  Co.  v.  Thacher,  1134 
Corsex  v,  Paul,  574 
Cory  V.  Board,  113 
Cothran  v.  City  of  Rome,  19 
Cotton  y.  Comrs.  of  Leon,  49 
Cotton  Mills  y.  C.  C.  Randleman  Cot- 
ton Mills,  1123 
Coulson  y.  City  of  Portland,  68,  69 
County  V.  Barker,  132 
County  Comrs.  v.  Beal,  893 
County  Comrs.  v.  Chandler,  55 
County  Comrs.  of    Lucas  County  v. 

Hunt,  112 
County  Court  y.  Baltimore  &  Ohio  R. 

R.  Co  ,  263,  820,  1071 
County  Cuurt  of  Macoupin  County  v. 

People  ex  rel.,  etc.,  903 
County  Judge  v.  Shelby  R.  R.  Co., 

871,  946 
County  of  Bates  v.  Winters,  935 
County  of  Beaver  v.  Armstrong,  1047 
County  of  Cass  v.  Johnston,  911 
County  of  Clay  v.  Sooiety  for  Savings. 

948 
County  of  Cook  v.  Lowe,  801,  802 
County  of  Crawford  v.  Spenney,  135 


[The  references  are  to  page.s:  vol.  I  contains  pp.  1-707:  vol.  II,  pp.  708-13(»'.] 


County   of    Erie   v.    Western   Trans 

portation  Co.,  1266 
County  of  Greene  v.  Daniel,  847,  933 

943 


Crampton  v.  Zabriskie,  788 
Crane  v.  Heara,  365 
Crane  v.  Pacific  Bank,  1121 
Crane  v.  Railway  C^o.,  920 


County   of  Hardin    v.   McFarlan,  16,  |  Craven  v.  Atlantic  &' North  Carolina 


120 
('Ounty  of  Hennepin   v.  8t.  Paul    M 

&  M.  Hy.  (Jo.,  1300 
County  of  Jackson  v.  Hall,  110 
C\)unty  of  Jackson  v.  Rendleman    16 

120 
County  of  Johns(jn  \ .  Wood.  129 


R.  R.  Co.  1013.  1021 
(■raw^v.  Bangor  Home  Proprietory, 

1»>8 
Craw  V.  Village  of  Toledo,  1268 
('rawford   v.    Louisiana   State   Bank 

681 

,,        -     ,.  ,  ,  ,,.  -  ,  Crawford  V.  Ross,  1191 

(  ounty  of  Lancaster  v.  Chcrraw  &  C.  '  Crawford  v.  Spencer,  362 

R.  R.  Co.,  900  I  Crawford  v.  West  Side  Bank.  653  657 


Ten  Cent  Sav.  Bank,  897,  989 
County  of  Pickens  v.  Daniel.  933.  943 
('ounty  of  Pike  v.  Hosford,  16 


Crescent  City  Brewing  Co.  v.  Planner 

272 
Creswell  v.  I^nahan,  214,  572 


/^      ^P    f  u.  .     ^  *^7.  946,  980,  1041 

(ounty  of  Stevens  v.  St.  Paul.  M.  A-[(Vomwell  v.  I^)vett.  648 

( ^..nnil    -^    i-  1^^  t  .      '  ^  ''''*^'^^'^'  ^-  N»^-  I^a^k  of  Chetopa,  529, 

(ounty    of    Tipton     v.     Locomotive  330    534 

Works.  935.  937.  938  >  (docket  v.  Young.  573 

""qrfo"    NVarren  v.  Many.  328,  897.  j  C^rook  v.  Jewctt  ^309 

(X>vert  V.  Rho<les.  663,  664  '^'''tl    mt"   '""'"":  '''''   ""  "" 

Covert  V.  Rogers.   1112  (Yosby  'v.  Wyatt  602 

''''JhiJa.0 Tt^'r^   ^ulr^'^y'"'  ^^    ^'^-^^r,   ^^-    Aiglo-American    Banking 
r'«,  •        ^c    T  ^\^^'  1^>'>4  ;  Company,  155,  175  ^^ 

(  ovington  &  Lexmgton  R.  R.  Co.  v.    Cross  v.  North  Carolina    778 

Bowler.  271  Cross  v.  Rowe.  574 

(ovington  V.  C,  etc,  Bridge  Co..  73.  ,  Cross  v.  Sackett,  291,  302  309 

C    A"  f    K   1?   n          u     .       f^             ^ 'row  V.  Mechanics' Bank,  691 
<      «B  L.  H.  K.  ( <).  V.  Kenton  County 

Court,  46 
C.  »&  N.  li.  R.  Co.  V.  James.  150 


Crowinshield  v.  Supervisors,  995,  997 
Crowley  v.  Genesee  Mining  Company 
('    ^  (\    I?   i>  /.  ^        ,  ^^  154,  174,  195,  206 

*     Court  46  '  ■         ""^^  "^^^  '  ^^^'*'''^"  ^""'"^  ^^^   ^^"'^  '  •  Richmond 

Cowdrev  v.  Galveston,  Houston   etc 

Railroad.  1206.  1232 
(vowen  V.  West  Troy,  114,  446 
(^>wgill  V.  I^)ng,  1006 
Cowles  V.  Mercer  County,  845 
('ox  v.  Batteman,  625 
Cox  V.  Midland  Counties  Ry   Co    98 
Coy  v.  City  Council,  69 
Craft  V.  South  Boston  R.  R.    Co     2'>7 

230,  235,  338  "    '  ' 

Cmig  v.  Gregg,  560 
Craig  V.  Town  of  Andes,  985 
(-ruig    Medicine    Co.    v.     Merchants' 

Bank  of  Rochester,  215 
Cragil  v.  Hadley,  621,  623.  634,  626 
Crain  v.  National  Bank,  572 
Cram  v.   Bangor  House  Proprietary, 


National  Bank,  744 

Crumlish's  Admr.  v.  Shenandoah  Val- 
ley R.  R.  Co.,  1232 

Crump  y.  United  States  Mining  Com- 
pany, 155 

(Vum's  Appeal,  166 

Crutcher  v.  Kentucky,  1267.  1293 

Culbertson  v.  City  of  Fulton,  70 

Cullen  V.  Town  of  Carthage,  62 

Culver  V.  Avery.  294 

Culver  v.  Reno  Real  Estate  Co.,  150. 
466 

Cumberland  Coal  &  Iron  Co  v  Par- 
ish, 241,  243,  250 

Cumberland  Coal  &  Iron  Co.  v  Sher- 
man, 241,  251,  260,  263,  270,  302, 
316 

Gumming  v.  Brooklyn,  65 

Cummings  v.  Bank,  1273,  1297 


lilll 


ll 


III 


Xlviii  TABLE  OF  CASES. 

[The  references  are  to  pages:  vol.  I  contains  pp.  1-707 ;  vol.  II,  pp.  708-1307.1 


Cummins  v.  City  of  Seymour,  427 
Cummins  v.  District  ot  Doon,  896 
Cunlitre  v.  Manchester  &  Bolton  Canal 

Co..  300 
Cunningham  v.   Massena  Springs  & 

Ft.  C.  R  Co.,  821 
Cunningham  v.  Pell,  302 
Curnan   v.    Delaware  &  O.  K.  Com- 
pany, 151 
Curncn  v.  Mayor,  793 
Curran  v.  Arkansas,  1108,  1113 
Currie  v.  Bowman,  235,  1081 
Currier  v.  Slate  Company,  1116 
Curry  v.  Woodward,  357 
Curson  v.  African  Co.,  720 
Curtis  V.  Gokey.  1089 
Curtis  V.  Leavitt.  19,  65,  75,  85,  93, 

101,  102.  484,  534 
Curtis  V.  Piedmont  Lumber  &  Mining 

Co.,  800 
Gushing  v.  Gove,  660 
Cushing  V.  Stoughton.  35 
Cuslmian  v.  Carver,  647 
Cushman  v.  Illinois  Starch  Co. .  627 
Cutler  V.  Madison  County,  913 
Cutler  V.  Reynolds.  656 
Cutting  V.  Florida  Ry.  &  Nav.  Co. 

(Mallory  et  al..  Interveners),  1204 
Cutting  v.  Florida  Ry.  «fc  Nav.  Co. 

(Wilson,  Intervener),  1162 
Cutting  V.  Marlor,  538,  553 
Cutting  V.  Tavares.  O.  &  A.  11.  R.  Co. 

(Florida  Central  &  P.  R.  R.  Co.. 

Intervener),  1175,  1180,  1246 

D. 


72 


Dabney  v.  Stevens,  1' 
Dabree  v.  Eastwood,  693 


Daegett  v. 


Whiting, 


658 


Datly  V.  City  of  Columbus,  20,  849 
Dallas  V.  Columbia  Iron  &  Steel  Co. , 

239 
Dallas  Countv  v.  Iluidekoper,  903 
Daly  V.  Nat.Xife  Ins.  Co.,  457 
Daman  v.  Gnmby,  111 
Dana  v.  Bank  of  United   States.  97. 

1013,  1108,  1111,  1112 
Dana  v.  Boston  Third  Nat.  Bank,  649 
Dana  v.  Brown,  526 
Dane  v.  Dane  Manufg.  Co.,  769 
Danforth  v.  National  State  Bank  of 

Elizabeth,  535 
Danforth  v.  Schoharie  &  Duanesburgh 

Turnpike  Road,  32 
Daniel  v.  Mayor,  etc.,  of  Memphis,  63 
Danielly  v.  Cabaniss,  23,  882 
Daniels  v.  Burford,  799 
Daniels  v.  Davison,  1108 
Daniels  v.  Kyle,  659,  705 
Danvemeyer  v.  Coleman,  316 
Danville  Seminary  v.  Mott,  809 


Da  Pontc  v.  No.  Pac.  R.  R.  Co.,  1013, 

1055 
Darling  v.  St.  Paul.  59 
Darst  V.  Gale,  489 

Dartmouth  College  v.  Woodword,  487 
Dauchy  v.  Brown,  92 
Davenport  v.  Dodge  County,  947 
Davenport  v.  Inhabitants  of  Ilallo well. 

29 
Davenport  v.  Johnson,  137 
Davenport  v,  Kleinschmidt,  68 
Davenport  v.  Railroad  Co.,  1231 
Davenport  v.  Tilton.  1118 
Davenport  Gas  Light  &  Coke  Co.  ▼. 

City  of  Davenport,  29 
Davidson  v,  Bridgeport,  806 
Davidson  v.  Mexi^jiiu  National  R,  Co. , 

284 
Davidson   v.  Westchester  Gas  Light 

Co.,  160,  1063 
Daviess  County  v.  Dickinson,  446,  842, 

927 
Daviess  County  v.  Iluidekoper,  8^)0. 

957 
Daviess  Co.  Sav.  Assn.  v.  Sailor,  575 
Davis  v.  American  Organ  Co. ,  464 
Davis  V.  Bank,  600 
Davis  V.  Board  of  Supervisors  of  On- 
tonagon County,  127 
Davis  V.  Gummcll,  316,  809 
Davis  V.  Gray,  1105,  1223 
Davis  V.  Jenney,  1071 
Davis  V.  Lee  Camp  No.   1.  C.  V'.,  155 
Davis  V.    Lenawee    County    Savings 

Bank.  617 
Davis  V.  Litchfield.  1268 
Davis  V.  Manufacturing  Co.,  1144 
Davis  V.  Mining  Co.,  263 
Davis  V.  Old  Colony  R.  R.  Co..  80,  82, 

93,  451,  464,  465,  466,  818 
Davis  V.  Power  Company,  1123 
Davis  V.  Proprietors  of  Meeting  House, 

75,484 
Davis  V.  Randall,  529 
Davis  V.  Rock  Creek  L.  F.  &  M.  Co., 

196 
Davis  V.  United  States  Electric  Power 

&  Light  Co.,  1123 
Davis  V.  Wells,  545 
Davis    V.   West    Saratoga    Buildingj 

Union,  99 
Davis  V.  Yuba,  946 
Davue  v.  Fanning,  264,  1039 
Daws  v.  North  River  Insurance  Co., 

182 
Dawson  v.  Real  Estate  Bank,  637 
Dawson  County    v.    McNamara,   55, 

917 
Day  v.  Green,  111 

Day  v.   Ogdensburg  &  Lake  Cham- 
plain  R.  R.  Co.,  1045 
Day  v.  Otis,  134 


TABLE  OF  CASES. 


mmr  r*^^  -!•. ' "-'"-  ^^-  ^-■""■'  -■  ^^  pp-  ^•^.aor, 


xiix: 


Day  V.   Spiral  Springs  Buffffv   Co 

489,  496,  497  ^^^         ' 

Dean  v.  Biggs,  1096 
Dearborn  v.  Brookline.  20 
DeCamp  v.  Alward,  1111 

Decker  V.  G.,  etc.,  Co.,  234 
Decker  v.  Hughes,  898.  975 
Dedham  Inst,  for  Savings  v.  Slack 
172,  179,  238  ^  ' 

Deere  v.  Marsden,  362 
Deering  v.  Thom,  358 
Deg  V.  Deg,  625 

p^^.Ii  American  Linen  Thread 

Dehen  v.  C^ty  of  Havana,  67 

De  Kay  v.  Water  Co..  583 

Delafield  v.  State  of  Illinois,  111 

Deland  v.  Platte  County,  922 

Delano  v.  Butler,  519 

Delano  v.  Case,  553 

Dela\yare  &  Hudson    Canal    Co     v 

Commonwealth,  1302 
^«^%^^are  L.  &  W.  R.  R.  Co.  v.  Ox- 

ford  Iron  Co.,  1252 

^^"212'''  ^^^^"^  ^^^^""^  Athletic  Club, 
Delooch  v.  Jones,  505 

216"'™^^'"  ^'''    ""'    ^^^^^»^s,  209, 
De  Mattos  v.  City  of  New  Whatcom. 

Deming  v.  State  ex  rel.,  792 
Demmon  v.  Boylston  Bank,  640 
Denike    v    New   York  &  Rosendale 

Lime  &  Cement  Co.,  1125 
Denison  v.  Mayor,  etc..  of  City  of  Co- 

lumbus,  9(i5  "^ 

Dennie  v.  Walker.  641 

R-^Co";*  ?m''^^''^  *  Pittsburg  R. 
Denny  v.  Denny,  874 
Denny  Hotel  Co.  v.  Schram.  76  470 
Densmore  Oil  Co.  v.  Densmor^.  298, 

Denton  v.  Davis,  742 

jZf'.^^t  ^^°d^  ^    R-  Co.  V. 

1023  '^'"'^  ^^^    1^17. 

Deringer's  Admr.  v.  Deringer's  Admr., 

Derry  v.  Feck,  293 

De  Ruvigne's  Case,  300 

Des  Moines  Gas  Co.  v    West    fls    Aaa 

Desmond  v.  Jefferson   13       '       '  ^^ 

Despatch  Line  of  Packets  v.  Bellamy 

Detroit  Sav.  Bank  v.  Tr.iesdale,  506 


vu 


Devaynes  v.  Noble,  676 

York  29''^'"''  ^*''"  ^'^^  ^^  ^^"^ 
De  Voss  V.  Richmond,  111 
Dewar  v.  Bank  of  Montreal,  629 
Dewey  v.  Barers,  690 
Dewey  v.  Railway  Co.,  470,  821 
Dewing  V.  Perdicaries,  311,  560 
De  Witt  V.  Walton,  360 
Day  V.  Jersey  City,  112 

Dibble  V.  Town  of  New  Haven,  789 
Dickerson  v.  Cass  County.  1126 
Dickinson  Hardware  Co.  v.  Pulaski 

County,  56 
Dickinson  v.  Inhabitants  of  Conway, 

Dickinson  Township  v.  Linn,  139 

Dill  V.  Wareham,  446 

Dillingham  v.  Kelly,  1228 

Dillon  V.  Insurance  Co.,  539 

Dimpfel  V.  Ohio  &  Miss.  Ry.  Co.,  316^ 

Dinsmore  v.  Duncan,  1014 

'^^kfn  gSJ'^^^^P  of  Walnut  v.  Ran- 

Ditch  v!  Western  Nat.  Bank  of  Balti- 
more, 616 
Ditch  Company  v.  Zellerbach,  942 
Dively  V.  City  of  Cedar  Falls  69 
uix  V.  Dummerston.  137  379 

H^^Ta^ZJ'^^^'  ^'^2.  833,  835, 
836.  839,  842,  843,  869,  885.  897, 

Dobbins  v.  Commissioners.  1276 
Dodd  V.  Wilkinson,  356 
Dodge  V.  City  of  Memphis,  1004 
Dodge  V.  County  of  Platte,  111 
Dodge    V.   Minnesota    Plastic    Slate 
Hoofing  Co.,  388 

646  'e^f  ^^^«"^^1  Exchange  Bank, 

''"'fu:3r8^^^¥'  ''''  ""''  ''''  '''' 

''"t^on'ca'S 

Dolan^v.  Joint  School  District,  etc.,. 

Dolan  V.  Mayor,  798 
Dolsen  v.  Brown,  665 
Donaldson  v.  Haldane,  848 

504,  572^'"^^'  ^^^°'y  S^^-  Bank. 
^''"W266'^'  ™^delphia  Library 
Donovan  v.  Mayor,  etc.,  of  New  York, 

Doon  Township  v.  Cummins,  896 
Donau  v.  C,ty  of  Shreveport  857 
Dorsey  v.  Abrams,  572 
Dorsey  County  v.  Whitehead  445 
Doty  V.  Bates,  187  ' 

Doty  V.  Ellsbree,  125,  844 


I 


TABLE  OF  CASES. 


TABLE  OF  CASES. 


11' 


[The  referen 

Doiid   V.    Nat. 

York,  rA', 
Doud  V.   WisiioQaiii 

316 
Do«£^hertv  v.  Hnin.r.  i«»i.  198  210 
Doiighiss  V.  City  of  .\nni.st(»ii,  1262 
Douglass  V.  Ireland.  KU 
Douglass  V.   Mayor,   eu-..    of  Placer 


H 


Park     liai.k   of  New 
i^   iV  S    Ry.  Co., 


ville.  5,  25,  48 


Douglass  V 


Mayor,  etc.,  of  Virginia, 
121  * 

Douglass  V.  Pike  Count  V.  i».-)7   1037 
Dow  V.  Beidleman,  1 1 ;«;' 
Dow  V.  Memphis  cVr  Little  Kock  R.  R 

Co..  1103.  1186.  12:51 
Dowd  V.  Stephenson.  !l>:] 
Downes  v.  Phoenix  Hank.  <i04 
Downer  v.  Zanesville  Hank   525 
Downing  v.  Diinlai.  <  ual.  Iron  &  Rv 
Co.,  1123  ^ 

Downing  v.  Mount  \N  ashingtou  Road 

Co.,   145 
Drake  v.  Flewellen.  ;!."»0 
Drake  v.  Phillips,  :v»o 
Dresser  v.   Missouri,   rt...    Construc- 
tion Co..  615 
Driesbaeh  v.  National   Hank.  528,  531 
Dnftwo)d    Valley    'Inrnpike   Co.    v. 
Board,  etc..  Rirt]»ol,.mew  Countv 
26,  427.  437.  442  ^' 

Drovers' Nat.   Bank   v.   .\nglo- Ameri- 
can P.   &  Provision  Co.    653  682 
692,  696.  697.  7nr, 
Drovers'  Nut.  Bank  v.  O'llare  607 
Drown  v.  Pawtuck.i  H:,„k   689 
Drury  v.  Cross.  242.  24:i.  1108 
Druse  v.  Wh.eler.  144 
Dubuque  College  v.  r>nhm(ue  236 
Dubuque  County    x.    ]).   A:   P.   R.  R 

Co.,  49 
Duffield  V.  Wire  d'  Iron  \\'orks.  761 
Duggan  V.  Pacific  Bo«.rn  Co.,  154  239 
Duke  V.  Markham.  10(>«>.  i(»:7 
Dull  V.  Ridgway,  13.'» 
Duncan  v.  Board  of  Comrs.  of  Law- 
rence Countv,  12:! 


'"•  '•'  l'a::es:  vol.  I  contains  pp.  1-707;  vol.  II,  pp.  708-1.30?. j 

Dunn  V.  AVeston,  207 

Dunphy  ^.Traveller  Newspaper  Assn., 
0I6 

Durant  v.  Iowa  County  972 

Durfee  v.  Old  Colony  &  F.  R.  Co..  322 

Durkee  v.  City  Bank.  527,  528 

Durnford  v.  -Patterson,  681 

Dustin  &  Musifk  v.  Hodgen,  601 

Dwight  V.  Lumber  Company,  209 

Dwight  V.  Smith,  1045 

Dwyer  v.  Rathbone.  Sard  &  Co.,  809 

Dykers  v.  Bank,  664 


E. 

Earle  V.  Seattle,  Lake  Shore  &  Eastern 

Ry.  Co.,  318,  474 
East  Anglian  Ry.  Co.  v.  Eastern  Coun- 

ties  Ry.  Co.,  95,  449,471 
Easterly  v.  Barber,  398,  402 
Eastern  Countip.q  Rv   n^^    xr 


Duncan  v.  Brennau.  .">24 

Duncan  v.  Jaudon,  "i:U>.  rsii 

Duncan  v.  Maryland  Sav.  Institution. 

528,  535 
Duncan  v.  Mobile  *!ir  (Miio  R   R   Co 

1017 
Duncan  v.  Watson.  »>xs 
Duncomb   v.  New   Ymk    II   &  N    R 
R    Co..    260.    270.    2;><.  282    308' 
1024.  1039.  1055.  1 084    1112  ' 
Duncombe  v.  City  of  F«.rt  Dodge,  108 
Dunham  v.  Cincinnati.  P.,  etc    R  R 
Co..  1095  •»     •     . 

Dunham  v.  Isett.  1054 
^"°?^'2  '    ^'^^^^^^*    '^^    Wyde  Park, 


Eastern  Counties  Ry.  Co.  v.  Hawkes 

448,  491 
Eastern  Delaware  Bridge  Co.  v  Metz 

Collector,  1295 
Eastern  Townships  Bank  v.  Vermont 

National  Bank,  729 
Eastman  v.  Coos  Bank,  145,  574 
East  on  v.  Railroad  Co.,  1234 
East   New   York,   etc.,   R.  R.  Co.    v. 

Lighthall,  183 
East  ^ew  York  &  Jamaica  R.  R.  Co 

V.  Elmore,  260 
East  Nissouri  v.  Horseman,  799 
Eact  Oakland  v.  Skinner,  446 
East  River  Bank  v.  Gedney,  702 
East  River  Nat.  Bank  v.  (^ore,  596 
East  Rome  Town  Co.  v.  Brower,  156 
Ea-.t  St.  Louis  v.  East  St.  Louis,'  etc 

Co.,  69 
East  St.  Louis  v.  People,  66 
East  St.  Louis  Gas  Light  &  Coke  Co 

V.  City  of  East  St.  Louis,  438 
East  Tennessee,  Va.  &  Ga.  R.  R.  Co. 

V.  Atlanta  &  Florida  R.  R.  Co., 

1195 
Eaton  V.  Robinson,  318 
Eaton  &  Hamilton  R.  R.  Co.  v.  Hunt 

471 

Eaton  v.  Union  County  Nat.  Bank. 
loOO 

Ebough  V.  German  Reformed  Church, 
169 

E.  Carver  Co.  v.  Manufacturers'  Ins 
•      Co.,  193,  217 
Eccles  V.  Drovers  &  Mechanics'  Nat 

Bank,  608 
Ecker  v.   First    Nat.   Bank   of  New 

Windsor,  575 
Eddy  v.  La  Fayette,  1230,  1231 
Eddy  V.  People,  954,  962 
Eddy  V.  Wallace.  1225 
Edey  v.  City  of  Shreveport,  18 


[The  references  are  to  pages:  vol.  I  contains  pp.  1-707;  vol.  U,  pp.  70S-13(yr.] 


Edison  v.  Edison  United  Phonograoh 
Co.,  1121  ^ 

Edison  General  Electric  Co.  v.  Bar- 
ker, 811 

Edson  v.  Angell,  702 

Edwards  v.  Aberayron  Ins.  Society 
1152  ^' 

Edwards  v.   Carson  Water  Co.,  157. 
172,  809 

Edwards  v.  Grand  Junction  Ry.  Co 
198,  491  J        •' 

Edwards  v.  Kearney,  29 

Edwards  v.  Marcy,  1000,  1014 

Edwards  v.  People,  974 

Egbert  v.  Payne,  608 

Eggman  v.  Blanke,  461 

Ehle  V.  Chittenango  Bank,  521 

Ehlerman  v.  St.  Louis  Nat.  Bank,  640 

Eichelberger  v.  Finley,  563,  596 

Eidman  v.  Bowman,  471 


Einsphar  et  al..  Trustees  First  German 

Lutheran  Zion  Church  of  Adams 

Co.,  V.  Wagner,  260 
Einstein  v.  Rosenfeld,  1121     • 
Elder  v.  State,  870 
Elderkin  v.  Peterson,  1136 
El  Dorado  Co.  v.  Elstner,  118 
El  Dorado  Co.  v.  Reed,  119 
Eldridge  v.  Smith,  471,  1096 
Electric  Traction  &  Mfg.  Co.  v.  City 

of  New  Orleans,  1280 
Elevator  Co.  v.  Clark,  752 
j:ikins  V.   Camden  &  Atlantic  R.  R. 

Co.,  1089 
Ellerman  v.  Chicago  Junction  Rys.  & 

Union  Stock  Yards  Co.,  456,  502, 

1122 
Ellicott  V.  Barnes,  570,  622,  747 
Ellicott  Machine  Co.  v.  Speed.  1119 
Elliot  V.  Abbot,  574 
Elliott  V.  Gammon,  25 
Ellis  V.    Boston,   H.   &  E.   Railroad. 

1055 
Ellis  V.  Commercial  Bank  of  Natchez 

688 
Ellis  V.  Howe  Machine  Co.,  218 
Ellis  V.  Northern  Pacific  R.  R.  Co., 

900 
Ellis  V.  Ward,  356 
Ellis  V.  Wheeler,  660 
Ellisworth  v.  St.  Louis,  Alton  &T.  H 

R.  R.  Co.,  101,  1042 
Ellsworth   Woolen   Manufg.    Co     v 

Faunce.  193 
Ellysville  Manufg.  Co.  v.  Okisko  Co 
77,  197 

Elmira  Savings  Bank  v.  Davis    732 

733 
Elmore  v.  Naugatuck  R.   R.  Co.,  469 
Elser  V.  City  of  Fort  Worth,  432 
Elwell  V.  Dodge,  142,  154,  188,  207 
Elwell  V.  Fosdick,  1162 


Elwell  V.  Grand  Street  &  Newtown  R. 
R.  Co.,  1096 

Elwell  V.  Puget  Sound,  etc.,  R.  Co.. 
809  .        »  , 

Ely  V.  Sprague,  521 

Emerson  v.  Pro  v.  Hat.  3Ifg.  Co.,  147, 

152 
Emery  v.  Hobson,  660 
Emery  v.  Parrott,  299 
Emma    Silver    Mining    Company  v. 

Grant,  298,  299 
Empire  v.  Darlington,  935,  938 
Emi)orium  Real  Estate  &  Mfg.  Co.  v. 

Emrie,  279 
Englar  v.  Offutt.  752 
English  V.  Chicot  County,  45 
English  V.  City  of  Danville,  1268 
English  V.  Smock,  122,  824 
Enos  V.  Springfield,  1268 
Eppright  V.  Nickerson,  1112 
Equitable  Life  Ins.  Co.  v.   Board  of 

Equalization,  1298,  1306 
Erie  Railway  v.  Pennsylvania,  1304 
Erianger  v.  New  Lambrero  Phosphate 

Co.,  260,  297 
Erskine  v.  Steele  County.  435,  436 
Ervin  v.  Oregon  Ry.  &  Nav.  Co.,  324. 

326,  327 
Erwin  v.  St.  Joseph  Board  of  Public 

Schools,  23 
Esmond  v.  Bullard.  394,  415 
Espin  V.  Pemberton,  338 
Espuela  Land  &  Cattle  Co.  v.  Bindle. 

1122 

Espy  V.  Bank  of  Cincinnati,  651,  655. 

661 
Estep  V.  Keokuk  County,  446 
Estowah  Mining  Co.  v.  Wills  Valley 

Mining  &  Mfg.  Co.,  1192 
Etting  V.  Bank,  546 
Etting  V.  Commercial  Bank,  671 
Eureka  Company  v.  Bailey  Company. 

143,236,806 
Eureka  Iron  &  Steel  Works  v.  Bres- 

nahan.  155,  205,  209,  489 
European  &  North  American  Ry.  Co. 

y.  Poor,  242,  258,  263,  471 
Evans  v.  Boston  Heating  Company 
1063,  1072  ^' 

Evansville,  etc.,  R.  R.  Co.  v.  Evans- 
ville,  12,  16,  19,  29,  39,  485,  950, 
951,  952 
Evening  Journal  Assn.  v.  State  Board 

of  Assessors,  1295 
Everett  v.   United  States,   142,    176, 

573 
Evertson  v.    National  Bank  of  New 

York,  1047 
Ewen  V.  Davis,  598 
Excelsior    Water    &   Mining  Co    v 
Pierce.  813,  815  ^        *     * 

Exchange  Co.  v.  Boyce,  528 


I     ' 

III 


'III 


TABLE  OF  CASES. 


TABLE  OF  CASES. 


liii 


[The  references  are  to  pages:  vol.  I  contains  pp.  1-707;  vol.  H,  pp.  708-1807.1 


[The  references  are  to  pages:  vol.  I  contains  pp.  1-707;  vol.  n,  pp.  706-1807.] 


I.. 


Exchange  Nat.  Bank  of  Spokane  v 
Bank  of  Little  Rock,  593 

Exeter  Bank  v.  Gordon,  702 

Ex-Mission    Land    &    Water  Co.    v. 
Flash,  298,  300 

Ex  parte  Brown,  1231 

Ex  parte  Chamberlain,  1236 

Ex  parte  Chippendale.  489 

Ex  parte  Conway,  1112 

Ex  parte  Fay,  19 

Ex  parte  Hardcastle  (In  re  Manson), 
751 

Ex  parte  Powell,  1223 

Ex  parte  Richdalc.  613 

Ex  parte  Selma,  etc.,  R.  R.  Co.,  49, 
901,  902,  909 

Ex  part€  Willcocks,  158 

Express  Co.  v.  Patterson,  92 

Express  Company  v.  Railroad  Com- 
pany, 1198,  1205 

Eyster  V.  Centennial  Board  of  Finance, 
1292 

F. 

Fabeus  v.  Mercantile  Bank,  682 

Fagan  v.  City  of  Chicago.  1268 

Fairfield  Savings  Bank  v.   Chase,  549 

Falconer  v.  Buffalo  &  J.  R.  R.  Co., 
962 

Faley  v.  Talbee,  1131 

FallRiver  Iron  Works  Co.  v.  Old  Col- 
ony, etc.,  R.  R.  Co.,  471 

Fall  River  Union  Bank  v.  Sturtevant, 
58  S 

Falk  V.  Moebs,  186 

Falkland  v.  St.  Nicholas  Nat.  Bank  of 
New  York,  524 

Fanning  v.  Gregoire,  146 

Fareira  v.  Riter?  279 

Fargo  V.  Michigan,  1293 

Fargo  &  8.  W.  R.  R.  Co.  v.  Brewer, 
1306 

Farmers'  Bank  v.  Burchard,  520 

Farmers'  Bank  v.   McKee,   155,  181, 
210 

Farmers'  Bank  v.  Owen,  699 

Farmers'  Bank  of  Maryland  v.  Duvall, 
641,  690 

Farmers'  Bank  of  Maryland  v.  Ingle- 
hart,  527 

Farmers  &  Citizens'  Bank  v.  Sherman, 

234 
Farmers'   Co-operative    Mfg.    Co.   v. 

Drake,  1172 
Farmers',  etc..  Bank  v.  Payne,  361 
Farmers',   etc..   Bank    v.   Troy  City 

Bank,  574 
Farmers'  Loan  &  Trust  Co.  v.  Cape 

Fear  &  V.  Val.  R.  R.  Co.  (North 

State  Imp.  Co.,  Intervener).    1190 
Farmers'  Loan  &  Trust  Co.  v.  Central 

Railroad  of  Iowa.  1232 


Farmers'  Loan  &  Trust  Co.  v.  Chi- 
cago &  Atlantic  Ry.  Co.,  1076, 
1173.  1176,  1218 

Farmers'  Loan  &  Trust  Co.  v.  Chicago 
&  Northern  Pac  R.  R.  Co.,  1^53 

Farmers'  Loan  &  Trust  Co.  v.  Clowes, 
459 

Farmers'  Loan  &  Trust  Co.  v.  Com- 
mercial Bank,  1096 

Farmers'  Loan  &  Trust  Co.  v.  Com- 
mercial Bank  of  Racine,  1096 

Farmers'  Loan  &  Trust  Co.  v.  Fisher, 
1095,  1096 

Farmers'  Loan  &  Trust  Co.  v.  Green 
Bay,  W.  &  St.  P.  Ry.  Co. 
(Frunck.  Intervener),  1244 

Farmers'  Loan  &  Trust  Co.  v.  Ilen- 
dricRson,  10^6 

Farmers'  Loan  &  Trust  Co.  v.  Kansas 
City,  W.  &  N.  W.  R.  Co.,  1158, 

Farmers'  Loan  &  Trust  Co.  v.  North- 
em  Pac.  R.  R.  Co..  1192 

Farmers'  Loan  &  Trust  Co.  v.  North- 
ern Pac.  R.  R.  Co.  (Wisconsin 
Central  R.  R.  Co.,  Interveners), 
1200,  1218 

Farmers'  Loan  &  Trust  Co.  v.  Oregon 
&  W.  T.  R.  R.  Co.  (Congdon,  In- 
tervener), 1044 

Farmers'  Loan  &  Trust  Co.  v.  Perry, 

450 

Farmers'  Loan  &  Trust  Co.  v.  Postal 
Telegraph  Co.,  1161 

Farmers"  Loan  &  Trust  Co.  v.  Rock- 
away  Valley  R.  R.  Co..  1018 

Farmers'  Loan  &  Tn  st  Co.  v.  San 
Diego  Street  Car  Co..  1025,  1167 

Farmers'  Loan  &  Trust  Co.  v.  Toledo, 
A.  A.  &N.  M.  Ry.  Co.,  491 

Farmers'  Loan  .&  Trust  Co.  v.  Toledo 
&  S.  H.  R.  R.  Co.,  1024,  1025. 
1037,  1242 

Farmers'  Loan  &  Trust  Co.  v.  Vicks- 
burgh,  etc.,  R.  R.  Co.,  1193.  1257 

Farmers'  Loan  &  Trust  Co.  v.  Winona 
&  S.  W.  Ry.  Co.,  1153, 1155,  1187 

Farmers  &  Mechanics'  Bank  v.  Bald- 
win, 512,  515 

Farmers  &  Mechanics'  Bank  v.  Butch- 
ers &  Drovers'  Bank.  78.  187,  322, 
595,  653 

Farmers  &  Mechanics'  Bank  v.  Dear- 
ing,  529,  533 

Farmers  &  Mechanics'  Bank  v.  Empire 
Stone  Dressing  Co.,  78,  465 

Farmers  &  Mechanics'  Bank  v.  Plant- 
ers' Bank,  605 

Farmers  &  Mechanics'  Bank  of  Sav- 
ings V.  Colby,  196 

Farmers'  &  Mechanics'  Bank  of  Los 
Angeles  v.  Downey,  262 


Farmers  &  Mechanics'  State  Bank  v. 

Armstrong,  717 
Farmers'  National  Bank  of  Valparaiso, 

Ind.,  V.  Sutton  Mfg.  Co.,  157 
Farmers  &  Traders'  Bank  v.  Harrison, 

530 
Farmers  &  Traders'  Nat.  Bank  v.  Hoff- 
mann, 1299 
Farmington  v.  Jones.  135 
Farnum    v.    Blackstone   Canal    Co., 

478 
Farrar  v.  Gilman,  206.  571 
Farrington  v.  South  Boston  R.  R.  Co., 

342 
Farrington  v.  Tennessee,  1307 
Farwell  v.  Curtis,  692,  705 
Fawcett  v.  New  Haven  Organ  Co.. 

157 
Fay  V.  Noble,  75,  85.  205,  209,  226,  227 
Fear  v.  Bartlett,  1111 
Featherstone  v.  Cooke,  1121 
Fegley  v.  McDonald,  523 
Feibelman  v.  Packard,  720 
Felker  v.   Standard  Yarn  Company, 

386 
Pells  Point  Savings  Inst,  of  Baltimore 

v.  Weed  on,  630,  631 
Fenn  v.  Curtis,  288 
Peuton  V.  Blair,  67,  117 
Ferguson  v.  Gill,  407 
F  '"7  V.  McKenna,  608 
Ficklenv.  Shelby  County,  1267 
Fidehty,    etc.,    Companj'^    v.     West 

Pennsylvania,    etc.,    R.    R.   Co., 

1046 
Rdelity  Ins.,  Ti'ust  &  Safe  Deposit 

Co.  V.  Shenandoah  Valley  R.  Co. , 

809,  1239,  1257 
Fidelity  Trust  ife  Safety  Vault  Co.  v. 

Mobile  Street  Ry.  Co.,  1164, 1177, 

1195 
Fielder  v.  M.  &  E.  R.  R.  Co.,  47,  902 
Fifth  Avenue  Bank  of  New  York  v. 

Forty -second   St.    &    Grand    St. 

Ferry  R.  R.  Co.,  332,  341 
Fifth  National  Bank  v.  Navassa  Phos- 
phate Co.,  196,  228 
Fifth  Ward   Savings    Bank  v.  First 

National  Bank,  87,  179 
Filor  V.  Miller  Brewing  Co.,  820 
Finance     Co.     of     Pennsylvania    v. 

Charleston, C.  &  C.  R.  R.  Co.,  1191, 

1221,  1245 
Finance     Co.    of     Pennsylvania     v. 

Charleston,  C.  &  C.  R.  R.  Co.  (Ex 

parte  Hudson),  1245 
Finance     Co.     of    Pennsylvania     v. 

Charleston,     C.    &   C.    Ry.    Co. 

(Moore,  Intervener),  1259 
Finnrce     Co.     of     Pennsylvania    v. 

Charleston.  C.  &  C  R.  Co.  (Shrand 

et  al.,  Interveners)  1259 


Finance  Co.  of  Pennsylvania  v.  Char- 
lotte,   C.  &  C.    R.  R.   Co.  (Poca- 
hontas Coal  Co. ,  Intervener),  1242 
Finlayson  v.  Vaughn,  972 
Finnell  v.  Sandford,  757 
Fire  Ins.  Co.  v.  Parker,  1306 
Firemen's  Insurance  Co.  v.  Sturges,  90 
First  Municipality  v.  Orleans  Theatre 

Co.,  77 
First  Municipality  v.  Cutting,  890 
First  National   Bank  v.   Armstrong, 

754 
First  National  Bank  v.  Bailey,  1300 
First  National  Bank  v.  Bennett,  193, 

508 
First  National  Bank  v.  Chapman,  1299 
First  Nat.  Bank  v.  Drake,  550,  580 
First  Nat.  Bank  v.  Elmore,  511 
First  National  Bank  v.  First  National 

Bank   699 
First  Nat.'  Bank  v.  Fricke,  236 
First  Nat.  Bank  v.  Frickie,  233 
First  National  Bank  v.  Gifford,  250 
First  Nat.  Bank  v.  Gillilan,  494 
First  Nat.  Bank  v.  Gondy,  597 
First  Nat.  Bank  v.  Haire,  510 
First  Nat.  Bank  v.  Harris.  515.  658 
First  Nat.  Bank  v.  HinghamMfg.  Co., 

387 
First  Nat.  Bank  v.  Kimberlands,  182, 

198 
First  Nat.  Bank  v.  Lucas,  193 
First  National  Bank  v.  National  Bank, 

510 
First  Nat.  Bank  v.  National  Exchange 

Bank,  516,  527 
First  Nat.   Bank  v.   North  Missouri 

Coal  Co.,  172,  184 
First  Nat.  Bank  v.  Ocean  Bank,  348 
First  Nat.  Bank  v.  Reed,  193,  563 
First    Nat.    Bank    v.   Salem    Capital 

Flour  Mills  Co.,  809 
First  Nat.  Bank  v.  Sherburne,  527.  562 
First  Nat.  Bank  v.  Strang,  821 
First  Nat.  Bank  v.  Tappan,  644 
First    Nat.    Bank    v.    Union    School 

Township,  133 
First  National  Bank  of  Albia  v.  aty 

Council  of  Albia,  1297,  1298 
First  Nat.  Bank  of  Carlisle  v.  Graham, 

636 
First  Nat.  Bank  of  Charlotte  v.  Nat. 

Exchange  Bank  of  Baltimore.  516 
First    Nat.    Bank    of    Cleveland    v. 

Shedd,  1162,  1172 
First    Nat.    Bank  of    Evansville    v. 

Fourth  Nat.  Bank  of  Louisville, 

695 
First  Nat.   Bank  of  Jersey  City   v. 

Leach,  653 
First  Nat.  Bank  of  Lyons  v.  Ocean 

Nat.  Bank,  341 


liy 


TABLE  OF  CASES. 


TABLE  OF  CASES. 


[The  references  are  to  pages:  vol 

^^t  ^^\-  .?»"^    of    Meadville    v. 
Fourth  Nat.  Bank,  687 

507^51?''°*'  ""^  Memphis  v.  Kidd, 

First  Net    Bank  of   Middletown   v. 

•  ^^'""oil^^"^^  ^^^y  ^^ater  Works 

First  Nat.  Bank  of  Monmouth  v.  Dun- 

First^Nat.  Bank  of  Omaha  v.  Hasten 

uank,  713 
First  Nat  Bank  of  Peoria  v.  Commer- 

cial  Nat.  Bank  of  Peoria,  1144 

6^!  669  """^  of  Quincy  v.  Ricker, 
First  Nat.  Bank  of  Chicago  v.  Bank. 

First  Nat.  Bank  of  Rochester  v  Pier- 

son.  513,  615,  516 
First  Nat.  Bank  of  Rock  Island  111 

V.  Leyshed,  157  '       '  ' 

1096^*  ^^""^  ""^  ^^^""^  ""■  ^<i«^so°. 

First  Nat.  Bank  of  Sheffield  v.  TomD- 
kins,  568  ^ 

First  Nat.  Bank  v.  Sioux  City  Ter- 
minal R.  R.  &  Warehouse  Co., 

First  Nat.  Bank  of  Springfield  v. 
Coleman,  603 

^i"'    Nat    Bank    of   Evansvillc    v.    '""i^/erz^"*"*""  ^^-    ^-   ^• 
Fourth  Kat.  Bank  of  LouisviHe.   Flinte  cll^  Co.  v.  Stephens,  Til 

"""'eila"'  "'  ^'^"'^''»-''  -  DelFmcroffsCase,  347.  352 

First  Nat.  Bank  of  Trinidad  v  Pir»f '  pi„    "'^"t'*'-  ^"^^  ^  •  Bfow,  646 

^    Nat.  Bank  of  Denve;  m  TO       \  ^'<"^S'   treasurer,  v.  MeAffee,  1271, 

^n^n'^^\^''  ^■''"''  ^'""'  -    Fior^a  Land  &  In,p.  Co.  v.  Merrill, 

Fiatrvr-sS^Ki^is?- "^« 

Focrartiea  v.  StRf*^  Ranb-'  ««a 


Iv 


I  contains  pp.  1-707;  vol.  II,  pp.  70e-18ffr.] 

^'^^?7.'  oo7'^l''°  Steam  Mill  Co.,  143, 
Fif  i^;  234   1053,  1073,  1078 
Fitchett  y  North  Pennsylvania  R.  R. 

t-o.,  1047 
Fitzgemld  v.  Barker,  363 
Fitzgerald  V.  Evans,  1181 
Fitzgerald  v.  Fitzgerald  &   Mallory 

Constr.  Co.,  318.  319,  320  ^ 

Fitzgerald    &    Mallory  Construction 
Pif.K  ""■  /•  ^'I?"^"'^,  198,  210,  213 

526      ^'  ""^  Shepherdsville, 

Fitzhugh  V.  Land  Company,  172,  193, 

Fitzsimmons  v.  Express  Co.,  233 
F  agg  V.  Railroad  Co.,  262,  283 
F  agg  V.  School  District  No.  70.  894 
Flagler  Engraving    Machine    Co.   v 

Flagler,  307 
Flannigan  v.  California  Nat.  Bank,  588 
Flannery  v.  Coates,  601 
Flash  v.  Conn,  398.  413,  769 
Fleckner  v.  U.  S.  Bank.  142.  146   176 
^,    494.  513.  527,  577,  759    '        '        ' 
1^  emmmg  v.  Denny,  660 
t  letcher  v.  Osborn,  617 
Fletcher  v.  Sharpe,  710 
Flint  V.  Pierce,  164 
Flint  V.  Roger,  641 
Flint  &  Peie  Marquette  Ry. 


First  Ij  at.  Bank  of  Whitehall  v  Tis 

dale,  175,  562 
First  Nat.  Bank  of  Winoa;  v.  Winona 

Plow  Co.,  1134 
First^Nat.  Bank  of  Wymore  v.  Miller. 

Fisher  v.  Attleborough,  111 
Fisher  V.  Board  of  Directors,  etc.,  56 
Fisher  V.  Concord  Railroad,  265 
Fisher^ V.  Evansville,  etc.,  R.  R.  Co., 

Fisher  v.  Gas  Company,  163.  181 
Fisher  V.  Harrisburg,  42 
Fisher  v.  Knight,  721   731 
Fisher  v.  Murdock,  583 
Fisk  V.  C.,  R.  I.  &  p.  R.  Co.,  166 
Fisk  V.  Potter,  1096 
Fiske  V.  Eldridge,  359 
Fjster  V.  La  Rue,  198 

m'  ^°^^°^^^^  Hydraulic  Co., 


Fogarties  v.  State  Bank'  660,  662 

^^fo'Io^'^^"'  ^^2®'  111<>-   1113,  1114, 

Fogg  V.  Supreme  Lodge,  1131 

Foley  V.  Hill,  597 

Folger  V.  C^hase,  206,  573 

Folger  V.  Insurance  Company.  1118 

FoUansbe  v.  Kilbreth,  168 

Foot  V.  Rutland  &  Whitehall  R  R 

Co.,  145,  157 
Foote  V.  Glenn,  1138 
Foote  V.  City  of  Salem,  18,  19,  65 
Foote  V.  Mining  Co.,  316 
Foote  V.  Mt.  Pleasant.  919 
Forbes  v.  San  Rafael  Tr.  Co.,  154 
Forbes    v     East    Hampton    Rubber 

Thread  Co..  811,  816 
Forbes  v.  Whitlock,  348 
Ford  V.  Kansas  City  &  I.  S.  L.  R.  R 

V/O. ,    ll/6« 


[The  references  are  to  pages: 
Ford  v.  McClung,  705 


-<«::  vol.  II.  pp.  708-1307.] 


Ford  V.  Mitchell,  628 

Ford  V.  Plankinton  Bank,  1110,  1125 

1127 
Fordyce  v.  Du  Bose,  1229 
Foreman  v.  Murphy,  46 
Foresman  v.  Chase.  1271 
Forniquet  v.  West  Feliciana  R.  R.  Co  . 

530 
Forster  v.  Clements,  637 
Fortier  v.  New  Orleans  Nat.  Bank, 

509 
Fort  Payne  Coal  &  Iron  Co.  v.  Sayles. 

1122 
Fort  Payne  Furnace  Co.  v.  Fort  Payne 

Coal  &Iro.i  Co.,  1123 
Fort  Worth  City  Co.  v.  Smith  Bridge 

Co.,  89 
Fosdick  V.    Schall,  1187,   1190,  1193, 
1194,  1220,  1221,  1222,  1239,  1245, 
1260 
Fosdick  V.  Sturges,  166 
Foss  V.  City  of  Chicago,  59 
Foss  V.  Harbottle,  294.  298,  306 
Foster  v.   Belcher's    Sugar  Refining 
Co.,  260  ^ 

Foster  v.  Coleman,  117,  436 
Foster  v.  Essex  Bank,  193,  636 
Foster  v.  Kenosha,  49 
Foster  v.  Mansfield,  C.  &  L.  M.  Rv. 

Co.,  1016,  1137 
Foster  v.  Ohio-Colorado  Reduction  & 

Mining  Co.,  219 
Foster  v.  Oxford,  W.  &  W.  Ry.  Co., 

Foster  v.  Paulk,  645,  350 

Foster  v.  Planing  Mill  Co.,  1114.  1118 

Foster  v.  Railway  Co.,  282 

Fougeray  v.  Cord,  281 

Fouke  V.  Jackson  County,  57 

Fourth  Nat.  Bank  v.  City  Nat.  Bank, 

743 
Fourth  Nat.  Bank  v,  Francklyn   387 
Fourth  Nat.  Bank  of  Chicago  v.  City 

Nat.  Bank  of  Grand  Rapids,  649* 
Fourth  Street  Nat.  Bank  v.  Yardslcy, 

645 
Fowler    v.   Jarvis-Conklin  Morteaee 

Trustee,  1192  ^  ^ 

Fowler  v.  Scully,  509,  510 
Fowler  v.  Trust  Co.,  1234 
Fox  V.  Bank  of  Kansas  City,  601 
Fox  V.  New  Orieans,  446 
Fractional  School  Dist.  No.  1  v.  Joint 

Board  of  School  Inspectors,  880 
Francis  v.  Evans,  747,  753 
Francis  V.  Howard  County,  14, 833,  842 
Frank  v.  Chemical  Nat.  Bank,  639, 

668,  679 
Frank  v.  Hicks,  234 
Frankfort  Bank  v.  Johnson.  159.  167 

648  '       ' 


vol.  I  contains  pp.  1 

Frankland  \ .  .lolmson,  358 

Franklin  Avenue  German  Sav.  Inst. 

v.  Board  of  Kducation,  494 
Franklin  B.-ink  \.  Byram,  639 
Franklin  Bank  v.   Commercial  Bank 

517 
Franklin  B.iiik  v.  Cooper.  580 
Franklin  Bank  \ .  Freeman,  660 
Franklin  Bank  v.  Stevens,  580 
Franklin  Conii>anv  v.  Lewiston  Inst. 

for  Savings,  478,  479,  493,  503,  517 
Franklin  CoJintv  v.  Layman,  5h 
Franklin  County   v.  Nashville.  Chat- 
tanooga, rtc,  Railway,  1304 
Franklin  Cojinfy  Court  v.  Louisville 

&  Nashville  \{.  R.  Co.,  1301 
Franklin  County  Nat.   Bank  v.  Eeal, 

Receiver.  75o 
Franklin   Insuiaiioe    Co.   v.   Jenkins. 

248,  347.  349,  352 
Fray  lor  v.  .Smoru  Mining  Co.,  233 
Frazer  v.  Tunis,  305 


Frazier  v.  liank.  721 

Frazier  v.  East  Tennessee,  Va.  &  Ga. 
R.  R.  Co..  1057,  1246 

Frederick  v.  City  Council  of  Augusta. 
23,  70  "^ 

Freehill  v.  Clianiberiain,  846 

Freeman  v.  Plaindealer  Co.,  203 

Freeman  v.  Stiue,  279 

Freeman's     Bank   v.    National    Tube 
Works,  744 

Freeman's  Nat.   Bank  v.  Lavery   587 

Freiberg  V.  Cod  v.  660 

Frelinghuyson  v.  Baldwin,  715 

Frelinghuysen  v.  Nugent,  62«.  73? 

French  v.  Andn-w.s.  1124 

French  v.  City  ot  Buriingtoc,  66,  886 

French  v.  Dunn  County,  133 

French  v.  Gifford,  1233 

French  v.  O'Brien.  172 

French  v.  Qui  no  v,  35,  41 
French  v.  Teschemaker,  44 
Freund  v.  Importers ,  etc.,  Nat.  Bank. 
652,  655  ' 

Fridley  v.  Bowen.  510 
Friend  v.  Citv.  ir.o 
Friend  v.  Gilbert,  20 
Frost  V.  Belmont.  33,  571 
Frost  V.  St.  Paul  Banking  &  Invest- 
ment Co..  1132 
Frost  Manufg.  Co.  v.  Foster,  347 
Fry,  Collector,  v.  Chicot  County,  63 
Frye  v.  Tucker.  206 
Fugitt  V.  Nixon.  702 
Fuld  v.  Burr  Brewing  Co.,  457 
Fuller  V.  Bennett.  681 
Fuller  V.  Citv  of  Chicago,  66 
Fuller  V.  Hooixt.  810 
Fuller  V.  Inhabitants  of  Groton  35.  61 
Fullerton  v.  School  District  of  Lin- 
coln, 883 


^pp 


Ivi 


TABLE  OF  CASES. 


|if  rf 


[The  references  are  to  pages:  vol.  I  contains  pp.  1-707;  vol.  II,  pp.  TOft-lSO?.] 
Fullerton  v.  Sturges,  608 
Fulton  V.  Town  of  Riverton,  942 
Fulton     County    v.     Mississippi     & 
Wabash  Railroad,  898.  904 


Furnald  v.  Glenn,  1137.  1140 
Furniss  v.  Gilchrist,  97,  206 

G. 

Oaar  v.  First  Nat.  Bank  of  Centralia 
510  ' 

Oaddies  v.  Richland  County,  904.  939 

971  J'       '       . 

Gale  V.  South  Berwick,  125 
Gale  V.  Village  of  Kalamazoo.  29 

OaIppr    Tnanranno    f^n     tr     V,,^i 


Genesee    County    Savings   Bank    v. 

Michigan   Barge  Company,   157, 
209  f    J'         , 

Geneva   Nat.    Bank   v.    Independent 

School  District.  879 
Genoa  v.  Woodruff.  946 
George  v.  Central  R.  R.  &  Bkg.  Co., 

318  ^ 

George  v.  Nevada  Central  R.  R.  Co., 

George  v.  Oxford  Township,  877 
George  v.  St.  Louis  Cable  &  Western 

Ry.  Co..  1180 
George  v.  Wabash  Western  Ry.  Co., 

1174  ^ 


Oalena  Insurance  Co.  v.  Kupfer,  627,    Georgia  v.  Atlantic  &  Gulf  R.  R  Co 


Galena  &  Chicago  N.  R.  R.  Co    v 

Menzies,  1096 
Oall  V.  City  of  Cincinnatti,  29 
Gallagher  v.  Brunei.  294 
Galveston    R.  R.    Co.    v.    Cowdrey 

1095  ■'' 

Gamble  v.  Queens  County  Water  Co 

78 
Oane  v.  Losemo  Printing  Co.,  809 
Gans  V.  Switner.  417 
Oansevoort  v.  Williams.  187 
Gardiner  v.  Pollard,  309 
Gardiner  v.  Tyler,  1232 
Girdner  v.  B.  &  M.  R.  R.  Co.,  211 
Gardner  v.  Butler,  214,  241,  242,  250, 

263,  264  ,        .        ,        , 

Gardner  v.  Graham,  1058 
Gardner  v.  National  City  Bank,  665 
Gardner  v.  Ogdeu.  251.  326 
G.irham  v.  Mutual  Aid  Society,  1118 
Garland  v.  Board  of  Revenue  25 
Garrard  County  Court  v.  McKee.  126 

127 
G.irrett  v.  May.  1013 
Gnrrett  v.  Plow  Company,  1074.  1084 

1112 
Garrettson  v.  North  Atchison   Bank 

655 

Garrison  v.  Howe,  69.  380,  390.  393 
398  f        ,        , 

Gas  Company  v.  San  Francisco,  233, 

Oashwalerv.  Willis,  174,  180 
Gas  Light  Co.  v.  Nashville,  1307 
Gates  V.  Railroad  Co..  1080 
Gause  v.  aty  of  Clarksville,  23.  102 

857 

Gay  Manufacturing  Co.  v.  Gittings, 
1244 

Gazette  v.  Bolton,  136 

Gebhard  v.  Eastman.  99,  760,  1134 

Geisenheimer  v.  Dodge,  394 

Gelpcke  v.  City  of  Dubuque.  19.  49, 
825,  850,  909,  924,  955,  956,  957, 
964.  1047  ... 


1236 
Georgia  Company  v.  Castleberry,  183 
Georgia  Pac.  Ry.  Co.  v.  Gaines,  397 
Georgia  Seed  Co.  v.  Talmadge,  1146 
Gere  v.  Supervisors  of  Cayuga  County, 

Idl 

Gerhard  v.  Baley,  294 

German  Exchange  Bank  v.  Comrs.  of 

Excise,  610 
German     Sav.      Bank    v.     Franklin 

County,  920,  948.  968 
German  Savings  Bank  v.  Wulfekahler 
563,  564  ' 

German  Sav.  Inst.  v.  Adal.  662 
Germantown  F.  M.  Ins.  Co.  v.  Dhein 
454  ' 

Gemsheim  v.  Olcott,  1147 
Gerry  v.  Stoneham,  33 
Getty  V.   C.   R.  Barnes  Milling  Co.. 
156,  235  ^         * 

Getty  V.  Devlin,  299 
Gibbons  v.  Mobile  &  Great  Northern 

R.  R.  Co..  47,  49,  958 
Gibbs  v.  Gas  Company,  1178 
Gilbert  v.  Washington  City,  Va.  Midi. 
&  Great  Souiliern  R.  R.  Co.,  1047 
Giblin  V.  McMullen,  348 
Gibson  v.  Cooke.  665 
Gibson  V.  Furuiture  Company.  1111 
Gibson  V.  Goldthwaite,  174,  175 
Gibson  V.  Joyce.  326 
Gibson  v.  Poor  District,  24 
Gibson  v.  School  District,  40 
Gilbert  v.  Manchester  Iron  Co    763 
Gilbough  v.  New  York  &  P '  R    R 

Co..  1047 
Gilchrist  v.  Helena,  H.  S.  &  S.  R.  Co 

1076.  1077 
Gildersleeve  v.  Lester,  246 
Giles  V.  Merritt,  617 
Gilkey  v.  Paine.  811 
Gill  V.  Balis.  1117 
Gillespie  v.  Brotis,  57,  121 
Gillespie  v.   Davidge  Fertilizer  Co , 
470,  489  ' 

Gillespie  v.  Palmer,  808 


TABLE  OF  CASES. 

[The  references  are  to  pages:  vol.  I  contains  pp.  1-707;  vol.  H,  pp.  708-1307.] 
Gillett  V.    Board  of  Supervisors    of 


Ivii 


Logan  County,  120 
Gillett  V.  Campbell,  98,  154,  173 
Giilett  V.  Moody,  76,  550,  1087 
Gillis  V.  Bailey,  165 
Gilman  v.  City  of  Sheboygan,  1264 
Gilman  v.  Milwaukee,  42 
Gilman  v.  Telegraph  Co.,  1186,  1222 
Gilman,  etc.,  R.  R.  Co.  v.  Kelly,  243 

263 
Gilman  v.  N.  O.  &  8.  R.  R.  Co.,  952 
Gilson   v.  Board  of  Comrs.  of  Rush 

County,  869,  871 
Gilson  V.  Town  of  Dayton,  974 
Girard  Life  Ins.  Annuity  «fc  Trust  Co 

V.  Cooper,  1206 
Gist  V.  Drakely,  92 
Githers  v.  Clarke,  382 
Gladstone  Exchange  Bank  v.  Keatinff 
606  ^' 

Glasier  v.  Rolles,  294 
Glass  V.  Ferd  Heim  Brewing  Co.,  470 
Glenn  v.  Liggett,  1138 
Glenn  v.  McAllister's  Execrs.,  772 
Glenn  v.  Marbury,  1138 
Glenn  v.  Noble.  656 
Glenn  v.  Orr,  772 
Glenn  v.  Springs,  772 
Glenn,  Trustee,  v.  Williams,  1137 
Glidden  v.  Unity,  145 
Glines  v.   Supreme  Sitting,  Order  of 

Iron  Hall,  1123 
Globe  Works  v.  Wright,  193 
Gloninger  v.   Pittsburgh  &  Connells- 

ville  R.  R.  Co.,  1019,  1057.  1087 
Gloucester  Bank  v.  Salem  Bank.  673, 

677 
Glover  v.  Lee.  151 
Godbold  V.   Branch  Bank  of  Mobile 

348,  549 
Godin  V.  Bank  of  the  Commonwealth 

602.  650 
Goddard  v.  Bank,  670 
Goddin  v.  Crump,  48,  49,  901.  964 
Goetz  v.  Bank  of  Kansas  City.  696 
Goff  V.  Rehoboth.  134 
Goforth  V.  Rutherford  Ry.  Construc- 
tion Company,  907 
Gold  V.  Clyne.  397 
Goldbeck  v.  Bank,  236 
Goldfrank  v.  Young,  1129 
Gold  Mining  Co.  v.  Anglo-California 
Bank,  169.  222,  226,  236,  520,  806, 

Goldsmith  v.  Stetson.  753 
Goldsmith  v.  Stewart,  802 
Goodell  V.  Buck,  752 
Goodin  v.  Cincinnati,  etc..  Canal  Co., 

282,  306 
Goodin  v.  Canal  Company,  1108 
Goodloe  V.  Godly.  688 
Goodman  v.  Simonds,  1001 

•  •  • 

VllI 


Goodmar  v.  Oakley.  805 

Goodrich  V.  Reynolds,  Wilder  &  Co.. 

206 
Goodrich  v.  Winchester,  etc..  T.  P. 

Co.,  870 
Goodwin  v.  Union  Screw  Co.,  153, 195 
Goodyear    Dental    Vulcanite   Co.    v. 

Caduc,  353.  354 
Goodyear  Rubber  Co.  v.   George  D. 

Scott  Company,  1111 
Gorder  v.  Plattsmouth  Canning  Co. 

1071.  1086,  1089 
Grordon  v.  Board  of  Comrs.  Dearborn 

County,  121 
Gordon  v.  Newman,  1166 
Gordon  v.  Preston,  1055,  1084 
Gordon  &  Gomila  v.  Muchler,  647 
Gorman  v.  Boise  County,  798 
Gough  v.  Staats,  707 
Gould  V.  Cayuga  County  Nat.  Bank. 

562 
Gould  v.  Litile  Rock,  M.  R.  &  T.  Ry. 

Co.,  1083,  1084,  1112 
Gould  V.  Town  of  Oneonta,  983 
Gould  V.  Town  of  Sterling,  111,  993 
Govers'  Case,  298 
Grafins  v.  Land  Company,  210 
Grafton  Bank  v.  Woodward,  583 
Graham  v.  Morstadt.  660 
Graham  v.  Norton,  944 
Graham   v.    Railroad  Co.,  254.  1028. 

1042.  1113,  1137 
Grammel  v.  Carmer,  664,  665 
Grand  Chute  v.  Winegar,  328.  897.  956 
Grand  Gulf  Bank  v.  Archer,  494,  530 
Grand  Lodge  v.  Waddill,  74 
Grand  Rapids  &  Indiana  R.  R.  Co.  v. 

Sanders,  1043,  1048 
Grand  Rapids  Safety  Deposit  Co.  v. 
ancinnati  Safe  &  Lock  Co.,  197. 
253 
Grand  Rapids  Savings  Bank  v,  War- 
ren, 761 
Granniss  v.   Cherokee  Township    of 

York  County,  1010 
Grant  V.  City  of  Davenport.  68,  69 
Grant  v.  East  &  West  R.  R.  Co.  of 
Ala.,  1020,  1027,   1034,  1040,  1057, 
1075 
Grant  v.  Fiol.  597 

Grant  v.  Spokane  Nat.  Bank,  720,  734 
Grant  v.  Taylor,  523 
Grant  v.  Walsh,  619.  620,  1146 
Grape  Sugar  Manufg.  Co.  v.  Small, 

Graves  v.  Mono  Lake  Hydraulic  Min- 
ing Co..  267 

Gray  v.  Coffin,  769 

Gray  v.  New  York  &  Virginia  St.  Ship 
Co.,  250,  309 

Great  Falls  Bank  v.  Farmington, 
145 


1       •«• 

Ivm 


TABLE  OF  CASES. 


[The  references  are  to  i)ages:  vol.  I  contains  pp.  1-707;  vol.  II,  pp.  708-1307.] 


Great  Luxembourg  Ry.  Co.  v.  Mag- 
nay,  242,  471 

Great  Western  Telegraph  Co,  v.  Loew- 
enthal,  1140 

Greaves  v.  Gouge,  300.  317,  556 

Greeley  v.  Thursiou,  t41 

Green  v.  BaiTett.  '^04 

Green  v.  City  of  (apt-  May,  39 

Green  v.  Enston.  3J>4,  3U5 

Green  v.  Hug  »,  24H 

Green  v.  Oiid  Fellows'  Sav.  &  Com- 
mercial Rank,  599 

Green  v.  Walkill  Nat.  Pank,  555 

Green  Biy  v.  Braune,  800 

Green  Bay  &  Minnesota  R.  Co.  v. 
Union  Steamboat  Co..  89,  94.  473. 
819 

Green  County  v.  Conness,  1282 

Greenlaw  v.  King.  326 

Greenleaf  v.  Norfolk  Southern  Rv., 
236 

Greenpoint  Sugar  Co.  v.  Whitin,  1060, 
1066.  1068 

Greensburg.  Milford  &  Hope  Turn- 
pike Co.  V.  McCormick,  456 

Gregg  V.  George,  704 

Gregg  V.  Union  County  Nat.  Bank, 
628 

Gregory  v.  C'ity  of  Bridgeport,  790 

Gregory  v.  Patchell,  324 

Greig  v,  Riordan,  155 

Grenada  County  Supervisors  v.  Brog- 
den,  939 

Grew  V.  Breed,  769 

Gribble  v.  Columbus  Brewing  Co., 
236 

Gridley  v.  La  Favette.  B.  &  Missis- 
sippi Ry.  Co.. '246,  279,  356 

Griffin  v.  Chase,  747 

Griffin  v.  Goflf,  641 

Griffith  V.  Burden,  824 

Griffith  V.  Chicago,  B.  &  P.  R.  Co.,  156 

Grill  V.  S.  C.  Co..  348 

Griswold  V.  City  of  East  St.  Louis, 
438 

Griswold  v.  Haven,  333 

Grover  &  Baker  Sewing  Machine  Co. 
V.  Polhemus,  152 

Grusenraeyer  v.  City  of  Logansport, 
122 

Guaranty  Trust  &  Safe  Deposit  Co.  v. 
Green  Cove  Springs  «fc  Melrose  R. 
R.  Co.,  1151,  1152,  1153 

Guelich  v.  National  State  Bank,  682 

Guernsey  v.  Burlington  Township,  55, 
1011 

Guild  V.  Bank,  535 

Guild  V.  Parker,  244,  264,  278.  354 

Guilford  v.  Minneapolis,  S.  Ste.  M.  & 
A.  Ry.  Co..  1080 

Gulf,  C.  &  S.  F.  R.  R.  Co.  V.  State, 
1178 


Gulf    Railroad    Company    v.    Miami 

County,  44,  905 
Gunther  v.  Mayer,  1018 
Guthrie  V.  Reid.  527 
Gutta  Percha  &  Rubber  Manufg.  Co. 

V.  Village  of  Ogalalla,  113.  114 
Guyette  v.  Bolton,  136 
Gypsum    Plaster    &     Stucco    Co*,   v. 

Adsit,  1192 

H. 

Haacke  v.  Knights  of  Liberty  Social  & 

Literary  Club,  351 
Hackensack  Water  Co.  v.  City  of  IIo- 

boken,  70 
Hackensack   Water  Co.   v.   De  Kay, 

200,  1079 
Hackett  v.  Ottawa.  70.  828.  872.  8«5 
Hackettstown  v.  Swackhamer,  102 
Hade  v.  McVay,  712 
Hadsell   v.    Inhabitants  of  Hancock, 

35,  61 
Hagan  v.  City  of  Brooklyn,  798 
Hagar  v.  Union  National   Bank,   523, 

526 
Hagen  v.  Bowery  National  Bjmk.  654 
Hagenbeck  v.  Hagenbeck  Zoological 

Arena  Co.,  1124 
Hager  v.  Rice,  359 
Hague   V.    City  of  Philadelphia,  444, 

821 
Haile  v.  Peirce,  359 
Haines  v.  Detrick,  236 
Haines  v.  McFerren,  637 
Halbert  v.  State  ex  lel.,  etc.,  128 
Halbut  V.  Forest  City,  446 
Hale  V.  Bridge  Co.,  ?«58 
Hale  V.  Frost.  1239 
Hale  V.    Nashua  &  Lowell  R.  R.  Co., 

1239 
Hale  V.  Rawallie.  635 
Hale  V.  Walker,  757 
Hale-Berry  Co.  v.  Diamond  State  Iron 

Co..  1123 
Hall  V.  Auburn  Turnpike  Co.,  78.  173, 

196,  466 
Hall  V.  Baker,  940 
Hall  V.  Bank.  536 
Hall  V.  Cordell.  1021 
Hall  V.  Crandall.  3,50 
Hall  V.  Jackson  County,  16,  120 
Hallam    v.    Hotel    Company,     1084, 

1112 
Hallowell  &  Augusta  Bank  v.  Hamlin, 

155,  175,  180 
Halsey  v.  Ackerman,  553 
Halstead    v.   Board,    etc.,    of    Lake 

County,  39 
Halstead  v.  Dodge,  393 
Halstead  v.  Mayor,  etc.,  5,  20,  64,  114, 
438 


TABLE  OF  CASES. 


lix 


[The  references  are  to  pages:  vol.  I  contains  pp.  1-707;  vol.  n,  pp.  70^1307.1 


Hambright  v.  Cleveland  Nat.  Bank 

529 
Hamilton  v.  Bates.  234 
Hamilton  v.  City  of  Shelby ville,  438 
Hamilton  v.  Cunningham,  681 
Hamilton  v.  McLaughlin,  1071 
Hamilton  v.   New  Castle  &  D  R  R 

Co.,  75,  102,  144.  146 
Hamilton  v.  Savannah,  F.  &  W  Rv 
Co.,  474  ^' 

Hamilton  v.  Winona  Salt  «&  Lumber 

Co.,  692 
Hamilton  Co.  v.  Massachusetts,  1274 
Hamm  v.  Drew,  151 
Hammock  v.  Trust  Company,  1168 
Hammond   v.  Michigan  State  Bank 

152 
Hancock  v.  Chicot  County,  45 
Hancock  v.  Holbrook,  263,  278 
Hancock  v.  Railroad  Company  946 
Hand  v.  Savannah  &  Charleston  R.  R 

Co.,  1047,  1234,  1260 
Handley  v.  Stutz,  1028,  1140 
Haner  v.  Town  of  Polk.  138 
Hankins  v.  Shoup,  146 
Hanley  v.  Balch.  1094 
Hannerty   v.   Standard   Theater  Co 

246.  264 
Hannibal    &    St.  Jos.   R.  R.   Co.   v. 

Marion  County.  110 
Han-non  v.  Williams,  366 
Han.son  v.  Tate,  351 
Hardee  v.  Sunset  Oil  Co..  1125 
Hardin  v.  Construction  Co.,  220 
Harding  v.    Rockford,   R.   I.    &   St. 

Louis  R.  R.  Co.,  971 
Hardy  v.  Merriweather,  20 
Hardy  v.  Metropolitan  Land  Co.,  326 
Hardy  v.  Pilcher.  359 
Hardy  v.  Waltham,  35,  68 
Hardy  &  Bros.  v.   Chesapeake  Bank, 
^     597,  672,  673,  680 
Hare  v.  Henty.  658 
Hargadine  v.  Henderson,  1114 
Harkness  v.  Russell,  1102 
Harlan  v.  Rand.  1250 
Hariem  Gas  Light  Co.  v.  Mayor,  etc., 
of  New  York.  29  ^     >       " 

Harman   v.   Auditor    of   Public  Ac- 
counts, 975 
Harms  v.  Fitzgerald,  121 
H^'^y  ^Indianapolis,  etc.,   R.   R. 

Harper  v.  Calhoun,  548,  573 
Harper  v.  Carroll,  1140 
Harrigan  v.  Quay,  1120 
Harriman  v.  Baptist  Church,  497 
Harrington    v.   First    Nat.    Bank   of 

Chittenango,  235 
Harris  v.  Elliott.  1101 
Harris  v.  N.  D.  Railroad  Co.,  258 
Harris  v.  Runnels,  520 


Harrisburg  City  v.  Pennsylvania  Tele- 
phone Co.,  1262 
Harrison  v.  Crowder,  688,  691 
Harrison  v.  Mexican  Ry.,  484 
Harrison  v.  Smith,  642,  731 
Harrison  v.  Union  Pac.  Ry.  Co.,  1044 
Harrison  v.  Waterberry,  1118 
Harrison  v.  Wright,  644,  648 
Harry  v.  Wood,  657 
Harshman  v.  Bates  County,  446,  935 
Harshman  v.  Knox  County,  872 
Hart  V.  Brockway,  246 
Hart  V.  Frontino,  etc.,  Co.,  328 
Hart  V.  Lauman,  1031 
Hart  V.  Salisbury,  371 
Barter  v.  Kernochan,  935 
Hartford  Bank  v.  Barry,  573 
Hartford  Iron  Mining  Co.  v.  Cambria 

Mining  Co.,  165 
Hartridge  v.  Rockwell,  76,  285 
H«.rts  V.  Brown,  214,  250,  263,  269, 
1084.  1112  .        '        .        , 

Harvey  v.  Indianapolis,  C.  &  D.  R.  R. 

Co.,  17 
Harward  v.  The  St.  Clair  &  Monroe 

Levee  Drainage  Co. ,  1005 
Harwood  v.  Humes,  350 
Harwood  v.  Railroad  Co.,  168 
Hasbrouck  v.  Milwaukee,  902,  957 
Hascall  v.  Life  Associa<^^ion  of  America. 

211 
Hase  V.  Warren  County,  128 
Hass  V.  Bank,  1146 
Hassan  v.  City  of  Rochester,  36 
Hastings  v.  Brooklyn  Life  Ins.  Co., 

183 
Hastings  v.  Drew,  1108 
Hatch  V.  Attrill,  409 

Latch  V.  Coddington,  147 

Hatch  V.  Dana,  1132 

Hatfield  v.  Cummings,  1123 

Hanson  v.  Vernon,  44: 

Havemeyer  v.  Iowa  City,  957 

Haven  v.  Adams,  1000,  1073 

Haven  v.   Grand  Junction  R.   R.  & 
Depot  Co.,  1047 

Havens  v.  Lathene,  353 

Hawes  v.  Oakland,  306.  309,  313,  317, 

Hawk  V.  Marion  County,  124 
Hawkins  v.  Carroll  County,  911,  920 
Hawkins  v.  Glenn,  1028,  1110,  1138 
Hawtayne  v.  Bourne,  98,  150,  152 
Hay  den  v.  Wheeler  &  Tappan  Co.,  236 
Hayes  v.  Bank,  1111 
Hayes  v.  Beardsley,  632 
Hayes  v.  Holly  Springs,  872 
Hayes  v.  Orr,  712 
Haynes  v.  Cape  May,  1086 
Haynes  v.  Covington,  446 
Haynes,  Liquidator,  v.  Succession  of 
Beckman,  176 


Ix 


TABLE  OF  CASES. 


[The  references  are  to  pages:  vol.  I  contains  pp.  1-707;  vol.  H,  pp.  708-1807.] 


TABLE  OF  CASES. 


ki 


liiii* 


'liii' 


Hay's  Case,  423 

Hays  V.  Gallon  Gas  Light  &  Coal  Co.. 

91,  ©8.  9«,  1054 
Hayward  v.   Board    of   Trustees   of 

Town  of  Redcliflf,  4.38 
Hayward  v.  Davidson,  121,  494 
Hayward  v.  Pilgrim  Society,  219 
Haywood  v.  Lumber  Company.  1087 

1111  ^' 

Hazelett  v.  Bank,  «82 
Hazelhurst  v.  Sav.,  G.  &  N.  A.  R.  R. 

Co.,  484,  517 
Hazleton  v.  Bank  of  Columbus.  629 
Head  v.   Cleburne  Building  &  Loan 

Assn.,  470 
Head  v.  Providence  Insurance  Co.,  95 
Heal  V.  Jefferson,  Ibwnship  of,  Grant 

County,  133 
Heanley  v.  State,  870 
Heath  v.  Erie  Railway  Co.,  315,  495, 

556 
Heath  v.  Portsmouth  Savings  Bank, 

617 
Heath  v.  Second  Nat.  Bank,  512 
Hetlges  v.  Dixon  County,  897,  924 
Hegeman  v.  Passaic,  1270 
Helms  Brewing  Co.  v.  Flannerv  470 
490,821  ^         ' 

Hemphill  v.  Yorkes,  608 
Hendee  v.  Pinkerton,  1014,  1074 
Hendee  v.  Railroad  Co.,  716 
Henkle  v.  Town  of  Keota,  1298 
Henley  v.  Clover,  129 
Henderson  Bridge  Co.   v.   Common- 
wealth, 1300 
Hennessy  v.  City  of  St.  P&ul,  509 
Henry  v.  Martin,  1145 
Henry  v.  North  Bank  of  Alabama,  599 
Henry  v.  Rutland  &  B.  R.  R.  Co.,  279 
Henry  v.  Syracuse,  G.  &  C.  R.  R.  Co., 

1021 
Heutig  V.  Sweet,  258 
Hequembourg  v.  City  of  Dunkirk,  37 
Herbert  v.  Bixlt.  &  Phil.  R.  R.  Co.. 

1301,  1304 
Herring  v.  New  York,  L.  E.,  etc.,  R. 

R.  Co.,  1172 
Hersey  v.  Veazie,  312,  495 
Hervey  v.  Illinois  Midland  Ry.  Co. 

1020,  1076  ^ 

Hessler  v.   Drainage  Commissioners 

1005 
Hewitt  v.  Board  of  Education,  878, 

Hewitt  V.  Goodrich,  644 

Hewitt  v.  Railroad  Company,  1236 

Hewitt  V.  Town  of  Grand  Chute,  138 

Hewitt  V.  Wheeler,  235 

Heycock  v.  Sherman,  415 

Hibernia  Building  Assn.  v.  McGrath 

366 
Hichens  v.  Congreve,  294,  298,  556 


Hicks  V.  Cheyenne  Land  &  Live  Stock 

Co.,  1100 
Hight    v.    Board,    etc.,    of    Monroe 

County,  121,  122 
Hightower  v.  Thornton,  357 
Higley  v.  First  Nat.  Bank  of  Beverly. 

536  ^* 

Hill  V.  C.  F.  Jewett  Publishing  Co., 

Hill  V.  City  of  Memphis,  17,  952,  954^ 

Hill  V.  Frazier,  243 
Hill  V.  Nisbet,  263 

Hill  V.  Rich  Hill  Coal  Mining  Co.,  260 
Hill  V.  Todd,  655 
Hill  V.  Trust  Co.,  652 
Hills  V.  Bannister,  360 
Hills  V.   Furniture    Company.    1071 
1116  ^  ' 

Hills  V.  Parker,  1118 

Hillyer  v.  Overman  Silver  Mining  Co.. 
172  ^       ' 

Hinckley  v.  Pflster,  1123 
Hinckley  v.   Union  Pac.  R.  R.   Co., 

Hinds  V.  Marmolejo,  535 
Hintrager  v.  Richter.  438 
Hirschraann  v.  Iron  Range  &  Huron 

Bay  R.  R.  Co.,  232 
Hirsch  v.  Jones,  311 
Hitchcock  V.    Galveston,   29.   37.   65. 

110,  787,  860,  1004 
Hitchings  v.  St.  Louis.  N.   O.  &  O. 

Canal  Transp.  Co.,  236 
Hitt  V.  Allen,  603 
Hoag  V.  Lamont,  234 
Hobart  v.  Johnson,  769 
Hobart  v.  Supervisors,  49 
Hobbs  V.  McLean,  1184 
Hockaday  v.  Commissioners,  67 
Hodder  v.  Kentucky  &  Great  Eastern 

Ry.  Co.,  1014,  1020.  1093 
Hodge  V.   First  National  Bank,  182. 

193 
Hodges  V.  City  of  Buffalo,  5,  33,  114, 

438,439.445 
Hodges  V.  New  England  Screw  Co.. 

301,  305,  306,  364,  456,  553,  556 
Hodges  V.  Planters'  Bank,  526 
Hodges  V.  Shuler,  1014 
Hodgin  V.  Bryant,  547 
Hod^kinson  v.  National    Live  Stock 

Ins.  Co.,  324 
Hodgman  v.  Chicago  &  St.  Paul  Ry. 
Co.,  902  ^ 

Hodsdon  v.  Capeland,  312 
Hoetzel  v.  East  Orange,  1086 
Hoey  v.  Gilroy,  854 
Hoflfman  v.  Board,  etc.,  123 
Hoffman   v,    Comrs.    of   Greenwood 

County,  442 
Hoffman  v.  Dickey,  385 


[The  references  are  to  pages:  vol.  I  contains  pp.  1-707;  vol.  n,  pp.  70&-1307.] 


Hoffman  v.  First  Nat.  Bank  of  Jersey 
City,  697  ^ 

Hoffman  v.  Reichert,  263,  274 

Hoffman  Steam  Coal  Co.  v.  Cumber- 
land Coal  &  Iron  Co.,  251,  272 

Hogue  v.  Edwards,  645 

Holbrook  v.  Bassett,  74.  102 

Holbrook  v.  Fauquier,  etc.,  Turnpike 
Co., 

Holbrook  y.   New  Jersey  Zinc  Co. 

Holbrook,  Merrill  &  Stetson  v.  Peters 

«&  Miller  Co.,  1117 
Holden  v.  New  York  &  Erie  Bank 

361 
Holden  v.  Phelps.  334 
Holden  v.  Upton,  155,  580 
Holder  v.  La  Fayette,  B.  &  M.  Ry. 

Co.,  245,  258,  279,  356 
Hollingsworth  v.  Detroit.  946 
Hollins  V.  Brierfield  Coal  &  Iron  Co.. 

1109,  1120,  1139 
Hollins  V.  St.  Paul,  M.  &  M.  R.  Co., 

489 
Hollister  v.  Powlett,  137 
Holly  Manufg.  Co.  v.  New  Chester 

Water  Co.,  1158 

Holmes  v.  Board  of  Trade,  150 

Holmes  v.  Boyd,  512 

Holmes  v.  City  of  Shreveport,  13,  849. 
857  t-      >      ^       , 

Holmes  v.  Oilman,  752 

Holmes    v.    Kansas    City    Board    of 

Trade.  170,  234 
Holmes  v.  Roe,  659.  692,  707 
Holmes,  Booth  &  Haydens  v.  Willard 

183,  224,  362,  820 
Holmes  &  Griggs    Manufg.    Co.    v 
Holmes  &  Wessell  Metal  Co    496 
821 
Holt  V.  Bennett,  263,  349 
Holt  V.  City  of  East  St.  Louis,   1269 
Home  Friendly  Society  v.   Tyler,  819 
Home  Insurance  Co.  v.  New  York 

1274,  1294 
Home  Nat.  Bank  v.  Newton.  637  641 
Homestead  Bank  v.  Wood,  489 
Honduras    Commercial   Co.    v 

Board  of  Assessors,  1292 
Hone  V.  Allen,  193 
Hood  V.  New  York  &  N    H 

Co.,  469,  478,  503 
Hook  V.  Bosworth,  1197 
Hooker  v.  Eagle  Bank,  170 
Hooker  v.  Vandewater,  1178      ^ 
Hooper  v.  Ely,  129 
Hoosac  Mining  &  Milling  Co.  v.  Donat 
235  ' 

Hope  V.  Deaderick,  48 
Hope  V.  International  Society,  1152 
Hope  V.  Salt  Company,  1087 
Hope  Mutual  Life  Ins.  Co.  v.  Wood,  90 


State 


R.  R. 


Hopewell  v.  Putt,  136 
Hopkins'  Appeal,  1111 
Hopkins  v.  Roseclare  Lead  Company, 

loo 
Hopkinson  v.  Foster,  664 
Hopper  V.  Sage,  816 
Hopper  V.  Town  of  Covington,  948 
Horn  V.  Mayor,  etc.,  Ill 
Hornblower  v.  Crandall,  291 
Hornblower  v.  Duden,  58 
Hornor  v.  Henning,  388,  400,  403,  406, 

418,  557 
Hornsby  v.  Eddy,  1229 
Horn  Silver  Mining  Co.  v.  New  York 

1294 
Horn  Silver  Mining  Co.  y.  Ryan,  348, 

349,  553  J     '        ' 

Horton    v.    Mobile    School    Comrs.. 

882 
Horton  v.  Sayer,  1152 
Horton  v.   Town  of  Thompson,  9^6, 

994.  1007  1-      »        . 

Horton  Ice  Cream  Co.  v.  Merritt,  192 

Horwitz  V.  Ellinger,  597 

Hospes  V.  Car  Company,  1084,  1135 

Hotchin  v.  Kent,  166,  172 

Hotchkiss  V.  Marion,  13 

Hotchkiss  V.  Plunkett,  140,  790 

Hotel  Co.  V.  Wade,  275,  1038,  1084 

Hot  Springs   Ind.  Sch.   Dist.  v.  First 
Nat.  Bank  of  Hot  Springs,  734 

Hough  V.  Cook  Land  Co.,  494 

Houghton  V.  Dodge.  234 

Houghton  V.  First  Nat.  Bank  of  Elk- 
horn,  571 

House  V.  Cooper,  309 

Howard  v.  City  of  Oshkosh,  25 

Howard  v.  Savings  Bank,  618 

Howe  V.  Barney,  558 

Howe  V.  Boston  Carpet  Co.,  456 

Howe  V.  Deuel,  309 

Howe  V.  Freeman,  1055 

Howe  V.  Hartness,  608,  628 

Howe  V.  Keeler,  235 

Howe  V.  Newmarch,  338 

Howe  V.  St.  Clair,  1232 

Howe  V.  Tool  Co.,  246,  254 

Howe  Brown  &  Co.  v.  Sanford  Fork 

&T00I  Co.,  1087 
Howell  V.  City  of  Peoria,  66 
Howell  V.  McCrie,  172 
Howell  V.  Western  R.  R.  Co.,  1080 
Rowland  v.  Myer,  191 
Hoyle  V.  Plattsburgh  &  Montreal  R 

Co.,  263,  270,  282,  326,  1082 
Hoyt  V.  Sheldon,  234 
Hoyt  V.  Stoddard,  1203 
^^^L^-  Tl»«mpson.  157,  180,  194,  202, 
^^     217,  225,  233,  466,  576 
Hubbard  v.  Bank,  1118 
Hubbard  v.  Camperdown  Mills.  171 
Hubbard  v.  Lyndon,  138 


Ixii 


TABLE  OF  CASES. 


[The  references  are  to  pages:  vol.  I  contains  pp.  1-707;  vol.  n,  pp.  708-18(W.] 


TABLE  OF  CASES. 


IxiJi 


m 


It 


m 


Hubbard  v.  New  York  &  Harlem  R. 

R.  Co.,  1013,  1014 
Hubbard  v.   Kew  York,  etc.,  Invest- 
ment Co.,  241,  250 
Hubbard  v.  President,  etc.,  724 
Huber  v.  Bossart,  657 
HucksteiL.  V.  Herman,  642 
Hudson  V.  Elevator  Company,  1214 
Hudson  V.  Marietta,  67 
Hudson  V.  Wilkinson,  J 129 
Hudson   Countv   Catholic  Protectory 
V.  Board  of  Township  Committe*e 
of  Kearney,  1279 
Bugg  V.  City  Council  of  City  of  Cam- 

derv  57 
Hughes  V.  Antietam  Manufg.  Co.,  198 
Hughes  V.  Bi\nk  of  yoniyrset,  166 
Hughitt  V.  Johnson,  C55 
Hulbert  v.  Carver,  627 
Hull  Jb  Argalls  v.  County  of  Marshall, 

832 
Hull  v.  Bank,  650 
Humboldt  v.  Long,  830,  835 
Humboldt   Mining  Co.   v.    American 

Mfg.,  Mining  &  Milling  Co.,  84 
Humboldt  Trust  Co's  Estate,  628 
Humes  v.  Decatur  Land  Imp.  &  Fur- 
nace Co.,  151 
Humphrey  v.  McKissock,  320,  1097, 

1100 
Humphrey     v.     Patrons'    Mercantile 

Assn..  73,  469.  490 
Humphries  v.  Bicknell.  657 
Hun  V.  Cary.  347,  364,  365,  553 
Hunkins  v.  Johnson.  136 
Hunt  v   Bullock,  1096 
Hunt  V.  Fawcett,  67,  445,  953 
Hunt  V.  Memphis  Gas  Light  Co,,  1^55 
Hunt  V.  Rahway,  1270 
Hunt  V.  Townsend,  739 
Hunter  v.   Louisville  &  Nashville  R. 

R.  Co.,  1264 
Huntei  v.  Nolf,  434 
Hunter  v.  Roberts,  Thorp  &  Co.  (a  Cor- 
poration), 811 
Huntington  v.  Attrill,  212,  408,  409 
Huntington  v.  Savings  Bank,  467 
Huntley   v.    Lincoln  Park  Commrs.. 

1269 
Huntress  v.  Burbank.  522 
Huntsville  Belt  Line  &  M.  S.  Ry.  Co. 

V.  Corpening,  151 
Huron   Printing  &    Binding    Co.   v. 

Kittleson,  237 
Hussey  v.  King,  322 
Hutchinson  v.  Bidwell,  268 
Hutchinson  v.  Green,  1111 
Hutchinson  v.  Self,  46 
Hutchinson  v.  Surrey  Consumers'  Gas 

Light  &  Coke  A*ssn.,  157 
Hutchinson  v.   Sutton    Manufg.  Co., 
246.348 


Hutton    V.    Scarborough    Cliflf    Co., 

325 
Hyde  v.  Larkin,  187,  234,  235,  583 
Hyde  v.  Continental  Trust  Co.,  1278 
Hyde  Park  Gas  Co.  v.  Kerber,  310, 

318 
Hyland,  Auditor,  v.   Central  Iron  & 

Steel  Co.,  1:^72 
Hylton  V.  United  States,  1278 
Hypers  v.  Griffin,  357 


[The  references  are  to  pt^es:  vol,  I  contains  pp.  1-707;  vol.  II,  pp.  703-1307.J 


I. 

Ide    V.    Passumpsic    &    Connecticut 

Rivers  R.  R.  Co.,  1014 
Ihl  V.  Bank  of  St.  Joseph,  609 
Ilgenfritz  V.  Pettis  County  Bank,  639 
Ilion  Bank  v.  Carver,  247 
Illinois  Central  R.  R.  Co.  v.  City  of 

Decatur,  1306 
Illinois  Linen  Co.  v.  Hough,  279,  356 
Illinois  &  St.  Louis  R.  R.  &.  Canal  Co. 

V.  City  of  St.  Louis  &  Pacific  Ele- 
vator Co.,  29 
Illinois  State  Hospital  v.  Higgins.  800 
Ilhnois  Trust  &  Savings  Bank  v.  First 

Nat.  Bank,  753 
Illinois  Trust  &  Sav.  Bank  v.  Smith, 

622 
Imboden  v.  Perrie,  666 
Importers  &  Traders'  Bank  v.  Everett. 

620 
Independent  District  v.  Schreiner,  886 
Indrann  Nat.  Bank  v.  Holtzclaw,  667 
Indianapolis  Rolling  3Iill  v.  St.  Louis, 

F.  S.  &  W.   liailroad,   168,   191, 

214,  235 
Indianapolis  &  St.  Louis  Ry.  Co.  v. 

People,  1302 
Indig  V.  National  City  Bank  of  Brook- 
lyn. 687,  692 
Industrial  &  Mining  Guaranty  Co.  v. 

Electrical  Supply  Co.,  1252 
Ingerman  Drainage  Comrs.   v.   State 

ex  rel,  800 

Ingelhart  v.  Thousand  Island  Co.,  270. 

271 
In^wersen  v.  Edgecombe.  1110 
Inhabitants  of  Boston  v.  Brazer,  379 
Inhabitants,  etc.,  v.  Weir,  857 
Inhabitants  o£  Brighton  v.  Wilkinson. 

871 
Inhabitants  of  Frankfort  v.    Inhab- 
itants of  Winterport,  56 
Inhabitants    of    Norwich  v.    County 

Comrs.,  871 
Inhabitants  of  Westbrook  v.   Inhab- 
itants of  Deering,  20,  35 
Innerarity  v.  Bank,  571,  583 
Innerarity  v.  Merchants'  Nat.  Bank. 

338 
In  re  A.  D.  St.  Nav.  &  Col.  Co..  485 


In  re  Appeal  of  Des  Moines  Water 

Co.,  1298 
In  re  Armstrong,  525 
In  re  Ayers,  845 
In  re  Bahia,  etc.,  328,  338 
In  re  Barnard,  United  States  Trust 

Co.  of  New  York  v.  Omaha  &  St. 

Louis  Ry.  Co.,  1227 
In  re  British  Seamless  Paper  Box  Co. , 

298.  328 
In  re  Cape  Breton  Co.,  299 
In  re  Cardiff  Savings  Bank,  Davies' 

Case,  423 
In  re  Certain  Stockholders  of  the  Cali- 
fornia Nat    Bank  of  San  Diego, 

715 
111  re  Commissioners  of  Central  Park, 

36 
In  re  Cork  &  Y.  Ry.  Co.,  497,  1059 
In  re  Denham  &  Co.,  347 
In  re  Elwes,  1275 
In  re  Empire  City  Bank,  757 
In  re  Eno,  775 

In  re  European  Bank,  338,  570,  583 
In  re  Forest  of  Dean  Coal  Mining  Co., 

347 
In  re  German  Mining  Co.,  153,  365 
In  re  Hallett's  Estate,  626 
In  re  Herman,  716 
In  re  Home  Provident  Safety  Fund 

Assn.,  1129 
In  re  James'  Estate,  811 
In  re  Johnson,  1145 
In  re  Land  Allotment  Co.,  420 
In  re  Le  Blanc,  817 
In  re  Lehigh  Co.'s  Estate,  1112 
In  re  Lewis,  1123 
In  re  London  &  Birmingham  R.  R. 

Co.,  365 
In  re  Louisiana  Savings  Bank,  598 
In  re  Marseilles  Extension  Ry.  Co.,  570 
In  re  Mast,  Buford  &  Burwell  Co 

1127 
In  re  Middle  Dist.  Bank,  712 
In  re  Mill  ward  Cliff  Cracker  Co.,  809 
In  re  Minnehaha  Driving  Park  Assn 

1134,  1135 
In  re  Mohawk  &  H.  R.  Co.,  157 
In  re  National,  etc.,  Society,  497 
In  re  New  Mashonaland  Exploration 

Co.,  422 
In  re  North   Australian  Territory  Co 

(Archer's  Case),  298,  423 
In  re  North  River  Bank,  623,  626 
In  re  Patent  File  Co.,  93 
In  re    Pendleton  Hardware  &  Imp. 

Co.,  155 
In  re  Petition  of  Powers,  129 
In  re  Pyle  Works,  246 
In  re  Reciprocity  Bank,  771 
In    re    Rochester.     Homellsville    & 

Lackawanna  R.  R.  Co..  820 


In  re  School  Directors,  138 

In  re   Seattle,    L.    S.  &  E.    Ry.  Co., 

Grievance  Committee  of  Brother- 
hood of  Railway  Trainmen  Lodge 

No.  196  V.  Brown,  1209 
In  re  Seven  Corners  Bank,  755 
In  re   South    Mountain   Consolidated 

Mining  Co.,  756 
In  re  Tallassee  Mfg.  Co.,  .523 
In  re  The  Independent  Assurance  Co. , 

157 
In  re  The  Liverpool  Household  Stores 

Assn.,  419 
In  re  Washington    Diamond   Mining 

Co  ,  420 
In  re  Western  &  Marine  Fire  Ins  Co., 

560 
In   re  Westmoreland  Green  &   Blue 

Slate  Co.,  421 
In  re  Wetmore,  881 
I.  N.  &  S.  Ry.  Co.  V.  City  of  Attica, 

951 
Insurance  Co.  v.  Cappellar,  1306 
Insurance  Company  v.  Lott,  1307 
Insurance  Company  v.  Oakley,  170 
Intendant,  etc.,  of  Livingston  v.  Pip- 
pin, 29,  445 
Intendant  of  Marion  v.  Chandler,  48 
International  Bank  v.  Ferris,  696 
International  Bank  v.  German  Bank, 

630 
International  Bank  v.  Jones,  638,  647, 

661 
International  &  Great  Northern  R.  R. 

Co.  V.  State,  1283 
International   &   Gt.   Northern  R.  R. 

Co.  V.  Wentworth,  1204 
Investment  Co.  of  Philadelphia  v.  Ohio 

&  N.  W.    Ry.    Co.,   1185,    1204, 

1234 
Iowa  City  Nat.  Bank  v.  McCord,  619 
lov/a  Lumber  Oo.  v.  Foster,  75 
Iowa  State  Sav.  Bank  v.  Black,  585 
Iron  Company  v.  Drexel,  164 
Iron  Works  v.  Grave,  259 
Irving  Bank  v.  Wetherald,  653 
Irwin  V.  Bailey,  191 
Irwin  V.  McKechnie,  1225 
Ives  V.  Smith.  1016 
Ivory  V.  Bank  of  Missouri,  656,  697 

J. 

Jackson  v.  Brown,  101,  1055 

Jackson  v.  Campbell,  181 

Jackson  v.  Cartwright  Lumber  Co.. 

203 
Jackson  v.  Hathaway,  1101 
Jackson  v.  Ludeling,  244,  326,  1108 
Jackson  v.  MarJ^et  Company,  181 
Jackson  v.   Newark  Plankroad  Co.. 

816 


lift 


Ixiv 


TABLE  OF  CASES. 


[The  references  are  to  paees:  vol  leonfafnanr^  i  -w.      i  tt         ~^ 

*^         "*•  *  coniwns  pp.  1-707;  vol.  11,  pp.  708-1307.] 


Jackson  v.  Newton,  641 

Jackson  v.  New  York  Central  R.  R. 

Jackson  v.  Traer,  166.  1033 
Jackson  County  v.  Brush,  59,  918 
'  Jackson  Insurance  Co.  v.  Cross,  602, 


Johnson  v.  Ward,  649 
Johnston  v.  Bank,  604 
Johnston  v.  County  of  Becker,  428 
Johnston  v.  Crawley,  143 
Johnston  v.  Shortridgc,  583 

°/J?"    V.    Building    Association, 
154 


Jaclgon  School  Township  v.  Farlow  I  Joint  Stock  Discount  Co.  v.  Brown. 
n-';4!l:nfU%?:«-  ^-  «•  «•  ^o-   •'»"tiSL^'«'"  *  Power  Co.  v. 


V.  Vfrden,  904,  971 
Jacksonville,    T.    &    K.    W.    R.    R 

Co.  V.  American  Construction  Co 
1184  ' 

Jacobs  V.  Knapp,  1250 
Jacobsohn  v.  Belmont,  688 
JaflFray  v.  Matthews,  1114 
Jagger  v.  National  German- American 

Bank  of  St.  Paul,  682 
James  v.  Rogers.  743 
Janscn  v.  Ofcto  Steitz  New  York  Glass 

Letter  Co.,  209 
Janvrin  v.  Town  of  Exeter,  125 
Jarrolt  v.  Moberly,  968 
Jarvis  v.  Manhattan  Beach  Co    334 
Jarvis  v.  Wilson,  655  * 

Jassoy  V.  Horn,  600,  603 
Jefl^^on  County  v.  Single,  132 
Jelhff  V.  Newark,  1270 
Jemison  y.  Citizens'  Savings  Bank  of 

Jefferson.  Texas,  466.  467 
Jenkins  v.  Hutchinson,  368 
Jenkins  v.  Walter,  629 
Jenks  V.  Chicago.  59 
Jennings  v.  Coal  Ridge  Improvement 

Co.,  1291 
Jermain  v.  Lake  Shore  &  Mich.  So. 

Ry.,  816 
Jersey  City  v.  Howeth.  1269 
Jesup  V.  City  B«nk  of  Racine.  1073 
Jesup  V.   Illinois  Central  R.   R.   Co 

245,  30?,  1053 
Jesup  V.  Wabash,  St.  Louis  &  Pac. 

Ry.  Co..  1173 
Jhons  V.  People,  144 
John  V.  C.  K  &  F.  W.  R.  R.  Co.,  49, 

870 
Johnson  v.  Bush.  180 
Johnson  v.  County  of  Stark,  49,  899, 

978  mi  ^^'  ^^'  ^^'  ^•^'  ^^' 

Johnson  v.  Farmers'  Bank  600 
Johnson   v    First  Nat.  Bank  of  Ho- 

boken,  672 
Johnson  v.  Fisher.  388 
Johnson  v.  Goslett,  294 
John.son  v.  Kessler,  900,  907 
Johnson  v.  Laflin,  762 
Johnson  v.  Monell,  624 
Johnson  v.  School  District,  40 
Johnson  v.  Smith,  235 
Johnson  v.  Switch  Company,  151 


Ingalls,  201 
Joliff  v.  Newark,  1270 
Jones  v.  City  of  Cincinnati,  19 
Jones  v.  Avery,  203 
Jones  V.  Barlow,  390.  394 
Jones  V.  Garcia  Del  Rio,  294 
Jones  V.  Glover,  1146 
Jones  V.  Green,  1142 
Jones  V.  Guaranty  &  Indemnity  Co 

1057  '' 

Jones  V.  Guaranty,  etc.,  Co.,  97 
Jones  V.  Hawkins,  188 
Jones  V.  Milton,  etc.,  Co.,  144 
Jones  V.  Morrison,  566 
Jones  V.  Pacific  Woolen  Co.,  665 
Jones  V.  Pearl  Mining  Company  1123 
Jones    V.    Pendleton    County  Court, 

Jones  V.  Robinson,  1146 

Jones  V.  Town  of  Lake  View  1269 

Jones  V.  Tnistees  Florence  Weslevan 

Universitv,  144 
Jone^s  McDowell  &  Co.  v.  Arkansas 

Jjechanical  &  Agricultural   Co., 

1 108 

Jones    Mfg.   Co.   v.   Commonwealth. 
1392  ' 

Jones,  Treasurer,  v.  Rushville  Natural 
Gas  Co..  1272 

Jonesboro'  City  v.  Railroad  Companv 
940  ^     ^ ' 

Jordon  v.  Bank,  721 

Jordon  v.  Long  Island  Railroad  Co 
155,  234,  239 

Jortlan  v.  Nat.  Shoe  &  Leather  Bank 
641  ' 

Jordan  v.  Osceola  County,  124 

Jourdaine  v.  Leprone,  701 

Joy  V.  Manion.  157 

Joy  V.  Plank  Road  Co.,  209 

Judson  V.  City  of  Bessemer,  952 

Judson  V.  Rossie  Galena  Co.    1141 

Judy  V.  Farmers  &  Traders'  Bank. 

Junction  Railroad  Co.  v.  Bank  of  Ash- 
land, 1021 
Junction  R.  R.  Co.  v.  Cheneay.   1014 
Juniata  Township  v.  Reamer,  136 
Just  V.  Wise  Township,  971 
Justine  V.  City  of  Logansport,  59 


TABLE  OF  CASES. 


Ixv 


[The  references  are  to  pages:  vol.  I  contains  pp.  1-707;  vol.  n,  pp.  708-18O7.] 


K. 

Kadish  v.  Garden  City  Eq.   Loan  & 

Bdg.  Assn.,  470,  495 
Kaiser  v.  Savings  Bank.  371 
Kalamazoo    R.    Nov.    Mfg.     Co     v 

McAlister,  152,  217 
Kalamazoo  Spring  &  Axle  Co.  v.  Wi- 

nans,  Pratt  &  Co.,  1117 
Kane  v.   Independent  School  District 

of  Rock  Rapids,  67,  886 
Kansas  Mut.  Life  Assn.  v.  Hill,  Treas- 
urer, etc.,  1307 
Kansas  Valley  Nat.  Bank  v.  Rowell. 

509 
Katenberger  v.  City  of  Aberdeen,  17, 

953 
Kean  v.  Davis,  288,  359 
Kean  v.  Johnson,  325 
Keen  v.  Beekman.  634 
Keene  v.  Collier,  634 
Keeney  v.  Converse,  £61 
Keeney  v.  Jersey  City,  114 
Keithsburg  v.  Fnck.  970,  976 
Kelley  v.  City  of  Milwaukee,  19,  42 
Kelley  v.  Lindsev,  133 
Kelley  v.  Mayor,   etc.,   of  Brooklyn. 

Kelley   v.   Newburyport   Horse  Rail- 
road, 238 
Kelley  v.  Town  of  Milan,  17,  872,  886 
Kelly  V.  Boyhan,  1082 
Kelly  V.  Fail  Brook  Coal  Co..  152 
Kelly  V.  McComiick,  990 
Kelly    V.    Mobile    Building  &   Loan 

Assn.,  454 
Kelly  V.  Trustees  of  Ala.  &  Cin.  R  R 

Co.,  93.  1013,  1096 
Kelsey  v.  National  Bank.  236,  490 
Kelsey  v.  Sergent,  248.  250,  278 
Kelso  V.  Teale,  113 
Kelty  V.  Second  Nat.  Bank.  648 
Kendall  v.  Bishop,  209,  1115 
Kendig  v.  Dean.  311 
Kenicott  v.  Supervisors,  916,   930,  956 
Kennard  v.  Cass  Countv,  1048 
Kennebec  &  Portland  *R.   R.    Co.  v 

Portland  &  Kennebec  R    R    Co 

1055,  1073 
Kennedy  v.  California  Sav.  Bank,  470, 

Kennedy   v.    Gibson,    554,    558.    715, 

Kennedy  v.  Green,  338,  570 
Kent  V.  Brickmaking  Co. ,  296 
Kent  V.  Iron  Co..  1138,  1162 
Kent  V.  Quicksilver  IHining  Companv 

92,94,453.482,486  ^     ^' 

Kenton    Insurance  Co.    v.  Bowman 

210 
Kenton  Ins.  Co.  v.  City  of  Covington, 


IX 


Kentucky  Central  R.  R.  Co.  v.  Com- 
monwealth, 1282 

Kentucky  Central  R.  R.  Co.  v.  County 
of  Pendleton,  1300 

Kentucky   Flour    Co.'s    Assignee    v 
Merchants'  Nat.  Bank   1146 

Kentucky  Union  R.  Co.  v.  County  of 
Bourbon.  906,  907,  931 

Kentucky.  W.   &  M.  L.  S.  R.  R.  Co. 
V.  Clark  County  Court,  46 

Keokuk  Northern  Line  Packet  Co    v 
Davidson.  250 

Keokuk  &  Western  R.  R.  Co.  v.  Mis- 
souri. 1282 

Kerrison  v.  Stewart,  1158 

Ketchum   v.  City  of  Buffalo,  20,  24. 
o2 

Ketchum  v.  Duncan,  171,  1046,  1047, 
1256 

Kettle  well  v.  Watson,  338 

Keys  V.  Association,  495 

Keyser  y.  Hitz,  758,  771 

Kickland  v    Menasha  Wooden  Ware 
Co.,  234 

Kiichli  V.  City  of  Minneapolis,  428 

Kilborne  v.  Lyman,  1118 

Kilbourne   v.  Supervisors  of  Sullivan 
County,  995,  908 

Kiley  v.  Forsee,  145,  184 

Killingsworth  v.  Commercial  Bank  of 
Rodney.  530 

Kilsby  y.  Williams,  601 

Kilvington   v.   City  of  Superior    41 
435  y        ,       , 

Kimball  v.  Cleveland,  209,  573 

Kimball  v.  Donaia,  664 

Kimball  v.  Goodburn,  218 

Kimball  v.  Norton,  617 

Kimball  v.  School  Dist.  No.  4  883 

Kimball  v.  Town  of  Lakeland!  941 

Kimmel  y.  Dickson,  621 

Kinder  v.  Shaw,  539 

King  V.  Egginton,  626 

King  v.  Howard.  1152 

King  V.  Insurance  Company,  1129 

King-  V.    Paterson    &  Hudson    River 

Railroad,  816 
King  v.  Union  Iron  Co. ,  381 
Kingman  v.  Perkins.  665 
Kinffsbury  v.  School  District,  111 
Kinkier  v.  Junica.  288 
Kinnie  v.  City  of  Waverly,  60 
Kinyon  v.  Stanton.  646 
Kirk  V.  Bell,  217 
Kirkland  v.  Kille,  393.  395 
Kirkpatrick  v.  Penrose  Ferry  Bridge 

Co.,  279  ^  ^ 

Kissam  v.  Anderson   592 

Kitchen  v^  Cape  Girardeau  &  State 
Line  R.  R.  Co.,  72 


Ixvi  TABLE  OF  CASES. 

[The  references  are  to  pages:  vol.  I  contains  pp.  1-707;  vol.  11,  pp.  708-1.S07.] 


TABLE  OF  CASES. 


Ixvii 


I 


Kitchen  v.   St.   Lous,   etc.,   Railway 

Co..  233,  241,  2aS,  285,  286,  1084. 

1114 
Klauber  v.  Biggerstaff.  628 
Kleekamp  v.  Meyer.  660 
Kleev.  E.  11.  Steel  Co.,  1124 
Kleise  v.  Gal ti -ilia.  975 
Klemme  v.  McClav,  174 
Kline  v.  Bank  of  tescott,  362 
Knatehbull  v.  Hallett,  731,  732,  742, 

751 
Knecht  v.  United  States  Scvings  Inst., 

597 
Kneeland  v.  American  Loan  &  Trust 

Co..  1172,  1202,  1218,  1220,  1239, 

1240 
Kneeland  v.   Foundry,    etc.,   "Works, 

1220 
Kneeland  v.  I>awrence,  1037 
Knight  V.  Fisher,  721 
Knight  V.  Lang.  98,  150,  218 
Knott  V.  Venable,  702 
Knower  v.  Haines,  387 
Knowles  v.  Duffy.  263 
Knox  V.  Baldwin.  398,  399.  402 
Knox  V.  Bank  of  United  States.  530 
Knox  County  v.  Aspinwall.  858 
Knox  County  v.  Ninth  National  Bank, 

914,  957 
Koch  V.  Nat.   Union  Building  Assn., 

151,  194 
Koehler  v.  Black  River  Falls  Iron  Co., 

2.54,  258,  275.   282,  283,  301.  807, 

1025,  1108 
Koetting  v.  Stntc.  1146 
Koontz  V.  Bank,  1213 
Koppikus  V.  State  Capitol  Comrs.,  68 
Korn  V.  Mut.  Soc,  90 
Koshkonongv.  Burton,  946 
Kountze  v.  Hotel  Company,  1186 
Kraft  V.  Coykendall.  394 
Kramrath  v.  City  of  Albany,  113 
Kreiger  v.  Railroad  Company,  946 
Kritner  v.  Woodson,  389 
Kuhn  V.  Bank,  657 

Kuntz  V.  Sumption.  Treasurer.    1272 
Kupfer  V.  Bank  of  Galena,  598,  699 
Kyle  V.  Malin,  5,  20 

L. 

Ijaborde  v.  Consolidated  Assn.,  671 
Laccy  v.  Central  Nat.  Bank,  511 
r^clede  Bank  v.  Schuler,  662,  664 
Ladies'  United  Aid  Society  (Methodist 

Home)  V.  Philadelphia.  1266 
Ia  Dow  V.  First  Nat.  Bank  of  New 

London.  530 
J>adywell  Mining  Co.  v.  Brooks.  299 
La  Fayette  Bank  v.  Mclaughlin.  690 
L:i  Fayette.  B.  ifc  M.  Rv.  Co  v.  Chee- 

ney,  270 


LaFavette,  M.   &  B.   R.  R.   Co.   v. 

Geiger,  17.  870 
La  Fayette  Savings  Bank  v.  St.  Louis. 

etc..  Co..  78 
La  Fayette  Savings  Bank  v.  Stoneware 

Co..  362 
Laforge  v.  Magee.  118 
La  Grange  Butter  Tub  Co.  v.  National 

Bank  of  Commerce,  1114,  1118 
Laing  v.  Burley,  757 
Lake    County     v.    Graham,    40,  832, 

835,  836,*839,  872.  897,  927,  972 
Lake  Ciunty  v.  Rollins,  40.  839,  927 
I^ke  Erie  &  Western  R.  R.  Co.  v. 

Indianapolis  Nat.  Bank,  1146 
Lake   Shore  Banking  Co.    v.  Fidlrr, 

1115 
Lake  Shore  &  Mich.   So.  Ry.  Co.  v. 

Chicago.  59 
Lake  Shore  &  Michigan  Southern  Ry. 

Co.   V.   City    of    Grand    Rapids, 

1306 
Lake   Superior    Iron  Co.   v.   Brown. 

Bonnell  &  Co..  1168 
Lake  Superior  Iron  Co.  v,  Drexel.  412, 

455 
Larkin  v.  Willamette  Valley,  etc.,  R. 

R.  Co.,  465 
Lamar  Water  &  Electric  Light  Co.  v. 

Citv  of  Lamar.  438 
Lamb  v.  Cecil,  576 
Lamb.  Trustee,  v.  Laughlin.  1108 
Lamprell  v.  Billericay.  98 
Lancaster  Bank  v.    Woodward,   563. 

650 
Lancaster  County  v.  Cheraw  &  C.   R. 

R.  Co..  210 
Lancaster  County  Nat.  Bank  v.  Smith, 

636 
Land  Company  v.  Sloan.  154 
Land  Credit  Co.  of  Ireland  v.  Lord 

Fcrmoy.  554 
Lander  v.  Castro,  350 
Landers  v.   Frank    Street  Meth«xiist 

Epis.  Church  of  Rochester,  152 
I^nd  Grant  Ry.  &  Trust  Co.  v.  Davis 

County.  918 
Land  is  v.   West  Penn.sylvania  R.  R. 

Co.,  1037 
Lane  v.  Bank  of  West  Tennessee,  550, 

570 
Langan  v.  Francklyn,  263 
Langdon  v.  Town  of  Castleton.   60, 

138 
Langhorne  v.  Robinson.  1264 
Langston  v.  South  Carolina  R.  R.  Co.. 

1014,  1047 
Lanham  v.  First  Nat.  Bank  of  Crete, 

535 
Lansing  v.  Lytic.  1002 
Laredo  v.  McDonnell,  64 
Laredo  v.  Martin,  64 


4  i 


[The  references  are  to  pages:  vol.  I  contains  pp.  1-707;  vol.  H,  pp.  70^im.] 


La  Salle  Nat.  Bank  v.  Tolu  Rock  & 

Rye  Co.,  359 
Lasher  v.  Stimson,  354 
Lassen  County  v.  Shinn,  57 
I-Aubach  V.  Leibert,  642 
Laughlin  v.  Braley,  1095 
Lavenstein  v.  City  of  Fond  du  Lac, 

Law  V.  Cross,  169 

Law  V.  People,  4,  40,  66 

Lawless  v.  Reese,  445 

Lawrence  v.  Gebhard,  152,  167,  172 

Lawrence  v.  Morgan's  La.  &  Tex.  R 

R.  &  Steamship  Co.,  1176 
Lawrence  v.  Schmidt,  648 
Lawrence  v.  Stouington  Bank,  701 
Lawrence  v.  Trauer,  1271 
Lawrence  v.  Tucker,  1058 
Lawrence  Iron  Works  Co.   v.   Rock- 

bridge  Company.  1124 
Lawrenceville  Cement  Co.  v.  Parker 

466 
Law  son  v.  Bank.  693,  694 
Lawson  v.  Richards,  657 
Lay  V.  Austin,  206 
Lay  bourn  v.  Seymour,  1130 
Liizarus,  Use  ci,  v.  Shearer,  192,  359 
Lazear  v.  Nat.  Union  Bank  of  Mary- 
land, 512,  515,  529 
Lazier  v.  Horan,  689,  690 
Leach  v.  Hale,  506,  635 
Leachman  v.  Dougherty,  1271 
Leather  Manufacturers'  Bank  v  Mor- 
gan, 602.  606,  675 
Leavenworth  v.  Norton,  27 
Leavenworth  County  v.  Brewer  126 
Leavenworth     County     v.     Chicago 
Rock  Island,  etc.,  Ry.  Co.,  1172  ' 
Leavenworth  County  v.  Keller,  126 
Leavenworth  County  v.  Miller  844 
Leavenworth,   L.    &    G.    Rv.  'Co    v 

Douglas  County,  919 
Leavitt  v.  Blatchford,  85 
Leavitt  v.  Connecticut  Peat  Company, 

Leavitt  v.  Palmer,  469 

Leavitt  v.  Simes,  602 

Lea\itt  v.  Stanton,  672 

Ledwich  v.  McKim,  857 

Lee  V.  Board,  etc.,  of  Ionia  County, 

Lee  v.  Neuchatel  Asphalte  Co.,  813 
Lee  V.  Pittsburg  Coal  &  Mining  Com- 
pany, 154,  181 
Lee  V.  Smith,  575.  579 
Lee  V.  Trustees  of  Flemington,  4;^ 
Lee  County  v.  Rogers.  897,  949 


Lee  County  v.  State  ex  rel.,  801 
Leeds  v.  City  of  Richmond,  42 
Leekms  v.  Nordyke  &  Marmon  Com- 

pany,  152 
Leffman  v.  Flanigan,  306, 563 


Lfcftley  V.  Mills,  641 
Leggett  V  Bank  of  Sing  Sing,  526 
Leggett  V.  New  Jersey  Manufg.  Com- 
pany, 193,  199 
Le  Grand    v.    Manhattan  Mercantile 

Assn.,  73.  92 
Lehigh  Coal  &  Navigation  Co.  v.  Cen- 

tral  Railroad,  1207 
Leigh  ton  v.  Campbell,  414 
Leloup  V.  Mobile,  1267,  1293 
Leo  V.  Union  Pac.   Railway  Co.    102 

313,  1024  ^         '        ' 

Leon  County  v.  Vann,  114 
Leonard  v.  A.  Ins.  Co.,  466 
Leonard    v.    Buriington    Mut.    Loan 

Assn.,  205 
Leonard  v.  City  of  Canton,  4,  441 
Leonard  v.  Long  Island  City, '39 
Le  Roy  v.  Globe  Ins.  Co..  817 
Leslie  v.  Lorillard,  183,  407,  500 
Lester  v.  Bank  of  Mobile,  528 
Lester  v.  Webb,  219,  227 
Levey  v.  New  York  Central  &  H  R 

R.  R.  Co.,  151  '     ■ 

Levi  V.  Bank,  750 
Levy  V.  Bank  of  the  United  States, 

595,  1213 
Levy  V.  Mutual  Benefit  Life  &  Fire 

Ins.  Co.,  89 
Levy  V   Peters.  657 
Levy  v.  U.  8.  Bank,  600 
Lewis  V.  Barbour  County  Comrs.    Ill 
Lewis   V.    Board,    etc.,  of    Sherman 

County,  15 

Lewis  V.  Bourbon  County,  826.   900 
905,  941  ^ '         »     ^, 

Lewis  V.  Comanche  County,  5,  844 
Lewis  V.  Commissioners.  844 
Lewis  V.  Freeholders  of  Hudson,  62 
Lewis  V.  Hartford  Silk  Manufi?    Co 
189  ^         ' 

Lewis  V.  International  Bank  647 

Lewis  V.  Jeffries,  1088 

Lewis  V.  Lyons,  1060 

Lewis  V.  Madocks,  742 

Lewis  V.  Montgomery.  404,  40 

Lewis  V.  Nicholson.  369 

Lewis  V.  Park  Bank,  599 

Lewis  V.  Pima  County,  948 

Lewis  V.  Planters'  Bank,  688 

Lewis   V.    St.    Albans  Iron  &  8t«el 

Works,  347 
Lewis  V.  Traders'  Bank,  665 
Lewis  V.  United  States,  729 
Lewis  V.  Vicksburg  &  Meridian  R  R 

Co.,  1233  ■ 

Lewis,  Admr.   v.  Glenn,  Trustee  1137 
Lexington  v.  Butler.  1037 
Libby  v.  Union  National  Bank,   198 

512  '         ' 

Liebfritz   v.    Dubuque    St.    Ry.    Co., 

235 


4 


TABLE  OF  CASES. 


[The  references  are  to  pages:  vol.  I  contains  pp.  1-707;  vol.  11,  pp.  708-1807.] 


Life  &  Fire  Ins.  Co.  v.  Mechanic  Fire 

Ins.  Co..  75,  98.  103.  150.  182,  439 
Ligbtner  v.  City  of  Peoria.  1268 
yily  V.  Miller,  657 
Lime  City  B..  L.   &  Sav.   Assn.   v. 

Black,  1123 
Lincoln  v.  Sun  Vapor  Street  Light 

Co.,  861 
Lincoln  B.  &  L.  Assn.  v.  llass,  1095 
Lincoln  County  v.  Luming.  845,  846, 

847 
Lincoln  County  Court  v.  United  States, 

847 
Lincoln  Township  v.   Cambria    Iron 

Company,  948 
Linden  v.  Case,  118 
LintUey  v.  Bank,  655 
Lindsley  v.  McClelland,  628 
Lingle  v.  National  Ins.  Co..  271 
Linn  v.  Chambersburg  Borough,  1012 
Linthicum  v.  Ray,  1101 
Lionberger  v.  Mayer,  571 
Lionberger  v.  Rouse,  1296 
Lippincott  v.  Carriage  Co.,  246,  254, 

1087 
Lippincott  v.  Town  of  Pana,  876,  904, 

971,  973,  976,  982.  983 
Litchfield  v.  Ballan,  930,  968 
Litchfiold  V.  McComl)er,  871 
Litchfield  v.  White,  364 
Little  V.  Chad  wick,  752 
Little  V.  City  of  Rochester,  42 
Little  V.  Kerr,  156 
Little  Rock  v.   Merchants'   National 

Bank, 1004 
Little  Rock  &  Fort  Smith  Ry.  Co.  v. 

Huntington,  1104 
Little  Rock  &  Fort  Smith  Railway  v. 

Worthen,  1282 
Little  Warrior  Coal  Co.  v.   Hooper, 

1123 
Liverpool  &  Great  Western  Steam  Co., 

V.  Phoenix  Ins.  Co.,  473 
Live  Stock  Assn.   of  New  York  v. 

Levy,  502 
Livingston  v.  Hollenbcck,  121 
Livingston  v.  Lynch,  325 
Livingston  County  v.  First  Nat.  Bank 

of  Portsmouth,  920,  935.  941,  965 
Livingston  County  v.  Weider,  852 
Lloyd  V.  City,  955 
Lloyd  V.  McCaffrey,  664 
Loan  Association  v.  Stonemetz,  279 
Loan  Association  v.  Topeka,  43,  44 
Locke  v.  Davison,  13,  16 
Locke  V.  Merchants'  Nat,  Bank,  686 
Lockhart  v.  Van  Alstyne,  416,  485 
Lockwood    V.    Thunder   Bay    River 

Boom  Co. ,  157,  165 
Logan  V.  Earl  of  Courtown,  84 
Logan  County  Bank    v.   Townsend, 

505,  543 


Lohman  v.  New  York  &  Erie  R.  R. 

Co.,  154 
Long  V.  Court,  1123 
Long  V.  Straus,  600 
Longbottom's  Execrs.  v.  Babcock,  597 
Loomis  V.  Bank.  571 
Lord  v.  Yonkers  Fuel  Co. ,  1060 
Lorillard  v.  Clyde,  164 
Lott  V.  Mayor,  etc.,  of  City  of  Way- 
cross,  t)7 
Loudenslager  v.  B^'uton,  1055 
Loughlin  v.  Marshall,  627 
Louisiana  v.  New  Orleans,  37 
Louisiana  v.  Wood,  787,  855,  860.  925 
Louisiana  State  I^nk  v.  Orleans  Nav- 
igation Company,  78,  100 
Louisiana  State  Bank  v.  Senecal,  571, 

583 
Louisville  City  Ry.  Co.   v.   City  of 

Louisville,  29 
Louisville,  etc.,  R.  R,  Co.  v.  County 

Court,  48 
Louisville,  etc.,  R.  R.  Co.  v.  David- 
son, 49 
Louisville  &  Nashville  R.  R.  Co.  v. 

Commonwealth,  1282,  1302,  1304 
Louisville  «&  N.  R.  R.  Co.  v.  County 

Court,  etc.,  48,  901 
Louisville  «&  Nashville  R.   R.  Co.  v. 

Hopkins  County,  1300 
Louisville  &  N.  R.  R.  Co.  v.  Literary 

Society  of  St.  Rose,  82 
Louisville  &  Nashville  R.  R.  Co.  v, 

Palmes,  1282 
Louisville  &  Nashville  R.   R.  Co.  v. 

Trustees  School  District  No.  108, 

1263 
Louisville,   New   Albany  &  Chicago 

liy.  Co.  V.  Carsin,  2;i3 
Louisville,  N.  A.  &  Chic.  Ry.  Co.  v. 

Flanagan,  455 
Louisville,  N.  A.  &  O.  R.  Co.  v.  Ohio 

Valley  Improvement   &    Constr. 

Co.,  1050 
Love  V.  Mining  Co.,  807 
Loveland  v.  Doran  &  Wright  Co.,  402 
Loveland  v.  Garner,  384 
Lovingston  v.  Wider,  1005,  1006 
Low  V.  Buchanan,  403 
Low  V.  California  Pac.  R.  R.  Co.,  78, 

1052 
Low   V.   Connecticut    &   Passumpsic 

Railroad,  198 
Low  V.  Mayor,  etc.,  of  Marysville,  26, 

43 
Lowber  v.  Mayor,  etc.,  69 
Lowell  v.  City  of  Boston,  44,  917 
Lowell  Five  Cents  Savings  Bank  v. 

Inhabitants   of   Winchester,    133. 

445 
Lowene  v.  American  Insurance  Co., 

817 


\ 


TABLE  OF  CASES. 
[The  references  are  to  pages:  vol.  I  contains  pp.  1-707;  vol.  II,  pp.  70&-1307.] 


Ixix 


Lowry  v.  Bank,  539 

Lowry  v.  Polk  County,  634 

Lowry,  Trustee,  etc.,  v.  Phila.  Optical 

&  Watch  Co.,  1115 
Luciis  V.  Downer,  743 
Lucas  V.  Pitney,  8,  91,  96.  102 
Lucas  County  v.  Hunt,  441 
Lucas  V.  White  Line  Transfer  Co., 

468,  470,  489,  490 
Ludlow  V.  Hurd,  1055,  1096 
*Lumberville  Delaware  Bridge  Co.  v. 

State  Board  of  Assessors,   1293, 

1295 
Luse  V.  Isthmus  Transit  Ry.  Co.,  99, 

150,  1073 
Luzarder  v.  Sargeant,  880 
Lyceum  v.  Ellis,  1067 
Lyddy  v.  Long  Isl  .nd  City,  821 
Lyell  V.  Sanbourn.  152 
Lyman  v.  Bonney,  306 
Lyman    v.    Northern    Pac.    Elevator 

Co.,  1144 
Lynch  v.  First  Nat,  Bank  of  Jersey 

City,  653 
Lynde  v.   Columbus,   C.  &  I.  C.  Ry. 

Co.,  1161 
Lynde  v.  The  County,  832,  920,  921 
Lynde  v.    Winnebago    County,   897, 

941,  982 
Lyndeborough   Glass    Co.   v.    Massa- 
chusetts Glass  Co.,  9,  238 
Lyndon  Mill  Co.  v.  Lyndon  Literary 

&  Biblical  Inst.,  172,  182 
Lyng  V.  Michigan,  1267,  1293 
Lyon  V.  New   York,  S.   &  W.  R.  R. 

Co.,  1048 
Lyon  V.  State  Bank,  530 
Lyons-Thomas  Hardware  Co.  v.  Perry 

Stove  Manufg.  Co.,  1114,  1117 
Lytle  v.  Lansing,  1002 

M. 

Mass  V.  Missouri,  Kansas  &  Tex.  Ry. 
Co.,  1043 

Mann  v.  Second  Nat.  Bank,  601 

McAleer  v.  McMurray,  250 

McAllen  v.  Woodcock,  271 

McAllister  v.  Plant,  1054,  1096 

McBee  v.  Central  Trust  Co.  of  New 
York,  1147,  1148 

McBlair  v.  Gibbes,  269 

.McBn\in  v.  Grand  Rapids,  114 

McCabe  v.  Board  of  Comrs.  of  Foun- 
tain County,  121 

McCall  V.  California,  1267 

McCallie  v.  Mayor,  etc.,  964 

McCann  v.  First  Nat.  Bank,  519 

McCaslin  v.  State,  446 

McCarty  v.  Roots,  95 

McClave  v.  Thompson,  402 

McClelland  v.  Reynolds,  359 


McCloskey  v.  City  of  Albany,  114 
McClure   v.  Board  of  Comrs.  of  La 

Plata  County,  376 
McClure  v.  Levy,  262 
McClure  v.  Oxford  Township,  71,  446, 

836.  892,  897 
McComb  V.  Barcelona  Apartment  As- 
sociation. 236,  1068 
McConnell  v.  Hamm,  851 
McConville  v.  Gilmour,  720 
McCormick  v.  Bay  City,  112 
McCoy  V,  Briant,  444 
McCoy  V.  Washington  County,  1048 
McCracken  v.  City  of  San  Francisco, 

113.  939 
McCracken  v.  Robison,  263 
McCrary  v.  Chambers,  318 
McCrorv  v.  Junction  R.  R.  Co.,  471 
McCullough  V.  Moss,  78,  90,  152 
McCullough  V.  Talladega  Ins.  Co.,  98 
McCurdy's  Appeal,  1055,  1093 
McDermott  v.  Bank,  572 
McDonald  v.  Chisholm,  203 
McDonald  v.  Houghton,  258 
McDonald   v.   Mayor,   114,   443,   444, 

445 
McDonough  v.  Templeman,  145 
McDowell  V.  Bank  of  Wilmington,  525, 

637,  642 
McDowell    V.   Rutherford    Ry.   Con- 
struction Company,  906 
McElhenny's  Appeal,  298,  299 
McElrath  v.  Pittsburg  &  Steubenville 

R.  R.  Co.,  1038 
McElroy  v.  Nucleus  Association,  1074 
McEwen  v.  Davis,  610,  638.  640 
McGrargell  v.  Hazleton  Coal  Company, 

161 
McGarrahan  v.  Mining  Co. ,  857 
McGeorge  v.  Big  Stone  Gap  Improve- 
ment Co.,  88,  303.  304,  1123 
McGhee  v.  Claridy,  1232 
McGourkey  v.  Toledo  &  Ohio  Central 

Ry.  Co.,  243 
McGrade  v.  German  Sav.  Inst.,  660 
McGregor  v.  Covington  &  Lexington 

R.  R.  Co.,  1021 
McGregor  v.  Deal  &  Dover  Rv.  Co., 

95,  450,  491 
McGregor  v.  Loomis,  597,  697 
McGregor's  Excers.  v.  Vaupel,  1298 
McGi7gin  V.  Railroad  Company,  1250 
McHarg  v.  Eastman,  393 
McHenry  v.  Hazard,  992 
McHenry  v.  Railroad  Co.,  316 
Mcllhenny  v.  Binz,  1098,  1172,  1241 
Mclndoe  v.  St.  Louis,  493 
Mclntire  v.  Blakeley,  508 
Mclntire  v.  Pembroke,  135 
Mclntire  v.  Preston,  106,  206 
Mcintosh  V.  Tyler,  648 
McKay's  Case,  259,  300 


i\ 


y 


Ixx 


TABLE  OF  CASES. 


[The  references  are  to  pages:  vol.  I  contains  pp.  1-707;  vol.  II,  pp.  708-18(»7.J 


McKeag  v.  Collins,  193 
McKeesport  District  v.  Miller,  139 
McKenzie  v.  Wooley,  900,  907 
McKierDan  v.  Leuzen,  98,  173 
MoKim  V.  Odom,  110 
McKinster  v.  Bank  of  Utica,  581 
McKleroy  v.  Southeni  Bnnk  of  Ken- 
tucky, 670 
Mel^in  v.  Wallace,  609,  6U,  710 
McLane,    Trustee,    v.    Plaoerville  & 
Sacramento  Valley  R.  R.  Co.,  97, 
1013,  1055 
Mcliaughlin  v.  Citize^s^  etc.,  Assn., 

870 
McLaughlin  v.  D.  &  W.  R.  R.  Co..  485 
McTjcan  v.  Jophson,  1288 
McLean  v.  Pittsburgh  Plate  Glass  Co., 

811 
McLean  County  v.  City  of  Blooming- 
ton.  1268 
McLellan  v.  File  Works,  80 
McLcndon  v.  Anson  County,  946 
McLendon  v.  Commissioners,  1048 
McLeod  V.  Evans,  622,  731,  747,  749, 

750,  753 
McMahon  v.  Morrison,  1282 
McMnnus    v.    Duluth,    Oookston    & 

Northern  R.  R.  Co.,  960 
McMasters  v.  Re^'d,  1013 
McMumiy  v.  Moran,  1183 
McMurray  v.  Oil  Com  pun  v,  203 
McNtib  V.  McNab  &  llarlfn  Mfg.  Co., 

821 
McNcal  V.  Allegheny  Township,  135 
McNeil  V.  Chamber  of  Commerce,  226 
McNeil  V.  Sliober  &  Cargueville  Lith. 

Co.,  359 
McNeil  V.  Tenth  National  Bank.  627 
McNeill  V.  Lacey,  246 
McNulta  V.  Locliridge,  1224 
McPherson  v.  Foster,  66,  442.  826 
McTighe  v.  Macon  Construction  Com- 
pany, 1095 
McVeany  v.  Mayor,  798 
McWhorter  v.  People,  792 
M.  T.  Co.  V.  Howe,  46 
Machinists'  Nat.  Bank  v.  Field,  335 
Mackinto.sh  v.  Eliot  Bank,  668 
Mackintosh  v.  Flint  &  Pere  Marquette 

R.  R.  Co.,  821 
MacNaughton  v.  Osgood,  308 
Macomber  v.  Doane.  665 
Macon  &   Birmingham  R.  R.  Co.  v. 

Gibson,  974 
Macy  V.  City  of  Indianapolis,  19 
Madison  v.  Ross,  144 
Madison  Ave.  Bjiptist  Church  v.  Bap- 
tist Church  in  OHverSt.,  234 
Madison  County  v.  Bartlett,  16 
Madison  County  v.  Paxton,  914,  915 
Madison  County  v.  Priestly,   Treas- 
urer, 912 


Madison  County  Court  v.  Richmond 
Irvine  &T.  F.  R.  R.  Co.,  908 

Madison,  etc.,  Plank  lioad  Co.  v. 
Watertown  Plank  Road  Co.  74 
80.  453,  459,  468,  471 

Madison,  etc.,  R.  R.  Co.  v.  Norwich 
8a V.  Society.  78 

Madry  v.  Cox,  900 

Magee  v.  Cowperthwaite,  1232 

Magee  v.  Mokelumne  Hill  Coal&  Min- 
ing Co.,  99,  102 

Magee  v.  Pacific  Improvement  Co., 
470 

Magill  V.  Hinsdale,  359 

Magniac  v.  Thompson,  931 

Magor  V.  Ray,  7.  10,  378,  444,  821. 
1004 

Magruder  v.  Colston,  756 

Mahaiwe  Bank  v.  Peck,  640 

Maher  v.  City  of  Chicago,  65.  164,  488 

Mahone  v.  Manchester,  etc.,  R.  R. 
Corp.  182 

Mahone   v.  Southern  Telegraph  Co.. 

nm 

Mahoney  Mining  Co.  v.  Anglo-Cali- 
fornia Bank,  564 

Main  v.  Casserly,  490 

Main  Jellico  Mountain  Coal  Co.  v. 
Lotspeich,  263 

Maine  v.  Gnmd  Trunk  Rv.  Co..  1293 

Maisch  v.  Saving  Fund,  3;)6.  ;^)7 

Makin  v.  Institution  for  Savings,  618 

Mallory  v.  llanaur  Oil  Works.  501, 
820 

Mallory  v.  Mallory  &  Wheeler  Co.. 
172,  246,  298 

Mallory  v.  West  Shore  &  Hudson 
River  R.  R.  Co.,  1042 

Manchester  &  Lowell  Railroad  v.  Con- 
cord Railrond.  821 

Mandeville  v.  Union  Bank  of  George- 
town, 637 

Mandeville  v.  Welch,  665 

Maneval  v.  Jackson  Township,  24,  136 

Mangels  v.  Donan  Brewing  Co.,  1150 

Manliattai  Bank  v.  Walker,  623,  635 

Manhattan  Beach  Co.  v.  Hamed,  334 

Manhattvn  Brass  Co.  v.  Webster  Glass 
&  Queensware  Co. .  583 

Manhattan  Co.  v.  Lydiir.  600,  602 

Manhattan  Hardware  Co.  v.  Phalen, 
1075,  1079,  1089 

Manhattan  Hardware  Co.  v.  Roland, 
1079 

Manhattan  Life  Ins.  Co.  v.  Fort-,- 
second  St.  &  Grand  St.  Ferry  R. 
R.  Co.,  340 

Manhattan  Trust  Co.  v.  Sioux  City  & 
N.  Ry.  Co.,  1095 

Manley  v.  City  of  Atchison,  113 

Mann  v.  Chandler,  810 

Mann  v.  Cooke,  166 


\ 


TABLE  OF  CASES. 


[The  references  are  to  pages:  vol.  I  contains  pp.  1-707;  vol.  II,  pp.  708-1307.] 


Ixxi 


, 


Mann  v.  Eckford,  459 

Mann  v.  Second  Nat.  Bank,  615 

Manning  v.  Norfolk  Southern  R.  R. 

Co.,  1042,  1048 
Manufacturers'   Bank   v.    Continental 

Bank,  612,  744,  7;'50 
Manufacturers'  Bank  v.  Scofield,  572 
Manufacturers'  Nat.  Bank  v.  Barnes, 

604,  680 
Manufrs.  Nat.  Bank  v.  Newell,  616 
Manufrs.    Sav.   Bank  v.   Big  Muddy 

Iron  Co.,  233 
Manufacturing  Co.  v.  Ferguson,  1076 
Maux  Ferry  Gravel  Road  Co.  v.  Brane- 
gan, 278 
Mapes  v.  Scott,  511 
Marble   v.   Jamesville    Manufg.    Co., 

1141 
Marble  Company  v.  Harvev,  81 
Marbury    v.   Kentucky   tfnion  Laud 

Co.,  79,  83 
March  v.  Eastern  Railroad,  265,  306 
Marcy  v.  Amazeen,  617 
Marcy  v.  Township  of  Oswego,  830, 

835,  842.  897 
Maricopa  &  Phoenix  R.  R.  Co.  v.  Ari- 

zonn  Territory,  1305 
Marine  Bank  v.  Biays,  166 
Marine  Bank  v.  Butts,  529 
Marine   Bank   v.   Clements,   180,  182, 

183,  207 
Marine  Bank  v.  Fulton  Bank,  597,  615, 

662,  745,  750 
Marine   Bank  of  Chicago  v.   Birnev, 

598 
Marine  Bank  of  Chicago  v.  Chandler, 

598,  627,  647 

Marine  Bank  of  Chicago  v.  Ferry's 

Adrar.,  596 
Marine  Bank  of  Chicago  v.  Ogden,  646 
Marine  Bank  of  Chicago  v.  Rushmore, 

599,  627,  647 

Marine  Bank  of  Buffalo  v.  Butler  Col- 
liery Co.,  148,  197,  234 

Marine  Nat.  Bank  v.  National  City 
Bank,  654 

Marine  Nat.  Bank  v.  National  City 
Bank,  652 

Marion   County   v.   Harvey    County, 

cMJo 

Marion  Savings  Bank  v.  Dunklin.  407 
Market  Company  v.  Jackson,  182 
Market  &   Fulton   National   Bank  v. 

Jones,  1066 
Market  Street  Bank  v.  Stompe,  548 
Markey   v.  Mutual   Benefit   Ins.  Co., 

193 
Markley  v.  Rhodes,  5G1 
Marks,   Trustee,  etc.,  v.   Trustees  of 

Pardue  University,  26 
Marlatt  v.  Levee  Steam  Cotton  Press 

Co.,  210 


Marlborough  Manufg.  Co.  v.  Smith, 

166 
Marquette,   H.    &   O.    R.  R.    Co.    v. 

United  States,  1301 
Marquette  &  Ontonagon  R.  R.  Co.  v. 

Taft,  152 
Marrett  v.  Brackett.  659 
Marsh  v.  Burroughs,  1133 
Mai-sh  v.  Fulton  County,  71,  111,  471, 

787,  872,  897,  936,^  939,  956.  1004 
Marsh  v.  Maxwell,  643 
Marsh  v.  Oneida  Central  Bank,  598 
Marsh  v.  Small,  643 
Marsh  v,  Whitmore,  168 
Marshall  v.  F.  &  M.  Savings  Bank  of 

Alexandria,  553 
Marshall  v.  Harris,  371 
Marshall  v.  Silliman,  936,  972,  1005 
Marshall  v.  Vicksburg,  1059 
Martel  v.  City  of  East  St.  Louis,  793 
Martin   v.    Great  Falls   Manufg.  Co., 

182 
Martin   v.  Mayor,  etc.,  of  Brooklyn, 

446 
Martin  v.  Morgan,  601 
Martin  v.   Niagara  Falls  Paper  Mfg. 

Co.,  149,  186,  1066 
Martin  v.  Railway  Compauj',  133 
Martin  v.  Santa  Cruz  Water  Storage 

Co.,  235 
Martin  v.  Victor  Mill  &  Mining  Co., 

235 
3Iartln  v.  Webb,    149,    177,    184,   187, 

553,  623 
Marza  v.  Bait.  &  Ohio  R.  R.  Co.,  1282, 

1303 
Mason  v.  Chandler,  359 
JVIassachusetts  &  S.  Construction  Co. 

V.  Cove  Creek  Township,  1008 
Massey  v.  Fisher,  731 
Massey  v.  Papin,  1095 
Masterton  v.  Mayor,  etc.,  of  Brooklyn, 

29 
Mather  v.  Union  L.  &  Trust  Co. ,  223 
Matson  v.  Alley,  151 
Matter  of  Clark  v.  Sheldon,  997 
Matter  of  Fayerweather,  1290 
Matter  of  Franklin  Bank,  598 
Matter  of  Prime,  1290 
Matter  of  Tiffany  &  Co.,  1290 
Matthews  v.  Patterson,  385 
Matthews  v.  Skinker,  493,  509,  510 
Maupin  v.  Franklin  County,  446 
Maury  v.  Mason,  753 
Maxey  v.  Williamson    Count  v.    824, 

893,  902,  966 
Maxwell  v.  Planters'  Bank,  570.  571 
Mayer  v.  Grima,  1274 
Mayor  v.  Sands,  983 
Mayor  v.   Wetumpka  \Vhur(  Co..  43, 

851 
Mayor  of  Ludlow  v.  Charlton.  98 


li 


Ixxii 


TABLE  OF  CASES. 


[The  references  are  to  pages:  vol.  I  cx)ntain8  pp.  1-707;  vol.  H,  pp.  708-1307.] 


TABLE  OF  CASES. 


Ixxiii 


Mayor  of  Norwich  v.  Norfolk  Ry.  Co.. 

491 
Mayor,  etc.,  v.  Inman,  223,  250 
Mayor,  etc.,  v.  Kirkley,  111 
Mayor,  etc.,  v.  Tenth  Nat.  Bank,  361 
Mayor,  etc.,  of  Baltimore  v.  Baltimore 

&OhioR.  R.  Co.,  74 
Mayor,  etc.,  of  Baltimore  v.  Eschbach, 

109 
Mayor,  etc.,  of  Baltimore  v.  Miis2:r:ive. 

Ill 
Mayor,  etc.,  of  Baltimore  v.  Poultney, 

112 
Mayor,  etc.,  of  Baltimore  v.  Reynolds 

110,  111 
Mayor,  etc.,  of  Cartersville  v.  Baker, 

23 
Mayor,  etc.,  of  Jackson  v.  Bowman, 

29 
Mayor,  etc.,   Kokomo   v.  State,  949. 

950 
Mayor,  etc.,  of  Rome  v.  Cabot.  20.  70 
Mayor,  etc.,  of  Rome  v.  Mc Williams, 

68 
Mayor,  etc..  of  Staple  of  England  v. 
Governor,  etc.,  of  Bank  of  Eng- 
land, 344 
Mayor,  etc.,  of  Wetiimpka  v.  Winter. 

47,  48 
Mead  v.  Kegler.  73.  75.  100,  102 
Mead  v.  Mali,  287,  309 
Mead  v.  Merchants'  Bank  of  Albany 

647,  651 
Mead  v.  New  York,  H.  ct  N.  R.  R. 

Co..  1013,  1055 
Mechanics'  Biink  v.  Bank  of  Columb-a. 

359,  572 
Mechanics'  Bank  v.  New  York  &  N. 

H.  R.  Co..  286,  483 
Mechanics'  Bank  v.  Merchtints'  Bank, 

641 
Merchants'  Bank  v.  State  Bank,  328 
Merchants'    Bank    of    Alexandria  v. 

Bank  of  Columbia,  142,  146,  185 
Mechanics'  Bkg:.  Assn.  v.  New  York, 


Melvin  v.  Lisenby,  825 
^Memphis  City  v.  Dean,  29 
Memphis  v.  Ensley.  1303 
Memphis  v.  Home  Insurance  Co. ,  1307 
Memphis  v.   Phcenix,  etc.,  Ins.  Co., 

1307 
Memphis  v.  Union  &  Planters'  Bank. 

1307 
Memphis*  C.  R.  R.  Co.  v.  Iloechner. 

1232 
Memphis  Grain  &   Elevator    Co.    v. 

Memphis  &  Charleston  R.  R.  Co.. 

819 
Memphis,  Kansas  &  Colorado  Ry.  Co. 

V.  Thompson,  919,  962 
Memphis  &  Little  Rock  Poiilroad  v. 

Commr?.,  1282 
Memphis  &  Little  Rock  R.   R.  Co.   v. 

Dow,  98,  1028,   1031,  1037,  1039. 

1103 
Memphis  &  Little  Rock  Ry.   Co.   v. 

Stringfellow,  1228 
Menasha  v.  Hazard.  935 
Menier  v.  Hooper's  Telegraph  Works. 

323,  326 
Mercantile  Bank  v.  McCarthy,  573 
Mercantile  Bank  v.  New  York,  1277 
Mercantile    Library   Co.    v.    City    of 

Philadelphia  and  Taylor,  Receiver 

of  Taxes,  1266 
Mercantile   Library   Co.    v.    Philadel- 
phia, 1266 
Mercantile    Trust    Co.     v.     Chicago, 

Peoria  &  St.  Louis  Ry.   Co.,  1162 
Mercantile  Trust  Co.  v.  Kanavdia  & 

Ohio  Ry.   Co.,  1161,  1166,   1212, 

1215 
Mercantile  Trust  Co.  v.  Missouri.  K. 

&  T.  Ry.  Co.,  1149,  1152,  1184, 

1186,  1203,  1206 
Mercantile  Trust  Company  v.   Pitts- 
burgh &  W.  R.  R.  Co..  1238 
Mercantile  Trust  Company  v.  Texas 

&Pac.  Ry.  Co.,  1105 


^^ .  ^   ^  .    Mercer  County  v.  Hocket,  825,  949 

etc  ,   White  Lead  Company,  78,  ;  Mercer  County   Court    v.   Kentucky 
106,  223,  362  River  Navigation  Co.,  46,  899 

Mechanics  &  Farmers'  Bank  v.  Smith,    Mercer  County  Court  v.  S.    M    i&  H 
6®3  T.  Company,  46 

Merchants'  Bank  v.  Bergen  County. 
445,  872  ' 

Merchants'  Bank  v.  Bliss,  398 
Merchants'  Bank  v.  Central  Bank.  573 
Merchants'  Bank  v.  Exchange  Bank, 

650,  666 
Merchants'  Bank  v.  Marine  Bank.  672 
Merchants'  Bank  v.  McColl,  187 
Merchants'  Bank  v.  liawls,  193 
Merchants'  Bank  v.  Rudolf,  575,  679 
Merchants'  Bank  v.  State  Bank,  174, 
177.  206,  222,  226.  506.  507,  546. 
571,  651,  652,  655 


Mechanics  &  Workingmen's  Mut.  Sav. 

Bk.,  etc.,  V.  Meridtii  Airency  Co.. 

77,  517 
Medberrv  v.  Short,  220 
Medomak  Bank  v.  Curtis.  571 
Meeker  v.  Winthrop  Iron  Co.,  267 
Meier  v.  Railway  Company,  1126 
Meinzer  v.  Racine,  42 
Melledge  v.   Boston  Iron   Company, 

152,  234 
Mellen  v.  Iron  Works,  1140,  1142 
Mellen    Pipe     Lines     v.     Allegheny 

County,  1279 


I 


' 


[The  references  are  to  pages:  vol.  I  contains  pp.  I-7W;  vol.  n,  pp.  7«8-I3or  ] 
Merchants'  Bank  v.  Stevenson,  387,    Metropoliten  Nat.  Bank  v.  Lloyd  5O6 

Merchants  &  Farmer- Bank  V.  Austin,  I  MetropSVru^t  Co.  v.  New  York 
-ntorct!~l'5t'* ^  "^"-  I  «4lf  !o  "J-<^"'^'"-s t. 

Merchants'  Insurance  Co.  v.  Chauvin,  1  Meyer  v.  Utah  &  Pleasant  Valley  R. 
Mero^ant^at.  Bank  v.  Bailey  Mfg.  {  Mezger  v'!cJiJ^81 

Merchants'  Nat.  Banli  v'^^anson,  m.  '  MiddtbuTy'^^Rtd!-  m'  "^ 

Middlesex    County  Bank    v.    Hirsch 

Bros.  Veneer  Mfg.  Co.,  363 
Middlesex  R.  R.  Co.  v.  Boston  &  Chel- 
sea R.  R.  Co.,  466 
Middleton  v.  Allegheny  Coimty,  954 
Milbank  v.  New  York,  L.  E.  &  W  R 


515 
Merchants'  National  Bank  v.  Manufff 

Company,  1123 
Merchants'  Nat.  Bank   v.    Ritzinirer 

641,  644,  645  ^    ' 

Merchants'  Nat.  Bank  v.  Tracy   239 
Merchants'  Nat.  Bank  of  Cbuigo  v 


Detroit  Knitting  &  Corset  Works!  :  3Iilbank  v". '  Welch  260 

Merchants' Nat.  Bank  of  Gardner  v.  !  MllSu'v'X'rp'  2^9 '^''  '^' 

Citizens' Gas  Light  Co.  of  Qnincy.    Millard  v.^^n^Ls  Xavier  Acad- 

'^'' ClarL'' 36?' •  '''°''  "^  ^'^^"^'"  v.    Mill  c7V^Kampe,  254 

Merchants':  Nat,  Bank  of  St.  Paul  v.  I  ^'^\u"'  ^°"°^^^^'  '''  "^^^^^  395. 


McNeir,  587 

Merchants  &  Planters'  Line  v.  Watri- 
ner,  317  * 

Merchants'  Union   Barb  Wire  Co    v 

Rice,  142,  146  * 

Meriden  Tool  Co.  v.  Morgan.  390 

Meriwether  v.   Muhlenbiirir   Corntv 
900  &•'.>. 

Merriani  v.  Moody's  Execrs    4 
Merrick  v.  Inhabitants  of  Amherst  37 

1108'''   ^^'^  ^^""''^   ^''■'  -^'-^'^^'^^ 
Merrick  v.  Trustees  of  the  Bank  of  the 
Metropolis,  162,  188 

"?il'';£'^°®"™^^'  ^»1  Company, 
155,  170 

Merrill  V.  Florida  Laud  Imp.  Co. ,  566, 
Merrill  v.  Plainfield   790 

'"'I^.^M^Tm^'"'"''^"''''''''^'' 

Merritt  v.  Goodrich,  381 

Mervnie  v.  American  Tract  Society, 

*^%o'  ^im''''  ^''°'*"^^  ^  Insulation 
Mesero^ie  v.  Mayor,  etc.,  of  Brooklyn, 

Metropolitan  Elevated  Ry.  Co  v  Man- 
hattan Ry.  Co.,  167,  264,  265,  308 


Miller  v.  Barber,  291 
Miller  v.  Bradish,  385 
Miller  v.  Chavee,  169 
MUler  V.  Embree,  122 
Miller  V.  Ewer,  1075 

Miller  v.  liacc,  625 

Miller  v.  Roach,  809 

Miller  v.  Rutland  &  Washington  R 

R.  Co.,  1047,  1055,  1073     ^ 
Miller  V.   Washington   Southern   Ry 

Co.,  492  ^' 

Miller  V.  White.  394.  396,  398,  399,  415 
Millikm  V.  Shapleigh,  702 
Mills  V.  Bellmer.  li9 
Mills  V.  Gleason,  24.  41,  42 
Mills  V.  Jefferson,  946,  955 
Mills  V.  State  Bank,  653 
Millsaps  V.  City  of  Terrell.  869 
Milne  V.  Davidson,  798 
Miltenberger  v.  Cook,  787 
Miltenberger  v.  Logansport  Railway 

1193,1202,1220:1222,  1240        ^' 
Milwaukee  &  Illinois  Northern  R  R 

Co.  V.  Field.  163 
Milwaukee  &  Minnesota  R   R   Co  v 

Soutter,  1192  ■       •     . 

Miner  v  Belle  Isle  Ice  Co..  263 
Miners'  Bank  Estate,  508 


Ixxiv  TABLE  OF  CASES. 

[The  rrferences  are  to  pages:  vol.  I  contains  pp.  1-707;  vol.  II,  pp.  70ft-1807.1 


TABLE  OF  CASES. 


Ixxv 


Miners'  Ditch  Co.  v.  Zellcrbuch,  491 

Mining  Company  v.  Anglo  Califoniian 
Bank,  93,  184,  222.  226 

Mining  Company  v.  Mason,  1164 

Minneapolis  Times  Co.  v.  Nimcoeks. 
260 

Minnesota  Central  R.  li.  Co.  v.  Donald- 
son, 1282 

Minnesota  Thresher  Mfg.  Co.  v.  Lang- 
don.  1188 

Minor  v.  Mechanics'  Bank,  563,  567 

Minot  V.  Paine,  815 

Minot  V.   Phil.,  Wilm.  &  Bait.  R.  R. 
Co.,  1294 

Minot  V.  West  Roxbury,  34 

Mintiirn  v.  Lame,  4,  29 

Mimnda  v.  City  Bank,  681 

Mish  V.  Main,  1124 

Mississippi  R.  R.  Co.  v.  Scott,  625 

Missouri,  K.  &  J.  Ry.  Co.  of  Kansas, 
V.  Chilton.  1231 

Missouri  Lead  Mine  &  Smelting  Co.  v. 
Reinhard,  1070 

Missouri  Pac.  Ry.  Co.  v.  Texas  &  Pac. 
Ry.  Co.,  1204,  1210,  1225,  1229 

Missouri   River,    etc.,   R.   R.   Co.   v. 
Morris,  871 

Missouri  Valley  &  B.  Ry.  &  B.  Co.  v. 
Harrison  County,  1301.  1302 

Mitchell  V.  Beckman,  604,  756 

Mitchell  V.  Buriington,  12,  909 

Mitchell  V.  Deeds,  194 

Mitchell  V.  Hams,  1152 

Mitchell  V.  McCabe,  608 

Mitchell  V.  Rockland,  446 

Mitchell  V.  Walker,  716 

Mixer  V.  Manistee  County  Supervisors, 
128 

Mobile  &  Cedar  Point  Ry.  Co.  v.  Tal- 
man,  91,  1055,  1096 

Mobile  &  M.  Rv.  Co.  v.  Gilmer,  234 

Mobile  &  Ohio  R.  R.  Co.  v.  Tennessee, 
1281 

Mobley  v.  Clark,  688 

Moers  v.  City  of  Reading,  49 

Moflfat  V.  Wmslow,  294 

Moffit  V.  State  ex  rel.,  122 

Mohawk    Bank    v.    Broderick,    658, 
707 

Mohawk  Bridge  Co.  v.  Utica  &  Schen- 
ectady Railroad,  1097 

Mokelumne  Hill  Canal  &  Mining  Co. 
V.  Woodbury,  756 

Montclair  v.  Ramsdell.  1001,  1002 

Montelius  v.  Charles,  702 

Montgomery     v.     Township    of    St. 
Mary's,  971 

Montgomery  County  v.  Barber,  32 

Montgomerv  County  Bank  v.  Albany 
City  Bank,  703 

Montillet  v.  Bank  of  the  L  nited  btates, 

681 


Monument  National    Bank   v.  Globe 

Works,  93.  106.  226,  227,  465 
Moody  V.  Mack.  661 
Mooers  v.  Swodley,  121 
Moon  V.  Board,  etc.,  123 
Moore  v.  ButUr.  1108 
Moore  v.  Davis,  665 
Moore  v.  City  of  Walla  Walla,  14 
Moore  v.  H.  Gano  &  Sons'  Mfg.  C-o., 

151,608 
Moore  v.  Lent,  383 
Moore  v.   Mayor,  etc..  of  New  York, 

441 
Moore  v.  Meyer,  599 
Moore  v.  Railroad  C^ompany,  1031 
Moore  v.  Schoppert,  306 
Moore  v.  Sinks,  857 
Moore  v.  Swnnton  Tanning  Co..  820 
Moore  v.  Waitt.  602 
Moores  v.  Citizens*   Nat.   Bank,  3iJ5» 

342,  34;} 
Moors  v.  Goddard,  612 
Moran  v.  Comrs.  of  Miami  Co.,  106, 

328,  895,  897,  949,  956,  965 
Moran  v.  New  Orleans,  1293 
Morey  v.  Food,  394 
Morford  v.  Farmers'  Bank  of  Saratoga, 

78,  465 
Morgan  v.  Louisiana.  1282 
Morgan  v.  Mirchants'  Bank,  192 
Morgan  v.  Skiddy,  286.  291 
Morgan  County  v.  Seaton,  31 
Morgan  County  v.  Thomas,  901,  1096 
Morgan's  La.  &  Tex.  R.  R.  &  St.  Sliif) 

Co.  V.  Board,  of  Reviewers,  1301 
Morgan's  La.  &  Tex.  R.  R  &  St.  Shii) 

Co.   V.    Texas   Central   Ry     Co., 

1147,  1151,  1153,  1256 
Morgan  &  Raynor,  Trustees,  v.  Dono- 
van, 95, 1096 
Morrell  v.  I^ng  Island  R.  R.  Co..  e:U 
Morrill  v.  Noyes,  1096 
Morris  v.  Keil.  1071,  1075 
Morris  v.  Merrel,  116 
Morris  v.  The  State,  831 
Morris  Canal  &  Bkg.   Co.   v.  Fisher, 

1014 
Morris    Canal  &   Bkg.  Co.   v.  Lewis, 

955 
Morris  &  Essex   Railroad  v.  Centrtl 

Rjiilroad  Co..  1097 
Morris  R.  R.  Co.  v.  Railrmd  Co.,  4.SH 
Morris  Run  Coal  Co.  v.  Barclay  Coal 

Co.,  1178 
Morrison  v.  Bailey,  65o,  658 
Morrison  v.  Easton  &  Hamilton  R.  R. 

Co.,  456,  1021 
Morrison  v.  Globe  Panorama  Co..  287 
Morrison  v.  Lawrence,  33 
Morrison  v.  Ogdensburg  &L.  C.  R.  R. 

Co.,  250 
Morrisville  School  District,  139 


' 


[The  references  are  to  pages 

Morse  v.  Beale,  805 

Morse  v.  Swits,  291 

Morton  v.  City  of  Nevada,  33,  968 

Morton  v.  New  Orleans  «fc  Selma  Rv 
Co.,  1183  ^' 

Moser  v.  Kreigh,  210 

Moses  v.  Franklin  Bank  of  Baltimore 
657,  659,  664 

Moses  V.  Ocoll  Bank,  550 

Mosher  v.  Hubbard,  995 

Mosher   v.    Independent  School  Dis- 
trict, 66,  879 
Mosher  v.  Supreme  Sitting  of  Order 

of  Iron  Hall,  1123 
Moss  V.  Averell,  819 
Moss  V.  Harpeth  Academy,  102 
Moss  V.  Livingston,  360 
Moss  V.  Oakley,  74.  97,  101 
Moss  V.  RossieL.  M.  Co.,  494 
Mott  V.  Hicks,   20,  74,  96,   101,  358, 

Moulton  V.  City  of  Evansville,  45 
Moulton  V.  Connell-Hall-McLester  Co 

1141 
Mount  V.  First  Nat.  Bank,  691 
Mt.  Adams,  etc..   Inclined  Ry.  Co  v 

City  of  Cincinnati,  7 
Mount  Holly  Paper  Co.'s  Appeal,  288 
Mount  Pleasant  v.  Beckwith,  844 
Mt.  Sterling  &  JeffersonvilleT.  P.  Co 

v.  Looney,  180,  181,  182 
Moyer  v.  East  Shore  Terminal  Co.. 

235 
Mozley  v.  Alston,  305,  348 
Muench  v.  Valley  Nat.  Bank,  640 
Mullauphy  Savings  Bank  v.  Schott, 

Mullarky  v.   Town  of    Cedar  Falls, 

24 
Muller  V.  Dows,  1161 
Mullikin  v.  Reeves.  Treasurer,  1271 
Multnomah  County  v.   Oregon  Nat 

Bank,  737 
Mundt  V.  Railroad  Company,  1250 
Mumford  v.  Hawkins,  170 
Munger  v.   Albany  City  Nat.  Bank, 

631 

Municipality     No.     One    v.    Orieans 

Theatre  Co.,  77 
Munn  V.  Btirch,  649,  655,  662 
Munn  V.   Commission  Company    74, 

Munson  v.  Syracuse,  Geneva  &  Corn- 
„     'ng  R.  R   Co.,  43,  264,  267,  278 
Murdockv.  Woodson,  1105 
Murphy  V.  City  of  Jacksonville,  42 
Murphy  v.  East  Portland,  67 
Murphy  v.  Louisville,  446 
Murphy  v.  Welch,  1071 
Murrah  v.  Branch  Bank  at  Decatur,  530 
MuiTay  V.   American  Surety  Co 
New  York,  714 


vol.  I  contains  pp.  1-707;  vol.  H,  pp.  708-1307.] 
Murray  v.  Bull's  Head  Bank,  650 


Murray  v.  Cannon,  630 
Murray  v.  East  India  Co.,  98,  152 
Murray  v.  Lardner,  980,  1001,  1037 
Murray    v.    Lumber   Company,   172, 

238 
Murray  v.  Pauly,  634 
Muscatine  v.  Mississippi  &  M.  R.  R 

Co.,  904 
Muscatine    Water   Co.   v.   Muscatine 

Lumber  Co.,  805 
Musser  v.  Johnson,  1071 
Mussey  v.   Prest.,  etc..  Eagle  Bank. 

594,  651 
Mustard  v.  Union  Nat.  Bank,  522 
Mut.  Sav.  Bank  v.  Meriden  Agency 

Co.,  469,  478 
Mygatt  V.  City  of  Green  Bay,  945 

N. 

Nant-y-glo,  etc.,  Co.  v.  Grave,  300 
Narragansett  Bank  v.   Atlantic  Silk 

Co.,  227 
Nash  V.  Bank,  527,  528 
Nash  V.   City  of  St.   Paul,  444,  446. 

821 
Nashua  &  Lowell  Corp.  v.  Boston  & 

Lowell  Corp.,  158,  470,  1148 
Nashua  &.  Lowell  Railroad  v.  State, 

Nashville  Trust  Co.   v.  Fourth   Nat. 

Bank,  523,  1146 
Nassau  Bank  v.  Jones,  467,  460.  517 
National  Bank  v.  Burkhardt,  600 
National  Bank  v.  Case,  764 
National  Bank  v.  Commonwealth,  733 

1296 
National  Bank  v.  Colby,  717 
National  Bank  v.  Gmham,  321,  534 

635 
National  Bank  v.   Insurance  Co.    609 

626,  731,  735,  736,  737.   750^  752! 

759 
National  Bank  v.  Johnson,  528,  532 
National  Bank  v.  Kimball.  1279 
National  Bank  v.  Matthews,  509,  5ir. 

540,  543,  1059 
National    Bank    v.    Mechanics'    Nat 

Bank,  605 
National  Bank  v.  Norton,  361 
National  Bank  v.  Paige,  417 
National  Bank  v.  Strait,  561 
National  Bank  v.  Watsoutown   Bank 

526 
National  Bank  v.  Whitman,  673,  (570 
National  Bank  v.  Whitney,  rm,  515 

540,  543,  544 
National  Bank  of  Augusta  v.  Carolinn. 

K.  &  W.  R.  R.  Co.,  1244 
of   National    Bank   of   Battle    Creek  v. 
I        Mallan,  157 


Ixxvi 


TABLE  OF  CASES. 


[The  references  are  to  pages:  vol.  I  contains  pp.  1-707;  vol.  II,  pp.  708-1307.] 


I 


1 


I 


National  Bank  of  Chemung  v.  City  of 

Elniira.  1288 
Nat.    Bank    of    Commerce    v.    ^at. 

Mechanics'  Bank,  661 
National  Bank  of  Conmiercc  v.  Shum- 

way,  1112 
National  Bank  of  Commerce  v  Town 

of   Granada,  859,   861,  866,  867, 

891 
National  Bank  of  Commerce  of  Kansas 

City  V.  Atkinson.  178 
Nat    BJmk  of  the  Cammonwealth  v. 

Grocers'  Nat.  Bank,  672 
Nat.  Bink  of  Fort  Edward  v.  Wiish- 

ingtou  County  Nat.   Bank,  bO.), 

Nat.  Bank  of  Gloversville  v^  ells,  5o4 
Nat.  Bank  of  Jefferson  v.  Bcahn  56o 
Nat.    Bank    of    Jefferson    v.    lexas 

Investment  Co.,  *49 
Nat.  Bank  of  Metropolis  v.  Williams, 

National  Bank  of  Newburghv.  Smith, 

643  ,    .        . 

National  Bank  of  North  Amenai  v. 

Btmgs,  331 
Nat.  Bank  of  Republic  of  N.  } .  v. 
Younir,  Beer.,  etc..  92,  362,464 

Nat.  Bank  of  Yenia  v.  Stewart.  51 1 , 
540,  543,  573  ^       ^^    , 

Nat  Citizens'  Bank  of  New  \ork  v. 
Howard.  620 

National  Cordage  Co.  v.  Pearson  Cord- 
age Co.,  151,  218 

National  Exchange  Bank  v.  Benbrook 
School  Furnishing  Co.,  1129 

National  Exchange  Bank  v.  Hartford, 
Prov.  &F.  R.  R.  Co.,  1048 

Nat.  Exchange  Bank  of  Baltimore  v. 
Peters,  a^  ,  ^  „ 

National  Exchange  Bank  of  Dallas  v. 
Beal,  710 

National  Exchange  Co.  v.  Drew,  294 

National  Foundry  &  Pipe  Works  v. 
Oconto  Water  Co.,  1022 

National   Gold   Bank    v.   McDonald, 

601,  698  ^        ,  n.,     .     r 

National  Life  Ins.  Co.  of  Montpelier 

V  Board  of  Education  of  City  of 

Huron.  880,  891,  893,  891.  897 
National  Pahquioque  Bank  v.   First 

Nat.  Bank  of  Bethel,  689 
Nat  Park  Bank  v.  German  American 

Mut.  W.  &  S.  Co.,  78,  80,  100, 

362,  465,  568 
National  Park  Bank  v.  Remsen,  397 
National  Pemberton  Bank  v.  Porter, 

515,516  ^    ^ 

National  Security  Bank  v.  Cushman. 

337 

National  Spraker  Bank  v.  Treadwell 

Company,  197 


National  State  Bank  v.  Independent 

District,  66  ^^  ^^^. 

National  State  Bank  v.  Young,  1298 
Nat.   State  Bank  of   La  Fayette   v. 

Ringel,  628 
National  Trust  Co.  v.  Miller,  3.)4 
National  Tube  Works  Co.  v.  Ballou, 

1139 
National    Water   &   Mining    Co.    v. 

Clarkson.  454,  494 
Naugatuck  R.  R.  v.  Waterbury  But- 

fon  Co.,  469 
Neal  V.  Briggs,  404 
Nrall  V.  Hill,  302,  311      ^    „  ,^    „   „ 
Ncarv  V.  Phila.,  Wilm.  &  Bait.  li.  K. 

C'o.,  1280,  1300 
Nebr.   &  Kans.   Farm    Loan  Co.  v. 

Bell.  211,  234,  235 
Needham  v.  Wilson,  H'**?  ^^ 
Neely  v.  Rood,  597,  748,  7o2 
Neely  v.  Yorkville,  446 
Neff  V.  Greene  County  Nat.  Bank,  60tJ 
Neo-ley  v.  Counting  Room  Co.,  210 
Nefffer  v.  Bank  of  Knoxville,  198 
Neil  I  V.  Spencer,  359 
Nelligan  v.  Campbell,  351 
Nelson  v.  City  of  La  Porte,  29 
Nelson  v.  Eaton,  102 
Nelson  v.  Haywood  County,  900,  907 

908 
Nelson  v.  Hubbard,  1057 
Nelson  v.  Luling,  286 
Nelson  v.  Mayor,  444 
Nelscm  v.  Milford,  35,  61 
Nemaha  County  v.  Frank,  948 
Neosho  County  v.  Stoddart,  12o 
Nesbit  V.  Riverside  Independent  Dis- 
trict, 879,  885,  886,  897,  11^ 
Nesmith  v.  Washington  Bank,  525 
Neuse  River  Nav.  Co.  v.  Comrs.,  166 
Nevada  Bank  of  San    Francisco    v. 

Portland  Nat.  Bank.  546,  547 
Nevitt  V.  Bank  of  Port  Gibson,  494 
New  Albany,  etc..  Plank  Road  Co.  v. 

Smith.  949,  955         „     ,     ,  ^  . 
Newark  Banking  Co.  v.  Bank  of  Erie 

660 
Newbery  v.  Fox,  443,  821 
Newbery  v.  Garland,  291 
New  Buffalo  v.  Iron  Co.,  935 
New  Chester  Water  Co.  v.  Holly  Man- 
ufacturing Co.,  1102 
Newell  v.  Bank,  534 
New,  etc.,  Co.  v.  Erlanger,  291 
New  England,  etc.,  Ins.  Co.  v.  Robm- 

son,"97  .,    T^    T>      n 

Newgass  v.   Atlantic  &  D.  Ky.  Co. 

(Central    Car    Trust  Co.,    Inter- 

vener),  1255,  1256 
Newgass  v.  City  of  New  Orleans,  11 
New    Hampshire    Savings    Bank    v. 

Downing,  596 


TABLE  OF  CASES.  Ixxvii 

[The  references  are  to  pages:  vol.  I  contains  pp.  1-707:  vol.  H,  pp.  708-1307.] 
New  Haven,  M.  &  W.  R.  R.  Co.  v. 


Town  of  Chatham,  1052 
New  Haven  &  Northampton  Co.   v. 

Hayden,  155 
New  Jersey  Ins.  Co.  v.  Meeker,  395 
New  London  v.  Brainard,  33 
Newman  v.  City  of  Emporia,  114,  889, 

890 
New  Market  Savings  Bank  v.  Gillet, 

New  Orleans  v.  Clark.  66,  830,  860 
New  Orleans  Canal  Co.   v.   Escoffie, 

688 
New  Orleans,  Fla.  &  Havana  St.  Ship 

Co.  v.  Ocean  Dry  Dock  Co.,  77 
New  Orleans  Gas  Light  Co.  v.  City  of 

New  Orleans,  29,  30 
New  Orleans,  M.  &C.  R.  Co.  v.  Dunn. 

11,  43,  44,  950 
New  Orleans  &  Pac.  Ry.  Co.  v.  Union 

Trust  Co.,  1101 
New  York  &  S.   C.   Co.  v.  F.   Bank 

499 
New  York,  etc.,  R.  R.  Co.  v.  Smith, 

697 
New  York  Firemen's  Ins.  Co.  v.  Ben- 
nett, 90 
New  York  Firemen's  Ins.  Co.  v.  Ely 

96,439,469 
New    York    Firemen's    Ins.    Co.    v. 

Sturges,  90,  100 
New    York    Iron    Mine    v.    Citizens' 

Bank,  180,  209 
New   York   Iron   Mine  v.  First  Nat. 

Bank  of  Negaunee,  152 
New    York   Iron   Mine   v.   Negaunee 

Bank,  180,  209 
New  York.  Lake  Erie  &  West.  R.  R. 
Co.  V.  Commonwealth  of  Pennsyl- 
vania, 1291,  1304 
New  York  Life  Ins.  Co.  v.  Beebe,  342 
New  York  &  N.   H.   R.   R.   Co.   v. 

Ketch  um,  279 
New  York  &  N.   H.   R.   R.   Co.   v. 
Schuyler,  322,  325,  333,  335,  338, 
339.  340,  986 
New  York,    P.   &  B.   R.    R.    Co.   v. 

Dixon,  183 
New  York,  P.  &  N.  Ry.  Co.  v.  Bates, 

156 
New  York,  P.  &  O.  R.  R.  Co.  v.  New 
York,   L.  E.    &  W.   R.    R.    Co., 
1189,  1201 
New  York  Security  &  Trust  Co.  v. 
Saratoga  Gas  &  Electric    Liffht 
Co.,  1100.  1155 
New  York  State  Loan  &  Trust  Co.  v. 

Helmer,  528 
Niagara  County  Bank  v.  Baker.  515 

527 
Niantic  Savings    Bank  v.   Town  of 
Douglas,  974 


Nichol  V.  Mayor,  etc.,  4,  48,  49,  901 

Nicholas  v.  Oliver,  206 

Nichols  V.  Howe,  122 

Nichols  V.  Mase,  1082,  1096 

Nichols  V.  Pinner,  624 

Nichols  v.  Scranton  Steel  Co.,  151 

Nichols  V.  Stephens,  712 

Nickerson  v.  Ruger,  621 

Niles  V.  Shaw,  1299 

Niles  Water  Works  v.  Mayor,  etc. 
City  of  Niles,  68  ^     '         ' 

Nims  v.  Mt.  Hermon  Boys'  School,  236 

Ninth  Nat.  Bank  v.  Knox  County,  907 

Nixon  V.  State  ex  rel.,  123 

Noble  V.  Andrews,  742 

Noble  V.  City  of  Vincennes,  951 

Nolan  County  v.  State,  14, 67,  828,  830, 
833,  834 

Noland  v.  Busby,  1272 

Nolle  V.  Fenwick,  446 

Nolton  V.  Railroad  Co.,  348 

Nonotuck  Silk  Co.  v.  Flanders.  738. 
750 

Norcross  v.  Benton,  721 

Norfolk  &  Western  R.  R.  Co.  v.  Penn- 
sylvania, 1293 

Norfolk  &  Western  R.  R.  Co.  v.  Ship- 
pers' Compress  Co.,  458 

Norris  v.  Despard,  657 

Norris  v.  Hall,  522 

North  America  Bank  v.  Bangs,  668 

Northampton   Bank  v.  Pepoon,  206 
548 

Northampton  County  v.  Easton  Pas- 
senger Railway  Co.,  1266 

North     Brookfield     Sav.     Bank     v. 
Flanders,  580 

Northern   Bank  of  Toledo   v.  Porter 
Township  Trustees.  872,  885,  897 

Northern  Central  Ry.  Co.  v.  Bastian 
145 

Northern  Railroad  v.  Concord  Rail- 
road, 1111 

North  Hudson  Mut.  B.  &  L.  Assn  v 
Childs,  352 

North  Pa.  R.  R.  Co.  v.  Adams,  955, 

1047 
Northern    Pi»c.    R.  R.   Co.  v.   Clark 

1279 
Northern   Pacific  R.  R.   Co.  v.  Ray- 
mond. 1300 
North  River  Bank  v.  Aymar,  262,  334 
North  Side  Ry.  Co.  v.  Worthington. 

89,  1031 
North  Ward  National  Bank  v.  City  of 

Newark,  1296 
Northwestern  Coal  Co.  v.  Bowman  & 

Co.,  707 
Northwestern    Union  Packet  Co.   v. 

Shaw,  497 
Norton  v.    Alabama  National  Bank, 
235 


Ixxviii 


TABLE  OF  CASES. 


[The  references  are  to  pages:  vol.  I  contains  pp.  1-707;  vol.  n,  pp.  708-iaOT.] 


TABLE  OF  CASES. 


Norton  v.  Derry  Nat.  Bank,  508 

Norton  v.  Dyersburir.  17,  llXK) 

Norton  v.  Peck.  795^ 

Norton  v.  Taxing  Dist.  of  Browns- 
ville, 954 

Norwich  Gas  Light  Co.  v.  Norwich 
City  Gas  Co.,  29 

Norwich  &  W.  R.  R.  Co.  v.  County 
Comrs..  1282 

Norwood      &     Butterfield     Co.     v. 
Andrews,  92 

Nosser  v.  Seeley,  55,  917 

Nougue  V.  Clapp.  1137 

Nougues  V.  Douglass,  63 

Noyes  v.  Marsh,  1152 

Noves  V.  Rutland  &  Burlington  R.  R 
Co.,  153,  489 

Nugent  V.   The  Supervisors,  935,  949 

Nunuemaker  v.  Lanier,  702 


V.   .Walton 
.  1081 


155, 


o. 

Oakes  v.  Cattaraugus  Water  Co 

500 

Oakland  v.  Carpenter,  59 
Oakland  Bank  of  Savings  v.  Wilcox. 


Oakland  Paving  Co.  v.  Rier,  190 
Oakland  Township  v.  Martin.  136 
Oakley  v.  Valley  County,  117 
Oates  V.  National  Bank,  583,  983 
O' Bear  Jewelry  Co.  v,  Volfer  1111 
OBrien  v.  C,  R.  L  &  P.  R.'Co.,  166 
Ocean  Co.  v.  Ophelia,  656 
Odd  Fellows  v.  Fh-st  Nat.   Rink  of 

Sturgis,  219 
Odd  Fellows'  Bank  v.  Guillen,  847 
Odd  Fellows'  Hall  Assn.  of  Portland 

V.  Hegele,  470 
Oddie  V.  National  City  Bank,  600,  639, 

1213 
Odiorne  v  Maxcy,  150,  152 
Oelbermann  v.  New  York  «&  N  Rv 

Co.,  470  ^ 

Ogden  V.  County  of  Daviess,  866,  872. 

922 
Ogden  V.  Murray,  260,  280,  283 
Ogilvie  V.  Knox  Insurance  Co.,  1133 
O'Hare  v.  Second  Nat.  Bank  of  Titus- 

ville,  520 
Ohio  Central  R.  R.  Co.  v.  Central  Trust 

Co.  of  New  York,  1181 
Ohio  Life   &    Trust  Co.   v.   Debolt 

957 
Ohio  &  M.  R.  R.  Co.  v.  McCarthy, 

1089  ^ 

Ohio  &  Mississippi  Ry.  Co.  v.  Com- 

mi.ssioners,  1271 
Ohio  &  Mississippi  Ry,  Co.  v.  Davis 

1228 
Ohio  &  Mississippi  Ry.  Co.  v.  People 

io;3i 


Ohio    Valley  Nat.   Bank 

Architectural  Iron  Co 
Oil  Co.  v.  Densmore,  275 
Oil  Creek,  etc..  R.  R.  Co.  v.  Pennsyl- 
vania Transportation  Co.,  1079* 
Olcott  V.  The  Supervisors.  902,  957 
Olcott  v.  Tioga  Railroad  Co.,  142  15'.; 

198,  232,  233 
Oldham  v.  Bank.  510,  529 
O'Leary  v.  Board,  etc.,  793 
Oliphant  v.  Woodburn  C.  &  Mining 

Co.,  16.J,  316 
Oliver  v.  Piatt,  263 
Olmstead  v.  Distilling  &  Cattle  Feed- 

ingCo.,  1192 
Olney  v.  Chadsey,  193,  562 
Olney  v.  Land  Company,  1087,  1111 
Olson  v.  State  Bank,  759,  1135 
Omaha  Bridge  Cases,  895 
Omaha  &  St.  I^uis  Ry.  Co.  v.  Wabash, 

St.  Louis  «fc  Pac.  Rv.  Co.,  1095. 

1097  .  .         . 

O.  &  N.  R.  R.  Co.  V.  McPherson,  365 
Oneida  Bank  v.  Ontario  Bank,  65.  653. 

8.">8 
O'Neil  V.  Battle,  139 
O'Neill  V.  Bradford,  628 
Onstott  V.  People,  907,  920 
Opdyke  v.  Pacific  R.  R.  Co..  1052 
Opinion  of  the  Justices  (Me.)*,  21 
Orchard  v.  School  District,  883 
Ore  Company  v.  Bird,  298 
Oregon  v.  Jennings,  897 
Oregon  II.  H.  &  Nav.  Co.  v.  Oregonian 

Co.,  465,  473 
Oregon    Railway   v.    Oregon    Rv.   A 

Nav.  Co.,  73,  236 
Oregon  Short  Line  Ry.  Co.  v.  Yeates, 

1301 
Oriental  Bank  v.  Tremont  Ins.  Co 

522 
Oriental    Vienna   Bakery,    Coffee    & 
Natatorium  Co.  v.  Heissler  1123 
1224 
Ornn  v.  Merchants'  Nat.  Bank,  510 
Oro  Mining  &  Milling  Co.  v.  Kaiser, 

155 
Oroville,   etc.,   R.   R.   Co.  v.  Super- 
visors, etc.,  801 
Orphan  Society  of  Lexington  v.  Fav- 

ette  County,  127 
Osage  Valley  &  So.  Kansas  R.  R.  Co. 

V.  Morgan  Co.  Court,  46 
Osbom  V.  Bank  of  the  United  States. 

845 
Osborn  v.  Moncure,  641 
Osborne  v.   County  of    Adams.    54 

917 
Osgood  V.  King,  166 
Osgood  V.  McConnell,  627 
Otis  V.  Gross,  643 
Otoe  County  v.  Baldwin,  998 


111 


Ixxix 


fThe  references  are  to  pages:  vol.  I  contains  pp.  1-707;  vol.  H,  pp.  708-1307. J 


Ottawa  V.  Carey,  70,  872 
Ottawa  V.   National   Bank  of  Ports- 
mouth, 70,  872.  895 
Otter  V.  Brevoort  P.  Co.   455 
Ouachita  Packet  Co.  v.  Aiken    1294 
Oubre  v.   Donaldsonville,  857  ' 
Outterson  v.  Fonda  I^ake  Paper  Com- 
pany. 1.55 
Overseers    of    Norwich  v.    Overseers 

of  N(^w  Berlin.  446 
Oviatt  v.  Hughes.  396 


"""'s:.'^:"  *  ^^-  ^^"-  ^-^  ^""-^^ «' '  ^  -  i»'.,i 


Daviess,  1301 
Owensboro  &  N.    Ry.    Co.  v.  Loffan 

Count  V,  1302  ^ 

O wings  V.  Grubbs'  Admr.,  359 
Ownings  v.  Hall,  172 


Paola  &  Fall  River  Railroad  v  Ander- 
son  County  Comrs.,  889,  890,  899 

*^*Pe  V.  Capitol  Iknk  of  Topeka,  513, 
515,  o27 

Parish  V.  Wheeler,  153,  496,  1096 

lark    V.   Grant    Locomotive   Works 
102,  815  "ums, 

Park  V.  New  York,  L.  E.  &  W.  R.  R 

Co..  1201,  1202,  1222 
Parker  v.  Commonwealth  48 
Parker  v.  Hartley,  649 

Psrrtpr  xr     Trt««o     r-fro 


Parker  v.  McKenna,  259 

Parker  V.    Nickerson,   243,  259.  275, 

olO  • 
Parker  v.  Scogin,  49 
Parker  v.  Smith,  977 


Oxf„^"l.„„Co/v.8p^,ey,,0«..02    i;S%.n'4,r.U    of    DaUoU 

I         County,  798 


P. 

^"'^^^'J^^Coast    Ry.    Co.    V.   Ramage, 

Parific  Express  Co.  v.  Seibert,  1268 
Pacific  Insurance  Co.  v.  Soule.  1274 
Pacific  Nat.  Bank  v.  Eat-on.  519  756 
lac    Postal]  Telogniph   Cable   Co    v 
Western    Union    Telegraph    Co.,' 


Parker  T.    Supervisors    of    Saratoga, 
loO 

P.irkersburg  v.  Brown,  44,  788.  860 
I  arkhurst  v.  Northern  Central  R  R 

Co..  1096 
Parks  V.  Boston,  19 
Parr  v.  Attorney-Genenil,  121 
Parrot t  v.  Byers,  311 
Parry  v.  Highley.  509 
Parsel  v.  Barnes  &  Bro.    Ill 
f^arsons  v.  Goshen,  33,  34 


Pack  V.  Thomas,  645,  060 
Packard  v.  Jefferson  County   46 
Pat-kard  v.  Society,  227 
Packet  Co.  v.  Catlettsburg,  1293 
Packet  Co.  v.  Keokuk.  1293 
l^icket  Co.  v.  St.  Louis,  1293 
PaducAh    Land,    CoaJ   it   Iron  Co    v 

Hays,  261 
Padticah   Land.    Coal   ic  Iron  Co    v 

Mulholland,  263 


Pasley  v.  Freeman,  294 
^"'^^^f^^^^^r  Co.  v.  City  of  Paterson, 

Patriotic  Bank  v.   Farmers'  Bank   of 

Alexandria,  692 
Patteson  v.  Ongley  Electric  Co.,  155 
Patterson  v.  Bjink,  609.  610 
Patterson  v.  Robinson,  154,  laS,  187, 

Patterson  v.  Stewart,  388 


\*nr,.  V   v\A\  1?;         AI7    .    T^  ..  i-aiierson  v.  Stewart, 

1  .*i,<^^v.  l^all  R,ver,  W.  &  P.  R.  Co.,  I  Pattison  v.  Yuba,  49 

Ph-o  v.   Supreme  Lodcr,.   k    K^  \       f    {>''"!•''•  ^H  ^^ Kenosha,  857 

Protect  Sn   1118   lllo  '  p \"^°^  V  ^^^dpn  Ry.  Co.,  234 

Pahlman  v.  Tay}ri52''  I  .  ul'^'  ^  &^]^f-^^  "^-^  ^^0,  477 

Pahqmoque    Bank  v.    Bethel   Bank,    Paul  J  "  Ill'^^^L^'^  &  Trust  Co..  717, 
Paine^v.  Guardians  of  Strand  Union,  j  Paxsl^%.  Brown,  895 

Paxton  Cattle  Co.  v.  First  Nat.  Bank, 
*o4 

Payne  v.  Bullard,  a57 
Peabody  v.  Flint,  306,  326 
Peak  V.  Ellicott,  621,  731,  747 
Pearce  V   Madison,  etc.,  R.  R.  Co..  94. 

4.>0,  471,  473,  478,  493 
Pearson  v.  Concord  R.  R.  Corporation, 

Pearson's  Case,  423 

Peck  V.  Doran  Wright  Co.  (Lim.),  492 

Peck  V.  First  National  Bank  624  706 


98 
P^^'^fgJ- Lnke  Erie  &  L.   R.   Co.,  250, 

Pairpont  >hinufg.  Co.  v.  PhiJa.  Opti- 

cal&  Watch  Co.,  1115  * 

i'almer  v.  Forbes.  1096 
I  aimer  v.  Nassau  Bank,  191 
Palmer  v.  Railway  Co.,  465 
Pa  mer  v.  Stumph,  870 
Palmer  v.  Whitney,  691 
i^ana  V.  Bowler,  897,  980,  961 
Pangburn  v.  Westlake,  520 


i« 


IXXX  TABLE  OF  CASES. 

[The  references  are  to  pages:  vol.  I  contains  pp.  1-7(W;  vol.  n,  pp.  708-1807.] 


TABLE  OF  CASES. 


Ixxxi 


i 


M 


Peck  V.  School  District,  139 

Peddicord  v.  Connard,  639 

Peek  V.  Derry,  293 

Peek  V.  Detroit  Novelty  Works,  162 

Pelton  v.Bank,  1273,  1297 

Pemi,a:ew{issett  Bank  v.  Rosjers.  oSH 

Pendleton  v.  Bank  of  Kentucky,  r)75 

Pendleton  Co.  v.  Amy,  897 

Peninsular  Bank  v.  llanmer.  2()9,  573 

Penley  v.  City  of  Auburn,  438 

Penobscot  R.  Co.  v.  Dunn.  258 

Peun  V.  Calhoun,  1179,  1193 

Pennell  v.  Deffell,  626,  742 

Penno(  k  v.  Coe,  ia55,  1095 

Pennsylvania  Bank  Assignees'  Ac- 
count, 713 

Pennsylvania  Co.  for  Insurance  of 
lives  and  for  Gmntini^  Annuities 
V.  Jacksonville,  T.  «fc  K.  Ry.  Co., 
1157 

Pennsylvania.  Del.  &  Md.  vSt.  Nav.  Co. 
V.  Dandridge.  145,  234,  439,  452. 
496 

Penn.  N.  Gas  Co.  v.  Cook,  1079 

Pennsylvania  Railroad  v.  St.  Louis, 
etc..  R.  R.  Co.,  473,  488 


236 


People  V.  Dutcher,  977 

People  V.  Eel  River  &  E.  R.  Co. 

People  V.  Flagg,  114 

People  V.  Gage,  1269 

People  V.  Garner,  979 

People  V.  Glaun.  918 

People  V.  Haniill,  67 

People  V.  Ilaren,  1302 

People  V.  Hicks,  1301 

People  V.  Kolden.  918.  919.  953,  977 

People  V.  Home  Insurance  Co.,  1305 

People   V.   Horn   Silver  Mining  Co., 

1290 
People  V,  Johnson,  63,  802 
People  V.  Lawrence,  132 
People  V.  Logan  County,  905 
People  V.  ]May,  445 
People  V.  Maynard,  880 
People  V,  Mayor,  1269 
People  V.  Mayor  of  Brooklyn,  901 
People  V.  Meach,  131 
People  V.  Mead,  111 
People  V.   ]Merchant8   &    Mechanics' 

Bank  of  Troy,  650 
People  V.  M.  &  T.  S.  Inst..  466 
People  V.  Mitchell,  994,  1007 


[The  references  are  to  pa5:es:  vol.  I  contains  pp.  l-TOT;  vol.  II,  pp.  708-1307  1 
People  v.  Town  of  Waynesville,  977 


Pennsylvania  R.  R.  Co.  v.  Allegheny  !  People  v.  Myers,  853 


Valley  R.  Co.,  1163,  1172 
Pennsylvania   R.  R.  Co.    v.   City   of 

Philadelphia,  46 
Pensacola  Tolesrraph  Co.  v.  Western 

Telegmph  Co..  1293 
l»entz  v.  Stanton,  360 
People  v.   American  Bell  Telephone 

Co.,  1289 
People  V.  Argucllo,  69 
People  v.  Assessor,  1301 
People  v.  Baker,  130 
People  V.  Ballard,  465 
People  V.  Bank  of  Dansvllle,  622 
People  V.  Bank  of  North  A>neri(  a,  667 
People  V.  Barker,  1288,  1290,  1299 
People  V.  Baraga  Township,  446 
People  V.  Batchellor.  994,  1007 
People   V.    Board   of    Supervisors  of 

Logan  County,  910 
People   V.   Board  of    Supervisors  of 

Ford  County,  910 
People  V.  Brinckerhoff,  130 
Pebple  V.  Cass  County,  904,  918 
People  V.  Central  Pacific  R.  R.  Co., 

871,  1304 
PcDple  V.  Chapman,  973 
iV-ople  V.  Cheetham,  1302 
People  V.  Chicago  Gas  Trust  Co.,  517 
People  V.   City  Bank  of  Rochester, 

622,  731 
People  V.  Coramrs.  of  Taxes,  1301 
People  V.  Common  Council  of  Detroit, 

29 
People  V.  Davenport,  1306 
People  V.  Demarest,  131 


People  V.   New   England   Mut.    Life 

Ins.  Co.,  1289 
People  V.  North  River  Sugar  Refining 

Co.,  498,  5W,  501 
People  V.  Overyssel  Township  Board, 

243 
People  V.  Pacheco,  68,  69 
People  V.  Pueblo  Counts,  46 
People  V.  Remington,  1144 
People  V.  River  Raisin  &  Lake  Erie  R. 

R.  Co.,  463 
People  V.  Ryan,  1289 
People  V.  St.  Clair  County  Officers, 

128 
People  V.  Salomon,  1269 
People  V.  Stephens,  793 
People  V.  Supervisor3,  857 
People  V.  Supervisors  of  Cortland,  130 
People  V.    Supervisors  of   Delaware 

County,  131 
People  V.   Supervisors    of   Dutch  can 

County,  131 
People  V.  Supervisors  of   New  York, 

57,  130 
People  V.   Supervisors  of  Rensselaer. 

130 
People     V.    Supervisors    of     Warren 

County,  131 
People  V.  Tazewell  Countv.  898 
People  V.  Town  of  Bishop,  973,  976 
People  V.  Town  of  Clayton.  974 
People  V.  Town  of  Harp,  9T5 
People  V.  Town  of  Loenna,  970,  982 
People  V.  Town  of  Old  town,  904 
People  V.  Town  of  Santa  Anna.  976, 982 


People  V.  Trustees  of  Schools,  70 
People  V.  Utica  Insurance  Co.',  1058 
People  V.  Van  Valkenburg,  976 
People  V.  Village  of  Crotty,  4  5 
People  V.  Warfield,  979 
People  V.  Wayne  Auditors,  128 
People  V.  Weaver,  1297,  1298 
People  V.  Wiant,  979 
People,  etc.,  v.  Reliance  Marine  Ins. 

Co.  (Lim.),  1307 
People,  etc.,  v.  Wemple,  1288 
People  ex   rel.    v.    Caruthers   School 

District,  880 
People  ex  rel.  v.  Commissioners.  1306 
People  ex  rel.  v.  Draper,  871 
People  ex  rel.  v.  Mead,  999 
People  ex  rel.   v.   Jackson    County 
97J  ^' 

People  ex  rel.  v.  Johnson,  424 
People  ex  rel.  v.  Kingsbury,  424 
People  ex  rel.  v.  La  Salle  County  424 
People   ex    rel.,    etc  "  - 

Chicago.  1005 
People  ex  rel.  v.  Supervisors  of  Broome 

County,  131 
People  ex*  rel.  v.   Supervisors  of  St 

Lawrence  Countv,  131 
People  ex  rel.  v.   Tazewell  Countv 
944  •" 

People  ex  rel.  American  Bible  Society 
y.   Comrs.  of  Taxes  and  Assess- 
ments, 1239 
People  ex  rel.  American  Contracting 

etc.,  Co.  v.  Wemple,  1289 
People  ex  rel.  American  Surety  Co  v 
Campbell,  1289  '    " 

People   ex    rel.   Bay    State    Shoe    & 

Leather  Co.  v.  McLean,  1287 
People  ex  rel.  Brooklyn  Traction  Co. 

V.  Board  of  Assessors,  1288 
P^meex  rel.  Chase  v.  County  Court 

of  Macoupin  County,  120 
People  ex  rel.  Content  v.  Metropolitan 

Elevated  Ry.  Co.,  165 
People  ex    rel.   Dunkirk,   Alleghany 

bT/30l'"'  ^-  ^-  "^^  "  ^^^"^P 
People  ex  rel.  Edison  Electric  Illumi- 
nating Co.  of  New  York  v.  Wem- 
ple, 1288 
People  ex  rel.  Edison  General  Electric 

Co.  v.  Barker,  1288 
People  ex  rel.  Geneva  Looking  Glass 
Plate  Co.  V.  Barker,  1288 

?Ja. ''''  ''^^-   ^i^^^er  ^-  McDonald 

People  ex  rel  McCagg  y.  Mayor,  etc., 

of  City  of  Chicago,  54 
People  ex  rel.  iMcCauley  v.  Brooks  68 
People  ex  rel.  McCulloiighv.  Pacheco. 

XI 


People  ex  rel.  Peabody  v.  Chicago  Gaa 
Trust  Co.,  503  6    ^^-^ 

People  ex  rel.  Pennsylvania  R.  R.  Co 

y.  Wemple,  1305 
People  ex  rel.  Postal  Telegraph  Co.  v 

Campbell,  1289 
People  ex  rel.  Pratt  Institute  v.  Board 

of  Assessors  of  Brooklyn,  1289 
People  ex  rel.  Prettyman  v.  Board  of 
Supervisors  of  Logan  County,  910 
People  ex  rel.   Second  Avenue  R.  R 

Co.  v.  Barker,  1289 
People  ex  rel.  Seth  Thomas  Clock  Co 

y.  Wemple,  1290 
People  ex  rel.  Sheldon  v.  Eraser  1299> 
People  ex  rel.  Southern  Cotton  Oil  Co 

v.  Wemple.  1289,  1305 
People  ex  rel.  Stockwell  v.  Earle  130 
People  ex  rel.  Singer  Manufacturinff 

Co.  y.  Wemple,  1289 
People  ex  rel.  Thurber-Whyland  Co 
»^    "'  -;  ^-  Barker,  1287 

y.   Mayor   of  People  ex  rel.  Tiffany  &  Co.  v  Camo- 
'         bell,  1290  '         ^ 

People  ex  rel.  Union  Trust  Co.  v  Cole- 
man, 1288 

People  ex  rel.  Western  Electric  Co  y 
Campbell,  1290  '     ' 

People  ex  rel.  W.  &  J.  Sloane  v  Bar- 
ker, 1289 

People    ex  rel.   Wood,   Collector,   y. 

Smith,  1271 
People's  Bank  v.  Manufacturers'  Nat 

Bank,  179,  508 
People's  Bank  v.  St.  Anthony^s  Roman 

Catholic  Church,  168 
People's  Gas,  etc.,  Co.  v.  Chicago  Gas 

etc.,  Co.,  494  '' 

People's  Home  Say.  Bank  v    Court 
1123  ' 

Peoria,  Decatur  &  Evansville  Railway 

Co.  v.  Commissioners,  1271 
Peoria  &  Springfield    R.    R.    Co.    v. 

Thompson,  487,  1013,  1028 
Percy  v.  Millandon,  247,  553 
Perkins  v.  Bradley,  219 
Perkins  v.  Hart,  676 
Perkins  v.  Lewis,  901,  953 
Perkins  v.   Portland,  Saco  &  Ports- 
mouth Railroad,  153 
Perkinson  v.  St.  Louis,  445 
Periey  v.  Muskegon  County,  597 
Perpetual  Ins.  Co  v.  Cohen,  629 
Perrm  v.  City  of  New  London,  953 
Perrme  v.  Chesapeake  &  Del.  Canal 

Co.,  95,  471,  478 
Perry  y.  Council  Bluffs  Water  Wo-ks 

Co.,  227 
Perry  v.  Phelips,  742 
Perry  y.  Simpson  Waterproof  Manufg. 

Co. ,  1 93 
Perry  v.  Superior  City,  446 


■If 


Ixxxii 


TABLE  OF  CASES. 


[The  references  are  to  pages:  vol.  I  contains  pp.  1-707;  vol.  II,  pp.  706-1807.] 


Perry  v.  Tuskaloosa  Cotton  Seed  Oil 

Mill  Co.,  262 
Peterborough  Railroad  v.  Wood,  318 
Peters  V.  Bain,  626,  736,  737,  750,  752, 

1114 
Petersbiirg  v.  Mctzker.  4 
Petersburgh  v.  Mappin,  799 
Peterson  v.  Homan,  358 
Peterson  v.  3Iayor,  etc.,  36,  103,  114, 

170 
Peterson  v.  Mille  Lacs  Lumber  Co.,  809 
Peterson  v.  Union  Nat.  Bank,  601 
Petrie  v.  Myers,  523 
Pettibone  v.  Toledo,  C.  &  St.  Louis 

R.  R.  Co.,  1018 
Pfliol  V.  Simpson.  380 
Pfister  V.  Milwaukee  Electric  Ry.  Co., 

1018 
Pilaris  V.  Leacliman,  742 
Phelps  V.  Town,  627 
Philadelphia  v.  Barber,  1265,  1266 
Philadelphia  v.  Fox,  29 
Philadelphia   v.    Masonic     Home   of 

Pennsylvania,  1265 
Philadelphia  v.  Pennsylvania  Hospital, 

1266 
Philadelphia  v.  Philadelphia  &  Gray's 

Ferry  Pass.  Ry.  Co.,  104 
Philadelphia  v.   Ridge    Avenue   Ry. 

Co.,  104 
Philadelphia,  etc.,  Railroad  v.  Mary- 
land, 1282 
Pliiladelphia  Loan  Co.  v.  Towner,  90, 

463 
Phil.  &  Read.  R.  R.   Co.  v.  Fidelity 

Ins.  &  Trust  Co.,  1047 
Phil.   &  Read.  R.  R.  Co.  v.  Smith, 

1047 
Philadelphia  Steamship  Co.  v.  Penn- 
sylvania, 1293 
Philadelphia  &  Sunbury  R.  R.  Co.  v. 

Lewis,  1043 
Philadelphia  Trust  Co.  v.  Philadelphia 

&ErieR.  R.  Co..  1049 
Philadelphia,  Wilm.  &  Bait.  R.  R,  Co. 

V.  Nearv,  1282 
Phil.,   Wilui.    &  Bait.  R.  R.    Co.  v. 

Woelper,  1096 
Philips  V.  Wiekham,  153 
Philipps  V.  Franciscus,  629 
Philler  v.  Yardley,  722 
Phillip  V.  Aurora  Lodge  No.  104,  etc., 

169 
Phillips  V.  Campbell.  98,  173,  217 
Phillips  V.  Huth,  539 
Phillips  V.  Mercantile  Nat.   Bank  of 

the  City  of  New  York,  589 
Phillips  V.  Winslow,  1096,  1169 
Phillips  Academy  v.  King,  456 
Phinizy  v.  Augusta  &  K.  R.  R.  Co., 

1018,  1093,  1148,  1155,  1188,  1203, 

1244 


Phipps  V.  Millbury  Bank,  682 
Phcenix  Bank  v.  Itisley,  597,  676 
Phcenix  Ins.  Co.  v.  Allen.  702 
Picard   v.   Tennessee,  etc..   Railroad, 

1282 
Pickard  v.  Pullman  Southern  Car  Co. , 

473,  1293 
Pickett  V.  School  District,  139,  263 
Piece  V.  Daniel,  660 
Pier  V.  George,  398 
Pier  V.  Hanmore,  407,  412 
Pierce  v.  Emery,  1054,  1096 
Pierce  v.  Holzer,  748 
Pierce  v.  Milwaukee  Construction  Co., 

1133 
Pierce  v.  Milwaukee  &  St.  Paul  R.  R. 

Co.,  1096 
Pierson  v.  Cronk,  350 
Pike  V.  Middletown,  62 
Pimental  v.   City  of  San  Francisco, 

788 
Pine  Civil  Township  v.  Huber  Manu- 
facturing Co.,  133.  427 
Pine  Lake  Iron  Co.  v.  La  Fayette  Car 

Works  (Adams,   Intervener),  1130 
Pinkard  v.  Allen,  1183 
Piscataqua  Bank  v.  Carter,  602 
Pittsburg  Mining  Co.  v.  Spooner,  298 
Pittsburg    R.   R.    Co.    v.    Allegheny 

County,  1056 
Pittsburgh,  Cin..  Chicaaro  &  St.  Louis 

Ry.  Co.  V.  Backus, ^1302,  1303 
Pittsburgh,  C.   &  St.   L.   Ry.   Co.   v. 

Keokuk  &  H.  Bridge  Co.,  191,  235, 

467,  473 
Pittsburgh  *&  Connellsville  R.  R.  Co. 

V.  Stewart,  191 
Pitzman  v.  Freeburg,  970.  971 
Pixley  V.  Western  Pac.  R.  R.  Co.,  233 
Planters'  Bank  v.  Markham,  690 
Planters'  Bank  v.  Sharpe,  575 
Planters'  Bank  v,  Snodgrass,  530 
Planters'  Bank  v.  Union  Bank,  269, 

597 
Planters'  Bank  v.  Whittle,  1108 
Plaquemines    Tropical    Fruit  Co.  y. 

Buck,  207 
Piatt  V.  Beach,  715 
Piatt  V.  Birmingham  Axle  Co.,  146 
Piatt  V.  Philadelphia  &  Reading  R.  R. 

Co.,  1192 
Piatt  y.  Railroad  Company,  1024 
Piatt  y.  Sauk  County  Bank,  628 
Pleasant  Township  y.  ^tna  Life  In- 
surance Co.,  877,  1011 
Pneumatic  Gas  Co.  y.  Berry,  263,  267, 

307 
Police  Jurjr  v.  Britton,  12.  425 
Polk  V.  Railway  Company,  1105 
Pollard  V.  Bailey,  387,  772 
Pollitz  y.  Farmers'  Loan  &  Trust  Co., 

1035,  1162 


TABLE  OF  CASES. 


Ixxxiii 


[The  references  are  to  pages:  vo).  I  contains  pp.  1-707;  vol.  H,  pp.  708-1307.] 


Pollock  V.  Farmers'  Loan  &  Trust  Co 

1273,  1276,  1278 
Pondir  y.  New  York,  L.  E  &  W  R 

Co.,  318  • 

Pondville  Company  y.  Clark,  1108 
Pontifex  v.  Bigold.  294 
Poock  V.  La  Fayette  Building  Assn., 

Pool  V.  Farmers'  Loan  &  Trust  Co. 
1214  "' 

Poole   V.   Jackson  &   Whyte's    Case, 

1108 
Poole  y.  West  Print  Butter  &  Cheese 

Assn.,  316,  821 
Pope  y.  Bank,  655 
Pope  y.  Bank  of  Albion,  576 
Pope  y.    Board  of    Comrs.   of   Lake 

County,  635 
Port  V.  Russell,  244,  263,  316 
Porter  y.   Bessemer    Steel    Co.,   858, 

Porter  v.  Industrial  Information  Co., 

Porter  y.   Pittsburg   Bessemer    Steel 

Co.,  1241 
Porter  v.  Railroad  Company  1032 
Portland  &   O.   C.  R.   R.   Co.   y.  In- 

habitants,  etc..  of  Hartford,  962 
Portland  Stone  Ware  Co.  y.  Taylor 

800  ^      ' 

Portsmouth  Savings  Bank  y.  Village 

of  Ashley,  857 
Post  V.  Kendall  County.  446 
Post  V.  Pulaski  County,'  933,  940,  941 

966  * 

Postal  Telegraph  Cable  Co.  v.  Charles- 

ton,  1268 
Potter  y.  Douglas  County,  67 
Potter  y.  Merchants'  Bank,  574 
Potter  y.  New  York  Infant  Asylum 

170  "^        ' 

Potter  y.  Stevens'  Machine  Co.,  387 
Potter  y.  Town  of  Greenwich  984 
Potter  y.  United  States,  782,  783 
Potts  y.  Bennett,  26 
Potts  y.  Wallace,  192,  193,  1112 
Pottsville  V.  Norwegian  Township.  135 
Powder  River  Live  Stock  Co.  v.  Lamb 

155 
Powell  v.  Blain,  1090 
Powell  V.  City  of  Madison,  14,  850 
1*0 we  11  V.   Supervisors  of  Brunswick 

County,  898 
Powen  V.  Willamette  Valley  R.  R.  Co., 

Powers  y.  Briggs.  357,  359  i 

powers  y.  Dougherty  County,  49  ' 

Prather  V.  Kean,  537 

Pratt  V.  Beaupre,  358 

Pratt  y.  Brown,  957 

Pratt  y.  Jewett,  318 

Pratt  y.  Luther,  24 


Pratt  V.  Short,  441,  497 

Pratt  V.  Taunton  Copper  Mfg.  Co.  335 

Prentice  v.   United  States  &  Central 

Am.  St.  Ship  Co.,  156 
Presbyterian  Church  v.  City  of  New 

York,  483 
Prescott  Nat.  Bank  v.  Butler,  516 
President,  etc.,  v.  Railway  Co     263 
Pres't    etc.,    of  Springfield  Bank  v. 

Merrick,  456 
Pres't  Mining  &  3Iilling    Co    v    Co- 

quard,  170  &        •     •      w 

Pres't  &  Trustees  of  Town  of  Peters- 

burg  V.  Mappin,  121 
Press  Printing  Co.  v.  State  Board  of 

Assessors.  1295 
Preston  v.  Grand  Collier  Dock  Co., 

Preston  v.  Prather,  537,  553 

Preston  v.  Loughran,  273 

Preston  National  Bank  of  Detroit  v 
Emerson,  1129 

Preston    Nat.    Bank    of    Detroit    y 
George  T.  Smith  Middlings  Puri- 
fier Co.,  207 

Prettyman  v.  Supervisors,  etc  ,  49 

Prettyman  v.  Tazewell  County,  905, 

Price  y.  Abbott,  715 
Price  V.  G.  R.  &  1.  R.  Co.,  158 
Price  y.  Neale,  669,  673 
Price  v.  Price's  Heirs,  1169 
Prideaux  v.  Criddle,  658 
Priest  V.  Way,  655 
Prince  v    City  of  Quincy,  40,  68,  69 
I'rince  Manufg.    Co.  v.    Prince's  Me- 
tallic Paint  Co..  263 
Prindle  v.  Washington  Life  Ins.  Co 

156  *' 

Printing  Co.  v.  Green,  297,  298 
Pritchard  v.  Louisiana  State  Bank  681 
Protestant  Foster  Home  Soc.  v.  Mayor 
etc.,  of  New  York,  1280  ' 

Prouty  y.  Mich.  So.  &  No.  Ind.  R  R 

Co.,  484 
Providence  Tool  Co.  y.  Norris  268 
Provident    Institution   v.    M^sachu- 

setts.  1274 
Puget  Sound  National  Bank  v  Kinff 
County,  1297  ^ 

Pugh  v.  City  of  Little  Rock.  437 
Pullau  V.  Cin.  &  Chic.  Air  Line  R  R 

Co.,  1054,  1096 
Pullman  v.  Ellis,  1141 
Pullman's  Palace  Car  Co.  v.  Common- 
wealth, 1292 
Pullman  Palace  Car  Co.  v.  Pennsyl- 

vania,  1274.  1294,  1303 
Pulman  v.  Upton,  1028 
Pumphrey  v.  Threadgill,  1098 
Purdy  V.  Lansing,  976 
I  Purifier  Co.  v.  McGroarty,  1087,  IIU 


I- 


Ixxxiv 


TABLE  OF  CASES.^ 


TABLE  OF  CASES. 


Ixxxv 


[The  references  are  to  pages:  vol.  I  contains  pp.  1-707;  vol.  n,  pp.  708-1807.] 


Pusey  V.  Meade  County  Court,  127 
Pusey  V.  New  Jersey  West  Line  R.  R. 

Co..  95 
Putnam  v.  City  of  Grand  Rapids,  66 
Putnam  v.  Jacksonville,  Louisville  «& 

St.  Louis  Ry.  Co.,  1187 
Putnam  v.  Ruch,  318 
Putnam  v.  Sullivan,  608 

Q. 

Quaker   City  Nat.    Bank   v.    Nolan 

County,  832 
Quarry  Co.  v.  Bliss.  384,  390 
Queen  v.  Second  Avenue  R.  R.  Co., 

146 
Queenan  v.  Palmer,  403 
Quigley  v.  Walter,  394 
Quill  V.  City  of  Indianapolis,  22,  874 
Quincy  v.  Cook,  959,  962,  964 
Quincy  v.  Jackson,  932 
Quincy,  Missouri  &  Pacific  R.  R.  Co. 

V.  Morris,  71.  959,  962,  964 
Quincy,  etc.,  R  R.  Co.  v.  Humphreys, 

1200  1202 
Quincy,  O.  &  K.  C.  Ry.  Co.  v.  People, 

1305 

R. 

Racine  «fe  Mississippi  R.   R.   Co.  v. 

Farmers'  Loan  &  Trust  Co.,  1055 
Rahm  v.  King  Wrought  Iron  Bridge 

Manufactory  of  Topeka,  205 
Railroad  v.  Cleghom,  1108 
Railroad  v.  Davidson  County,  979 
Railroad  v.  McGee,  1098 
Railroad  Bank  v.  Douglas,  506 
Railroad  Co.  v.  Bank,  655 
Railroad  Co.  v.  Brown,  465 
Railroad  Co.  v.  Cheatham,  92 
Railroad  Company  v.  Closser,  1177 
Railroad  Co.  v.  Collins,  479 
Railroad  Company  v.  Collector,  1275 
Railroad  Co.  v.  County  of  Otoe,  16, 

904,  923 
Railroad  Company  v.  Cowdrey,  1186, 

1222 
Railroad  Co.  v.  Crane,  465 
Riiilroad  Co.  v.  Derby,  546 
Railroad  Co.  v.  Durant,  263.  269 
Railroad  Company  v.  Elizabethtown, 

1169.  1170 
Railroad  Company  v.  Falconer,  988 
Railroad    Co.    v.    Hamblen    County, 

1307 
Railroad  Co.  v.  Hicks.  1307 
Railroad  Co.  v.  Hinsdale,  480 
Railroad  Co.  v.  Howard,  79,  80,  91, 

254.  1158 
Railroad    Company    v.    Humphreys, 

1190 
Railroad  Company  v.  Husen,  1293 


Railroad  Co.  v.  Lockwood.  478 
Railroad  Co.  v.  Maine,  1282 
Railroad  Company  v.  Marion  County, 

971 
Railroad  Co.  v.  Mississippi,  720 
Railroad  Company  v.  National  Bank, 

983,  1003 
Railroad  Company  v.  Orr,  1156 
Railroad  Company  v.  Pettus,  1183 
Railroad  Company  v.  Priex  County, 

1282 
Railroad  Co.  v.  Quigley,  321,  546 
Railroad    Co.   v.   Railroad  Co.,   479, 

1241 
Railroad  Co.  v.  Schutte,  1050 
Railroad  Co.  v.  Sloan,  1191 
Railroad  Co.  v.  Wilson,  1251,  1259 
Railroad  National  Bank   v.   City  of 

Lowell,  133,  231 
Railway  Co.  v.  Allerton,  166 
Railway  Companv  v.  Dey,  1237 
Railway  Co.  v.  Harris,  321 
Railway  Co.  v.  Iron  Co.,  480 
Railway  Co.  v.  Johnson,  1224,  1228 
Railway  Co.  v.  McCarthy,  107,  488 
Railway  Company  v.  People,  1302 
Railway  Company  v.  Schuyler,  1050 
Railway  Co.  v.  Stark,  1247 
Railway  Company  v.  Whitton,  114S 
Railway  Company  v.  Wilkes,  937 
Railway  Frog         v.  Haven,  296 
Ralph  V.   Shiawassee  Circuit  Judge, 

1123 
Ralls  County  Court  v.  United  States, 

72.  847,  932 
Ralston  v.  Washington  &  C.  R.  Ry 

Co.,  1192 
Ramsey  v.  Erie  Ry.  Co.,  495.  1043 
Ramson  v.  Mayor,  etc. ,  of  New  York, 

59 
Ranger  v.  Champion  Cotton-Press  Co., 

312,  1124 
Rapp  V.  Bank,  601 
Rasmusson  v.  County  of  Clay,  436 
Ratcliff  V.  Teters,  806 
Rathbone  v.  Parkersburg  Gas  Co.,  316 
Rathbone  v.  Sanders,  526 
Rathbun  v.  Snow,  103,  183 
Ratterman    v.    Western   Union  Tele- 
graph Co.,  1268,  1293 
Raub  V.  Blairstown  Creamery  Assn., 

203 
Ray  V.  Bank  of  Kentucky,  636 
Raymond  v.  Clark,  1096 
Raymond  v.  Sun  Gabriel  Val.  Land  & 

Water  Co..  263 
Re,  Aiiatic  Banking  Co.,  76 
Re,  Bamed's  Banking  Co.,  76 
Re,  Bates,  1144 
Re   New  York  Cptholic  Protectory, 

1288 
Reagan  v.  Aiken,  720 


[The  references  are  to  pages:  voL  I  contains  pp.  1-707;  vol.  n,  pp.  708-1307.] 


Recamier  Manufg.  Co.  v.  Lyman,  317 

Redington  v.  Woods,  674 

Redmond  v.  Dickerson,  250,  258 

Redmond  v.  Railway  Company,  1250 

Red  Willow  County  v.  Chicago,  B  & 
L.  R.  R.  Co.,  1302 

Reed  v.  Buflfum,  155 

Reed  v.  Plattsmouth,  859,  925 

Reed  v.  Powell,  175 

Reid  V.  Bank  of  Mobile,  952 

Reese  v.  Mitchell,  641 

Reeve  v.  Bank,  155 

Reeve  School  Township  v.   Dodson. 
133.  427 

Rehmke  v.  Goodwin,  67 

Reichwald  v.  Commercial  Bank,  97 

Reichwald  v.  Hotel  Company.   1084 
1112 

Reineman  v.  Covington,  Columbus  & 

Black  Hills  Railroad,  928 
Relfe  V.  Rundle,  466 
Removal  Cases.  720, 1150 
Reno  Water  Co.  v.  Leete,  191 
Resor  v.  Ohio  &  Mississippi  R.  R.  Co 

1096 
Rew  V.  Pettet,  98 
Reynes  v.  Dumont,  523,  544, 1273 
Reynolds  v.   Commissioners  of  Stark 

County,  1055, 1058 
Reynolds    v.    Continental    Insurance 

Co..  152,  193 
Reynolds  v.  Crawfordsville  Bank,  512 
Reynolds  v.  Shreveport,  857 
Reynolds  &  Henry  Construction  Co.  v. 

Police  Jury.  151 
Rhodes  V.  McDonald,  265 
Rhodes,  Assignee,  v.  Webb,  175,  249 
Rice  V.  Plymouth  County,  124 
Rice's  Appeal,  275 
Rich  V.  Errol,  134 
Rich  V.  Town  of  Mentz,  97-6 
Richards  v.  Crocker.  407 
Richards  v.  Insurance  Company,  1108 
Richards  v.  Merrimack  &  Connecticut 

River  Railroad.  1054,  1055,  1158 
Richards  v.  New  Hampshire  Ins.  Co., 

Richards  v.  Railroad,  93 
Richardson  v.  Green.  263 
Richardson  v.  Lawrence  County,  904 
Richardson  v.   Massachusetts    Chari- 

table  Mechanics'  Assn.,  457 
Richardson  v.   St.  Joseph  Iron  Co. 
144  ' 

Richardson  v.  Sibley,  466,  471,  1063 
Richardson  v.  Vermont  &  Mass.  R.  R. 

Co.,  485 
Richardson's  Executor  v.  Green  266 

1025,  1085.  1113  '        ' 

^^chelieu  Hotel   Co.  v.  International 

Military   Encampment  Co.,   470, 

478 


I 


Richmond  v.  Irons,  175,  758,  766  768 

769,  770,  772  '       ' 

Richmond  County  Gas  Light  Co.  -v. 

Town  of  Middletown,  29 
Richmond,  etc.,  R.  R.  Co.  v.  Sneod. 

210,  359 
Richter  v.  Jerome,  1158,  1162 
Rickets  v.  Spraker,  1272 
Rickford  v.  Ridge,  658 
Ricord  v.  Railroad  Co.,  92 
Riddle  v.  County  of  Bedford,  161 
Rider  Life  Raft  Co.  v.  Roach,  170 
Ridgley  Nat.   Bank  v.   Patton.   687. 

644 
Ridgeway  v.  Fanners'  Bank  of  Bucks 

County,  75,  102 
Riley  v.  Pettis  County,  129 
Ring  V.  County  of  Johnson,  971 
Ringling  v.  Cohn,  504,  572 
Rings  V.  Binns,  251 
Rings  V.  Biscoe,  1112 
Ring  &  Reil  v.  Foster,  608 
Rio  Grande  Cattle  Co.  v.  Bums,  821 
Ripley  v.  Sampson,  387,  769 
Risk  V.  Banking  Company,  1129 
Risley  v.  Ind.,  B.  &  W.  R.  R.  Co.,  3^. 

278 
Risley  v.  Phenix  Bank,  653,  666 
Ritchie  v.  Franklin  County,  830 
Rittenhouse  v.  Mayor,  etc.,  of  Balti- 
more, 29 
Roan  V.  Winn,  254,  550,  1119 
Robbins  v.  Bacon,  665 
Bobbins  v.  Board  of  Comrs.  of  Moriran 

County,  31 
Robbins  v.  Railroad  Company,  957 
Robbins  v.  Shelby  Taxing  District, 

Robbins  v.  Shelby  County,  1293 
Roberts  v.  Austin  Corbin  &  Co.,  662 
Roberts  v.  Breedlove,  14 
Roberts  v.  Broome,  742 
Roberts  v.  Hill,  544 

Roberts  v.  Pottawatomie  County  28 

126 
Roberts  &  Co.  v.  Iron  Car  Equipment 

Co.,  1048 
Robertson  v.  Breedlove,  828 
Robertson  v.    Buffalo    County    Nat 

Bank,  566  j  - 

Robertson  v.  City  of  Rockford    49 

953 
Robinson    v.     Alabama    &    Georgia 

Manufg.  Co.,  1234 
Robinson  v.  Ames.  702 
Robinson  v.  Atlantic  &  Great  Western 

Ry.  Co.,  1059 
Robinson  v.  Hawksford,  658 
Robinson  v.  Iron  Railway  Co.,  1172 
Robinson  v.  Land  Company,  1057 
Robinson  v.  Nat.  Bank  of  Newbema 

654 


Ixxxvi 


TABLE  OF  CASES. 


[The  references  are  to  pages:  vol.  I  contains  pp.  1-707;  vol.  11,  pp.  708-1807.] 


TABLE  OF  CASES. 


Ixx? 


XVll 


JHI 


Hobinson  v.  Smith,  282,  301.  302.  306. 

348,  349,  5.54,  556,  557,  560 
Robinson  v.  Thompson,  402 
Robinson  v.  Turreiitine,  772 
Robison  v.  McCracken,  268 
Roby  V.  City  of  Chicago,  793 
Rochester  Bank  v.  Harris.  506,  649 
Rochester   Printing    Co.    v.    Loomis. 

621 
Rochester  Savings  Bank  v.   Averill. 

1061.  1066 
Rock  County  Nat.  Bank  v.  Hollister. 

681 
Rock  Creek  Township  v.  Strong,  1011. 

1012  ^ 

Rockford,  R.  I.  &  St.  L.  R.  R.  Co.  v. 

Sage,  279.  356 
Rock  River  Bank  v.  Sherwood.  527 
Rockwell  V.  Elkhorn  Bank,  75,  102, 

574 
Rockwell  V.   Farmers'  Nat.  Bank  of 

Longmont,  531 
Rodman  v.  Justices  of  Larue  County 
127  ^ 

Rogan  v.  City  of  Watertown,  13 
Rogers  v.  Board  of  Comrs.  Le  Sueur 

County.  67.  428 
Rogers  v.  Burlington,  12,  49,  56,  328, 

949,  954,  1000 
Rogers  v.  Durant,  657 
Rogers  v.  Keokuk.  955 
Rogers  V.  La  Fayette  Agr.  Works,  306, 

315 
Rogers  v.  Lee  County,  955 
Rogers  v.  Stevens,  994 
Rogers  Locomotive  &  Machine  Works 

V.  Southern  R.  R.  Assn.,  1049 
Roll  V.  City  of  Indianapolis,  29 
Rolland  v.  Hart,  338 
Rolling  Stock  Co.  v.  Railroad,  282 
RolUns  V.  Clay,  258,  325 
Rollins  V.  Shaver  Wagon  &  Carriage 

Co.,  470,  1073,  1074,  1087,  1112 
Rolseth  V.  Smith,  349 
Root  V.  Olcott,  170 
Roper  V.  Town  of  Laurinburg,  60 
Rorke  v.  Thomas,  394,  399 
Rosborough   v.   Shasta   River   Canal 

Co.,  233 
Roseboom  v.  Whitaker,  253 
Rosenberg  v.  First  Nat.  Bank  of  Tex- 

arkana,  524 
Rosenblatt  v.  Habermann,  661 
Rosenthal  v.  Martin  Bank,  665 
Ross  V.  aty  of  Philadelphia,  198 
Rothrock  v.  Carr,  27,  122,  431 
Rounds  V.  Smith.  652 
Rouse  V.  Bank,  1087,  1111,  1113,  1114 
Rouse  V.  Harry,  1232 
Rowe  V.  Table  Mountain  Water  Com- 
pany, 205 
Rowe  V.  Tipper,  693 


Rowley  v.  Fair,  375 

Roy  &  Co.  V.  Scott,  Hartley  &  Co., 
491 

Royal  Bank  of  India's  Case,  164 

Royal  Bank  of    Liverpool   v.   Grand 
Junction  R.  R.  &  Depot  Co..  1014 

Royal  British  Bank  v.  Turquand,  980 

Ruby  V.  Shain.  46 

Ruby  V.  Abyssinian  Society,  312 

Rudd  v.  Robinson,  261 

Ruffner  v.*  Coal  Co.,  809 

Ruggles  y.  Collier.  59.  114 

Rum  bough  v.  Southern  Improvement 
Co.,  218 

Rumford  v.  Wood.  795 

Rumford  School  District  v.  Wood,  34 

Runyan  v.  Coster's  Lessee,  478 

Runyon  v.  Montfort,  686 

Rushville  Gas  Co.  v.  City  of  Rush- 
ville.  864 

Russell  v.  Cage.  14,  834 

Russell  V.  Cook,  121 

Russell  V.  Hadduck,  649.  748 

Russell  y.  Railway  Co..  490 

Russell  v.  Southard,  982 

Russell  y.  Tate.  44 

Rutherford  v.  Davis,  1272 

Rutland  &  Burlington  R.  R.  Co.  v. 

Proctor,  489 
Rutland  R.  R.  Co.  v.  Haven,  287 
Rutland  R.  R.  Co.  v.  Thrall,  484 
Ryall  V.  Rolle,  623,  626 
R>an  V.  L.  A.  &  N.  W.  Ry.  Co.,  258. 

261,  275 
Ryan  v.  Lynch.  851,  852,  1004 
Ryder  v.  Alton  &  Sangamon  River  R. 
R.  Co.,  49 

s. 

Sabin  v.  Columbia  River  Lumber  & 

Fuel  Co.,  1035 
Sackett  v.  City  of  New  Albany,  68,  69 
Sackett's    Harbor    Bank     v.     Lewis 

County,  460 
Safford  v.  Wyckoff,  102,  469 
Sage  V.  Culver,  318 
Sage  v.  Heller,  1118 
Sage  v.  Memphis  &  Little  Rock  R.  R. 

Co.,  1159,  1222 
Sagory  v.  Dubois,  521 
St.  John  v.  Homans,  660 
St.  John  V.  O'Connell,  681 
St.  Joseph  &  Denver  City  R.  R.  Co. 

V.  Buchanan  County,  46,  49.  964 
St.  Joseph,  etc.,  R.  R.  Co.  v.  Humph- 

reys,  1202 
St.    Joseph   Fire   &   M.    Ins.  Co.  v. 

Hauck,  493 
St.  Joseph  Township  v.  Rogers,  71. 

911,  980  6      '      » 

St.  Louis  Bridge  &  Tunnel  R.  R.  Co.. 
1302 


[The  references  are  to  pages:  vol.  I  contains  pp.  1-707;  vol.  H,  pp.  70ft-13ar.] 


St.  Louis  Car  Co.  v.  Stillwater  Street 

Ry.  Co.,  1188 
St.  Louis  Drug  Co.  v.  Robinson    493 
St.  Louis,  etc. .  R.  R.  Co.  v.  Cleveland 

etc.,  R.  R.  Co  ,  1239,  1241 
St.  Louis,  etc.,  R.  R.  Co.  v.  Johnston 

624,  750 
St.  Louis,  Ft.  Scott  &  W.  R.  Co.  v 

Grove,  156 
St.  Louis,  Ft.  Scott  &  '\^ichita  R  R 

Co.  v.  Tiernan,  276 
St.  Louis,  Iron  Mountain  &  So.  Ry 

Co.  V.  Anthony,  129 
St.  Louis,  Iron  Mountain,  etc.,  R.  R 

Co.  V.  Berry,  1282 

St.  Louis  &  Sandoval  Coal  &  Mining 

Co.  v.   Sandoval   Coal  &  Mining 

Co.,  356  ° 

St.  Louis  &  S.  F.  Ry.  Co.  v.  Apper- 

son,  1302 
St.   Louis    &    Santa  Fe  Ry.   Co    v 

Gracy,  1263 
St.   Louis  &  S.   F.   Railway  Co.   v 

Johnston,  612,  613,  614,  619 
St.  Louis  &  S.  F.  R.  Co.  v.  Kirkpat- 

rick,  239 
St,  Louis  S.  W.  Ry.  Co.  v.  Graham, 

Intervener,  1247 
St.  Louis  S.  W.  Ry.  Co.  v.  Stark.  1175 
St.  Louis.  Vandalia  &  T.  H.  R.  R  Co 
y.  Terre  Haute  &  Ind.  R.  R.  Co 
486 

St.  Mary's  Industrial  School  for  Boys 
v.  Brown,  30 

St.  Nicholas  Insurance  Co.  v.  Howe 

193 
St.  Nicholas  Nat.  Bank  v.  Bank  of  the 

State  of  New  York,  654 
St.  Paul.  M.  &  M.  Ry.  Co.  v.  City  of 

St.  Paul.  1282  ^ 

St.  Paul  &  Sioux  City  R.  R.  Co.  v. 

Robinson,  1302 
St.  Paul  &  Sioux  City  R.  R.  Co    v 

Shanks,  1302  "     ' 

St.  R.  Co.  V.  Morrow,  1307 
Salem  Bank  v.   Gloucester  Bank,  567 
Salem  Land  Co.  v.  Montgomery  Land 

Co.,  198 

Salem  Turnpike  v.  County  of  Essex, 
871 

Salem  Water  Co.    y.    City  of  Salem, 

68 
Saline  County  v.  Anderson,  798 
Saline  County  v.  Wilson.  128 
Salmon  v.  Richardson,  289  347 
Salmon  Falls  Bank  v.  Leyser  514 
Salomons  v.  Laing,  77,  452    ' 
Salt  Company  v.  Guthrie,  1178 
Sa  t  Lake  City  v.  Hollister,  321,  473 
Saltmarsh  v.    Spaulding,     273.    809 

1073,  1075  ' 

Sammis  v.  Clark,  603 


Sampson  v.  Bowdoinham  Steam  Mill 

Corporation,  159 
San  Antonio  v.  Jones,  49 
San  Antonio  v.  Lane,  955 
San  Antonio  y.  Lewis,  108 
San  Antonio  v.  Mehaffy,  328,  488,  99(y 
San  Antonio  &  G.   S.  R.   R.  Co.    v. 

Davis,  1123 
Sanborn  v.  Deerfield,  134 
San  Diego  County   v.  California  Nat 

Bank,  735,  738 

San  DiegP,  S.  D.  &  L.  A.  R.  R.  Co., 
196 

San  Diego  Water  Co.  v.  City  of  San 

Diego,  44,  113 
Sands  v.  Matthews,  665 
Sandy  River  Bank  v.    Merchants   & 

Mechanics'  Bank,  578 
Sand  ford  v.  Prentice,  803 
San  Francisco  Gas  Co.  v.  City  of  San 

Francisco,  29 
San  Francisco  Water  Co.  v.  Pattee 

273 
Sang  y.  City  of  Duluth,  438 
Sangamon,  etc.,  R.  R.  Co.  v.  County 

of  Morgan,  871 
Sanger  v.  Upton,  1028 
San  Joaquin  Valley  Bank  v.  Bours. 

580 
Sankey  v.  Terre  Haute  &  S.  W.  R  R 

Co..  949 

San  Luis  Obispo  County   v.   Pettit, 

374 
Santa  Cruz  Co.  v.  Spreckels,  263 
Sargent  v.  Franklin  Ins.  Co..  763 
Sargent  v.  Kansas  Midland  R.  R  Co 

262 
Sargent  v.  Webster.  1074,  1084,  1112 
Sartwell  v.  North,  337 
Satterlee  v.  Strider,  901 
Sauer  v.  Town  of  Nevadaville  376 
Savage  v.  Rix,  359 

Savage  Mfg.   Co.  v.  Worthington,  78 
Savannah  &  Memphis  R.  R.  Co.   v 

Lancaster,  93 
Savings  Bank  v.  Hamlin,  571 
Savings  Bank  v.  Holt,  562 
Savings  Bank  of  New  Haven  v.  Davis, 

Sawyer  y.  Hoag,  255,  1028,  1108 
Sawyer  v.  Manchester  &  Keene  R  R. 

Co.,  976 
Sayers  v.  First  Nat.  Bank,  155 
Saylor  v.  Bushong,  646 
Sayles  v.  Bates,  774 
Say  re  v.  Association,  1178 
Scanlan  v.  Keith,  357,  358,  359 
Schaeflfer  y.  Bonham.  971   977 
Schallard  v.    Eel  River  Steam  Nav. 

Co.,  155,  220 
Schanck  v.  Mayor,  42 
Schenck  v.  Andrews,  164 


Ixxxviii 


TABLE  OF  CASES. 


[The  refereiMes  are  to  padres:  vol.  I  contains  pp.  1-707;  vol.  II,  pp.  70B-1807.] 


TABLE  OF  CASES. 


Ixxxix 


11 


ill 


Schenck  v.  Bandmann.  884 
Schetter  v.  Southern  Oregon  Improve- 
ment Co.,  263 
Schierenberg  v.  Stephens,  712 
Schindelholz  v.  Collum.  1118 
Schneider  v.  Irvine:  Bank,  602,  646 
Schneitman  v.  Noble,  176 
Schoff  V.  Bloomfield,  137 
Schofield  V.  Henderson,  416 
Scholey  v.  Rew,  1275 
School  District  v.  Padder,  139 
School  District  v.  Snell,  40 
School  District  v.  Stone,  842,  844,  876. 

968 
School  District   2    of   Township    of 

Buckeye  v.  Clark,  794 
School  District  No.  3,  etc.,  v.  Western 

Tube  Company,  40 
School  District  No.  39,  etc.,  v.  Sulli- 
van, 115 
School  Town  of  Monticellov.  Kendall. 

20 
Scott  V.  People,  4,  5 
Schrader  v.    Manufrs.  Nat.   Bank  of 

Chicago,  175 
Schuler  v.  Laclede  Bank,  662 
Schultz  V.  Jerrard,  1129 
Sebum  V.  Seymour,  443,  445 
Schurr  v.  Investment  Co.,  458 
Schuyler  County  v.  The  People,  898, 

1004 
Schuylkill  County  v.   Citizens'    Gas 

Company,  1267 
Scipio  V.  Wright,  15,  915 
Scobev  V.  Decatur  County,  123 
Scofield  V.   Parlin  &  Oreudorff  Co. 

810 
Scofield  V.  State  Nat.  Bank.  511 
Scotland  County  v.  Hill,  858,  1021 
Scott  V.  Armstrong.  525,  733,  734 
Scott  V.  Avery,  1152 
Scott  v.  Clinton  &  S.  R.  R.  Co.,  1055 
Scott  V.  Depeyster.  248,  302.  306,  364 
Scott  V.  Independent  District  of  Har- 
din County,  139 
Scott  V.  Johnson,  187 
Scott  V.  Nat.  Bank  of  Chester  Vallev 

366,  636 
Scott  V.  Noely,  1139 
S<^ott  V.  Ocean  Bank,  688 
Scott  V.  Shirk,  638 
Scott  V.  W.,  etc.,  R.  R.  Co.,  234 
Scott  V.  City  of  Davenport,  66,  69 
Scott's  Excrs.  v.   Shreveport,   17,   114 
Scottish  North  Eastern  Ry.  v.  Stew- 
art, 447 
Scudder  v.  Anderson,  181 
Scudder  v.  Trenton  Delaware  Falls 

Co.,  917 
Sc  idder  v.  Union  National  Bank,  1021 
Seal  V.  Puget  Sound  Loan  &  Invest- 
ment Co.,  236,  1078 


&  Sty- 


York     V. 
Republic, 


Scale  V.  Baker,  288 

Seaman  v.  Baughman.  22 

Search  V.  Ellicott,  1119 

Searight  v.  Payne,  76,  819 

Sears  v.  Hotchkiss,  306 

Sears  v.   Trustees  Illinois  Wesleyan 

University,  211 
Sears  v.  Waters,  390 
Seaver  v.  Coburn,  359 
Second  Nat.^ank  v.  Pottier 

musMfg.  Co.,  235,  362 
Second  Nat.  Bank  of  Albany  v.  Wil- 
liams, 647 
Second  Nat.   Bank  of  Baltimore    v. 

Western  Nat.  Bank  of  Baltimore, 

690 
Second  Nat.   Bank  of  Baltimore    v. 

Wrightson.  630 
Second  Nat.   Bank  of  Louisville   v. 

Nat.  State  Bank  of  New  Jersey, 

627  ^ 

Second  National  Bank  of  New  Albany 

V.  Town  of  Danville,  38,  39 
Second  &  Third  St.  Pass.  Ry.  Co.  v. 

Philadelphia.  104 
Security  Bank  v.  Cushman,  549 
Security  Bank  of  Minnesota  v.  North- 
western Fuel  Co.,  616 
Security    Bank    of    New 

National  Bank  of  the 

654 

Security  Co.  v.  Ball,  605 
Security  Sav.  &  Trust  Co.  v.  Piper. 

1123 
Sedgwick  v.  Lewis.  152 
Seeley  v.  Bridges,  55,  917 
Seeley  v.  San  Jose  Independent  Mill 

&  Lumber  Co.,  154,  196 
Seibert  v.   Minneapolis  &  St.   Louis 

Ry.  Co.,  1080,   1102,   11^,  1153, 

1159,  1204 
Seibrecht  v.  City  of  New  Orleans,  121 
Seiser  v.  Mali,  287 
Selby  V.  McCullough,  661 
Sclser  V.  Brock,  608 
Seneca  County  Bank  v.  Neass,  550 
Senter  v.  Continental  Bank,  661 
Settle  V.  Van  Evrea,  838 
Seventh  Nat.  Bank  v.  Cook,  645 
Seventh  National  Bank  v.  Shenandoah 

Iron  Co.,  1255,  1256 
Sewage  Co.  v.  Hartmont,  298 
Sewanee  Mining  Co.  v.  McCall,  152 
Seward  County  v.  Cattle,  597 
Sewell  V.  Beach  Company,  1122 
Sewickley  Borough  v.  Tholes,  1265 
Seybert  v.  City  of  Pittsburg,  16,  954 
Seymour  v.  Canandaigua  &  Niagara 

Falls  R.  R.  Co.,  1096 
Seymour  v.  Spring  Forest  Cemetery 

Assn.,  236,  457,  470 
Shaffer  v.  Hahn,  809 


[The  references  are  to  pages:  vol.  I  contains  pp.  1-707;  vol.  n,  pp.  708-1307.^ 


Shaffner  v.  Edgerton,  655 
Shamokin  Valley  R.  R.  Co.  v.  Liver- 
more,  1096 
Shaud  V.  Du  Buisson,  665 
Shank  v.  Shoemaker,  121 
Shannon  v.  Portsmouth,  798 
Shapley  v.  Abbott.  995 
Sharpless  v.  Mayor,  44,  48,  49,  964 
Shaver  V.  Bear  River,  etc.,  Co.,  190, 198 
Shaver  v.  Hardin,  236 
Shaw  V.  Bill,  1055 

Shaw  V.  Campbell  Turnpike  Road  Co., 

820 
Shaw  V.  County  of  Pina,  798 
Shaw  V.  Clark,  549 
Shaw  V.  Dennis,  49,  901 
Shaw  V.  Independent  School  Dist.  of 

Riverside,  896 
Shaw  V.  Port  Phillip  &  Colonial  Gold 

Mining  Co.,  334,  335,  344,  1148 
"'^^T^^^-    Railroad    Company,    1001. 
1080,  1158.  1162  ^  ' 

Shaw  V.  Spencer,  539 
Shawmut     Bank     v      Plattsburg    & 

Montreal  R.  Co.,  819 
Shea  V.  MabiT,  563,  1108 
Shear  v.  K.  &  K.  R.  R.  Co..  563 
Sheboygan  County  v.  Parker,  XOOO 

on     ^^^^^  Township  v.  Andress, 
*0,  39 

Shelby  v.  Chicago  «&  Eastern  111.  R.  R. 

^O, ,  4I70 

Shelby  County  v.  Tennessee  &  T  Rv 
Co  ,  1302  '  ^' 

Shelby  County  Court  v.  C.  &  O.  R  R 
Co.,  46,  908 

Shelbyville,    etc.,    Turnpike    Co.    v 
Barnes,  471 

Shelbyville  Trustees  v.  S.  &  E  T  Co 

Sheldon  v,  Mann,  1081 

Sheldon,  etc..  Co.  v.  Eickeymeyer  Hat 

Blockmg  Machine  Co.,  490 
Bhepaug  Voting  Trust  Cases,  500 
Sheppard  v  Township.  136 
Sheridan  Electric  Light  Co.  v.  Chat, 
ou    ,   ?  ^**-  ^°k.  169,  363 

878    879^^^^^^°*  Winnetka,  849, 
Sherman  v  Carr,  60 
Sherman  v   Fitch,  197,  238 
Sherman  v.  Sleyback,  397 

4"90°8?1°*^''  '^'''^°  ^'^'  ^-  ^^^^^^e^' 

^^'"'103^21°*^'"  ^'''^''  ^'''  ""'  ^'''"'' 
^^^^^J^g^enter  Town  Co.  v.  Russell, 

SI.ermali  Center  Town  Co.  v.  Swigart, 

^^*^^^d  V.  Milford  State  Bank,  748, 


xu 


Shields  v.  Ohio,  1282 
Shields  v.  Thomas,  738 
Shinbone  v.    Randolph  County    943 
944  *        * 

^^'^Ja^  l-J^"^^  ^*^-  ^^^  of  Ripley, 
oUo,  5o6 

Shipman  v.  Bank  of  the  State  of  New 

York,  378,  590 
Shipman  v.  State,  446 
Shipsey  v^  Bowery  Nat.  Bank,  705 
Shirk  V,  Pulaski  Counts,  437 
Shockley  v.  Fisher,  111 
Shorb  V.  Beaudry,  258 
Shotwell  V.  Mali,  286,  287 
Showalter  v.  Improvement  Co    1123 

1129  '         ' 

Shrewsbury  &   Birmingham  Ry    y 

Northwestern  Ry.,  448  ' 

Shrewsbury  v.  Blount,'  294 
Shrieve  v.  Duckham,  657 
Shunk  V.  Bank,  539 
Sicardi  v.  Oil  Company,  111 
Sice  V.  Cunningham,  702 
Sickels  V.  Richardson,  266 
Siebricht  v.  New  Orleans,  446 
Sieby    V     Joshua    Hendy    Machine 

Works,  210 
Silliman  v.  Fredericksburg   O    &  C 

R.  R.  Co.,  152 
Silva  V    Metropolitan  Drug  Co.,  183 

1059*      Bank  v.  North,  65,  459, 

Simmes  v.  Chicot  County    63 
Simmons  v.  Troy  Iron  Works,  820 
bimms  V.  Hervey,  857 
Simons  v.  Fisher,  565 
Simons  v.  Patchett,  372 
Simons  V.  Vulcan  Oil  &  Mining  Co 
^.     260.275.291,298,299     '^^  ^°  * 
Simpson  V.  Dennison,  491 
Simpson  V.  Turney,  693 
Simpson  v.  Waldby,  702 
Simpson  Centenary  College  v.  Bryan 
455  ''     ' 

Sims  V   Board  of  Comrs..  etc..  122 
Singer  Manufg^Co.  v.  Holdfodt,  153 
Sioux  City  V.  Weare,  446,  851 
Sioux  City  &  St.  Paul  R.  R.  Co.  v. 

King,  1302 
Sioux  City  &  St.  Paul  R.  R.  Co.  y. 

Osceola  County,  826,  840 
Sioux  City  &  St.  >aul  R.  R.  Co.  v. 

Robmson,  1302 
Sistare  v.  Best,  183,  466 
Sisters  of  St.  Francis  v.  Mayor,  etc.. 

of  New  York,  1289 

Sk!?i^  V  Railroad  Company,  1158 

Skiles  V  Houston,  712 

Skinner  V.  City  of  Santa  Rosa,  969 

332     ""'    ^^""^^^^s'    ^°k.    330, 
Skinner  v.  Smith,  277 


XC  TABLE  OF  CASES. 

[The  references  are  to  pages:  vol.  I  contains  pp.  1-707;  vol.  11.  pp.  708-1807.] 


TABLE  OF  CASES. 


XCl 


i   } 


Nl 


Skinner  v.  Walter  A.  Wood  Mowing 

t^c  Reaping  Machine  Co.,  217 
Slack  V.  MaysvilU"  &  Lexington  R.  R. 

Co.,  12.  10,  54,  901 
Slark  V.  Higb^atc  Archway  Co.,  90 
Slater  v.  Orientnl  MilU;.  73^.  752 
SUiter  Woolen  Vo.  v.  l/inih,  515,  822 
Slatt'Tv  V.  St.  Loui^  ^  N.  O.  Transp. 

Co.,  :316 
Slaughter  v.  State  ex  rel.,  792 
Slaymaker's  Admr.  v.  Jaffray  &  Co. , 

418 
Small  V.   Minneapolis  Electro-Matrix 

Co.,  475 
Small,  Receiver,  v.  City  of  Lawrence- 
burgh,  1272 
Small  wood    v.   La  Fayette   County, 

129 
Smead  v.  Ind.,  Pittsburgh  &  Cleve- 
land R.  R.  Co.,  78,  98,  464 
Smedes  &  Utica  Bank.  681 
Smith  V.  Ala.  Life  &  Fire  Ins.  Co.,  74, 

439,  477 
Smith  V.  Alexander,  186 
Smith  V.  Appleton,  41 
Smith  V.  Aylesworth,  641 
Smith  V.  Bank,  508,  528 
Smith  V.  Branch  Bank  at  Mobile,  652 
Smith  V.  Case,  761 
Smith  V.  Cheshire,  857 
Smith  V.  Chicago  &  North  Western 

Railway,  1173 
Smith  V.  City  of  Newburgh,  114,  444 
Smith  V.  Commissioners,  123 
Smith  V.  County  of  Clark,  903 
Smith  V.  County  of  Los  Angeles,  119, 

430 
Smith  V.  Cramer,  36 
Smith  V.  Essex  County  Bank,  688 
Smith  V.  Eureka  Flour  Mills,  74,  99 
Smith  V.  Exchange  Bank,  515 
Smith  V.  First  Nat.  Bank  of  Crete, 

535 
Smith  V.  First  Nat.  Bank  of  Wostfield, 

636 
Smith  V.  Flanders,  522 
Smith  V.  Florida  Central  &  Western 

R.  R.  Co.,  1043 
Smith  V.  Ho(ison,  333 
Smith  V.  Hull  Glass  Co.,  154 
Smith  V.  Hurd,  212.  320,  560 
Smith  V.  Inhabitants  of  Dedham,  68 
Smith  V.  Janes,  707 
Smith  V.  Law,  73,  75,  102 
Smith  V.   Los   Angeles   Immigration 

Land  Co.,  261 
Smith  V.  McLean,  690 
Smith  V.  McNair,  879 
Smith  V.  Martin  Anti-Fire  Car  Heater 

Co.,  151,  234,  236 
Smith  V.  Mayor,  etc.,  of  New  York,  57 
Smith  V.  Mechanics'  Bank,  671 


Smith  V.  Mosby,  628 

Smith  V.  Nashua  &  Lowell  Ruilr  md, 

145 
Smith  V.  Ossipee  Savings  Bank,  (5 17 
Smith  V.  Poor.  560 
Smith  V.  Prattville  Manufg.  Co.,  348 
Smith  V.  Prior,  1135 
Smith  V.  Rathbun,  551 
Smith  V.  Sac  County,  980 
Smith  V.  Sage,  394^ 
Smith  V.  Shawnee  County,  28 
Smith  V.  Skeary,  1084,  1108,  1112 
Smith  V.  Smith,  192,  194,  210,  263 
Smith  V.  Tracy,  172 
Smith  V.  White,  470,  495 
Smith  Bridge  Co.  v.  Louisville,  N.  A. 

&  St.  L.  R.  R.  Co.,  1251 
Smith  Canal  or  Ditch  Co.  v.  City  of 

Denver,  444 
Snelling  v.  Soffrion,  Prest.  of  Police 

Jury,  18 
Snyder's  Sons  Co.  v.  Armstrong,  720 
Snyder  Township  v.  Bovaird,  136 
Societe  des  Mines  D' Argent  et  Fon- 

deries  de  Bingham  v.  Mackintosh, 

264 
Society  for  Savings  v.  Coite,  1274 
Soens  V.  Racine,  957 
Solomon  v.  Penoyar,  350 
Sombrero  Phosphate  Co.  v,  Erlanger, 

297,  299 
Southern  California  Colony  Assn.   v. 

Bustamente,  155,  204 
Southern  Development  Co.  v.  Houston 

&  Texas  Central  Ry.  Co.,  560 
Southern  Kansas  &  P.  R.  R.  Co.  v. 

Towner,  900 
Southern  White  Lead  Co.  v.  Haas,  1087 
Southgate  v.  Railroad,  145,  1.50,  169 
South  Joplin  Land  Co.  v.  Case,  298 
South  Ottawa  v.  Perkins,  446,  872 
Southwestern  A.  &  1.  T.  Ry.  Co.  v. 

Martin.  811 
South  Yorkshire  Ry.  v.  Great  Northern 

Ry.,  447 
Sower  V.  Philadelphia,  890 
Sowles  V.  Bank,  735 
Sowles  V.  Witters,  720.  734,  735 
Spafford  v.   First  National  Bank  of 

Toma  City,  506 
Spann  v.  Webster  County,  67 
Sparhawk  v.  ferkes,  1203 
Sparks  v.  Dispatch  Transfer  Co.,  183, 

184 
Sparrow  v.  Evansville,  etc.,  R.  R.  Co., 

471 
Spaulding  v.  Lowell,  33,  35,  41,  42 
Spear  v.  Crawford,  756 
Spear  v.  Ladd.  577 
Speidel  v.  Henrici,  263 
Spence  v.  Mobile  &  Montgomery  R. 
R.  Co.,  1238 


[The  references  are  to  pages:  vol.  I  contains  pp.  1-707;  vol.  n,  pp.  70^1307  ] 

ITS  Annual     0,11     347     QAQOtiA      rr^o  ,   <i.     *  ^,  'W-10U4.J 

btate  V.  Commissioners  of  Hancock, 


Spenng  s  Appeal,  241,  347,  34.8,364,  553 
bpies  V.  Chicago  &  Eastern  Iowa  Rv 
Co.,  1046  ^' 

Spilman  v.  City  of  Parkersburg  67 
Spilman  v.  Mendenliall,  1136 
Spokane  County  v.  Clark,  736 
Spring  &  Axle  Co.'s  Appeal,  524 
Springer  v.  United  States,  1275 
Spnngfield  &  I.  S.  E.  Ry.  Co.  v.  Cold 

Spring  Township,  975 
bpnngfield  Marine  &  Fire  Ins.  Co  v 
Peck,  610,  629  ' 

Spyker  v.  Spence,  193 

Squire  v.  Cartwright,  36 

Squire  v.  Preston,  36,  57 

Stafford  v.  Harris,  490 

Stair  v.  Bank,  721 

Stallcup  V.  National  Bank  of  the  Re- 
public,  193 

Stamp  V.  Cass  County,  127 

Stanley  v.   Sheffield,  L.  L  &  C.  Co., 

Stanton  v.  Allen,  1178 
Stanton  v.  Wilkeson,  715  772 
Staples  V.  Franklin  Bank]  641 
Staples  V.   Schulenberg  &   Boeckler 

Lumber  Co.,  1117 
Star  Printing  Co.  v.  Andrews,  1083 
Stann  v.  Genoa.  49,  111 


Starin  V.  Edson]  490,  821 

^^rk  Bank  v.  U.  S.  Potteiy  Co    144 

^      172,  205,  220  ^         '  ^^' 

Star  Line  v.  Van  Vliet,  209 

State  V.  Allen,  929 

State  V.  Babcock,  883 

816*  •^^'^^"'''^^  *  O^io  Railroad, 
State  V.  Bank  of  Commerce,  1300 
State  V.  Bank  of  Louisiana,  521 

Ha5  ""^  ^^"^  England,  1123, 

State  V.  Bell,  59 
State  V.  Bevers,  446 
State  V.  Board  of  Assessors,  1280 
State  V.  Brobston.  1144 
State  V.  Branin,  1293 
State  V.  Buck,  1146 
State  V.  Carroll,  55 
State  V.  Cassidy,  1270 
State  V.  Catron,  1299 
State  V.  Central  Pac.  R.  R  Co    ISOo 

Co';,  2^"°^'^  (^as  Ligh?&'coke 
State  v.'citj  of  Bayonne.  438 
State  V.  City  Council.  860 

State  V.  Clark,  798 

State  V.  Commercial  Bank  of  Man- 

Chester,  530,  548,  573  ^^"^ 

State  \^«^°»«^9ia!  State  Bank,  723 

County^'iS"^^''^""^^^    "^   ^"^^^^ 


49 

State  V.  Common  Council,  41 

State  V.  District  Court,  1306 

State  V.  Echolo,  803 

State  V.  Estabrook,  48 

State  V  Farmers  &  Drovers'  Bank  of 

Battle  Creek,  740 
State  V.  Fields.  1146 
State  V.  Hannibal  &  St.  Jos.  R.  R. 

State  V.  Harris,  907 

State  V.  Haskell,  446 

State  V.  Hastings,  446 

State  V.  Hausen.  59,  864 

State  V.  Hoff.  1263 

State  V.  Jersey  City,  112,  890,  1282 

State  V.  Keim,  597 

btdte  V.  Liun  County  Court,  49 
State  V.  McCauley,  68  69 
State  V.  Macon  County  Court,  915 
State  V.  Mayor,  68 

^^\o'rk^29^''''   ''^''"    ^'^y  ""^  ^^^ 
State  V.  Medberry,  68 
State  V.  Milwaukee  Gas  Liffht  Co    2ft 
I  sLI:  "•  ^^^««9""7ac.  Ry':To  ,  1300'^ 
Stately.  Morris  &  Essex  R.  R.  Co. 


321,  1282 
State  V.  Myers,  1146 

1282,  1301  •"•    ^^'^ 

State  V.  Pierce,  126 

State  V.  Powers,  1293 

State  V.  Rice,  1055 

State  V.  Roggen,  924 

State  V.  Saline  County  Court,  46 

State  v^  Second  Jud.  Dist.    Court  of 

Silver  Bow  County,  1123 
State  V.  Shortridge   128 
State  V.  Smith,  296' 
State  V.  Standard  Oil  Co..  1178 
State  V.  Stone,  1304 
State  V.  The  Mayor,  989 
State  V.  Thorne,  917 
State  V.  Trustees  of  Union,  49 
State  V.  Lnion  Trust  Co.,  1301 
State  V.  Van  Home,  49 

^'^%J-  i^f '*«*^'   St.   L.  &  Pac.  Ry. 

^*^^Co!i:  5^^«^^°^to°  Social  Library 

State  V.  Webber,  1282 

State  V.  Winterbottom,  803 

State  V.  Worth,  1262 

State  Bank  v.  Andrews,  381 

State  Bank  v.  Comegys   144 

State  Bank  v.  Fox,  76,  i^ 


zcu 


TABLE  OF  CASES. 


TABLE  OF  CASES. 


XCIU 


if' 


[The  references  are  to  pages:  vol.  I  contains  pp.  1-707;  vol.  H,  pp.  708-1807.1 

^_,_    ^-.f.  o.^    i_ _i    "DrxvAir    Smith    144 

State  Bank  v.  Holcomb,  172,  200 

State  Bank  v.  Kain,  599 

State  Bank  of  Troy  v.  Bank  of  the 
Capitol.  687  ^.  .        , 

State  Board  of  Agriculture  v.  Citizens 
St.  Ry.  Co.,  29,65.441 

State  Board  of  Assessors  v.  Paterson 
&R.  RR.  Co.,  1301 

State,  Bradley,  v.  Hammonton.  62 

State  of  California    v.  Central   Pac. 
R.  R.  Co..  1302 

State,  De  Baun,  Prosecutor,  v.  Smitn, 
Collector,  etc..  1296 

State,  Edison  Phonograph  Co..  Prose- 
cutor, V.  State  Board  of  Assessors, 

1288  .  ^. 

State.  Hoxsey,  v.  Mayor,  etc.,  of  the 

City  of  Paterson,  59 
State,  ^adney.  Prosecutor,  v.  Passaic, 

1269,  1270 
State,  Smith,  Prosecutor,  v.  Ramsey, 

Collector,  1298  ^^  . 

State,  Walls,  Prosecutor  v.  Mayor  & 

Aldermen  of  Jersey  City,  1270 

1      _        A 10K 


[The  references  are  to  pages:  vol.  I  contains  pp.  1-707;  vol.  H,  pp.  708-1307.] 


State  ex  rel. 
State  ex  rel. 
State  ex  rel. 
State  ex  rel. 
State  ex  rel. 
Co.,  73 
State  ex  rel. 


V.  A^icn,  125 
V.  Board,  etc.,  800 
V.  Davis,  801 
V.  Yoxall,  844 
V.  Hannibal,  etc.,  R.  R- 


Biaie  ei  rci.  v.  Marion  County,  125 
State  ex  rel.  v.  Nevada  County.  907 
State  ex  rel.  v.  Osawakee  Township, 
877 


State  ex  rel.  Page  v.  Smith,  144  204 
State  ex  rel.  Phillips  y.  School  Dist. 

No.  9,  883  ^      ^        ... 

State  ex  rel.  Stow  v.  City  Council  of 

Montgomery,  953  . 

State  ex  rel.  Treadwell  y.  Commission- 

ers,  949  _  ,,     „ 

State  ex  rel.  Vandiver  v.  Tolly,  68 
State  Freight  Tax.  1268 
State  Railroad  Tax  Cases.  1278,  1^3 
State  Savings  Assn.  J-  Bo«tmen  s  Sav- 

ings  Bank.  528.  641,  650.  661 
State    Sav.     Assn.    y.    Nixon-Jones 

Printing  Co..  583 
State   Tax   on  Foreign  Held  Bonds, 

1291  ^         T>      .  f„ 

State  Tax  on  Railway  Gross  Receipts, 

1294 
State  of  Tennessee  v.  I>avis.  575 
Steamboat  Co.  v.  Brockett  331 

Steamboat  Co.  v.  Lock^v\:  -^   qqq 
Steam  Engine  Co.  v.  Hubbard.  398 
Steckel  v.  Bank.  628        ^  „  ^.     .  „ 
Steel   Edge    Stamping   &  Retinning 
Co.  V.  Manchester  Sayings  Bank, 

1141 
Steele  v.  Russell.  682 
Stein  y.  Mayor,  etc.,  of  Mobile,  47, 48, 

909 
Stein  V.  Mobile,  964 
Steyer  y.  Davis,  490 
Stephens  y.  Benton,  lOlo 
Stephens  v.  Follett,  758 
Stephens  y.  Fox.  394,  399 


Statfel  re.  Quincy,  Mo.  &  Pac.  By.   |tepbens  -  M^Nem^58^ 


Co.  y.  Harris 
State  ex  rel.  v.  Reitz,  870 
State  ex  rel.  y.  Schaack,  801 
State  ex  rel.  y.  Sliek    801 
State  ex  rel.  y.  Standard  Oil  Co.,  501 
State  ex  rel.  v.  Trustees  800 
State  ex  rel.  Attorney-General  y.  Ne- 
braska Savings  Bank  114d 
State  ex  rel.  Bowen  y.  Adams  County, 

55 

State  ex  rel.  Bermadez  y.  Heath,  ^ 
State  ex  rel.  Carpenter  vBe^it  49 
State  ex  rel.    C  C.  &  C.  R.  Co.  y. 

Whitesides.  1008,  1010 
State  ex  rel.  Clinton  County  v^  Hanm- 

bal  &  St.  Joseph  R   R.  pO; »  129 
State  ex  rel.  Copes  y.  Charleston,  49, 

964 

State  ex  rel.  Dean  y.  City  of  Madison. 

St:ite  ex  rel.  Dickinson  y.  Neely,  1009 
State   ex  rel.    Girardez  v.   Southern 

Bank,  643  __., 

State  ex  rel.  Greeley  County  y.  Milne, 

797 

State  ex  rel.  Mayor,  etc.,  v.  Kirkley, 

UX 


Stephens  v.  mcixcm,  u^«     «     v   koa 
Stephens  y.  Monongahela  Bank,  520, 

Stephens  v.  Oyerstoln.  558 

Stephens  v.  Railroad,  12^  

Stephens.  Receiyer,  v.  Schuchmann, 

711   712 
Sterling  y.  Parish  of  West  Feliciana, 

18 
Sterrett  v.  Rosencrantz  661 

Stetson  V.  Kempton,  iO,  ^.,  «»,  o*, 

50 
Steubenville  &  Ind.  R.  R.  Co.  y.  North 

Township,  49 
Steubenville  v.  Culp.  798 
Stevens  v.  Anson,  46 
Stevens  v.  Buffalo  &  New  York  City 

R.  R.  Co.,  1082 
Stevens  t.  Carp  Riyer  Iron  Company, 

203 
Steyens  v.  New  York  &  Oswego  Mid. 

R  R.  Co.,  1047, 1236 
Stevens  v.  Rutland  R- C^   .^26 
Steyens  y.  St.  Mary's  Trainmg  School, 

445  ,,^« 

Stevens  V.  Williams  1146 

Stevenson  y.  Bay  9iy\V4' 
Stewart's  Appeal,  4il,  1173 


Stewart  y.  Board  of  Superyisors  of 

Polk  County,  49 
Stewart  v.  City  of  Council  Bluffs,  110 
Stewart  y.  Dunham,  1150 
Stewart  v.  Lansing.  980,  1002 
Stewart  v.  Lehigh  Valley  R.  R.  Co., 

241,  242,  265 
Stewart  v.  Otoe  County,  786 
Stewart  v.  St.  Louis,  Ft.  S.  &  W.  R. 

Co.,  167,  259,  275 
Stewart  v.  Smith,  697 
Stewart  v.  Wyoming  Ranche  Co.,  294 
Stidger  v.  Red  Oak,  446 
Stillwell  v.  Mayor,  etc.,  of  New  York, 

60 
Stiz  v.  City  of  Indianapolis,  1271 
Stobie  y.  Dills,  357,  359 
Stockdale  v.  Wayland  School  Distnct, 

929 
Stockholders  of  Bank   of    Abingdon 
V.    Supervisors    of    Washington 
County,  1296 
Stocking  V.  The  State,  26 
Stockle  V.  Silsbee,  128 
Stockton  y.  Mechanics'  Bank,  618 
Stockton  V.   Mechanics  &  Labor.  S. 

Bank,  366 
Stockton  ifc.   Visalia   R.    R.    Co.    v. 

Stockton.  49 
Stockwell  V.  State  ex  rel.,  792 
Stokes  V.   Jersey  Pottery  Company, 

150,  184,  198,  200,  201,  209 
Stokes  V.  Stickney,  398 
Stoller  V.  Coates,  643,  731 
Stone  V.  Bank,  761 
Stone  V.  Chisholm,  418,  557 
Stone  V.  Hayes.  342 
Stone  V.  Trust  Company,  1105 
Stoney  v.  American  Life  Ins.  Co.,  106 
Stookey  v.  Hughes.  359 
Storrs  v.  City  of  Utica,  121 
Story  v.  Furman,  400 
Stoudinger  v.  City  of  Newark,  42 
Stout  v.Yaeger  Milling  Company,  102, 

250 
Stoutenburgh  v.  Hennick,  1267 
Stover  v.  Mitchell.  121 
Stow  V.  Wyse,  98,  150 
Stowe  V.  Bank  of  Cape  Fear.  681 
Stoystown  &    Greensburg    Turnpike 

Road  Co.  V.  Craver,  159 
Straman    v.  North  Baltimore  Water 

Works  Co.,  1122 
Strang  v.  Cook,  976 
Stratton  v.  Allen,  263,  569,  1084,  1108, 

1112 
Straus  v.  Trotter,  380,  394 
Strauss  v.  Eagle  Ins.  Co.,  73,  74,  90, 

479 
Strauss  v.  Sage,  394 
Street  v.   Maryland  Cent.  Ry.    Co., 
1192,1211 


Street  Ry.  Co.  v.  Morrow,  1307 

Streeter  y.  First  Nat.  Bank,   511,  686- 

Streight  v.  Junk,  318 

Strieb  y.  Cox,  22,  874 

Stringer's  Case,  815 

Strong  v.  Southworth,  772 

Strong  v.  Sproul,  393 

Strough  v.  Supervisors,  997 

Stuart  v.  Boulware,  1232,  1233 

Stuart  v.  Supervisors,  923 

Sturdivant  v.  Hull,  359 

Sturgeon  v.  Hampton,  128 

Sturges  v.  Keith,  635 

Sturges  v.  Knapp,  489 

Sturges  V.  Stetson,  166 

Sturtevant  v.  Liberty,  857 

Stutz  V.  Handley,  1140 

Stuy  vesant  Bank  v.  National  Mechan- 

ics'  Bkg.  Assn.,  672 
Succession  of  Kercheval,  657 
Sugden  v.  Crossland,  259 
Suit  v.  Woodhall,  337 
Sullivan  v.  Lewiston  Institution  for 

Savings,  618 
Sullivan  v.  Mitchell,  690 
Sullivan  v.  Murphy,  74,  99 
Sullivan  v.  School  District,  140 
Sullivan   y.   Triunfo    Gold  &  Silver 

Mining  Co.,  168 
Sumner  v.  Marcy,  92,  478.  517 
Sunflower  Oil  Co.  v.  Wilson,  1198,  1200 
Sun  Mutual  Ins.  Co.  v.  Mayor,  etc.,  of 

New  York,  1306 
Supervisors  v.  Bowen,  995 
Supervisors  v.  Deyoe,  1051 
Supervisors  v.  Schenck,  362,  980 
Supervisors  v.  Stanley,  1298 
Supervisors  v.  United  States,  795 
Supervisors,  etc.,  of  Hensley  Town- 
ship V.  The  People.  71 
Supervisors  of  Orleans  v.  Bowen,  121, 

131 
Supervisors   of  Marshall  County  v. 

Cook,  825,  904 
Supervisors  of  Richmond  County  v. 

Ellis,  131 
Supervisors  of    Schuyler  County  v. 

Bank  of  Havana,  609 
Supervisors  of    Schuyler  County   v.. 

Farwell.  824 
Supreme  Sitting  of  the  Order  of  Iron 

Hall  V.  Baker,  1123 
Susquehanna  Bridge  &  Bank  Co.  v. 

General  Ins.  Co.,  102,  808 
Sutcliffe  &  Bird  v.  McDowell,  657 
Sutlifif  V.  Bo:ird.   etc.,   Lake  County, 

835.  842.  869.  897,  927 
Sutliff  V.  Cleveland  &  Mahoning  R.  R. 

Co.,  1043 
Sutro  V.  Pettit,  445 
Sutro     Tunnel    Co.     v.     Segregated 
Belcher  Mining  Co.,  76,  818 


I 


,  i 


XCIV  TABLE  OF  CASES. 

[The  references  are  to  pages:  vol.  I  contains  pp.  1-707;  vol.  11,  pp.  70ft-ia07.] 


Swan  V.  City  of  Arkansas  City.  858 
Swan  V.  North  British  Australasian 

Co..  344 
Swan  Land  &  Cattle  Co.  v.  Frank, 

1139 
Swan  V.  Clark,  1215 
Swart  wout    v.    Mec^hanics'    Bank   of 

New  York,  599 
Swazey  v.  Union  Manufacturing  Co., 

210 
Sweeney  v.  Easter,  682.  706,  744 
Sweet  V,  City  of  Syracuse,  857 
Sweet  V.   County  Comrs.  of  Carver 

County,  376 
Swentzel  v.  Penn  Bank,  347,  367,  368 
Swift  V.  Jewsbury,  547 
Swift  V.  Smith,  1001 
Swift  V.  Tyson,  982 
Swift  V.  Whitney,  627 
Symmes  v.  Union  Trust  Co.,  263 
Syracuse  Savings  Bank  v.  Town  of 

Seneca,  993 

Taft  V.  Brewster,  300 

Tafft  V.  Pittsford.  446 

Tagg  V.  Tennessee  Nat.  Bank,  521 

Talbot  V.  Dent.  49,  901,  979 

Talcott  V.  First  Nat.  Bank  of  Lamed, 

600 
Taliaferro  v.  Bank,  539 
Talladega  Ins.  Co.  v.  Landers,  98 
Talladega  Ins.  Co.  v.  Peacock,  91 
Tallman  v.  Treasurer  of  Butler  County, 

1298 
Tallmadge  v.  Fishkill  Iron  Co.,  102, 

166 
Talmage  v.  Pell,  469 
Talmun  v.  Rochester  City  Bank,  96, 

506 
Tappan  v.  Bailev,  151 
Tappan  v.  Bank,  227 
Tappan  v.  Merchants'  National  Bank, 

1296 
Tash  V.  Adams,  33 
Tatlock  V.  Louisa  County,  134 
Tatten  v.  Tisou.  484 
Taxing   District   of   Brownsville  v. 

Loague,  954 
Taylor  v.  Board  of  Supervisors,  898 
Taylor  v.  Burlington,  Cedar  Rapids  & 

Minn.  Ry.  Co.,  1096 
Taylor  v.  Callawav,  495 
Taylor  v.  Chichester  Ry.  Co.  325 
Taylor  v.  Henry  &  Bruscup,  630 
Taylor  v.  Holmes,  316 
Taylor  v.  Insurance  Company,  1118 
Taylor  v.  Miami  Export  Co.,  76,  258 
Taylor  v.  Newberne,  49 
Taylor  v.  Philadelphia  &  Reading  R. 

R.  Co.,  94 


Taylor  v.  Plumer,  625,  626,  742,  751 
Taylor  v.  Thompson.  35,  70,  964  • 
Taylor  v.  Wilson,  658 
Taylor  v.  Ypsilanti,  45 
Taymouth  v.  Koehler.  144,  806 
Tazewell    Co.    v.    Farmers'   LoBn  & 

Trust  Co.,  315 
Tehan  v.  Bank.  734 
Teitig  V.  Boesman.  151,  809 
Telegraph  Co.  v.  Texas,  1268 
Templin  v.  Chicago,  B.  &  P.  R.  Co., 

156 
Tennessee  v.  Davis,  720 
Tennessee  v.  Whitworth,  1282,  1285, 

1307 
Terhune  v.  Bank  of  Bergen  County, 

711 
Terhune  v.  Mayor,  798 
Terrell  v.  Bank.  569 
Terry  v.  Tubman,  1134 
Texas  &  Pac.  Ry.  Co.  v.  Goay,  1232 
Texas  &  Pac.  Ry.  Co.  v.  Marior,  1049 
Texas  &  P.  Ry.  Co.  v.  Southern  Pac. 

Ry.  Co.,  1178 
Thacher     v.    Comrs.    of     Jefferson 

County,  27,  67 
Thacher  v.  King,  386,  387 
Thayer  v.  Butler,  519,  756 
Thayer  v.  Montgomery  County,  824, 

826,  946 
Thayer  v.  Union  Tool  Co.,  387 
The  I^nks  v.  Poitiaux,  494 
The  Charitable  Corporation  v.  Sutton, 

301,  34S.  364,  554 
The  DLstilled  Spirits,  337 
The  Floyd  Acceptances,  152,  936 
The  Liquidators  of  Western  Bank  v. 

Baird,  364 
The  People  v.  Dupuyt.  70 
The  People  v.  Utica  Insurance  Co.,  50 
The  State  Freight  Tax,  1293 
The    State,     MuUer,    Prosecutor,    v. 
Mayor   &    Council    of    City    of 
Bayonne,  1269 
The  State,  Raymond,  Prosecutor,  v. 
Mayor  &  Council  of  Borough  of 
Rutherford.  1269 
The  State,  Simmons,   Prosecutor,  v. 

City  of  Passaic,  1270 
The  State,  Singer  Mfg.  Co.  Prosecu- 
tors, V.  Heppenheimer,  1292 
Thew  V,  Porcelain  Manufg.  Co.,  201 
Third  Nat.  Bank  v.  Allen,  521 
Third  Nat.  Bank  v.  Boyd,  537 
Third  National  Bank  v.  Clark,  681 
Thomas  v.   Brownville,    etc.,   R.  R. 
Co.,  93,  263,  268,  278,  284,  451, 
467,  473,  497 
Thomas  v.  Cincinnati,  N.  O.  &  T.  P. 

Ry.  Co.,  1210 
Thomas  v.  Citizens'  Horse  Ry.  Co., 
487,  1054 


TABLE  OF  CASES. 

[The  references  are  to  pages:  vol.  I  contains  pp.  1-707;  vol.  II,  pp.  708-1307.] 
Thomas    v.   City    National    Bank  of 


xcv 


Hastings,  235,  507 
Thoflls  V.  City  of  Port  Huron,  5 
Thomas  v.  City  of  Richmond,  4,  787 
Thomas  v.   East   Tennessee,  V.  &  S. 
Ry.  Co.  (Cook,  Intervener),  1210 
Thimas  v.  Lelaud,  901 
Thomas  v.  Minot,  1241 
Thomas  v.  Morgan  County,  899 
Thomas    v.    Peoria  &  R.  I.   Ry.   Co. 
(Western     Cnr    Co.,   Intervener). 
1219,  1222,  1240 
Thomas  v.  Railroad  Co.,  820 
Thomas  v.  Railway  Co.,  1220 
Thomas  v.  Sweet,  261 
Thomas  v.  Western  Car  Co.,  1240 
Thomas  Kane  &  Co.  v.  School  District 

of  Calhoun,  115 
Thompson  v.  Chainock,  1152 
Thompson  v.  City  of  Peru,  39,  951 
Thompson  v.  Giles,  615 
Thompson  v.  Lambert,  77,  102,  469 
Thompson  v.  Lumber  Company,  1111. 

1129 
Thompson  v.  McKee,  193 
Thompson  v.  New  York  &  Harlem 

Railroad,  1050 
Thompson  v.  Perrine,  1007 
Thompson  v.  Riga:s,  597,  598 
Thompson  v.  St.  Nicholas  Nat.  Bank, 

540,  542 
Thomp.son  v.  School  District,  169 
Thompson  v.  Sioux  Falls  Nat.  Bank. 

616 
Thompson  v.  Stanley,  151,  351 
Thompson  v.  Valley  R.  R.  Co..  1095 
Thompson's  Appeal,  623,  752 
Thomson    v.    Bank    of   British    No. 

America,  672 
Thomson  v.  Harris,  1263 
Thomson -Houston     Electric    Ck).    v. 
Capitol  Electric  Co.  (Read,  Inter- 
vener), 1044 
Thomson  v.  Lee   County,   4,  49.  71 
909,  946  '      ' 

Thomson  v.  Madison  Building  &  Aid 

Assn.,  497 
Thorington  v.  Gould,  204 
Thorne  v.  Deas,  348 
Thornton  v.  National  Exchange  Bank 

493,  511  ^ 

Thornton  v.  St.  Paul,  etc.,  R.  R.  Co., 

167 
Thorp  V.  Wegefarth,  713 
Thrasher  v.  Greene  County,  129 
Thurber  v.  Cecil  Nat.  Bank,  538 
Ticonic  Bank  v.  Johnson,  527,  640 
Tiffany  v.  Nat.  Bank  of  Missouri.  528 
532  '       ' 

Tifft  V.  Bank,  562 
Tifft  V.  City  of  Buffalo,  994 
Tilden  v.  Sacramento  Co.,  118 


Tillinghast  v.  Troy  &  Boston  R.  R. 

Co.,  1162 
Tillotson  V.  City  of  Saginaw,  852 
Tinley  v.  Bellingham  Bay  Boom  Co.. 

236 
Titus  V.   Cairo,  etc.,  R.  R.  Co.,  182, 

199 
Titus  V.  Great  Western  Turnpike  Co.. 

333,  334,  336 
Titus  V.  Mabee,  1096 
Tobey  v.  County  of  Belaud,  1152 
Tobin  Canning  Co.  v.  Fraser,  272 
Tod  V.  Kentucky  Union  Land  Co..  79. 

81,  83 
Tod  V.  Kentucky  Union  Ry.  Co.  (Ros- 
seret  al.,  Interveners),  1251,  1252 
Todd  County  v.  St.  Paul,  M.  &  M. 

Ry.  Co.,  1301 
Toledo,  Delphos  &  Buriington  R   R 

Co.  V.  Hamilton,  124^,  1248 
Toledo,  etc.,   R.  R.  Co.  v.  Hamilton, 

1095,  1096 
Tombigbee  R.  R.  Co.  v.   Kneeland 

478 
Tome  V.  Parkersburg  Branch,  334 
Tompkins  v.  Saltmarsh,  366 
Tomlinson  v.  Branch,  1282 
Tomlinson  v.  Jessup,  1283 
Tootle  V.  First  Nat.  Bank  of  Port  An- 
geles, 490 
Topeka  Primary  Assn.  v.  Martin,  156, 

210 
Toppan  V.  Cleveland,  Ck)l.  &  Cin.  R. 

R.  Co.,  1052 
Topping  V.  Bickford,  159 
Torbett  v.  Eaton,  401 
Torbett  v.  Goodwin,  408 
Torrey  v.  Bank  of  Orleans,  251,  326 
Torrey  v.  Dustin  Monument  Assn.. 

98,  150,  227 
Tovey  v.  Culver,  394 
Towle  V.  American  Buildg.,  Loan  & 

Inv.  Society,  1123,  1126 
Town  v.  Bank,  1115 
Town  Co.  V.  Morris,  490 
Town  Co.  V.  Swigart,  490 
Town  of  Andes  v.  Ely,  1012 
Town  of  Big  Grove  v.  Wells.  852 

972 
Town  of  Brewton  v.  Spira,  1012 
Town  of  Bruce  v.  Dickey,  58 
Town  of  Cabot  v.  Britt,  137 
Town  of  Cherry  Creek  v.  Becker,  973 
Town  of  Cicero  v.  Clifford,  945 
Town  of  Colona  v.  Eaves,  897,  972,  982 
Town  of  Concord  v.  Robinson,  974 
Town  of  Darlington  v.  Atlantic  Trust 

Co.,  1012 
Town  of  Douglas  v.  Ariantic  Savings 

Bank,  850 
Town  of  Duanesburgh  v.  Jenkins,  994, 


II 


XCVl 


TABLE  OF  CASES. 


TABLE  OF  CASES. 


XCVII 


[The  references  are  to  pages:  vol.  I  contains  pp.  1-707;  voL  II,  pp.  7(»-1307.] 


Town  of  Durango  v.  Pennington,  113 
Town  of  Eagle  v.  Kohn,  977,  978 
Town  of  East  Lincoln  v.  Davenport, 

935 
Town  of  Enfield  v.  Jordan,  974 
Town  of  Guilford  v.  Supervisors  of 

Chenango  County.  923 
Town  of  Hackeusack  v.  Swackhamer, 

8 
Town  of  Harwood  v.  Hamilton,  8 
Town  of  Keithsburg  v.  Frick,  1005 
Town  of  Lyons  v.  Chamberlain.  985 
Town  of  Lyons  v.  Cooledge.  795,  796 
Town  of  Middleport    v.    ^tna  Life 

Ins.  Co.,  973 
Town  of  Mt.  Vernon  v.  Patton,  58,  59 
Town  of  Newport  v.  Batesville  &  B. 

Ry.  Co..  438 
Town  of  Odell  v.  Schroeder,  795 
Town  of  Pana  v.  Lippincott,  879,  971, 

974.  976 
Town  of  Reading  v.  Wedder,  974 
Town  of  Solon  v.  Williamsburgh  Sav- 
ings Bank,  983.  985,  987,  990,  992, 

Town  of  Springport  v.  Teutonia  Sav- 
ings Bank,  992 
Town  of  Venice  v.  Murdock,  56 
Town  of  Weyanwega  v.  Ayling,  971 
Town  of  Winamac  v.  Huddleston.  22, 

874 
Township  v.  County,  132 
Township  v.  Gibboney,  135 
Township  of  Bernards  v.  Morrison,  913 
Township  of  Burlington  v.  Beasley, 

54,  55,  917 
Township  of  Pine  Grove  v.  Talcott, 

Township  of  Rock  Creek  v.  Strong,  27 
Township  of    Washington  v.   Coler, 

972,  999 
Tracy  v.  Talmage,  65,  514,  527 
Tniders'  Nat.  Bank  v.  Manufacturing 

Co.,  1021 
Traders'  Nat.  Bank  of  San  Antonio  v. 

Cresson,  523,  525 
Tradesman's  Bank  v.  Merritt,  639 
Tnidesmen's  Bank  v.  Astor,  608 
Tradesmen's   Nat.   Bank   v.   Lumber 

Co.,  151 
Trammell  v.  Pennington,  906 
Trsmsportation   Co.    v.   Parkersburg, 

1293 
Travelers'  Ins.   Co.   v.   Township  of 

Oswego,  974  , 

Traver  v.    Board,    etc..    of   Memck 

County,  55,  917 
Treadway  v.  Schnaubcr,  446 
Treadwell  v.  Commissioners,  111 
Tread  well  v.  Salisbury  Manufg.  Co., 

278,  305,  456,  473,  491,  1063 
Treichler  v.  Berks  County,  132 


Trenton  Mut.  Life  &  Fire  Ins.  Co.  v. 

McKelway,  91,  481  ^ 

Trimmer  v.  City  of  Rochester,  1W8 
Tripp  v.   Swanzey    Paper  Co.,    147, 

152,  162 
Trisconi  v.  Winship,  349 
Trott  v.  City  Insurance  Co.,  1152 
Trott  V.  Warren,  158 
Trowbridge  v.  Seaman,  627 
Trust  Company  v.  City,  955 
Trust  Co.  V.  Floyd,  368,  373 
Trust  Co.  V.  Morrison,  1222 
Trust  Company  v.  Shepherd,  1222 
Trust  Co.  V.  Souther,  1220,  1222 
Trust  Company  v.  Thomason,  1229 
Trustees  v.  Greenough,  1183,  1232 
Trustees,  etc.,  v.  Shoemaker,  49 
Trustees  of  Belleview  v.  Hohn,  446 
Trustees  of  First  Presbyterian  Church 
in  Newark  v.  National  State  Bank 
of  Newark,  511 
Trustees  of  Paris  v.  Cherry,  49,  446 
Trustees  of  Schools   v.   Rautenberg, 

357   359 
Trustees  of  Smith  Charities  v.  Con- 
nolly, 580 
Trustees  of  University  v.  Moody,  98 
Try  on  v.  White  &  Corbin  Co.,  234 
Tucker  Manufg.  Co.  v.  Fairbanks,  3o9 
TuUer  v.  Arnold,  151 
Tunno  v.  Lague,  681 
Turnbull  v.  Lumber  Company,  lllo 
Turnbull  v.  Payson,  772 
Turner  v.  Bank  of  Fox  Lake,  648 
Turner  v.  Chillicothe  &  Des  Moines  R. 

R.  Co.,  217 
Turner  v.  Cruzen,  440 
Turner  v.  First  Nat.  Bank,  511,  636, 

711 
Turner  v.  Richardson,  1203 
Turner  v.  Woodson  County,  54 
Tuscaloosa  Manufg.  Co.  v.  Cox,  317 
Tuskaloosa  Cotton  Seed   Oil  Co.   v. 

Perry,  234 
Tuttle  V.  Frelinghuysen,  711 
Tutt  V.  Sand  Hills  Hotel  Co.,  1233 
Twin-Lick  Oil  Co.  v.  Marbury.  168. 

214,  254,  268,  270,  278,  285,  1084 
Twiss  V.  Guaranty  Life  Assn.  of  Iowa, 

AOCk 

Tyler  v  E.  &  P.  R.  R.  Company,  46 
Tyler  v.  Hamilton,  1176,  1237 
Tyler  v.  Savage,  291 
Tyng  v.  Clark,  394 
Tyson  v.  State  Bank,  686 


[The  references  are  to  pages:  vol.  I  contains  pp.  1-707;  vol.  n,  pp.  708-130r.] 


u. 

Underbill  v.  Gibson.  135 

Underbill  v.    Santa    Barbara    Land, 

Building  &  Improvement  Co.,  99, 

382 


Underbill  v.  Sonora,  846 

Union  Bank  v.  Bagley,  176 

Union  Bank  v.   Board  of  Comrs    of 

Town  of  Oxford,  1012 
Union  Bank  v.  Cochran,  639 
Union  Bank  v.  Corcoran,  527 
Union  Bank  v.  Jacobs,  75,  102 
Union  Bank  v.  Jones,  176 
Union  Bank  v.  Kansas  City  Bank,  1114 
Union  Bank  v.  Laird,  526 
Union  Bank  v.  Ridgely,  145 
Union  Bank  v.  State.  1307 
Union  Bank  v.  Tutt,  597 
Union  Bank  v.  United  States  Bank, 

667 
Union  Bank  v.  Wando  Mining  &  Mfg 

Co.,  562  ^" 

Union  Bank  of  Georgetown  v.  Mackall. 

595,  596 
Union  Bank  of  Quincy  v.  Tutt,  638 
Union  Bridge  Co.  v.  Troy  &  Lansing- 
burgh  R.  R.  Co.,  235 
Union  Gold  Mining  Co.  v.  Rocky  Mt. 

Nat.  Bank,  73,  102.  162,  191,  193, 

648 
Union  Insurance  Co.  v.  Keyser,  158 
Union  Loan  &  Trust  Co.  v.  Southern 

California  Motor  Road  Co.,  1015. 

1038,  1077,  1222,  1233 
Union  Mut.  Life  Ins.    Co.  v.  Frear 

Stone  Mfg.  Co.,  258 
Union  Mut.  Life  Ins.  Co.  v.  White. 

154,  194,  263 
Union  Nat.  Bank  v.  Hunt,  493,  517 
Union  Nat.  Bank  v.  Oceana  County 

Bank,  645 
Union  Nat.  Bank  v.  Rowan,  506 
Union  Nat.  Bank  of  Chicago  v.  Goetz. 

750 

Union  Pacific  Railroad  v.  Commis- 
sioners, 917 

Union  Pacific  Railroad  v.  Lincoln, 
55 

Union  Pac.  Ry.  Co.  v.   Chicago,  R.  I. 


&  P.  Ry.  Co.,  82.  458 
Union  Pac.  R.  R.  Co.  v.  United  States, 

432,  815 
Union  School  Furniture  Co.  v.  School 

District  No.  60,  etc.,  115,  440 
Union  School  Township  v.  First  Nat 

Bank  of  Crawfordsville    133.  427, 

Union  Stock  Yards  Bank  v.  Gillespie, 

609 
Union    Stock    Yards   Nat.    Bank  v 

Dumond,  607 
Union  Township  v.  Gibboney,  24 
Union  Trust  Co.  v.  Illinois  Midland 

.  Ry.  Co.,  1207,  1212,  1222 
Union  Trust  Co.  v.  Missouri,  Kansas. 

^etc,  Ry.  Co.,  1103 
Union  Trust  Co.  v.  Souther,  1239 

•  •  • 

Xlll 


Union  Trust  Co.   of   New    York  v 

Nevada  &  O.  R.  R.  Co.,  1044 
Union  Turnpike  Co.  v.  Jenkins,  163 
Union  Water  Co.  v.   Murphy's  Flat 

Pluming  Co.,  478,  494 
United    Electric     Securities     Co.    v. 
Louisiana  Electric  Light  Co. ,  1123 
United  Lines  Tel.  Co.  v.  Boston  Safe 

Deposit  &  Trust  Co.,  470 
United  Lines  Telegraph  Co.  v.  Safe 

Deposit  &  Trust  Co.,  458 
United  Society  of  Shakers  v.  Under- 
wood, 241,  553,  635 
United  States  v.  Allen,  776 
United  States  v.  Babbit,  1058 
United  States  v.  Bank,  674 
United  States  v.  Britton,  773,  777  778 
United  States  v.  City  Bank  of  Colum- 
bus, 111,  177,  570,  578,  588 
United  States  v.  Dandridge,  233,  806 
United  States  v.  Dodge  County,  917 
United  States  v.  Eno,  773 
United  States  v.  Eque,  776,  778 
United  States  v.  French,  779 
United  States  r.  Graves,  779,  781 
United  States  v.  Hughitt,  776 
United  States  v.  Linn,  990 
United  States  v.  Means,  553,  776 
United  States  v.  Mooney,  715 
United  States  v.  National  Exchange 

Bank,  673  * 

United  States  v.  New  Orleans.  795 
United  States  v.  New  Orleans  &  O 

R.  R.  Co.,  1102 
United  States  v.  Northway,  773,  774, 

I  to 

United  States  v.  Potter,  777.  778,  782 
United  States  v.  Railroad  Co.,  1276. 

1277 
United  States  v.  Shaw,  715 
United      States      v.      Trans-Missouri 

Freight  Assn.,  1178 
United  States  v.  Union  Pac.  R.  R  Co 

301 
United  States  v.  Western  Union  'J'  1 

Co  ,  475 
United  States  Bank  v.  Carneal,  691 
United  States  Bank  v.  Dunn,  177 
United   States  ex  rel.  v.  Board,  etc., 

800  '         ' 

United  States  ex  rel.  Huidekoper  v. 

Macon  County  Court,  803 
United  States  ex  rel.  Portsmouth  Sav- 
ings Bank  v.  Board  of  Auditors  of 

the  Town  of  Ottawa,  795,  796 
United  States  Electric  Power  &  Light 

Co.  v.  State,  1300 
United  States  Express  Co.  v.  Ellyson. 

1298  ^      * 

United   States    Rolling  Stock  Co.  v. 

Atlantic  «&  G.   W.   R.   Co.,  233. 

260  ' 


XCVlll 


TABLE  OF  CASES. 


[The  references  are  to  pages:  vol.  I  contains  pp.  1-707;  vol.  H,  pp.  70»-1307.] 


TABLE  OF  CASES. 
[The  references  are  to  pages:  vol.  I  contains  pp.  1-707;  vol.  n,  pp.  708-1307.] 


XCIX 


ll    i 


United  States  Trust  Co.  of  New  York 

V.  Wabash,  St.  Louis  &  Pac.  Ry. 

Co..  1097 
United  States  Trust  Co.  v.  Mayor,  etc., 

of  New  York,  1288.  1290 
Uptob  V.  South  Reading  Bank,  512 
Upton  V.  Tribilcock,  1028,  1108 
Upton  V.  Vail,  294 
Usher  v.  Raymond  Skate  Co.,  78 
Utica  Water  Works  Co.  v.   City  of 

Utica,  66 

V. 


Vaglino  v.  Bank  of  England,  344 

Vail  V.  Hamilton,  1067 

Vail  V.  Newark  Savings  Institution, 

711 
Vairin  v.  Hobson,  643 
Van  Allen  v.  Assessors,  1274,  1296 
Van  Brocklin  v.  Tennessee,  1277 
Van  Cott  V.   Van  Brunt,  275,   1031, 

1033 
Van  Courtlandt  v.  Underbill,  348 
Vandall  v.  Dock  Company,  88 
Vandegrift  v.  Delaware  R.   R.  Co., 

805  ^^ 

Vanderpoel  v.  GJorman,  1112.  1290 
Vanderwerken  v.  Glenn,  772 
Van  Dresser  v.  Navigation  Co.,  465 
Vane  v.  City  of  Evanston,  1269 
Vane  v,  Newcombe.  1251 
Van  Epps  v.  Van  Epps,  251,  263 
Van  Etten  v.  Van  Eaton,  416 
Van  Hoffman  v.  aty  of  Quincy,  909 
Van  Leuven   v.  First  Nat.   Bank  of 

Kingston,  634 
Van  Slyke  v.  Wisconsin,  1296,  1299 
Van  Vecbten  v.  Ternr,  1158 
Van  Vleet  v.  Jones,  410 
Van  Weel  v.  Winston.  1142 
Van  Wagoner  v.  Gas  Light  Co.,  712 
Van  Wart  v.  Wooley,  681 
Van  Weel  v.  Winston.  290 
Vaughn  v.  School  Dist.  No.  3,  etc., 

1264 
Veazie  Bank  v.  Fenno,  1274 
Verizie  Bank  v.  Nims.  702 
Veazie  Bank  v.  Winn,  659 
Veeder  v.  Baker,  398 
Veeder  v.  Mudgett,  400 
Venango  Nat.  Bank  v.  Taylor,  713, 

720 
Vermilye   v.   Adams   Express    Com- 
pany, 1043 
Vermont  &  Canada  R.  R.  Co.  v.  Ver- 
mont Central  R.  R.  Co.,  487 
Vermont   Mining   Co.   v.    Windham 

County  Bank,  583 
Verplanck    v.    Mercantile   Insurance 

Co.,  76,  305 
Verzan  v.  McGregor,  205 


Vicksburg  &  :Meridian  R.  R.  Co.  v. 

Bradley,  1283 
Vicksburg    S.   &  T.   R.   R.    Co.    v. 

Ouachita,  49  ^      ^ 

Victory  Webb  Printing  Co.  v.  Beecher, 

390    396 
Vidal  v'.  Girard's  Excrs.,  494 
Viets  v.   Union  Nat.  Bank  of  Troy, 

610 
Vigers  v.  Pike.  168 
Vilas  v.   Milwaukee,   etc.,    Railway, 

1.73 
Vilas  V.  Page,  1212,  1215 
Village  of  Oneida  v.  Board  of  Super- 
visors of  Madison  County,  996 
Vincent  v.  Chapman,  350 
Vincent  v.  Inhabitants  of  Nantucket, 

33  790 
Vincent  v.  Lincoln  County,  847 
Vincent  v.  Mecosta  County  Supervis- 
ors, 128 
Vincent  v.  Snoqualmie  Mill  Co.,  1081 
Vining  v.  Bricker,  520 
Vionet  v.  Municipality  No.  1,  30 
Virginia  v.  Chesapeake  &  Ohio  Canal 

Co.,  1014,  1047 
Virginia  Development  Co.  v.  Crozer 

Iron  Co.,  1244 
Virginia,  Tenn.   &  Carolina  Steel  & 

Iron  Co.  V.  Wilder.  1123 
Volger  V.  Siddner,  1271 
Von  Roun  v.  Superior  Court,  726 
Von  Schmidt  v.  Widber,  City  Treas- 
urer, 32 
Voris  V.  Renshaw,  210 
Vosburgh  v.  Diefendorf,  620 


w. 

Wabash,  St.  Louis  &  Pac.  Ry.  Co.  v. 

Ham,  1109 
Wabash,  St.  Louis  &  Pac.  Ry.  Co.  v. 

Illinois,  1293 
Wabash,  St.  Louis  &  Pac.  Ry.  Co.  v. 

McKissock,  1100 
Wachob  V.  Bingham  School  District, 

138 
Waco  Water  &  Light  Co.  v.  City  of 

Waco,  442 
Wade  V.   Am.    Colonization  Society, 

494 

Wade  V.  Chicago,  Springfield  &  St. 
LouisR.  R.  Co.,  1040,1095 

Wade  V.  Donau  Brewing  Co.,  1100 

Wagner  v.  Cleveland  &  Toledo  Rail- 
road, 1221 

Wahl  V.  Milwaukee,  109 

Wahlig  V.  Standard  Pump  Manufg. 
Co.,  78,  223 

Wait  V.  Nashua  Armory  Assn.,  182 

Waitev.  Dowley,  733 

Waite  V.  Mining  Company,  162,  247 


Wakefield  Bank  v.  Truesdell,  571 
Wakeman  v.  Dalley,  410,  553 
Walburu  v.  Ingilby,  294 
Waldo  V.  Chicago,  St.  P.  &  Fond  du 

LacR.  R.  Co.,  95,  463 
Walker  v.  Bank  of  State  of  New  York, 

696 
Walker  v.  Birchard,  385 
Walker  v.  City  of  Cincinnati,  53,  877, 

924,  964 
Walker  v.  Detroit  Transit  R.  Co.,  143, 

162 
Walker  v.  Linn  County,  129 
Walker  v.  Miller,  1120 
Walker  v.  Oswald,  803 
Walker  v.  Richards,  734 
Walker  v.  St.  Louis  Nat.  Bank,  596 
Wall  V.  Monroe  County,  1004 
Wall  V.  Spurlock,  597 
Wallace  v.  Agry,  702 
Wallace  v.  Exchange  Bank  of  Spencer, 

582 
Wallace  v.  Loomis,  1093,  1212 
Wallace  v.  IVIayor,  etc.,  of  San  Jose, 

5,  63,  445 
Wallace  &  Sons  v.  Walsh,  391 
Walling  V.  Miller,  726,  1120 
Wallis  V.  Johnston  School  Township, 

133,  134,  426,  427 
Walnut  V.  Wade,  946 
Walsh  V.  Barton,  1096 
Walsh  V.  Dart,  702 
Walter  v.  Kirk,  641 
Walters  v.  Anglo-American  Mortgage 

&  Trust  Co.,  1191 
Walters  v.  Town  of  Lake,  1269 
Walther  v.  Seven  Corners'  Bank,  1123 
Walton  v.  Godwin,  408,  411 
Walton  V.  Hake,  249 
Walton  V.  Oliver,  372 
Walton  V.  Riley,  54 
Walworth  County  Bank  v.  Farmers' 

Loan  &  Trust  Co.,  180,  182,  236 
Ward  V.  Allen,  670 
Ward  V.  Davidson,  245,  262,  278 
Ward  V.  Johnston,  488 
Warden  v.  Railroad  Co.,  242,  243,  259. 

268,  275,  284 
Warden  of  St.  James  v.  Rector,  etc.. 

Church  of  the  Redeemer,  283 
Warder,   Bushnell  &   Glesner  Co    v 

Jock,  470 
Ware  v.  Grand  Junction  Water  Works 

Co..  300,  348 
Warfield  v.  Canning  Company,  1074 
Warner  v.  De  Witt  County  Nat.  Bank 

509 
Warner  v.  Littlefield,  1081 
Warner  v.  Martin,  539 
Warner  v.  Mower,  1112 
Warren  v.  First  Nat.  Bank  of  Colum- 
bus, 1115,  1117 


Warren  v.  Oilman,  571 
Warren  v.  Ocean  Insurance  Co.,  144 
Warren  County  v.  Marcy,  1037 
Warren  County  Agr.  Joint  Stock  Co. 

V.  Barr,  27,  437 
Warrensbnrg  Co-op.  Building  Assn. 

V.  Zoll,  650 
Wasatch  Mining  Co.  v.  Jennings,  263 
Washburn  v.  Blake,  580 
Washburn  v.  Board,  etc.,  31 
Washington  v.  Lewis,  571 
Washington  County  Court  v.  Thomp- 
son, 127 
Washington    Mut.    Fire   Ins.    Co.   v. 

Seminary,  45,  184 
Washington  National  Bank  of  Tacoma 

V.  Eckels,  714 
Washington,  Ohio  &  W.  R.  R.  Co.  v. 

Lewis,  1176 
Washington  Savings  Bank  v.  Butch- 
ers', etc.,  Bank,  198 
Wasson  v.  Hawkins.  023,  624 
Waterbury  v.  City  of  Laredo,  64 
Waterhouse  v.  Comer,  1208 
Waters  v.  Quimby,  417 
Waters  v.  Trovillo,  57 
Watertown  v,  Cady,  48 
Waterworks  v.  Yeomans,  1051 
Watson  V.  Bennet,  575 
Watson  V.  New  Jersey  Chemical  Co 

1144 
Watson  V.  Sutherland,  874 
Watson  V.  Tarpley,  982 
Watt's  Appeal,  88,  244,  245,  283,  302, 

317 
Watts  V.  Shipman,  636 
Watts-Campbell    Co.   v.    Yucnsrlinff 
490,  822  ^     ^' 

Waverly    Company    v.   Worthington 

Company,  1123 
Waxahachie  Nat.    Bank  v.  Vickerv 
567  ^ 

Waymirc  v.  Powell,  122 
Wayne  County  v.  Benoit,  798 
Wayne  Pike  Co.  v.  Hammons,   279, 

281,  315 
Wear  v.  Lee,  660 
Weatherford,  M.  W.  &  N.  W.  R.  Co. 

V.  Granger,  234,  300 
Webb  V.  Spokane  County,  282 
Webber    v.    Williams    College,   146. 

227 
Weber  v.  Ohio  &  Mississippi  Ry.  Co. 

1271 
Weber  v.  Spokane  Nat.  Bank,  509 
Webster  v.  Howe  Machine  Co.,  464 
Webster  v.  School  District,  139 
Webster  v.  Upton,  763,  1028 
Webster  County  v.  Taylor,  442 
Wecklcr  v.  First  Nat.  Bank  of  Hagers- 

town,  508 
Weeks  v.  Love,  380 


TABLE  OF  CASES. 


IThe  references  are  to  pages:  vol.  T  contains  pp.  1-707;  vol.  H,  pp.  7t»-l W.} 


TABLE  OP  CASES. 


ci 


4 

|l    -' 


,J 


Weeks  v.  Silver    Islet    Consolidated 

Mining  Co.,  193 

Weeks  v.  Texarkana,  799 

Weiner  v.  Sturgis,  1131 

Weirick  v.  Mahoning  County  Bank. 
608  o  J  , 

Welsmer  ▼.  Village  of  Douglas.  43,  44 

W<jisser  ▼.  Denison,  604,  673,  679 

Welch  V.  Sage,  1014 

Weld  T.  Gorham,  690 

Welles  V.  Graves,  557,  558 

Welles  V.  Stout,  772 

Welhesburg,  etc.,  Co.  v.  Young,  74 

Wells  V.  Jewett,  287 

Wells  V.  Morrow,  569 

Wells  V.  Supervisors,  71,  872, 920, 1000 

Wells  V.  Town  of  Salina,  8 

Welsh  V.   Ferd  Heim  Brewing  Co.. 

470 
Welsh  V.  German- American  Bank,  667. 

668,679 
Welsh  v.  St.  P&ul  &  Pac.  R.  R.  Co., 

1047.  1048 
Welton  V.  Missouri,  1267 
Went  worth  v.  Lloyd,  168 
Weutworth  v.  Whittemore,  69 
Werk    V.   Mad    River   Valley  Back, 

697 
Werner  v.  Murphy,  1204 
Wesley  Church  v.  Moore,  198 
West  V.  Camden,  268 
West  V.  City  of  Utica,  112 
West  V.  Errol,  135 
West  V.  First  Nat.  Bank  of  Ehiiira. 

628 
West  V.  Menard  County  Agr.  Board. 

488 
West  V.  St.  P&ul  National  Bank,  6S2 
Westburg  v.  City  of  Kansas.  798 
Westchester  Bank  v.  Donner,  521 
Westchester    Gas  Co.    v.    County  o^ 

Chester,  1266 
Westchester,  etc.,  R.  R.  Co.  v.  Jack- 
son, 485 
Westerfield  v.  Radde,  103,   182.   192 

223,  392 
Western  Bank  of  Missouri  v.  Gilstrap 

169 
Western  College  of  Medicine  v  Cleve 

land,  446 
Western  M.  R.  Co.  v.  Franklin  Bank, 

334 
Western  Organ  Co.  v.  Reddish,  48^ 
Western  R.  R.  Co.  v.  Bayne,  167.  182. 

193,  260 
Western  Saving  Fund  Society  of  Phila- 
delphia V.  City  of  Philadelphia,  29 
Western  Union  v.  Smith,  359 
Western    Union    Telegraph    Co.    v 

Alabama  1268 
Western  Union  Tel,  Co.  v.  American 

Union  Tel.  Co.,  1178 


Western  Union  Telegraph  Co.  v.  Mas- 

sachusetts,  1294 
Western  Union  Telegraph  Co.  v.  Pen- 
dleton, 1293 
Western    Union    Telegraph    Co.    v. 

Texas,  1293 
Western    Union    Telegraph    Co.    t. 

Yopst,  155 
Weston  v.  City  of  Syracuse,  30,  69 
Wepton  V.  Charleston,  1276 
West  Salem  Land  Co.  v.  Land  Co..  284 
West  St.  Louis  Sav.  Bank  v.  Shawnee 

Co.  Bank,  250,  568,  571,  576,  579. 

588 
West  School  District  v.  Merrilla»  790 
West  Virginia  Transportation  Co.  v. 

Ohio  River  Pipe  Line  Co.,  1178 
Wetherbee  v.  Fitch,  146,  190,  191 
Wetmore  v.  Railroad  Company,  1158 
Whaley,  etc.,  Co.  v.  Green,  299 
Wheeler  v.  Alton,  140 
Wheeler  v.  County  of  WayLe,  5 
Wheeler  v.  Northwestern  Sleigh  Co.. 

816 
Wheeler  v.  Reed,  359 
Wheeler  V  San  Francisco  &  A  R.  Co.. 

819 
WheelocK  v.  Kost,  709,  757,  772 
Wheelwright  v.  St.  Louis,  N.  O.  &  O. 

Transportation    Co.,    1042.   lOW. 

1x56 
Whelan  v.  McCreary,  569 
Whelen's  Appeal,  955 
Whelpdale  v.  Cookson,  243 
Wherry  v.  Hale,  512 
Whetstone  v.  Ottawa  University,  88, 

461 
Whilden  v.  Bank,  655 
AVliitaker  v.  Grummond,  162 
Whitaker  v,  Hartfoitl,  Prov.  &  F.  R. 

R.  Co.,  1048 
Whitaker  v.  Kllroy,  156,  210,  233 
Whi^aKer  v.  Masterton,  393,  415 
Whitbeck  v.  Mercantile  Bank,  767 
White  V.  City  of  Rahway,  114 
White  V.  Hosford,  385 
Wliite  V.  Knox,  727,  729,  759 
White  V.  Madison,  369,  372 
White  V.  Mecnanics'  Nat.  Bank,  667 
White  V.  National  Bank,  706,  744 
White  V.  People,  1268 
White  V.  Syracuse  &  Utica  R.  R.  Co.. 
76  ' 

White  V.   Vermont  &  Massachnfletts 

Railroad,  1000, 1014,  1043 
White  V.   Westport   Cotton  Manufg. 

Co.,  150,  152,  157,  193 
White,  etc.,  Manufg.  Co.  v.  Pette  Im- 
porting Co.,  254,  274,  1087 
Whitehead  v.  Vineyard,  1098 
White  Mountains  Rjiilroad  v.  White 
M  )uutuins  (N.  II.)  Railroad,  246 


[The  references  are  to  pages:  vol 
Whiteside  v.  United  States,  446 
White  Water  Valley  Canal  Co.  v.  Val- 

lette,  1014,  1068 
Whiting  V.  Railroad  Co.,  49 
Whiting  V.  Town  of  Weot  Point,  1264 
Whiting  v.  Wellington,  180,  327 
Whitman  Mowing  Co.  v.  Baker,  494 
Whitney  v.  Butlc/,  766,  768 
Wiitnev  t.  Cammann,  392 
V^Tutney  v.  Fairbanks,  303,  318 
Whitney  v.  National  Bank  of  Brattle- 

boro,  634,  636 
Whitney  v.  South  Paris  Manufff  Co 

148 
Whitney  r.  Union  Trust  Co.,  1071 
Whitiiey  Arms   Co.   v.  Barlow    394 

^M!S>^'  ^-  ^^Joiwell  Nat.  Bank,  1085, 
1086,  1130  ' 

Whittenton  Mills  v.  Upton,  499,  501 

Whitwell  V.  Johnson,  685 

Whitwell  V.  Warner.  150    180    1084 
1108,  1112 

Whyte  V.  Mayor,  etc.,  59 

Wichita  Nat.  Bank  v.  Maltby,  607 

Wickens  v.  Foster,  413 

Wickersham  V  Chicago  Zinc  Co.,  570 

Wickham  v.  Hull.  769 

Wiggins  V.  Burkham,  673,  676 

Wiggins  Ferry  Co.  v.  Ohio  &  Missis- 
sippi Ry.  Co..  1174,  1221 
Wilbur  V.  Lynde,  196 
Wi  combe  V.  Dodge,  641 
Wilcox  V.  Bickel.  316 

w-  !l  ^'  5*"^  ^^  Passamaquaddv  176 
Wild^v.  New  York,  etc.,  k  Co.^'s^! 

Wile  &  Brickner  Co.  v.  Rochester  & 

Wiles  V.  Suydam,  398,  400 
Wiley  V.  Silliman,  972 
Wi  ey  V.  Starbuck,  530,  534 
Wi Ihehn  V.  Cedar  County,  124 
Wi  fans  V.  State,  1272    ^' 

Cd"^^  ^^^.^^  ^-  Home  for 
xtr-.A^^^  Women,  1266 
Wi  kinson  V.  Albany,  135 
Wilkinson  V.  Babbitt,  858 
Wilkinson  v.  Bauerle    272    ^na    moj 
^    1086,  1112,  1114  '        '  ^^'  ^^^' 

Willard  v.  Denise,  239 
w-  h""^  ^-  Killingworth,  5 

^J  ^^^vNewhuryport,  33  35 
>Viliets  v.  Phcenix  fe^nk  rS  ^ 


I  contains  pp.  1-707:  vol  H,  pp.  TOS-iaOT.] 

Willetts  V.  Paine,  605,  648,  659 

Williams  V.  American  Bank  1241 

Williams  v.  Cheney,  236 

Williams  v.  Dorrier,  576 

Williams  v.  Hood,  661 

Williams  v.  Jackson  County  Patrons 

of  Husbandry,  247 
Williams  v.  Jones,  254 
Williams  v.  McKay,  554 
Williams  v.  Manufacturing  Co.,  296 
Williams  V.  Miami  Powder  Co.,  357 
Williams  V.  Morgan,  1184 
Williams  v.  People,  911,  940 
Williams  v.  Riley,  365 
Williams  v.  Town  of  Albion,  22 
Williams    V.   Town  of  Roberts,  876 


963 
Williams 

1007 
Williams 

1302 
Williams 

181 
Williams 


Town  of  Duanesburgh, 
State  Board  of  Assessors, 
Uncompahgre  Canal  Co., 
Western  Union  Tel.  Co., 


815,  1289 
Willlims  V.  Wood,  294 
Williamsburg  City  Fire  Ins.   Co.   r 

Frotbingham,  1071 
Williamsburffh  Sav.  Bank  v.  Town  of 

Solon,  987 
Williamson  v.  Keokuk,  852 
Williamson  v.   Wash.  City  Va    Mid 
.  &  Great  Southern  R.  R.  Co.,  1239 
Williamson,   Trustee,  v.  New  Jersey 

Southern  Railroad,  1082,  1248 
Wilhm  V.  Bernheimer,  857 
Willink  V.  Morris  Canal  &  Bkff  Co 

1054,  1096,  1097  ^'        ' 

Wilmington  &  Weldon    Railroad   v 

Alsbrook,    1282 
Willis  V.  Philadelphia  &  Darby  R.  R 

Co.,  338,  1079  ' 

Willis  V.  St.  Paul  Sanitation  Co.,  114 
236  ' 

WiUiston  V.  Mich.  So.  &  No.  Ind.  R 

R.  Co.,  485 
Willmarth  v.  Crawford   74 
Willoughby  V.  Chicago  Junction  Rys 
&  Union   Stock- Yards  Co.,   456* 
503  * 

Wilmer  v.  Railroad  Company,  1195 
Wilmington,  O.  &  E.  C.  R.  fe  Co.  v. 

Board     of    Comrs.    Of    Onslow 

County,  948 
Wilson  V.  Bank,  583 
Wilson  V.  Beckwith.  1098 
Wilson  V.  Boyce,  1098 
Wilson  V.  Brett,  348 
Wilson  V.  City  Council.  1018 
Wilson  V.  Cobum,  622 
Wilson  V.  Dawson,  636 
Wilson  V.  Gaines.  1307 


w 


TABLE  OF  CASES. 


[I 

« 

'i 

'■4 


I 


[The  references  are  to  pages:  vol 

Wilson  V.  Kings  County  Elevated  R. 

R.  Co.,  233 
Wilson  V.  M.  E.  R.  Co.,  343 
Wilson  V.  Rocke,  620 
Wilson  V.  Salamanca,  830,  935,  938 
Wilson  V.  Supervisors,  1264 
Wilson  V.  Ilnion  Savinirs  Assn.,  973 
Wilson  V.  Williman,  Cll 
Wilson  Mfg.  Co.  v.  Schwind,  394 
Wilson  Sewing  Machine  Co.  v.  Boy- 

ington.  153,  195 
Winchester  v.   Baltimore   &  Susque- 
hanna R.  R.  Co.,  154 
Winchester  v.  Railroad  Co.,  570 
Wind  V.  Fifth  Nat.  Bank,  671 
Windham  Provident  Inst.  v.  Sprague, 

387 
Winn  v.  City  Council  of  Macon,  53 
Winona  v.  Minnesota Ry.  Constr.  Co., 

961 
Winsor  v.  La  Fayette  County  Bank, 

153 
Winter  v.  Bank  of  New  York,  602 
Winter    v.    City    Council    of  Mont- 
gomery. 48,  51,  52,  950 
Winters  v.  Hub  Mining  Co.,  300 
Winton  v.  Little,  509 
Wisconsin  v.  Pelican  Insurance  Co., 

413 
Wisconsin  Central  R.  R.  Co.  v.  Com- 

stock,  1282 
Wiser  v.  Blachly,  991 
Witherow  v.  Slayback,  397 
Witter  V.  Grand  Rapids  Flouring  Mill 

Co.,  821 
Witters  v.  Sowles,  558,  771 
Wolf  V.  Aroninus  Copper  Mine  Co., 

470 
Wolff  V.  Walter,  681 
Wood  V.   Commissioners  of  Oxford, 

906,  974 
Wood  V.  Dummer,  1106,  1113,  1133 
Wood  V.  Guarantee  Trust  &  Safe  De- 
posit Co.,  1046,  1246,  1256,  1260 
Wood  V.   Holly  Manufacturing  Co., 

1100 
Wood  V.   Oregon  Development  Co., 

1126 
Wood  V.  Whelen,  163,  236,  1075,  1100 
Wood  V.    Wiley  Construction   Com- 

panv,  151 
Woodbridge  v.  City  of  Duluth,  862 
Woodhall  V.  Rosenthal,  1101 ' 
Wood  Hydrauhc  Hose  Mining  Co.  v. 

King,  92 
Woodin  V.  Frazee,  656 
Woodley  v.   Town  Council  of  Clio, 

1012 
Woodroof  V.  Howes,  273 
Woodruff  V.  Comrs.  of  Noble  County, 

123,  442 
Woodruff  V.  Merchants'  Bank,  656 


I  contains  pp.  1-707;  vol.  II,  pp.  708-1807.] 


Woodruff  V.  Plant,  658 

Woodruff  V.  Okalona,  1001 

Woods  V.   Board   of    Supervisors  of 

Madison  County,  995 
Woods  V.  Lawrence  County,  904 
Woods  V.  Louisiana,  857 
Woods  V.  People's  Bank,  509 
W.   &  Mt.    St.    T.   R.   Co.    V.    Clark 

County  Court,  46,  899 
Woodstock  Iron  Co.  v.  Richmond  & 

Danville  Extension  Co.,  268 
Woodward  v.  Reynolds,  874 
Woolverton  v.  Taylor.  403,  1124 
Worcester  v.  Railroad  Company,  958 
Worcester  Nat.  Bank  v.  Cheeney,  510 
Workhouse  v.  Moore,  157,  166 
Worthern  v.  Griffith.  1111 
Wray  v.  Insurance  Company,  754 
Wright  V.  Bundy,  471 
Wright  V.  First  National  Bank,  1081 
Wright  V.  Hughes,  89,  97,  1075 
Wright  V.  Pipe  Line  Co.,  1079 
Wright    V.   Oroville  Gold,   Silver    & 

Copper  Mining  Co.,  306 
Wright's  Appeal,  182,  287 
Wullenwaber  v.  Dunigan,  883 
Wyandotte  v.  Zeitz,  850 
Wylie  V.  Northampton  Bank,  635 
Wyman  v.  Colorado  Nat.  Bank,  524 

Y. 

Yale  Gas  Stove  Co.  v.  Wilcox,  297 

Yancey  v.  Hopkins,  446 

Yardley  v.  Clothier,  712,  716,  717,  720 

Yardley  v.  Dickson,  715 

Yardley  v.  Philler,  722 

Yardley  v.  Wilgus,  765 

Yarish  V.  Cedar  Rapids,  L  F.  &  N.  W. 

Ry.  Co.,  906 
Yarncll  v.  City  of  Los  Angeles,  736 
Yazoo  &  M.  V.  R.  R.  Co.  v.  Board  of 

Levee  Comrs.,  1282 
Yellow  Jacket  Silver  Mining  Co.  v. 

Stevenson,  172 
Yoakum  v.  Kroeger,  1232 
York  Buildings  Co.  v.  Mackenzie,  243, 

251 
York  Co.  V.  Mackenzie,  1039 
York  &  Maryland  Railroad  v.  Winans, 

473 
York  &  North  Midland  Ry.  Co.  v. 

Hudson,  301 
Young  V.  Board  of  Education  of  Ind. 

School  Dist.  No.  47,  895 
Young  V.  Camden  County,  873 
Young  V.  Clarendon,  17 
Young  V.  Clarendon  Township,  426^ 

1000 
Young  V.  Hudson,  574 
Young  V.  McKay,  766 
Young  V.  Railroad  Company,  907,  930 


TABLE  OF  CASES. 


cm 


[The  references  are  to  pages:  vol.  I.  contains  pp.  1-707;  vol.  II,  pp.  708-1307.] 


Young  V.  Wempe,  772 

Youngman  v.  Elmira  &  Williamsport 

R.  R.  Co..  1096 
Young  Men's  Christian  Association  v 

Donohugh,  1266 
Youngs  V.  Hall,  847 

z. 

Zabriskie  v.  Railroad,  49,  79,  473.  895 
1018  '      .       »       , 


Zearfoss  v.  Farmers  &  Mechanics'  In- 
stitute of  Northampton  CouLty, 

Zellerbach  v.  AUenberg,  815 

Zelle  V.  German  Sav.  Inst.,  660 

Ziegler  v.  Bank,  628 

Ziegler  v.  Hoagland,  280 

Zieverink  v.  Kemper,  1123 

Zihlman    v.   Cumberland   Glass  Co.. 

807 
Zook  V.  Spray,  379 


I 


11  il 


ll.' 


II. I' 


I' 


COEPOEATE  FI]SrA]vrCE 


THE  FINANCIAL  OPERATIONS  AND  ARRANGEMENTS 
OF  PUBLIC  AND  PRIVATE  CORPORATIONS 


I  !  : 


i      I 


i 


ill 


'« 


CHAPTER  I. 

GENERAL  POWER  TO  INCUR  PECUNIARY  LIABILITY -PUBLIC 

CORPORATIONS. 


§  1.  General  rules  applicable  to  pub- 
lic corporations. 

2.  Distinction  between  public  and 
private  corporations. 

8.  Borrowing  money. 

4.  The    United     States     Supreme 

Court  on  borrowing  money. 

5.  The  New  Jersey  Court  of  Errors 

and   Appeals  on   borrowing 
money. 

6.  Issue  of  negotiable  securities. 

7.  Power  of  Indiana  cities  to  issue 

bonds. 

8.  Miscellaneous  rules  as  to  issuing 

bonds. 

9.  Bonds  issued  for  the  erection  of 

a  county  court  house. 

10.  Funding    county     indebtedness 

by    issuing    interest- bearing 
bends. 

11.  Issue  of  bonds  to  pay  subscrip- 

tion to  stock  of  railroad  cor- 
porations. 

12.  Notes  or  warrants  to  cover  funds 

to   be   set   aside   in   future 
taxation. 

13.  The  issue  of  scrip. 

14.  Purchase  of  real  estate  for  erec- 

tion of  pubUc  buildings   on 
time. 

15.  Erection  of  town  buildings. 

16.  Purchase  of  sites  for  erection  of 

and  repair  of  school  build- 
ings. 

17.  The  same  subject  continued. 

18.  Purchasing  on  credit. 

19.  Building  and  repair  of  bridges. 

20.  Incurring  liability  under   Cali- 

fornia statutes. 

21.  Incurring  liability  under  Indiana 

statutes. 


^  22.  Incurring  liability  under  Kansas 
statutes. 

23.  For   lighting   the  streets  of   a 
city. 

24.  Contract  on  time  for  lighting 
streets. 

25.  Caring  for  the  indigent,  etc. 

26.  Employment  of  physicians  for 
the  poor  —  Indiana  statute 
construed. 

27.  Expenses  connected  with  epi- 
demic diseases. 

28.  For  what  towns  may  not  be  made 

liable. 

29.  Expenses  of  a  committee  to  se- 

cure legislation. 

30.  For  the  payment  of  bounties  to 

volunteers. 

31.  Validating  a  contract  of  village 

trustees. 

32.  Illustrations    of    habilities    in- 

curred for  a  "  corporate  pur- 
pose." 

33.  Purchase  of   fire    engines   and 

apparatus. 

34.  Illustrations  of   wrongfully  in- 

curred liability. 

35.  Purchase  of  cemetery  grounds. 

36.  Erection     of      crematory      for 

garbage. 

37.  Use    of   private    property    for 

sewers. 

38.  Detection  of  criminals. 

39.  Aiding  private  corporations. 

40.  Subscription  to  capital  stock  of 

railroad  corporation. 

41.  Power  of  the  legislature  as  to 

compensations  in  such  mat- 
ters. 

42.  Constitutionality  of   legislation 

authorizing  such  aid. 


GENERAL  POWER  TO  INCUR  PECUNIARY  LIABILITY. 


[§i 


§2] 


PUBLIC  CORPORATIONS. 


I     It 


1* 


1 


§  43.  In  what  respect  the  power  of  the 
municipality  is  restricted. 

44.  Subscription  for  less   than  the 

amount  voted. 

45.  The  effect  of  subsequent  legisla- 

tion upon  such  a  subscription. 

46.  Statutory  authority  to  construct 

a  railroad. 

47.  Constitutional    provisions    con- 

strued. 

48.  What  is  not  a  work  of  "  internal 

improvement "  in  the  mean- 
ing of  Nebraska  statutes. 

49.  What  is  such  a  work. 

50.  Contracts  of  guaranty. 

61.  Employment  of  agents  or  at- 
torneys. 

52.  Contracts  for  legal  services  — 
when  allowed. 

58.  Contracts  for  legal  services  — 
how  made. 


§  54.  When  a  public   corporation  is 
bound  for  legal  services. 

55.  Employment  of  counsel  for  de- 

fense of  officers. 

56.  Indemnity  for  expenses  of  liti- 

gation. 

57.  When  a  public  corporation    is 

not  bound  for   professional 
services  of  an  attorney. 

58.  The  same  subject  continued. 

59.  What  contracts  with  nttorneys 

are  contrary  to  public  policy. 

60.  Limitations  upon  the  indebted- 

ness to  be  incurred. 

61.  The  same  subject  continued. 

62.  Limitations  upon  power  to  incur 

indebtedness  —  procuring    a 
supply  of  water. 

63.  The  same  subject  continued. 

64.  Donation  of  bonds  to  aid  in  de- 

veloping water  power. 


Section  I.  General  rules  applicable  to  public  corporations. 
—All  public  corporations  are  limited  to  the  exercise  of  those  pow- 
ers which  are  expressly  granted  or  which  are  necessarily  or  fairly 
implied  in  or  incident  to  the  powers  expressly  granted,  or  which 
are  essential  to  the  declared  objects  and  purposes  of  such  cor- 
porations.1  Corporations  and  their  officers  can  only  act  within 
the  scope  of  the  powers  conferred  by  their  charters,  and  such 
powers  are  to  be  construed  strictly.'*     A  municipal  corporation 


»Town  of  Harwood  v.  Hamilton, 
(1883)  13  Bmdw.  358;  Cook  County 
f>.  McCrea,  -93  111.  236;  People  v.  Vil- 
lage of  Crotty,  93  111.  ISO;  Petersburg 
v.  Metzker,  21  111.  205;  Schott  v.  People, 
89  111.  195.  In  Law  v.  People,  (1877)  87 
Dl.  385,  the  Supreme  Court  of  Illinois 
said  upon  the  power  of  municipal  cor- 
porations: "  The  law  is,  and  all  persons 
are  presumed  to  know  it,  that  munici- 
pal bodies  can  only  exercise  such  pow- 
ers as  are  conferred  upon  them  by 
their  charters,  and  all  persons  dealing 
with  them  must  see  that  the  body  has 
power  to  perform  the  proposed  act. 
Such  corporations  are  created  for 
governmental  and  not  for  commercial 


purposes.  Hence  power  to  borrow 
money  or  create  indebtedness  is  not 
an  incident  to  such  local  governments, 
and  the  power  cannot  be  exercised  un- 
less it  is  conferred  by  their  charter, 
and  no  one  has  the  right  to  presume 
the  existence  of  such  power,  and  per- 
sons proposing  to  loan  money  to  these 
bodies     must    see  that    the    power 

exists." 

«Minturn  v.  Larue,  23  How.  435; 
Thomson  f^.  Lee  County,  3  Wall.  327; 
Thomas  v.  City  of  Richmond,  12  Wall. 
349;  Clark  v.  Davenport,  14  Iowa,  494; 
:Merriam  v.  Moody's  Exrs.,  25  Iowa, 
163;  Nichol  v.  Mayor,  etc.,  9  Humph. 
252;  Leonard  v.  Canton,  35  Miss.  189; 


has  no  general  authority  to  exchange  promises  with  other  cor- 
porations or  persons ;  its  contracts  to  be  valid,  must  be  within  the 
scope  of  the  authority  conferred  upon  it  by  law  and  for  munici- 
pal purposes.^  A  municipal  corporation,  as  a  general  rule,  can- 
not incur  any  liability  not  authorized  by  the  statute  or  charter  by 
which  it  is  created.^  Counties,  in  the  absence  of  legislative 
authority,  have  no  power  to  borrow  money  and  execute  their 
obligations  for  the  loan,  notwithstanding  a  purpose  to  apply  the 
money  to  the  use  of  the  public.^  The  statutory  grant  in  Kansas 
to  county  commissioners  to  borrow  money  to  meet  current 
expenses,  when  a  deficit  exists  in  the  county  revenue,  only  author- 
izes a  borrowing  when  the  deiicit  has  actually  occurred.* 

§  2.  Distinction  between  public  and  private  corporations. 

—  Political  corporations,  in  their  organization  and  purposes,  are 
essentially  different  from  private  corporations.  The  former  are 
created  to  aid  in  the  government  of  the  people,  the  latter  to  pro- 
mote trade,  manufactures  and  a  varietv  of  other  interests.  Pri- 
vate  corporations  are  usually  endowed  with  all  the  powers  and 
rights  of  an  individual,  so  far  as  they  can  be  conferred.  And  the 
power  to  contract  debts  and  to  issue  evidences  of  the  same  is  an 
incident  equally  attending  their  creation.  When  authorized  to 
perform  an  act,  unless  restricted  by  the  charter,  they  may  employ 
the  means  and  perform  the  act  in  the  same  manner  that  might  be 
done  by  a  private  individual.  This  is  necessarily  so  to  effectuate 
the  purpose  of  their  foundation  with  most  private  corporations. 
Municipal  corporations,  however,  being  created  for  purposes  of 
government,  and  authorized  as  it  were  to  exercise,  to  a  limited 
extent,  a  portion   of    the  power  of  the  state  government,  have 


Douglass  T.  Placerville,  18  Cal.  643; 
Argenti  v.  San  Francisco,  16  Cal.  255, 
282;  Wallace  r.  San  Jose,  29  Cal.  180; 
City  of  Lafayette  v.  Cox,  5  Ind.  38; 
Bank  v.  Chillicothe,  7  Ohio,  31,  pt.  U; 
Collins  V.  Hatch,  18  Ohio,  523;  Kj\ev. 
Malin,  8  Ind.  34;  Willard  v.  KOling- 
worth,  8  Conn.  247;  Brady  v.  Mayor, 
etc.,  20  N.  Y.  312;  Hodges  v.  Buffalo, 
2Denio,  110;  Halstead  v.  Mayor,  etc.,  3 
N.  Y.  430;  Boom  v.  Utica.  2  Barb.  104. 
'  CooLEY,  J. ,  in  Thomas  r.  City  of 
Port  Huron,  (1873)  27  Mich.  320 


'  Wheeler  v.  County  of  Wayne,  (1890) 
132  111.  599;  s.  c.,24  N.  E.  Rep.  625, 
affg.  31  111.  App.  299;  Cook  County  v. 
McCrea,  93  111.  236;  City  of  Cham- 
paign V.  Harmon,  98  111.  491;  Schott 
V.  People,  89  111.  195;  People  v.  Vil- 
lage of  Crotty,  93  111.  180. 

'  Crittenden  County  Court  v.  Shanks, 
(1889)  88  Ky.  475;  8.  c,  11  S.  W. 
Rep.  468. 

*  Lewis  ».  Comanche  County,  35  Fed. 
Rep.  343. 


I"! 


til 


11 


GENERAL  POWER  TO  INCUR  PECUNIARY  LIABILITY. 


[§3 


always  been  held  to  act  strictly  within  their  charter.  It  is  to  them 
their  fundamental  law,  and  their  power  is  only  co-extensive  with 
the  power  granted.  Not  being  essential  to  the  purposes  and 
object  of  their  creation,  without  an  express  grant  of  power  for 
the .  purpose,  they  have  no  authority  to  contract  debts,  binding 
upon  the  body  or  individual  residing  within  their  limits.  Such 
a  power  being  unusual  when  they  are  created,  and  usually  being 
conferred,  if  at  all,  by  special  enactment,  and  all  persons  familiar 
with  the  fact,  it  is  but  natural  that  tliose  who  deal  with  them,  or 
in  their  obligations,  should  see  to  it  that  the  body  possesses  the 
power  to  bind  itself  for  their  payment.  On  the  other  hand,  the 
object  of  private  corporations  usually  renders  it  necessary  that 
they  should  transact  such  business  as  may  involve  the  necessity  of 
incurring  debt. 

§  3.  Borrowing  money. —  In  a  case  arising  in  Ohio,  frequently 
cited  as  authority,  the  Supreme  Court  of  that  state  held  that  a 
town  corporation,  invested  with  the  powers  usually  conferred 
upon  such  bodies,  could  enter  into  a  contract  for  a  loan  of 
money  to  be  used  by  the  town,  which  would  bind  the  corporation 
for  repayment,  although  no  express  power  to  borrow  money  be 
given  in  the  law  incorporating  the  town.^     The  court  upheld  the 


'  President,  etc, ,  Bank  of  Chillicothe 
«.  Mayor,  etc..  Town  of  Chillicothe, 
(1836)  7  Ohio  (Pt.  II)  31.  It  was  said 
by  Hitchcock,  J.,  delivering  the  opin- 
ion for  the  court,  after  referring  to 
certain  provisions  in  the  charter  of  the 
town  :  "  From  these  extracts  it  will  be 
seen  that  this  corporation,  as  by  that 
law  constituted,  had  legislative  power; 
this  power,  it  is  true  was  restricted  to 
such  powers  as  should  seem  necessary 
for  the  internal  safety  and  convenience 
of  said  town  of  Chillicothe,  and  re- 
stricted, too,  so  far  that  the  laws  made 
and  published  should  not  be  contrary 
to  the  laws  of  the  state  or  of  the  United 
States.  It  had  the  power  further  *  to 
purchase,  receive,  possess  and  convey 
any  real  or  personal  estate  for  the  use 
of  the  town,  to  erect  and  repair  public 
buildings  for  the  benefit  of  said  town,' 
etc.    If  the  power  to  borrow  money 


be,  as  is  insisted  by  counsel,  a  »ub8tan- 
tial  legislative  power ^  or,  according  to 
my  apprehension  of  the  subject,  an  in- 
cident to  legislative  power,  and,  if  it 
became  necessary  for  the  safety  and 
convenience  of  the  town,  or  to  carry 
into  effect  the  power  granted  to  pur- 
chase real  or  personal  estate,  or  to 
erect  or  repair  public  buildings,  to  bor- 
row money,  there  could  be  no  objec- 
tion to  passing  a  law  or  ordinance  to 
that  effect.  When  passed,  it  would  be 
obligatory  on  the  corporation,  and  the 
money  procured  would  constitute  a 
debt  which  the  corporation  must  dis- 
charge. Such  law  would  contravene 
no  principle  of  the  Constitution  or  laws 
of  the  state  or  of  the  United  States,  or 
any  principle  contained  in  the  charter 
of  incorporation.  To  effect  other  sub- 
jects [objects?]  than  those  specified  in 
the  charter,  money  could  not  with  pro- 


§*] 


PUBLIC  C0BP0RATI0N8. 


power  of  the  corporation  to  borrow  money  as  incident  to  the 
powers  expressly  granted  in  the  charter  of  the  town.  But  a 
municipal  corporation  in  Ohio  has  no  power  to  borrow  money 
except  in  conformity  with  the  statute  of  that  state,  which  pro- 
vides that  "  all  bonds  issued  under  authority  of  this  chapter  shall 
express  upon  their  face  the  purpose  for  which  they  were  issued, 
and  under  what  ordinance,"  and  another  statutory  provision  that 
such  bonds  shall  be  advertised  and  sold  at  auction  to  the  highest 
bidder.^  ^ 

§4.  The  United  States  Supreme   Court  on  borrowing 

money.— A  majority  of  the  Supreme  Court  of  the  United  States 
has  held  that  the  power  to  borrow  money  does  not  belong  to  a 
municipal  corporation  as  an  incident  of  its  creation.  To  be  pos- 
sessed, it  must  be  conferred  by  legislation  either  express  or 
implied.  Indebtedness  may  be  incurred  to  a  limited  extent  in 
carrying  out  the  objects  of  the  incorporation.  For  its  payment, 
however,  the  corporation  must  look  to  and  rely  on  taxation,  the 
legitimate  mode  of  raising  the  funds  for  the  purpose.^ 

priety  be  borrowed  *  *  *  An  ter  than  by  borrowing.  And  really,  I 
amendment  to  the  charter  conferred  cannot  see  the  great  difference  whether 
upon  the  mayor  and  common  council  a  corporation  shall  be  indebted  to  A 
the  power  to  pass  and  publish  all  such  for  labor  in  repairing  streets  or  build- 
laws  and  ordinances  as  to  them  shall  ap-  ings,  ortoB.  for  money  borrowed  to 
pear  necessary  for  regulating  the  pay  A.  for  the  same  labor.  The  moral 
streets,  alleys  and  highways,  and  for  obligation  to  pay  would  be  the  same  in 
cleansmg,  raising,  draining,    paving,    either  case." 

turnpiking  or  otherwise  keeping  the  '  Mt.  Adams,  etc..  Inclined  Ry  Co 
same  in  repair.  *  *  *  If .  in  effecting  ^.  City  of  Cincinnati,  25  Wkly.  Law 
any  of  these  objects,  it  become  neces-  Bull.  91;  Rev.  St.  Ohio,  §§2703  2709 
uary  to  borrow  money,  the  corporation  ^  Mayor  v.  Ray,  (1873)  19  Wall  468 
might  with  propriety  do  it.  In  one  of  Justice  Bradley  in  the  opinion  ren- 
the  cases  now  before  the  court  the  dered  by  him  for  the  majority  of  the 
money  was  borrowed  expressly  for  im-  court,  said  :  "A  municipal  corpora- 
proving  one  of  the  streets.  For  the  pur-  tion  is  a  subordinate  branch  of  the 
pose  of  purchasing  real  estate,  erecting  domestic  government  of  a  state.  It  is 
and  repainng  public  buildings,  cleans-  instituted  for  public  purposes  only  • 
mg.  raising,  paving,  draining,  tumpik-  and  has  none  of  the  peculiar  qualities 
ing  and  otherwise  keeping  streets  in  re-  and  characteristics  of  a  trading  cor- 
pair  contracts  must  necessarily  be  poration.  instituted  for  purposes  of 
made.  Ultimate  payment,  it  is  true,  private  gain,  except  that  of  acting  in 
must  be  made  from  taxation.  But  a  corporate  capacity.  Its  objects  its 
until  money  could  be  thus   raised  it   responsibihties,   and    its    powers   are 

rZ^edofh'  ""^  '';^  ''  ™^'^  "^  ^^^^^^'^^^     ^«  ^  localVveTnment^^ 
provided  otherwise,  and  in  no  way  bet-   institution  it  exists  for  the  benefit  of 


li 


s 


GENERAL  POWEB  TO  INCUB  PECUNIABY  UABILITT. 


^1 


§  5.  The  New  Jersey  Court  of  Errors  and  Appeals  on 
borrowing  money. —  Soon  after  this  ruling  of  the  Supreme 
Court  of  the  United  States,  the  Court  of  Errors  and  Appeals  of 
jS'ew  Jersey  held  that  municipal  corporations,  in  the  absence  of  a 
spepific  grant  of  power,  do  not,  in  general,  possess  the  power  of 
borrowing  money,  and  that  a  note  given  by  a  town  in  New  Jer- 
sey for  an  unauthorized  loan  could  not  be  enforced,  even  though 
the  money  borrowed  had  been  expended  for  municipal  purposes.* 


§6] 


PUBLIC  COBPORATIONS. 


9 


the  people  within  its  corporate  limits. 
The  legislature  invests  it  with  such 
powers  as  it  deems  adequate  to  the 
ends  to  be  accomplished.     The  power 
of  taxation  is  usually  conferred  for 
the  purpose  of  enabling  it  to  raise  the 
necessary  funds  to  carry  on  the  city 
government  and  to  make  such  public 
improvements  as  it  is  authorized  to 
make.      As    this  is  a  power    which 
immediately  affects    the   entire   con- 
stituency of  the  municipal  body  which 
exercises    it,     no    evil    consequences 
are  likely  to  ensue  from  its  being  con- 
ferred ;  although  it  is  not  unusual  to 
affix  limits  to  its  exercise  for  any  single 
year.    The  power  to  borrow  money  is 
different;   when  this  is  exercised  the 
citizens  are  immediately  affected  only 
by  the  benefit  arising  from  the  loan  ; 
its  burden  is  not  felt  till  afterwards. 
*    *    *    The  system  of  local  and  mu- 
nicipal government  is  copied  in  its  gen- 
eral features  from  that  of  England.    No 
evidence  is  adduced  to  show  that  the 
practice    of   borrowing    money    has 
been  used  by  the  cities  and  towns  of 
that  country  without  an  act  of  Parlia- 
ment authorizing  it.    We  believe  no 
such  practice  has  ever  obtained."    See 
Wells  V.  Town  of  Salina,  119  N.  Y. 
380;  8.  c.,23N.  E.  Rep.  870. 

*Town  of  Hackettstown  v.  Swack- 
hamer,  (1874)  37  N.  J.  Law,  191.  Beas- 
LBY,  Ch.  J.,  in  an  elaborate  opinion, 
discussed  the  question  in  the  follow- 
ing language:  "  At  the  present  time  it 
seems  to  be  generally  conceded  that  a 
private  corporation,  constructed  with 


a  view  to  pecuniary  profit,  has,  by 
implication,  when  not  in  this  particu- 
lar specially  restricted,   the  power  in 
question.      The  law  was  so  held  in 
this  state,  in  the  case  of  Lucas  v.  Pit- 
ney, 27  N.  J.  Law,  221,  and  the  same 
rule  has  been  repeatedly  recognized  in 
other  decisions.     And  this  result    is 
the  appropriate  product  of  the  princi- 
ple that  corporate  powers  which  are 
the  necessary  accompaniments  of  pow- 
ers conferred,   will  be  implied.      In 
these  instances  the  ability  to  borrow 
money  is  so  essential  that  without  it 
the  business  authorized  could  not  be 
conducted  with  reasonable  efficiency, 
and  as  it  cannot  be  supposed  that  it 
was  the  legislative  intent  to  leave  the 
company  in  so  imperfect  a  condition, 
the  inference  is  properly  drawn  that 
the  power  to  raise  money  in  this  mode 
is  inherent  in  the  very  constitution  of 
such  corporate  bodies.     Such  a  deduc- 
tion is  simply,  in  effect,  a  conclusion 
that  the  lawmaker  designed  to  author- 
ize the  use  of  the  means  fitted  to  ac- 
complish the  purpose  in  view.    It  has 
been  often  said  that  the  means  which 
can  be  thus  raised  up  by  implication 
must  be  necessary  to  the  successful 
prosecution  of  the  enterprise,  and  that 
the  circumstance  that  they  are  conven- 
ient will  not  deputize  their  introduc- 
tion.   But  the  necessity  here  spoken 
of  does  not  denote  absolute  indispen- 
sableness,  but  that  the  power  in  ques- 
tion is  so  essential  that  its  non-existence 
would  render  the  privileges  granted 
practically  inoperative  or  incomplete. 


§  6.  Issue  of  negotiable  securities. — A  majority  of  the 
Supreme  Court  of  the  United  States,  while  conceding  that 
vouchers  for  money  due,  certificates  of  indebtedness  for  services 
rendered  or  for  property  furnished  for  the  uses  of  a  municipality, 
orders  or  drafts  drawn  by  one  city  officer  upon  another,  or  any 
other  device  of  the  kind  used  for  liquidating  the  amounts  legiti- 
mately due  to  public  creditors,  are,  of  course,  necessary  instru- 
ments for  carrying  on  tlie  machinery  of  municipal  administration 
and  for  anticipating  the  collection  of  taxes,  looked  upon  the 
investing  of  such  documents  with  tlie  character  and  incidents  of 
commercial  paper  so  as  to  render  them  in  the  hands  of  hona  fide 
holders  absolute  obligations  to  pay,  however  irregularly  or  fraud- 


It  is  consequently  obvious  that  a  pre- 
sumption, resting  on  such  a  basis  as 
this,  must  spring  up  in  favor  of  al- 
most the  entire  mass  of  commercial 
and  manufacturing  corporations,  for 
without  the  franchise  to  effect  loans 
the  chartered  business  could  be  but 
imperfectly  transacted.  And,  yet, 
even  in  such  instances,  the  usual  in- 
ference that  such  an  implied  power 
exists  may  be  repelled  by  the  language 
of  the  particular  charter  or  the  pecu- 
liar circumstances  of  the  case.  In  a 
word,  the  rule  of  law  in  question  is 
nothing  but  the  discovery,  by  the 
courts,  of  the  legislative  intent,  such 
intent  having  been  ascertained  by  a 
construction  of  charters,  as  applied  to 
the  subject-matters.  Taking  this  as 
the  ground  of  our  reasoning  I  am  at  a 
loss  to  perceive  how  it  can  be  inferred 
that  a  power  to  borrow  money  is  an 
appendage  to  the  usual  franchises 
given  to  municipal  corporations. 
Such  a  right  cannot,  in  any  reasonable 
sense,  be  said  to  be  necessary  within 
the  meaning  of  that  term  as  already 
defined.  Under  ordinary  circum- 
stances it  is  not  certainly  indispensable 
as  common  experience  demonstrates. 
In  the  great  majority  of  instances  the 
municipal  affairs  are,  with  ease  and 
completeness,  transacted  without  it. 
I  do  not  wish  to  be  understood  as  indi- 

2 


eating  that  under  certain  special  con- 
ditions an  opposite  deduction  may  not 
be  legitimately  drawn.  It  is  plain 
that  it  is  practicable  to  impose  a  duty 
on  a  municipality  requiring  the  imme- 
diate use  of  sums  of  money,  and  in 
such  a  situation  the  inference  may  be- 
come irresistible  that  it  was  intended 
that  funds  were  to  be  provided  by 
loans.  My  remarks  are  to  be  restricted 
to  that  class  of  cases  where  charters 
are  granted  containing  nothing  more 
than  the  usual  franchises  incident  to 
municipal  corporations,  and  under 
such  conditions  it  seems  clear  to  me 
that  the  power  to  borrow  money  is 
not  to  be  deduced.  I  have  already 
said  that  it  does  not  appear  to  be  a 
necessary  incident  to  the  powers 
granted,  for  such  powers  can  be 
readily  and  efficiently  executed  in  its 
absence.  It  would  be  to  fly  in  the 
face  of  all  experience  to  claim  that  the 
ordinary  municipal  operations  cannot 
be  efficiently  carried  on  except  with 
the  assistance  of  borrowed  capital. 
Without  any  help  of  this  kind,  it  is 
well  known  that  our  towns  and  cities 
have  long  been,  and  are  now  being, 
improved  and  governed.  For  the  at- 
tainment of  these  ends  it  has  not  gen- 
erally been  found  necessary  to  resort 
to  loans  of  money.  The  supplies  de- 
rived   annuallv    from    taxation  have 


m 


r 


i 


10  GENERAL  POWER  TO  INCUR  PECUNIARY  LIABILITY.  [§  6 

nlentlj  issued,  as  an  abuse  of  their  true  character  and  purpose ; 
as  having  the  effect  of  con  verting -a  municipal  organization  into  a 
trading  company  and  putting  it  in  tlie  power  of  corrupt  officials 
to  involve  a  political  community  in  irretrievable  bankruptcy. 
Thej  held  that  no  such  power  legally  existed,  unless  conferred 
by  legislative  enactment,  either  express  or  clearly  implied.*     The 


§6] 


PUBLIC  CORPORATIONS. 


11 


been  found  amply  sufficient  for  these 
purposes.     Consequently  I  am  unable 
to  perceive  any  necessity  to  borrow 
money,  under  these  conditions,  from 
which  the  gift  of  such  power  to  bor- 
row is  to  be  implied.     It  undoubtedly 
is  clear  that  if,  as  has  been  asserted, 
the  ends  of  the  municipal  charter  can 
be  conveniently  reached,  without  a  re- 
sort to  the  device  of  raising  money  by 
loan,  ihere  is  not  the  least  legal  basis 
for  a  claim  of  the  power  to  obtain 
funds  in  that  way.     Granted  the  fact 
that  the  charter  can  be  executed  with 
reasonable  ease  and  with  completeness, 
the  conclusion  is  inevitable  that  the 
power  in  question   cannot  be  called 
into  existence  by  intendment,  and,  as 
I  claim  the  fact  to  exist,  I  must,  of 
necessity,  reject  the  right  of  implica- 
tion in  question." 

»  Mayor  r.  Ray,  (1873)  19  Wall.  468. 
Mr.  Justice  Bradley,  in  the  opinion 
delivered  by  him,  said:     "  There  are 
cases,   undoubtedly,   in    which    it    is 
proper  and    desirable    that  a  limited 
power  of  this  kind  should  be  conferred, 
as  where  some  extensive  public  work 
is  to  be  performed,  the  expense  of 
which    is  beyond   the  immediate  re- 
sources of  reasonable  taxation,  and  ca- 
pable of  being  fairly  and  justly  spread 
over  an  extended  period  of  time.    Such 
cases,  however,  belong  to  the  exercise 
of  legislative  discretion,   and  are  to 
be  governed  and    regulated  thereby. 
Where  the  power  is  clearly  given,  and 
securities  have  been  issued  in    con- 
formity therewith,  they  will  stand  on 
the  same  basis  and  be  entitled  to  the 
same    privileges  as    public  securities 


and  commercial  paper  generally.    But 
where  the  power  has  net  been  given, 
parties  must  take  municipal  orders, 
drafts,  certificates  and  other  documents 
of  this  sort  at  their  peril.     Custom  and 
usage  may  have  so  fur  assimilated  them 
to  regular  commercial  paper  as  to  make 
them  negotiable;  that  is,  transferable 
by    delivery    or   indorsement.      This 
quality  renders  them  more  convenient 
for  the  purposes  of  the  holder,  and  has 
undoubtedly  led  to  the   idea    subse- 
quently, but,  we  think,  erroneously, 
entertained,  that  they  are  invested  with 
that  other  characteristic  of  commercial 
paper  — freedom  from  all  legal  and 
equitable  defenses  in  the  hands  of  a 
bonajide  holder.     But  every  holder  of 
a  city  order  or  certificate  knows  that  to 
be  valid  and  genuine  at  all  it  must 
have  been  issued  as  a  voucher  for  city 
indebtedness.     It  could  not  be  law- 
fully issued  for  any  other  purpose. 
He  must  take  it,  therefore,  subject  to 
the  risk  that  it  has  been  lawfully  and 
properly  issued.     His   claim  to  be  a 
bonajide  holder  will  always  be  subject 
to  this  qualification.     The  face  of  the 
paper  is  notice  to  him  that  its  validity 
depends  upon  the  regularity  of  its  is- 
sue.    The  officers  of  the  city  have  no 
authority  to  issue  it  for  any  illegal  or 
improper  purpose;  another's  acts  can- 
not create  an  estoppel  against  the  city 
itself,  its  taxpayers,  or  people.     Per- 
sons  receiving  it  from    them    know 
whether  it  is  issued  and  whether  they 
receive  it  for  a  proper  purpose  and  a 
proper  consideration.     Of  course,  they 
are  affected  by  the  absence  of  these  es- 
sential ingredients,  and  all  subsequent 


Supreme  Court  of  Louisiana  has  held  that,  in  the  absence  of 
express  legislative  authority,  a  municipal  corporation  has  no  power 
to  utter  unconditional  obligations  to  pay  money.  Such  a  corpo- 
ration may,  however,  issue  evidences  of  liability  for  consideration 
received  for  ultimate  payment,  depending  upon  contingencies 
which  must  have  happened  before  any  right  of  action  can  accrue.* 


holders  take  cum  onere  and  are  affected 
by  the  same  defect.     Much  less  can 
any  precedent   be  found  (except  of 
modern  date  and  in  this  country)  for 
the  issue,  by  local  civil  authorities,  of 
promissory  notes,   bills  of   exchange 
and    other   commercial  paper.     At  a 
period  within  the  memory  of  man  the 
proposal  of  such  a  thing  would  have 
been    met    with    astonishment.     The 
making  of  such  paper  was  originally 
confined  to  merchants.     But  its  great 
convenience  was  the  means  of  extend- 
ing its  use,  first,  to  all  individuals,  and 
afterwards  to  private  corporations  hav- 
ing occasion  to  make  promises  to  pay 
money.     Being    only    themselves  re- 
sponsible for  the  paper  they  issue,  no 
evil  consequences  can  follow  sufficient 
to  counterbalance  the  conveniences  and 
benefits  derived  from  its  use.     They 
know  its  immunity  in  the  hands  of  a 
bona  fide  holder  from  all  defenses  and 
equities.    Knowing  this,  if  they  choose 
to  issue  it,  no  one  is  injured  but  them- 
selves.    But  if  city  and  town  officials 
should  have  the  power  thus  to  bind 
their  constituencies  it  is  easy  to  see 
what  abuses  might  and  probably  would 
ensue.     We    know    from    experience 
what  abuses  have  been  practiced  where 
the  power  has  been  conferred.     Fraud- 
ulent issues,  peculations  and  embezzle- 
ments  and  the  accumulation  of  vast 
amounts  of  indebtedness  without  any 
corresponding  public  benefit  have  been 
rendered  easy  and  secure  from  merited 
punishment.     The  purpose  and  object 
of  a  municipal  corporation  do  not  or- 
dinarily  require  the   exercise  of  any 
such    power.     They  are  not    trading 
corporations  and  ought  not  to  become 


such.     They  are  invested  with  public 
trusts  of  a  governmental  and  adminis- 
trative character;   they  are  the  local 
governments  of  the  people,  established 
by  them  as  their  representatives  in  the 
management    and    administration    of 
municipal  affairs  affecting  the  peace, 
good  order  and  general  well-being  of 
the  community  as  a  political  society 
and  district,  and  invested  with  power 
by  taxation  to  raise  the  revenues  nec- 
essary for  those  purposes.     The  idea 
that  they  have  the  incidental  power  to 
issue  an  unlimited  amount  of  obliga- 
tions of  such  a  character  as  to  be  irre- 
trievably binding  on  the  people,  with- 
out a  shadow  of  consideration  in  re- 
turn, is  the  growth  of  a  modern  mis- 
conception of  their  true  object  and 
character.     If,  in  the  exercise  of  their 
important  trusts,  the  power  to  borrow 
money  and  to  issue  bonds  or  other  com- 
mercial securities  is  needed,  the  legis- 
lature can  easily  confer  it  under  the 
proper  limitations  and  restraints,  and 
with  proper  provision  for  future  re- 
payment.    Without  such  authority  it 
cannot  be  legally  exercised.     It  is  too 
dangerous  a  power  to  be  exercised  by 
all  municipal  bodies  indiscriminately, 
managed  as  they  are  by  persons  whose 
individual    responsibility    is    not   at 
stake." 

*  Newgass  v.  City  of  New  Orleans, 
(1890)  43  La.  Ann.  163;  s.  c,  7  So. 
Rep.  565.  That  a  municipal  corpora- 
tion has  not  an  incidental  or  implied 
power  to  make  or  issue  negotiable  pa- 
per, see  New  Orleans,  M.  &  C.  R.  R. 
Co.  V.  Dunn,  51  Ala.  128;  Blackman  v, 
Lehman,  63  Ala.  547. 


} 


GENERAL  POWEK  TO  INCUR  PECUNIARY  LIABILITY.     [§§  7,  8 


§7.  Power  of  Indiana  cities  to  issue  bonds.— A  citj  in 
Indiana  has  power,  under  a  charter  authorizing  it  "to  borrow 
money  for  the  use  of  the  city,"  to  issue  bonds  for  money  so 
borrowed.* 

§  8.  Miscellaneous  rules  as  to  issuing  bonds.— Municipal 
corporations  in  which  power  is  vested  by  legislative  grant  to  make 
expenditures  for  purposes  of  a  certain  kind,  unless  prohibited  by 
law,  may  make  contracts  for  the  accomplishment  of  those  pur- 
poses, thereby  incur  indebtedness  and  issue  proper  evidences  of 
indebtedness  in  payment  for  the  same.'  A  county  in  Kansas  has 
power  to  borrow  money  for  the  erection  of  county  buildings,  and 
to  issue  its  bonds  for  the  money  borrowed.''  The  officials  of  a 
municipal  corporation,  which  is  vested  with  the  usual  power  of 
Buch  bodies,  are  authorized  to  issue  bonds  or  promissory  notes  to 


»City  of  Evansville  v.  Woodbury, 
(1894)  60  Fed.  Rep.  718;  8.  c,  9  C.  C. 
A.  244,  following  Railroad  Co.  v.  Ev- 
ansville, 15Ind.  395,  which  adopted  the 
following  from  Slack  «.  Railroad  Co., 
13  B.  Mon.  (Ky.)  1,  to  wit:  "Moreover, 
the  first  act  under  which  the  debt  was 
created  gave  full  power  to  the  County 
Court  to  provide  for  its  payment  either 
by   taxation    or   by    borrowing    the 
money,  which,  of  course,  implied  the 
power,  as  it  did  the  necessity,  of  fur- 
nishing some  evidence  of  indebtedness, 
another  court  might  doubtless  have 
issued  the  bonds  of   the   county  in 
some  form  to  the  lender."    In  City  of 
Evansville  t.   Woodbury,  supra,  the 
United  States  Circuit  Court  of  Appeals, 
speaking  through  Seaman,  D.  J.,  had 
this  to  say  as  to  the  rule  declared  in 
the  text:  "  The  borrowing  of  money 
to  pay  outstanding  indebtedness  of  the 
city  was  clearly  a  borrowing  for  the 
use  of  the  city;  and  if  this  ruling  (in 
Railroad  Co.  tJ.  Evansville,  supra)  must 
govern  here,  the  power  to  issue  the 
bonds  is  well  shown.     That  decision 
appears  to  have  remained  undisturbed, 
and  is  in  accord  with  the  doctrine  con- 
stantly held  by  that  court.    Dill,  on 
Mun.  Corp.  §  119.    It  is  worthy  of 


note  that  the  Supreme  Court  of  the 
United  States  held  directly  the  same 
construction  upon  a  grant  of  power 
'to   borrow    money  for   any    public 
purpose'  in  Rogers  v.  Burlington,  3 
Wall.  654,  and  Mitchell  v.  Burlington, 
4  Wall.   270.     These  decisions  were 
five  and  six  years  after  that  in  Indiana; 
and  although  they  appear  to  have  been 
overruled  in  recent  years,  they  would 
constitute  some  justification,  if  any 
were    needed,    for   reliance   by  pur- 
chasers upon  the  Indiana  interpreta- 
tion.   The  federal  courts  have  main- 
tained a  rule  from  their  organization 
that  in  all  cases  depending  upon  a 
state  statute,  they  will  adopt  and  fol- 
low the  adjudications  of  the  court  of 
last  resort  in  its  construction,  when 
that  construction  is  well  settled,  and 
without  injury  as  to  its  original  sound- 
ness.   *    *    ♦    Therefore,  the  recent 
decisions  in  Merrill  v.  Monticello,  138 
U.  S.  673;  8.  c,  11  Sup.  Ct.  Rep.  441, 
and  Brenham  v.  Bank,  144  U.  S.  173; 
8.  c,  12  Sup.  Ct.  Rep.  559,    »    ♦    * 
are  not  applicable." 

« I^olice  Jury  n.  Britton,  15  Wall.  566. 

» Comanche  County   t.  Lewis,    138 
U.  8.  198. 


§8] 


PUBLIC  CORPORATIONS. 


18 


evidence  the  credit  price  of  any  works  for  which  they  are 
authorized  to  contract,  which  in  the  hands  of  a  hona  fide  holder, 
will  be  protected  by  the  law  merchant.*  A  city,  by  the  issue  of 
its  bonds  according  to  law,  having  created  a  debt  against  itself, 
has  power,  like  any  other  debtor,  to  enter  into  negotiations  con- 
cerning such  bonds,  and  to  have  them  delivered  up  for  cancella- 
ation  and  new  bonds  issued  in  exchange  for  them,  without  any 
special  grant  of  authority  therefor.^  The  charter  of  a  city 
empowering  it  "  to  borrow,  on  the  credit  of  the  city,  a  sum  of 
money  not  exceeding  [a  sum  named]  ;  to  issue  bonds,  scrip,  or 
certificates  of  indebtedness  therefor,"  etc.,  with  a  provision  that 
"  with  the  money  so  borrowed  the  city  council  shall  first  liqui- 
date and  discharge  all  legal  indebtedness  of  the  city,"  may  issue 
such  bonds  as  they  deem  proper  within  the  terms  of  the  charter, 
and  with  the  proceeds  take  up  the  floating  indebtedness  of  the 
corporation.^  Towns  in  Maine  must  be  expressly  or  impliedly 
authorized  by  statute,  or  they  cannot  borrow  money  and  issue 
notes  of  a  commercial  character  for  the  execution  of  their  ordi- 
nary business.*  The  governing  powers  of  counties  are  not 
authorized  by  the  statutes  of  Illinois  which  empower  them  "  to 
make  all  contracts  and  do  all  other  acts  necessary  to  the  exercise 
of  its  corporate  powers,"  and  "  to  manage  the  coun  ty  funds  and 
county  business,  except  as  otherwise  specifically  provided,"  to 
issue  bonds  without  a  vote  of  the  people.^  A  grant  of  authority 
to  a  municipal  corporation  to  issue  "  refunding  bonds  "  or  original 
bonds  to  procure  money  for  use  in  the  "  legitimate  exercise  of 
the  corporate  powers,"  and  for  the  payment  of  legitimate  cor- 
porate debts  does  not  carry  with  it  power  to  issue  bonds  to 
replace  in  the  treasury  money  already  used  in  paying  prior 
bonds.*  A  municipal  corporation  having  statutory  power  to  issue 
bonds  for  loans  lawfully  made  has,  by  necessary  implication,  also 


>  Holmes  v.  City  of  Shreveport.  (1887) 
81  Fed.  Rep.  113,  in  which  case  the 
bonds  sued  upon  were  issued  for  pub- 
lic improvements.  As  to  authority  of 
corporations  to  give  notes  to  evidence 
indebtedness,  see  Brode  v.  Firemen's 
Ins.  Co..  8  Rob.  (La.)  244:  Edey  v. 
City  of  Shreveport,  26  La.  Ann  636: 
City  of  Shreveport  v.  Floumoy,  26  La. 
Ann.  709:  Desmond  v.  Jefferson,  19 
Fed.  Rep.  483. 


« Rogan  V.  City  of  Watertown,  (1873) 
30  Wis.  259. 

*  City  of  East  St.  Louis  ??.  Maxwell, 
(1881)  99  III.  439. 

♦Parsons  v.  Monmouth,  70  Me.  263. 

*  Locke  V.  Davison,  111  111.  19.  As  to 
authority  to  issue  bonds,  see  Bannock 
County  V.  Bunting,  (Idaho)  37  Pac.Rep. 
277:  Hotchkiss  v.  Marion,  12  Mont.  218. 

•CoflBn  V.  City  of  Indianapolis, 
(1894)  59  Fed.  Rep.  231. 


11 


14  GENERAL  POWER  TO  INCUR  PECUNIARY  UABILITY.  [§  8 

the  power  to  make  the  bonds  negotiable.^     A  County  Court  m 
Missouri  with  statutory  authority  to  make  bonds  issued  for  the 
purpose  of  improving  public  roads  transferable  in  such  manner 
as  by  its  order  it  might  direct,  may  issue  negotiable  bonds  ;  and 
this  may  be  done  by  the  issue  of  such  bonds,  without  an  order 
prescribing  their  fonn.^    And  under  the  statutory  authority  to 
issue  bonds  to  pay  for  improving  public  roads,  and  "  building 
culverts  and  bridges  to  secure  permanent  and  good  roads,"  the 
county  may  issue  bonds  to  pay  for  riprapping  around  the  abutr 
ment  of  a  bridge  to  prevent  its  becoming  a  wreck.^    Under  the 
laws  of  Washington  giving  municipal  corporations  authority  to 
provide  means  for  constructing  works  of  public  utility  by  issuing 
and  selling  negotiable  bonds  there  is  authority  to  make  such 
bonds  payable  in  gold  coin  of  the  present  standard  weight  and 
fineness.*     Municipal  corporations  may  issue  new   bonds  with 
coupons  for  future  interest  for  the  purpose  of  funding  debts,  with 
accrued  interest  existing  prior  to  the  adoption  of  the  amendment 
of  the  State  Constitution  of  Indiana  prohibiting  municipal  cor- 
porations from  becoming  indebted  to  an  amount  in  the  aggregate 
exceeding  two  per  centum  on  the  value  of  their  taxable  property, 
and  providing  that  all  obligations  in  excess  of  such  amount  shall 
be  void,  as  the  amendment  is  only  prospective  in  its  operation.'* 


'City  of   Cadillac   v.    Woonsocket 
Inst,  for  Savings.  (1893)  58  Fed.  Rep. 
935;  s.  C,  7  C.  C.  A.   574;  Lurton, 
Ch.  J.,  said:  "  The  case  of  Brenham  v. 
Bank,  144  U.  8.  173;  s.  c,  12  Sup.  Ct. 
Rep.  559.  has  no  bearing  upon  this 
question.    Nothing  more  is  there  de- 
cided than  that  an  act  empowering  a 
city  to  *•  borrow  for  general  purposes 
not  exceeding  $15,000  on  the  credit  of 
the  city  "  did  not  authorize  the  issu- 
ance of  negotiable  obligations  for  the 
money  so  borrowed. 
« Catron  v.   LaFayette  County,  106 

Mo.  659;  8.  c.  17  S.  W.  Rep.  577. 
•Ibid.    As  to  the  power  of  counties 

to    issue    negotiable    securities,    see 

Francis  «.  Howard  County,   50  Fed. 

Rep.  44,  following  Nolan  County  «. 

State.  83  Tex.  182;  s.  c.  17  8.  W.  Rep. 

833:Rob€rt8on«.  Breedlove,  61   Tex. 

816.    Ab  to  a  limitation  upon  the  issue 


of  bonds,  see  Francis  v.  Howard 
County.  50  Fed.  Rep.  44,  following 
Russell  V.  Cage.  66  Tex.  428;  s.  c,  1 
8.  W.  Rep.  270. 

*  Moore  V.   City    of   Walla  Walla, 
(1894)  60  Fed.  Rep.  961. 

6  Powell  V.  City  of  Madison,  (1886) 
107  Ind.  106.    The  court  said:  -  The 
issuing  of  new  bonds  to  provide,  at 
their  par  value,  for  the  payment  of  an 
old  debt  or  the  substitution  of  new 
evidences  of  a  pre-existing  debt,  is 
not,  in  any  legal  or  proper  sense,  the 
creation,  of  a  new  indebtedness.    Nor 
is  the  funding  of  interest  already  due. 
or  the  execution  of  coupons  for  the 
payment  of  interest  which  will  there- 
after accrue  upon  a  pre-existing  in- 
debtedness, either  the  creation   of   « 
new  debt,  or,  in  legal  contemplation, 
an  increase  of  such  pre-existing  in- 
debtedness." 


§9] 


PUBLIC  CORPORATIONS. 


15 


§  9.  Bonds  issued  for  the  erection  of  a  county  court 
house. —  A  statute  autliorizing  the  electors  of  a  county  to 
empower  the  commissioners  of  such  county  to  "borrow  money" 
for  the  erection  of  a  court  house  does  not  authorize  them  to 
empower  such  commissioners  to  issue  bonds  for  that  purpose.' 
The  authority  to  issue  bonds  as  an  evidence  of  indebtedness  might 
perhaps  follow  as  an  incident  of  the  right  to  borrow  money,  but 
in  that  case  the  amount  of  money  borrowed  should  equal  the 
amount  for  which  the  bonds  call.  There  is  no  right  to  issue 
them  and  sell  them  for  what  they  will  bring.^  County  warrants 
issued  for  the  purpose  of  erecting  a  county  court  house  in 
Nebraska  have  been  held  void  where  their  issue  was  not  author- 
ized by  a  vote  of  the  qualified  electors  of  the  county,  and  no 
benefit  whatever  resulted  to  the  county  from  the  issuing  of  such 
warrants.'' 

§  10.  Funding  county  indebtedness  by  issuing  interest- 
bearing  bonds. — There  is  no  authority  of  law  for  a  county 
board  in  Illinois  to  fund  county  indebtedness  or  issue  interest- 
bearing  bonds  for  money  with  which  to  take  up  outstanding 
county  orders  and  obligations  without  a  vote  of  a  majority  of  the 
legal  voters  of  the  county;  and  such  a  vote  having  been 
obtained,  the  interest  on  the  bonds  is  limited  to  eight  per  cent. 
Such  boards  are  not  given  by  the  statute  which  provides  that  they 
shall  have  power  "  to  manage  county  funds  and  county  business, 
except  as  otherwise  specially  provided,"  an  absolute  and  unlim- 


'  Lewis  V.  Board  of  County  Commis- 
sioners of  Sherman  County,  (1881)  2 
McCrary,  464,  holding  certain  bonds 
issued  by  the  commissioners  for  erect- 
ing 1  court  house  invalid,  on  the  fol- 
lowing grounds:   Because  of  the  lack 
of  statutory  authority  to  vote  for  such 
bonds;    because  no  bonds  had    ever 
been  voted  for  any  such  purposes;  be- 
cause none  of  the  bonds  or  the  pro- 
ceeds thereof  were  ever  used  to  build 
a  court  house  or  were  ever  used  for 
any  other  purpose  by  the  county;  and 
because  the  bonds  contained  no  recitals 
showing   that  they  had  been  issued 
conformably  to  law.    Certain  bridge 
bonds  issued  by  the  county,  reciting 


that  they  were  issued  conformably  to 
law,  were,  however,  held  valid  in  the 
hands  of  an  innocent  purchaser  for 
value  in  open  market,  the  bridges 
having  been  built  in  the  county  by 
direction  of  the  county,  for  the  county, 
and  having  been  paid  for  by  such  bonds 
or  their  proceeds,  although  they  were 
not  in  fact  authorized  by  the  vote  of 
the  people  as  the  law  required. 

'  Lewis  V,  Board  of  County  Commis- 
sioners of  Sherman  County,  (1881)  2 
McCrary,  464,  supported  by  Scipio  v. 
Wright,  101  U.  S.  665. 

*  Brown  v.  Board  of  County  Commis- 
sioners of  Sherman  County,  (1881)  2 
McCrary,  469. 


16  GENERAL  POWER  TO  INCUR  PECUOTABT  LIABILITT.  [§  1 1 

ited  power  of  management  of  county  funds,  there  being  an 
absence  of  any  specific  provision  of  law  to  the  contrary. 

8  II    Issue  of  bonds  to  pay  subscriptions  to  stock  of  rail- 
road corporations.- There  has  not  been  uniformity  m  the 
decisions  of  the  state  and  federal  courts  as  to  whether  or  not  the 
erant  of  legislative  authority  to  subscribe  earned  mth  it  aa  an 
incident  the  power  to  issue  bonds  in  payment  of  the  Bubscriptions. 
The  Supreme  Court  of  Connecticut,  at  an  early  date,  held  that  a 
city  empowered  to  subscribe  to  the  stock  of  a  railroad  corpora- 
tion and  to  effect  loans  of  money  as  a  means  of  paying  its  sub- 
scriptions, upon  the  proper  vote  of  its  tax-paying  citizens,  had 
authority  to  issue  its  l>onds  to  the  raih-oad  corporation  m  payment 
of  such  subscriptions;'  this  upon  the   established   principle  ,n 
the  law  of  corporations,  that  they  may  exercise  all  the  powers 
within  the  fair  i.,tent  and  purpose  of  their  creation  which  are 
reasonably  proper  to  give  effect  to  powers  expressly  granted^ 
The  following  are  the  views  entertained  by  the  Supreme  Court 
of  Pennsylvania:   The  power  given  a  municipal  corporation  to 

■  Locker  Davison,  (1884) mm.  19.    They  further  said;  "It  was  held  in 
aiaSa  decree  g,;nting  an  injnnc   Commissioners  of  Highways  .^  NeweU 
fen™^nst  the  payment  of  ten  per  80  111.  587.  that  more  was  sa,d  .n  that 
cent  iS^rest  on  the  funding  bonds  case  than  the  subject  justified  and 
^ue<^^^is  county  board;  follow-  that  it  needed  modiflcat.on  conflmng 
w  oZty  of  Hardin  ..  McFarlan.   it  to  cases  where  the  charter  of  the 
nllffTfS  ill  138  holding  that  under   corporation  expressly  grants  a  power, 
lelfwMcr^natL' counties  to  for  a  corporation  cannot  exercise  any 
LauidfteThe'r  debts,  providing  that   powers  save  those  granted  or  neces- 
ftT^ulty  Courts  or  bLds  of  super-   sarily  implied  in  order  to  »^  mto 
X>ra  might  levy  a  special  county  tax   effect  a  granted  power.      Upon  the 
Z^tirpurpose  those  debts  could  be   subject  of  contracting  for  mterest  on 
^ctrg^  bTthe  levy  of  such  tax.   the  part  of  counties,  see  also  Madi^n 
^d^e»un[y  boarded  no  authority   County  "•  Jartlett^  1  S^- <"!•)  «J 
"Ike  up  its  outstanding  orders  and   County  of  Pike  ..  Hosford,  11    1. 170 
rive  bonds  in  lieu  thereof,  bearing   Hall  v.  Jackson  County.  95  111.  358^ 
Sterest  as  such  obligations  could  not   County  of  Jackson  ..  Bendleman.  100 

he  issued  in  the  absence  of  statutory   111.  379.  

^tS.  The  court  in  this  case  dis-  •  City  of  Bridgeport  v.  Housatonuc 
SuS^^ed  City  of  Galena  ..  Corwith.  R.  B.  Co.,  (1843)  15  Conn^75_ 
r  ni  423  in  that  "the  decision  in  "Seybert  v.  Qty  ol  Pittsburg,  1 
that  oasetas  based  upon  the  ground  Wall.  272:  R.  R.  Co.  v.  County  of 
S::rc™byitsch^rter,  had  power  Otoe  16  ^^^^'^l^  f^^^^^^f^i 
to  borrow  money,  and  not  having  been  B.  R.  Co.  t..  City  of  EvansviUe,  15 

restricted  as  to  the  means  of  exercis-   Ind.  395. 
ing  this  power,  could  issuethe  bonds." 


§11] 


PUBLIC  CORPORATIONS. 


17 


subscribe  for  stock  of  a  railroad  company  gives  the  power  to 
create  a  debt,  and  to  give  an  evidence  of  it.     The  power  to  exe- 
cute and  issue  bonds,  contracts  or  other  certificates  of  indebted- 
ness belongs  to  all  corporations,  public  as  well  as  private,  and  is 
inseparable  from  their  existence.      For  a  legal  and  authorized 
debt  a  municipal  corporation  may  give  its  bond  under  its  general 
corporate  powers.     A  municipal  bond  in  payment  of  a  subscrip- 
tion to  stock  of  a  railroad  company,  if  invalid,  is  so,  not  because 
the  corporation  has  no  power  to  issue  bonds,  but  because  the  sub- 
scription to  the  stock  is  outside  of  the  power  of  the  corporation ; 
and  when  a  city  has  been  authorized  to  make  such  a  subscription 
by  the  legislature  it  becomes  a  debt  like  any  other,  and  may  be 
evidenced  in  the  same  way.     Bonds  issued  in  payment  of  the 
debt  are  valid  obligations  of  the   corporation.*     The   Supreme 
Court  of  the  United  States  has  held  to  the  doctrine  that  grants 
of  power  to  municipal  corporations  to  subscribe  for  stock  in  rail- 
ways should  be  construed  strictly  and  not  be  extended  beyond 
the  tenns  of  the  statute ;  and  as  there  is  no  power  in  a  municipal 
corporation  to  become  a  stockholder  in  a  railroad   corporation 
unless  expressly  conferred  by  the  legislature,  the  power  to  issue 
negotiable  bonds  to  pay  sucli  a  subscription  must  be  expressly,  or 
by  reasonable  implication,  conferred  by  statute.^     N^either  is  the 
issuing  of  negotiable  bonds  authorized  by  a  grant  to  a  municipal 
corporation  of  power  to  appropriate  moneys  in  aid  of  construction 
of  a  railroad,  directing  levy  and  collections  of  taxes  to  meet  such 
appropriation,  and  prescribing  no  other  mode  of  payment.^     Con- 
sidering the  difference  of  opinion  existing  in  these  two  jurisdic- 
tions upon  this  question,  it  seems  that  it  would  be  well  for  the 
legislature  hereafter  in  granting  powers  to  municipal  corporations 
to  aid  in  the  construction  of  public  works  by  subscription  to  the 
stock  of  the  corporations  organized  for  the  purpose,  to  expressly 
include  the  power  to  issue  negotiable  bonds  for  the  payment  of 
such  subscriptions. 

'  Commonwealth  ex  rel.  Reinboth  r.       'Concord  i?.   Robinson     121   U    S 
Councils  of  Pittsburgh,  (1861)  41  Pa.    165.    See,  also,  Scott's  Exrs  ..  Shreve^ 

;^  11*         HTM        .a.  T.  .  P"""^'  ^^  ^^^-  ^^P-  ^14;  Katzenberger 

»Kelley  I,  Milan    127  U.  8.  139.  af-  v.  City  of  Aberdeen,  16  Fed.  Rep.  745- 

firmmg  Kelley  ^  Town  of  Milan.  21  Board  of  Comrs.  of  Delaware  County 

^o^\^^F'        '  ''''  ''•  ^^^^^"^^'  ^-  McClintock.  Auditor,  (1875)51  Ind 

ioo  T^'  n   ^^'  ^''''°^  "•  <^^^^^°do".  325;  La  Fayette,  M.  &  B.  R.  R.  Co.  v. 

TT  ft  ;i'  ^''   °'"  ''•  Memphis,  134  Geiger.  34  Ind.  185;  Harney  v.  Indian- 

^'  °'  ^^'  apolis,  C.  &  D.  R.  R.  Co.,  32  Ind.  244. 
3 


I 


18  GENEKAL  POWER  TO  INCTJB  PECUNIABY  UABILITY.    [§§  12,  13 

g  12.  Notes  or  warrants  to  cover  funds  to  be  set  aside  in 
future  taxation.^  The  Supreme  Court  of  Louisiana  has  held 
that  the  police  juries,  the  governing  boards  of  the  parishes  m 
that  state,  have  the  undoubted  authority  to  construct  bridges, 
repair  the  same  and  to  open  roads  and  to  keep  the  same  in  order. 
But  they  have  no  power  to  contract  an  indebtedness  for  this  pur- 
pose in  advance  and  to  issue  promissory  notes  or  warrants  to 
cover  funds  which  may  be  set  aside  for  this  purpose  m  future 
taxation  without  express  authority  from  the  supreme  political 
power  of  the  state.* 

§  13   The  issue  of  scrip.—  Under  a  statute  authorizing  the 
city  council  to  issue  scrip  to  a  certain  amount,  bearing  interest  at 
a  rate  not  exceeding  six  per  cent  per  annum,  and  providmg  that 
the  statute  should  be  void  unless  approved  by  a  majority  of  the 
voters  of  the  city  present  and  voting  at  meetings  held  on  a  cer- 
tain day,  the  council  issued  and  sold  scrip  with  principal  and 
interest  payable  in  coin.     A  statute  enacted  afterwards  author- 
ized the  city  to  contract  for  the  payment  in  coin  of  the  principal 
and  interest  of  this  scrip  and  ratified  all  acts  of  the  city  or  any 
officer  in  the  matter  of  making  payment  in  coin  of  this  scrip,  not 
providing  for  any  new  submission  of  the  matter  to  the  voters  of 
the  city.     The  issue  of  the  scrip  as  it  had  been  issued  payable  m 
coin  was  held  to  be  legal.^    And  a  city  authorized,  for  the  pur- 

» SnellingiJ.  JofErion,  President  Police 
Jury,  (1890)  42  La.  Ann.  886;  a  c,  8 
So.  Bep.  609,  in  which  case  the  court 
affirmed  the  judgment  in  favor  of  the 
taxpayers  who  brought  the  action  to 
annul    the    ordinance  of   the    police 
jury  authorizing  the  giving   of  ten 
notes  of  equal  amounts  payable  one 
in  each  of  the  ten  years  to  come  from 
the  date,  to  a  bridge  company  which 
had  contracted  to  build  the  bridge. 
The  court  said,  however:  "  We  do  not 
mean  to  say  that  police  juries  cannot 
contract  for  improvements  which  they 
are  authorized  to  make,  to  be  paid  out 
of  the  taxes  which  they  are  authorized 
to  levy  for  parochial  expenses,   and 
which  are  set  apart  for  this  special  im- 
provement, but  they  cannot  issue  any 


promissory  note,  draft  or  warrant  iii 
advance  to  cover  this  amount  which 
may  go  irto  the  treasury.  It  must  be 
there  before  the  warrant  issues,  unless 
by  legislative  authority  they  are  auth- 
orized to  issue  the  same  in  advance. 
Sterling  r.  Parish  of  West  Feliciana, 
26  La.  Ann.  59." 

«  Foote  r.  City  of  Salem,  (1867)  14 
Allen,  87,  Bigelow,  Ch.  J.,  said :  "It 
was  clearly  competent  for  the  legisla- 
ture to  grant  such  power  and  to  give 
validity  to  contracts  into  which  the 
city  had  entered  without  the  requisite 
legislative  authority.  No  legal  or 
constitutional  right,  either  public 
or  private,  was  violated  by  such 
enactment." 


§14] 


PUBLIC  CORPOEATIONS. 


19 


pose  of  defraying  the  expense  of  a  public  work,  to  issue  scrip 
may  lawfully  issue  the  same  all  at  once,  and  invest  the  money 
not  required  for  immediate  use  upon  the  work  in  United  States 
securities.*  The  issue  of  change  bills  or  promises  in  the  simili- 
tude of  currency  are  prohibited  in  Georgia  by  statute,  and  no 
recovery  can  be  had  upon  such  change  bills  issued  by  a  city.^ 

§  14.  Purchase  of  real  estate  for  erection  of  public  build- 
ings on  time. —  The  statutes  of  Indiana  ^  conferring  on  cities  the 
general  power,  with  restrictions,  to  purchase  real  estate,  for  the 
purpose  of  constructing  public  buildings  thereon,  by  implication, 
gives  the  exclusive  right  to  determine  the  expediency  of  the  pur- 
chase, the  power  to  purchase  on  credit  and  to  issue  negotiable 
bonds  of  the  city  for  the  purchase  money.*  And  the  purchase  of 
real  estate  by  a  city  for  construction  of  public  buildings  thereon 
on  a  credit  of  ten  years  is  not  a  loan  within  the  meaning  of  the 
Indiana  statute,^  prescribing  that  "  loans  may  be  made  by  a  vote 
of  two-thirds  of  the  council,  in  anticipation  of  the  revenue  of 
the  current  and  following  year,  and  payable  within  that  period ; 
but  the  aggregate  amount  of  such  loan  in  any  fiscal  year  shall  not 
exceed  the  levy  and  tax  authorized  by  this  act  for  municipal 
expenses,"  and  is  not  prohibited  by  that  statute.* 


»  Foote  V.  City  of  Salem,  (1867)  14 
Allen,  87. 

«  Cothran  v.  City  of  Rome,  77  Ga. 
682. 

»Ind.  R.  S.  1881,  §  3106,  clause  4. 

*City  of  Richmond  v.  McGirr, 
(1881)  78  Ind.  192.  That  courts  can- 
not interfere  with  the  exercise  by  gov- 
erning authorities  of  their  discretion  in 
such  matters,  as  a  general  rule,  see 
Kelley  0.  City  of  Milwaukee,  18  Wis. 
83;  Baker  v.  Boston,  12  Pick.  184; 
Ex  parte  Fay,  15  Pick.  243;  Parks  v. 
Boston,  8  Pick.  218;  Benjamin  v. 
Wheeler,  8  Gray,  409;  Evans ville,  etc., 
R  R.  Co.  V.  City  of  Evansville,  15 
Ind.  395;  Macy  v.  City  of  Indianapolis, 
17  Ind.  267;  City  of  Green  castle  v. 
Hazelett,  23  Ind.  186;  Brinkmeyer  v. 
City  of  Evansville,  29  Ind.  187. 

»Ind.  R.  8.  1881,  §3159. 

•City  of  Richmond  v.  McGirr,  (1881) 
78  Ind.  192.    As  to  the  distinction  be- 


tween a  transaction  like  this  and  bor- 
rowing money,  the  court  referred  to 
Gelpcke  v.  City  of  Dubuque,  1  Wall. 
175,  221,  where  it  was  held  that  the  ex- 
ecution of  bonds  to  pay  an  existing  in- 
debtedness of  the  city  was  not  within 
the  prohibition  of  the  charter  against 
the  borrowing  of  money,  and  distin- 
guished Mayor,  etc.,  of  Baltimore  v. 
Gill,  31  Md.  375,  and  Jonas  v.  City  of 
Cincinnati,  18  Ohio,  318.  There  was 
a  limitation  in  the  charter  of  this  city 
upon  the  borrowing  of  money,  but  no 
restriction  upon  the  creation  of  indebt- 
edness. The  court  said:  "The  charter 
expressly  grants  to  the  council  the 
power  to  purchase  the  real  estate; 
*  *  *  and  in  the  absence  of  any 
statutory  mode  being  pointed  out  for 
the  exercise  of  such  power,  it  may 
contract  with  reference  to  such  power 
as  a  natural  person;  and  such  power 
is  implied  from  the  general  unlimited 


i 


ii 


aO  GEKEEAL  POWER  TO  IKCUB  PECTNIAEY  LIABILITY.  [§  15 

8  «  Erection  of  town  buildings.-  As  incident  to  its  power 
toludf  "wn  house,  a  town  has  a  right,  in  ^/-f  ^^.^^ 
make  additional  compensation  to  a  person  for  labor  done  by  turn 
TbnihSng  it  as  a  coSractor  ""^e-nother  pe.on  wr^li  whom 
the  town  had  contracted  to  bmld  it  for  a  l^^'^d  «u™- 
Massachusetts    statute   authorizing  towns  and  cities  to  estel^ 

1^  public  libraries  ^^ ^z^^^: :rz:zrz 

;^;"'':':mltTce^d^^^^^^^^     "oL%or  each  of  its  votable 
library  a  sum  not  exct^euiu^  v  .    ,  .        •   ^^   fUof  the 

polls"  ha.  been  construed,  and  the  court  d^™"^^,    !^  .  JJ^ 
Cds  "not  exceeding"  did  not  necessarily  qualify  --^^^'^''^ 

rid'  'rrr...»..» ..  .1.. .'.;«- ~„^r» 

precise  limit  on  the  sum  to  be  expended  for  books,  and 
that  to  be  appropriated  for  buildings  or  rooms. 


power  granted.  This  rule,  we  think, 
arises  from  the  necessity  of  the  case 
and  is  in  harmony  with  the  general 
rule  of  the  law  as  establishwl  by  the 
authorities.  Citing  Ketchum  ^.  City 
of  Buffalo,  14  N.  Y.  3,56;  Brady  .. 
Mayor,  etc..  Brooklyn,  1  Barb.  584; 

Halstead  v.  IVIayor.  etc.,  New  \ork  5 

Barb.  218;  Mott  v.  Hicks,  1  Cow.  513; 

Moss  V.  Oakley.  2  Hill,  265;  Kelley  .. 

Mayor,   etc.,   Brooklyn.   4  Hill  263; 

Field  on  Corp.  §271;  City  of  Galena 

V.  Corwith.  48  111.  423;  City  of  Wil- 
liamsport  v.   Commonwealth,   84  Fa. 
8t  487;  City  of    Lafayette    v.  Cox,  o 
Ind    38;  Hardy  v.  Merriwcather,   14 
Ind  203;  Daily  'v.  City  of  Columbus, 
49  Ind.  169;  Kyle  v,  Malin.  8  Ind.  34; 
Dill,  on  Mun.  Corp.  §  55,  note  1,  and 
88  8r-85.     As  to  the  kind  and  form  of 
evidences  and  obligations  to  be  exe- 
cuted in  such  contracts  by  the  authori- 
ties, see  Sheffield  School  T'p  ^.   An- 
dress.  56  Ind.  157;   School  Town  of 
Monticello    v.   Kendall,  72   Ind.    91; 
Bicknell   V.  Widner  School  T  p,   73 

Ind.  501. 

I  Friend  f>.  Gilbert.  (1871)  108  Mass. 
408.  Morton,  J.,  said:  -The  power 


of  towns  to  raise     and   appropriate 
money  is  derived  wholly  from  statutes. 
The    statutes    do    not     attempt    to 
enumerate  all  the  purposes  for  which 
money    may     be    raised,     but    after 
specifying   some  of  the  more  promi- 
nent ones   provide    that  towns  may 
grant  and  vote  such  sums  as  may  be 
required    "for    all    other    necessary 
charges    arising    therein."      G^n.  St. 
Mass.  chap.  18.  §  10.    It  is  under  this 
general  provision  that  towns  have  the 
power  to  vote  money  for  the  erection 
of  town  houses.     Stetson  v.  Kempton, 
13  Mass.  272.    The  right  to  build  car- 
ries with  it  by  implication  the  power 
to  make  contracts,  to  waive  or  alter 
them  and  to  make  arrangements  for 
the    payment  of  those  who    furnish 
labor  and  materials." 

« Dearborn   v.   Brookline.  (1867)  9? 
Mass.   466.     In   Inhabitants  of  West- 
brook    V.     Inhabitants    of    Deermg, 
(1874)  63  Me.  231.  the  words  "neces- 
sary  charges"  in   the  statute  as  to 
the  powers  of  towns  to  incur  expense 
received  a  full  discussion   from  the 
court  in  these  words :  "The  construc- 
tion of  this  clause  came  before  this 


§16] 


PUBLIC  CORPORATIONS. 


21 


§  16.  Purchase  of  sites  for,  erection  of,  and  the  repairs  of 
school  buildings. —  The  school  trustees  of  an  incorporated  town, 
under  the  general  law  of  Indiana,  having  filed  with  the  board  of 
trustees  of  such  town  a  verified  report,  showing  that  they  have 
contracted  for  the  purchase  of  real  estate  on  which  to  erect  school 
buildings,  and  showing  the  amount  of  the  debt  incurred  for  such 
realty,  and  other  estimated  cost  of  the  buildings,  and  asking  the 
issue  of  bonds,  the  board  of  trustees  under  the  statute  relating  to 
such  bodies  may,  by  ordinance,  authorize  the  issue  and  sale  of  the 
bonds  of  the  town  equal  in  amount  to  the  cost  of  the  real  estate 
and  the  estimated  cost  of  the  projected  school   buildings,  not 


court  three  years  after  the  separation 
in  Bussey  v.  Gilmore.  3  Me.  191,  by 
which  a  tax  for  the  discharge  of  a  con- 
tract between  a  town  and  a  toll  bridge 
corporation    for    the   free  passage  of 
the  bridge  by  the  citizens  of  the  town 
was  held  illegal  upon  the  ground  that 
the  power  to  raise  money  for   *  neces- 
sary  charges'  extends  only  to  those 
expenses     which      are      incident    to 
the  discharge   of   corporate  duties. " 
Weston,  J.,  says  :  "The  construction 
of  the  statutes  in  relation  to  the  au- 
thority of  towns  to  raise,  assess  and 
collect  money  is  so  clearly  stated  and 
so  fully  illustrated  in  Stetson  v.  Kemp- 
ton,  13  Mass.  272,  that  we  have  little 
occasion  to  say  more  than  that  we  are 
entirely  satisfied  with  the  principles 
of  that  case  and  the  deductions  there 
drawn.     The  court  remark  that  '  it  is 
important    that  it    should  be  known 
that  the  power  of  the  majority  over 
the  property  and  even  the  persons  of 
the  minority  is  limited  by  law  to  such 
cases  as  are  clearly  provided  for  and 
defined  by  the  statute  which  describes 
the  powers  of  these  corporations.'    By 
that  decision  this  principle  did  become 
known  ;  and  beUevingthat  it  is  justi- 
fied,  as    well  from  considerations  of 
public  policy  as  from  a  sound  con- 
struction of  the  law,  we  have  no  dis- 
position to  modify  or  change  it  if  we 
had  the  power  to  do  so,  which  we 


clearly  have  not.     *    *    *    The  gen- 
erality of  this  phrase  has  received  in 
the  case  above  referred  to  a  reasonable 
limitation.     Without  enumerating  the 
objects  which  this  terra  may  be  under- 
stood to  embrace,  it  may  in  general  be 
considered  as  extending  to  such  ex- 
penses as  are  clearly  incident  to  the 
execution   of   the  power    granted  or 
which  necessarily  arise  iu  the  fulfil- 
ment of  the  duties  imposed  by  law." 
The  Maine  Supreme  Court  of  Judica- 
ture in  1863  in  answer  to  questions 
submitted     by    the    governor    said: 
"The  words  'other  necessary    town 
charges  *  do  not  constitute  a  new  and 
distinct  grant   of  indefinite  and    un- 
limited power  to  raise  money  for  any 
purpose  whatsoever,  at  the  will  and 
pleasure  of  the  majority.     They  em- 
brace   only    all    incidental    expenses 
arising  directly  or  indirectly  in  the 
due    and    legitimate    exercise  of  the 
various  powers  conferred  by  statute. 
While  towns  may  raise  money  to  dis- 
charge all  liabilities  in  the  performance 
of  their  multiplied  duties,  they  can- 
not (unless  new  powers  are  conferred, 
or  an  excess  of  power  receives  a  sub- 
sequent  legal  ratification)   transcend 
their  authority  and  incur  expenses  in 
no    way   arising    in    its    exercise.** 
Opinion  of  the  Justices,  52  Me.  59£^ 
598. 


)£ 


j 


I, 


GENERAL  POWER  TO  INCUR  PECUNIARY  UABILITY.  [§  17 

exceeding  a  limit  specified  in  the  statute.*    The  general  power 
given  a  common  council  of  a  city  by  its  charter  to  purchase  land  for 
the  necessary  purposes  of  the  corporation,  would  be  qualified  by 
another  provision  that  the  board  of  education  shall  have  power, 
with  the  consent  of  the  common  council,  to  buy  sites  for  school- 
houses  in  such  city,  and  a  valid  purchase  of  a  site  for  a  school- 
house  could  be  made  only  by  the  concurrent  action  of  the  two 
bodies.'    And  these  two  bodies  cannot  delegate  the  power  of 
purchasing  a  schoolhouse  site  to  a  board  of  commissioners  of  such 
city  without  an  express  grant  from  the  legislature  of  authority  to 
do  so.*    A  tax  for  the  erection  of  a  new  schoolhouse  may  be 
voted  by  the  electors  of  a  school  district  before  any  site  for  the 
house  has  been  selected.*     And  the  electors  of  such  a  district  have 
been  held  to  have  been  warranted  in  voting  a  tax  for  the  erection 
of  a  new  schoolhouse  at  the  center  of  the  district  in  a  case  where 
the  district,  two  miles  wide  from  east  to  west,  had  one  school- 
house  situated  one-half  mile  east  of  the  center,  which  was  about 
thirty  years  old,  but  in  reasonably  good  condition,  yet  too  remote 
for  some  of  the  children  of  the  district  to  attend  school.*^     Under 
the  constitutional  limitation  of  Indiana  upon  municipal   corpora- 
tions,  a  town  cannot  issue  bonds  to  obtain  funds  with  which  to 
rebuild  a  schoolhouse,  should  the  issuance  of  the  bonds  create  a 
debt  in  excess  of  two  per  centum  of  the  taxable  value  of  the  prop- 
erty within  the  Hmits  of  the  town.«     Petitions  from   property 
owners  are  not  necessary  to  authorize  the  board  of  trustees  of 
incorporated  towns  in  Indiana  to  issue  bonds  or  procure  money 
with  which  to  build  schoolhouses.' 

§  17.  The  same  subject  continued. — A  statute  conferring 
express  authority  upon  a  municipal  corporation  "  to  aid  in  the 


§in 


PUBLIC  CORPORATIONS. 


23 


» Williams  v.  Town  of  Albion,  (1877) 
68  Ind.  329. 
*  LauensteintJ.  City  of  Fond  du  Lac, 

(1871)  28  Wis.  336. 

•Ibid 

♦Seaman  v.  Baughman,  (1891)  82 
Iowa.  216;  s.  c,  47  N.  W.  Rep.  1091. 

»Ibid. 

•Town  of  Winamac  v.  Huddleston, 
(1882)  132  Ind.  217;  s.  c,  31  N.  E. 
Rep.  561.  The  court  said :  ' '  The  debt 
created  by  a  bond  executed  by  a  pub- 


lic corporation  is  not  an  obligation  pay- 
able out  of  specific  funds,  but  is  a  con- 
tract to  pay  money  generally,  and 
hence  this  case  is  not  within  the  doc- 
trine of  such  cases  as  Quill  v.  City  of 
Indianapolis,  124  Ind.  292;  s.  c,  23  N. 
E.  Rep.  788;  Strieb  v.  Cox,  111  Ind. 
299;  8.  c,  12  N.  E.  Rep.  481;  and 
Board,  etc..  v.  Hill.  115  Ind.  316;  s.  c, 
16  N.  E.  Rep.  166. 

'  Clark  V.  Town  of  Noblesville,  (1878) 
44  Ind.  83. 


huilding  up  of  such  schools  and  institutions  of  learning  as  they 
may  think  proper,"  clearly  implies  the  power  to  build  a  house  for 
that  purpose.*     Unless  there  is  something  in  the  charter  of  a 
municipal  corporation,  such  as  a  city  or  town,  which  forbids  it, 
such  a  corporation,  without  express  authority,  may  incur  liabiHty 
for  the  building  of  a  school  house,  it  being  clearly  within  the 
scope  of  the  general  power  of  such  corporations.^     The  applica- 
tion of  corporate  funds,  or  creating  a  corporate  debt,  for  the 
purchase  of  the  interest  in  a  building  to  be  used  as  a  public 
school  or  college  for  the  accommodation  of  the  people  of  a  town 
is  within  the  purposes   and   scope  of    tlie   corporation.^     And 
should  it  appear  that  the  enterprise  is  not  for  any  private  gain, 
and  that  a  board  of  trustees  not  elected  by  the  municipal  cor- 
poration contract  to  keep  up  in  the  building  a  public  school,  the 
fact  that  the  superintendence  of  the  school  is  left  in  the  hands  of 
such  trustees  would   not  render  the  appropriation  of  the  cor- 
porate funds  or  the  debt  created  illegal.*     The  charter  of  a  board 
of  pubHc  schools  in  Missouri  gave  the  board  power  "  to  purchase, 
receive  and  hold  property  real  and  personal ;  to  lease,  sell  or  dis- 
pose of  the  same,  and  do  all  other  acts  as  natural  persons,''^  and 
also  "  generally  to  do  all  lawful  acts  which  may  be  proper  and 
convenient  to  carry  into  effect  the  objects  of  the  corporation." 
These  provisions,  taken  in  connection  with  the  whole  charter, 
have  been  construed  not  to  authorize  the  board  to  create  a  debt 
for  building  a  school  house  and  to  issue  bonds  to  pay  the  debt.^ 
Besides  the  provision  in  the  charter  of  the  board  authorizing  it 
to  make  an  annual  estimate  of  the  amount  of  money  to  be  raised 
for  the  purpose  of   building,  repairing  and  furnishing  school 
houses  and  requiring  the  County  Court  to  cause  the  same  to  be 
levied  and  collected  upon  all  taxable  property  in  the  school  dis- 
trict was  a  limitation  upon  the  power  of  the  board  regarding  the 
building  of  school  houses,  and  did  not  authorize  the  board  to  cre- 
ate a  debt  for  that  purpose  and  issue  bonds  for  the  payment  of 
the  debt.* 

'Mayor,    etc.,    of    Cartersville    v.  *Ibld. 

Baker,  (1884)  73  Ga.  686.  ^Erwin  v.  St.  Joseph  Board  of  Pub- 

•Ibid;  citing  Frederick  v.  City  Coun-  lie  Schools,  (1880)  2  McCrary,  608. 

cil  of  Augusta  (1848)  5  Ga.  561;  Dan-  «Ibid;  approving  the  reasoning  in 

ielly  V.  Cabaniss,  (1874)  53  Ga.  211.  Gkiuse  v.  Clarksville,  19  Alb.   L.  J. 

» Danielly  t.  Cabaniss,  (1874)  52  Ga.  253. 
211. 


|l|l!i 


SI 


'  ii 


34  GENEBAL  POWER  TO  INCUR  PECUNIARY  LIABILITY.     [§§  18-19 

§  la  Purchasing  on  credit.— The  trustees  of  towns  in  Indi- 
ana being  prohibited  by  statute  from  borrowing  money  or  con- 
tracting a  debt  except  upon  the  petition  of  five-eighths  of  the 
citizen  taxpayers  of  the  town,  in  the  absence  of  such  a  petition 
cannot  purchase  cemetery  grounds  on  credit.* 

§  19.  Building  and  repair  of  bridges  and  roads.— Where 
the  statute  not  only  authorizes  the  supervisors  of  a  township  to 
repair  the  roads  and  build  the  bridges,  but  makes  it  their  impera- 
tive duty  to  do  so,  and  subjects  them  to  fine  and  imprisonment 
for  neglecting  to  keep  the  roads  and  bridges  in  a  safe  and  pass- 
able condition,  money  is  a  necessary  means  to  execute  this  power 
and  perform  this  duty,  and  where  it  can  only  be  obtained  by 
borrowing  it  the  power  to  do  so  is  necessarily  implied  and  passes 
as  an  incident  to  the  execution  of  the  general  powers  given  and 
the  performance  of  the  duties  required.^  An  incorporated  town 
charged  with  the  control  of  its  streets  and  the  duty  to  improve 
them  may  legitimately  contract  for  tlie  construction  of  free 
bridges  over  a  stream  dividing  its  streets,  and  by  an  issue  of  war- 
rants or  bonds  raise  the  money  necessary  for  the  purpose.^  But 
a  municipal  corporation  cannot  erect  a  toil  bridge  unless  expressly 
authorized  by  law ;  nor  lias  it  power  to  lend  its  credit  or  make  its 
accommodation  paper  for  the  benefit  of  citizens  to  enable  them 


>  Pratt  V.  Luther,  (1873)  45  Ind.  2^50. 
See  Ketchum  v.  City  of  Buffalo,  14  N. 
Y.  356,  holding  that  if  the  charter  of 
the  city  or  the  general  law  of  the  state 
did  not  forbid  the  purchase  of  ground 
for  a  market  place  to  be  made  on 
cre<lit  the  city  could  purchase  such 
grounds  on  credit.  The  court  said: 
"A  municipal  corporation,  therefore, 
may  at  common  law,  unless  restrained 
by  some  statute,  purchase  and  hold  all 
such  real  estate  as  may  be  necessary 
to  the  proper  exercise  of  any  power 
specifically  conferred,"  etc.  And  af- 
terwards: "I  think  it  must  be  con- 
ceded that  the  city  had  power  to  pur- 
chase ground  for  a  public  market.  If 
po  there  is  nothing  in  the  charter  or 
general  law  of  the  state  forbidding  the 
purchase  to  be  made  on  credit." 


*Maneval  f.  Jackson  Township, 
(1889)  9  Pa.  Co.  Ct.  Rep.  28.  The 
court  distinguished  Union  Township 
V.  Gibboney,  94  Pa.  St.  534,  and  Gib- 
son V.  Poor  District,  122  Pa.  St.  557. 
In  Mills  T.  Glcason,  11  Wis.  470,  the 
Wisconsin  Supreme  Court  held  that 
"where  the  charter  of  a  municipal 
corporation  confers  the  power  to  pur- 
chase fire  apparatus.ceraetery  grounds, 
to  establish  markets  and  to  do  many 
other  things  for  the  execution  of  which 
money  would  be  a  necessary  means,  it 
also,  in  the  absence  of  any  positive  re- 
striction, confers  the  power  to  borrow 
money  as  an  incident  to  the  execution 
of  these  general  powers.** 

*  Mullarky  v.  Town  of  Cedar  Falls, 
(I860)  19  Iowa,  21. 


§20] 


PUBLIC  CORPORATIONS. 


25 


to  execute  private  enterprises.*  Authority  being  given  by  a 
charter  of  a  city  to  its  common  council  "  to  appropriate  in  any 
one  year,  over  and  above  the  ordinary  expenses  needed  on  the 
bridges  in  said  city,  an  expenditure  not  to  exceed  ten  thousand 
dollars,  for  the  building  of  a  new  bridge  in  said  city,  or  for  any 
extraordinary  repairs  on  any  bridge,  and  for  the  payment  of  the 
same  in  whole  or  in  part,"  and  the  charter  declaring  further  that 
"  the  council,  instead  of  collecting  the  same  in  the  next  tax  roll, 
may  issue  its  bonds,"  etc.,  tliese  provisions  would  not  prevent  the 
council  letting  by  a  single  contract  the  work  of  constructing  a 
bridge  at  a  greater  price  than  $10,000.  The  provisions  merely 
limit  the  amount  to  be  raised  by  taxation,  or  the  amount  of  the 
bonds  to  be  issued,  in  any  one  year  to  pay  for  such  work.^  A 
statute  authorizing  two  of  the  counties  of  Alabama  to  erect  a 
bridge,  which  might  be  either  a  free  foot  and  wagon  bridge  for 
the  traveling  public,  or  a  railroad  bridge,  or  both  combined,  has 
been  held  to  contravene  the  constitutional  provision  which  denies 
to  the  legislature  power  to  authorize  any  county  to  lend  its  credit 
or  to  grant  public  money  or  a  thing  of  value  in  aid  of  or  to  any 
individual,  association  oi*  corporation.^  The  governing  authori- 
ties of  a  county,  having,  under  authority  from  the  legislature, 
purchased  certain  bridges  from  private  parties,  and  changed  them 
from  toll  to  free  bridges,  upon  their  being  destroyed  by  freshets, 
or  otherwise,  may  rebuild  them.* 

§  20.  Incurring  liability  under  California  statutes. —  The 
power  to  levy  and  collect  a  tax  in  the  charter  of  a  city  "  for  any 
object  whatever  within  the  provision  of  the  corporate  powers 
before  given,"  will  not  authorize  the  levy  and  collection  of  a  tax 
for  making  a  survey  of  a  railroad  route  from  the  city  to  another.^ 
The  power  granted  to  a  city  to  take  stock  "  in  any  public  improve- 
ment, or  effect  a  loan  for  any  purpose,"  upon  obtaining  the  con- 


>  Clark  V.  City  of  Des  Moines,  (1865) 
19  Iowa,  199. 

«  Howard  t.  City  of  Oshkosh,  (1873) 
33  Wis.  309. 

•  Garland  v.  Board  of  Revenue,  87 
Ala.  223;  s.  c,  6  So.  Rep.  402. 

*  Elliott  V.  Gammon,  (1886)  76  Ga.  766. 
See  Washer  v.  Bullitt  County,  (1884) 
110  U.  S.  558,  involving  the  question 
of  the  power  of  a  county  in  Kentucky 


to  build  a  bridge  at  its  own  cost  across 
a  boundary  creek,  one  end  of  the  bridge 
extending  into  the  territory  of  another 
county,  in  which  the  Supreme  Court 
of  the  United  States  construed  the 
Kentucky  statutes  relating  thereto. 

'  Douglass  v.  Mayor  and  Common 
Council  of  PlacerviUe,  (1861)  18  CaL 
643. 


I 


h#i 


26 


OENEBAL  POWER  TO  INCUR  PECUNIARY  LIABILITY. 


[§21 


sent  of  the  people  at  an  election  held  for  the  purpose  cannot  be 
extended  to  improvements  other  than  municipal  in  their  char- 
acter. Under  such  a  power,  for  instance,  a  city  cannot  subscribe 
to  stock  in  a  navigation  company.* 

§21.  Incurring  liability  under  Indiana  statutes. —  The 
board  of  commissioners  of  a  county  in  Indiana,  under  their 
power  "  to  make  all  orders  respecting  the  property  of  the  county 
*  *  *  and  to  take  care  of  and  preserve  such  property,"  may 
contract  for  insurance  upon  the  public  buildings  of  the  county.' 
While  at  the  time  of  the  passing  of  an  order  by  an  Indiana 
baard  of  county  commissioners,  making  a  donation  for  the  pur- 
pose of  securing  the  location  of  an  agricultural  college  within 
their  jurisdiction  and  making  an  appropriation  to  pay  the  same, 
the  Supreme  Court  of  that  state  held  that  the  order  was  not 
void,  but  was  capable  of  ratification  by  the  legislature.  And 
this  order  was  ratified  and  rendered  valid  by  subsequent  legisla- 
tion accepting  the  donation  and  locating  the  colleg-e  in  that 
county.  And  the  law  authorizing  a  collection  by  taxes  of  the 
amount  donated  for  this  purpose  was  not  objectionable  as  being 
local  or  special  when  a  general  law  could  have  been  made  apph- 
cable.'  There  is  no  power  in  an  Indiana  board  of  county  com- 
missioners to  furnish  aid  to  a  gravel  road  or  turnpike  company  in 
building  or  repairing  its  road  at  the  expense  of  the  county, 
neither  can  they  enter  into  a  contract  with  such  companies  for 
the  future  repairs  of  a  bridge  or  the  approaches  to  such  bridge 
on  the  line  of  its  road.*     Such  a  board  cannot  make  a  contract 


'  Low  v.  Mayor  and  Common  Coun- 
cil of  Marysville,  (1855)  5  Cal.  214. 
The  court  said:  "  The  words  '  public 
improvements'  when  applied  to  a 
municipal  government  must  be  taken 
in  a  limited  sense  as  applying  to  those 
improvements  which  are  the  proper 
subject  of  police  and  municipal  regu- 
lation—  such  as  gas,  water,  alms- 
houses, hospitals,  etc.— and  cannot  be 
extended  to  subjects  foreign  to  the  ob- 
ject of  the  incorporation  and  beyond 
its  territorial  limits.  Without  refer- 
ring to  the  many  privileges  exercised 
by  the  free  cities  of  Europe,  some  of 
which  exercised  almost  all  the  power 
of  sovereignty   by   virtue   of   royal 


patent  or  their  own  usurpation,  we 
understand  the  powers  of  municipal 
corporations  to  be  limited,  particularly 
in  the  United  States,  to  the  express 
grant  of  their  charters,  the  object  of 
their  creation  to  be  governmental  and 
not  commercial." 

«  Potts  V.  Bennett,  (Ind.  1895)  39  N. 
E.  Rep.  518. 

=♦  Marks,  Treasurer  of  Tippecanoe 
County  r.  Trustees  of  Purdue  Uni- 
versity, (1871)  37  Ind.  155;  see  Cash  v. 
Auditor  of  Clark  County,  7  Ind.  227; 
Stocking  T.  The  State,  7  Ind.  326. 

*  Driftwood  Valley  Turnpike  Co.  «. 
Board  of  Comrs.  of  Bartholomew 
County,  (1880)  72  Ind,  226. 


^3, 


•  I 


§22] 


PUBLIC  CORPORATIONS. 


2T 


conditionally  to  pay  certain  expenses  of  bonng  wells  for  oil  and 
digging  for  minerals.*  Neither  can  it  appropriate  the  funds  of 
the  county  to  the  payment  of  the  debts  of  a  county  agricultural 
joint-stock  company  or  to  the  building  of  schoolhouses.^  It  is 
not,  under  the  Indiana  laws  regulating  the  incorporation  of  cities, 
etc.,  within  the  power  of  a  city  council  to  contract  to  pay  its 
marshal  any  sum  of  money  for  the  performance  of  any  duties 
outside  of  his  official  duties.^ 

§  22.  Incurring  liabilities  under  Kansas  statutes. —  The 
grant  of  power  by  the  Kansas  statutes  to  townships  to  issue  bonds 
"  to  aid  in  the  construction  of  railroads  or  water  power  by  dona- 
tion thereto,  or  the  taking  stock  therein  or  for  other  works  of 
internal  improvement "  includes  authority  to  assist  in  the  con- 
struction  of  depots  and  sidewalks  of  a  railroad.*     A  statute 
authorizing  a  municipal  corporation  to  issue  bonds  which  can 
only  be   paid   by  taxation,  for   the   benefit  of  a  manufacturing 
enterprise  of  private  persons  has  been  held  to  be  void  as  violat- 
ing the  fundamental  rights  of  property,  the  purpose  being  essen- 
tially private  in  its  nature,  though  the  public  may  be  incidentally 
benefited.^     In  the  same   federal  court    municipal  bonds  issued 
under  legislative  authority  to  be  paid  by  taxation  as  a  bonus  or 
donation  to  secure  the  location,  or  aid  in  the  erection  of  a  manu- 
factory or  foundry  owned  by  private  individuals  were  held  to  be 
void  even  in  the  hands  of  holders  for  value.*    County  commis- 
sioners in  Kansas  may  employ  counsel  to  take  charge  of  litigation 
on  behalf  of  the  county  where  the  county  is  interested  in  the 
result  of  the  action,  either  in  its  own  behalf,  or  in  that  of  some 
township  of  the  county,  where  the  suit   is  brought  against  the 
representatives  of  the  county,  and  is  beyond  the  limits  of  the 
county.'    Though  made  their  duty,  unless  the  charter  of  munic- 
ipal corporations  expressly  permits  it,  they  cannot  levy  a  tax  for 
the  erection  of  schoolhouses.^    A  trustee  of  a  town  in  Kansas 


»  Burnett  v.  Abbott,  51  Ind.  254. 

*  Warren  County  Agricultural  Joint 
Stock  Co.  V.  Barr,  55  Ind.  30;  Roth- 
rock  t).  Carr,  55  Ind.  334. 

»  aty  of  Brazil  d.  McBride,  (1879) 
69  Ind.  244. 

*  Township  of  Rock  Creek  v.  Strong, 
(1877)  96  U.  S.  271. 


^Citizens'  Savings  Association  v. 
Topeka.  (1874)  8  Dill.  376. 

« Commercial  National  Bank  v.  lola, 
(1873)  2  Dill.  353. 

'  Thacher  v.  Jefferson  Ccunty,  13 
Kans.  182. 

8  Leavenworth  v.  Norton,  1  Kans. 
482. 


t  ' 


28 


GENERAL  POWER  TO  INCUR  PECUNIARY  LIABILITY. 


[§23 


has  no  power  to  bind  the  county  by  a  contract  with  a  physician 
for  treatment  of  persons  sick  with  smallpox.  The  power  to  do  so 
is  alone  in  the  commissioners  of  the  county.^  Neither  is  a  county 
in  Kansas  bound  to  pay  a  physician  for  medical  services  rendered 
by  him  in  attending  on  prisoners  confined  in  the  county  jail, 
except  when  authorized  by  the  county  commissioners.' 

§  23.  For  lighting  the  streets  of  a  city. —  The  contention  in 
an  Indiana  case  was  that  to  regulate  the  lighting  of  the  streets  of 
a  city  is  a  legislative  power  which  cannot  be  delegated  away,  sur- 
rendered or  restricted  by  contracts  or  otherwise,  and  that,  there- 
fore, the  contract  made  by  the  city  authorities  with  a  gas  company 
for  lighting  its  streets  for  a  term  of  years  was  a  restriction  upon 
that  legislative  power,  and,  therefore,  invalid.  The  Supreme 
Court  of  the  state  held  the  contract  binding  upon  the  city,  and 
enforceable  in  the  same  manner  as  the  contract  of  a  person  or  a 
business  corporation  ;  also,  that  it  could  not  be  repealed,  impaired 
or  changed  by  the  city  by  ordinance  or  otherwise.^ 


*  Smith  t).  Shawnee  County,  21  Kans. 
669. 

'Roberts  t».  Pottawatomie  County, 
10  Kans.  29. 

»City  of  Indianapolis  v.  Indianapo- 
lis Gas  Light  &  Coke  Co.,  (1879)  66 
Ind.  896.  As  to  the  power  to  con- 
tract, it  was  said  by  Biddle,  J., 
speaking  for  the  court:  "  No  corpora- 
tion can  construct  unless  the  power  is 
granted  by  law.  This  power  is  gen- 
erally granted  to  business  corporations, 
as  for  banking,  manufacturing,  ship- 
ping; and  such  corporations  generally 
have  no  legislative  or  governmental 
powers,  except  the  power  to  make  by- 
laws for  their  own  government;  they 
cannot  pass  ordinances  for  the  govern- 
ment of  others.  Municipal  corpora- 
tions, besides  the  power  to  contract, 
which  is  generally  granted  to  them 
within  certain  limits,  have  legislative 
or  governmental  powers  by  which  they 
make  by-laws  to  govern  themselves 
and  pass  ordinances  to  govern  others, 
or  the  citizens  of  a  town  or  city  within 
their  geographical  limits.    This  power 


to  legislate  within  the  authority  dele- 
gated to  them  by  law  is  distinct  from 
the  power  to  contract,  although  exer- 
cised by  the  same  corporation.  They 
cannot,  by  contract,  delegate  or  re- 
strict their  legislative  power,  nor  can 
they,  merely  by  their  legislative  power, 
make  a  contract.  These  two  powers 
need  not  be  confounded.  The  exer- 
cise of  the  legislative  power  requires 
the  consent  of  no  person  except  those 
who  legislate,  while  it  is  impossible  to 
make  a  contract  without  the  consent 
of  another,  or  others.  We  think,  there- 
fore, that  when  [this  city]  made  the 
contract  in  question  with  the  gas  light 
company  it  made  it  in  the  exercise  of 
its  power  to  contract,  and  not  in  the 
exercise  of  its  power  to  legislate,  al- 
though the  power  to  make  the  con- 
tract was  authorized  by  an  ordinance; 
and  having  the  power  to  make  a  con- 
tract touching  the  subject-matter,  it 
had  the  right  to  make  it  according  to 
its  own  discretion  as  to  its  prudence 
or  good  policy  within  the  limits  of  its 
franchise."      The    court   commented 


n 


§24] 


PUBLIC  C0EP0EATI0N8. 


29 


§  24.  Contract  on  time  for  lighting  streets.—  A  municipal 
corporation  may  contract  on  time  with  a  gas  or  other  lighting  com- 
pany for  a  supply  of  gas  or  light  for  several  years,  as  it  would  not 
be  the  contracting  of  a  debt  within  the  scope  of  section  2448  of 
the  Revised  Statutes  of  Louisiana,  which  provides  that  the  "  pohce 
juries  of  the  several  parishes  and  other  constituted  authorities  of 
incorporated  towns  and  cities  in  this  state  shall  not  hereafter 
have  power  to  contract  any  debt  or  pecuniary  liability  without 
fully  providing  in  the  ordinance  creating  the  debt  the  means  of 
paying  the  principal  and  interest  of  the  debt  as  contracted."^    The 

upon  Roll  V.  City  of  Indianapolis,  52 
Ind.    547,   and   distinguished    Ritten- 
house    V.  Mayor  &  City   Council  of 
Baltimore,  25  Md.  336;  Gale  v.  Village 
of  Kalamazoo,  23  Mich.  344,  and  City 
of  Oakland  v.  Carpentier,  13  Cal.  540. 
They  considered  their  views  to  be  sus- 
tained by  the  main  consent  of  the  fol- 
lowing authorities:  Evansville,  Ind.  & 
Cleveland  Straight  Line  R.  R.  Co.  v. 
City  of  Evansville,  15  Ind.  395;   Nel- 
son V    City  of  La  Porte,  33  Ind.  258; 
City  of   Indianapolis  v.  Ely,  39  Ind. 
373;   City  of  Crawfordsville  v.  Hays, 
42  Ind.  200;    State  Board  of  Agricul- 
ture V.  Citizens'  St.  Ry.  Co.,  47  Ind. 
407;    Board  of  Comrs.  of  Tippecanoe 
County  V.  Everett,  51  Ind.   543;   San 
Francisco  Gas  Co.  v.  City  of  San  Fran- 
cisco, 9  Cal.  453;   Roll  v.  City  of  In- 
dianapolis, 52  Ind   547;   Davenport  v. 
Inhabitants  of  Hallowell,  10  Me.  317; 
Bailey  v.   Mayor,  etc..  City  of  New 
York,  3  Hill,  531;  Masterton^.  Mayor, 
etc..  City  of  Brooklyn,  7  Hill,  61;  Mil- 
hau  V.    Sharp,  27  N.  Y.  611;    Rich- 
mond County  Gas  Light  Co.  v.  Town 
of  Middletown,  59  N.  Y.  228;  Devlin 
V.  Miyor,  etc..  City  of  New  York,  63 
N.  Y.  8;  Mayor  &  Council  of  Rome  v. 
Cabot,  28  Ga.  50;    Intendant  &  Town 
Council  of    Livingston  v.  Pippin,  81 
Ala.  542;  State  of  New  York  v.  Mayor, 
etc..  City  of  New  York,  3  Duer,  119; 
Britton  V.  Mayor,  etc..  New  York,  21 
How.  Pr.  251;  Louisville  City  Ry.  Co. 
«.   City  of    Louisville,  8  Bush,  415; 


Harlem  Gas  Light  Co.  v.  Mayor,  etc., 
New  York,  33  N.  Y.  309;    Illinois  & 
St.  Louis  R.  R.  &  Canal  Co.  v.  City  of 
St.  Louis  &  Pacific  Elevator  Co.,  2 
Dill.  70;    State  of  Ohio  v.  Cincinnati 
Gas  Light  &  Coke  Co.,  18  Ohio  St. 
262;    Gall  v.   City  of  Cincinnati,   18 
Ohio  St.  563;    Minturn  v.   Larue,  23 
How.  435;   Memphis  City  v.  Dean,  8 
Wall.  64;  Chicago  v.  Sheldon,  9  Wall. 
50;   Hitchcock  v.  Galveston,  96  U.  S. 
341;  Edwards  v.   Kearzey,  96  U.   S. 
595;  People  v.  Common  Council  of  De- 
troit, 28  Mich.  228;   Mayor,  etc.,  of 
Jackson    v.   Bowman,   39    Miss.   671; 
Davenport  Gas  Light  &  Coke  Co.  v. 
City  of  Davenport,  13  Iowa,  229;  State 
of  Wisconsin  v.  Milwaukee  Gas  Light 
Co.,  29  Wis.  454;   Norwich  Gas  Light 
Co.  V.  Norwich  City  Gas  Co. ,  25  Conn. 
19;  Western  Saving-Fund  Society  of 
Philadelphia  v.  City  of  Philadelphia, 
31  Pa.  St.  175;  Philadelphia  v.  Fox, 
64  Pa.  St.  169. 

'  New  Orleans  Gas  Light  Co.  v.  City 
of  New  Orleans,  (1890)  42  La.  Ann. 
188;  8.  c,  7  So.  Rep.  559.  The  court 
said:  "There  is  no  stipulation  or  ex- 
pression, either  in  the  contract  or  ordi- 
nance, on  which  to  ground  the  con- 
tention that  the  city  thereby  intended 
to  contract  a  debt.  The  agreement 
imparts  no  absolute  and  binding  obli- 
gations on  the  part  of  the  city  to  pay 
any  sum  of  money  for  a  consideration 
pre-existing  or  executed  on  the  part  of 
the  obligee  which  is  of  the  essence  of  a 


t 


).  iifi 
't  ill* 


* 


30 


GENERAL  POWEB  TO  INCUR  PECUNIARY  LIABILITT. 


[§25 


court  held  further  that  in  the  absence  of  a  special  statutory  limi- 
tation or  restriction  the  power  given  to  the  city  to  make  contracts 
for  lighting  its  streets,  landings,  etc.,  was  sufficient  to  authorize 
a  contract  for  more  than  one  year  for  such  commodity.* 

§  25.  Caring  for  the  indigent,  etc. —  There  is  inherent  in 
every  municipal  corporation  the  power  to  relieve  sick  persons 
indigent  in  their  circumstances,  especially  in  times  of  epidemic 
diseases,  and  to  provide  for  poor  persons  who  are  unable  to  labor.' 
A  city  with  power  delegated  to  it  to  provide  for  foundlings,  the 
insane,  the  indigent,  infirm  and  helpless,  and  for  the  correction 
of  the  vicious  and  vagrant  portions  of  its  population,  if  it  has  not 
provided  for  such  persons,  or  if  they  can  be  better  cared  for  and 
trained  in  other  institutions  than  in  those  of  the  city,  may  con- 
tract for  such  care  and  training  by  such  other  institutions.  But 
the  exercise  of  the  power  of  making  such  contracts  must  be  with 
the  limitation  that  the  subject-matter  of  the  contract  be  kept 
within  the  power  and  control  of  municipal  authority,  and  that 
complete  accountability  be  provided  for,  and  thus  make  the  insti- 
tution contracted  with,  pro  hac  vice,  municipal  officers.^ 

debt.  The  obligation  of  the  city  for  of  Valparaiso  v.  Gardner,  97  Ind.  1;  8. 
future  disbursements  in  favor  of  the  c,  7  Am.  &  Eng.  Corp.  Cas.  626. 
company  is  conditioned  on  the  per-  '  New  Orleans  Gas  Light  Co.  v.  City 
formance  on  the  part  of  the  latter  of  of  New  Orleans,  (1890)  42  La.  Ann. 
its  part  of  the  contract,  a  fact  to  be  188;  s.  c.  7  80.  Rep.  559;  citing  in 
ascertained  under  the  terms  of  the  con-  support  of  the  ruling  City  of  Indian- 
tract  itself  from  month  to  month,  apolisr.  Indianapolis  Gas  Light  Co.,  66 
Although  the  eventual  disbursements  Ind.  396;  Weston  v.  Syracuse,  17  N.  Y. 
to  be  made  by  the  city  may  amount  to  110;  City  of  Valparaiso  v.  Gardner,  97 
several  hundred  thousand  dollars,  it  is  Ind.  1;  Atlantic  Water  Works  «>.  Atlan- 
certainly  not  correct  to  argue  that  the  tic  City,  15  Am.  &  Eng.  Corp.  Cas.  327. 
effect  of  the  contract  was  to  place  it  in  '  Vionet  v.  Municipality  No.  1,  4 
debt  to  that  amount.     If  under  the  La.  Ann.  42. 

terms  of  the  contract  the  company  fur-  'St.  Mary's  Industrial  School  for 
nishes  and  operates  in  quality  and  Boys  v.  Brown,  (1876)  45  Md.  310.  It 
quantity  the  lights  contemplated  and  was  said  by  the  court:  "The  author- 
agreed  upon,  and  if  payments  are  ity  (to  provide  for  such  persons)  that 
made  therefor  by  the  city  from  month  is  held  and  exercised  in  this  behalf  is 
to  month,  as  stipulated  in  the  contract,  a  trust,  as  well  for  those  who  become 
the  city  would  certainly  never  be  in  the  objects  of  it,  as  those  who  support 
debt  to  the  company.  Hence  we  con-  it  by  contribution  in  the  form  of  taxes 
elude  that  no  indebtedness  was  con-  levied  upon  their  property,  and  being 
templated  to  flow  from  or  was  created  an  important  public  trust  it  cannot  be 
by  the  contract.**  On  authority  of  delegated  beyond  the  power  and  dia- 
Weston  V.  Syracuse,  17  N.  Y.  110;  City  cretion  of  those  to  whom  it  is  confided." 


§§  26,  27] 


PUBLIC  CORPORATIONS. 


31 


^26,  Employment  of  physicians  for  the  poor  —  Indiana 
statute  construed. —  The  Indiana  statute  *  makes  it  the  duty 
of  the  board  of  commissioners  of  a  county  "  to  contract  with  one 
or  more  skillful  physicians,  having  knowledge  of  surgery,  to 
attend  upon  all  persons  confined  in  jail,  or  paupers  in  the  county 
asylum,  and  may  also  contract  with  physicians  to  attend  upon 
the  poor  generally  in  the  county.  *  *  *  Provided  that  this  sec- 
tion shall  not  be  so  construed  as  to  prevent  the  overseers  of  the 
poor,  or  any  one  of  them,  in  townships  not  otherwise  provided 
for,  from  employing  such  medical  or  surgical  services  as  paupers 
within  his  or  their  jurisdiction  may  require."  The  Supreme 
Court  has  held  that  a  county  is  not  liable  to  a  physician  for  med- 
ical services  rendered  by  him  to  a  poor  person,  when  the  physi- 
cians employed  by  the  board  of  county  commissioners  to  attend 
the  poor,  as  required  by  this  statute,  refused  to  act,  and  when 
the  town  trustee,  who  by  statute  is  the  overseer  of  the  poor, 
declined  to  employ  this  physician.'^ 

§  27.  Expenses  connected  with  epidemic  diseases. —  The 
Supreme  Court  of  Alabama  has  held  that  a  contract  by  a  city 


>  Ind.  Rev.  St.  (1881)  §  5764. 

*  Morgan  County  v.  Seaton,  (1889) 
122  Ind.  521;  s.  c,  24  N.  E.  Kep.  213. 
The  holding  of  the  court,  has  been 
uniform  that  the  overseer  of  the  poor, 
under  this  statute,  has  power  to  em- 
ploy a  physician  only  in  the  event  the 
board  of  commissioners  fail  to  make 
suitable  provision  for  attendance  upon 
the  poor  by  contract.  Board,  etc.,  v. 
Boynton,  30  Ind.  359;  Board,  etc.,  v. 
Hon,  87  Ind.  356.  But  the  overseer 
of  the  poo.r,  in  case  the  physician  em- 
ployed by  the  board  is  not  accessible, 
and  an  emergency  is  deemed  to  exist, 
or  if  he  refuses  for  any  reason  to  act, 
may  employ  a  physician  in  case  of  ur- 
gent necessity  to  treat  one  in  need  of 
medical  aid,  and,  in  the  absence  of 
fraud,  the  county  will  be  bound  by 
his  j  udgment  and  liable  for  the  medi- 
cal services,  notwithstanding  the  em- 
ployment of  a  regular  physician  by 
the  county.  Board,  etc.,  v.  Seaton,  90 
Ind.   158]  Washburn  v.  Board,  etc.. 


104  Ind.  321;  s.'  c,  3  N.  E.  Rep.  757; 
see,  also,  Comrs.,  etc.,  v.  Holman,  34 
Ind.  256.  As  to  the  powers  of  town 
trustees  under  this  statute,  see  Robbins 
i\  Board  of  Comrs.  of  Morgan  County, 
(1883)  91  Ind.  537.  As  to  the  terms,  etc., 
of  a  contract  with  a  physician  under 
this  statute,  see  Board  of  Comrs.,  etc., 
V.  Ritter,  (1883)  90  Ind.  362.  As  to  the 
duty  and  power  of  a  town  trustee 
under  Ind.  Rev.  St.  (1881)  §  6089, 
in  providing  for  persons  in  need  of 
temporary  relief,  see  Board  of  Comrs., 
etc.,  V.  Jennings,  (1885)  104  Ind. 
108;  8.  c,  3  N.  E.  Rep.  619.  The 
mere  fact  that  a  board  of  commission- 
ers employs  physicians  to  attend  the 
poor  of  a  county  will  not  operate  as  a 
limitation  upon  the  power  of  a  town- 
ship trustee  as  overseer  of  the  poor  to 
employ  others  in  case  of  emergency. 
Board  of  Comrs.  of  Perry  County  v. 
Lomax,  (1892)  5  Ind.  App.  567;  8.  c, 
32  N.  E.  Rep.  800. 


til 


III 


32  GENERAL  POWER  TO  INCUR  PECUNIARY  LIABILXTT.         [§  28 

with  a  physician,  entered  into  during  the  late  war,  to  attend  to 
indigent  persons  sick  witli  the  smallpox,  whether  belligerenta  or 
non-belHgerents,  was  not  such  a  contract  as  is  forbidden  by  the 
law  of  the  land  or  pubHc  policy.*  A  statute  authorizing  the 
board  of  supervisors  of  a  city  "  to  allow  and  order  paid  out  of 
the  general  fund,  not  to  exceed  six  thousand  dollars  for  any  one 
year,  for  the  support  of "  a  smallpox  hospital,  has  been  held  in 
California  not  to  authorize  the  board  to  purchase  a  site  for  a 
smallpox  hospital.^  Neither  was  the  purchase  of  a  site  for  the 
hospital  authorized  by  the  statute  giving  the  board  power  to  make 
all  regulations  which  may  be  necessary  or  expedient  for  the  pre- 
vention of  contagious  diseases,  nor  by  the  constitutional  provision 
of  the  state  authorizing  a  city  to  make  all  such  police,  sanitary 
and  other  regulations  as  are  not  in  conflict  with  general  laws.' 

§  28.  For  what  towns  may  not  be  made  liable. — A  town 
has  no  authority  to  appropriate  money  for  the  payment  of 
expenses  incurred  by  individuals,  prior  to  its  corporate  existence 

the  board  of  supervisors  by  the  statute. 
Aside  from  the  fact  that  this  statute 
makes  no  mention  of  real  estate,  or  of 
any  purchase  thereof,  its  hinguage  lim- 
its the  power  to  the  expenditure  of  '  six 
thousand  dollars  for  any  one  year/ 
and  the  money  thus  allowed  to  be  ex- 
pended is  for  the   'support'  of  the 
smallpox  hospital  —  words  which  emi- 
nently refer  to  an  existing  hospital, 
rather  than  to  one  to  be  thereafter 
brought  into  existence.    It  is  not  to  be 
inferred  that  when  the  legislature  was 
thus  careful  in  limiting  the  amount  of 
money  to  be  expended,  and  in  the  lan- 
guage in  which  it  described  the  mode 
of  its  expenditure,  it  intended  to  con- 
fer an  unlimited  authority  upon  the 
board  of  supervisors  to  expend  any 
amount  of  money  that  it  might  choose 
for  the  purchase  of  a  site  for  the  hos- 
pital for  whose  support  it  had  thus 
provided." 

» Von  Schmidt  v.  Widber,  City  Treas- 
urer, (1894)  105  Cal.  151;  8.  c,  38  Pac. 
Rep.  683  citing  as  authority  for  the 
last  proposition,  Ketchum  v.  City  of 
Buffalo,  14  N.  Y.  356. 


»City  of  Selma  v.  Mullen,  (1871)  46 
Ala.  411;  in  this  case,  where  it  appeared 
that  the  usage  of  the  city  authorities 
was  to  have  the  city  physician  attend 
to  smallpox  cases  for  an  extra  com- 
pensation,   and    the    city    physician, 
plaintiff  here,  had  been  told  by  one  of 
the  aldermen  in  the  presence  of  the 
others,  no  one  objecting,  to  "go  on, 
doctor,  with  your  smallpox  cases,  and 
we  will  do  what  is  just  and  right,"  it 
was  held  that  the  city  was  bound  by 
an  implied  promise  to  pay  him  a  rea- 
sonable value  for  his  services  in  this 
respect.    As  to  an  action  of  assumpsit 
lying  against  corporations  upon   an 
express  or  implied  promise,  see  Bank 
of  Columbia  v.  Patterson,  7  Cranch,  299; 
Bank  of  U.  S.  v.  Dandridge,  12  Wheat. 
64;  Danforth  v.  Schoharie  &  Duanes- 
burgh  Turnpike  Road,  12  Johns.  227; 
Montgomery    County    v.   Barber,    45 
Ala.  237. 

»  Von  Schmidt  v.  Widber,  City  Treas- 
urer, (1894)  105  Cal.  151;  s.  c,  38  Pac. 
Rep.  683.  The  court  said:  "  (Authority 
to  make  such  a  purchase)  cannot  be  im- 
plied from  the  power  conferred  upon 


§28] 


PUBLIC  CORPOEATIONS. 


33 


as  a  town,  in  procuring  the  passage  of  its  charter.*  In  the  com- 
monwealth of  Massachusetts  towns  have  no  authority  to  expend 
money  or  pledge  their  credit  to  celebrate  the  anniversary  of  the 
surrender  of  Cornwallis.^  Nor  has  it  authority  to  appropriate 
money  for  the  celebration  of  the  Fourth  of  July.^  By  the  stat- 
ute of  1861  (Chap.  165)  cities  are  now  authorized  in  Massachu- 
setts to  appropriate  money  to  celebrate  a  holiday,  but  such  author- 
ity can  be  exercised  only  in  pursuance  of  a  "vote  of  two-thirds 
of  the  members  of  each  branch  of  the  city  council  present  and 
voting  by  yea  and  nay  vote.* 


^  Frost  V.  Belmont,   (1863)  6  Allen, 
152. 

•Tash  V.  Adams,  Treasurer,  (1852) 
lOCush.  252. 

»  Hootl  V.  Lynn,  (1861)  1  Allen,  103. 
BiGELOw,  Ch.  J.,  said,  after  referring  to 
the  power  of  towns  to  raise  money  for 
"all  other  necessary  charges":   The 
appropriation  is  neither  necessary  to 
the  exercise  of  any  power  expressly 
granted  to  the  city;   nor  is  it  inci- 
dental   to    any    right    or    authority, 
which,  though  not  expressly  granted, 
has   its  origin  in   well-settled  usage 
and  is  founded  upon  the  necessities, 
convenience,  or  even  the  comfort  of 
the  inhabitants.     This  is  the  extreme 
limit  of  the  power  of  towns  and  cities 
to  grant  money  as  settled  by  repeated 
adjudications  of  this  court.     St  tson 
«.  Kempton,  13  Mass.  272;  Parsons  v. 
Goshen,  11  Pick.  396;  Willard  v.  New- 
buryport,     12    Pick.    227;    Allen    v. 
Taunton,    19    Pick.    485;    Spaulding 
V.   Lowell,   23  Pick.   71;  Anthony  v. 
Adams,  1  IMetc.  284.     See,  also,  Gerry 
V.  Stoneham,  (1861)  1  Allen,  319.     In 
New  London  v.   Brainard,  22  Conn. 
553,  an  appropriation  which  had  been 
voted  by  the  city  for  the  celebration 
of    Independence    Day  was    held  to 
have  been   properly  enjoined  as  be- 
yond the  power  of  the  city  under  its 
charter  and  the  laws  generally.     As 
to  the   power  of   a  city    under  the 
power  given  in  its  charter  to  raise  and 


expend  moneys  "to  defray  the  con- 
tingent and  other  expenses  of  the 
city  "  to  provide  an  entertainment  for 
its  citizens  at  the  expense  of  the  city, 
see  Hodges  v.  Buffalo,  2  Den.  110; 
New  London  v.  Brainard,  22  Conn.' 
553. 

*  Morrison,    Admx.,    v.    Lawrence, 
(1867)   98  Mass.   219.      In  Mortion  v. 
City    of  Nevada,  41  Fed.    Rep.   582, 
bonds  issued  by  the  city  for  the  pur- 
chase of  a  right  of   way  and  depot 
grounds  for  a  railroad  were  held  to  be 
void  as  violating    the  constitutional 
provision  of  Missouri  declaring  that 
the  general  assembly  shall  not  author- 
ize any  city  to  loan  its  credit  to  any 
corporation   unless  two  thirds  of  the 
qualified  voters  assented  thereto.     It 
was  further  held  that  the  purchaser  of 
these   bonds  could   not    maintain  an 
action  against  the  city  for  money  paid 
and  received  to  recover  the  amount 
paid  the  city  for  the  bonds,  as  the  city 
having  no  power  to  create  the  debt, 
no  implied  promise  could  arise  for  its 
payment,  notwithstanding  the  general 
statute  of  Missouri,  which  gives  the 
board  of  trustees  power  "to  borrow 
money  for  the  improvement"  of  the 
town,  the  purchase  of  highway  and 
depot  grounds   for    the  railroad  not 
being  for  the    improvement  of    the 
town,   but  a  debt  incurred    for  the 
benefit    of    the    railroad    corporation 
without  the  Droper  assent  of  voters. 


; 


mi 


34  GENERAL  POWER  TO  INCUR  TECUNIARY  LIABILITY.  [§  29 

§  29.  Expenses  of  a  committee  to  secure  legislation.— 

A  town  cannot  raise  by  taxation  or  by  pledge  of  its  credit,  or 
pay  from  its  treasury,  money  for  tbe  expenses  of  a  committee 
directed  by  a  vote  of  the  town  to  petition  the  legislature  for  the 
annexation  of  the  town  to  another  town.^     Neither  can  it  raise 


»Minot    p.    West    Roxbury,    (1873) 
112    Mass.   1.     Endicott,   J.,    as   tj 
proper    construction    of    the    wf>r>i8 
••necessary  charges,"  referred  to  tlie 
various  Massachusetts  cases  previ  )U9 
to  this  one    as  follows:    *'  The   lend- 
ing case  is   Stetson   v.   Kempt  on.   13 
Mass.  272.     The  meaning  of  the  word 
'  necessary  '  in  the  statute  is  discussed 
at  length  by  Chief  Justice  Parker, 
with  a  fulness  of  illustration  in  regard 
to  the  various  expenses  which  may  be 
said  to  fall  within  the  words  '  neces- 
sary charges/  that  seem  to  exhaust 
the  subject,  and  has  not  been  mate- 
rially enlarged  by  later  decisions.    He 
says:        *  The      phrase       '  necessary 
charges'   is  indeed  general;  that  the 
very  generality  of  the  expression  shows 
that  it  must  have  a  reasonable  limit  x- 
tion.     For  none  will  suppose  thnt  un- 
der this  form  of  expression  every  tax 
would  be  legal  which  the  town  should 
choose  to  sanction.     The  proper  con- 
struction of  the  term  must  be  that  in 
addition  to  the  money  to  be  raised  for 
the  poor,  schools,  etc.,  towns  might 
raise  such  sums  as  should  be  necessary 
to  meet  the  ordinary  expenses  of  the 
year,  such  as  the  payment  of  such  mu- 
nicipal    officers   as   they    should   be 
obliged  to  employ,  the  support  and  de- 
fense of  such  actions  as  they  might  be 
parties    to,    and    the    expenses    they 
would  incur  in  performing  such  duties 
as  the  laws  imposed,  as  the  erection  of 
powder  houses,   providing    ammuni- 
tion, making  and  repairing  highways 
and  town  roads,  and  other  things  of  a 
like    nature,    which     are     necesstiry 
charges  because  the  effect  of  a  legal 
discharge   of    their   corporate   duty. 
The  erection  of  public  buildings  for 


the  accommotlation  of  the  inhabitants, 
such  as  town  houses  to  assemble  in 
and  market  houses  for  the  sale  of  pro- 
visions, may  also  be  a  proper  town 
charge,  an  1  may  come  within  the  frdr 
meaning  of  the  term  necessary,  for 
thcic  may  be  essential  to  the  com- 
fort and  convenience  of  the  citizens. 
*  *  *  Witi  re.^pect  to  the  defense 
of  any  town  against  the  incursions  of 
an  enemy  in  time  of  war,  it  is  ditflcult  to 
see  any  principle  upon  which  that  can 
become  a  necessary  town  charge.  It  is 
is  not  a  corporate  duty,'  etc.  In  another 


case  *  *   *    liumford  School  District 
«j.  Wood,  13  Mass.   193,  the  chitf  jus- 
tice said  of  towns  that  they  may  be 
considered  as  quasi  corporations,  with 
limited  powers  co-extensive  with  the 
duties  imposed  on  them  by  st.-itiite  or 
usages.     The  rule  of  construction  laid 
down   in  these  early  cases  has  been 
strictly  followed  in  the  liter  decisions. 
In   Parsons  ».   Goshen,  11  Pick.  396, 
Mr.  Justice  Wilde  says:    'The  im- 
portant question  in  this  case  is  settled, 
and  upon  principles  that  cannot  be 
controverted,  in  Stetson  i\  Kempton.' 
In  Anthony  v.  Adams,  1  Mete.   284, 
Chief  Justice  Shaw  said  :  *  It  is  now 
well  settled  that  a  town,  in  its  corpo- 
rate capacity,  will  not  be  bound,  even 
by  an  express  vote  of  a  majority,  to 
the  performance  of  contracts  or  other 
legal   duties  not    coming   within  the 
scope  of  the  objects  and  purposes  for 
which  they  are  incorporated.'     In  Vin- 
cent r.  Nantucket,  12  Cush.  103,  it  was 
said  by  Mr.  Justice  Merrick  :  '  Their 
contracts  will  be  valid  when  made  in 
relation  to  objects  concerning  which 
they  have  a  duty  to  perform,  an  inter- 
est to  protect,  or  a  right  to  defend. 


§30] 


PUBLIC  CORPORATIONS. 


35 


by  taxation,  or  pay  from  its  treasury,  money  for  expenses 
incurred  in  opposing  before  the  legislature  the  annexation  of  the 
whole  or  a  part  of  its  territory  to  another  town.^  A  Maine  town 
cannot  incur  expenses  in  opposing  before  a  legislative  committee 
a  division  of  its  territorial  Hmits/ 

§  30.  For  the  payment  of  bounties  to  volunteers.—  The 
Illinois  Supreme  Court  sustained  the  constitutionality  of  a  law 
authorizing  the  towns  in  certain  counties  therein  named  to  levy  a 
tax  to  pay  bounties  to  persons  who  should  thereafter  enlist  or  be 
drafted  in  the  army  of  the  United  States,  a  vote  of  the  township 
being  first  taken.     The  courts  defined  a  tax  for  "  corporate  pur- 
poses"  to  mean  "a  tax  to  be  expended  in  a  manner  which  shall 
promote  the  general  prosperity  and  welfare  of  the  municipality 
which  levies  it,"  and  held  that  a  tax  levied  by  the  town  for  the 
purpose  of  paying  bounties  to  such  as  would  volunteer  in  the 
army  during  the  late  war  in  order  thereby  to  exempt  the  town 
from    an    impending    draft   on    conscription     might  be   fairly 
considered  a  tax  for   the   common  good  and    for  a  "corporate 
purpose."  ^ 


But  here  is  the  extent  at  once  of  their 
right  and  their  power.     They  cannot 
engage  in  enterprises  foreign   to  the 
purposes  for  which  they  were  incor- 
por.ited.    nor  assume    responsibilities 
which  involve  undertakings  not  within 
the  compass  of  their  corporate  pow- 
ers.'    Following  this  rule  of  construc- 
tion, this  court  has  held  expenditures 
to  be  legal  though  not  within  the  ex- 
press terms  of  the  statute,  but  inci- 
dental to  and  within  the  scope  of  a 
power  of  a  town,  as  for  the  erection  of 
market  and  town  houses,  and  the  con- 
struction of  reservoirs  to  supply  fire 
engines.       Spaulding   v.    Lowell'.     23 
Pick.  71;  French  v.   Quincy,  3  Allen. 
9;  Hardy^j.  Waltham,3Met.  163.    For 
the  support  of  a  public  clock,  as  within 
the  jurisdiction  of  a  town,  in  the  same 
manner  as  hay  scales,  burying  grounds, 
wells  and  reservoirs,  being  objects  of 
convenience  and  necessity  to  the  in- 
habitants.    Willard  v.  Newburyport, 
12  Pick.   227.    A  town  may  also  in- 


demnify its  officers  against  liabilities 
incurred  in  the  bonafde  discharge  of 
their  official  duties,  as  in  regard  to  the 
reassessment  of  taxes,  the  repairs  of  a 
highway,  the  report  of  a  school  com- 
mittee, the  erection  of  a  town  house, 
all  incidental  to  and  connected  with 
the  exercise  of  the  powers  of  a  town 
(Nelson  r.  Mil  ford,  7  Pick.  18;  Bancroft 
V.   Lynnficld,  18  Pick.    566;  Fuller  v. 
Groton,  11  Gray,  340;  Hadsell  v.  Han- 
cock, 3  Gray,  526;  Babbitt  v.  Savoy.  3 
Cush.  530),  and  may  pay  for  profes- 
sional services  in  the  defense  of  suits, 
independent  of  the  result  of  the  suit,' 
and  whether  the  town  acted  legally  or 
illegally  in  the  matter  in  controversy, 
it  being  in  the  ordinary  administra- 
tion   of    town    affairs.       Gushing  v. 
Stoughton,  6  Cush.  389." 

'Coolidge  V.  Brookline,  (1874)  114 
Mass.  592. 

« Inhabitants  of  Westbrook  v.    In- 
habitants of  Deering,  (1874)  63  Me.  231. 
»  Taylor «?.  Thompson,  (1866)  42  DL  9. 


36  GENERAL  POWER  TO  INCUR  PECUNIARY  LIABILITY.    [§  31,  33 

§  31.  Validating:  a  contract  of  village  trustees.—  Under  the 
statutes  of  New  York  there  is  required  a  submission  of  a  propo- 
sition for  furnishing  a  water  supply  to  a  vote  of  the  electors 
before  a  contract  can  be  made  by  the  village  trustees,  if  the  cost 
is  to  exceed  a  certain  sum.  In  case  village  trustees  enter  into  a 
contract  for  this  purpose,  not  authorized  by  this  statute,  and 
there  is  an  attempt  to  ratify  it  by  the  electors  of  the  village,  the 
contract  would  not  be  validated  as  of  the  time  when  it  was  made, 
but  simply  rendered  operative  from  and  after  the  date  of  the 
vote.*  And  the  statute  as  to  submission  to  a  vote  of  the  electors  of 
the  matter  in  question  was  not  modified  by  the  subsequent  statute 
providing  for  the  submission  "  to  the  taxpaying  electors,"  at  a 
special  election  of  the  question  of  raising  moneys  for  some  proper 
village  object  additional  to  the  amount  already  authorized,  and 
for  raising  the  same  in  like  manner  with  other  taxes,  and  autlior- 
izino"  the  trustees  to  borrow  such  sum  in  emergency  in  anticipa- 
tion^of  the  tax,  but  granting  them  no  authority  to  bond  the  village 
otherwise  by  contract.* 

§  32.  Illustrations  of  liabilities  incurred  for  a  "  corporate 
purpose."— The  Illinois  Supreme  Court  has  held  that  where  a  tax 
was  voted  by  a  city  to  donate  a  sum  of  money  in  aid  of  normal  school 
in  case  it  should  be  located  therein,  and  it  was  so  located,  and  the 

1  Squire  u.  Preston,  (1894)  82  Hun,  v.  Cramer.  14  N.  Y.  Wkly.  Dig.  107; 
88;  8.  c,  31  N.  Y.  Supp.  174.  The  Hassan  t.  City  of  Rochester,  67  N.  Y. 
statute  referred  to  is  N.  Y.  Laws  1873,  528.  As  to  ratification  of  tlie  contracts 
chap  737,  §  5.  as  amended  by  N.  Y.  by  a  vote  the  court  considered  appli- 
Laws  1885.  chap.  422.  cable  the  language  of  Judge  Denio  in 

•  Squire t>.  Preston,  (1894)  82 Hun,  88;  Peterson  v.  Mayor,  etc.,  17  N.  Y.  449, 
8  c  3t  N.  Y.  Supp.  174.  The  later  454,  which  was  as  follows:  "No  sort 
statute  referred  to  is  N.  Y.  Laws  1887.  of  ratification  can  make  good  an  act 
chap.  504;  see,  also.  N.  Y.  Laws  1890,  without  the  scope  of  the  corporate 
chap  566.  §81,  which  re-enacts  in  sub-  authority  So  where  the  charter,  or  a 
stance  the  act  of  1873.  See  In  re  Com-  statute,  binding  upon  the  corporation, 
missioners  of  Central  Park,50N.Y.  493;  has  committed  a  class  of  acts  to  par- 
In  re  Evergreens,  47  N.  Y.  216.  The  ticular  oftlccrs  or  agents  other  than 
questions  involved  in  Squire  i).  Preston,  the  general  governing  body,  or  where 
mpra,  were  considered  also  in  Squire  it  has  prescribed  certain  formalities  as 
V.  Cartwright.  (1893)  67  Hun,  218;  s.  conditions  to  the  performance  of  any 
c.  22  N.  Y.  Supp.  899,  the  contract  description  of  corporate  business,  the 
made  by  the  village  trustees  with  the  proper  functionaries  must  act.  and  the 
water  company  being  for  the  erection  designated  forms  must  be  o':served, 
and  supply  of  hydrants.  As  to  the  and  generally  no  act  of  recognition 
points  involved,  the  court  cited:  Smith   can  supply  a  defect  in  these  respects." 


§33] 


PUBLIC  C0EP0KATI0N8. 


37 


^\ 


bonds  of  the  city  were  regularly  issued  and  put  in  circulation  to 
that  amount,  such  debt  was  incurred  for  a  *'  corporate  purpose," 
within  the  meaning  of  the  constitutional  provision  allowing  taxa- 
tion for  "  corporate  purposes."^  So,  also,  held  as  to  a  certain 
issue  of  the  city's  bonds  under  legislative  authority  and  upon  a 
vote  of  its  legal  voters,  whereby  the  city  was  relieved  from  the 
payment  of  a  larger  amount  of  its  prior  indebtedness.^  The  city 
being  also  authorized  by  the  statute  to  give  bonds  to  aid  in  the 
establishment  and  foundation  of  a  university,  and  for  that  purpose 
having  purchased  grounds  and  submitted  to  vote  of  the  people  the 
question  of  issuing  a  certain  amount  of  bonds  to  make  payment 
for  the  lands,  and  it  being  carried,  these  bonds  were  also  held  to 
be  for  a  "  corporate  purpose,"  there  appearing  no  fraud,  combi- 
nation or  oppression  in  the  transaction.^  The  constitutional  pro- 
vision of  New  York  prohibiting  cities  from  incurring  indebted- 
ness except  for  city  purposes,  does  not  deprive  the  city  of  the 
power  to  construct  and  operate  a  plant  for  a  supply  of  electric 
light  to  the  city  and  its  inhabitants,  as  this  is  a  corporate  purpose 
within  the  meaning  of  the  constitutional  provision.*  Should  a 
municipaf  corporation  issue  negotiable  certificates  of  indebtedness, 
for  instance,  to  a  contractor  for  the  performance  of  work  to  be 
done,  or  done,  for  an  authorized  corporate  purpose,  without  legal 
authority  or  power  to  issue  such  certificates,  the  payee  may  main- 
tain an  action  for  money  liad  and  received  ;  and  the  fact  that  the 
payee  was  not  a  party  to  the  contract  would  be  immaterial  if  the 
certificates  are  issued  to  him  at  the  request  of  the  contractor  and 
the  money  received  by  the  city  and  paid  over  to  the  contractor.' 

§  33.  Purchase  of  fire  engines  and  apparatus. —  A  town 
possesses  inherent  power  to  purchase  fire  engines  for  the  protec- 
tion of  the  property  of  its  citizens  from  fire.®     The  statute  of 


»  Burr  V.  City  of  Carbondale.  (1874) 
76  111.  455. 

•  Ibid. 

•  Ibid.  In  support  of  these  views  the 
court  cited  Merrick  v.  Inhabitants  of 
Amherst,  12  Allen.  500. 

•  Hequembourg  v.  City  of  Dunkirk, 
49  Hun,  550;  s.  c.  2  N.  Y.  Supp.  447. 

•  Bangor  Savings  Bank  v.  City  of 
Stillwater.  (1892)  49  Fed.  Rep.  721; 
Louisiana  v.  New  Orleans,  102  U.  S. 


204;  Chapman  v.  Douglas  County, 
107  U.  S.  348;  s.  c,  2  Sup.  Ct.  Rep. 
62;  Hitchcock  v.  (Jalveston,  96  U.  S. 
341. 

^  Corporation  of  Bluffton  v.  Studa- 
baker,  (1885)  106  Ind.  129.  The  court 
said:  "The  power  to  purchase  fire 
engines  by  an  incorporated  city  or 
town  does  not,  however,  of  necessity, 
depend  upon  the  question  whether 
the  charter  of  such  city  or  town  has. 


I 


ss 


0ENEBAL  POWER  TO  INOUE  PEOUNIABY  LIABILITY.  [§  3S 


Indiana  for  incorporating  towns  gives  thera  power  in  one 
section  among  otlier  things  "  to  provide  all  necessary  apparatus 
for  tlie  extinguishment  of  fires/'  Under  this  section  a  town 
is  authorized  to  purchase  a  fire  engine  for  cash.*  Another 
section  gives  towns  power  "  to  incur  a  debt,  on  proper  peti- 
tion from  the  taxpayers  of  the  town  severally.  *  *  *  " 
Under  this  section  the  town  may  incur  a  debt  for  the  purchase 
of  a  fire  engine  and  apparatus,  or  purchase  it  upon  credit.* 
Another  provision  of  this  law  requires  the  assent  of  five- 
eighths  of  the  taxpaying  citizens  of  the  town  before  there  is 
power  in  the  town  to  borrow  money  or  incur  any  debt  or  liability. 
Upon  a  proper  petition  the  board  of  trustees  in  this  case  passed 
an  ordinance  for  raising  the  money  necessary  to  pay  for  an  engine 
by  sale  of  the  bonds  of  the  town.  The  court  held  that  the  board 
had  the  power  to  disregard  this  ordinance  for  an  issue  and  sale  of 
bonds.  Their  power  to  purchase  an  engine  on  a  credit  was  not 
exhausted  by  the  mere  passage  of  the  ordinance  for  the  issue  and 
sale  of  bonds.     The  engine  might  be  purchased  by  parol  and 

or  has  not,   expressly  granted    such   object  of  the  corporate  existence.     It 
power.     In  1   Dill,   on    Mun.   Corp.    was  long  ago  declared  that  the  power 
(3ti  ed.)  §  143.  the  learned  author  says  :   to  prevent  danger  from  fire  is  an  in- 
*'  The  prevention  of  damage  by  fire  is   cidentnl  one,  belonging  to  all  munic- 
usually  an  object  within  the  scope  of  ipl     corporations."      So,     also,     in 
municipal   authority,    either    by    ex-    Baumgartuer  v.  Hasty,  100  Ind.   575 ; 
press  grant  or  by    the  power,  in  a   s.  c,  50  Am.   Hep.    830,    the  court 
chartered  town  or  city,  to  make  police   said  :   "The  rule  has  always  been  that 
regulations  or  needful  by-laws,   and   a  municipal  corporation  has  the  in- 
fer this  purpose  it  may  regulate  the   hcrent  power  to  enact  ordinances  for 
mode  and    removal    of  ashes.     And   the  protection  of  the  property  of  its 
where  the  town  or   municipal  body   citizens    against    fire.     *    *    *    The 
has  such    power,  it  is  authorized  to   exercise  of  such  a  power  is  not  the 
appropriate  monev  for  the  purchase   exercise  of  a  new  power,  nor  of  one 
of  engines,  or  for'the  repair  thereof,    not  connected  with  the  purposes  for 
if  to  be  used  for  the  purpose  of  ex-    which  public  corporations  are  organ- 
tinguishing    fires    therein,  and    this,    ized ;    on    the     contrary,   it    is     the 
whether  they  belong  to  the  corpora-   exercise  of  a  power  long  possessed  by 
tion  or  were    purchased    by  private   municipal  corporations  and  closely  con- 
subscription."    So  in  Clark  'v.  City  of   nected  with  the  purposes  for  which 
South  Bend,  85  Ind.   276 ;   s.  c,  44   such  corporations  are  organized." 
Am.  Rep.    13,   the   court  said :    •*  A       '  Second    National    Bank    of   New 
municipal     corporation     has      such   Albany  v.  Town  of  Danville,  (1878)»60 
powers  as  are  expressly  granted  and   Ind.  504. 

also  such  implied  or  incidental  ones  « Second  National  Bank  of  New 
as  are  necessary  to  carry  into  effect  Albany  v.  Town  of  Danville,  (1878)  60 
the  express  powers  and  effectuate  the   Ind.  504. 


* 


'^ 


> 


h 


§34] 


PUBLIC  C0RP0KATI0N8. 


3d 


in  this  case  on  credit,  and  notes  commercial  or  otherwise  might  be 
executed  for  the  piice  hy  the  board  of  trustees  of  the  town.* 
The  power  to  purcliase  lire  engines  and  apparatus  is  necessarily 
or  fairly  to  be  implied  as  incident  to  a  power  granted  a  city's 
common  council  to  pass  ordinances  for  the  prevention  and  sup- 
pression of  fires  and  to  appoint  and  remove  fire  wardens ;  and, 
by  ordinance  to  prescribe  the  powers  and  duties  of  such  fire  war- 
dens and  of  the  fire  engineers  and  firemen  ;  and  also  the  right  to 
raise  money  by  taxation  for  supporting  the  fire  department.* 
Under  a  statutory  authority  to  purcliase  fire  engines  and  appara- 
tus of  all  kinds  for  the  use  of  the  fire  department  of  a  city,  the 
board  of  fire  commissioners  having  charge  of  such  matters  may 
purchase  hose  carriages.'' 

§  34.  Illustration  of  wrongfully  incurred  liability. —  Where 

the  sum  of  $1,500  had  been  voted  by  a  school  district  of  "Wyom- 
ing for  contingent  expenses,  the  Supreme  Court  of  that  state 
held  that  the  purchase  of  a  steam-heating  apparatus  for  a  sum 
largely  in  excess  of  that  amount  was  not  within  the  power  of  the 


*  Second  National  Bank  of  New 
Albany  v.  Town  of  Danville.  (1878)  60 
Ind.  504 ;  Sheffield  School  Township 
V.  Andress,  56  Ind.  157.  See  upon 
this  subject,  generally,  Evansville, 
etc.,  R.  R.  Co.  T.  City  of  Evansville, 
15  Ind.  395 ;  City  of  Indianapolis  v. 
Miller,  27  Ind.  394  ;  Thompson  v.  City 
of  Peru,  29  Ind.  305.  On  the  prin- 
ciple, Halstead  v.  Board  of  Comrs. 
of  Lake  County,  56  Ind.  363. 

«  Green  v.  City  of  Cape  May,  (1879) 
41  N.  J.  Law,  45.  It  was  said  in  the 
opinion:  "The  power  to  suppress 
fires,  etc.,  would  be  nugatory  without 
the  power  to  obtain  the  means  by 
which  the  suppression  can  be  3ffected. 
The  authority  to  prescribe  the  power 
and  duties  of  firemen  and  fire  engineers 
implies  that  there  shall  be  apparatus, 
in  the  management  of  which  duties 
shall  arise  and  become  the  subject  of 
municipal  regulation.  The  power  to 
organize  a  fire  department  unaccom- 
panied with  the  power  to  equip  the 


department  with  apparatus  would  be 
as  futile  as  the  privilege  of  raising  an 
army  without  the  power  to  provide 
weapons  or  subsistence.  The  power 
to  do  either  would  imply  the  power 
to  effectuate  the  intent  involved  in  the 
grant  by  the  execution  of  its  incidents. 
The  contracts  for  the  purchase  of 
apparatus  are  clearly  among  the 
incidents  of  the  grant.  The  power  to 
purchase  fire  engines  has  been,  in 
several  states,  sustained  under  the  au- 
thority of  the  city  to  make  police 
regulations  for  public  safety,  which, 
it  is  held,  confers  the  power  to  take 
measures  for  the  prevention  of  fires. 
Whether  the  power  to  suppress  fires 
arises  from  the  general  sjifety  clause 
of  the  charter  or  from  express  grant, 
it  carries  with  it  the  right  to  purchase 
fire  engines.  1  Dill,  on  Mun.  Corp. 
§  94." 

«  Leonard  t.  Long  Island  City,  (1892) 
47  N.  Y.  St.  Rep.  761 ;  s.  c,  20  N.  Y. 
Supp.  26. 


40  GENERAL  POWER  TO  INCUR  PECUNIARY  LIABILITY.  [§35 

district  board.*  The  court  held  the  warrant  issued  by  the  school 
district  for  a  steam-heating  apparatus  to  be  void  for  another 
reason  that  it  was  in  violation  of  the  statute  of  congress  limiting 
the  amount  of  indebtedness  to  be  incurred  by  every  political  or 
municipal  corporation,  county  or  other  subdivision  of  the  terri- 
tories of  the  United  States  to  an  amount  not  exceeding  a  certain 
percentage  on  the  value  of  taxable  property  therein.'* 

§  35.   Purchase   of  cemetery   grounds. —  A   charter  of  a 
municipal   corporation   conferring   the   power   to   purchase  fire 


PUBLIC  CORPORATIONS. 


41 


»  School  District  No.  3  in  Carbon 
County  t.  Western  Tube  Co.,  (Wyo. 
1885)  38  Pac.  Rep.  922.     It  was  said 
by  the  court:  "Certainly  our  statute 
does   not  permit  the  contracting  of 
debts  far  in  excess  of  the  appropriation 
made  for  contingent  purposes  for  that 
year,  and  we  doubt  that  such  author- 
ized expenditures   would   be  counte- 
nanced anywhere  in  the  absence  of  a 
statute  giving  a  district  school  Ixiard 
express  powers  to  contract  for  the  dis- 
trict beyond  the  annual  appropriations 
made  by  the  annual  school  meeting, 
where    such    meeting   is    made    the 
source  of  the  power  of  taxation.     It 
would  authorize    the    creation    of    a 
floating    indebtedness    which    should 
bind  the  district  the  same  as  a  bonded 
indebtedness  permitted  by  an  act  of 
the  legislature.     In  some  of  the  states 
the  district  board  or  some  of  its  mem- 
bers are  authorized  either  in  express 
statutory    terms    or   by  implication, 
where  the  board  or  officer  are  charged 
with  certain  duties,  to  incur  expenses 
for  the  district  in  limited  sums  for 
specific  purposes,  but  this  power  to 
bind  the  district  is  strictly  limited  to 
the  purposes  named  in  the  statutes. 
Conklin  v.  School  District,  22  Kans. 
521;  School  District  r.  Snell,  24  Mich. 
350;   Gibson    v.    School    District,    36 
Mich-  404;  Johnson  v.  School  District, 
67  Mo.  319." 

•School    Dist.    No.    3    of    Carbon 
Comity  V.  Western  Tube  Co.,  (1895)  38 


Pac.  Rep.  923;  Acts  49th  Cong.  (1st 
Sess.)  chap.  818,  §  4.    It  was  urged 
before  the  court  that    the    debt    at- 
tempted ta  be  incurred  by  the  district 
board  for  the  heating  apparatus  was  a 
necessary  one,  and  that  the  very  exist- 
ence and  maintenance  of  the  public 
schools  required  that  they  should  be 
kept  open  and  the  pupils  comfortably 
seated  and  warmed.     The  court  said  to 
this:    "But  this  question  is  settled. 
The  provisions  of  the  act  of  congress 
were    probably    borrowed    from    the 
Constitution  of    Illinois,   which  con- 
tains a  similar  restriction,  a  limitation 
which  has  been  judicially  interpreted. 
The  clause  shall  not  become  indebted 
'  in  any  manner  or  for  any  purpose ' 
in  the  Illinois  Constitution  is  construed 
to  mean  just  what  it  says,  and  not  to 
permit  an  exception  that  would  allow 
a  public  corporation  to  incur  indebted- 
ness for  supplies  to  meet  its  ordinary 
wants  and  necessities,  an  exception 
which  the  f  ramers  of  the  Constitution 
did  not  see  fit  to  make  and  which  the 
courts  have  no  power  to  insert.    Prince 
V.  City  of  Quincy,  105  111.  138,   143, 
216;  City  of  Springfield  v.  Edwards, 
84  111.  626;  Law  v.  People,  87  111.  385. 
The  same  principle  is  sustained  by  the 
Supreme  Court  of  the  United  States 
in  construing  a  similar  construction  in 
the  Constitution  of   Colorado.     Lake 
Co.  V.  Rollins,  130  U.  S.  662;  s.  c.  9 
Sup.    Ct.     Rep.    651;   Lake    Co.    v. 
Graham,  130  U.  S.  674;  8.  c,  9  Sup. 


f 


1 


j 


I 


\ 


§36] 

apparatus,  cemetery  grounds,  to  estabUsh  markets  and  other 
things,  for  tlie  execution  of  which  power  money  would  be  a 
necessary  means,  in  the  absence  of  any  positive  restriction,  con- 
fers the  power  to  borrow  money  as  an  incident  to  the  execution 
of  such  general  powers.*  A  power  of  taxation  conferred  in  the 
charter  cannot  be  deemed  to  exclude  the  power  of  borrowing.^ 
This  city  having  contracted  to  purchase  a  cemetery  lot,  and  pay 
for  the  same  by  its  corporate  bonds,  it  was  held,  having  acted 
within  the  powers  conferred  by  its  charter,  could  not  be  pre- 
vented by  a  subsequent  act  of  the  legislature  forbidding  the 
issuing  of  bonds.^ 

§  36.    Erection    of   crematory   for    garbage,    etc.— The 

Supreme  Court  of  AVisconsin  has  held  that,  under  the  general 
power  given  by  the  statutes  of  Wisconsin  to  prevent  or  abate 
nuisances,  a  village  b'^ard  may  contract  for  the  building  of  a 
crematory  for  garbage,  dead  animals,  etc.* 


Ct.  Rep.  654.  It  makes  no  difference 
for  what  purpose  or  in  what  manner 
the  debt  was  created;  if  in  excess  of 
the  statutory  or  constitutional  limit  it 
is  wholly  void." 

» Mills  V.  Gleason,  (I860)  11  Wis.  470. 

*Ibid.;  Clarke  v.  School  District,  3 
R.  I.  199. 

■Mills  V.  Gleason,  (1860)  11  Wis.  470; 
see  State  v.  Common  Council,  7  Wis. 
688;  Smith  v.  Applcton,  19  Wis.  408. 

*Kilvington  v.  City  of  Superior, 
(1892)  83  Wis.  222.  The  cjurt  said: 
"  The  power  *  to  prevent  or  abate  nui- 
sances '  —  that  which  occasions  public 
hurt  or  inconvenience  —  is  necessarily 
a  very  broad  and  comprehensive  one. 
and  essential,  if  not  indispensable,  to 
the  purpose  for  which  the  village  was 
created.  It  would  hardly  be  questioned 
by  any  one  that  if  garbage,  manure, 
or  dead  animals  were  found  within  the 
\illage,  in  the  interest  of  good  order, 
cleanliness  or  public  health,  the  board 
of  trustees  would  have  power  to  abate 
such  nuisances  by  removing  or  other- 
wise making  suitable  disposition  of 
them.     To  this  end,  it  might  provide 

C 


for  destroying  them,  instead  of  foul- 
ing the  waters  of  a  lake  or  stream  of 
water  with  them,  to  be  again  cast  up, 
to  the  prejudice  of  the  public,  or  de- 
positing them  where  they  would  create 
a  new  nuisance.     To  this  end,  if  a 
garbage  crematory  becomes  necessary, 
the  board  may,  within  a  fair  and  bona 
fde  exercise  of  their  discretion,  con- 
tract for  its  construction,  and  the  vil- 
lage will  be  bound  by  the  contract. 
Speaking  of  the  powers  of  such  cor- 
porations, in  Spaulding  v.  Lowell,  23 
Pick.  71,  74,  Shaw,  Ch.  J.,  says:  'They 
can  exercise  no  powers  but  those  which 
are  conferred  upon  them  by  the  act  by 
which  they  are  constituted,  or  such  as 
are  necessary  to  the  exercise  of  their 
corporate  powers  or  duties  and  accom- 
plishment of  the  purposes  of  their  as- 
sociation.'   French  v.  Quincy,  3  Allen, 
9,   12.     This  rule  has  been  aflSrmed 
in  this  state,  with  the  just  qualification 
that  such  corporations  may  resort  to 
the  usual  and  convenient  means  of  ex- 
ecuting the  powers  granted;  that  is  to 
say,  as  applied  to  this  case,  that  the  vil- 
lage, in  order  to  prevent  or  abate  nui- 


43  GKNERA.L  POWER  TO  INCUB  PECUNIARY  LIABILITY.      [§  37-39 


§  37.  Use  of  private  property  for  sewers. — Under  the 
authoritj  to  construct  sewers  as  incident  to  the  general  right  of 
a  mnnicipal  corporation  to  maintain  streets  and  highways,*  the 
governing  authorities  of  a  city  may  contract  for  a  right  to  con- 
struct a  sewer  through  private  property  and  bind  the  city  for  the 
cost  by  way  of  damages  agreed  upon  by  the  authorities  and  the 
owners  of  the  private  property.^ 

§  38.  Detection  of  criminals. — Municipal  corporations,  when 
not  authorized  to  levy  taxes  to  pay  the  expenses  of  detecting  and 
bringing  to  justice  persons  guilty  of  crimes  punishable  under 
general  laws,  cannot  tlirough  their  governing  board  create  an 
indebtedness  against  the  corporation  for  any  such  purpose, 
whether  by  proclamation,  resolution  or  ordinance.' 

§  39.  Aiding  private  corporations. —  A  municipal  corpora- 
tion cannot  become  a  shareholder  or  stockholder  in  a  private  cor- 
poration or  borrow  money  or  incur  debts  to  aid  extraneous 


sances,  might  resort  to  such  means  as 
were  usual  and  convenient.  Mills  v. 
Gleason.  11  Wis.  470.  401;  Oilman  t. 
Milwaukee,  61  Wis.  588,  593;  Bell  v. 
Platteville,  71  Wis.  139, 142;  Meinzerr. 
Racine,  68  Wis.  241,  245.  The  power 
to  prevent  and  abate  nuisances  is  an  ex- 
press grant  of  power,  and  not  an  im- 
plied one;  and  *  it  has  long  been  an  estab- 
lished principle  in  the  law  of  corpora- 
tions that  they  may  exercise  all  their 
powers  within  the  fair  intent  and  pur- 
pose of  their  creation  which  are  rea- 
sonably proper  to  give  effect  to  powers 
expressly  granted.  In  doing  so,  un- 
less restricted  in  this  respect,  they 
must  have  a  choice  of  mejins  adapted 
to  ends,  and  are  not  confined  to  any 
one  mode  of  operation,*  and  their  dis- 
cretion in  this  respect  cannot  be  re- 
vised or  interfered  with  by  the  courts, 
except  where  the  substantive  power  is 
exceeded,  or  fraud  is  shown,  or  there 
18  a  manifest  invasion  of  private  rights. 
Dill.  Mun.  Corp.  §§  91,  94,  and  cases 
cited;  Benson  d  Waukesha,  74  Wis. 
SI,  89;  Kelley  «.  Milwaukee,  18  Wis. 
83.  85;   Schanck  v.  Mayor,  69  N.  Y. 


444;  Spaulding  t?.  Lowell,  23  Pick.  17, 
80.  It  was  not  necessary,  therefore, 
that  there  should  have  been  express 
power  conferred  on  the  village  to  build, 
or  contract  for  building,  the  cremator^'. 
The  village  board  might  contract  for 
it  as  a  means  adapted  to  the  end  of 
preventing  or  abating  nuisances,  and 
as  a  health  measure,  and  so  within  the 
general  purpose  for  which  the  village 
was  organized." 

'  Cone  f.  City  of  Hartford,  28  Conn. 
363.  366;  Fi.sher  v.  Harrisburg,  2  Grant 
(Pa.),  291;  Stoudinger  p.  City  of  New- 
ark,   28   N.  J.  Eq.  187. 

'Leeds  v.  City  of  Richmond,  (1885) 
102  Ind.  372.  In  the  power  granted 
to  a  city  to  construct  a  sewer  outside 
of  its  limits,  when  necessary  to  afford 
nn  outlet  for  sewers  within,  is  in- 
cluded the  power  to  agree  with  own- 
ers of  lands  as  to  terms  of  their  occu- 
pancy. Little  f>.  City  of  Rochester, 
(1883)  17  N.  Y.  Wkly.  Dig.  513. 

'Murphy  t.  City  of  Jacksonville, 
(1881)  18  Fla.  318.  Whether  or  not 
town  trustees  could  bind  a  town  by 
offering  a  reward  for  the  apprehen- 


PUBLIC  CORPORATIONS. 


43 


- 


. 


§39] 

objects,  unless  tbe  power  be  expressly  granted.*  There  is  no 
power  conferred  upon  a  city  to  purchase  real  estate  within  its 
corporate  limits  designed  for  the  benefit  of  an  agricultural  society 
that  its  annual  fairs  should  be  held  therein,  by  a  provision  in  its 
charter  giving  the  council  "  full  power  and  authority  to  purchase, 
and  provide  for  the  payment  of  the  sa^ne,  all  such  real  estate  and 
personal  property  as  may  be  required  for  the  use,  convenience 
and  improvement  of  the  city."  ^    Even  with  power,  granted  by 


sion  of  a  felon  who  had  been  guilty  of 
homicide  in  the  town  has  been  ques 
tioned  in  Kentucky.     Lee  -o.  Trustees 
of  Flemingsburg,  (1838)  7  Dana  (liy.), 

28. 

» Mayor  v.  Wetumpka  Wharf  Co.,  63 
Ala.  611;  Low  v.  Marysville,  5  Cal. 
214;  Douglass  v.  Placerville,  18  Cal. 

643. 

« aty  of  Eufaula  t.  McNab,  (1880) 
67  Ala.  588.  Somerville,  J.,  speak- 
ing for  the  court,  said:  '*  It  may  be 
conceded  that  if  the  land  in  question 
had  been  purchased  for  an  exclusively 
pnhlic  use,  as  being  designed  for  dedi- 
cation to  a  purpose  within  the  usual 
scope  of  municipal  governments,  it 
might  be  a  proper  exercise  of  corpor- 
ate power  under  the  above  section, 
and  the  validity  of  the  contract  of  pur- 
chase could  not  be  affected  or  ren- 
dered invalid  by  any  subsequent  di- 
version of  the  land  to  unauthorized 
uses,  not  shown  satisfactorily  to  have 
been  mutually  intended  at  the  time  of 
the  purchase.  2  Dill,  on  Mun.  Corp. 
^  444;  Weismer  ©.  Village  of  Doug- 
las, 64  N.  Y.  91 ;  8.  c,  21  Am.  Rep. 
586.  But  the  terms  of  the  charter  are 
imperative  that  such  property  must 
be  '  required  for  the  use,  convenience 
and  improvement  of  the  city.'  Col- 
lateral advantages,  incidentally  result- 
ing in  the  promotion  of  the  city's 
commercial  or  business  prosperity, 
will  not  be  sufficient.  It  is  not  con- 
templated or  permitted  that  such 
property  shall  be  acquired  in  aid  of 
private  enterprise   not   of    a    public 


character,  however  laudable  may  be 
its  purpose,  or  however  useful  may  be 
its  encouragement.      As  said  by  Mr. 
Justice  Miller  in  Loan  Association 
V.  Topeka,  20  Wall.  655,  660:  "It  fol- 
lows that  in  this  class  of  cases  the 
right  to  contract  must  be  limited  by 
the  right  to  tax,  and  if  in  the  given 
case  no  tax  can  lawfully  be  levied  to 
pay  the  debt,  the  contnict  itself  is  void 
for  want  of  authority  to  make  it.     The    * 
same  view  was  expressed  by  Brick- 
ell,  Ch.  J.,  in  the  N.  O.  M.,  etc.,  R. 
R.  V.  Dunn.  51  Ala.  128,  136,  where 
the  following  language  is  used:    '  The 
power  of  taxation  thus  conferred  (by 
the  charter)  must  be  limited  and  con- 
fined strictlyto  the  purposes  for  which 
the  corporation  is  created.     The  reve- 
nues derived  from  the  exercise  of  this 
power  must  be  faithfully  applied  to 
these   purposes.      The   corporate  au- 
thorities cannot,  without  a  violation  of 
duty  and  usurpation  of  power,  appro- 
priate the  revenues  thus  produced  to 
any  other  purposes  or  objects  than  such 
as  are  fairly  expressed  or  reasonably 
implied  in  the  charter.     It  is  not  ma- 
terial what  is  the  character  of  the  ob- 
ject, or  how  pressing  the  necessity,  or 
what  are  the  benefits,  real  or  imagin- 
ary, which  may  flow  to  the  city.     If 
not  within  the  purposes  of  the  act  of 
incorporation,    there   is    a    want    of 
power  in  the  corporate  authorities. '    It 
was  said  by   the   Supreme   Court  of 
Maine  in  Allen  v.  Inhabitants  of  Jay, 
60  Me.    124,   that    'taxation  by   the 
very  meaning  of  the  term  implies  the 


■' 


44 


GENERAL  POWER  TO  INCUR  PECUNIARY  LIABILITY.  [§  40 


PUBLIC  CORPORATIONS. 


45 


i 


I 


its  charter,  in  a  city  to  aid  in  the  construction  of  improvements 
partaking  of  a  public  character,  the  city  could  not,  in  the  exercise 
of  the  power,  contract  to  pay  money,  or  to  appropriate  its  reve- 
nues to  aid  in  constructing  the  works  of  a  private  corporation.* 
There  being  no  provision  in  the  Constitution  of  West  Virginia 
authorizing  the  levying  of  taxes  to  be  used  to  aid  private  persons 
in  conducting  a  private  manufacturing  business,  the  Supreme 
Court  of  the  United  States  Jield  that  the  legislature  had  no  power 
to  authorize  a  city  of  that  state  to  issue  its  bonds  for  the  purpose 
of  lending  them  to  persons  engaged  in  manufacturing ;  tlie  act, 
therefore,  was  invalid  and  all  bonds  issued  under  its  authority 
were,  as  against  the  city,  void.^  The  Supreme  Court  of  Arkansas 
has  held  that  the  common  council  of  a  town  has  no  power  to 
appropriate  money  to  aid  the  building  of  a  court  house  in  such 
town,  as  such  an  act  is  prohibited  by  that  article  of  the  Constitution 
of  the  state  that  no  county,  city  or  town,  or  other  municipal  cor- 
poration,  shall  appropriate  money  or  loan  its  credit  to  any  corpo- 
ration, institution  or  individual.^ 

§40.  Subscription  to  capital  stock  of  railroad  corpora- 
tions.— Municipal  corporations  are  clothed  with  no  power,  out- 
side of  express  authority  granted  by  statute,  to  subscribe  to  the 
stock  of  private  corporations.^  And  if  such  authority  be  given 
by  the  legislature  the  mode  and  procedure  prescribed  by  the 
statute  must  be  strictly  followed.**  The  legislature  of  a  state  may 
grant  to  municipal  corporations  power  to  subscribe  to  the  capital 


raising  of  money  for  public  uses,  and 
excludes  the  raising  it  for  private  ob- 
jects and  purposes.'  'I  concede,' 
says  Black,  Ch.  J.,  in  Sharpless  v. 
Mayor,  21  Pa.  St.  147.  168,  '  that  a  law 
authorizing  taxation  for  any  other 
than  public  purposes  is  void.'  The 
court  cited  as  sustaining  the  text: 
Loan  Association  v.  Topeka,  20  Wall. 
655;  Allen  v.  Inhabitants  of  Jay,  60 
Me.  124;  a  c,  11  Am.  Rep.  185; 
Lowell  V.  City  of  Boston,  111  Mass. 
454;  8.  c,  15  Am.  Rep.  39;  Hanson 
f>.  Vernon,  27  Iowa,  28;  s.  c,  1  Am. 
Rep.  215;  Railroad  Co.  v.  Dunn,  61 
Ala.  128,  Weismer  d.  Village  of  Doug- 
hs,  64N.  Y.  91;  8.  c,  21  Am.  Rep.  586." 


^San  Diego  Water  Co.  t.  City  of 
San  Diego,-  (1881)  59  Cal.  517. 

'Parkersburg  v.  Brown,  (1882)  106 
U.  8.  487;  8.  c,  1  Sup.  Ct.  Rep.  442. 

'Russell  V,  Tate,  52  Ark.  541;  s.  c, 
13  S.  W.  Rep.  130.  As  to  the  loaning 
of  its  credit  by  a  municipal  corpora- 
tion to  a  private  corporation,  forbidden 
by  constitutional  provisions  of  the 
state,  see  CHty  of  Cleburne  v.  Brown, 
73  Tex.  443;  8.  c,  11  S.  W.  Rep.  404. 

*  French  r.  Teschemaker,  (1864)  24 
Cal.  518;  Gulf  Railroad  Co.  f>.  Miami 
County,  12  Kans.  482. 

» French  t.  Teschemaker,  (1864)  24 
Cal.  518. 


HO] 

stock  of  private  corporations  formed  to  carry  out  such  public 
improvements  as  tend  to  increase  the  trade  and  business  interests 
of  the  mimicipality.*  In  the  absence  of  constitutional  prohibition 
the  legislature  of  a  state  may  authorize  municipal  corporations  to 
aid  in  the  construction  of  railroads.'  And  a  statute  authorizing 
municipalities  to  aid  in  the  construction  of  a  railroad  is  not  in 
conflict  with  the  provisions  of  a  State  Constitution  forbidding  a 
loan  of  the  credit  of  the  state  to  private  persons  or  corporations, 
and  forbidding  the  state  subscribing  to  the  stock  of  any  corpora- 
tion, or  from  being  interested  in  any  work  of  internal  improve- 
ment, and  forbidding  any  person  being  deprived  of  his  property 
without  due  process  of  law.^  There  is  no  ground  for  a  constitu- 
tional objection  to  the  grant  of  power  by  the  legislature  to  a  city 
to  subscribe  to  stock  of  a  railroad  company  in  the  fact  that  such 
company  is  a  foreign  corporation  and  that  its  road  terminates  at 
a  point  in  another  state  from  which  it  runs  a  line  of  boats  to  the 
citv  issuing  its  bonds  in  aid  of  the  company.*  The  statute  of 
Arkansas  authorizing  coimties  "having  or  controlling  internal 
improvement  funds,  or  credits  granted  to  it  by  the  state,"  to  sul>- 
scribe  to  the  capital  stock  of  any  valid  and  duly  organized  rail- 
road, has  been  held  not  to  confer  power  upon  counties  to  sub- 
scribe for  stock  in  a  railroad  company  and  issue  bonds  of  the 
county  in  payment  for  it  which  might  by  any  possibility  become 
a  proper  charge  upon  the  taxpayers  of  the  county.^  The  court 
adhered  to  this  decision  in  a  later  case  and  held  generally  that  a 
county  or  other  municipal  corporation  had  no  power,  independ- 
ently of  an  express  grant  of  authority,  to  subscribe  for  stock  in  a 
railroad  company  and  issue  bonds  in  payment  of  the  subscrip- 
tion.' The  Iowa  Supreme  Court  has  held  that  to  aid  in  the  con- 
struction of  a  railroad  was  not  s.  puhlio  purj)ose  within  the  mean- 
ing of  a  provision  in  the  charter  of  a  city  that  "  whenever,  in  the 
opinion  of  the  city  council,  it  is  expedient  to  borrow  money  for 
any  puUiG  purpose  the  question  shall  be  submitted,"  etc.,  and 


»  City  of  Bridgeport  v.  Housatonuc 
R.  R.  Co.,  (1848)  15  Conn.  4V5. 

»  Taylor  t>.  City  of  Ypsilanti,  ll  Fed. 
Rep.  935. 

» Ibid.  As  to  the  power  of  Kansas 
cities  under  the  legislation  of  that 
state  to  become  interested  in  railroad 
enterprises  and  to  issue  railroad  aid 


bonds,  see  Bard  t).  City  of  Augusta, 
30  Fed.  Rep.  906. 

*  Moulton  V.  City  of  Evansville,  25 
Fed.  Rep.  382. 

6  English  «.  Chicot  County,  (1871)  26 
Ark.  454. 

«  Hancock  v.  Chicot  County,  (1877) 
32  Ark.  575. 


H;^ 


46 


OENEBAL  POWER  TO  INCUR  PECUNIARY  LIABILITY. 


[§40 


there  was  no  power  conferred  by  the  charter  to  borrow  money 
for  the  purpose  of  aiding  in  the  construction  of  a  railroad,  the 
power  to  borrow  money  conferred  upon  the  city  not  authorizing 
the  loan  of  the  credit  of  the  city.*  The  Supreme  Court  of  Fili- 
nois  has  recently  held  that  where  an  act  incorporating  a  railroad 
company  gave  power  to  towns  along  the  line  of  its  road  to  sub- 
scribe to  the  capital  stock  of  the  company,  a  town  along  its  line, 
subsequently  incorporated  by  an  act  of  the  same  session  of  the 
legislature,  which  did  not  enumerate  among  the  powers  of  the 
town  the  power  to  subscribe  to  such  stock,  could  make  a  valid 
subscription  to  such  stock,  there  being  no  inconsistency  between 
the  act  incorporating  the  railroad  company  and  the  one  incorpo- 


rating the  town.* 

*  Chamberlain  v.  City  of  Burlington, 
(1865)  19  Iowa.  395. 

»  Hutchinson  v.  Self,  (1894)  153  III. 
542;  8.  c. ,  39  N.  E.  Hep.  27.     As  to  the 
constitutionality    of  acts  authorizing 
municipal  subscription  to  stock  of  rail- 
roads, etc.,  see  Commonwealth  ex  rel. 
Armstrong  r.  Perkins  et  al.,  Commis- 
sioners of  Allegheny  County,  (1862)43 
Pa.  St.  400.    As  to  power  of  munic- 
ipal corporations  under  the  Constitu- 
tion and  laws  of  Colorado  to  make  dona- 
tions or  sut)scribe  to  cjipital  stock  of 
private  corporations,  see  Colorado  C. 
R.  R.  Co.  V.  Lea,  5  Col.  192;  Packard  ». 
Jefferson  County,  2  Col.  338;  People  r. 
Pueblo  County,  2  Col.  360.     In  Ken- 
tucky:   W.   &   M.   S.   T.   R.   Co.   V. 
Clark    Co.   Ct.,   (1860)  3  Mete.   144; 
Shelby   Co.    Ct.  v.   C.   &  O.   R.   R. 
Co.,  (1871)  8  Bush,   216;  Mercer  Co. 
a.  «.   S.   M.  &    H.    T.    Co.,   (1874) 
19    Bush,    257;    Mercer    Co.    Ct.   v. 
Ky.  River  Navigation  Co.,  (1871)  8 
Bush,  307;    C.    &  O.   R.  R.  Co.   v. 
Barren  Co.  Court,  8  Bush,  215;  Fore- 
man V.  Murphy,  (1870)  7  Bush,  304. 
Subscription    made    valid    by    con- 
firmation by  act   of  the  legislature. 
Shelby    Co.    Ct.    v.    C.    &    O.    R. 
R.   Co.,    8    Bush,    218.     Legislature 
may  modify,  etc.,   after    a    vote    is 
taken  and  before  the  actual  making 


of  subscriptions.     C.  &  O.  R.  R.  Co. 

r.  Barren  Co.   Court,  (1874)  10  Bush, 
610.     Constitutionality  of  acts  author- 
izing   subscriptions    settled.     Shelby 
Co.  Ct.  t».  C.  &  O.  R.  R.  Co.,  (1871)  8 
Bush,  215;  Tyler  v.  E.  &  P.  R.  R.  Co., 
(1872)  9  Bush,  515;  Bullock  r.  Curry, 
2  Mete.  174;  Allison  r.  L.  II.  C.  &  W. 
R.  Co.,  9  Bush,  248;  Shelbjvillc  Trus- 
tees   «.  S.  A   E.  T.Co.,    1  Mete.  57. 
Under  what  circumstances  the  legisla- 
ture may  repeal  acts  granting  author- 
ity to  subscribe  to  capital  stock  of 
railroad  company.  C.  &  L.  R.  R.  Co.  v. 
Kenton  County  Court,  (1851)  12   B. 
Mon.    150;  M.  T.  Co.  d.  How,    (iai4) 
14  B.   Mon.  432.     In  Missouri:  Osago 
Valley  &  Southern  Kansas  R.  R.  Co. 
V.  Morgan  County  Court,  (1873)  53  Mo. 
156;  Rubey  v.   Shain,  (1873)  54  Mo. 
207.    As  to  the  power  of  the  legislature 
to  authorize  such    subscriptions,  see 
St.  Joseph  &  Denver  City  R.  R.  Co.  c. 
Buchanan  County  Court,  39  Mo.  485; 
State  V.  Saline  County  Court    (1870) 
45  Mo.  242.    As  to  raising  money  to  aid 
in  the  construction  of  a  railroad,  see 
Stevens   v.   Anson,   73  Me.   489.     In 
Pennsylvania  R.    R.   Co.   v.   City  of 
Philadelphia,   (1864)  47  Pa.   St.   189, 
the  power  to  invest  its  stocks,  money 
or  credit  directly  or  indirectly  in  aid 
of  a  steamship  line  between  this  city 


§  41,  42] 


PUBLIC  CORPORATIONS. 


47 


§  41.  Power  of  the  legislature  as  to  corporations  in  such 
matters. —  It  is  in  the  power  of  the  legislature  of  a  state  to 
confer  on  municipal  corporations  larger  powers  than  would  be 
implied  from  the  general  purposes  of  their  creation,  and  when 
the  legislature  of  a  state,  in  express  terms  authorizes  cities  or 
towns  to  subscribe  for  stock  in  an  enterprise,  of  the  kind  usually 
known  as  internal  improvements,  canals,  railroads  and  plank- 
roads,  for  instance,  the  contract  of  such  cities  or  towns,  made 
pursuant  to  the  statute,  is  binding  upon  them.* 

§  42.  Constitutionality  of  legislation  authorizing  such 
aid. — The  Supreme  Court  of  Alabama  has  sustained  the  acts 
authorizing  cities  to  aid  by  subscription  to  stock  and  issue  of 
bonds  in  the  construction  of  railroads  as  constitutional.^     In  an 


and  foreign  ports,  in  the  absence  of 
special  legislation  authorizing  it,  was 
denied  to  this  city  by  the  Supreme 
Court  of  Pennsylvania.  See  chap. 
*•  Municipal  Aid." 

*  Mayor  &  Aldermen  of  Wetumpka 
V.  Winter,  (1857)  29  Ala.  651.  It  ap- 
peiired  in  this  case  that  certain  bonds 
had  been  issued  by  a  city  under  stat- 
utory authority,  and  it  was  provided 
by  the  statute  that  "the  money  aris- 
ing from  the  sale  of  s.iid  bonds  may 
be  appropriated  under  the  supervision 
and  direction  of  the  mayor  and  alder- 
men of  [the  city],  for  any  purpose  of 
internal  improvement  for  the  benefit 
of  the  citizens  of  [the  city]."  These 
bonds  were  use<l  to  aid  in  the  con- 
struction of  a  plank  road  which  was 
to  enter  the  city  from  an  outside  point. 
There  was  a  contention  that  this  was 
an  improper  use  of  the  bonds  on  the 
part  of  the  city;  that  inasmuch  as  the 
powers  of  municipal  corporations  are 
conferred  for  their  well-being  and 
generally  confined  to  police  and  sani- 
tary regulations  within  the  chartered 
limits  of  such  corporations,  the  proper 
construction  of  the  words  "internal 
improvements"  in  the  statutes  was 
that  they  applied  to  no  works  except 
within  the  city  limits.     The  Supreme 


Court  of  Alabama  construed  the 
words,  however,  to  authorize  the  city 
to  pledge  its  credit,  and  thereby  raise 
money  to  aid  in  the  construction  of 
.some  work  of  the  kind  generally  re- 
ferred to  as  internal  improvements  in 
the  general  acceptation  of  the  words 
as  a  means  of  improving  the  commerce 
of  the  f  ity,  and  thereby  benefiting  its 
citizens.  As  to  the  power  of  the  legis- 
lature to  confer  upon  municipal  cor- 
porations the  power  to  lend  its  credit 
in  aid  of  railroad  or  other  improve- 
ments, see  Fielder  r.  M.  &E.  R.  R.  Co., 
51  Ala.  178. 

'  Gibbons  r.  Mobile  &  Great  North- 
ern R.  R.  Co.,  (1860)  36  Ala.  410, 
adhering  to  the  doctrine  declared  in 
Stein  'V.  Mayor,  Aldenren,  etc.,  of 
Mobile,  (1854)  24  Ala.  591,  that 
although  the  only  legitimate  object 
of  taxation  is  the  support  and  main- 
tenance of  government,  yet  this  pur- 
pose embraces  a  wider  range  than  the 
mere  machinery  employed  in  its  ad- 
ministration; that  the  power  author- 
izes the  employment  of  the  necessary 
appliances  to  augment  the  aggregate 
wealth  and  prosperity  of  the  inhabit- 
ants of  the  city;  and  that  this  may 
be  accomplished  by  providing  outlets 
for  commerce,  opening  chamieLi  of 


IS  GENERAL  POWER  TO  INCUR  PECUNIARY  LIABILITY.  [§  42 

early  leading  case  in  Wisconsin,  involving  the  lending  of  its  credit 
by  tlie  issue  of  its  bonds  in  aid  of  a  railroad  company  by  a  city 
of  that  state,  the  constitutionality  of  the  act  granting  the  power 
to  the  city  to  do  so  was  vigorously  attacked  on  all  points.     The 
Supreme  Court,  however,  sustained  the  constitutionaUty  of  the 
act,  holding  that  the  constitutional  provisions  that  the  "  credit  of 
the  state  shall  never  be  given  or  loaned  in  aid  of  any  individual, 
association  or  corporation,"  and  that  "  the  state  shall  never  con- 
tract  any  debt  for  works,  of  internal  improvement,  nor  be  a  party 
in  carrying  on  any  such  works  were  limitations  upon  the  state 
alone  and  did  not  prohibit  the  legislature  to  authorize  counties, 
towns  and  cities  to  loan  their  credit  or  contract  debts  for  works 
of  internal  improvement ;  that  the  Constitution  in  another  place 
recognized  the  power  of    municipal  corporations  to  loan  their 
credit  and  required  the  legislature  simply  to  restrict  it.*     The  legis- 
lature may  authorize  a  town  to  subscribe  for  the  stock  of  a  rail- 
road company  and  to  incur  indebtedness  for  making  internal 


inter-communication  with  other  parts 
of   the  state,    etc.    Mayor,    etc.,    of 
Wetumpka   v.   Winter,   29  Ala.   651; 
,8harples3  t>.  Mayor,  etc.,  21  Penn.  St. 
147;  Louisville  &  Nashville  R.  Co.  v. 
County  Court,  1  Sneed,  637.    In  Stein 
«.  Mayor,  etc.,  snpra,  the  court  re- 
viewed as  to  the  power  as  well  as 
purposes  of  taxation   the    following 
cases,     arising    in    different    states, 
to   wit:    Battle    v.     Corporation    of 
Mobile,    9    Ala.    234;    Intendant   of 
Marion    u.     Chandler,    6    Ala.    899; 
State    V.    Estabrook,    6    Ala.     653; 
Nichol    V.    Mayor   of     Nashville,    9 
Humph.   252;   Hope  i>.   Deaderick,  8 
Humph.  1;  Commonwealth  r.  Mc Wil- 
liams, 11  Penn.  St.  61;  Parker  v.  Com- 
monwealth,  6    Barr,   507;    Common- 
wealth p.   Judges,  etc.,  of   Lebanon 
County,  8  Barr,  391;  Commonwealth 
V.  Painter,  10  Barr,   214;   Goddin  v. 
Crump,  8  Leigh.  120;  Burgess  v.  Pue, 
2  Gill,  19.    In  Winter  r.  City  Council 
of  Montgomery,  (1880),  65  Ala.  403, 
the  Supreme  Court  of  Alabama  sus- 
tained the  act  which  in  this  case  au- 
thorized the  subscription  by  this  city 
to  stock  in  a  matured  company  and 


issue  of  bonds  in  payment  for  it,  and 
declared  this  rule :  "  To  j  ustify  a  court 
in  pronouncing  a  statute  void,  it  must 
be  apparent  that  it  is  an  exercise  of 
powers     not    legislative  — of    power 
committed  to  one  or  more  of  the  other 
departments  of  the  government,  or  that 
it  is  violative  of  some  provision  of  the 
Constitution,  state  or  federal.  Whether 
the  policy  of  the  statute  is  sound  — 
whether  it  will  promote  the  public 
good  —  whether  it  is  in  harmony  with 
natural  right  or  will  obstruct  justice 
are  not  judicial  questions.     Dorman 
V.  State,  34  Ala.  216." 

» Clark  P.  City  of  Janesville,  (1859) 
10  Wis.  136,  following  State  ex  rel.  Dean 
p.  City  of  Madison,  7  Wis.  688.    See. 
also,  Watertown  v.  Cady,  20  Wis.  501. 
In  Bushnell  r.  Beloit,  (1860)  10  Wis. 
195.  the  same  court  has  declared  that 
the  Constitution  of  Wisconsin  clearly 
recognized    the    principle    that    mu- 
nicipal corporations  may  be  clothed 
with     power    to    "borrow    money," 
"contract  debts"  and  to  'Moan  their 
credit;"  and  that  the  legislature  being 
required  to  restrict  such  corporations 
in  the  exercise  of  such  powers  was  an 


§43] 


PUBLIC  CORPORATIONS. 


49 


improvements ;  and  the  corporation  would  be  liable  for  the  pay- 
ment of  such  indebtedness.* 

§  43.    In  what  respect  the  power  of  a  municipality  is 
restricted. —  A  city,  the  charter  of  which  fully  empowers  and 


admission   that    the    power   existed. 
See  Fosters.  Kenosha,  12  Wis.  616. 

» Bushnell  v.  Beloit.  (1860)  10  Wis. 
195.     See,  also,  Brodhcad  v.   Milwau- 
kee, 19  Wis.  624;  State  ex  rel.  Car- 
pentcT  r.  Beloit,  20  Wis.  79;  Whiting 
V.  Railroad  Co.,  25  Wis.  167;  Bridge- 
port ©Housatonuc  R  R.  Co.,  15  Conn. 
475;  Sharpless  n.  Mayor,  etc.,  21  Penn. 
St.   147;    Comm.   ex  rel.   Thomas  «. 
Comrs.   Allegheny  Co.,   7  Am.   Law 
Reg.  92;  Talbot  v.  Dent,  9  B.  Mon.  520; 
Slack  r.  Maysville  &  Lexington  R.  R. 
Co.,  13  B.  Mon.  1;  Cheaney  v.  Hooser, 
9B.  Mon.   250;  Goddin  v.  Crump,  8 
Leigh,    120;    Nichol  v.   Mayor,   etc., 
Nashville,  9  Humph.  252;  Cincinnati 
R.  R.  Co.  V.  Clinton  County,  1  Ohio 
St.  77;  Steubenville  &  Ind.  R.  R.  Co. 
V.  North  Township.   1  Ohio  St.   105; 
Shaw   V.    Dennis.   5  Gilm.  (111.)  405; 
Ryder  v.    Altor   &  Sangamon    River 
R.  Co.,  13111.  516,  Dubuque  County 
V.  D.  &  P.  R.  R.  Co.,  4  G.  Gr.  1;  Vicks- 
burg,  Shrcveport  &  Texas  R.  R.  Co.  v. 
Ouachita,  11  La.  Ann.  649;  Parker  v. 
Scogin,  11  La.  Ann.  629;  City  of  Au 
rora  v.  West,  9  Ind.  74.     As  to  the 
constitutionality  of  legislative  enact- 
ments authorizing  a  subscription  to 
stock,   etc.,   in  aid  of  railroads,   see 
Stewart  v.  Board  of  Supervisors  of 
Polk  County,  (1870)  30  Iowa,  9;  (Joddin 
V.  Crump,  8  Leigh,  120;  Starinr.  Genoa, 
29  Barb.  442;  Bank  of  Rome  v.  Village 
of  R:)me,  18  N.   Y.  38;   Prettyman  v. 
Supervisors,  etc.,  19 111.  406;  Robertson 
f>.  Rockford,  21  111.  451;  Johnson  v. 
Stark  Co.,  24  111.  75;  Pattison^.  Yuba 
Co.,   13  Cal.  175;    Blanding  v.  Burr, 
13  Cal.  343;  Hobart  v.  Supervisors,  17 
Cal.  23;  Taylor  v.  Newberne,  2  Jones 
Eq.  (N.  C.)  141;  Caldwell  v.  Justices 


of  Burke.  4  Jones  Eq.  (N.  C.)  323; 
Louisville,  etc.,   R.  R.   Co.  v.  David- 
son,  1  Sneed,  637;  Nichol  v.  Mayor, 
etc.,    of    Nashville,   9  Humph.    252; 
Railroad    Co.   v.   Comrs.    of    Clinton 
Courty,   1  Ohio  St.   77;    Trustees  of 
Paris  V.  Cherry,  8  Ohio  St.  564:  Cass 
V.  Dillon,  2  Ohio  St.   607;    State  v. 
Comrs.  of  Clinton  County,  6  Ohio  St. 
280;  State  v.  Van  Home,  7  Ohio  St. 
327;    State  v.  Trustees  of  Union,   8 
Ohio  St.  394;  Trustees,  etc.,  v.  Shoe- 
maker,   12    Ohio    St.    624;     State    v. 
Comrs.  of  Hancock,  12  Ohio  St.  596; 
Powers  V.  Dougherty  County,  23  Ga. 
05;  San  Antonio  v.  Jones,  28  Tex.  19; 
Commonwealth     v.    McWilliams,    11 
Penn.  St.  61;  Moers??.  City  of  Reading, 
21  Penn.  St.  188;  Slack  p.  RaiIro?.dCo., 
13  B.  Mon.   1 ;  Talbot  v.  Dent,  9  B. 
Mon.  526;  City  of  St.  Louis  v.  Alex- 
ander, 23  JMo.  483;  City  of  Aurora  «. 
West,  9  Ind.  74;  Cotton  ©.  Comrs.  of 
Leon.  6  Fla.  610;  State  ex  rel.  Copes «?. 
Charleston,  10  Rich.  (S.  C.)491;  Comrs. 
of  Knox  County  r.  Aspinwall,  21  How. 
539;  Comrs.  of  Knox  County  v.  Wal- 
lace,    21     How.     546;     Zabriskie    v. 
Railroad  Co.,  23  How.  381;  Amey  v. 
Mayor,  etc.,  24  How.  364;  Gelpcke  tJ. 
Dubuque,   1  Wall.  175;   Thomson  v. 
Lee  County,  3  Wall.  327;  Rogers  «. 
Burlington,    3    Wall.    654;    Gibbons 
V.  Mobile  &  G.  &  Northern  R.  R.  Co., 
36  Ala.  410;  St.  Joseph,  etc.,  R.  R. 
Co.   v.   Buchanan   County  Court,   39 
Mo.  485;  State  v.  Linn  County  Court, 
44  Mo.    504;    Stewart   v.    Board   of 
Supervisors  of  Polk  County,  30  Iowa, 
9;  John  v.  C.  R.  &  F.  W.  R.  R.  Co., 
35  Ind.  539;  Ex  parte  Selma,  etc.,  R. 
R.  Co.,  45  Ala.  696;  Stockton  &  Visalia 
R.  R.  R.  Co.  V.  Stockton,  41  Cal.  147. 


I 


1 


60  GENERAL  POWER  TO  INCUR  PBCUNIABY  UABILITY.  [§  43 

OTthorizes  its  city  council  "  to  make,  ordain  and  enact  such  laws 
and  rculations  (not  contrary  to  the  Constitution  and  laws  ot 
this  state)  as  may  ho  deemed  necessary  in  relation  to  the  streets 
and  hi-'liways,  public  buildings  and  powder  magazmes,  and  every 
other  matter  and  thing  which  they  n.ay  deem  necessary  for  the 
good  order  and  weirare  of  said  city,"'  is  not  authorized  to  construct 
or  aid  in  constructing  a  plank  road  or  bridge  beyond  the  corpo- 
rate limits  of  said  city.' 

■City  Council  of    .Montsromcry    '.    proceeds  in  any  m,inner  which  they 
Montgoracrv&\Vct„nn.kal'h.nkU.«a    .night    suppose  woul.l    «<lv»"^«  J";* 
Co    ami)  31  Ala.  7(i,  holding  ,i  lc«n   interest  ot  the  proprietors.     It  is  only 
of^lhc  city  funds  to  tb,s  company  for   necessary  to  state  the  consequence  to 
construction  of  its  r««l  and  a  bridge   show  the  danger  of  such  a  conslruc^ 
Cnd  the  linuts  of  the  city  to  have   tion.'"     Siting  The  Pco,de..Unca 
beenunauthoriz.ed»ndvo,d;STo.NE,.I..   Ins.  Co.,  15  Johns    a>8.fS    Stetson 
aud-    "Wctind  no  express  authority    r.  Kempton,  13  Mass.  m,  2.8,  iJ, 
Tn  ihe  charter  of  this' city]  to  enter   State  of  Ohio  ..  ^^•-'"^.^-.  ^^^ 
Lothe  contract  declared  on;  neither    Ubmry   Co      "   »  "»•,  f -/"S-    * 
is  the  exercise  of  such  power  ncces-    Ames  on  torp^  (■^\''f„\f';  ^'Z 
sary  to  carry  into  effect  any  of  the  ex-    The  language  found  m  the  charter 
p,2sly  gn.nted  powers;  nor  was  the    which  was  ">-'"'">  ■"'«'/';^;^°' 
exercise  of  the  power  under  considera-    Beaty  v.  Lessee  of  Knowler,  mpra. 
«on  a  neccs-sarv  n.eans  of  effecting  the   strikingly  resembles  the  clause    rom 
purpose    for    which  this  corporation    the  act  incorporating  the  c.ty  of  Motil- 
„    'created       •     •     •-     As  to  the    gomery,    which   wc  are  considering. 
cfftKjt  ot  the  general   words    in    the   The  grant  of  power  in  the  one  case  is 
charter  it  was  said:    "  In  the  case  ot   that  '•the  director.  .Ml  !,.,rn^,m-  to 
Beaty  r.  Lessee  of  Knowler,  4  Pet.    ,!,>  .r!,.,la;r  „h.,n  .,v,>^.<r  :    haatob, 
15-'  171    the  Supreme  Court   of  the    «,r,.«,(;-,v  "/"'  pi-vixr  to  Uiloiir,     etc. 
U^ted  'states  held  the  following  Ian-    In  the  other  it  embraces  ".rw-i,  «(/.«• 
euace-      The  provision  in  the   10th    matttr  aodlhii.'j  tchii:h  th(y  man  ilecm 
Ltion  tnat  the  '  directors  shall  have    uecemtnj  for  the  gmnl  order  and  mlfar, 
power  to  do  whatever  shall  appear  to   of  mid  city."    In  this  case,  as  in  the 
them  necessary  and  proper  to  bo  done   case  from  4  Pet.  .«p™,  if  the  words 
for  the  well  orfering  of  .he  interest  of   ot  the  charter  "  are  not  to  be  res  nc,e.l 
the  proprietors,  not  contrary  to  the   by  the  other  provisions  of  the  stau^. 
laws  of  the  state,'  was  not  intended  to   but  to  be  considered  according  to  their 
rive  unlimited  power,  but  the  exercise   literal  im|>ort.  they  would  vest  in  the 
of  a  discretion  within  the  scope  of  the   corporate  authorities  a  power    __ 
authority  conferred.    If  the  words  of  only  Hmited  by  their  discretion.      We 
this  section  are  not  to  be  restricted  by   cannot  believe  it  was  the  ■nten.ion  of 
the  other  provisions  of  the  sbitute,  but   the  legislature  to  confer  on  the  t  ty 
to  be  conidered  according  to  their  lit-   council   of   Montgomery      unl.niitcHl 
eral  import,  they  would  vest  in  the   power,"  but  only  to  grant  to  that  body 
directory  a  power  over  the  land  only   the    right  to  exercise   "a  discretion 
limited   by  their   discretion.      They   within  the  scope  of  the  authonty  con- 
could  dispose  of  the  land  and  vest  the   ferred.    In  other  words,  we  hmit  the 


• 


§44] 


PUBLIC  CORPORATIONS. 


51 


§  44-  Subscription  for  less  than  the  amount  voted.— When 

authorized  by  the  legislature  to  issue  bonds  which  may  be 
delivered  to  a  railroad  corporation  in  payment  of  a  subscription 
to  its  capital  stock  by  a  municipal  corporation,  the  subscription  to 
stock  or  issue  of  bonds  may  be  for  less  than  the  amount  voted.* 


words,  •  every  other  matter  and  thing/ 
as  found  in  tlie  act,  to  such  subjects 
as  are  cognate  to  the  powers  expressly 
conferred." 

'  Chicago,  Kansas  &  Western  R.  R. 
Co.  V.  Ozark  Township,  (1891)  46  Kans. 
415.     The  court  cites  Turner  v.  Wood- 
son County,  27  Kans.  314,  and  then 
SJiid:    "This  question  has  also  been 
virtually    decided    *    *     *     by    the 
Supreme  Court  of  Alabama  [in]  Win- 
ter V.  City  Council  of  Montgomery,  65 
Ala.  403;  s.  c,  7  Am.  «&  Eng.  R.  R. 
Cas.  307.     This  case  is  as  nearly  in 
point,  as  nearly  applicable,  as  nearly 
analogous  to  the  present  case  as  it 
could  well  be,   and   we  know  of  no 
authority  to  the    contrary,   and    the 
principle  enunciated  in  the  cases  cited 
is  substantially  that  when  authority  is 
given  to  the  officers  of  a  public  corpo- 
rjition.  by  an  election  or  otherwise,  to 
issue  a  certain  amount  of  the  bonds  of 
the  corporation,  the  officers  will  have 
the  power  and   the  right,    wherever 
there  is  a  sufficient  reason  therefor,  to 
issue  a  less  amount  of  the  bonds  of 
the  corporation."    The  court  further 
on  in  the  opinion  said:  "The  object 
of  the  law  in  peiTuitting  public  corpo- 
rations to  subscribe  for  stock  in  rail- 
road  companies,   and   to  issue    their 
bonds  in  payment  therefor,  is  not  in- 
tended as  a  business  transaction  like 
that   consummated   by  an  individual 
when  he  purchases  stock  and  pays 
therefor  in  money  or  in    something 
else.     It  is  merely  for  the  purpose  of 
procuring  greater  facilities  for  travel 
and    transportation    for    the    general 
public  which  is  always  considered  as  a 
public  purpose  and  not  merely  as  a 
private  purpose,  enterprise  or  busi- 


ness transaction.     The  act  itself  auth- 
orizing     counties,     townships     and 
municipal    corporations  to  subscribe 
for  stock  in  and  to  issue  bonds  to  rail- 
road companies,  is  entitled,  '  An  act  to 
enable  counties,  townships  and  cities 
to  aid  in  the  construction  of  railroads/ 
etc.     Laws  of  1876,  chap.  107.     This 
shows  that  the  main  object  of  the  act 
was  to  enable  counties,  townships  and 
cities  '  to  aid  in  tfie  construction  of  rail- 
roadH,'  and  was  not  to  permit  such  cor- 
porations to  engage  in    such    trans- 
actions as  a  mere  business  venture,  or 
as  an  investment  in  stock  or  a  specu- 
lation in  bonds  and  stocks."    Twenty 
years  ago  it  was  said  by  this  court  in 
the  case  of  Comrs.   of  Leavenworth 
Co.  V.  Miller,  7  Kans.  479,  528,  529,  532, 
among  other  things,  as  follows:  "  If  a 
railroad  company  is  purely  a  private 
corporation,   and   if  the  construction 
and    operation    thereof    is    purely    a 
private  purpose,  neither  the  govern- 
ment nor  any  municipal  corporation 
has  any  right  to  become  a  stojkholder 
therein.     Governments   were   not  or- 
ganized for  the  purpose  of  engaging 
in  private  enterprises  or  private  busi- 
ness, but  only  for  the  transaction  and 
promotion  of  public  affairs.     Even  if 
the   purchase  of  stock  in  a   railroad 
company  should   be  a  paying  trans- 
action as  an  investment  (which  unfor- 
tunately  for  counties  and  municipal 
corporations  it  is  not),  still  a  govern- 
mental  organization  would  have  no 
right  for  that  reason  alone  to  engage 
in  it,  for  governmental  organizations 
are  not  created  for  purposes  of  specu- 
lation, nor  are  they  created  for  the 
purpose  of  promoting  the  general  wel- 
fare of  the  individual  members  thereof 


'  S  • 


52  GENERAL  POWEB  TO  INCUB  PECUNIARY  LIABILITY.  [§  45 

§  45;  The  effect  of  subsequent  legislation  upon  such  a  sub- 
scnption.—  A  city  in  Georgia,  the  mayor  and  council  of  winch  had 
been  by  statute  empowered  « to  borrow  money  and  contract  loans, 
not  to  exceed  $200,000,  for  the  use  of  the  city    *    *     * ;  and 
to  pledge  the  funds  or  property  of  the  corjioration     *    '*     ♦ 
and  the  commons  thereof,  for  the  redemption  of  such  loan  or 
loans,  and  also  shall  have  power  to  purchase  any  real  or  personal 
estate  for  the  use  and  benelit  of  the  corporation,     *    *    *  "    sub- 
scribed for  sliares  of  stock  of  a  railroad  company.     After  the 
subscription  the  city  authorities  were  by  statute  "empowered  to 
contract  a  further  loan  of  the  same  amount,  over  and  above  the 
amount  already  borrowed,  and  that  the  town  commons  and  pub- 
lic property  of  the  city  be  pledged  for  the  payment  of  the  same." 
The  preamble  to  this  last  act  referred  to  the  passage  of  the  first  act, 
concluding  :  "  And  whereas,  that  sum  has  been  already  borrowed 
and  vested  in  stocks  for  the  purposes  of  internal  improvement:' 
The  Supreme  Court  of  Georgia  held  that  the  effect  of  this  last 

or  citizens.    The  increased  faciUty  for  the  voters  at  the  election.    Thepropo- 
travel  and  transportation  is  the  main    sition  was,  when  fairly  construed,  that 
object  m  the  creation  of  railroads,  and   the  city  should  extend  aid  to  the  imI- 
this  It  IS  which  constitutes  a  railroad   road  company  by  the  issue  of  its  bonds 
a  pubhc  purpose.     All  other  benefits,    to  an  amount  not  exceeding  one  niil- 
though  belonging  of  right  to  the  pub-   lion  of  dollars,  which  were  (o  be  em- 
lic  are  simply  incidental."    Pages  528   ployed  in  building  and  equipping  the 
and  529.     "The    opening  of  hotds,    road.     It  was  not  pecuniary  gain,  not 
the  runnmg  of  stage  coaches,   hacks,    any  of  the  advantages  which  would 
drays,  etc.,  have  never  been  considered   accrue  to  an  individual  from  member- 
as    incumbent     upon    governments,    ship  in  the    railroad    company    .hat 
Govemmentshave  never  undertaken  to   formed  a  motive  or  inducement  for 
keep  hotels,  run  stage  coaches,  etc..  and   clothing  the  city  with  power  to  aid  in 
It  has  never  been  considered  that  there    the  construction  of   the    road     The 
was  any  moral  or  legal  obligation  rest-   benefits  which  would    result  to  the 
mg  upon  them  to  do  so.     But  the  duty    commerce  and  industry  of  the  city 
of  opening  highways,  canals  and  other   the  increased  facilities  of  access  to  it* 
like  improvements  for  the  accoramo-    were   the    purposes    for    which    the 
dation  of  travel  and  commerce,  has   power  was  conferred.     If  these  could 
always  been  considered  most  binding   be  secured  without  involving  the  city 
upon  all    governments."    Page    532.   in  a  debt  of  one  million  of  dollars,  it 
In  the  case  of  Winter  v.  City  Council   was  not  only  within  the  power,  but  it 
of   Montgomery,   above     cited,     the   was  the  duty  of  the  city  council  to 
Supreme  Court  of  Alabama  used  the   secure  them  for  the  least  practicable 
following,    among    other    lan-Tuage:   sum.     The  power  to  create  the  larger 
*'  We  do  not  discover  that  the  city   includes  the  power  to  create  the  lesser 
council  varied  the  propositions  which   debt.      0mm    majua    conimet    in  se 
were  submitted  to  and  approved  by   miiws."  7  Am.  &  Eng.  R.  R.  Cas.  319. 


i 


§§  46,  47] 


PUBLIC  C0RP0EATI0N8. 


53 

statute,  by  necessary  implication  was  to  ratify  and  make  valid  the 
subscription  for  the  shares  of  stock  of  the  raib-oad  corporation.^ 

§  46.  Statutory  authority  to  construct  a  railroad  —  The 
Supreme  Court  of  Ohio  has  sustained  the  constitutionality  and 
validity  of  the  act  of  the  legislature  of  that  state,  the  general 
scope  and  purpose  of  which  was  to  authorize  cities  of  the  state  of 
a  certain  population  to  construct  a  line  of  railroad  leading  there- 
from to  any  other  terminus  in  the  state,  or  in  any  other  state, 
through  the  agency  of  a  board  of  trustees,  etc.,  with  authority  to 
8uch  board  of  trustees  to  borrow  a  sum  of  money  to  a  limited 
amount,  and  to  issue  bonds  of  the  city,  secured  by  a  mortgao^e 
upon  the  railway  and  its  net  income,  with  a  pledge  of  the  faith 
of  the  city  to  levy  a  tax  sufficient,  with  the  net  income  of  the 
road,  to  pay  the  interest  upon  and  provide  a  sinking  fund  for  the 
payment  of  the  bonds.* 

§  47.  Constitutional  provisions  conctrued.—  The  constitu- 
tional provision  in  Kentucky  that  no  act  of  the  legislature  author- 
izing the  creation  of  any  debt  on  behalf  of  the  commonwealth 
shall  become  effective  until  it  has  been  submitted  to  the  people 
at  a  general  election,  and  shall  have  received  a  majority  of  all 


»Winn  V.  City  Council  of  Macon 
(ISnT)  21  Ga.  275. 

« Walker  v.  City  of  Cincinnati,  (1871) 
21  Ohio  St.  14.     Scott,  Ch.  J.,  said  : 
"  That  it  is  within  the  legitimate  scope 
of  legislative  power  to  authorize  a  mu- 
nicipality of  the  state  to  aid  in  the  con- 
struction  of  a   public  improvement, 
such  as  a  railroad,  by  becoming  a  stock- 
holder in  a  corporation  created  for  that 
purpose,  and  to  levy  taxes  to  pay  the 
subscription,  must  be  regarded  as  fully 
settled  in  this  state  by  repeated  adju- 
dications.    In  the  case  of  C,  W.  & 
Z.  R.    R.   Co.    V.    Comrs.  of  Clinton 
County,  1  Ohio  St.  77,  the  subject  was 
very  fully  considered;  and  it  was  held 
that  as  the  state  may  itself  construct 
roads,  canals  and  other  descriptions  of 
internal  improvements,  so  it  may  em- 
ploy any  lawful  means  and  agencies 
for  that  purpose,  among  which   are 
private  companies  incorporated  for  the 


construction  of    such   improvements. 
And  it  was  said  that  for  much  stronger 
reasons  counties  might  be  authorized 
to  construct  works  of  a  similar  kind, 
of  a  local  character,  having  a  special 
relation  to  their  business  and  interests. 
And,  as  the  state  might  construct  or 
authorize  the    counties    to   construct 
these  works  entire,  or  create  corpora- 
tions to  do  it  entire,  it  was  held  that  as 
a  question  of  power  each  might  be  au- 
thorized to  do  a  part.     *    *    *    And 
if,  in  the  absence  of  a  constitutional 
prohibition,  a  municipal   corporation 
may  be  authorized  to  aid,  by  stock 
subscriptions,  in  the  construction  of  a 
railway  which  has  a  special  relation  to 
its  business  and  interests,  upon  what 
principle  shall  we  deny  that  it  civn  be 
authorized  to  construct  it  entirely  at 
its  own  expense,  when  its  relation  is 
such  as  to  render  it  essential  to  the 
business  interests  of  the  municipality?" 


54 


GENERAL  POWER  TO  INCUR  PECUNIARY  LIABILITY.  [§  48 


Ir 


D' 


tlie  votes  tben  cast "  does  not  include  debts  created  by  a  county 
or  otber  municipal  division  of  the  state.  Whether  tax  in  aid  of 
the  construction  of  a  turnpike  for  instance  shall  be  levied  or  not 
may  be  submitted  to  the  voters  of  a  county  or  magisterial  district 
of  a  county  at  a  special  election.^ 

§  48.  What  is  not  a  work  of  "  internal  improvement,"  in 
the  meaning  of  Nebraska  statute. —  A  steam  grist  mill  is  not 
a  work  of  internal  improvement  within  the  meaning  of  the  stat- 
ute of  Nebraska  whicli  authorizes  counties,  cities  and  precincts  of 
organized  counties  "  to  issue  bonds  to  aid  in  the  construction  of 
any  railroad  or  other  work  of  internal  improvement."  ^ 

>  Walton  V.  Riley,  (1887)  85  Ky.  413;    up  of  cities,  counties  and  towns,  the 
B.  C,  3  S.  W.  Rep.  605.     See  Slack  r.    whole    state    may  thus    become    in- 
Maysville  &   Lexington    R.   R.   Co.,    volvcd.     This  provision,  then,  would 
(1852)  13  B.  Mon.  1.    In  People  ex  rel.    be  no  restriction   upon  the  power  to 
McCagg    V.    Mayor,    Comptroller    6c   create  a  debt  beyond  a  certain  amount, 
City  Clerk  of  the  City  of  Chicago,    and  would  fail  of  its  purpose  of  pro- 
(1869)  51  111.  17;    s.  c,  2  Am    Rep.    tecting  the  state  and  its  citizens  from 
278,  it  was  held  that  the  legislature   oppressive  burtlens." 
might  be  regarded  as  prohibited  by  the       «  Osborne    v.    County    of     Adams, 
clause  of  the  State  Constitution  which    (1882)  106  U.  S.  181;  s.  c,  1  Sup.  Ct. 
prohibited  the  state  from  creating  a   Rep.  168,  affirming  Osborne  v.  County 
debt  exceeding  $50,000  without    the   of  Adams.  (1881)  2  McCrary,  97.     The 
consent  of  the  people,  nitvuifisted  by  a   court  distinguished  Township  of  Bur- 
vote  at  a  general  election,  from  fore-   lington  v.   Beasley,   94   U.  S.  310,  as 
ingone  of  the   municipalities  of  the    follows:    "That   case  arose  under  a 
state  to  incur  debts  for  an  amount   statute  of  Kansas,  which  empowered 
larger  than  §50,000  without  the  con-   municipal  townships  in  that  state  to 
sent  of  the  people  of  such  municipal   issue  bonds  for  the  purpose  of  build- 
division  of  the  state.     The  court  said:   ing  bridges,  free  or  otherwise,  or  to 
"What  is  the  real  value  of  this  pro-   aid  in  the  construction    of  railroads 
vision  of  the  Constitution  if  the  legis-   or  water  power  by  donation  thereto, 
lature,  inhibited  from  incurring  a  debt    or  the  taking  of  stock  therein,  or  for 
beyond  fifty  thousand  dollars  on  be-    other    works    of    internal    improve- 
half  of  the  state,  may  force  a  debt  ten-    ment."    The  bonds  there  in  suit  were 
fold  or  one  hundred-fold  greater,  for   issued  to  aid  in  the  construction  and 
there  is  no  limit  to  the  power  upon  all   completion    of,    and    to   furnish   the 
the  cities  of  the  state?    We  can  per-   motive    power  for.  a  steam  custom 
ceive  none.     Where  these  municipaU-   grist  mill.     It  was  held  that  the  stat- 
ties  become  so  indebted  by  compulsion   ute,  reasonably  interpreted,  embraced 
of  the  legislature  the  whole  state,  in  a  grist  mill  operated  by  steam,  as  well 
its  real  and  substantive,  if  not  in  its   as   one    run    by   water    power;    that 
corporate  body,  will  in  truth  and  fact,    since    municipal   aid   was  authonzed 
be  the  debtor,  for  the  same  power  of   for    "the    construction    of     *     *     * 
coercion  can  be   applied  to  counties   water    power,"     the     phrase    "other 
and  towns,  and  as  the  state  is  made  works  of  internal  improvement."  in  the 


§§  49,  50] 


PUBLIC  CORPORATIONS. 


65 


t 


<f 


It 


f 


I"! 


§  49.  What  is  such  a  work.—  The  Nebraska  Supreme  Court 
lias  held  that  a  water  grist  mill  erected  for  public  use,  the  rates 
of  toll  to  be  determined  by  the  county  commissioners,  was  a  work 
of  internal  improvement  within  the  meaning  of  the  statute  of 
that  state  authorizing  counties  and  cities  in  that  state  "  to  issue 
bonds  or  aid  in  the  construction  of  any  railroad  or  other  work  of 
internal  improvement     *     *     *."  * 

§  50.  Contracts  of  guaranty.—  The  authority  to  sell  nego- 
tiable paper  held  by  a  city  does  not  carry  with  it,  as  an  incident, 

Kansas  statute,  might  be  fairiy  con- 
strued as  embracing  works  of  the 
minor  class,  and  consequently  as  em- 
bracing a  steam  grist  mill.  The  court 
was  somewhat  influenced,  as  plainly 
appears  from  its  opinion,  by  decisions 
of  the  Supreme  Court  of  Kansas,  par- 
ticularly that  of  Commissioners  of 
Leavenworth  County  v.  Miller,  7  Kans. 
479.  The  present  case  is  different. 
The  only  work  of  internal  improve- 
ment specially  in  the  Nebraska  statute 
is  a  railroad,  and  we  are  not  justified 
by  anything  in  Township  of  Buriing- 
ton  V.  Beasley,  or  in  the  decisions  of 
the  courts  of  Nebraska  in  holding  that 
a  steam  or  other  kind  of  grist  mill  is 
of  the  class  of  internal  improvements 
which  municipal  townships  in  that 
state  are  empowered,  by  the  statute 
in  question,  to  aid  by  an  issue  of 
bonds."  For  cases  holding  that  the 
right  to  erect  public  buildings,  such 

as  jails  and  court  houses,  derives  no 

support    from    such    a    statute,     see 

Union    Pacific     Railroad    v.    Lincoln 

County,  3  Dill.  300;  Dawson  County 

r.  McNamar,  10  Neb.  276. 
'Traver  v.  Board,  etc.,  of  Merrick 

County,  (1883)  14  Neb.  327.     Citing  as 

authority  for  this  ruling:  Guernsey  v. 

Burlington  Township,  4  Dill.  372,  375; 

Township  of  Buriington  v.  Beasley,  94 

U.  S.  310,  313.     In  State  ex  rel.  Bowen 

V.  Adams  County,  (1884)  15  Neb.  568, 

in  which  the  Supreme  Court  denied  a 

mandamus  to  compel  a  levy  of  a  tax 


to  pay  interest  on  an  issue  of  bonds  of 
the  county  in  aid  of  a  steam  grist  mill 
on  the  ground  that  there  was  no  stat- 
ute in  that  state  authorizing  the  voting 
of  aid  to  such  mills,  and  that  bonds 
voted  in  aid  of  them  were  invalid,  it 
was  said  that  the  decision  in  the  case 
of    Traver   r.    Board,    etc.,    Merrick 
Countv,   14  Neb.  327,  was  based  al- 
most  entirely  upon  the  statute  author- 
izing   the    condemnation    of    private 
property  for  the  purpose  of  erecting 
dams  and  overflowing  lands  in  order 
to  obtain  power  to  propel  mills,  and 
upon  the  decisions  of  the  Nebraska 
Supreme  Court  in  Nosser  v.  Seeley,  10 
Neb.  460,  and  Seeley  «.  Bridges,  13 
Neb.  547.     In  Traver  v.  Board,  etc., 
Merrick  County,  mjyra,  it  was  said  on 
page  334:  "  There  is  a  clear  distinction 
between  aiding  the  development  of  the 
water  power  of  the  state  — a  power 
which  is  continuing  in  its  nature,  and 
may  be  used  without  cost  or  expense 
and  must  be  used  at  certain  points  on 
a  stream  where  a  dam  can  be  erected 
and  power  obtained  —  and  a  mill  pro- 
pelled by  steam  that  must  be  attended 
with  a  continuous  cost  for  fuel,  and 
may  at  any  time  be  removed  to  another 
locality."     In  County  Commissioners 
V.  Chandler,  (1877)  96  U.   S.  205,  the 
Supreme  Court  of  the  United  States 
held  that  a  bridge  intended  for  and 
used  as  a  thoroughfare  to  be  a  public 
highway  and,  hence,  a  work  of  "in- 
ternal improvement,"  within  the  mean- 


56 


GENERAL  POWER  TO  INCUR  PECUNIARY  LIALILITY. 


■( 


'■      I 


k 


ii 


[§51 


the  power  to  guarantee  it.^  A  county  in  Arkansas  cannot  be 
bound  by  a  contract  entered  into  by  the  county  judge  guarantee- 
ing payment  for  goods  to  be  sold  one  who  has  a  contract  for  the 
construction  of  a  turnpike.^  A  municipal  corporation  authorized 
by  statute  to.  obtain  money  on  loan,  on  the  faith  and  credit  of  the 
corporation,  for  the  purpose  of  contributing  to  works  of  internal 
improvement,  may,  under  the  power  granted  by  the  statute, 
guarantee  the  payment  of  the  bonds  of  a  railway  company.^ 

§  51.  Employment  of  agents  or  attorneys. —  There  is 
authority  in  the  Revised  Statutes  of  Maine,  relating  to  towns,  to 
expend  money  "  for  the  necessary  town  cliarges,"  after  specify- 
ing certain  other  purposes.  Under  those  words  towns  may 
employ  a  reasonable  number  of  agents  or  attorneys  to  advance  or 
protect  the  rights  of  towns  before  any  legally  constituted  tribu- 
nal;* but  they  do  not  authorize  a  town  to  raise  and  expend 
money  to  send  lobbyists  before  the  legislature.^  The  board  of 
directors  of  schools  in  Louisiana  have  authority  to  constitute  or 
defend  suits,  and  the  right  to  incur  liability  for  the  costs  of  such 
suits  follows,  as  a  matter  of  course.*  Reasonable  attorney's  fees 
in  an  action  against  village  trustees  to  enjoin  tlie  collection  of  a 
tax,  and  defended  in  good  faith,  are  a  proper  charge  against  a 


ing  of  the  Nebraska  statute  authoriz- 
ing cities,  counties  and  precincts  in 
that  state  to  issue  bonds  in  aid  of 
works  of  "  internal  improvement." 

» Carter  v.  City  of  Dubuque,  (1872) 
86  Iowa,  416. 

'  Dickinson  Hardware  Co.  v.  Pulaski 
County,  55  Ark.  437;  b.  c,  18  8.  W 
Rep.  463. 

»City  of  Savannah  v.  Kelly,  (1883) 
108  U.  8.  184;  s.  c,  2  Sup.  Ct.  Rep. 
472.  Mr.  Justice  Matthews,  speak- 
ing for  the  court,  said  thjit  the 
fact  that  the  money  "was  not  ad- 
vanced directly  to  the  city,  but  upon 
its  assurance  of  repayment  to  the  rail- 
road company,  is  not  a  departure  even 
from  the  letter  of  the  law,  much  less 
from  its  meaning;  nor  does  the  fact 
that  the  money  was  advanced  partly 
on  the  credit  of  the  railroad  company 
diminish  the  presumed  reliance  of  the 


purchaser  upon  that  of  the  city  with 
which  it  was  joined.  It  is  difficult  to 
conceive  of  language  more  compre- 
hensive than  that  employed  to  em- 
brace every  form  of  securities  in  which 
the  faith  and  the  credit  of  the  city  might 
be  embodied,  and  that  in  such  cases  it 
is  not  important  to  the  character  of  the 
transaction  that  the  money  is  obtained 
in  the  first  instance  by  the  railroad 
company,  upon  the  credit  of  the  city, 
was  directly  ruled  in  Rogers  v.  Bur- 
lington, 3  Wall.  654,  and  affirmed  in 
Town  of  Venice  'c.  Murdock,  92  U.  8. 
494." 

*  Inhabitants  of  Frankfort  t.  Inhab- 
itants of  Winterport,  (1865)  54  Me. 
250. 

»Ibid. 

•Fisher  v.  Board  of  Directors  of 
C^ty  Schools  of  New  Orleans,  (1892)  44 
La.  Ann.  184;  a.  c.»  10  So.  Rep.  494. 


1 


i 


\ 


I 


ijjr 


§52] 


PUBLIC  CORPORATIONS. 


57 


village  under  a  statute  authorizing  village  trustees  "  to  employ  an 
attorney  or  attorneys  for  the  transaction  of  any  matter  requiring 
legal  skill."  ^  The  Kansas  Supreme  Court  has  held  that  when- 
ever a  county  is  interested  at  all  in  the  result  of  a  suit,  either  in 
its  own  behalf  or  in  that  of  some  township  of  the  county,  and  the 
suit  is  brought  against  the  legal  representatives  of  the  county,  and 
is  beyond  the  limits  of  the  county,  as^  for  instance,  a  mandamus 
proceeding  against  the  commissioners  of  a  county  before  the 
Supreme  Court,  the  county  commissioners  may,  if  they  choose, 
employ  counsel  to  take  care  of  the  interests  of  the  county.^  This 
rule  has  been  declared  in  Kansas.  A  county's  contract  with  a 
counselor  at  law  for  services,  such  as  are  required  by  law  to  be 
performed  by  the  county  attorney,  is  prima  facie  void.^  So, 
also,  is  a  contract  by  a  city  for  services  as  an  attorney  or  counselor 
at  law,  such  as  the  law  requires  to  be  performed  by  the  city 
attorney.* 

§  52.  Contracts  for  legal  services  —  when  allowed. —  Towns 
in  Illinois  have  power,  at  their  annual  town  meetings,  to  provide 
for  the  institution  and  defense  of  all  suits  in  which  they  are 
interested,  and  a  town  meeting  may  exercise  the  power  by  reso- 
lution directing  the  supervisor  to  procure  legal  services,  and  such 
a  contract  will  be  binding  on  the  town  should  the  amount  agreed 


» Squire  d.  Preston,  (1894)  82  Hun. 
88;  8.  c,  31  N.  Y.  Supp.  174. 

'Thacher  v.  Comrs.  of  Jefferson 
County,  (1874)  13  Kans.  182;  People  v. 
Supervisors  of  N.  Y.,  32  N.  Y.  473; 
Brady  v.  Supervisors  of  N.  Y.,  2 
Sandf.  460;  Gillespie  r.  Broas,  23 
Barb.  370. 

«Clough  V.  Hart,,  (1871)  8  Kans.  487. 

*  Ibid.  In  Hugg  v.  City  Council  of 
City  of  Camden,  (1878)29  N.  J.  Eq.  6, 
where  there  was  a  city  ordinance  pro- 
viding that  the  solicitor  of  the  city 
should  prosecute  and  defend  all  suits, 
etc.,  brought  by  or  against  the  city, 
the  chancellor  refused  a  mandatory  in- 
junction to  restrain  the  city  from  em- 
ploying other  counsel,  on  the  ground  of 
possible  iiTeparable  injury  to  the  city, 
the  suit  being  ready  for  trial,  and  on  the 
ground  that  the  complainant's  right 
8 


was  not  clear.  As  to  the  employment 
of  additional  counsel  to  assist  corpora- 
tion counsel  or  to  conduct  profession- 
ally business  in  which  the  city  is 
interested,  see  Smith  v.  Mayor,  etc., 
of  New  York,  (1875)  5  Hun,  237.  As  to 
employment  of  attorneys  by  counties, 
see  Brome  t>.  Cuming  County,  31  Neb. 
362;  s.  c,  47  N.  W.  Rep.  1050;  Board 
Comrs.  Rush  County  t.  Cole,  2  Ind. 
App.  475;  8.  c,  28  N.  E.  Rep.  772; 
Beebe  ».  Board  Suprs.  Sullivan  County, 
64  Hun,  377;  s.  c,  19  N.  Y.  Supp.  629; 
Waters  v.  Trovillo,  47  Kans.  197;  s.  c, 
27  Pac.  Rep.  822;  Butler  v.  Sullivan 
County,  108  Mo.  630;  s.  c,  18  S.  W. 
Rep.  1142;  Lassen  County  v.  Shinn, 
88  Cal.  510;  s.  c,  26  Pac.  Rep.  365; 
Fouke  v.  Jackson  County,  84  Iowa 
616:  8.  c,  51  N.  W.  Rep.  71. 


l  t 
1 


r 


i 


58 


GENERAL  POWER  TO  INCUR  PECUNIARY  LIABILITY.  [§  52 


to  be  paid  not  be  so  great,  in  view  of  the  interests  involved,  as  to 
indicate  bad  faith.^    The  Supreme  Court  of  Illinois  has  upheld 
as  implied,  under  the  legislation  of  that  state  with  reference  to 
towns,  the  power  of  the  supervisor  of  a  town  to  enter  into  a  con- 
tract of  retainer  with  an  attorney  at  law  to  defend  a  suit  insti- 
tuted against  the  town  upon  coupons  attached  to  bonds  of  the 
town  the  validity  of  which  was  disputed.^     In  case,  in  the  exer- 
cise of  their  judgment  and  discretion,  the  governing  board  of  a 
county  conceive  that  the  interests  of  the  county  are  involved  in 
a  certain  question,  and  take  legal  measures  by  suit  or  otherwise, 
to  advance  or  protect  those  interests,  the  expense  incurred  thereby 
becomes  a  legal  charge  against  the  county,  notwithstanding  the 
judgment  of  the  court  in  the  matter  be  that  a  wrong  remedy 
was  adopted,  or  that  there  was  no  remedy  at  all.'    A  county, 
under  the  statutory  power  "  to  make  all  contracts  and  do  all  other 
acts  in  relation  to  the  property  and  concerns  of  the  county  neces- 
sary to  the  exercise  of  its  corporate  powers,*'  may  retain  attor- 
neys to  resist  the  collection  of  a  tax  in  the  action  of  a  taxpayer 
who  has  been  induced  by  the  courts  to  refuse  to  pay  a  tax  levied 
by  the  state  for  payment  of  interest  on  certain  county  bonds,  the 
object  being  to  test  the  validity  of  such  bonds.*     And  the  stat- 
ute making  it  the  duty  of  county  boards  to  take  suitable  measures 
for  prosecuting  and  defending  all  suits  to  be  brought  by  or  against 
their  respective  counties,  and  all  suits  which  it  is  necessary  to 
prosecute  or  defend  to  enforce  the  collection  of  all  taxes  charged 
on  the  state  assessment,  does  not  take  away  the  right  to  retain  an 
attorney  in  such  a  case."* 


»Towii  of  Mt.  Vernon  «?.  Patton, 
(1879)  94  111.  65. 

« Town  of  Bruce  v.  Dickey.  (1886) 
116  111.  527;  8.  c,  6  N.  E.  Rep.  435; 
Cooper  V.  Delavan,  61  111.  96. 

*  xlomblower  v.  Duden,  (1868)  35  Cal. 
664-  In  State  ex  rel.  Bermudez  v. 
Heatb,  Mayor  of  New  Orleans,  (1868) 
20  La.  Ann.  172;  8.  c,  96  Am.  Dec. 
390,  the  Supreme  Court  held  the  right 
of  the  city  to  employ  an  attorney  at 
law  conversant  with  city  affairs  to  fa- 
cilitate the  collection  of  debts  due 
the  city  was  unquestionable  as  long  as 
it  infringed  on  no  rights  of  the  city's 
officers.    The  court  upheld  a  contract 


in  this  case  made  with  one  who  was 
assistant  city  attorney,  to  collect  all 
bills  for  taxes  assessed  on  property  as 
unknown,  and  all  unsatisfied  judg- 
ments in  favor  of  the  city  for  taxes,  on 
the  ground  that  it  neither  violated  the 
charter  of  the  city  nor  conflicteti  with 
any  of  the  rights  of  the  assistant  city 
attorney,  nor  did  the  duties  involved 
in  the  contract  embrace  any  of  the 
duties  or  include  any  of  the  emolu- 
ments of  the  office  of  assistant  attorney. 

*  Franklin  County  r.  I^ayman,  145 
111.  138;  8.  c,  33  N.  E.  Rep.  1094,  af- 
firming 43  m.  App.  163. 

*  Ibid. 


f 


1 


' 


§§  53,  54] 


PUBLIC  C0RP0KATI0N8. 


59 


§  53-  Contracts    for    legal    services  —  how    made. — The 

common  council  of  a  city  in  Indiana  is  vested  with  the  power  to 
employ  counsel  to  assist  the  city  attorney  to  protect  the  interests 
of  the  city;  but  the  contract  of  employment  must  be  made 
directly  or  through  an  authorized  agency.^  The  common  coun- 
cil of  a  city  being  empowered  by  its  charter  to  employ  counsel 
cannot  delegate  this  power  to  the  mayor,  and  any  contract  made 
by  the  mayor  with  an  attorney  to  act  for  the  city  will  be  void.' 
This  power  by  ordinance  to  select  an  attorney  for  a  city  conferred 
upon  the  common  council  is  a  trust  created  for  a  public  purpose, 
not  assignable  at  the  will  of  the  trustee.^  The  Court  of  Errors 
and  Appeals  for  New  Jersey  has  held  that  the  corporate  authori- 
ties of  one  of  the  cities  of  that  state,  under  the  provisions  of  its 
charter,  had  the  power  to  employ  associate  counsel  in  defending 
suits  against  the  corporation  or  in  which  the  city  was  interested  ; 
and  that  the  board  of  aldermen  were  sole  judges  of  the  necessity 
of  such  employment  in  any  particular  case,  and  the  exercise  of 
their  discretion  in  such  a  matter  was  not  reviewable  in  that  court.* 
The  authorities  of  the  city,  though  under  its  power  to  employ 
associate  counsel,  were  not  vested  with  the  right,  under  the  guise 
of  such  employment,  to  withdraw  and  take  out  of  the  hands  of 
the  city  counsel  any  particular  class  or  classes  of  cases  and  to  con- 
fide the  management  of  them  to  others.® 

§  54.  Where  a  public  corporation  is  bound  for  legal  serv- 
ices.—  An  attorney  properly  employed  by  a  town  to  perform 
legal  services,  being  ready  and  willing  to  perform  the  contract, 
should  the  proper  officers  of  the  town  prevent  his  doing  so,  will 
be  entitled  to  recover  under  the  contract.®    If  there  is  an  appeal 


*  Justice «).  City  of  Logansport,  (1892) 
6  Ind.  App.  135;  8.  c,  32  N.  E.  Rep. 
868;  City  of  Logansport  v.  Dykeman, 
116  Ind.  15. 

'  City  of  East  St.  Louis  v.  Thomas, 
(1882),  11  Bradw.  283. 

» Cooley's  Const.  Lim,  204;  City  of 
East  St.  Louis  v.  Wehrung,  50  111.  28; 
Fos9  V.  City  of  Chicago,  56  111.  354; 
Jenks  V.  Cliicago,  56  111.  397;  L.  S.  & 
M.  S.  Ry.  Co.  V.  Chicago,  56  111.  454; 
Jackson  Co.  v.  Brush,  77  111.  59:  Oak- 
land V.  Carpentier,  13  Cal.  540;  Why te 
V.  Mayor,  2  Swan,  364;  Darling  v.  St. 


Paul,  19  Mnn.  389;  State  v.  Bell,  34 
Ohio  St.  194;  State  v.  Hauser,  63  Ind 
155;  Birdsall  v.  Clark,  73  N.  Y.  73; 
Brooklyn  v.  Breslin,  57  N.   Y.   591; 
Ruggles  V.  Collier,  43  Mo.  353. 

*  State,  Hoxsey,  v.  Mayor  &  Alder- 
men of  the  City  of  Paterson,  (1878)  40 
N.  J.  Law,  186. 

**  Ibid.  See  reasoning  of  the  court  in 
Ramson  v.  Mayor,  etc.,  of  New  York, 
24  Barb.  226. 

'Town  of  Mt.  Vernon  v.  Patton, 
(1879)  94  111.  65. 


If: 

I    t 


l/'»l 


f 


4 


:  I 


60 


GENERAL  POWER  TO  INCUR  PECUNIARY  LIABILITY.  [§  65 


from  the  action  of  a  city  council  while  acting  as  a  board  of 
equalization,  this  being  the  discharge  of  a  corporate  function, 
and  acting  as  a  representative  of  the  city,  a  city  solicitor  would 
be  justified  in  defending  its  action  in  the  appellate  court  and  for 
such  services  would  be  entitled  to  compensation,  even  though 
neither  the  service  nor  the  compensation  be  provided  for  by 
ordinance.^  An  attorney  employed  by  a  town  agent  in  Vermont 
in  a  suit  in  favor  of  or  against  the  town  is  entitled  to  payment 
for  his  services  from  the  town,  without  an  express  vote  to  that 
effect;  and  the  rule  is  the  same  if  the  town  agent,  being  an 
attorney,  renders  professional  services  for  the  town.'  And  if  a 
town  agent,  after  the  expiration  of  his  term  of  office,  continues 
the  management  of  suits  in  which  the  town  is  interested,  without 
any  objection  from,  or  any  express  employment  by  the  town  or 
his  successor,  as  town  agent,  he  is  entitled  to  recover  of  the  town 
for  his  services  after  his  term  of  office  expires.'  An  officer  of  a 
city  who  has  employed  counsel  in  a  contest  to  gain  possession  of 
the  city's  property,  in  the  result  of  which  the  city  is  interested, 
may  compel  the  city  to  pay  the  expenses  incurred  by  him  in  the 
matter.* 

§  55.  Employment  of  counsel  for  the  defense  of  officers. — 
Counsel  may  be  employed  by  a  town  to  defend  their  police  officers 
in  actions  for  false  imprisonment.' 

of  that  state,  Bradley,  Ch.  J.,  used 
this  language  in  support  of  the  judg- 
ment denying  an  injunction:  "Is  it 
then  one  of  the  usual  and  ordinary 
expenses  of  a  city  to  protect  its  offi- 
cers who,  while  exercising  in  good 
faith  the  functions  of  their  office, 
have  been  found  by  the  verdict  of  a 
jury  to  have  exceeded  the  lawful 
powers  of  that  office  and  to  have  tres- 
passed upon  the  rights  of  a  citizen? 
If  the  power  to  indemnify  an  officer 
under  these  circumstances  does  not 
rest  in  that  body  who  appropriated 
the  money  for  all  the  legitimate  duties 
of  a  municipality  within  its  own 
province,  the  various  executive  officers 
of  a  city  perform  their  duties  at  the 
peril  of  an  individual  responsibility 
for  all  their  mistakes  of  law  and  of 


»Kinnie  v.  City  of  Waveriy,  (1876) 
42  Iowa,  437. 

•Langdon  v.  Town  of  Castleton, 
(1858)  30  Vt.  285. 

»Ibid. 

*Stilwell  V.  Mayor,  etc.,  of  N.  Y., 
19  Abb.  Pr.  376. 

">  Roper  V.  Town  of  Laurinburg, 
(1884)  90  N.  C.  427;  s.  c.  7  Am.  & 
Eng.  Corp.  Cas.  130;  Babbitt  v.  Savoy, 
3  Cush.  530.  In  Sherman  d.  Carr,  8  R. 
I.  431,  an  action  of  taxpayers  to  en- 
join the  payment  by  the  treasurer  to 
the  mayor  of  moneys  appropriated  by 
the  city  council  to  defray  the  expenses 
of  a  suit  brought  against  the  mayor  of 
a  city  and  the  constable  who  acted  in 
his  aid  for  certain  acts  of  theirs  in  vir- 
tue of  a  power  conferred  upon  the 
mayor  by  act  of  the  general  assembly 


I 


PUBLIC  C0BP0KATI0N8. 


61 


§56] 

§  56.  Indemnity  for  expenses  of  litigation.— A  promise  on 
the  part  of  a  town  to  refund  money  paid  by  assessors  on  an 
illegal  assessment  of  a  town  tax  made  by  them  is  a  valid  con- 
tract.* An  action  by  selectmen  to  recover  the  amount  of  a  judg- 
ment for  damages  and  costs  recovered  against  them  and  paid,  and 
the  reasonable  expenses  of  defending  the  action,  paid  and  incurred 
by  them,  would  be  supported  by  a  vote  of  the  town  to  indemnify 
the  selectmen  against  any  claim  for  damages  and  costs  of  a  cer- 
tain description  which  may  be  legally  substantiated  against  them 
or  either  of  them.^  And,  on  such  a  vote  to  indemnify  them,  the 
action  may  be  to  recover  the  amount  of  the  judgment  against  the 
selectmen  for  the  damages  and  costs  and  the  fees  of  counsel  and 
witnesses,  and  other  expenses  incurred  reasonably  and  in  good 
faith  in  defending  the  action  in  which  the  judgment  was 
recovered  without  proving  that  the  town  had  notice  of  the  pen- 
dency of  the  action.*  Money  may  be  appropriated  by  a  town  by 
vote  to  indemnify  its  school  committee  for  expenses  incurred  in 
defending  an  action  for  an  alleged  libel  contained  in  a  report 
made  by  them  in  good  faith  and  in  which  libel  suit  judgment  has 
been  rendered  in  their  favor."*  A  town,  where  it  has  appointed  a 
committee  to  defend  an  action  against  one  of  its  officers,  as  for 
instance,  a  surveyor  of  highways,  on  account  of  the  digging  of  a 
drain,  would  be  bound  by  a  vote  to  defray  the  expenses  incurred 
by  such  committee  in  his  defense,  notwithstanding  it  were  under 
no  previous  obligation  to  indemnify  the  surveyor,  and  that  the 
committee  were  entitled  to  compensation  and  indemnity  from  the 
town  for  their  services  and  expenses.'*  A  city  may  and  should 
reimburse  a  mayor  who  has  successfully  resisted  a  proceeding 


fact,  however  honest  and  intelligent 
they  may  be,  and  also  at  the  peril  of 
the  possible  mistakes  of  a  jury  natu- 
rally jealous  of  the  rights  of  the  citi- 
zen when  brought  in  conflict  with  the 
exercise  of  official  power.  If  the  offi- 
cer is  thus  responsible  he  will  natu- 
rally be  too  cautious,  if  not  timid,  in 
the  exercise  of  his  powers  which  must 
be  frequently  exercised  for  the  pro- 
tection of  society,  before  and  not  after 
a  thorough  investigation  of  the  case 
in  which  he  is  called  upon  to  act. 
♦    •    *     We   know   of   no   case   in 


which,  while  the  officer  continues  to 
act  in  behalf  of  the  community,  and 
not  in  his  own  behalf,  it  is  held  that 
the  community  cannot  indemnify 
him." 

>  Nelson  v.  Milford,  (1828)  7  Pick. 
18. 

'  Hadsell  v.  Inhabitants  of  Hancock, 
(1855)  3  Gray,  526. 

3  Ibid. 

*  Fuller  V.  Inhabitants  of  Groton, 
(1858)  11  Gray,  340. 

6  Bancroft  v.  Lynnfield,  (1836)  18 
Pick.  566. 


M 


63 


OENEKAL  POWER  TO  INCUR  PECUNIARY  LIABILITY. 


[§5T 


u 


I 


taken  in  the  name  of  the  city  against  him  to  compel  him  to  a 
course  of  official  action  deemed  by  him  violative  of  law  and 
detrimental  to  the  city's  interest,  where  the  performance  of  that 
duty  has  involved  on  his  part  the  disbursement  of  his  own 
money.*  Towns  may  bind  themselves  by  a  vote  to  indemnify  a 
collector  of  taxes  from  the  costs  and  expenses  of  defendina^ 
actions  brought  against  him  for  acts  done  in  the  performance  of 
his  duties.  And  the  town  may  be  bound  to  the  same  extent  by 
the  selectmen  under  the  provision  of  the  statute  relating  to  towns 
that  they  "  shall  have  the  ordering  and  managing  of  all  the  pru- 
dential affairs  of  the  town." ' 

§  57.  When  a  corporation  is  not  bound  for  professional 
services  of  an  attorney. —  An  attorney  retained  by  a  city  to 
conduct  certain  litigation  until  it  was  concluded,  upon  an  agree- 
ment that  he  was  to  receive  reasonable  compensation  for  his  serv- 
ices, being  afterwards  appointed  city  counselor,  with  prescribed 
duties  to  perform  in  the  matters  of  the  city  involving  litigation, 
the  Supreme  Court  of  Michigan  has  held  could  not  recover  on  a 
qua,itum  meruit  for  services  in  such  suit  performed  after  his 
appointment  to  the  official  position,  in  the  absence  of  any  agree- 
ment that  the  business  of  carrying  on  the  suit,  though  falling 
within  his  official  duties,  should  not  be  considered  as  included 
among  the  services  paid  for  by  the  annual  salary,  but  should  be 
compensated  for  in  some  other  way.^  A  corporation  cannot  by  a 
suit  at  law  question  its  own  existence,  seek  to  restrain  the  regular 
succession  of  its  officers,  and  to  have  a  decree  declaring  its  charter 


^Baraert  v.  Mayor  &  Aldermen 
of  aty  of  Paterson,  (1886)  48  N.  J. 
Law,  395;  s.  c,  6  Atl.  Rep.  15;  16 
Am.  &  Eng.  Corp.  Cas.  131.  On  the 
right  of  a  municipal  corporation  to  re- 
imburse its  officers  in  such  cases,  see 
State,  Lewis,  p.  Freeholders  of  Hud- 
son, 37  N.  J.  Law,  254;  State,  Brad- 
ley, i>.  Hammonton,  38  N.  J.  Law,  430, 

»  Pike  «?.  Middleton.  (1841)  12  N.  H. 
278.  As  to  indemnity  for  expenses  in 
suits  in  which  the  town  is  interested, 
see  Baker  t>.  Inhabitants  of  Windham, 
(1836)  13  Me.  74.  Towns  may  by  a 
▼ote  bond  themselves  for  expenses  of 
a  suit  when  action  is  for  or  against 


them,  and  in  cases  even  where  the  suit 
is  between  third  parties,  if  the  towns 
are  interested.  Briggs  t).  Whipple, 
(1834)  6  Vt.  95.  In  Cullen  v.  Town  of 
Carthage,  (1885)  103  Ind.  196;  s.  c, 
53  Am.  Rep.  504;  14  Am.  &  Eng. 
Corp.  Cas.  256,  the  court  upheld  the 
power,  as  an  incidental  one,  of  the 
board  of  trustees  of  a  town  to  employ 
counsel  to  defend  the  action  brought 
against  the  marshal  of  the  town  for 
false  imprisonment  by  one  whom  he 
had  arrested  for  violation  of  law. 

*City    of    Detroit   «.    Whittemore, 
(1873)  27  Mich.  281. 


§58] 


PUBLIC  CORPORATIONS. 


63 


void,  and  having  no  power  to  institute  sucli  a  suit,  its  authorities 
cannot  bind  it  to  pay  for  the  services  of  an  attorney  in  the  con- 
duct of  the  suit.^  The  statute  of  Arkansas  makes  provision  for 
an  allowance  by  the  County  Court  in  favor  of  a  collector  of  taxes 
for  reasonable  attorneys'  fees  and  other  expenses  incurred  in 
defending  suits  brought  against  him  for  performing  or  attempt- 
ing to  perform  any  duty  in  reference  to  the  collection  of  the 
revenue.*  But  a  county  is  not  bound  to  pay  attorneys  he  may 
be  represented  by  in  an  action  for  injunction  against  his  collec- 
tion of  a  tax,  under  a  contract  with  the  collector.  He  has  no 
power  to  bind  the  county  to  pay  such  fees.  And,  in  the  absence 
of  statutory  regulation,  he  alone  is  liable  in  such  cases.^ 

§58.  The  same  subject  continued.— A  board  of  county 
commissioners  in  Indiana  is  authorized  to  employ  counsel  in  mat- 
ters pertaining  to  the  business  of  the  county,  and  to  give  to  the 
members  of  the  board  legal  advice  in  relation  to  their  official 
duties;  but  they  have  no  power  to  bind  their  successors  by 
employing  attorneys  to  act  for  a  period  beyond  the  time  when 
the  board  will,  by  operation  of  law,  have  to  be  reorganized.'*  A 
county  is  not  bound  by  the  expenses  for  attorney's  services 
incurred  by  a  county  collector  for  resisting  objections  to  his 
bond.«    Negotiable  drafts  drawn  by  a  municipal  corporation  for 

'  Daniel  r.  Mayor  &  Aldermen  of  ^  simmes  v.  Chicot  County,  (1888)  50 
Memphis,  (1851)  11  Humph.  582.  In  Ark.  566;  s.  c,  9  S.  W.  Rep.  308; 
Wallace  ».  3Iayor  &  Common  Council  Fry  v.  Chicot  Co.,  37  Ark.  117. 
of  the  City  of  San  Jose,  (1865)  29  Cal.  *  Board  of  Comrs.  of  Jay  County 
180,  it  was  held  that  there  was  no  v.  Taylor,  (1889)  123  Ind.  148-  s  c 
power,  under  the  charter  of  this  city,  23  N.  E.  Rep.  752;  30  Am.  &  Eng! 
in  the  mayor  and  council  to  enter  into   Corp.  Cas.  294. 

a  contract  by  which  the  city  became       ^Fry,  Collector,   ».  Chicot  County, 
obligated    to    pay  an  attorney  at    a   (1881)  37  Ark.    117.     In   Baldwin   »' 
futuretimeasumof  money.if  hesuc-    School  City  of  Logansport,  a881)  73 
ceeded  in  placing  the  city  in  posses-   Ind.  346,  where  the  school  trustees  of 
sion  of  certain  real  estate,  unless  there   the  city  made  an  order  authorizing  the 
was  money  in  the  treasury  at  the  time   treasurer  of  the  school  board  to  em- 
to  pay  the  same,  after  paying  the  ex-   ploy    attorneys    "  to    prosecute    the 
penses  of  the  city  government  and  all   county  auditor  for  refusing  to  pay 
other  demands  legally  due.     As  to  this   over  moneys  belonging  to  the  school 
contract  creating  a  debt,  see  People  v.    fund,  and  shortly  afterward  there  was 
Johnson,    6    Cal.     499;    Nougues  v.    elected  a  new  board  of  school  trustees, 
Douglass.  7  Cal.  65,  69;  People  ex  rel.    whereupon    the   attorneys  employed 
McCuUough  t.  Pacheco,  27  Cal.  175.      under  the  order  of  the  former  trustees 
•Mansf.  Dig.  Ark.  §  6859.  proceeded  in  the  proper  court  for  a 


\>    > 


64  GENERAL  POWER  TO  INCUR  PECUNIARY  LIABILITY.    [§§  59,  60 

the  payment  of  judgments  and  costs  in  actions  brought  against 
the  supervisors  of  the  county  for  penalties  for  an  alleged  neglect 
of  duty  in  refusing  to  audit  and  allow  salaries  to  associate  judges 
of  general  sessions  of  the  corporation  appointed  under  an  uncon- 
stitutional law,  have  been  held  in  New  York  to  be  void  upon  the 
ground  that  the  corporation  had  no  right  to  assume  defense  of  an 
action  to  which  it  was  not  a  party  and  which  it  had  no  interest  in 
resisting.* 

§59-  What  contracts  with  attorneys  are  contrary  to 
public  policy. — A  contract  entered  into  by  the  authorities  of  a 
city,  with  an  attorney  who  liad  been  under  the  employment  of 
the  city  in  a  litigation  to  protect  its  rights  in  certain  property 
and  franchises,  under  a  former  contract,  which  by  its  terms  is 
irrevocable  and  binds  the  city  for  additional  compensation  to  such 
attorney  in  the  form  of  a  large  proportion  of  the  city's  receipts, 
as,  for  instance,  from  the  use  of  a  ferry  by  the  public,  is  beyond 
the  power  of  such  authorities ;  is  contrary  to  public  policy.' 

§  6o.  Limitations  upon  the  indebtedness  to  be  incurred. — 
Bj  a  statute  of  Massachusetts  one  of  its  cities,  for  the  purpose  of 
supplying  pure  water  to  its  citizens,  after  providing  for  condem- 
nation of  lands,  etc.,  and  the  appointment  of  commissioners  to 
execute  the  work,  was  authorized  through  its  city  council  "  for 
the  purpose  of  defraying  the  cost "  of  whatever  lands  were  so 


§60] 


PUBLIC  CORPORATIONS. 


65 


mandate  to  the  auditor,  etc.,  the  ob- 
ject of  the  suit  being  to  determine 
who  were  the  legal  school  trustees,  it 
was  held  that  the  order  of  the  school 
trustees  above  mentioned  did  not  au- 
thorize the  employment  of  the  attor- 
neys to  bring  a  civil  suit  to  try  the 
question  as  to  who  were  the  legal 
trustees,  and  the  school  city  was  not 
liable  for  the  fees  of  the  attorneys  for 
such  services. 

'Halstead  v.  Mayor,  etc.,  of  New 
York,  3  N.  Y.  430,  affg.  5  Barb.  218. 

•  Waterbury  v.  City  of  Laredo,  (1887) 
68  Tex.  565;  8.  c,  20  Am.  &  Eng. 
CJorp.  Cas.  186.  It  was  said  by  the 
court:  "  Such  a  contract,  if  valid, 
certainly  would  divest  the  municipal 
fovemment  of  the  discretion  conferred 


upon  it  —  a  discretion  necessarily  leg- 
islative in  character,  which  such  a 
body  cannot  surrender  by  contract  or 
bind  itself  not  to  exercise  freely  when- 
ever it  may  become  necessary. "  Water- 
bury  V.  City  of  Laredo,  60  Tex.  522; 
Laredo  v.  Macdonncll,  52  Tex.  520; 
Laredo  t.  Martin,  52  Tex.  559.  In 
Board  of  Comrs.  of  Jay  County  «. 
Taylor,  (1889)  123  Ind.  148;  s.  c,  23 
N.  E.  Rep.  752;  30  Am.  &  Eng.  Corp. 
Cas.  294,  a  contract  entered  into  be- 
tween the  board  of  commissioners  and 
certain  attorneys,  by  which  the  board 
employed  these  attorneys  to  act  as 
county  attorneys  for  a  period  of  three 
years  from  a  date  named  in  the  con- 
tract, was  held  to  be  void  as  contrary 
to  public  policy. 


condemned,  and  of  completing  the  works  and  paying  all  expenses 
incident  to  the  accomplishment  of  the  main  purpose  "  to  issue 
scrip  to  an  amount  not  exceeding  in  the  wliole  five   hundred 
thousand  dollars."     The   Supreme  Court  of  Judicature  of  that 
state  construed  this  act  not  to  restrict  the  city  in  the  amount  of 
expenditures  which  they  might  make  for  the  accomplishment  of 
the  purpose  of  the  a<?t,  but  only  in  the  amount  of  permanent 
debt  which  they  might  create.^     The  provision  in  the  charter  of 
a  city  that  the  council  "  shall  not  borrow  for  general  purposes 
more  than  fifty  thousand  dollars,"  the  Supreme  Court  of  the 
United  States  has  held  did  not  limit  the  debt  of  the  city,  nor 
prohibit  the  council  from  entering  into  a  contract  involving  an 
expenditure  exceeding  that  amount  for  special  improvements, 
such  as  the  grading  and  paving  of  streets  and  the  construction  of 
sidewalks,  which  were  autliorized  by  its  cliarter.^     The  effect  of 


'Foote  V.  City  of  Salem,  (1867)  14 
Allen.  87.    Bigelow,  Ch.  J. , said  :  "It 
is  a  restriction  on  the  authority  of  the 
city  to  create  a  permanent  debt,  pay- 
able at  a  distant   period  of  time,  but 
not  a  limitation   on   their  powers  to 
raise  money  by  taxation  or  temporary 
loans  in  order  to  carry  forward   and 
execute  the  works  which,  by  the  pre- 
vious provisions  of  the  act,  they  were 
in   the  broadest    terms  em  powered  to 
construct.     *     *     *     If  construed  as 
an  absolute  condition  or  limitation  on 
the  authority  of   the  city,   no  steps 
could  be  safely  taken  to  execute  the 
authority  conferred,  unless  it  had  been 
previously  ascertained  that  the  expen- 
diture to  be  incurred  would  not  ex- 
ceed the  prescribed  sum.     But  it  is 
obvious  that  this  would  be  clearly  im- 
practicable in  relation  to  an  enterprise 
of  the  character  contemplated  by  the 
statute." 

« Hitchcock  v.  Galveston,  (1877)  96 
U.  S.  341,  holding  further  that  the 
contract  was  not  rendered  wholly  in- 
operative because  it  provided  that  the 
work  done  under  the  contract  should 
be  paid  for  in  bonds  of  the  corpora- 
tion, the  issue  of  which  bonds  was  un- 
authorized by  law.  The  contract,  so 
9 


far  as  it  was  in  other  respects  lawful, 
remained  in  force,  and  for  the  breach 
of  the  same  the  corporation  was  liable. 
See  as  to  this  last  point:    Tracy  v. 
Talmage,    14  N.    Y.    162;    Curtis    v. 
Leavitt,  15  N.  Y.  9;  Oneida  Rnnk  r. 
Ontario  Bank,  21  X.   Y.  490;  Argenti 
v.  City  of  San  Francisco,  16  Cal.  255; 
Maher  v.  City  of  Chicago,  38  111.  266 i 
City  of  Chicago  v.  The  People,  48  111. 
416.     In  The  State  Board  of  Agricul- 
ture V.  Citizens'  Street  Railway  Co.,  47 
Ind.  407,  it  was  held  that  although  there 
may  be  a  defect  of  power  in  a  corpora- 
tion to  make  a  contract,  yet  if  a  con- 
tract made  by  it  is  not  in  violation  of 
its  charter  or  of  any  statute  prohibit- 
ing it,  and  the  corporation  has  by  its 
promise  induced  a  party  relying  on 
the  promise  and  in  execution  of  the 
contract  to  expend  money  and   per- 
form his  part  thereof,  the  corporation 
i^  liable  on  the  contract.     See,  sub- 
stantially to  the  same  effect,  Allegheny 
City  V.  McClurkan,  14  Penn.   St.   81; 
Silver  Lake  Bank  v.  North,  4  Johns. 
Ch.  370.     As  to  the  rule  in  the  text, 
see  Cumtning  v.  Brooklyn,  11  Paige, 
596;  Allen  «?.    City  of  Janesville,  °35 
Wis.    403;   Argenti    v.   City   of   San 
Francisco,  16  Cal.  255. 


I 


66 


OENERA.L  POWEE  TO  INCUR  PECUNIARY  LIABILITY.  [§  61 


charter  provisions  of  a  city  prohibiting  the  creation  of  municipal 
liabilities  in  any  one  year  exceeding  the  amount  to  be  raised  by 
tax  and  providing  tliat  payments  on  a  municipal  contract  shall  be 
made  from  sums  raised  by  tax  for  the  year  for  which  such  con- 
tract is  made,  is  to  forbid  the  creation  of  future  responsibility 
for  annual  current  expenses.*  The  provisions  in  the  statute  of 
Iowa  declare  that  it  is  competent  for  any  city  authorized  by 
that  statute  to  levy  a  tax  to  pay  for  the  paving  of  street  and 
alley  intersections  ""  to  anticipate  the  collection  thereof  by  borrow- 
ing money,  and  pledging  such  tax,  whether  levied  or  not,  for  the 
payment  of  the  money  so  borrowed."  Tlie  Supreme  Court  of 
that  state  has  held  that  there  was  no  limitation  upon  the  city  as 
to  the  amount  of  the  work  of  the  kind  contemplated  it  might  do 
in  a  single  year  except  the  limitation  in  the  Constitution  as  to  the 
indebtedness  it  might  contract,  and  that  the  provision  above 
referred  to  did  not  limit  the  city  in  making  the  loan  provided  for 
to  the  amount  of  tax  which  would  accrue  under  a  levy  for  a 
single  year,  but  that  it  was  empowered  to  pledge  the  tax  to  any 
extent  necessary  to  enable  it  to  meet  such  indebtedness  as  it 
might  lawfully  incur  in  a  single  year,  and  to  levy  a  tax  for 
successive  years  for  that  purpose.'' 

§  6i.  The  same  subject  continued. —  The  indebtedness  of  a 
school  district  having  exceeded  that  allowed  by  the  constitutional 
limitation,  should  its  directors  contract  an  indebtedness  with  other 


» Putnam  v.  City  of  Grand  Rapids, 
(1885) 58 3Iich.  416:  s.  c,  25 N.  W.  Rep. 
330;  City  of  Springfield  v.  Edwards,  84 
111.  636-,  Law  v.  People,   87  111.   385; 
Fuller  t.  City  of  Chicago,  89  111.  282; 
Howell  V.  City  of  Peoria,  90  111.  104; 
New  Orieans  v.  Clark,  95  U.  8.  644, 
652;  French  v.  City  of  Buriington,  42 
Iowa,   614;   National   State   Bank  r. 
Independent  District,  39  Iowa,  490; 
McPherson   v.  Foster,   43   Iowa,  48; 
City  of  Council  Bluffs  v.  Stewart,  51 
Iowa,  385;  Scott  r.  City  of  Davenport, 
34  Iowa,  208;  Mosher  v.  Independent 
School  District,  44  Iowa,  122;  East  St. 
Louis  r.   People,   6  Bradw.   76;  Bu- 
chanan V.  Litchfield,  102  U.  S.  278. 

*  Coggeshall «?.  City  of  Des  Moines, 
(1889)  78  Iowa,  235;  s.  c,  41  N.  W. 


Rep.  617;  42  N.  W.  Rep.  650.     A  con- 
tract entered  into  by  a  city  with  a 
water  works  company  to  furnish  water 
to  the  city   for  an  annual  sum  has 
been  held  not  to  be  in  violation  of  a 
law  that  the  council  of  the  city  shall 
contract  no  debt  on  its  part  which 
shall  not  be  payable  within  the  fiscal 
year  in  which  it  was  contracted,  and 
which  cannot  be  discharged  from  the 
income  of  such  year,  as  the  compensa- 
tion for  each    year's  service  of    the 
company  under  the  contract  in  ques- 
tion was  payable  in  that  year  and  each 
year's  indebtedness  was  only  for  the 
water  furnished  in  that  year.     Utica 
Water  Works  Co.  p.  City  of    Utica, 
(1884)  31  Hun,  426. 


§61] 


PUBLIC  CORPORATIONS. 


67 


persons,  and  afterwards,  through  collusion  with  those  other  per- 
sons, permit  them  to  obtain  judgment  for  such  indebtedness 
against  the  school  district,  the  judgment  would  be  of  no  validity 
against  the  district,  and  could  not  be  enforced.^  The  limitation 
of  the  indebtedness  wliich  may  be  incurred  by  a  county  of  the 
territory  of  Utah,  as  fixed  by  the  act  of  congress  with  reference 
to  territories  and  the  territorial  legislature,  is  the  amount  of  the 
income  and  revenue  of  the  county  for  the  two  years  just  preced- 
ing tlie  incurring  of  the  indebtedness,  and  the  Supreme  Court  of 
the  territory  has  held  county  warrants,  issued  for  indebtedness 
beyond  that  amount,  to  be  void  and  unauthorized.^ 


'  Kane  v.  Independent  School  Dist. 
of  Rock  Rapids,  (1891),  82  Iowa,  5; 
8.  c,  47  N.  W.  Rep.  1076. 

« Fenton  v.  Blair,  (Utah,  1895)  39  Pac. 
Rep.  485.     In  Butts  v.  Little,  (1881)  68 
Ga.  272,  the  Supreme  Court  of  Georgia 
held  that  for  a  county  to  contract  for 
the  erection  of  a  public  building  at  a 
specified  price,  which  was  to  be  com- 
pleted by  a  certain  date,  and  payment 
for  which  was  to  be  made  as  the  work 
progressed,  on  estimates  to  be  made 
by  certain  architects,  less  fifteen  per 
cent,  was  in  effect  a  contract  to  pay  the 
price  agreed  on  by  the  day  of  the  date 
of  completion  fixed;  and  the  amount 
being  more  than  could  constitutionally 
be  raised  by  taxation  without  author- 
ity of  the  voters  exhibited  by  an  elec- 
tion, was  to  incur  a  debt  not  authorized 
by  the    Constitution.     See   Spann   v. 
Webster  County,  64  Ga.  498,  500;  Hud- 
son V.  Marietta,  64  Ga.  286.    As  to  the 
effect  of  limitation  upon  the  power  to 
create   indebtedness,   see  Murphy  v. 
East  Portland,  42  Fed.  Rep.  308;  Lott 
V.  Mayor,  etc.,  of  City  of  Waycross,  84 
Ga.  681;  s.  c,  11  8.  E.  Rep.  558;  Dehm 
V.  City  of  Havana,  28  111.  App.  520; 
Clark  V.  Columbus,  23  Wkly.  Law  Bull. 
289;  Coggeshall  v.  City  of  Des  Moines, 
78  Iowa,  235;  s.  c,  41  N.  W.  Rep.  617. 
In  Cabaniss  v.  Hill,  (1885)  74  Ga.  845,  a 
contract  for  certain  iron  doors,  cells, 
pipes  for  sewers,  etc.,  furnished   a 


county  under  a  contract  which  pro- 
vided that  the  contractors  agreed  "  to 
take  and  receipt  the  sum  of  $3,510  in 
warrants  on  county  treasurer,  payable 
on   December  25,  1884,  and  bearing 
eight  per  cent  interest  after  that  date 
until  paid  in  full,  in  payment  for  said 
cells    and   wrought  iron  works,"  for 
which,  at  the  November  term  of  the 
Court  of  Ordinary  orders  were  issued 
to  **  pay  out  of  any  money  now  being 
collected  for  new  jail  fund,"  was  held 
to  create  a  new  debt,  and  that  it  was 
in  violation  of  the  Constitution  of  the 
state.     Rogers    v.    Board    of    Comrs. 
Le  Sueur  County,  (Minn.)  59  N.  W. 
Rep.  488;  Hunt  v.   Fawcett,  8  Wash. 
396;  8.  c.  36  Pac.  Rep.  318;  Hocka- 
day   V.    Comrs.,    1    Colo.    App.    362; 
Barnard  v.  Knox  County,  105  Mo.  382; 
8.  c,   16  S.  W.  Rep.  917,  overruling 
Potter  V.   Douglas   Co.,   87  Mo.  240; 
Bonnell  v.  County  of  Nuckolls,  32  Neb. 
189;  8.  c,  49  N.  W.  Rep.  225,  aflarm- 
ing  Bonnell  v.  Nuckolls  County,  28 
Neb.   90;  s.  c,  43  N.  W.  Rep.  1145; 
Baird  v.  Todd.  27  Neb.  782;  Spilraan 
V.  City  of  Parkersburg,  35  W.  Va.  605; 
s.  c,  14  S.  E.  Rep.  279;  Hockaday 
V.   Board    of  County   Comrs.,   (Colo. 
App.)  29  Pac.  Rep.  287;  Nolan  County 
T.  State,  83  Tex.  182;  s.  c,  17  S.  W. 
Rep.  823;  People  v.  Hamill,  134  HI. 
666;  8.  c,  29  N.  E.  Rep.  280;  Rehmke 
V.  Goodwin,  2  Wash.  St.  676;  s.  c,  27 


\l 


1 


GENERAL  POWEB  TO  mCUB  PECUNIARY  LIABILITY.         [§  62 

§  62/ Limitations  upon  power  to  incur  indebtedness  — 
procuring  a  supply  of  water. — Where  the  common  council  of 
a  city  was  prohibited  by  the  charter  from  contracting  debts  or 
incurring  liabilities  exceeding  in  any  one  year  the  revenue  for 
such  year  unless  authorized  by  a  majority  vote  of  the  electors  of 
the  city,  tlie  Supreme  Court  of  Micliigan  held  that  a  contract 
made  by  the  common  council  without  such  a  vote  for  the  use  of 
at  least  fifty  water  hydrants  per  year  at  fifty  dollars  each  for  a 
term  of  thirty  years,  created  a  liability  against  the  city  to  the 
full  extent  of  the  thirty  yeai-s'  rental,  which  aggregate  liability 
being  in  excess  of  the  revenue  which  could  be  legally  raised  in 
any  one  year,  the  contract  was  void.^ 


Pac.  Rep.  473;  Mayor,  etc.,  of  Rome 
V.  McWilliams,  (1881)  67  Ga.  106; 
State  ex  rel.  Vandiver  t?.  Tolly,  (S.  C, 
1892)  16  S.  E.  Rep.  195;  Childs  v.  City 
of  Anacortes,  (1892)  5  Wash.  St.  452; 
B.  c,  32  Pac.  Rep.  217. 

» Niles  Water  Works  v.  Mayor,  etc., 
of  the  City  of  Niles,  (1886)  59  Mich. 
311;   8.   c,  26  N.   W.   Rep.  525;   11 
Am.    &    Eng.    Corp.   Cas.   299.      In 
Davenport    c.   Kleinschmidt,  (1887)  6 
Mont.   502;   s.   c,   16   Am.   &   Eng. 
Corp.   Cas.  301,  where    the    bonded 
indebtedness  of  a  city  was   §19,500 
and  the    floating    indebtedness    over 
$15,000,  a  contract  bonding  the  city  to 
take  water  from  a  contractor  at  an 
annual  rent  of  §15,000  was  held  to  be 
in  violation  of  a  provision  in  the  char- 
ter of  the  city  limiting  the  power  of 
the  city  council  "  to  incur  any  indebt- 
edness on  behalf  of  said  city  for  any 
purpose  whatever  to  exceed  the  sum 
of  $20,000,  as  such  contract  created  an 
indebtedness  within  the  meaning  of 
this  limitation.     See  on  this  subject 
Burlington  Water  Co.  r.  Woodward, 
49  Iowa,  58.  61;  Grant  v.  City  of  Daven- 
port, 36  Iowa,  396,  401;  Sackett  i\  City 
New  Albany,  88  Ind.  473;  s.  c,  45  Am. 
Rep.  472;  Prince  r.  City  of  Quincy,  105 
m.  138,  142;  State  v.  Mayor,  23  La. 
Ann.  358;  Smith  v.  Inhabitants  of  Ded- 
Lam,  (1887)  144  ^ss.  177;  s.  c,  10  N. 


E  Rep.  782.   That  towns  having  power 
to  provide  for  the  purchase  and  main- 
tenance of  (ire  engines  for  the  extin- 
guishment of  fires  have  the  incidental 
power  to  make  provision,  by  reservoirs 
or  other  means,  for  a  supply  of  water, 
without  which  the  engines  would  be 
useless,  see  Hardy  v.  Waltham,  3  Met. 
163.     In  Salem  Water  Co.  t>.  City  of 
Salem,  5  Oreg.  30,  it  was  held  that  an 
agreement  by  the    city  to    pay  the 
water  company  $1,800  per  annum  for 
seventeen  years  in  quarterly  install- 
ments for  water  to  be  furnished  the 
city  without  any  provision  for  raising 
and  appropriating  revenue  to  be  ap- 
plied in  payment  for  such  liabilities  as 
they  became  due,  necessarily  created 
a  liability  within  the  meaning  of  the 
act  of  incorporation  of  the  city  which 
prohibited    the    city    from    creating 
"  any  debt  or  liabilities  in  any  man- 
ner" against  the  city  which  should 
exceed  the  sum  of  $1,000;  and  that 
the    contract   was    void.     The  court 
reviewed  the  following  cases  perti- 
nent to  this  ruling:  State  of  Califor- 
nia p.  McCauley,  15  Cal.  429;  People 
ex  rel.  McCauley  v.  Brooks,  16  Cal. 
11,  24;  Koppikus  i\  State  Capitol  Com- 
missioners, 16  Cal.  249,  253;  State  v. 
Medbery,  7    Ohio  St.  526;  People  v. 
Pacheco,  27  Cal.  175;    Coulson  v.  City 
of  Portland,  1  Deady,  481. 


I 


§63] 


PUBLIC  COKPOEATIONS. 


69 


§  63,  The  same  subject  continued.^  Power  conferred  upon 
cities  by  statute  "to  construct,  maintain  and  operate  water 
works "  does  not,  expressly  or  impliedly,  deprive  such  cities  of 
their  pre-existing  and  co-existing  power  and  right  to  "authorize 
any  incorporated  company  or  association  to  construct  such  works  " 
for  furnishing  the  city  with  wholesome  water.^  The  Indiana 
Supreme  Court,  in  a  later  case  involving  a  contract  with  a  water 
company,  has  held  tliat  although  the  power  of  a  city  to  contract 
for  a  supply  of  water  for  public  use,  be,  in  a  general  sense,  a  dis- 
cretionary one,  it  cannot  be  so  exercised  as  to  create  a  corporate 
debt  beyond  tliat  limited  by  law,  nor  to  surrender  or  suspend 
legislative  power.^  A  city  vested  by  the  terms  of  its  charter 
with  "  full  power  and  authority  to  make  such  assessments  on  the 
inhabitants  of  the  city,  or  those  who  hold  taxable  property 
therein,  for  the  safety,  benefit,  convenience  and  advantage  of  said 
city,  as  shall  appear  to  them  expedient  "  may  make  an  assessment 


'City  of  Vincennes  «.  Callender, 
(1882)  86  Ind.  484,  sustaining  a  con- 
tract of  the  city  with  a  water  company 
to  supply  water  as  not  ultra  vires. 

•City    of    Valpamiso    v.    Gardner, 
(1884)  97  Ind.   1.     As  to  the  contract 
in  this  case,  it  was  generally  said  by 
Elliott,  Ch.  J.  :  "We  have  no  doubt 
that  the  corporation  had  authority  to 
contract  for  a  supply  of  water  for  a 
period  of  twenty  years,  and  that  the 
contract  cannot  be  overthrown  solely 
on  the  ground  that  it  is  a  surrender  of 
legislative  power.     There  is  a  distinc- 
tion between  powers  of  a  legislative 
character  and   powers  of  a  business 
nature.     The  power  to  execute  a  con- 
tract for  goods,  for  houses,   for  gas, 
for  water  and  the  like,  is  neither  a 
judicial  nor  a  legislative  power,  but 
is  a  purely    business    power.      The 
question  is,  however,  so  firmly  settled 
by  authority  that  we  deem  it  unneces- 
sary to  further   discuss  it.     City  of 
Indianapolis  t).  Indianapolis,  etc.,  Co., 
66    Ind.    396;    Dill,   on   Mun.    Corp. 
^§  473,   474,   and  authorities   cited." 
Upon  the  question  of  the  restriction 
upon  the  city  stated  in  the  text  and  as  to 


what  constitutes  a   "debt"  or  ••in- 
debtedness," under  the  constitutional 
provisions  of  various  states,  the  Indiana 
court  refer  to  and  comment  upon  the 
following  cases:    Sackett  v.   City  of 
New  Albany,  88  Ind.  473  ;    Lowber  v. 
Mayor,  etc.,  5  Abb.  Pr.  325;  Chirke 
V.    City  of  Rochester,  24  Barb.   446 
Weston  V.  City  of  Syracuse.  17  N.  Y 
110 ;  Garrison  v.  Howe,  17  N.  Y.  458 
Wentworth   v.   Whittemore,    1  Mass 
471  ;  People  v.  Arguello.  37  Cal.  524 
East  St.  Louis  v.  East  St.  Louis,  etc. 
98  III.  415  ;  Prince  v.  City  of  Quincy 
105  111.  138;  s.  c,  44  Am.  Rep.  785 
Dively    v.   City  of    Cedar    Falls,    27 
Iowa,  227.     Approved  of  in  1  Dill,  on 
Mun.  Corp.  (3d  ed.)  §  135 ;    Grant  v. 
City  of   Davenport,    36    Iowa,    396; 
French  v.  City  of  Buriington,  42  Iowa, 
614 ;  Buriington  Water  Co.   v.  Wood- 
ward, 49  Iowa,  58 ;    Scott  County  v. 
City  of  Davenport,    34    Iowa,    208; 
State  V.  McCauley,  15  Cal.  429 ;  Peo- 
ple V.  Pacheco,  27  Cal.  175 ;    Coulson 
V.    City   of    Portland,      Deady,   481 ; 
Coy   V.   City    Council,    17   Iowa,  1; 
Coffin  V.  City  Council,  26  Iowa,  515. 


r 


70  GENERAL  POWER  TO  INCUR  PECUNIAST  LIABILITY. 


[§64 


§64] 


PUBLIC  CORPORATIONS. 


71 


on  the  value  of  the  real  estate  within  the  corporate  limits  of  the 
city,  through  its  city  council,  for  the  purpose  of  constructing  a 
canal  for  the  better  securing  a  supply  of  water  for  the  city.  A 
municipal  corporation  may  under  legislative  grant  of  power,  to 
make  all  contracts  in  its  corporate  capacity  which  may  be  deemed 
necessary  for  the  welfare  of  the  corporation,  make  a  contract  tor 
the  construction  of  water  works.'  Under  the  statute  entitled 
«  An  act  to  enable  cities  to  supply  the  inhabitants  thereof  with 
pure  and  wholesome  water,'"  a  city  is  authorized  to  contract 
for  a  supply  of  water  for  public  and  private  use.* 

8  64.  Donation  of  bonds  to  aid  in  developing  water  power. 
_  A  municipal  corporation,  the  charter  of  which  authorizes  it 
« to  borrow  money  on  the  credit  of  the  city  and  to  issue  bonds 
therefor,"  and  which,  under  a  special  statute,  is  authorized  to 
borrow  a  sum  named  "to  be  expended  in  developing  tlie  natural 
advantages   of  the  city  for   manufacturing  purposes,     lias   no 
authority,  under  the  grants  of  power  above  stated,  to  issue  bonds 
bv  way  of  donation  to  an  individual  to  aid  in  developing  the 
water  power  of  the  city,  and  is  not  liable  to  an  action^upon  such 
bonds  by  one  who  takes  them  with  notice  of  the  facts. 

.Frederick  ..  City  Council  ot  99  U.  8  86  and  Ottawa  .^Nato^ 
An<..ista  (1848)5  Ga  561.  This  canul  Rink  of  Portsmouth,  lOo  U.  b.  Hi. 
tr:nttruZ  f^  procuring  a  bet-  involving  ^'^fl^\X^JZ 
ter  supply  of  .ater  and  for  manu-  lX:iZtm:^^^^T-> 
^t^y^frTcTunci,  of  Rome  .  Tiue  honds  ^or  W'  pujpo- 
^  Jt  /V$«m  OS  fJa  50  anJ  ''  ^as  recited  in  the  bonds  then 

"^^h  m  N  J.  (876).  366.  sued  on  that  they  .ere  issued  for  such 

.^ckensaek  Watlr  Co.  ..  City  of  purposes,  the  ^^y:^2lT^Me^ 
Hoboken  51  N  J.  I^w,  220;  8.  c,  proving,  as  against  bo,ia  fide  hoWer^ 
f;  Atf  Rep  ^7.  As  to  contracting  that  tho  recitals  were  untrue;  and  as 
fL  water  s^ipply.  ^  City  of  Grand  the  plaintiffs  in  those  cases  had  no 
Crds  .HydLlic  Co.:  66  Mich,  knowledge  of  the  prec.se  purposes  or 
Rapids  „.   tiy  ^^       ^.uich  the  bonds  were  .ssued,  they  hml 

^rian  Waterworks..  City  of  Adrian,  the  right  to  rely  on  what  was  recited^ 

M  Tc™     8    c    31  N.  W.  Ucp.  The  parties  here  suing  d.d  know  tl^ 

^    CMteion«  aty  of  Fulton.  127  purpose  for  which  they  were  issued. 

?^'3^    8 T  18  V  E.  Rep.  781;  These  bonds  being  111  no.s  contracts 

AM^i'.   ritv'  Water  Works  Co.  ».  Wa.te.  Ch.  J.,  referred  to  these  cases: 

AtUntic    &ty    Water   VVorK  jg  Baylor i>.  Thompson,  42111.  9;  Chicago, 

Bead.  50  N.  J.  I*w.  66o.  s.  c.  ^y^_^^^  ^  yincennes  R.  R.  Co.  v. 

Atl.  Rep.  10.  108  U  8    Smith,  62  111.  268;  The  People  t.  Du- 

•  Ottawa  ..Carey  (1|83)  108  U_^»^  .^^  ^^^  ^^    ^^^  ^  ^^^  ^^  ^„. 

iirdi:Ung^ed'^^^-  .  Ottawa.   Lndale.  76  111.  455;  People  .  Trustees 


of  Schools,  78  111.  136;  Quincy,  Mis- 
souri &  Pacific  R.  R.  Co.  r.  Morris,  84 
111    410;   Supervisor,  etc.,  of  Hensley 
Township  V.  The  People,  84  111.  644,  as 
to  what  might  be  held  to  be  a  cor- 
porate purpose.      The  chief    justice 
then  used  this  language  as  to  the  case 
before  the  court:    "As  power  in  a 
municipal     corporation     to     borrow 
money  and  issue  bonds  therefor  mi- 
l)lie3  power  to  levy  a  tax  for  the  pay- 
ment of  the  obligation  that  is  incurred, 
unless  the  contrary  cleariy    appears 
(Ralls  County  Court  v.  The  United 
States,  105  U.  S.  733),  it  follows  that 
the  power  contained  in  the  charter  to 
borrow  money  did  not  authorize  the 
issue  of  the  bonds  in  this  case,  unless 
they  were  issued  for  a  corporate  pur- 
pose, there  being  a  constitutional  pro- 
hibition against  taxation  by  the  city^ 
except  for  corporate  purposes. 
The   charter  confers  all   the  powers 
usually  granted  for  the  purposes  of 
local  government,  but  that  has  never 
been  supposed  of  itself  to  authorize 
taxes  for  every  thing  which,  in  the 
opinion  of  the  city  authorities,  would 
•  promote  the  general  prosperity  and 
welfare  of    the  raunicipahty.'      Un- 
doubtedly the    developments  of   the 
water  power  in  the  rivers  that  traverse 
the  city  would  add  to  the  commerce 
and  wealth  of  the  citizens,  but  cer- 
tainly power  to  govern  the  city  does 


not  implv  power  to  expend  the  public 
money  to  make  the  water  in  this  river 
available  for  manufacturing  purposes. 
It  is  because  railroads  are  supposed  to 
add  to  the   general    prosperity  that 
municipalities  are  given  power  to  aid 
in  their  construction  by  subscriptions 
to  capital  stock  or  donations  to  the 
corporations  engaged  in  their  construc- 
tion;   but  in  all  the  vast  number  of 
cases  involving  subscriptions  and  do- 
nations that  have  come  before  this 
court  for  adjudication  since  The  Com- 
missioners of  Knox  County  «.  Aspin- 
wall    decided   twenty-five  years  ago 
and  'reported  in  21  How.  539,  it  has 
never  been  supposed  that  the  power 
to  govern,  of  itself,  implied  power  to 
make  such  subscriptions  or  such  do- 
nations.    On  the  contrary,  it  has  been 
over  and  over  again  held,  and  as  often 
as  the  question   was  presented,  that 
unless  the  specific  power  was  granted, 
all  such  subscriptions  and  all  such  do- 
nations, as    well  as    the  corporation 
bonds  issued  for  their  payment,  were 
absolutely  void,  even  as  against  bana 
jvde  holders  of  the  bonds.     Thomson  v. 
Lee  County,  3  Wall.  327;  Marsh  v.  Ful- 
ton County,  10  Wall.  670;  St.  Joseph 
Township  V.   Rogers,   16  WaU.  644; 
McClure  «.  Township  of  Oxford,  94 
U.  S.  429;  Wells  x.  Supervisors,   102 
U.  S.  625;  Allen  t\  Louisiana,  103  U. 
S.  80." 


CHAPTEK  II. 

GENERAL  POWER  TO  INCUR  PECUNIARY  LIABILITY  —  PRIVATE 

CORPORiVTIONS. 


§  65.  General    rules   as  to  mcurring 
indebtedness. 

66.  Purchase  of  property. 

67.  Aiding  other  corporations. 

68.  Contracts  of  suretyship. 

69.  Guaranty  of  bonds  of  one  rail- 

way corporation  by  another. 

70.  Guaranty  of  bonds  of  railroad 

corporation  by  one  of  another 
kind. 

71.  Circumstances  surrounding  cor- 

poration may   authorize   the 
guaranty. 

72.  Guaranty  of  dividend  upon  pre- 

ferred stock  of  another  cor- 
poration. 

73.  What  contract  of  another  cor- 

poration may  not  be  guaran- 
teed. 

74.  Athletic  club. 

75.  Banking  associations. 


S;  76. 
77. 
78. 
79. 
80. 
81. 
82. 
83. 


84. 

85. 
86. 
87. 

88. 
89. 

90. 


A  savings  bank's  powers. 
Corporations  dealing  in  lands. 
Insurance  cori)orations. 
Manufacturing  corporations. 
Mining  corporations. 
Railroad  corporations. 
The  same  subject  continued. 
Raising    money  by    borrowing 

notes    and    indorsement    of 

them. 
Evidences    of     indebtedness — 

forms. 
More  rules  on  this  subject. 
Bonds  of  a  banking  association. 
Power  to  secure  their  indebted* 

ness^ 
Limitjition  of  indebtedness. 
Debt  limited  by   par  value  of 

capital  stock. 
When  a  statutory  limitation  of 

indebtedness  does  not  apply. 


^ 

r 


§  65.  General  rules  as  to  incurring  indebtedness. —  Within 
the  scope  of  its  general  and  discretionary  powers,  the  authority 
of  a  corporation  to  dispose  of  its  funds  for  any  purpose  whatever 
may  be  admitted  to  be  absolute  and  beyond  all  control.*  It  is 
always  presumed  that  a  corporate  body  may  make  any  proper 
contracts,  the  scope  and  tendency  of  which  are  manifestly  to  for- 
ward the  design  of  its  legislative  creation.^  Such  corporations, 
if  not  restricted  by  their  charters,  have  incidental  authority  to 
borrow  money  for  any  of  their  lawful  purposes.'  But  the  power 
to  borrow  money,  being  an  incidental  power,  does  not  extend 

» Binney's  Case,  (1829)  3  Bland's  Ch.  agent  under  employment  to  perform 

99,  142.  services  consonant  to  the  general  de- 

'  Kitchen  n.  Cape  Girardeau  &  State  sign  of  the  corporation. 

Line  R  R.  Co.,  (1876)  59  Mo.  514.  an  'Partridge  v.  Badger,  25  Barb.  148. 
action  to  recover  for  services  as  an 


§65] 


PBTVATE  CORPORATIONS. 


73 


beyond  cases  where  it  is  essential  to  the  transaction  of  its  ordi- 
nary affairs.^  The  limit  fixed  in  the  charter  of  a  corporation  as 
to  its  capital  does  not  restrict  its  power  to  contract  debts  for  the 
purpose  of  the  incorporation  as  to  their  amount,  nor  as  to  the 
amount  of  property  it  may  purchase  or  accumulate.^  A  private 
corporation  has  been  held  liable,  at  least  to  the  extent  of  the  con- 
sideration received,  for  indebtedness  assumed  to  be  contracted  in 
excess  of  the  limit  imposed  by  the  articles  of  incorporation.^  A 
corporation,  created  with  authority  to  construct  a  certain  road 
and  collect  toll  thereon,  may  purchase  a  Hke  road  already  con- 
structed, and  charge  toll  thereon.*  A  corporation  organized 
under  a  state  corporation  act  which  authorizes  the  formation  of 
a  corporation  to  engage  "  in  any  lawful  enterprise,  business,  pur- 
suit or  occupation,"  has  power  to  buy  and  sell  or  lease  a  railway.^ 
There  is  an  implied  power  in  a  corporation  empowered  to  con- 
struct a  work  to  borrow  money  necessary  for  the  purpose  of  such 
construction,  and  to  issue  its  bonds  for  the  money  borrowed.*  A 
corporation  authorized  by  the  general  law  under  which  it  is  incor- 
porated to  borrow  money  for  the  purpose  of  constructing  its 
works,  and  to  issue  bonds  for  its  payment,  has  the  power  to  pur- 
chase works  already  constructed  and  suitable  for  its  purposes,  and 
issue  bonds  in  payment  for  such  works."^  In  such  a  case,  the 
<'Drporation  may  issue  stock  for  a  portion  of  the  purchase  money 
of  such  works,  and  pay  in  cash  or  issue  bonds  for  the  balance.® 


'  Beers  v.  Phoenix  Glass  Co. ,  14  Barb. 
858. 

•Barry  v.  Merchants'  Exchange  Co., 
1  Sandf.  Ch.  280. 

•Humphrey  v.  Patrons'  Mercantile 
Association,  (1879)  50  Iowa,  607.  The 
New  York  Court  of  Appeals  has  sus- 
tained the  validity  of  a  contract  of  a 
private  corporation  for  proper  and 
necessary  work  preliminary  to  active 
business  operations,  as  within  its  inci- 
dental power  to  make  any  contract 
necessary  to  advance  the  object  for 
which  it  was  created.  Ivcgrand  r. 
Manhattan  Mercantile  Association, 
(1880)  80  N.  Y.  638,  affirming  44  N. 
Y.  Super.  Ct.  562.  See  Broughton  v. 
M.  Water  Works,  3  B.  &  A.  1;  Bank 
of  Columbia  v.  Patterson,  7  Cranch, 


299;  Straus  &   Bro.  r.  Eagle  Ins.  Co. 
of  Cincinnati;  5  Ohio  St.  59. 

^  State  ex  rel.  v.  Hannibal,  etc.,  Road 
Co.,  (1889)  37  Mo.  App.  496. 

'  Oregonian  Ry.  Co.  n.  Oregon  Ry. 
&  Navigation  Co.,  23  Fed.  Rep.  232. 

•Smith  v.  Law,  21  N.  Y.  296. 

'Gamble  v.  Queens  County  Water 
Co.,  (1890)  25  Abb.  N.  C.  410,  revers- 
ing 52  Hun,  166. 

*  Ibid.  As  to  legislature's  power  to 
authorize  corporations  of  its  creation 
to  borrow  money,  etc.,  see  Covington 
V.  C,  etc.,  Bridqje  Co.,  (1873)  10  Bush, 
74.  As  to  power  to  borrow  money, 
see  Union  M.  Co.  u.  Rocky  Mt.  Nat. 
Bank,  2  Col.  248;  Beers  v.  Phopnix 
Glass  Co.,  14  Barb.  358;  Mead  v. 
Keeler,  24  Barb.  20.    As  to  raising 


if  ulf 


'1 


74 


GENERAL  POWER  TO  INCUR  PECUNIAKY  LIABIUTY. 


[§66 


§66] 


PRIVATE  CORPORATIONS. 


76 


A  corporation,  with  power  to  borrow  money,  may  legitimately 
borrow  promissory  notes  upon  which  to  raise  money  for  its 
business.* 

§  66.  Purchase  of  property. —  By  the  common  law  corpora- 
tions have  a  right  to  purchase  and  hold  property  so  far  as  may 
be  necessary  to  carry  into  execution  the  purposes  and  objects  for 
which  they  are  created.^  A  corporation  incorporated  under  the 
general  laws  of  Alabama,  has  power  to  borrow  money  to  pur- 
chase and  improve  real  estate  that  it  may  be  enabled  to  carry 
into  effect  the  purposes  of  its  incorporation.^  The  Iowa  Supreme 
Court  has  held  that  a  corporation  authorized  by  its  charter  to 
purchase,  etc.,  "  any  real  estate  or  other  property  deemed  advis- 
able in  the  transaction  of  its  business  "  might  purchase  its  own 


money  for  the  purpose  of  carrying  out 
the  purposes  of  its  creation, seo  AVellers- 
burg,  etc.,  Co.  r.  Young,  12  Md.  476; 
Mayor,  etc.,  of  Baltimore  t.  Baltimore 
&  Ohio  R.  R.  Co.,  21  Md.  91.  As  to 
the  means  employed  to  carry  out  such 
purposes,  coming  within  the  implied 
powers  of  corporations,  see  Willmarth 
-p.  Crawford,  10  Wend.  342;  Madison, 
etc..  Plank  Road  Co.  r.  Watertown, 
etc..  Plank  Road  Co.,  5  Wis.  173; 
Clark  t?.  Farrington,  11  Wis.  3()6. 
As  to  these  implied  powers  being  per- 
formed by  their  agents,  see  Smith  t. 
Eureka  Flour  Mills,  6  Cal.  1;  Straus 
&Bro.  «.  Etigle  Ins.  Co.,  5  Ohio  St.  59. 
As  to  making  promissory  notes  under 
the  implied  power,  see  Moss  r.  Oakley, 
2  Hill,  265;  Munn  v.  Commission  Co., 
15  Johns.  44;  Mott  r.  Hicks,  1  Cow. 
513;  Auerbach  t.  Le  Sueur  Mill  Co., 
(1881)  28  Minn.  291;  s.  c,  9  N.  W. 
Rep.  799;  Sullivan  «?.  Murphy,  23 
3Iinn.  6;  Chaska  Company  v.  Board 
of  Supervisors  of  Carver  Co. ,  6  Minn. 
204. 

•Holbrook  p.  Basset,  5  Bosw.  147. 

'  Blanchard's  Gun-Stock  Turning 
Factory  ©.  Warner,  (1848)  1  Blatchf. 
258. 

'Alabama  Grold  Life  Ins.  Co.  r.  Cen- 
tral Agricultural  &  Mechanical  As- 

10 


sociation,  (1875)54  Ala.  73.     A?-ff7iendo 
it  was  said  by  Brickell,  Ch.  J  :  "  The 
general  principle  is  that  a  corporation 
can  make  no  contracts,  and  do  no  acts, 
except  such  as  are  authorized  by  its 
charter.     From  the  charter  it  derives 
all  its  powers,  and  the  capacity  of  ex- 
ercising them.     Any  contract  made  by 
it  not  necessary  and  proper,  directly 
or  indirectly,  to  enable  it  to  answer 
the  purpose  of  its  creation,  is  void, 
and  neither  a  court  of  law  or  of  equity 
can  enforce  it.     Grand  Lodge  v.  Wad- 
dill,  36  Ala.  313;  Smith  r.   Ala.  Life 
Ins.  &  Trust  Co.,  4  Ala.  558;    City 
Coimcil  T.  Montgomery  &  Wetumpka 
Plank  Road,  31  Ala.  76.     It  must  not 
be    understood,    however,    that    the 
charter,  whether  it  is  of  special  legis- 
lative enactment,  or  derived  from  gen- 
eral statutory  provisions,    must   ex- 
pressly confer  the  power  of  making 
contracts.     As  we  have  said,  the  ca- 
pacity to  contnict  is  an  incidental  cor- 
porate power,  and  if  the  special  act  of 
incorporation,  or  the  general  statutory 
law  is  silent  as  to  the  contracts  into 
which  a  corporation  may  enter,  it  has 
the  power  to  make  all  such  contracts 
as  are  necessary  and  proper  to  enable 
it  to  accomplish  the  purposes  of  its 
creation.      Ang.   &  Ames  on    Corp. 


stock.*  Upon  evidence  that  it  was  customary  and  necessary,  in 
the  economical  conduct  of  the  business  of  iron  furnaces  to  con- 
duct a  supply  store  in  connection  therewith,  the  Supreme  Court 
of  Tennessee  has  held  that  debts  created  in  the  purchase  of  a 
stock  of  goods  for  such  store  were  valid  obligations  of  the  furnace 
company.     The  power  to  conduct  such  a  store  being  clearly  inci- 


te 271.  This  is  the  theory  on  which 
the  general  statutes  for  the  organiza- 
tion of  private  corporations  proceed, 
for  though  the  powers  of  such  cor- 
poration are  enumerated,  that  of  mak- 
ing contracts  is  not  included,  but  is 
left  to  Implication  from  the  powers 
mentioned,  and  the  character  and  pur- 
poses of  the  corporation.  It  is  not  in- 
dispensable, therefore,  to  the  validity 
of  a  contract  made  by  a  corporation 
for  money  borrowed,  that  the  power 
to  borrow  money  should  be  exp'ressly 
conferred.  Ang.  &  Ames  on  Corp. 
§  257.  If  the  nature  and  character  of 
the  corporation  render  the  power  a 
usual  and  proper  mode  of  accomplish- 
ing its  objects  and  purposes,  the 
power  is  incidental  or  implied.  When 
the  corporation  has,  as  all  private  cor- 
porations have,  under  the  general  law 
providing  for  their  creation,  the  capac- 
ity of  acquiring  and  holding  personal 
and  real  property,  the  mode  of  acquir- 
ing not  being  limited,  they  may  ac- 
quire it  by  purchase  or  by  gift.  The 
corporation  has  the  capacity  of  an  in- 
dividual in  this  respect,  within  the 
scope  of  its  legitimate  objects  and 
purposes.  Having  the  power  to  ac- 
quire and  hold  personal  and  real  es- 
tate by  purchase,  it  has,  as  an  incident, 
the  power  to  borrow  money  to  make 
the  purchase.  The  exercise  of  such 
power  may  be  advantageous  and  use- 
ful, enabling  the  corporation,  the 
owner,  to  put  its  powers  into  active 
exercise,  and  to  acquire  the  necessary 
property  on  terms  more  profitable  to  its 
stockholders.  It  would  scarcely  be 
affirmed  that  the  power  to  acquire  and 
hold  real  and  personal  estate  must  be 


so  narrowed  that  the  corporation  could 
not  contract  a  debt  for  its  purchase  — 
that  at  the  very  moment  of  the  pur- 
chase and  conveyance  the  purchase 
money  must  be  counted  out  or  the 
purchase  and  conveyance  is  void.  If 
the  necessities  and  interests  of  the  cor- 
poration require  it,  which  must  be  de- 
termined by  those  having  charge  of  its 
affairs,  and  intrusted  with  the  power 
and  duty,  that  a  debt  be  contracted  in 
the  acquisition  of  the  necessary  prop- 
erty, the  power  to  contract  it  cannot 
be  denied.  If  more  advantageous  to 
borrow  the  money  and  make  immedi- 
ate payment  than  to  contract  the  debt 
for  the  purchase  money  with  the  ven- 
dor, the  contract  is  equally  within  the 
scope  of  corporate  power  and  vahd." 
Fay  V.  Noble,  12  Cush.  1;  Davis  v. 
Proprietors  of  Meeting  House,  8  Met. 
321;  Union  Bank  t.  Jacobs,  6  Humph. 
515;  Barry  v.  Merchants'  Exchange 
Co  ,  1  Sandf.  Ch.  280;  Burr  v.  Mc- 
Donald, 3  Gratt.  215;  Curtis  v.  Leav- 
itt,  15  N.  Y.  9;  Bradley  v.  Ballard, 
(1870)  55  111.  413;  Mead  v.  Keeler, 
(1857)  24  Barb.  20;  Partridge  v.  Bad- 
ger, (1857)  25  Barb.  146;  Clark  v.  Tit- 
comb,  (1864)  42  Barb.  122;  Life  &  Fire 
Ins.  Co.  V.  Mechanic  PMre  Ins.  Co., 
(1831)  7  Wend.  31;  Barnes?).  Ontario 
Bank,  (1859)  19  N.  Y.  152;  Smith  v. 
Law,  (1860)  21  N.  Y.  296;  Ridgway  r. 
Farmers'  Bank  of  Bucks  Co.,  (1825)12 
Serg.  &  R.  256;  Hamilton  v.  Newcastle 
&  Danville  R.  R.  Co.,  (1857)  9  Ind. 
359;  Rockwell  v.  Elkhorn  Bank,  (1861) 
13  Wis.  653. 

^  Iowa  Lumber  Co.  r.  Foster,  (1878) 
49  Iowa,  25.  As  supporting  this  doc- 
trine, see  Barton  v.   P.    J.   &  U.  F. 


r. 


76  GENERAL  POWEB  TO  INCUR  PECUNIARY  LIABILITY.  [§  67 

dental  to  the  business  of  making  iron,  was,  therefore,  within  the 
corporate  powers  of  the  company,  though  not  mentioned  in  the 
charter.^ 

§  67.  Aiding  other  corporations.—  An  ae;;  of  the  legislature 
of  New  York  autliorizing  the  several  railroad  corporations  of 
that  state  to  subscribe  to  the  capital  stock  of  a  railroad  company 
designed  to  penetrate  the  westeni  country  has  been  held  to  be 
constitutional  and  valid.=*     The  Supreme  Court  of  Nevada  has 
held  a  contract  by  a  mining  corporation  to  advance  a  specific  sum 
of  money  to  aid  in  the  construction  of  a  tunnel  to  drain  its  mine 
not  to  be  ultra  vires,  and  that  such  a  contract  came  within  the 
incidental  and  implied  powers  of  a  mining  company.^     Notwith- 
standing  the  Code  of  Oregon  in  one  place  provides  that "  persons" 
shall  be  construed  to  include  a  corporation,  the  authority  granted 
under  the  same  Code  to  two  or  more  "  persons  "  to  form  a  corpo- 
ration in  a  certain  manner  does  not  empower  a  corporation  to 
become   a   subscriber  to   shares  in   another   corporation.*    The 
Court  of  Appeals  of  Maryland  has  sustained  the  power  of  one 
steamboat  company  to  purchase  shares  of  stock  in  another.'*    A 

Plank  Road  Co.,  17  Barb.  397;  Cooper  is  nothing  in  the  charter  of  the  steam 
o.  Frederick,  9  Ala.  738;  Verplanek  v.  packet  company  or  in  the  nature  of 
Mer  Ins.  Co.,  1  Edw.  Ch.  84;  Hart-  its  business  that  would,  in  the  slight- 
ridge  V,  Rockwell,  R.  M.  Charlton,  est  manner,  forbid  the  exercise  of  such 
260;  Gillet  «J.  Moody,  3  Comst.  479;  power,  and  having  money  to  loan  or  in- 
Taylor  r.  Miami  Exporting  Co..  6  vest,  there  would  appear  to  be  no  good. 
Ohio,  176;  State  Bank  r.  Fox,  3  reason  why  it  might  not  invest  in  the 
Blatchf.  4^1;  City  Biiuk  of  Columbus  stock  of  other  corporations  as  well  as  in 
f.  Bruce,  17  N.  Y.  507.  any  other  funds,  provided  it  be  done 

^  Searight  t.  Payne,  6  Lea,  288.  bona  fide  and  with  no  sinister  or  unlaw - 

«  White  v.  Syracuse  &  Utica  R.  R.  ful  purpose.  The  courts  of  England 
Co. ,  (1853)  14  Barb.  559.  at  one  time  strongly  opposed  the  rights 

•'sutro  Tunnel  Co.  «.  Segregated  of  one  corporation  to  deal  or  invest  in 
Belcher  Mining  Co.,  19  Nev.  121;  s.  the  stock  of  another  corporation  with- 
c.   7  Pac.  Rep.  271.  out  express  authority  for  so  doing,  but 

*  Denny  Hotel  Co.  of  Seattle  u.  that  opposition  has  been  entirely  over- 
Schram,  (Wash.)  33  Pac.  Rep.  1002.       come  and  it  is  now  settled  there  that 

•Booth  V.  Robinson,  (1880)  55  Md.  one  corporation  may  deal  in  the  shares 
41«.  It  was  said  by  the  court:  ''This  of  unother,  without  express  authority 
[purchase  and  holding  of  this  stock],  so  to  do,  unless  where  expressly  pro- 
it  is  contended,  by  the  plaintiffs,  hibited  or  the  nature  of  its  business  ren- 
could  not  be  done  without  express  dcr  it  improper  so  to  deal.  ReBarned's 
authority  by  law.  But,  while  some  Banking  Co.,  L.  R.,  3  Ch.  105; 
courts  have  so  held,  the  great  weight  Re  Asiatic  Banking  Co.,  L.  R.,  4  Ch. 
of  authority  is  the  other  way.    There   252.    In  the  latter  of  the  cases  first 


68] 


PRIVATE  CORPORATIONS. 


w 


joint  stock  corporation  organized  "to  do  a  general  insurance 
agency  commission  and  brokerage  business  and  such  other  things 
as  are  incidental  to  and  necessary  in  the  management  of  that 
business,"  has  been  held  in  Connecticut  to  have  no  power  to  sub- 
scribe to  the  stock  of  a  savings  bank  and  building  and  loan  asso- 
ciation.* Thougli  the  power  to  borrow  money  may  be  implied 
in  such  a  corporation,  it  cannot  legally  subscribe  to  such  stock  as 
a  means  of  effecting  a  loan  ol  money .^  The  power  of  an  agricul- 
tural society  to  subscribe  to  stock  in  a  street  railway  company 
which  was  to  construct  a  street  railroad  through  the  streets  of 
the  city  to  the  grounds  of  the  society  and  to  borrow  money, 
secure  it  by  assigning  certain  promissory  notes  of  the  railroad 
company  and  mortgage  to  secure  them  and  to  guarantee  such 
notes  in  order  to  effectuate  the  purposes  of  the  society,  has  been 
sustained  by  the  Iowa  Supreme  Court.^ 

§  68.  Contracts  of  suretyship. —  The  Louisiana  Supreme 
Court  has  held  that  there  was  no  express  authority  given  to  the 
officers  of  the  corporation  involved  in  this  case  to  enter  into  a 
contract  of  suretyshio ;  neither  was  there  any  general  authority 


cited.  Lord  Justice  Selwyn.  in  speak- 
ing of  this  power  of  corporations,  sjiid: 
*•  As  to  the  capacity  of  a  trading  cor- 
poration to  accept  shares  in  another 
trading  corporation,  it  is  sufficient 
for  me  to  say  that  I  entirely  agree 
with  the  judgment  of  Lord  Cairns  in 
the  case  of  Barned's  Banking  Co.,  viz., 
that  there  is  not,  cither  by  the  com- 
mon or  statute  law,  anything  to  pro- 
hibit one  trading  corporation  from 
taking  or  accepting  shares  in  another 
trading  corporation.  There  may,  of 
course,  be  circumstances  which  pro- 
hibit or  render  it  improper  for  a  com- 
pany so  to  do  having  regard  to  its 
own  constitution,  as  defined  by  its 
memorandum  and  articles."  It  is  in 
accordance  with  the  statutes  that  the 
law  is  laid  down  as  settled  by  Brice  in 
his  work  on  Ultra  Vires,  pp.  91, 
92.  And  in  this  state  the  same  prin- 
ciple has  been  fully  sanctioned  in  the 
case  of  Elysville  Manuf.  Co.  v. 
OMsko  Co.,  1  Md.  Ch.  Dec.  393,  and 


same  case  affirmed  on  appeal  in  5  Md. 
152. 

'  Mechanics  &  Workingmen's  Mu- 
tual Savings  Bank  &  Building  Asso- 
ciation of  New  Haven  v.  Meriden 
Agency  Co.,  (1855)  24  Conn.  159. 

^  Ibid.  That  a  municipal  corporation 
may  be  bound  by  a  subscription  to 
stock  not  authorized  by  its  charter 
by  subsequent  legislative  sanction,  see 
First  Municipality  n.  Orleans 
Theatre  Co. ,  2  Rob.  (La.)  209.  In  New 
Orleans,  Florida  &  Havana  Steamship 
Co.  V.  Ocean  Dry  Dock  Co.,  (187G)  28 
La.  Ann.  173,  the  Louisiana  Supreme 
Court  held  that  the  dock  company 
could  not  subscribe  to  the  capital 
stock  of  the  navigation  company,  this 
being  foreign  to  the  object  of  its  own 
charter.  Purchasing  stock  of  another 
company.  Salomons  v.  Laing,  12 
Beav.  339. 

3  Thompson  t>.  Lambert,  (1876)  44 
Iowa,  239. 


I 


u  f 


p 


II' 


't 


TO 


GENEEAL  POWER  TO  INCUR  PECUNIARY  LIABILITY. 


[§69 


from  wliicli  the  power  to  enter  into  such  a  contract  could  be 
implied  or  fairly  deduced  imder  a  plea  of  usage,  necessity,  con- 
venience or  public  interest.*  A  corporation  cannot  by  its  officers 
execute  a  note  for  a  debt  due  from  a  third  person  to  another, 
having  no  relation  to  its  business.^  A  manufacturing  corpora- 
tion, organized  under  the  general  laws  of  Kew  York,  has  no 
power  to  indorse  for  the  accommodation  of  another  paper  in 
which  it  is  not  interested.^  And  tlie  indoi-sement  of  such  paper 
by  the  treasurer  of  a  manufacturing  corporation  may  be  pre- 
sumed to  be  tdtra  vind.^  But  this  rule  lias  beenadliered  to,  that 
while  a  corporation  has  no  right  to  bind  itself  by  an  accommoda- 
tion acceptance  or  indorsement,  the  corporation  is  liable  on  such 
acceptance  or  indorsement  to  a  bona  Jide  holder,  although  it  was 
made  for  a  purpose  or  at  a  place  not  authorized  by  the  charter  of 
the  corporation.* 

§  69.  Guaranty  of  bonds  of  one  railroad  corporation  by 
another. —  Upon  a  sufficient  consideration  one  railroad  corpora- 
tion may  guarantee  the  payment  of  the  bonds  of  another.*     It  is 


» Louisiana  State  Bank  r.  Orleans 
Navigation  Co.,  (1848)  3  La.  Ann.  294, 
in  which  case  the  powers  of  corpora- 
tions at  comipon  law  and  under  the 
Civil  Code  of  Louisiana  are  fully  dis- 
cussed. 

•Hall  r.  Auburn  Turnpike  Co., 
(I860)  27  Cal  255. 

'National  Park  Bank  r.  German- 
American  Warehousing,  etc.,  Co., 
(1889)  116  N.  Y.  281;  s.  C,  26  N.  Y. 
St.  Repr.  675;  Wahlig  v.  Standard 
Pump  Manufacturing  Co.,  (1889)  25  N. 
Y.  St.  Repr.  864;  8.  c,  5N.  Y.  Supp. 
420;  citing  Central  Bank  v.  Empire 
Stone  Dressing  Co.,  26  Barb.  23; 
Bank  of  Genesee  v.  Patchin  Bank,  13 
N.  Y.  309.  See,  also,  Bridgeport  City 
Bjink  r.  Empire  Stone  Dressing  Co., 
;iO  Barb.  421;  Farmers  &  Mechanics' 
Bank  r.  Empire  Stone  Dressing  Co.,  6 
Bosw.  275;  Morford  v.  Farmers'  Bank 
of  Saratoga,  26  Barb.  568. 

*  Wahlig  V.  Standard  Pump  Manu- 
facturing Co.,  (1889) 25  N.  Y.  St.  Repr. 
864;  8.  C,  5  N.  Y.  Supp.  420. 


*  Mather  r.  Union  Loan  &  Trust  Co., 
(City  Court  of  N.  Y.  1889)  26  N.  Y. 
St.  Repr.  58;  s.  c,  7  N.  Y.  Supp.  213; 
citing  McCullough  r.  Moss,  5  Denio, 
567;  Mechanics'  Banking  Asvsociation 
r.  New  York,  etc..  White  Lead  Co., 
35  N.  Y.  505;  Farmers  &  Mechanics' 
Bank  r.  Butchers  «&  Drovers'  Bank,  16 
N.  Y.  125.  See,  also.  Usher  r.  Raymond 
Skate  Co.,  (Mass.  1895)  39  N.  E.  Rep. 
416;  Savage  Mfg.  Co.  r.  Worthington, 
1  Gill.  284;  Madison,  etc.,  R.  R.  Co.  t». 
Norwich  Saving  Society,  24  Ind.  457, 
modifying  Smead  p.  R.  R.  Co.,  11  Ind. 
104;  LaFayette  Savings  Bank  v.  St. 
Louis,  etc.,  Co.,  2  Mo.  App.  299. 

•Low  V.  California  Pacific  R.  R. 
Co.,  (1877)  52  Cal.  53.  It  appeared  in 
this  case  that  one  railroad  company, 
under  authority  of  law,  leased  the  line 
of  another  for  a  term  of  years.  The 
consideration  of  the  lease  was  an 
annual  rental,  and  that  the  lessee  com- 
pany should  guarantee  the  principal 
and  interest  of  bonds  to  be  issued  by 
the  lessee  company.    The  contract  of 


§70] 


PRIVATE  CORPOfiATIONS. 


79 


a  good  consideration  for  the  guaranty  of  the  bonds  of  one  railroad 
corporation  by  another  that  the  former  conform  its  gauge  to  that 
of  the  latter  and  thus  form  running  connections  between  the 
roads  of  the  different  corporations ;  and  the  guaranty  of  such 
bonds  by  a  company  empowered  by  general  law  of  a  state,  "  at 
any  time,  by  means  of  their  subscription  to  the  capital  stock  of 
any  other  company,  or  otherwise,  to  aid  such  company  in  the 
construction  of  its  railroad,  for  the  purpose  of  forming  a  con- 
nection of  said  last-mentioned  road  with  the  road  owned  by  the 
company  furnishing  such  aid,"  is  within  the  powers  of  the 
guaranteeing  corporation.^ 

§  70.  Guaranty  of  bonds  of  railroad  corporations  by  one 
of  another  kind. —  In  a  very  recent  and  elaborately  considered 
case,  the  United  States  Circuit  Court  for  the  district  of  Ken- 
tucky has  held  that  a  land  company,  a  Kentucky  corporation, 
vested  by  its  charter  with  large  and  extensive  franchises  and 
powers,  had  power  to  guarantee  the  bonds  of  a  railroad  company.^ 


guaranty  was  challcngeil  as  vltra 
tires.  The  lessee  company  had  no 
express  authority  to  make  such  con- 
tract of  guaranty,  but  did  have  power 
to  make  all  such  contracts  as  were 
usual  and  proper  in  the  building  and 
operation  of  a  railway,  and  it  likewise 
had  power  to  lease  the  line  of  the 
lessor  company.  The  Supreme  Court 
held  that  the  consideration  was  suffi- 
cient and  the  guaranty  valid.  They 
were  of  opinion  that  it  was  as  com- 
petent for  the  company  to  promise  to 
pay  conditionally  as  to  promise  to  pay 
absolutely  ;  that  the  validity  of  the 
agreement  depended  upon  the  suffi- 
ciency of  the  consideration.  The 
right  to  take  the  lease  being  express, 
it  was  a  good  consideration  for  the 
conditional  promise  involved  by  a  con- 
tract of  guaranty. 

'  Zabriskie  v.  Cleveland,  Columbus 
&  Cincinnati  R.  R.  Co.,  (1859)  23  How. 
381.  In  Connecticut  Mutual  Life 
Insurance  Co.  v.  Cleveland,  Columbus 
&  Cincinnati  R.  R.  Co.,  (1863)  41 
Barb.  9;  s.  c,  26  How.  Pr.  225,  the 


Supreme  Court  of  New  York  held  the 
arrangement  entered  into  between 
several  connecting  railroad  companies, 
for  the  purpose  of  securing  a  uniform 
gauge  of  the  several  roads,  and  thus 
increasing  the  business  and  profits  of 
each,  constituted  a  sufficient  considera- 
tion for  a  guaranty  by  one  of  the  cor- 
porations of  the  payment  of  the  bonds 
of  another ;  also  that  the  general 
statute  referred  to  in  the  text  gave 
power  to  the  companies  whose  lines 
were  connected  to  enter  into  the 
arrangement  as  to  a  uniform  gauge 
and  to  make  it  part  of  such  arrange- 
ment that  one  or  more  of  the  com- 
panies should  guarantee  the  payment 
of  the  interest  coupons  issued  by 
another.  See,  also,  Railroad  Co.  v, 
Howard,  7  Wall.  411. 

*  Tod  V.  Kentucky  Union  Land 
Co.,  (1893^  57  Fed.  Rep.  47;  affirmed 
by  the  United  States  Circuit  Court  of 
Appeals  for  the  sixth  circuit  in  Mar- 
bury  V.  Kentucky  Union  Land  Co., 
(1894)  62  Fed.  Rep.  335.  Lurton, 
Circuit  Judge,  said:  "The  power  to 


I   . 


[  '» 


80  GENERAL  POWER  TO  INCUR  PECUNIARY  LIABILITY.  [§  71 

§  71.  Circumstances  surrounding  corporation  may 
authorize  the  guaranty.— The  court  applied  the  principles  gov- 
erning corporations  in  reference  to  their  acts  under  the  powers 


§n] 


PRIVATE  CORPORATIONS. 


81 


execute  accommodation  paper,  or  to 
guarantee  for  accommodation  the  obli- 
gations of  another  corporation  is  not 
expressly  conferred  by  the  charter  of 
the  land  company.     Ordinarily,  such 
power  is  not  implied  from  the  powers 
conferred  upon  corporations,  and  such 
contracts  are  generally  in  excess  of 
the  powers  of  corporations,  and,  there- 
fore, void  as   tiKra  vires,  in  the  true 
sense  of  the  term.    This  proposition 
rested  upon  two  or  more  very  evident 
reasons:  (1)  The  corporate  funds  be- 
long to  its  shareholders,  and,  by  the 
very  terms  of  the  law  creating  it,  can- 
not be  devoted  to  any  other  purposes 
than  those  indicated    by  its  charter 
and  constitution.      Such    obligations 
would  violate  the  fundamental  terms 
of  the   agreement  between  the   cor- 
porators themselves.      (2)  To   do    so 
would  be  to  exercise  a  power  not  con- 
ferred by  the  state,  either  expressly 
or  impliedly.     The  state's  grant  of  the 
corporate  franchises  is  for  the  purpose 
prescribed,  and  the  execution  of  such 
obligations    would    be    beyond    the 
power  conferred,  and,  therefore,  a  di- 
version of  the  corporate  purposes,  as 
well  as  the  corporate  funds.    (3)  Such 
obligations  rest  upon  no  consideration, 
and  would  not,   therefore,  be   valid. 
They  would  amount  to  a  donation  of 
the  corporate  funds,  and,   therefore, 
an  unlawful  diversion.      Mor.   Priv. 
C!orp.  423;  Davis  r.  Railroad  Co.,  131 
Mass.  258;  Madison  Plank  Road  Co.  «. 
Watertown  Plank  Road  Co.,  7  Wis. 
59;    McLellan  v.  File  Works,  56  Mich. 
579;   8.   c,  23  N.  W.  Rep.  321;  Na- 
tional Park  Bank  r.  German- American 
Mutual  Warehousing  &  Security  Co., 
116  N.  Y.  292;  8.  c,  22  N.   E.  Rep. 
667;  ^tna  Nat.  Bank  v.  Charter  Oak 
life  Ins.   Co.,    50  Conn.   167.     But 


there  is  no  inherent  want  of  power  in 
a  business   corporation,    having    the 
power  to  execute  negotiable  paper,  to 
obligate  itself  as  a  surety  or  guarantor. 
If  such  a  corporation  receive  commer- 
cial paper  or  bonds  in  due  course  of 
business,  we  see  no  reason  why,  upon 
transferring  such  paper,  it  may  not  be 
lawful  to  obligate  itself  as  indorser  or 
guarantor.     Such  a  contract  would  be 
a  new  and  independent  contract,  and 
would  rest  upon  a  sufficient  considera- 
tion, if  entered  into  as  a  legitimate 
means  of  increasing  the  value  of  the 
security  to  be  disposed  of  in  the  or- 
dinary course  of  business.     In  Rail- 
road T.  Howard  the  question  arose  as 
to  the  liability  of  a  railroad  company 
upon  its   guaranty  of  certain   bondn 
issued  by  various  counties  and  cities, 
and  received  by  the  railroad  company 
in   payment  of    subscriptions    to   its 
stock.     Upon  full  consideration  it  was 
held  that,  inasmuch  as  the  company 
had  received  the  bonds  in  payment  of 
stock,  and  had  a  right  to  obligate  itself 
by  its  own  bonds  for  the  purpose  of 
building  its  road,  it  might  lawfully, 
and  in  furtherance  of  its  authorized 
purpose,  guarantee  such   bonds  as  a 
means  of  augmenting  their  value  on 
the  market,  thus  producing  funds  to 
build  its  road.     7  Wall.  411,  412.   The 
power  of  a  corporation  to  bind  itself 
by  a  guaranty,  when  it  does  so  for  its 
own  benefit  and  as  a  means  of  selling 
at  an  augmented  value,  is  generally 
conceded  by  the  authorities.  *  In  such 
cases,*  says  Mr.  Randolph  in  his  work 
upon    Commercial    Paper    (Vol.     1, 
§  334), '  the  guaranty  is  an  original 
contract  of  the  corporation  for  its  own 
benefit,   the  consideration  moving  to 
itself,  and  not  to  the  person  whose 
debt  is  guaranteed.*    There  being  no 


expressly  granted  and  implied,  referring  to  the  general  purposes, 
franchises,  etc.,  embraced  in  the  charter  of  tliis  land  company,  to 
this  particular  case,  showing  wherein  the  circumstances  surround- 
ing it  made  it  legal  and  proper  that  it  should  guarantee  the  bonds 
of  the  railroad  company.^ 


absolute  want  of  power  in  an  ordinary 
business  corporation  to  bind  itself  as  a 
guarantor,  we  must  next  inquire  as  to 
the  circumstances    which   will  make 
such   a  contract  lawful    and   obliga- 
tory.    The  cases  already  cited  estab- 
lish the  proposition  that  if  such  a  cor- 
poration has  the  power  to  issue  bonds 
or    other  commercial   securities,   and 
becomes  the  holder  of  yuch  bonds  or 
securities    issued    by  other  corpora- 
tions, it  may  indorse  or  guarantee  them 
upon  transferring  them  for  the  pur- 
pose  of  raising  money  to  carry  out 
any  purpose  for  which  it  might  bor- 
row money.     The  right  of  a  corpora- 
tion to  do  an  act  or  make  a  contract  is 
not  always  a  question  of  law.     What 
it  may   not  do  under  some  circum- 
stances, it  may  do  under  others.     It 
may  carry  on  the  business  it  is  author- 
ized to  do  in  the  usua'  and  customary 
manner    that    business  of   the   same 
nature  is  carried  on  by  individuals." 

'  Tod  V.  Kentucky  Union  Land  Co. , 
(1893)  57  Fed.  Rep.  47.  Referring  to 
a  special  power  granted  the  land  com- 
pany for  a  ' '  temporary  consolida- 
tion'* with  the  railroad  company,  it 
was  said:  "  The  power  to  make  a  tem- 
porary consolidation,  looking  to  all  the 
four  coraers  of  the  charter,  clearly  im- 
plies the  power  to  make  such  an  alli- 
ance or  bring  about  such  a  union  and 
co-operation  of  interests  between  the 
land  company  and  a  railway  company 
as  shall  be  to  the  mutual  interest  of 
eajh,  and  place  both  under  the  same 
control  and  management.  This  could 
be  done  by  the  plan  suggested  by  Mr. 
Morawetz  in  section  942  of  his  work 
on  Private  Corporations,  whereby  the 
shares  of  one  company  should  be  held 
11 


by  the  other  or  by  the  same  persona. 
This  meaning  seems  reasonable  and 
proper,    looking    to  the  objects  and 
purposes  of  this  corporation,  and  an)"^ 
steps  which  brought  about  unity  of 
interest  and  co-operation  in  purpose 
as  being  legitimate  and  authorized. 
Under  this  power  we  are  of  opinion 
that    [this]    land    company   had    the 
power  to  acquire  the  shares  in  the  rail- 
way company,  and  the  right  to  exer- 
cise   control    over  the  railway  com- 
pany through  the  ownership  and  con- 
trol of  those;  shares.     Undoubtedly  the 
general  rule  is  that  a  corporation  has 
no  implied  power  to  acquire  shares  in 
another  for  the  purpose  of  controlling 
it.     Marble  Co.  v.  Harvey,  92  Tenn. 
115;  8.  c,  20  S.  W.   Rep.  427.     This 
would  be  contrary  to  the  well -under- 
stood   public  policy  concerning  such 
companies.     But  this  objection  does 
not  lie  here:  (1)  Because  the  charter 
of    the    railway    company    expressly 
provides  that  its  shares  may  be  owned 
by    any  other    corporation.     (2)  The 
express  power  in  the  charter  of  the 
land  company  removes  all  objections, 
based  on  grounds  of  public  policy,  to 
its  control  of  a  railway  company  by 
and    through  its    shares.     What  the 
legislature  of  Kentucky  has  expressly 
permitted  cannot  be  void  as  against 
public  policy  in  the  absence  of  any 
violation  of  a  constitutional  provision. 
Under  such  circumstances  it  is  not  for 
the  courts  to  say  that  what  the  legis- 
lature authorizes  is  unlawful  because 
contrary    to  public  policy.     Having 
authority  to  acquire  this  stock,  the 
land  company  became  the  sole  stock- 
holder in  the  railway  company.     Each 
had    express    authority    to     borrow 


I 


■    ' 


82  GENERAL  POWEB  TO  INCUR  PECUNIARY  LIABILITY.  [§  72 

§72.  Guaranty    of   dividend    upon    preferred    stock    of 
another  corporation.— The  court  also  held  that  this  land  coin- 
money  and  issue  bonds  to  carry  out   r/v/«Mn  the  proceeds  of  the  bonds,  and 
the     purposes    of    tl.e   orgauizati  n.    thereby  eu.ibie  it  to  defeat  its  respon- 
The  completion  of  this  raihvuv   av.ms   sibility,  as  a  contract  w^/mn'm,  would 
an  object  within  the  scope  of  iu  car-   be  sticking  in  the  bark  and  result  in 
ter  powers.     It  ccukl  do  so  bv  iisown    manifcsi    inju  tice.      That    at    some 
name  or  by  aiding  the  raihvav  com-   fuiurc  day    this  union  may  be  dis- 
pany    to  negotiate    its  sec  urities   by    solved  by  a  s  .le  of  the  stock  owned 
guaranteeing     their    payment.      The   by  the  land  company  is  not  of  import- 
guaranty    was    not    for    the    aecam-    anee.     The  real  and  substantial  owner 
modation    of    the   raihvav    company,    of  tlie  raihoad  company  at  the  time 
The  guarantor  being  the  sole  sliar  -    these  boiuls  were  g>:aranteed  was  the 
holder  of  the  rnihvavcompanv.it  was    I  uul    cimipany.     The    guaranty   was 
a  contract    for  its  own  benefit,  and.    for    tlie    benefit    of    the    guarantors, 
therefore,    rested    upon    a    suffi  lent   Union  Par.   Ky.  Co.  ..  Chicago,  li.  I. 
security.     In  addition,  the  land  com-   &  P.  Ky.  Co..  51  Fed.  Rep.  310;  8.  C.. 
pany  was  a  creditor  of  the   railway    2  C.  C.  A.  174.     The  case  is  not  like 
company,  and  was  to,  and  did.  receive   that  of    Davis  v    Riilroad  Co,    Idl 
the  proceeds  arising  from  the  sale  of  the    Mass.  258.     That  was  a  donation  to 
half  million  of  these  bonds.     The  re-   supiwrt    a    musical     festival.      The 
mainderof  the  money  thus  raised  was   benefit  to  the  railroad  company  was 
to  be  applied  to  the  building  of  the   in  the  supposition  that  it  would  profit 
railway  line.     The  considemtion  was    by  increased  travel.     This  was  alto- 
sufficient  to  fully  support  the  contract,    gether  too  remote,  and  the  contract 
A  like  question  arose  in  Chicago,  R.    properly  held  void.     When  the  ques- 
I  &  P  R.  Co.  r.  Union  Pac.  Ry.  Co.,    tion  is,  as  here,  whether  or  not  a  i)ar- 
47   Fed.    Rep.  16,   where  Mr.  Justice   ticular  act  is  «/^m  nm,  decided  cases 
Brewer  held  that  '  where    one  rail-   are  of  little  value.     Each  ca.se  must 
roadcompanv  owns  substantially  all    be  largely  a  question  of    fact,     let 
the  stock  of  another  railroad  company,    by  reference  to  a  few  of  the  decided 
a  lease  of  the  latter  line  for  rent  to  be    cases,  we*  can  discover  the  pnnciple 
paid   to  the  former  company  is   not    upon  which  other  courts  have    pro- 
void  for  want  of  consideration  since  it   ceeded   in  deciding    such    questions, 
amounts  merelv  to  an  agreement  to   We  will  refer  to  a  few  cases:  In  Lcmis- 
pay  the  rent  directly  to  the  stock-    ville  &  N.  R.  Co.  r.  Literary  Society  of 
holders'     Upon  appeal  to  the  United    8t.  Rose.  91  Ky.  3.)5;  s.  c,  15  8.  W. 
States  Circuit  Court  of  Appeals  for   Rep.  10(55.  th- Court  of  Appeals  of  Ken- 
the    fifth    circuit,    this    ruling    was   tucky  passed  upon  a  question  involving 
affirmed.     51  Fed.  Rep.  329;  s.  c.  2   the  im;)lied  power  of  a  corporation.    It 
C.  C.  A.  242.     The  directors  of   the   appeared  that  the  literary  society  of  St. 
railway  company  held  the  property  of   Rose  and  the  literary  society  of  St. 
that  company,  including  these  bonds   Catherine  were  corporations  for  edu- 
and  their  proceeds,  when  sold,  in  trust   cational  purposes,  existing  in  or  near 
for    the    *    *    *    land    company  as   the  town  of  Springfield  in  Washing- 
holders  of  the  shares  in  that  company,    ton    county,    Kentucky.     They    had 
To  say  that  its    guaranty    of    these    power  to  contract  and  to  buy  and  sell 
bonds    was   a   mere   accommodation   real  ^  and    personal  property  for  the 

guaranty  when  it  was  the  cestui  que  purpose  of   sustaining  and  carrying 


§T2] 


PRIVATE  CORPORATIONS. 


83 


pany  was  authorized  to  guarantee  a  dividend  upon  the  preferred 
stock  of  the  railroad  company.* 


on  said  institutions  of  learning  and 
not  otherwise.  Each  of  them  owned 
and  operated  a  farm  of  about  1,000 
acres  of  very  considerable  value. 
This,  in  the  language  of  the  court, 
*  created  a  large  industry  in  the  way 
of  supplies  furnished  to  them,  and 
they  in  turn  furnishing  to  others.' 
Each  of  these  corporations  signed  an 
obligation  to  a  railroad  company  to 
induce  it  to  extend  its  line  near  their 
property.  In  an  action  upon  those 
obligations,  it  was  contended  that 
they  were  ultra  vires.  The  court 
said:  'Corporations  derive  their 
powers  from  charters.  They  are 
those  which  are  expressly  given  or  by 
fair  implication  are  necessary  to  the 
execution  of  their  object.  Cases  may 
be  found  where  the  officers  of  a  cor- 
poration have  exceeded  their  powers, 
but  the  corporation,  nevertheless,  held 
liable  because  the  transaction  was 
within  the  scope  of  its  business,  and 
it  had  received  a  benefit  from  it.  The 
only  trouble  arose  from  a  defect  of 
power  in  the  managers.  This  case  is 
not  within  this  class,  however,  be- 
cause it  appears  beyond  all  doubt  that 
the  change  of  location  as  to  depot 
was  not  to  the  interest  of  these  insti- 
tutions. The  building  of  the  road 
was  calculated,  however,  to  be  highly 
beneficial  to  them,  both  as  to  furnish- 
ing convenient  access  to  them  for 
persons  coming  and  going,  and  also  in 
furnishing  them  a  means  of  obtaining 
their  supplies  and  sending  their  pro- 
ducts to  market.  It  was  calculated 
to  and  undoubtedly  did  add  greatly 
to  the  value  of  their  properties  and 
the  large  industries  which  their  char- 
ters had  authorized  them  to  create. 
It  conferred  a  direct  benefit.  The 
power  existed  by  fair  implication  to 
do  anything  reasonably  calculated  to 
add   U)  their  value.    How  far   this 


power  extended  we  need  not  decide. 
Certainly,  however,  if  during  a  por- 
tion of  the  year  these  institutions  had 
been  almost  Inaccessible  for  the  lack 
of  a  turnpike  or  a  bridge,  a  subscrip- 
tion by  them  to  build  either  would 
have  been  valid;  and  while  not  author- 
ized to  enter  into  all  manner  of  specu- 
lations, yet,  in  our  opinion,  a  subscrip- 
tion by  them  to  aid  the  building  of 
this  road  was  not,  under  all  the  cir- 
cumstances, ultra  vires  and,  therefore, 
void.' " 

'Tod  V.  Kentucky  Union  Land  Co., 
(1893)  57  Fed.  Rep.  47,  affirmed  by 
United  States  Circuit  Court  of  Appeals 
for  the  sixth  circuit  in  Marbury  v. 
Kentucky  Union  Land  Co.,  (1894)  62 
Fed.  Rep.  335.  This  "guaranty," the 
court  said,  "stands  upon  the  same 
footing  as  the  guaranty  of  the  bonds. 
The  temporary  consolidation  between 
the  two  companies,  springing  out  of 
the  ownership  of  the  sto;k  in  the  rail- 
way company  by  the  land  company, 
in  view  of  the  terms  of  the  charter  of 
the  latter  company,  authorized  it  to 
aid  the  former  in  any  usual  way  to 
build  its  line  of  railroad."  Certain 
second  mortgage  bonds  of  the  railroad 
company  were  issued  and  delivered  to 
the  land  company  on  account  of  in- 
debtedness due  by  the  railway  com- 
pany to  the  land  company.  A  large 
part  of  these  bonds  had  been  sold  by 
the  land  company,  and  were  in  the 
hands  of  various  individuals  who  held 
them  as  bona  fide  purchasers  for  value. 
When  sold,  the  payment  of  these 
bonds,  principal  and  interest,  was 
guaranteed  by  the  land  company. 
Others  had  been  pledged  as  collateral 
security,  and  these,  also,  were  guar- 
anteed by  the  land  company.  As  to 
these  bonds  the  court  said:  "The 
bonds,  having  been  received  in  pay- 
ment of,  or  on  account  of,  indebted- 


'f 


H 


^  'i 


it  i 


84  GENERAL  POWEB  TO  INCUR  PECnNIART  LIABILITY.    [§  73,  74: 

R  71  What  contract  of  another  corporation  may  not  be 
guaranteed.- The  United  States  Circuit  Court  of  Appeals  for 
The  sixth  circuit  has  held  that  a  corporation  organized  under  the 
law  of  Ohio  for  the  purpose  of  making  iron  work  for  mining 
plants  had  not  the  power  to  guarantee  the  performance  of  another  s 
contract  for  the  erection  of  a  mining  plant,  and  the  accompany- 
in-  warranties,  on  the  ground  that  the  guaranty  would  secure  a  sde 
of^the  iron  work  used  in  the  plant.'  Further,  the  performance 
of  such  contract  on  the  part  of  the  party  to  whom  the  guaranty 
was  given  did  not  estop  the  corporation  from  denymg  its  power 
to  give  the  guaranty.^ 

8  74.  Athletic  dub— A  corporation  formed  under  a  statute 
for  encoura-nng  athletic  exercises,  under  a  provision  of  the  stat- 
ute that  it  '"may  hold  real  and  personal  estate,  and  may  hire  pur- 
chase or  erect  suitable  buildings  for  its  accommodation  to  an 
„nt  not  exceeding  five  hundred  dollars,"  has  power  to  take  a 
lease  of  land,  and  to  erect  a  suitable  club  house  upon  it.  Havmg 
Buch  power  it  may  raise  money  for  the  purpose  by  negotiating  a 


PBIVATE  COEPOEATIONS. 


85 


ness.  became  the  property  of  the  [land 
company].     To  augment  their  value 
when  sold,  or  pledged  as  collateral, 
their  payment  was  guaranteed.     It  is 
true  that  when    this    guaranty    was 
placed  upon  the  bonds,  the  clause  in 
the  charter  of  the  land  company  per- 
mitting a  consolidation  with  a  railroad 
company  had  been  repealed.      Inas- 
much, however,  as  the  connection  be- 
tween    these     two    companies    was 
authorized  when  the  latter  acquired 
the  stock  of  the  former,  and  paid  or 
assumed  its  debts,  and  inasmuch  as 
this  alliance,  union  or  '  temporary  con- 
solidation' was  in  force  when  this  re- 
pealing act  took  effect,  and  when  these 
bonds  were  guaranteed,  we  think  it 
was  not  prohibited  by  the  repeal  from 
continuing  the  union  of  the  two  com- 
panies, or  obligating  itself    by  this 
guaranty.    The  amendment  should  be 
construed  as  prospective  and  not  re- 
trospective.   Any  relation  which  had 
theretofore  been  entered  into  with  this 


railway  company  was  not  affected  by 
the  amendment,  and  all  which  couUl  be 
lawfully  done  by  reason  of  such  exist- 
ing lawful  union  might  thereafter  be 
done,  so  long  as  it  continued.     Irre- 
spective of  the   particular  power  re- 
sulting from  the  '  temporary  consoli- 
dation,' and   the    relations    resulting 
therefrom,  this  obligation  of  the  laud 
company  is  valid,  under  the  authority 
of  the  cases  holding  that  a  corporation 
having  the  power  to  bind   itself  by 
commercial   paper  might  indorse    or 
guaranty  commercial   obligations   re- 
ceived in  ordinary  course  of  business, 
and  guaranteed  when  sold  to  augment 
the  price  realized  in   their   oale  and 
transfer."    As  to  guaranteeing  divi- 
dends, see  Colman  v.  Eastern  Ry.  Co., 
lOBeav.  1;  Logan  v.  Earl  of  Courtown, 

13  Beav.  22. 

1  Humboldt  Min.  Co.  v.  American 
Manufacturing,  Mining  «&  Milling  Co., 
(1894)  62  Fed.  Rep.  356. 

'  Ibid. 


§75] 

loan  and  giving  its  promissory  note  for  its  payment.^  Additional 
authority  given  in  the  statute  "  to  receive  and  hold  in  trust  funds 
received  by  gift  or  bequest "  will  not  confine  it  to  that  mode  of 
raising  it.' 

§  75.  Banking  associations. —  The  General  Banking  Law  of 
New  York  did  not  give  banking  associations  power,  in  express 
terms,  to  borrow  money;  but,  notwithstanding  this  fact,  the 
Supreme  Court  held  that  as  such  an  association  might  become 
indebted,  in  the  exercise  of  its  undoubted  legitimate  business,  it  .« 
had,  as  a  necessary  incident,  the  power  to  borrow  money  for  the 
purpose  of  paying  its  debts.^  The  Court  of  Appeals  of  New 
York,  in  a  case  between  the  receiver  of  this  same  banking  asso- 
ciation and  other  parties,  held  to  the  same  effect  that  these  bank- 
ing associations  had  capacity  to  borrow  money  as  incidental  to 
the  banking  business  and  to  the  powers  expressly  granted.* 


^Bradbury  v.  Boston  Canoe  Club, 
(1891)  153  Mass.  77;  s.  c,  26  N.  E. 
Rep.  132. 

nUd.  Citing  Fay  v.  Noble,  12 
Cush.  1. 

»Leavitt  v.  Blatchford,  (1848)  5 
Barb.  9.  Edwards,  J.,  for  the  court, 
said:  "  Without  reference  to  the  bank- 
ing law,  it  is  a  general  fundamental 
principle,  that  when  a  right  is  given, 
all  powers  arc  given  which  are  neces- 
sary to  the  exercise  and  enjoyment  of 
the  right.  Now,  it  cannot  be  ques- 
tioned that  a  banking  association  may 
become  indebted,  in  the  exercise  of  its 
undoubted  legitimate  business.  It 
has  the  right  to  receive  deposits,  and 
it  must  become  indebted  for  them.  It 
has  the  right  to  purchase  gold  and  sil- 
ver bullion,  foreign  coins  and  bills  of 
exchange;  and  it  may  become  indebted 
upon  such  purchase.  It  requires 
state  stocks  as  a  basis  of  its  circula- 
tion, and  it  may  lawfully  contract  a 
debt  in  the  purchase  of  state  stocks 
for  that  purpose.  There  may  be 
other  ways  in  which  a  banking  asso- 
ciation can  become  legally  indebted. 
It  may  become  liable  for  the  payment 
of  its  debts  at  a  time  when,  owing  to 


disappointment,  unexpected  losses,  or 
some  unforeseen  casualty,  it  has  no 
available  assets  ^to  meet  its  engage- 
ments. This  emergency  may  occur 
in  the  soundest  and  best -regulated  as- 
sociation. The  question  then  must 
arise,  whether  a  solvent  institution  is 
to  fail  to  meet  its  liabilities,  and  be 
broken  up  and  ruinexi,  or  whether  it 
shall  be  permitted  to  substitute  a 
credit  for  some  convenient  period  of 
time,  in  the  place  of  a  debt  then  due 
and  payable,  or,  in  other  words, 
whether  it  can  substitute  one  creditor 
in  the  place  of  another.  The  power 
to  borrow  then  is  a  necessary  incident 
to  the  power  to  become  indebted.  It 
is  a  power  without  which  no  banking 
association  could  safely  carry  on  its 
business." 

4  Curtis  V,  Leavitt,  (1857)  15  N.  Y.  9. 
CoMSTOCK,  J.,  in  the  opinion  rendered 
by  him,  on  page  63,  stated  the 
doctrine  in  Barry  v.  Merchants'  Ex- 
change Company,  1  Sandf,  Ch.  280, 
289,  in  the  language  of  Assistant  Vice- 
Chancellor  Sandford:  "A  corpora- 
tion, in  order  to  attain  its  legitimate 
objects,  may  deal  precisely  as  an  indi- 
vidual may,  who  seeks  to  accomplish 


' '  »l 


!  m" 


I 


'V 


B^ 


GENERAL  POWER  TO  INCUB  PECUNIAKY  LIABILITY. 


[§76 


§77] 


PRIVATE  CORPORATIONS. 


87 


§  76.  A  savings  bank's  powers. —  Every  corporation  created 
for  transacting  business,  unless  restrained  by  its  charter  or  some 
statute,  has,  as  a  necessary  incident,  the  power  of  incurring  debts 
in  the  course  of  its  legitimate  business.     For  instance,  in  the  case 


the  same  ends.  If  c'hiirtcre<l  for  the 
purpose  of  building:  a  bridge,  it  may 
coutniet  a  debt  for  labor,  the  materials, 
or  the  land  upon  which  the  bridge  is 
abutted.  If  more  advantageous,  it 
*  may  borrow  money  to  ptirchase  such 
lami  or  materials,  or  to  pay  for  such 
labor,  and  as  the  evidence  of  the  in- 
debtedness, it  may  execute  to  the 
creditoi  .^  a  note,  a  bond,  or  u  in()itgiig(\ 
whether  the  debt  be  for  the  money 
borrowed,  or  the  work,  materials,  or 
land."  CoMSTOCK,  J.,  said,  on  pages 
64,  65:  *'  I  confess  my  own  inability  to 
refute  the  doctrine  so  pirspicuously 
laid  down  by  Assistant  Vice-Chancel- 
lor  Sandford.  I  a|^  not  aware  that 
it  comes  in  conflict  with  any  known 
distinction  between  private  persons 
and  corpomtions.  It  is  true  that  the 
latter  take  all  their  powers,  direct  and 
incidental,  under  their  charters;  but 
when  tlie  direct  power  is  granted  in 
terms,  they  take  it,  as  a  natural  per- 
son enjoys  it,  with  all  its  incidents 
and  accessories.  A  simple  association 
of  merchants  to  build  an  exchange 
could,  if  they  so  agreed  with  each 
other,  very  appropriately  borrow 
money  in  furtherance  of  the  object, 
and  why  can  they  not,  if  they  take 
the  principal  power  under  a  charter 
from  the  government,  which  enables 
them  to  act  as  a  single  person,  and 
with  a  collective  will?  It  is  truly  saitl 
that  corporations  can  only  exercise 
such  incidental  powers  as  are  neces- 
sary to  carry  into  effect  the  express 
objects  of  their  charters.  But  neces- 
sity is  a  word  of  flexible  meaning. 
There  may  be  an  absolute  necessity,  a 
great  necessity  and  a  small  necessity, 
and  between  these  degrees  there  may 
he  many    others   depending    on   the 


ever  varying  exigencies  of  human  af- 
fairs. It  is  plain  that  corporations,  in 
executing  their  express  powers,  are 
not  conlined  to  means  of  such  indis- 
pensable necessity  that,  without  them, 
there  could  be  no  execution  at  all. 
The  entire  doctrine  would  lead  at 
once  to  a  very  great  absurdity,  for  if 
there  are  several  modes  of  accomplish- 
ing the  end,  neither  one  is  indispen- 
sable, and  each  would  exclude  all  the 
others.  And  thus,  by  inevitable  logic, 
an  express  grant  of  power  would  lie 
forever  dormant  because  tliere  are 
more  modes  than  one  of  carrying  it 
into  exc^^ution.  It  is  almost  as  diffl- 
cult  to  stiy  that  the  incidental  power 
depends  for  its  existence  on  the  de- 
gree of  necessity  which  connects  it 
with  the  power  in  chief.  Such  a  doc- 
trine wo\iUl  impose  upon  courts  a 
never-ending  difficulty,  for  the  inquiry 
would  plainly  be  whether  the  chosen 
instrumentality  is  the  very  best  that 
could  be  selected,  and  if  not  the  very 
best,  however  minute  the  difference 
may  be,  then  the  ineviUible  decision 
must  follow  that  the  choice  was  fatally 
bad,  although  strictly  adapted  to  the 
end  in  view,  and  made  in  the  utmost 
good  faith.  These  demonstrations, 
for  such  they  appear  to  me,  would 
seem  to  leave  but  one  other  conclusion, 
which  is,  that  corporations,  along  with 
their  specitic  powers,  take  all  the  rea- 
sonable means  of  execution,  all  that 
are  convenient  and  adapted  to  the  end 
in  view,  although  not  the  very  best  by 
many  degrees  of  comparison.  And 
this  is  a  doctrine  which  must  neces- 
sarily result  in  the  liberty  of  choice 
amongst  those  means.  The  choice 
may  be  wise  or  unwise.  If  made  in 
the  exercise  of  an    intelligent   good 


of  a  savings  bank  it  was  held  that  it  had  the  power  to  negotiate  a 
loan  from  another  bank  and  of  making  and  indorsing  negotiable 
paper  in  payment  of  such  debts.^ 

§  77.  Corporations  dealing  in  lands. —  The  Supreme  Court 
of  California  has  held  that  "  where  a  corj)oration  was  formed  for 
the  purpose  of  dealing  in  and  speculating  in  real  estate,  and  with 
the  express  power  *'  to  buy,  improve,  sell,  lease  and  otherwise 
dispose  of  real  estate  "  the  term  "  improve  "  included  the  per- 
formance of  any  act,  whether  on  or  off  the  land,  the  direct  and 
proximate  tendency  of  which  was  to  beneiit  or  enhance  its  value. 
Therefore,  a  subscription  made  by  such  a  corporation  to  a  railroad 
company  for  the  purpose  of  increasing  the  facilities  and  lessen- 
ing the  cost  of  transportation  on  the  same,  "  where  the  direct 
and  proximate  tendency  of  such  increase  of  facilities  is  to 
enhance  the  value  of  its  lands "  was  held  a  valid  and  binding 


faith,  the  wisdom  of  the  selection  may 
be  called  in  question,  but  the  power 
to  make  it  cannot  be.  I  can,  there- 
fore, see  no  room  for  the  distinction 
which  admits  the  power  of  a  corpora- 
tion to  contract  a  debt  for  labor  and 
materials  to  be  used  in  building  an  ex- 
change, or  a  bridge,  or  a  turnpike 
road,  or  in  manufacturing,  those  being 
in  each  case  the  specified  object  of  the 
charter,  but  denies  the  right  to  bor 
row  money  to  be  used  in  the  purchase 
of  the  same  labor  and  materials.  If 
there  be  any  reason  for  a  distinction, 
resting  on  a  comparison  of  benefit  to 
the  corporation,  the  advantages  of  bor- 
rowing would  in  most  cases  be  unde- 
niable. So,  in  point  of  public  policy, 
the  reason  for  that  preference  would 
appear  to  be  still  stronger,  for  while 
the  industrial  classes  would  require  no 
protection,  the  money  lenders  could 
safely  be  left  to  guard  their  own  in- 
terests. I  believe  the  distinction  re- 
ferred to  is  not  recognized  by  any 
adjudged  case."  Brown,  J.,  dis- 
cusses these  questions  in  his  opinion, 
pages  157-161;  Shankland,  J.,  in  his 
opinion,  pages  166-169;  Paige,  J.,  in 
his  opinion,  pages  210-213. 


»  Fifth  Ward  Savings  Bank  v.  First 
National  Bank,  (1886)  48  N.  J.  Law, 
513.  Depije,  J.,  speaking  for  the 
Court  of  Errors  and  Appeals  of  New 
Jersey,  said:  * '  Savings  banks  are  estab- 
lished for  business  purposes.  Their 
functions  are  to  receive,  hold  and  in- 
vest moneys  that  may  be  deposited 
with  them,  and  to  repay  the  money 
deposited  under  reasonable  regulations 
in  their  by-laws.  In  order  to  make 
the  business  successful,  these  institu- 
tions are  required  to  keep  their  money 
invested  as  closely  as  may  be  con- 
sistent with  the  ordinary  demands  of 
depositors.  But  in  seasons  of  financial 
excitements  they  may  be  subjected  to 
extraordinary  demands  from  depos- 
itors, to  meet  which  and  save  the 
credit  of  the  institutions,  large  sums 
of  money  may  be  required  to  be  raised 
on  sudden  and  unforeseen  contingen- 
cies. At  such  times,  the  securities 
such  institutions  usually  hold  are  % 
likely  to  be  depressed  in  the  market 
and  unsalable  except  at  ruinous  sacri- 
fices. If  these  institutions  should  not 
have  the  power  to  borrow  money  and 
to  make  negotiable  paper,  or  make  a 
pledge  of  securities  on  which  money 


V 


V 


88  OESEKAL  POWEB  TO  INCCE  PEODNIABY  LIABILITY.  [§  7T 

contract.'  In  a  Pennsylvanu.  ca^,  where  -orpo-^^on^^^^^^^^^^^^ 
large  body  of  wild  land  and  had  power  by  its  charter  to  a 
;Se  development  of  minerals  and  other  ^-^^^-^^^^f^^Z 
Lte  the  clearing  and  settlement  of  the  count  y  ^f^TZ 
Court  held  that  the  building  of  saw  nulls  and  »>°te  or  the 
aTommodation  of  those  having  business  in  connection  ^*}^'^l^ 

~t  the  prime  object  of  the  -yP-^^- .^"t'diy 
Towers ^  The  Kansas  Supreme  Court,  in  an  opinion  dehve.ed  by 
powers.      1-1^  \..(!  +1.0  TTnitpd  States  Supreme  Court, 

Mr.  Justice  Brewer,  now  of  the  United  btaie.      p 
\.cAA  that  where  a  corporation  was  created  for  the  purpose  ot 

lands  for  the  purpose  of  secu rmg  the  ^'^^""^  ^  .  ^he  town 
of  a  school  upon  property  adjacent  to  that  ^'^^I'l  ^  ,,^ 
Bite  company;  "that  the  direct  and  proximate  tendency  ot  the 
swe  comi»iijr ,  ,  .  .^  .  „ut„;npd  bv  the  donation  is  the  build- 
improvements  sought  to  be  obtainea  Dy  mcu  .„„„inin„ 

in  J  up  of  the  town,  and  the  enhanced  value  of  «'«  ™";°° 

^      *        Th^  nnroose  of  the   corporation  is  to  build  up  tlie 

property.    fe^P^^  J  ^  ,i,,etly  furthered  by  such 

r  '  .•  '«  Tn  the  United  States  Circuit  Court  for  the  western 
;Sn  Viri^i  t  -held  that  an  improvement  company 
o5a"td  Ider  an  act  of  the  legislature  of  that  ^-te  J^  W^/^ 
!!lf  Wis  erect  sell  and  lease  buildings,  to  grade  and  improve 
^^  :t  fTrnth  gas,  electric  light  and  water  -ks  ^o^^^^^^^^ 
and  operate  street  -Hways  ^-.ces  and  nn  land  to  ac<p-ire  by 
'      purchase  or  subscription    the    stock  or  ooi  -^JLovement 

;-ror  tC^bietfeiatti  to  rft^^^z 
^;frpt:fE:::tiaX:^.th2rp^^^^^^ 

^y  ,«  .orrowe.,  teni^raH,y.  great  ^y  i^^'<»;;f»J  ZZy\^'7''> 

sacrifices  in  the  sale  of  the  seeunt.es   '""'     '° /"^^"^   '  ^  I  „eans    of 

in  which  the  trust  funds  are  investe.1,    negotiable   _secunty 

if  not  financial  ruin,  would   be   the  l>o"owmg^  ^^  ^ 

probable  result  of  every  unexpected        ^»°^»\;3  ^g  p^.  gt.  370. 

L  npon  the  bank  by  depositors  ^      l^tlo-  J  University.  13  Kans. 

withdraw  their  deposits.     It   is   the         " 

existence   of  conditions   and   cont.n-   ^-  Big  Stone  Gap  Imp- 

genciesof  this  kind  likely  to  arise  in        *';.™;-^  ffep.  262. 

The  conduct  of  business  that  the  law   Co.,  (1893)  57  t  ea. 

recognizes  as  the  ground  for  raising 


§78] 


PRIVATE  CORPORATIONS. 


89 


chase,  to  subdivide,  to  sell,  and  to  make  any  contract  essential  to 
the  transaction  of  its  business  are  expressly  granted,  possesses  as 
fairly  incidental  the  power  to  incur  liability  in  respect  of  securing 
better  facilities  for  transit  to  and  from  the  lots  or  lands  which  it 
is  its  business  to  acquire  and  dispose  of.^ 

§  78.  Insurance  corporations. —  A  corporation  created  for  the 
purpose  of  carrying  on  the  business  of  insurance,  with  power  to 
convert  its  bonds  and  stocks  into  cash,  when  needed,  to  pay  risks, 
may,  through  its  president  borrow  money  and  pledge  its  stock  as 
collateral  security.^  A  corporation  organized  under  the  law  of 
Indiana  providing  for  the  organization  of  life  and  accident  insur- 
ance companies,  has  power  to  borrow  money  and  secure  its  pay- 
ment by  mortgaging  its  real  estate.^  The  power  to  contract  and 
be  contracted  with,  is  one  of  the  common-law  incidents  of  a 
corporation.  Unless  expressly  restrained  by  its  charter,  every 
corporation  has  the  incidental  power  to  make  any  contract,  and 


^Fort  Worth  City  Co.  v.  Smith 
Bridge  Co.,  (1894)  151  U.  S.  294;  s.  c, 
14  Sup.  Ct.  Rep.  339,  affirming  a  judg 
ment  in  favor  of  the  bridge  company 
upon  a  contract  to  build  a  bridge  over 
a  river  for  which  the  corporation 
agreed  to  pay  a  portion  in  its  bonds. 
Fuller,  Ch.  J.,  quoted  in  his 
opinion  as  follows :  In  Green  Bay  & 
Minnesota  Railroad  v.  Union  Steam- 
boat Co.,  107  U.  S.  98,  100,  it  was 
said  :  "  The  charter  of  a  corporation, 
read  in  connection  with  the  general 
laws  applicable  to  it,  is  the  measure 
of  its  powers,  and  a  contract  mani- 
festly beyond  those  powers  will  not 
sustain  an  action  against  the  corpora- 
tion. But  whatever,  under  the  charter 
and  other  general  laws,  reasonably 
construed,  may  fairly  be  regarded  as 
incidental  to  the  objects  for  which  the 
corporation  is  created,  is  not  to 
be  taken  as  prohibited.  *  *  *" 
Further  on,  he  said  :  "The  object  of 
the  creation  of  the  corporation  was  the 
acquisition  and  sale  of  lands  on  sub- 
division, and  it  cannot  successfully  be 
denied    that   that  object   would   be 

12 


directly  promoted  by  the  use  of  legiti- 
mate business  methods  to  render  the 
lands  accessible.  This  involved  the 
expenditure  of  money  or  the  assump- 
tion of  liability,  but  there  is  no 
element  in  this  case  of  any  unreason- 
able excess  in  that  regard,  or  of  the 
pursuit  of  any  abnormal  and  extra- 
ordinary method.  The  result  sought 
was  in  accomplishment  of  the  legiti- 
mate objects  of  the  corporation  and 
essential  to  the  transaction  of  its  au- 
thorized business,  and  the  power  to 
make  the  contract  was  fairly  incidental 
if  not  expressly  granted."  See,  also. 
North  Side  Ry.  Co.  v.  Woithiugton, 
(Tex.  Civ.  App.  1894)  27  S.  W.  Rep. 
746,  following  the  case  above. 

2  Bezou,  Commissioner,  v.  Pike,(1871) 
23  La  Ann.  788.  The  court  distin- 
guished Levy  V.  Mutual  Benefit  Life 
&  Fire  Ins.  Co.,  8  La  Ann.  380,  in  that 
the  directors  in  that  case  did  an  act 
in  conflict  or  inconsistent  with  an 
express  provision  of  the  charter. 

3  Wright  V.  Hughes,  (1889),  119  Ind. 
324;  8.  c,  21  N.  E.  Rep.  907. 


90 


GENERAL  POWER  TO  INCUR  PECUNIARY  LIABILITY.  [§  78 


§79] 


PRIVATE  CORPORATIONS. 


91 


evidence  it  by  any  instrument  tliat  may  be  necessary  and  proper 
to  accomplish  the  objects  for  which  it  is  created.  A  note  or  bill, 
therefore,  made  or  received  by  such  a  corporation  is  pi'hna  fade 
within  its  corporate  powers,  and,  therefore,  valid.^  But  when 
such  a  transaction  is  drawn  in  (juestion,  it  is  always  competent  to 
show  that  it  was  given  or  taken  for  a  purpose  not  authorized, 
and  when  shown,  the  contract  is  void,  and  the  instrument  a 
nullity.^  A  mutual  life  insurance  company  has  been  held  in 
Connecticut  to  have  the  power,  as  incident  to  its  business  of 
insuring  lives,  to  provide  a  guaranty  fund  by  taking  the  notes  of 
responsible  parties,  payable  only  if  required  for  the  purpose  of 
meeting  losses,  and  allowing  a  reasonable  compensation  to  the 
makers  of  the  notes  for  the  use  of  their  credit.*  A  corporation 
clothed  by  its  charter  with  power  to  transact  the  business  of  life, 
fire,  and   marine  insurance,  receive   money    on   deposit,  collect 

»  Straus  &  Bro.  f.  Eagle  Insurance  business,  and  was  shown  by  experience 
Co.  of  Cincinnati,  (1855)  5  Ohio  St.  59;  to  be  such.  We  cannot,  therefore,  pro- 
N.  Y.  Firemen  Insurance  Company  v.  uounco  that  arrangement  to  be  an 
8turges,  2  Cow.  664;  R-irker  r.  Mc-  illegitimate  exercise  of  the  powers 
chanic  Fire  Ins.  Co..  8  Wend.  94.  conferred  by  their  charter.     Indeed,  if 

2  Straus  r.  Eagle  Insurance  Co.  of  we  were  to  declare  it  invalid  on  this 
Oncinuati.  (1855)  5  Ohio  St.  59;  Brough-  ground,  we  do  not  see  why  the  broad 
ton  t>.  Manchester  Water  Works,  3  ground  must  not  be  taken  that,  in  the 
Barn.  &  Aid.  1;  I^Iunn  r.  Commission  case  of  any  corporation  created  for 
Co.,  15  Johns.  44;  New  York  Fire-  the  purpose  of  carrying  on  a  par- 
men  Ins.  Co.  r.  Ely,  2  Cow.  678;  N.  Y.  ticular  kind  of  business  requiring 
Firemen  Ins.  Co.  r.  Bennett,  5  Conn,  credit  in  its  prosecution,  it  would  be 
574;  Philadelphia  Loan  C«>.  v.  Towner,  an  excess  of  its  power  to  engage  or 
13  Conn.  249;  Kom  t».  Mut.  Soc,  6  secure,  in  support  or  aid  of  its  own 
Cranch,  199;  Bank  of  Chillicothe  r.  credit,  that  of  other  pereons  in  regard 
Swayne,  8  Ohio,  257;  ^IcCuUough  f>.  to  the  fulfillment  of  its  contracts,  even 
3Ios8,  5  Denio,  567;  Slark  r.  Highgate  when  the  exigencies  of  its  business 
Archway  Company,  5  Taunt.  792.  required  such  aid  for  its  prosecution: 

'^  Hope  Mutual  Life  Ins.  Co.  r.  Weed,  and  the  principle  would  even  go  so 
(1859)28  Conn.  51.  The  court  said:  far  as  to  prohibit  the  ordinary  engage- 
*•  It  was  an  arrangement  which  was  ment  of  suretyship  in  behalf  of  such 
made,  not  as  an  end,  but  only  as  a  corporation.  Nothing  is  more  com- 
means  or  instrument  for  the  success-  mon  than  the  exercise  of  such  a  power 
ful  prosecution  of  their  main  and  by  our  pecuniary  corporations,  and  the 
appropriate  business.  And  the  facts  power  is  one  from  the  exercise  of 
before  us  conclusively  show  that  such,  which  not  only  no  evil,  but  the  great- 
in  the  present  instance,  was  the  only  est  benefits  to  such  corporations  and 
design  or  motive  with  which  it  was  to  the  public,  has  arisen.  And  it  was 
entered  into,  and  that  it  was  resorted  never  before  suggested  that  it  was 
to  by  the  plaintiffs  as  a  matter  neces-  beyond  the  scope  of  the  powers 
sary  to  the  prosecution  of  their  proper   granted  to  such  bodies." 


promissory  notes,  and  bills  of  exchange,  lend  money,  and  discount 
or  sell  such  notes  or  bills,  and  to  "  borrow  money  and  issue  its 
bonds  therefor,"  is  not  restricted  by  this  latter  provision  to 
making  loans  secured  by  bonds,  but  has  the  incidental  and 
implied  power,  common  to  all  such  corporations,  to  borrow 
money,  and  make  negotiable,  or  non-negotiable  paper,  and  give 
such  securities  as  may  be  deemed  most  advantageous.^  Under 
statutory  authority  to  "  invest  their  money  in  real  or  personal 
property,  stocks  or  choses  in  action  "  an  insurance  corporation 
cannot  subscribe  for  stock  in  a  projected  corporation.'^ 

§  79.  Manufacturing  corporations. —  A  corporation  organ- 
ized under  the  General  Incorporation  Act  of  Ohio,  for  the  purpose 
of  manufacturing  and  supplying  gas  to  the  inhabitants  of  a  city 
or  village,  may  borrow  money  to  enable  it  to  accomplish  the 
legitimate  objects  of  its  creation,  and  secure  the  payment  of  the 
loan  by  note  and  a  mortgage  upon  its  property.^  A  corporation, 
incorporated  *'for  the  purpose  of  manufacturing  and  selling 
glass  "  may  purchase  glassware,  for  the  purpose  of  keeping  up 
their  stock  and  supplying  customers,  while  the  works  which  they 
manufacture  in  are  being  put  in  repair.**  A  manufacturing  cor- 
poration may  incur  a  liability  for  a  stock  of  merchandise  to  be 
sold  by  it  in  a  retail  store  connected  with  their  manufacturing 


^Talladega  Insurance  Co.  i'.  Pea- 
cock. Admr.,  (1880)  67  Ala.  253;  Allen 
v.  Montgomery  R.  R.  Co.,  11  Ala.  454; 
Mobile  &  Cedar  Point  Ry.  Co.  p.  Tal- 
raan,  15  Ala.  491;  Lucas  'o.  Pitney,  27 
N.  J.  Law,  221;  Railroad  Company  v. 
Howard,  7  Wall.  411.  In  Trenton 
Mutual  Life  &  Fire  Insurance  Co.  v. 
McKelway,  (1858)  12  N.  J.  Eq.  133, 
1 36,  Chancellor  Williamson  said :  "It 
cannot  be  denied  but  that  the  corpora- 
tion might  borrow  money  under  some 
circumstances,  and  that  a  contract 
hoiui  fide  made  for  such  loan  would  be 
illegal  [legal?],  and  not  in  contraven- 
tion of  the  charter.  For  instance, 
should  the  corporation  incur  a  loss, 
and  not  have  the  available  means 
promptly  to  meet  it,  it  would  not  be 
illegal  for  them  to  make  a  loan  to 
meet  the  exigency." 


'Commercial  Fire  Insurance  Co.  v. 
Board  of  Revenue  of  Montgomery 
County,  99  Ala.  1;  s.  c,  14  So.  Rep. 
490. 

3  Hays  v.  Galion  Gas  Light  &,  Coal 
Co.,  (1876)  29  Ohio  St.  330. 

^  Lyndeborough  Glass  Co.  v.  Massa- 
chusetts Glass  Co.,  (1873)  111  Mass. 
315.  The  court  said  :  "  They  succeeded 
a  former  company  which  had  been 
engaged  in  the  same  business  ;  it  was 
important  that  they  should  retain  the 
old  customers.  They  were  repairing 
their  manufactory  and  machinery  and 
these  goods  were  bought  to  keep  in 
their  stock  and  enable  them  to  fill 
orders  from  their  customers  until  they 
could  supply  themselves  from  their 
own  manufactory.  Such  purchases 
arc  auxiliary  and  incidental  to  the 
main  purposes  of  their  incorporation 


93  GENERAL  POWER  TO  INCUR  PECUNIARY  LIABILITY.  [§  80 

business,  as  a  convenience  or  necessity  thereto.'  A  corporation 
manufacturincr  machinery  may  purchase  cotton  for  use  m  pack- 
in*^  its  manufactures  for  cash  or  on  credit  and  give  its  evidences 
of^'debt  for  the  same.*  A  manufacturing  and  mercantile  corpora- 
tion may  incur  a  liabihty  in  the  nature  of  a  reward  to  one  caus- 
ing the  apprehension  of  persons  charged  with  crime  and  their 
conviction.* 

§  80.  Mining  corporations.— The  power  to  borrow  money  is 
an  incident  to  the  corporate  powers  of  a  mining  corporation.* 
It  is  a  necessary  incident  of  a  mining  corporation  that  it  sliall 
have  power  to  contract  and  to  bind  itself  to  those  dealing  with  it 
in  matters  within  the  intent  of  the  charter,  even  though  the 
charter  contains  no  express  grant  or  power  to  contract  or  incur 
indebtedness.^     A  corporation,  the  purpose  of  which  by  the  act 
creating  it  is  to  mine  and  transport  coal,  may  purcliase  and  use  a 
steamboat  for  the  purpose  of  transporting  and  deUvering  coal. 
A  corporation  organized  for  mining  purposes  has  power  to  pur- 
chase timber.'     But  it  has  no  authority  to  issue  accommodation 
paper  and  deliver  it  to  strangers.^    The  board  of  directors  of  a 

and  are  fairly  within  the  scope  of  the   Woodb.  &  M.  105,  it  was  held  that  a 

powers  conferred  upon  them  by  law.    manufacturing  corporation  could  not 

Brown  v.  Winnisimmet  Co.,  11  Allen,    legally  invest  money  in  a  bank  for  the 

JJ26  "  purpose  of  carrying  on  the  bankmg 

» Dauchy  v.  Brown,    (1852)  24  Vt.    business ;  nor  could  it  issue  promls- 

jQ^  sory  notes  in  payment  of  shares  m  a 

«Gi8t  ^.  Drakely,  2  Gill,  (Md.)  330.   banking  company  which  would  bind 

g. -  the  corporation  or  its  members.     As  to 

•Worwood     &    Butterfield    Co.    t.    the  incidental  power  of  a  private  cor- 

Andrews,  (1894)  71  Miss.  641;   8.  c,    poration  to  make  any  contract  neceg- 

16  So  Rep  263      Citing  Rjiilroad  Co.    sary  to  advance  the  objects  for  whicH 

«.  Cheatham.  85  Ala.  292;  8.  c,  4  80.    it  was  created,  see  ^egmnd  t.  Manhat- 

Rep  828-  Ricord  v.  Railroad  Co..  15   tan  Mercantile  Association.  (1880)  80 IS. 

Nev    167  •    Express  Co.  v,   Patterson.    Y.  638.  affg.  44  N.  Y.  Super.  Ct.  562. 

73  Ind    430.      In  National  Bank  of       *Kent  i>.   Quicksilver  Minmg  Co., 

Republic  V.  Edward  C.  Young,  Re-   (1879)  78  N.  Y.  159. 

ceiver,  etc..  (1886)  41  N.  J.  Eq.  531.       'Wood  Hydraulic  Hose  Mimng  Co. 

it  was'  held  that  a  corporation  created   p.  King,  (1872)  45  Ga.  34. 

for  the    purpose    of    carrj-ing  on  a       'Callaway  M.  &  M.  Co.  v.  Clark, 

manufacturing  business  had  implied   (1862)  32  Mo.  305. 

power  to  make  negotiable  paper  for      '  Adams  Mining  Co.  v.  Senter,  (1872) 

use  within  the  scope  of  its  business,    26  Mich.  78. 

but  no  power  to  become  a  party  to      •  Beecher  v,  Dacey.  (1881)  45  Mich. 

bills  or  notes  for  the  accommodation  93. 

of  others.     In   Sumner  «.   Marcy,  3 


§§  81,  82] 


PRIVATE  CORPORATIONS. 


93 


mining  corporation  which  is  empowered  to  enter  into  any  con- 
tracts essential  to  its  ordinary  business  may  borrow  money  for  the 
purposes  of  the  corporation  and  invest  certain  of  its  officers  with 
power  to  negotiate  loans,  etc.^  That  such  officers  have  been 
invested  with  power  to  negotiate  loans,  etc.,  may  be  shown  other- 
wise than  by  official  record  of  the  board's  proceedings.' 

§81.  Railroad    corporations.— A  corporation   incorporated 
for  the  construction  of  a  railway  has  power  to  agree  to  pay  for 
its  right  of  way  in  bonds.^     A  railroad  company,  granted  a  right 
to  construct  a  particular  line  of  road,  with  general  power  to  pur- 
chase all  kinds  of  property  of  whatever  nature,  may  purchase  from 
another  raih-oad  company  a  road  constructed  on  that  line  if  the 
latter  company  has  the  power  to  sell  it.*    Corporations  created 
for  the  construction  of  railroads,  in  the  absence  of  limitation  or 
restraint  by  statute,  have  power  to  borrow  money  and  to  make 
bonds,  bills  or  promissory  notes  for  its  repayment,  and  also  power 
to  mortgage  their  property,  real  or  personal,  as  a  security  for 
Buch  evidences  of  debt.     These  are  powers  necessary  and  proper 
to  enable  them  to  accomplish  the  purposes  of  their  creation,  and 
are  regarded  as  incidental  or  implied,  though  not  expressly  con- 
ferred by  the  charter  or  act  of  incorporation.*     A  railroad  cor- 
poration, with  power  to  construct  and  maintain  a  railroad,  can- 
not, however,  incur  a  debt  for  an  examination  of  mines  along  its 
route  by  an  expert  and  a  report  upon  the  extent  of  the  output  of 
the  same,  this  being  a  matter  not  within  the  legitimate  purposes 
of  its  creation.® 

§  82.  The  same  subject  continued.— A  railroad  company 
has  no  right,  under  an  authority  to  borrow  money,  to  raise  money 


» Mining  Co.  r.  Anglo-Califoruian 
Bank,  104  U.  8.  192. 

*  Ibid. 

'Munson  v.  Syracuse,  Geneva,  etc.. 
R.  R.  Co.,  (1886)103  N.  Y.  58;  s.  c,  4 
Cent.  Rep.  191. 

*  Branch  v.  .Tesup,  106  U.  S.  468. 

» Kelly  V.  Trustees  of  Ala.  &  Cinn. 
R.  R.  Co.,  (1877)  58  Ala.  489;  Rich- 
ards V.  Railroad,  44  N.  H.  127;  Com- 
monwealth V.  Smith,  10  Allen,  448; 
Savannah  &  Memphis  R.  R.  Co.  d. 
Lancaster,  (1878)  62  Ala.  555     As  to 


the  implied  power  of  a  corporation  to 
borrow  money  needed  for  its  legiti- 
mate purposes,  and  give  security 
therefor  to  the  lender,  see  In  re  Patent 
File  Co.,  L.  R.  (6  Ch.)  83;  Monument 
Nat.  Bank  v.  Globe  Works,  101  Mass. 
57;  Hays  i?.  Gallon  Gas  Light  Co..  29 
Ohio  St.  330;  Curtis   v.  Leavitt,  15  N. 

Y.  9. 

6  Georg  V.  Nevada  Central  Railroad 
Co.,  (Nev.  1894)  38 Pac.  Rep.441;  citing 
Thomas  v.  Railroad  Co.,  101  U.  S.  82; 
Davis  V.  Railroad  Co.,  131  Mass.  259. 


I 


M  GENERAL  POWER  TO  INCUR  PECUNIARY  LIABILITY.  [§  82 

by  the  issue  of  irredeemable  bonds  entitling  the  holder  merely 
to  a  share  of  the  earnings  after  the  payment  of  a  certain  divi- 
dend to  the  stockholders ;  neither  has  it  the  right  to  issue  inter- 
est-bearing bonds,  secured  by  mortgage,  if  a  portion  of  such 
bonds  are  perpetual*  Under  tlie  laws  of  Wisconsin  railroad 
companies  were  given  power  to  make  such  contracts  with  rail- 
roads terminating  on  the  eastern  shore  of  Lake  Michigan,  within 
the  state  of  Micliigan,  as  would  enable  them  to  run  their  roads 
in  connection  with  each  other,  etc.,  and  to  "  build,  construct  and 
run  as  a  part  of  their  corporate  property  such  number  of  steam- 
boats or  vessels  as  they  may  deem  necessary  to  facilitate  their 
business.  Tlie  Supreme  Court  of  the  United  States  has  held 
that,  under  the  power  given  by  the  above-mentioned  statutes,  a 
railroad  company  could  contract  with  a  steamhoat  company  to 
run  in  connection  with  its  line,  and  might  lawfully  guarantee 
that  their  earnings  should  not  fall  below  a  certain  sum.^     A  cor- 


» Taylor  r.  Philadelphia  &  Heading 
R.  R.   Co..  (1881)  7  Fed.    Hep.   386. 
McKennan,   C.  J.,   referring  to  the 
proposition  to  issue  such  bonds,  said: 
"It  does  not   propose  to  crttite  the 
Telatiou   of   debtor  and  creditor  be- 
tween the    defendant   and    the  sub- 
scribers.    The  money  obtained  by  the 
defendant   could  not  be  regarded  as 
borroweti,  because  that  implies  reim- 
bursement, and  it  is  not  demandable 
by  the  subscribers  or  payable  by  the 
defendant.     It  has  not   the   essential 
and  distinguishing  qualities  of  a  loan. 
It  contemplates  a  stipulation  that  the 
subscribers,  in    considenition   of   the 
sums  paid,  not  lent,  by  them,  skill  be 
entitled  to  receive,  in  a  remote  and 
uncertain  contingency,   a   portion  of 
the  defendant's  earnings,  to  be  meas- 
ured by  a  certain  rate  per  cent  upon 
three  times  the  sums  paid  by  them, 
and  after  that  shall  participate  with 
the  common  shareholders  in  the  di- 
vision of  the  residuary  earnings.    By 
what  allowable  definition  of  a  loan  or 
borrowing  such  a  transaction  can  be 
embraced  I  am  at  a  loss  to  conceive." 
Butler,  D.  J.,  concurring,  said  upon 


this  question:  "  Every  admissible  defi- 
nition of  the  term  borrow  or  loan,  as 
applied  to  money  and  commercial 
transactions,  embraees  an  obligation  to 
return  the  property  borrowed.  A 
loan  of  money  is  universally  under- 
st(X)d  to  be  the  delivery  of  a  certain 
sum  to  another  on  contract  for  its  re- 
turn, generally  with  interest,  as  com- 
pensiition  for  its  detention  and  use. 
To  call  the  payment  of  money  to  an- 
other, who  is  to  receive  and  perma- 
nently retain  it  as  his  own,  in  consid- 
eration of  an  annual  benefit  or  profit, 
a  loan,  would  seem  to  be  a  plain  misuse 
of  language."  See  Kent  i\  Quicksil- 
ver 3Iiuing  Co.,  78  K  Y.  159,  177; 
Burt  V.  liattle.  31  Ohio  St.  116. 

» Green  Bay  &  W.  R.  Co.  v.  Union 
Steamboat  Co.,  107  U.  8.  98;  8.  c  ,  2 
Sup.  Ct.  Rep.  221,  in  which  case  Jus- 
tice Gray  said:  "  Whatever  under  the 
charter  or  other  general  laws,  reason- 
ably considered,  may  fairly  be  re- 
garded as  incidental  to  the  objects  for 
which  the  corporation  is  created,  is  not 
to  be  taken  as  prohibited."  In  Pearce 
V.  Madison  &  Indianapolis  R.  R.  Co., 
(1863)   21    How.    441,    the   Supreme 


§83] 


PRIVATE  COEPOEATIONS. 


95 


poration  formed  for  the  purpose  of  constructing  a  railroad  can- 
not engage  in  the  business  of  running  a  line  of  steamers.* 
Neither  can  it  engage  in  the  banking  business  in  order  to  raise  a 
fund  with  which  to  construct  or  operate  its  road.^  Authority  in 
tlie  charter  of  a  railroad  corporation  to  "  obtain  by  purchase  or 
<rrant  ♦  *  *  any  steamboats  *  *  *  that  the  said  direct- 
ors may  deem  necessary,  profitable  and  convenient  for  this  cor- 
poration to  own,  use  and  manage  in  connection  with  its  said  rail- 
roads "  does  not  carry  with  it  the  power  to  buy  off  an  opposition 
line  of  steamers  with  a  view  not  of  employing  but  of  withdraw- 
ing them  from  the  field  of  competition.^  The  power  to  issue  to 
contractors  in  payment  for  work  due  negotiable  certificates  of 
indebtedness,  payable  in  money  or  bonds,  is  included  in  the  power 
granted  a  railroad  corporation  by  its  charter  to  build  a  road  and 
issue  bonds  to  pay  tlierefor.* 

§83.  Raising  money  by  borrowing  notes  and  indorse- 
ment of  them.—  In  a  leading  New  Jersey  case,  the  president 
and  directors  of  a  railroad  company  agreed  among  themselves 
that  they  would  execute  their  individual  several  notes  to  the 
compc-ny  and  tlie  latter  should  raise  money  upon  them  for  the 
purposes  of  the  corporation.  The  note  involved  in  this  action 
was  never  directly  negotiated  l)y  the  company  to  raise  money, 
but  was  indorsed  by  the  company  as  a  renewal  of  former  such 
notes  and  finally  delivered  to  one  to  whom  the  company  was 
indebted  for  money,  in  payment  of  that  indebtedness.  It  was 
insisted  before  the  Court  of  Errors  and  Appeals  that  the  pro- 
vision in  the  charter  of  the  company  "  that  the  said  corporation 
shall  have  power  to  borrow  such  sum  or  sums  of  money  from 

Court  of  the  United  States  held  that 
the  purchase  of  a  stcaiii])oat  by  the 
railroad  corporation,  to  be  run  in  con- 
nection with  its  business,  was  not 
authorized  by  its  charter  or  within  its 
power  as  necessary  or  incident  to  its 
business,  and  that  there  could  be  no 
recovery  upon  the  notes  given  for  its 
purchase.  The  court  cited  in  support 
of  their  ruling:  MacGregor  v.  The 
Official  Manager  of  the  Deal  &  Dover 
Railway,  16Eng.  Law«&Eq.  180  ;  Col- 
man  v.  Eastern  Counties  Railway  Co. , 
10  Beav.  1;  East  Anglian  Railways  Co. 


f .  Eastern  Counties  Railway  Co.,  11  C. 
B.  803;  Head  v.  Providence  Insurance 
Co.,  2  Cranch,  127;  Bank  of  Augusta, 
V.  Earle,  13  Pet.  519;  Perrine?).  Chesa- 
peake &  Delaware  Canal  Co.,  9  How. 
172. 
» McCarty  v.  Roots,  21  How.  432. 

2  Waldo  V.  Chicago  R.  R.  Co.,  14 
Wis.  575,  580. 

3  Morgan  &  Raynor,  Trustees,  v. 
Donovan,  (1877)  58  Ala.  241. 

*Pusey  v.  New  Jersey  West  line 
R.  R  Co.,  (1873)  14  Abb.  Pr.  (N.  8.) 
434. 


96  GENERAL  POWER  TO  INCUR  PECtTNIARY  LIABILITY.         [§  83 

time  to  time,  as  shall  be  necessary  to  build,  construct  or  repair 
said  road,  and  furnish  the  said  corporation  with  all  the  necessary 
engines  and  machinery  for  the  uses  and  objects  of  the  said  com- 
pany, and  to  secure  the  payment  thereof  by  bond  or  mortgage, 
or  otherwise,"  was  a  limitation  of  the  power  of  the  company  to 
borrow  money  for  specified  purj^ses,  and  in  the  mode  designated, 
and  was  tantamount  to  a  prohibition  of  the  company's  borrowing 
money  for  any  other  purpose  or  upon  any  other  security  than 
that  specified.  The  court  held  that  it  was  within  the  power  of 
the  company  to  raise  money  through  borrowing  these  notes  and 
indorsing  them  to  others  for  its  indebtedness.* 


"Lucas  «J.  Pitney,  (1858)  27  N.   J. 
Law,  221.     Chief  Justice  Green  in 
the  opinion    rendered  said  that  this 
section  of  the  charter  "was  designed 
not  as  a  limitation  or  restriction  of  the 
powers  of  the  corporation,  but  as  a 
grant  of  additional  power.      *     *     * 
The    corporations  are    clothed    with 
powers,  whi(h.   independent  of  that 
provision,  they  could  not  have  extr- 
cised.     But  there    is  nothing  in  the 
provision  which,  by  necessary  implica- 
tion or  by  fair  intendment,   can   be 
construed  to  limit  the  general  powers 
and  capacities  incident  to  every  cor- 
poration."   On  the  part  of  the  defend- 
ant, it  was  insisted  that  a  corporation 
can  make  no  contract  which  is  not 
necessary  to  enable  it  to  answer  the 
object  of  its  incorporation;  that  the 
loaning  of  money,  or  the  borrowing 
of  notes  to  be  discounted  in  market,  is 
not  necessary  to  the  operation  of  a 
railroad  company;    and    that,   conse- 
quently,  the  making  or  indorsement 
of  commercial  paper  by  such   com- 
pany as  a  security  for  money  loaned 
and  the    indorsement  of   notes  bor- 
rowed   for   the    purpose    of    raising 
money  were  void  acts.    To  this  in- 
sistment  the  chief  justice  said-  "The 
simple  inquiry  is  whether  a  railroad 
company  has,  as  a  necessary  incident, 
the    inherent    power   of    borrowing 
money  for  the  payment  of  its  debts 


or  for  its  necessary  purposes.    It  is 
conceded    that   the   corporation    has 
such  powers   only  as  are    expressly 
conferred  by  charter  or  necessarily  in- 
cident to  those  powers.    If  it    may 
lawfully  contract  debts,  it  would  seem 
clear  that  it  may  enter  into  obligations 
to  pay  those  debts  or  borrow  money 
for  that  purpose.    The  power  of  in- 
curring debts  in  the  course  of  its  legit- 
imate   business,   of  giving  notes,  or 
borrowing  money  for  the  payment  of 
such  debts  would  seem  necessarily  in- 
cident  to   every    corporation    whose 
business  involved  the  expenditure  of 
large  sums  of  money,  and  often  upon 
sudden  and  unforeseen  contingencies. 
Such  it  is  believed  is  the  universal 
custom  of  all  important  corporations 
whether  private  or  municipal.     The 
authorities  in  support  of  the  practice 
are  abundant.     Our  statute  recognizes 
bodies  politic  or  corporate  as  persons 
by  whom  promissory  notes  and  bills 
of  exchange  may  be  drawn,  indorsed 
and  accepted.     Nix.   Dig.   667,    ^  4 
(N.  J.).    The  technical  doctrine  that  a 
corporation  can  contract  only  under  its 
corporate    seal,    was  long    since    ex- 
ploued.     In  Munn  v.  The  Commission 
Co..  15  Johns.  R.  44,  it  was  held  that 
a  corporation  of  limited  powers  might 
engage  to  pay  or  advance  money  at  a 
future  day  by  the  acceptance  of  a  bill 
of  exchange.     In  Mott  v.  Hicks,  1 


§84] 


PEIVATE  CORPORATIONS. 


97 


§  84.  Evidences  of  indebtedness  —  form. —  At  common 
law  a  corporation  has  power  to  issue  a  bond  or  note  to  pay  a 
debt.^  Tlie  weight  of  modern  authority  supports  the  conclusion 
that  private  corporations,  organized  for  pecuniary  profit,  may, 
like  individuals,  borrow  money  whenever  the  nature  of  their 
business  renders  it  proper  or  expedient  that  they  shall  do  so, 
subject  only  to  such  express  limitations  as  are  imposed  by  their 
charter.  The  power  tc  borrow  carries  with  it,  by  implication, 
unless  restrained  by  the  charter,  the  power  to  secure  the  loan  by 
mortgage.  Accordingly,  it  may  be  regarded  as  settled,  that 
where  general  authority  is  given  a  corporation  to  engage  in  busi- 
ness, and  there  are  no  special  rer.  train ts  in  its  charter,  it  takes  the 
power  as  a  natural  person  enjoys  it,  with  all  its  incidents  and 
accessories ;  it  may  borrow  mone^  to  attain  its  legitimate  objects, 
precisely  as  an  individual  and  bind  itself  by  any  form  of  obliga- 
tion not  forbidden .2     Unless  restrained  by  legislative  enactment 


Cowen,  513,  it  was  held  that  a  private 
corporation  might  give  a  negotiable 
promissory  note  tor  a  debt  incurred  in 
its  ordinary  business.  In  Kcllcy  v. 
Mayor  of  Brooklyn,  4  Hill,  263,  it  was 
held  that  a  municipal  corporation  may 
issue  negotiable  paper  for  a  debt  con- 
tracted in  the  course  of  its  proper  busi- 
ness; and  in  delivering  the  opinion  of 
the  court  Cowen,  J.,  said:  "Inde- 
pendently of  any  statute  provision, 
a  corporation  may  issue  negotiable 
paper  for  a  debt  contracted  in  the 
course  of  its  proper  business.  This  is 
a  power  incident  to  all  corporations, 
and  no  provision  m  its  charter,  or  else- 
where., merely  directing  a  certain 
form  in  afBrmative  words  should  be 
so  construed  ai^  to  take  away  tho 
power.  The  same  general  principle 
will  be  found  in  Moss  v.  Oakley,  S 
Hill.  265;  Barker  v.  The  Mechanic 
Ins.  Co.,  3  Wend.  96:  Furnlss  v.  Gil- 
christ, 1  Sandf.  Sup.  Ct,  R.  53,  Angcll 
&  Ames  on  Corp.  §  257:  Pierce  on 
Railroads.  372.  The  result  of  the 
authorities,  to  adopt  the  language  of 
a  recent  writer,  seems  to  be  that  cor- 
porations carrying  on  business  under 

13 


no  restraining  act  may  make  promis- 
sory notes  and  draw  bills  of  ex- 
change, where  these  are  the  usual 
and  proper  means  to  accomplish  the 
purposes  of  their  organization;  that 
such  notes  and  bills  are  to  be  pre- 
sumed legal  and  valid  where  they  are 
not  prohibited  by  law  and  are  re- 
ceived in  good  faith,  and  that  they 
are  invalid  when  given  in  violation  of 
law,  or  when  given  for  purposes 
wholly  forcicrn  to  those  for  which  the 
incorporation  was  created." 

*McLane,  Trustee,  v.  Placerville  & 
Sacramento  Valley  R.  R.  Co.,  (1885) 
06  Cal.  606  ;  citing  Commonwealth  v. 
Smith,  10  Allen,  448;  Comrs.  of 
Craven  v.  Atlantic  &  N.  C.  R.  R.  Co., 
77  N.  C.  289 ;  Miller  v.  New  York  & 
Erie  R.  R.  Co.,  18  How.  Pr.  374; 
Dana  v.  Bank  of  United  States,  5 
Watts  &  S.  223. 

*MiTCBGELL,  J.,  in  Wright  «. 
Hughes,  (1889)  119  Ind.  324;  s.  c,  21 
N  E.  Rep.  907  ;  New  England,  etc., 
Ins.  Co.  V.  Robinson,  25  Ind.  536; 
Jones  V.  Guaranty,  etc.,  Co.,  101  U. 
S.  622;  Reich wald  v.  Commercial 
Hotel   Co.,    106   111.  439;    Booth  v. 


I 


98  OENEKAL  POWER  TO  INCUR  PECTJNIART  LIABIUTY.         [§  85 

to  a  specific  .node  of  contracting,  the  contracts  a  corporation  has 
capJty  to  make  may  be  made  in  that  manner  <>••  f«™ ;'^~ 
a  Sar  contract  by  an  individual  could  be  mad.'  Aprx^^e 
corporation,  authorized  to  "  borrow  mo.iey  and  J  ««  "'«J^ 
bonds  therefor,"  may  bind  itself  by  simple  as  weU  as  by  sealed 

contracts.' 

§85.  More  rules  on  this  subject.-There  is  a  capacity  in  a 
corpomtion  to  enter  into  any  obligation  or  make  any  contract 
eJntial  for  its  purposes  and  for  the  transaction  of  ;  -^  "^^ 
affairs  Snch  a  power  to  contract  existing,  the  power  may  oe 
^i'sedTy  the  orporation  or  its  proper  officers  as  a  natum 
'^rson  can 'contract 'unless  its  charter  presents  some  pa^  >cu^>-_ 
mode  of  contracting.'    Promissory  notes  may  be  given  by  trad 


PEIVATE    CORPORATIONS. 


99 


RobiDSon.  55  Md.  419  ;  Hays  t».  Gallon 
Gas  Light  Co.,  29  Ohio  St.  330; 
Memphis,  etc.,  R.  R-  Co.  v.  Dow  19 
Fed.  Rep.  388  ;  Creen's  Brice's  Lltra 
Vires,  223;  1  Moraw.  on  Corp.  §§  342, 

843. 

» Trustees  of  University  v.  Moody, 
(1878)  62  Ala.  389.    Buickell,  Ch.  J. 
said-     "The    technical    rule  of   the 
ancient  common  law.  that  a  corpora- 
tion could  not  manifest  its  intentions 
by  any  personal  act  or  oral  discourse, 
and  that  it  spoke  and  acted  only  by  its 
common  seal,  if  it  ever  obtained  in  this 
country,  is  now  obsolete." 

*  McCuUough  V.  Talladega  Insurance 
Co      (1871)   46   Ala.    376:    Bank  of 
Columbia  V.  Patterson.  7  Cranch,  299; 
Talladega  Ins.  Co.  t).  Landers,  43  Ala. 
115     That  corporations  may  contract, 
as  individuals  do,  in  matters  pertain- 
ing to  their  business,  see  Smcad  «. 
Indianapolis,  etc..  R.  R.  Co..  11  Ind. 
104-  Talman«.  Rochester  City  Bank, 
18  Barb.  123.     As  to  the  power  of  a 
corporation     expressly    or   impliedly 
authorized  to   borrow   money  being 
exercised  by  issuance  of   negotiable 
bonds,  see  Des  Moines  Gas  Co.  v.  West, 
(1878)    50   Iowa.    16.     For   rules  m 
English  cases  as  to  liability  of  cor- 
porations upon  contracts  not  under 


seal,  see  Arnold  v.  Mayor  of  Poole.  2 
Dowl.  (N.  S.)  574  ;  Bowen  v.  Moms, 
2  Taunt.  374 ;  Paine  v.  Guardians  of 
Strand  Union.  8  Q.  B.  336 ;   Cox  n 
Midland     Counties    Pvailway    Co.,    3 
Exch.  268 ;    Lamprell  f>.  Billericuy,   8 
Exch.  306.      How    far    thev    confine 
liability  on  promissory  notes  and  bills 
of  exchange   to   trading  corporations 
only,  see  Mayor  of  Ludlow  r.  Charlton, 
6  Mees.  &  W.  815 ;    Murray   r.  East 
India  Co.,  5  B.  &  Aid.  204  ;  Broughton 
r.  Manchester  W.  Wks.,3  Barnw.  & 
Aid.  1 ;   Beverley  t.  Lincoln  Gas  Co., 
6  Ad.  &  E.  829  :  Rew  v.  Pettet.  1  A. 
&  El.  196  ;  Church  v.  Imp.  Gas  Light 
Co.,  6  Ad.  &  E.  846. 

•McKiernan    v.   Lenzen.    (1880)  56 
Cal  61.     As  to  what  officers  of  a  cor- 
poriition  may  do  in  ccmnection  with 
the  aflfairs  of  a  corporation,  see  Gillett 
V  Campbell,  1  Denio,  520,  522;  Carey 
r  Giles.  10  Ga.  10;  Phillips  v.  Camp- 
bell, 43  N.  Y.  271.     As  to  what  a  gen- 
eral manager  cannot  do.  see  Stow  «. 
Wyse     7    Conn.   219;    Hawtayne   •. 
Bourne.  7  Mees.   &  W    596;   Life  & 
Fire  Ins.  Co.  v.  Mechanic     Fire  Ins. 
Co..  7  Wend.  31;  Knight  v.  Lang,  4 
E  i).  Smith,  381;  Benedict  f>.  Lansing, 
5  Denio.  285^;  Torrey  p.  Dustin  Monu- 
ment Aflsociation,  5  Allen,  837.  8»; 


S  85] 

ing  corporations  for  any  indebtedness  contracted  within  the  scope 
of  their  powers,  and  it  msiy  prima  fdcie  be  presumed  that  any 
notes  given  by  them  are  for  an  indebtedness  within  the  scope  of 
their  powers.*  The  power  of  a  corporation  to  create  debts  and 
to  make  promissory  notes  is  an  incident  to  the  power  conferred 
by  statute  of  CaHfornia  "  to  make  by-laws,  *  *  *  for  the 
organization  of  the  company,  the  management  of  its  property, 
the  regulation  of  its  affairs,  the  transfer  of  its  stock  and  for 
carrying  on  all  kinds  of  business  within  the  objects  and  purposes 
of  the  company."  ^  The  provision  of  the  statute  of  California 
that  "  no  corporation  created  or  to  be  created  shall  by  any  impli- 
cation or  construction  be  deemed  to  possess  the  power  of  issuing 
bills,  notes  or  other  evidences  of  debt  upon  loans  or  for  circula- 
tion as  money  "  has  been  construed  not  to  prohibit  tne  borrowing 
of  money  by  corporations  and  issuing  the  usual  evidences  of  debt " 
therefor.^  The  constitutional  provision  of  California  forbidding, 
except  on  certain  conditions,  the  increase  by  corporations  of  tlieir 
bonded  indebtedness  lias  been  held  not  to  forbid  the  execution  of 
non-negotiable  notes  and  mortgages  by  a  corporation  in  considera- 
tion of  the  promise  by  the  payee  of  the  notes  and  mortgages  to 
advance  money  and  deliver  lumber  as  needed  by  the  corporation 
for  improvement  of  the  mortgaged  property.*  A  building  asso- 
ciation, the  charter  of  which  vests  it  with  such  power  as  to 
enable  it  to  borrow  money  and  to  make  loans  to  its  members  with 
a  view  to  accomplish  the  purpose  of  its  formation,  may  employ 
the  usual  legal  methods  of  effecting  this  purpose,  subject  to 
such  restrictions  as  that  it  shall  not  issue  paper  currency,  for 
instance.  And,  having  the  right  to  effect  a  loan,  it,  through  its  offi- 
cers, in  their  discretion,  may  give  a  promissory  note  for  the 
purpose,  and  it  may  issue  such  a  note  for  an  intended  indebted- 
ness.^ It  is  competent  for  any  manufacturing  corporation  organ- 
ized under  the  general  laws  of  Minnesota  to  execute  promissory 
notes  as  evidence  of  the  debts  it  may  lawfully  contract.*     As 

Despatch  Line  of  Packets  v.  Bellamy  *  Underbill  v.  Santa  Barbara  Land, 

Manufacturing  Co.,  12  N.  H.  205,  228;  Building  &  Imp.    Co.,  93  Cal.  300; 

Luse  V.  Isthmus    Transit    Ry.   Co.,  6  s.  c.  28  Pac.  Rep.  1049. 

Oreg.  125.  ^  Davis  v.  West  Saratoga  Building 

'  Gebhard  v.  Eastman.  7  Minn.  56.  Union,  (1869)  32  Md.  285. 

'Smith  V.  Eureka  Flour  Mills  Co.,  « Sullivan  v.  Murphy,  23  Minn.  6. 

(1856)  6  Cal.  1.  in  Bacon  v.  Mississippi  Insurance  Co., 

•Magee  v.  Mokelumne    Hill  Canal  2  George  (Miss.),   116.  the  Supreme 

&  Mining  Co.,  (1856)  5  CaL  358.  Court  of  Mississippi  held  that  a  corpora- 


100        ^GENERAL  POWER  TO  INCUR  PECUNIARY  LIABILITY.         [§  85 

under  our  general  credit  system,  and  the  manner  and  modes  of 
doing  business,  the  success  and  prosperity  of  manufacturing  cor- 
porations and  other  enterprises  of  like  character  would  be  greatly 
impeded  and  embarrassed,  if  not  utterly  destroyed,  without  the 
capacity  and  power  to  contract  debts,  borrow  money  and  make 
and  receive  bills  of  exchange  and  promissory  notes,  these  powers 
will  be  inferred  where  there  are  no  prohibitions  to  tlie  contrary 
in  their  charters.*     A  manufacturing  corporation,  declared  by  gen- 
eral law  for  the  incorporation  of  such  an  one,  "  capable  of  buy- 
ing, purchasing,  holding  and  conveying  any  lands  or  tenements, 
hereditaments,  goods,  wares  and  merchandise  whatever,  necessary 
to  enable    [it]   to   carry    on    their    manufacturing    operations 
♦    *     *     ,"  has  power  to  execute  its  promissory  notes  upon 
the  purchLe  of  such  personal  property  or  in  liquidating  the 
-claims  of  its  employees  in  its  legitimate  transactions.     It  also 
possesses  power  to  borrow  money  for  the  same  purposes  and  to 
bind  itself  in  its  corporate  capacity  by  a  written  obligation  for  its 
payment.2    A  corporation  authorized  to  construct  a  building  for 
its  use  and  purposes  may  accept  an  order  drawn  upon  it  by  a 
materialman  for  material  furnished  and  payable  out  of  money 
due  such  materialman.^      There  can  be  no  recovery  on  a  note 
given  by  a  corporation  on  a  contract  beyond  the  scope  of  its 
power.*     A  corporation  being  authorized  by  its  charter  to  incur 
indebtedness  and  give  evidence  thereof,  one  dealing  in  its  securi- 
ties may,  in  the  absence  of  notice  to  the  contrary,  assume  that 
restrictions  upon  its  power  have  not  been  violated.*     A  corpora- 
tion having  power  to  loan  money  on   and  in  the  same  manner  as  individuals 
bottomry,  respondentia,  etc.,  had  no  engaged  in  like  business.     And  when 
power  to  borrow  money,  and  prima   they  do  so.  and  confine  themselves  to 
facie  no  power  to  make  a  promissory   the  purposes  and  objects  of  their  in- 
note.     As  to  making  promissory  notes   corporation,     they     should     not    be 
by  private  corporations  in  the  course   deemed    as    transcending    their    au- 
of  their  legitimate  business,  see  Erode   thority,  but  should  be  regarded    aa 
1,  Firemen's  Insurance  Co.,  8  Rob.  (La.)  acting    within    the   scope    of     those 
344-  Louisiana  State  Bank  v,  Orleans  implied   incidental  powers  necessary 
Navigation  Co.,  3  La.  Ann.  294.  to  the  full  and  advantageous  develop- 

1  Oxford  Iron  Co.  iJ.Spradley,  (1871)   ment  of   those  which  are   expressly 
46  Ala.  98;  New  York  Firemen    Ins.    given." 
Co.  V.  Sturges,  2  Cowen,  664.  "  Board  of  Trustees  of  Prairie  Lodge 

*  Mead  v.  Keeler,  (1857)  24  Barb.  20.    v.  Smith,  (1880)  58  Miss.  301. 
It  was  further  said  by  the  court-  "It       * Pearce  v.  Madison  R.  R.,  21  How. 
is  to  be  presumed  that  [corporations]   441. 

will  conduct  their  operations  in  detail       'National   Park    Bank   v.  German- 
subetantially  upon  the  same  principles  American    Warehousing,    etc.,   Co., 


PBIVATE  CORPORATIONS. 


101 


§86] 

tion  may  make  a  promissory  note  for  a  debt  •  contracted  in  the 
course  of  its  legitimate  business,  although  not  specifically  author- 
ized by  its  charter  to  contract  in  that  form.* 

§  86.  Bonds  of  a  banking  association. —  In  a  case  before 
the  Court  of  Appeals  of  New  York,  the  court  held  certain  evi- 
dences of  debt,  called  bonds,  payable  at  different  periods,  issued 
by  this  banking  association,  intended  for  sale  in  London,  to  raise 
money  lor  the  uses  of  the  association,  bearing  interest  payable 
semi-annually  in  London,  not  naming  the  place  for  the  payment 
of  the  principal,  with  the  corporate  seal  impressed  upon  each 
bond,  but  without  the  use  of  wax  or  other  tenacious  substance, 
not  to  be  within  the  prohibition  of  the  restraining  laws,  and  to  be 
valid  securities  for  the  money  loaned  thereon,  even  if  regarded 
as  unsealed  obligations,  and,  therefore,  in  legal  effect,  mere  prom- 
issory notes.* 


(1886)  53  N.  Y.  Super.  Ct.  367;  follow- 
ing Ellsworth  V.  St.  Louis,  Alton  & 
Terre  Haute  R.  R.  Co.,  98  N.  Y.  553. 
'  3I0SS  V.  Oakley,  (1842)  2  Hill,  265; 
citing  Mott  v.  Hicks,  1  Cow.  513; 
Barker  v.  Mechanic  Fire  Ins.  Co.,  3 
Wend.  94.  Later,  in  a  case  in  the 
Chancery  Court  of  New  York,  Attor- 
ney-General V.  Life  &  Fire  Insurance 
Co.,  (1842)  9  Paige,  470,  the  chancel- 
lor, Walwortu,  held  that  a  corpora- 
tion which  was  not  prohibited  by  law 
from  doing  so,  and  without  any  ex- 
press power  in  its  charter  for  that  pur- 
pose, might  make  a  negotiable  promis- 
sory note,  payable  either  at  a  future 
day  or  upon  demand,  where  such  note 
was  in  fact  made  or  given  for  any  of 
the  legitimate  purposes  for  which 
the  company  was  incorporated.  He 
further  held  that  where  such  notes 
have  been  issued  and  put  in  circula- 
tion in  violation  of  a  restraining  law, 
it  seems  the  holder  is  bound  to  show 
that  he  received  them  in  the  ordinary 
course  of  business  and  paid  p  valuable 
consideration  for  them,  without  notice 
of  the  illegal  object  for  which  they 
were  issued,  to  entitle  him  to  recover 
thereon  as  a  bona  fide  holder. 


'  Curtis  V.  Leavitt,  (1857)  15  N.  T.  9. 
Speaking  as  to  the  power  of  corpora- 
tions to  issue  such  paper,  Comstock, 
J.,  in  his  opinion,  on  page  66,  said: 
"The  right  of  corporations  in  gen- 
eral to  give  a  note,  bond  or  other  en- 
gagement to  pay  a  debt  is  so  nearly 
identical,  or  so  inseparably  connected 
with  the  right  to  contract  the  debt 
that  no  doubt  upon  the  question  ought 
to  be  admitted.  When  a  corporation 
can  lawfully  purchase  property  or 
procure  money  on  loan  in  the  course 
of  its  business,  the  seller  or  the  lender 
may  exact,  and  the  purchaser  or  bor- 
rower must  have  the  power  to  give, 
any  known  assurance,  which  does  not 
fall  within  the  prohibition,  express  or 
implied,  of  some  statute.  The  par- 
ticular restriction  must  be  sought  for 
in  the  charter  of  the  corporation,  or  in 
some  other  statute  binding  upon  it; 
but  if  not  found  in  that  examination, 
we  may  safely  affirm  tliat  it  has  no  exist- 
ence. This  doctrine  would  seem  to  be 
clear  in  principle,  and  it  is  well  settled 
in  this  state.  Mott  v.  Hicks,  1  Cow. 
513;  Barker  v.  Mechanic  Ins.  Co.,  3 
Wend.  96;  Jackson  v.  Brown,  5  Wend. 
590;  Moss  v.  Oakley,  2  Hill,  265;  At- 


■•\\ 


102        OEMERAL  POWKB  TO  INOUB  PECUNIARY  UABIUTY.    [§§  87,  8S 


§  87.  Power  to  secure  their  indebtedness. —  It  is  now  well 
settled  that  corporations,  like  individuals,  may  borrow  money  for 
the  conduct  of  their  affairs,  without  express  authority  therefor, 
whenever  the  nature  of  their  business  may  render  it  proper  or 
expedient.  And  tlie  power  to  borrow  carries  with  it  very  gener- 
ally, unless  expressly  restrained,  the  power  to  secure  the  loan  by 
mortgage.^  Having  negotiated  a  loan  for  the  advancement  of  its 
best  interests,  a  corporation  may  pledge,  as  security  for  the  loan, 
unissued  stock  held  by  it  in  trust.*  The  power  to  sell  such  secur- 
ities for  the  payment  of  its  debts,  includes  tlie  power  of  the  cor- 
poration to  pledge  securities  owned  by  it  for  the  same  purpose.' 
The  securities  of  a  corporation  may  be  lawfully  pledged  by  the 
directors  of  a  solvent  corporation  to  secure  individual  demands  of 
directors  and  others,  due  or  to  accrue,  for  money  loaned  to  the 
corporation.* 

§  88.  Limitation  of  indebtedness. —  A  limitation  by  statute 
of  the  amount  of  debts  of  a  corporation  includes  indebtedness  to 
the  directors  as  well  as  indebtedness  to  third  parties.^    In  a  case 

torney-Geneml  t?.  Life  &  Fire  Ins.  Co.,  Law,  221;  Hackettstown  «?.  Swack- 
9  Paige,  470;  Safford  r.Wyckoff,  411111.  hamer,  37  N.  J.  Law,  191;  Ridgway 
442;  Barry  ».  Merchants'  Exchange  v.  Farmers'  Bank,  12  Serg.  &  It.  256; 
Co.,  1  Sandf.  Ch.  280.  It  would  be  a  Oxford  Iron  Co.  r.  Spradley,  46  Ala. 
very  illogical  conclusion  to  hold  that  98;  Ala.  Gold  Life  Ins.  Co.  v.  Central, 
an  indefinite  number  of  corporations,  etc.,  Assn.,  54  Ala.  73;  Union  Bank  v. 
authorized  by  a  gonenvl  law,  do  not  Jacobs,  6  Humph.  515;  ]Moss  r.  Harpeth 
possess  the  same  right  in  this  respect,  Academy,  7  Heisk.  283;  Commercial 
which  they  would  have  if  the  express  Bank  r.  Newport  ISIfg.  Co..  1  B.  Mon. 
powers  of  each  were  derived  from  a  14;  Bank  of  Chillicothe  v.  Chilli- 
special  charter."  cothe,  7  Ohio,  pt.  2,  31;  Hamilton  v. 
»  Booth  r.  Robinson,  (1880)  55  Md.  Newcastle  R.  R.  Co.,  9Ind.  359;  Rock- 
419;  Susquehanna  Bridge  Co.  v.  In-  well  v.  Elkhorn  Bank,  13  Wis.  653; 
surance  Co.,  3  Md.  305;  Au.stnilian  Thompson  v.  Lambert,  44  Iowa,  239; 
Steamship  Co.  1).  Mounsey,  4  K.  &  J.  Bradley  ».  Ballard,  55  111.  413;  Gause 
733;  Curtis  v.  Leavitt,  15  N.  Y.  9;  v.  City  of  Clarksville,  7  Rep.  519; 
Beers  c.  Phcenix  Glass  Co.,  14  Barb.  Union  Mining  Co.  0.  Rocky  Mountain 
358;  Mead  t».  Keeler,  24  Barb.  20;  Nat.  Bank,  2  Colo.  248;  Magee  v. 
Partridge  v  Badger,  25  Barb.  146;  Mokelumne  Hill  Canal  Co.,  5  Cal.  258. 
Clark  D.  Titcomb,  42  Barb.  122;  Barry  « Combination  Trust  Co.  v.  Weed,  3 
v.  Merchants'  Exchange  Co.,  1  Sandf.  Fed.  Rep.  24. 

Ch.   280;  Life  Insurance   Co.  t.  Me-  ^Leo  ??.  Union  Pac.  Ry.  Co.,  17  Fed. 

chanic    Ins.  Co.,  7  Wend.  31;  Barnes  Rep.  273. 

u.  Ontario  Bank,  19  N.  Y.  152;  Smith  *  Stout  v.  Yaeger  Milling  Co.,   18 

-0.  Law,  21  N.  Y.  296;  Nelson  i\  Eaton,  Fed.  Rep.  802. 

26  N.  Y.  410;  Holbrook  «.  Basset,    5  « Tallmadge  v.  Fishkill  Iron  Co.,  4 

B08W.  147;  Lucas  r.  Pitney,  27  N.  J.  Barb.  382. 


§89] 


PfilVATE  COBPORATIOKS. 


103 


before  the  Court  of  Common  Pleas  of  New  York  city,  it  has 
been  held  that  where  a  corporation  adopted  a  by-law  providing 
that  all  contracts  by  it  involving  a  liability  for  $500  or  more 
must  be  in  writing,  executed  by  both  the  president  and  treasurer, 
and  attested  by  the  seal  of  the  company,  the  company  cannot  be 
held  liable  on  a  lease  to  it  reserving  a  rent  exceeding  $500,  and 
executed  by  the  president  alone,  without  the  seal  of  the  com- 
pany; and  this  whether  the  lessor  had  notice  of  the  by-law  or 
not.*  And  in  such  case,  no  ratification  could  be  based  on  the 
treasurer's  knowledge  of  the  facts  where  his  testimony  that  he 
refused  to  sign  the  lease  was  wholly  uncontradicted.^  The 
Kansas  Supreme  Court  has  held  that  a  private  corporation  organ- 
ized under  the  statute  of  that  state  was  bound  by  a  contract 
within  the  scope  of  its  business,  by  which  an  indebtedness  greater 
than  $500  was  incurred,  notwithstanding  a  provision  in  its  charter 
that  its  indebtedness  should  not  exceed  $500,  as  this  provision 
was  merely  directory,  and  the  statute  under  which  it  was  organ- 
ized did  not  require  its  indebtedness  to  have  any  limit  other  than 
the  amount  of  its  capital  stock.' 

§  89.  Debt  limited  by  par  value  of  capital  stock.—  A  street 
railway  company,  a  Pennsylvania  corporation,  was  aurliorized  by 
its  charter  to  borrow  money  not  exceeding  in  amount  "  one-l»alf 
of  the  par  value  of  the  capital  stock."  The  capital  authorized  in 
the  act  of  the  legislature  granting  its  charter  was  §1,000,000. 
Only  ten  per  cent,  or  $100,000,  of  the  authorized  amount  was 
paid  in.  The  directory  of  the  company  by  resolution  authorized 
an  issue  of  bonds,  to  be  secured  by  mortgage  to  the  amount  of 


'Bohm  V.  V.  Loewer's  Gambrinus 
Brewery  Co.,  (1890)16  Daly,  80;  s.  c, 
9  N.  Y.  Supp.  514,  following  Rath- 
burn  T.  Snow,  3  N.  Y.  Supp.  925. 
See,  also,  Westerfield  v.  Radde,  7  Daly, 
326. 

^Bohm  v.  V.  Loewer's  Gambrinus 
Brewery  Co.,  (1890)  16  Daly,  80;  s.  c, 
9  N.  Y.  Supp.  514.  BiscHOPF,  J., 
said:  "An  attempt  was  made  by  the 
plaintiff,  upon  the  trial,  to  show  a 
subsequent  adoption  or  ratification  of 
the  president's  act  by  the  trustees, 
predicated  upon  the  neglect  of  the 
trustees  to  repudiate  the  transaction 


when  it  was  brought  to  their  notice. 
*  *  *  The  trustees  *  *  *  as 
such,  could  not,  pursuant  to  the  pro- 
visions of  the  by-laws  mentioned, 
have  originally  created  any  liability 
on  behalf  of  the  corporation  exceeding 
five  hundred  dollars  in  amount;  and 
it  cannot  be  said  that  they  can  by  im- 
plication do  the  acts  prohibited  in  un- 
equivocal terms.  Peterson  v.  Mayor, 
etc.,  17  N.  Y.  449;  Brady  v.  Mayor, 
etc.,  20  N.  Y.  312-319." 

•  Sherman  Center  Town  Company 
V.  Morris,  43  Kans.  282;  s.  c,  23  Pac. 
Rep.  569. 


104  GENEEAL  POWER  TO  INCUK  PECUNIAEY  LIABILITY.  [§  89 


$250,000.  A  bill  in  equity  having  been  filed  by  the  common- 
wealth to  restrain  by  injunction  the  issue  of  these  bonds  to  the 
extent  proposed,  an  injunction  was  decreed,  from  which  an 
appeal  was  entered  to  the  Supreme  Court  of  the  state.  Before 
the  latter  the  contention  of  the  company  was  that  the  grant  of 
power  in  their  charter  authorized  an  issue  of  bonds  for  the  pur- 
pose of  borrowing  money  to  the  amount  of  one-half  of  their 
authorized  capital.  Tlie  Supreme  Court  held  adversely  to  this 
contention,  and  sustained  the  decree  of  the  court  which  enjoined 
an  issue  of  the  bonds  beyond  the  amount  of  $50,000,  one-half  of 
the  amount  of  the  stock  actually  paid  in.^ 


'  Commonwealth    r,    Lehigh    Ave. 
Ry.  Co.,  (1889)  129  Pa.  St.  405;  s.  c, 
18  Atl.  Rep.  414,  498  .  7  Ky.  &  Corp. 
L.  J.  42.    Williams.  J. ,  for  the  court, 
upon  the  question  of  what  constitutes 
the  capital  stock  of  a  corporation  and 
its  par  value,  discusses  the  question, 
quite  in   exteiiso   as    follows:    "The 
words    stock  and  capital  stock    may 
be  defined   as   meaning  the  fund  or 
property  belonging  to  a  firm  or  cor- 
poration,   and    used  to  carry   on  its 
business.      This   is    contributed     by 
those  who   embark  in  the  business. 
The  articles  of  copartnership,  or  the 
charter  of  the    corporation,    fix    the 
maximum  amount  of  stock  that  may 
be  issued,  and  this  may  properly  be 
spoken   of   as   the   proposed    or  au- 
thorized   capital    of   the    company. 
When  an  organization  is  effected,  sub- 
scriptions are  made  to  the  stock,  by 
which  the  subscribers  agree  to  take 
and  pay  for   certain  sums  or  shares 
each.    The  total  amount  of  the  stock 
thus  taken  constitutes  the  subscribed 
capital   of    the   company.     Some  of 
these  subscriptions  may  not  be  paid 
and  may  be  uncollectible,  but  when 
the  amount  subscribed,  or  called  for 
upon  subscriptions,  has  been  collected, 
so  far  as  collection  is  practicable,  the 
amount  so  gathereti  into  the  treasury 
constitutes  the  actual  capital  on  which 
the    business    is    undertaken.      The 
amount     paid    by    each    subscriber 


measures  his  relative  interest  In  the 
whole.    As  between  himself  and  the 
corporation,  or  his  fellow -subscribers, 
or    the    public,    his    share    of   the 
whole  stock  is  fixed  by  the  proportion 
which  his  actual  contribution  bears  to 
the  entire  amount  contributed  by  all 
who  are  associated  in  the  enterprise. 
*    *    *    Does  the  corporation  stand 
on  better  ground  than  its  members  ? 
It  claims  the  right  to  issue  bonds  be- 
cause of  its  stock.     We  must  inquire, 
therefore,  first,   what  is  the    amount 
of  its  stock  ?    And,  next,  what  is  the 
par  value  of  a  share  of  that  stock  ? 
We  think  the  first  of  these  questions 
is,  in  the  light  of  the  facts  in  this  case, 
answered  by  repeated  decisions  of  this 
court.     Whether  it  be  for  the  purpose 
of  adjusting    and    paying    dividends 
to  stockholders,  or  of  regulating  the 
amount  of  taxes  due  to  municipalities 
having  the  right  and  power  to  tax  the 
amounts  of  stock  actually  paid  is  the 
capital  stock  of  the  company.     Citi- 
zens' Pass.  Ry.  Co.  t>.  Philadelphia,  49 
Pa.  St.  251.    Neither  the  cost  of  the 
road,  nor  the  authorized  capital  can 
be  made   the   basis  of  dividends   or 
taxation,  but  these  must  rest  on  the 
amount  of  capital  stock  actually  paid 
in.     Second  &  Third  St.  Pass.  Ry.  Co. 
T.  Philadelphia,  51  Pa.  St.  465;  Phila- 
delphia   t.    Philadelphia    &    Gray's 
Ferry  Pass.  Ry.  Co..  52  Pa.  St.  177; 
Philadelphia  f.  Ridge  Avenue  Ry.  Co., 


§90] 


PRIVATE  CORPORATIONS. 


105 


§  90.  When  a  statutory  limitation  of  indebtedness  does 
not  apply. —  In  a  Minnesota  case  where  the  corporation,  a  mill- 
ing company  organized  under  the  general  statute  of  that  state, 


103    Pa.     St.     190.     The    company 
appellant  proposes  to  exercise  a  power 
and  incur  a  Uability  upon  the  basis  of 
its  capital  stock,  and  for  this  purpose, 
as  for  purposes  of  taxation  or  pay- 
ment of  dividends,  its  rights  must  be 
measured  not  by  nominal  or  author- 
ized capital,  but  by  the  actual  amount 
of  capital  paid  in.     The  issuing  of 
certificates  of  stock  to  the  subscribers 
does  not  add  to  the  common  stock  in 
the   treasury  or  business  of  the  cor- 
poration, nor  does  it  increase  the  inter- 
est of  the  individual  stockholder.    He 
takes  this  certificate  when  issued,  sub- 
ject to  all  the  unpaid  installments  of 
the  subscription   and   the  terras  and 
conditions  on  which  the  subscription 
was  made.     Its  value  to  him,  as  be- 
tween him   and    the    corporation,  is 
what  he  has  paid  upon  it ;  no  more, 
no  less.     That  value  may  be  increased 
or  diminished  in  a  commercial  sense 
by  the  success  of   the  business,  the 
ability  of  the  management,  or  other 
similar   consideration,   and    such   in- 
crease or  decrease  makes  the  market 
value  greater  or  less  than  the  amount 
he  has  paid  upon  it,  as  the  case  may 
be;  but  as  between  himself  and  the 
corporation  or  his  fellow-stockholders 
the  consideration  of  market  value  has 
no  place.     He  must  pay  his  subscrip- 
tion as  calls  are  made  whether  the  ven- 
ture prospers  or  fails.     If  the  value  of 
the  stock  is  measured    by  what  has 
been  paid  upon  it,  is  the  '  par  value ' 
measured  in  the  same  manner  when 
the  right  of  the  corporation  to  do  a 
given  act  is  to  be  settled  ?    The  par 
value  of  the  stock  of  this  corporation 
for  purposes  of  taxation  or  payment 
of  dividends,  is,  as  we  have  already 
seen,  the  amount  actually  paid  upon 
it,  or  one  hundred    thousand  dollars, 
This  is  well  settled  by  the  cases  we 
14 


have  cited,  which  hold   that,  for  the 
purposes  enumerated,  the  par  value 
has  no  necessary  relation  to  cither  the 
authorized  or  the  market  values,  but 
is  fixed  by  the  amount  actually  paid, 
and  is  the    equivalent  or  par  of  the 
value  of  the  shares  as  shown  by  the 
stock  account.     The  issuing  of  certifi- 
cates does  not  affect  our  question.     If 
issued  they  cannot  increase  the  money 
in  the  treasury,  or  confer  any  inde- 
pendent   right   on   the   stockholder. 
They  simply   afford   evidence  of  the 
extent  of  his  interest  in  a  more  con- 
venient form  than  the  books  of  the 
company  furnish,  but  leave  him  sub- 
ject to   all   the   liabilities  resting  on 
him  before  they  come  into  his  hands. 
We    see    no    good    reason    for    dis- 
tinguishing this  case  from  the  cases 
cited     above,      but      regard     it    as 
substantially    ruled    by  them.     The 
[corporation   here]    has  received  just 
one  hundred  thousand  dollars  from 
the    subscribers    to    its    stock.     So 
far     as     the     paper     books     advise 
us,  this  is  all  it  has  ever  asked  for 
in  the  more  than  fifteen  years  of  its 
corporate  life,  and  all  it  expects  to  re- 
ceive.    The  other  nine  hundred  thou- 
sand dollars  of  authorized  capital  are 
uncalled  and  unpaid.     The  par  value 
of  all  its  shares  taken  together  is  one 
hundred    thousand    dollars,    because 
that  is  the  sum  paid  upon  them,  the 
value  they  represent.     The  par  value 
of  each  share  is  fixed  in  like  manner. 
Its  value  is  the  equal,  or  par,  of  the 
corporate  capital  it  represents,  which 
is  the  amount  paid  upon  by  the  sub- 
scriber or  applied  to  it  out  of  the  earn- 
ings   of    the    corporation.      *     *     * 
We  have  the  fact  on  the  record  that 
but  one-tenth  of   the  nominal   value 
[of  the  stock]  has  been  paid.     The  cor- 
poration is  the  party.    It  has  one  hun- 


106 


OENEKA.  PO^BR  TO  ISCTE  PBCUK.ABV   U.BI.rTT. 


[§90 


§90] 


PRIVATE  CORPORA'nONS. 


107 


one  of  t.e  oH^nal  articles  f  .^3:rof  lil^^t  CS 
that  "  the  highest  a:«o«.t  "^  -f  ^  ^^^  l,^  |5,000,"  was 
said  corporation  shall  be  ««^J«°*  f ';7.   j„  ent  of  a  balance 

sued  upon  a  promissory  note  .ssned  ^y  J  "  W  ^^^  ^^.^^^  ^^  ^^^ 
.pon  settlement  of  a. -count  t^^^^^^^^^  ^,^^^^,^  ^,,,,  , 

company  and  a  "^'^^fj;  '^„,p,,,tion  was  largely  done  and  by 
financial  business  of  the  corpora  ^^^.^  ^^^^^^  ^j^^ 

him  transferred  before  'uatunty  to   he  bnng  ^^^^    ^^^^.^^^ 

corporation  made  the  ^^^^^^^^^^^^^  fffi^med  the  order  of 

note  was  ultra  vires.    The  ^»F^'  ^  j^^    i^i„tifE.' 

the  trial  court  giving  judgment  in  favor  ot  t      p  ^    ^^^ 

.  dred  thousand  OoUa™  in  its  tre^-^  ^^r*  t g^U^WM- «-<»  %^ 
^d  no  more;  yet  it  asks  us  to  hold    W  ji^i„ti,e  ..  Preston,  10  lU. 

2t  the  par  vaiue  of  its  stock  .s  o-   K  Y^5^^^^^^  ^^^  ^  ^^ 

million  dollars,  and  permit  .t  to  «er    4  .  ^^^    g.^„  ,  m,cU. 

eiseanimporUnt^weroj.tham->^^^^^^^^^ 

This  we  decline  to  do.    Tl>c  par  va  ^^  ^      ^^  Lexington  o.Butto. 

of  its  shares  is  measured  by  the  "^  '  3g._j  Moran  o.  Miami  County. 
Iney  it  has  received  upon  them  and  t4WaU  28  ^„g,„  &  A„.es  on  Corp^ 
not  by  the  bmken  promises  of  those  a«  ^^^^  ^^  ^.^^^  »f'  ,^"^°,' 
who  subscribed  for  them.  |  ^Itra  Vires,  373,  274.  729.    Al- 

.Auerbach   ..  Le  Sueur  MUl  Co     ^^^/^  ^j^  ,„eh  a  case  the  corporation 

(1881)  28  Minn.  291;  «• --aN- ^- f^^^  ^  to  officers  excee.ied  the  corpora^ 
W  Reasoning  in  ^^PP"^,^  **'^  ^^^ority,  and  its  contract  would  be. 
judgment,  the  court  saul:     Where  a  a.  J  ^^^^^  ^^,  y^^  otuer 

private  corporation  has  authority  to  ^;°7'  ,^5  ,,3.  besides  those  merely 
Lae  negotiable  securities,  such   in^   lega^  P        P  „,  ,ue  corpora- 

Sttuments,  when  issued,    possess   the     el"_t'°=  f„  „ff,et  the  result.     It 

C"character  ordinarily  a.tech.ng  o      «°;^-f  ^io^i,  ,  being  created 

„fgot»W«  P^P*''  ''°^'''.!,''1nd  for   by   the  law^  and   has  pr->P">y    - 
gc«d  faith  before  maturity    and  for   by  ^^^  ^^^^   ^   .^        {     ed 

™lue.  may  recover,  even  tUough,    n  autuo    X  ^^  ^y  j^pUcation, 

ae  articular  «ise,  the  power  of  the   "P°°';'^^  ^(  jt^  creation;  yet  it  may 
^rJTration  was  irregulariy  exercised   ^^^'''J^i     ^ound  to  observe  and 
r^as  exceeded;  or.  to  state  the  le^i     ~^' ^mets  which  it  had  no 
proposition  in  its  application  to    h«   P^^*"         „  ,„^,  i„to.    The  ends  of 
Lse  this  defendant  having  powe    to  authon  y^  ^  .^  ^^,^  ,^., 

STurdebtstoalimitedextent  and  to   ^^''^J^^^p^laon  which  has   ex^ 
»ue  its  negotiable  notes  therefor    he  tot  ^b         P^^^  ^^^„,^  ^     topped 
^intiff.  ^^toaaJUU  holder  of  the   ceed^        P°  ^^  ^^^  p,    ding,  m 
Sote  in  suit,  may   recover  upon  it.   by  JW^  ^^^^   obligations, 

aWxough,  in  this  particular  case    the  dcfen^  _^„^^  „.,^.     .-To  ap- 

tndebtldnessof  the  corpora  ion  at  the  that  th  y  ^^  estoppel  is  not  to 

time  of  giving  this  note  already  ex^  P^^  ^^^  ^rs  of  the  corporation; 
ceeded  the  limits  prescribed  by  its  '""fl  .^.,e  warrant  to  a  corpora- 
S'liiiX^r  n  S'"eS;  Zrr^gard  or  Violate  the  re- 


otrictions  which  have  been  expressly 
imposed  upon  it,  or  which  exist  in  the 
absence  of  power  conferred.     It  was 
said  by  the  court  in  Bradley  v.  Bal- 
lard.   55    111.     413:     'This    doctrine 
[estoppel]    is   applied    only  for   the 
purpose  of  compelling  corporations  to 
be  honest,  in  the  simplest  and  com- 
monest sense  of  honesty,   and  after 
whatever  mischief  may  belong  to  the 
performance  of  an  act  ultra  vires  has 
been  acomplished.'    In  Railway  Co. 
V.  McCarthy,  96  U.  S.  258,  the  court 
say:     'The    doctrine  of   ultra  vires, 
when  invoked. for  or  against  a  cor- 
poration,  should  not  be    allowed  to 
prevail  where  it   would    defeat   the 
ends   of     justice    or    work   a   legal 
wrong.'    Whether  the  plea  of  nltra 
vires  should  be  allowed  as  a  defense 
to  assumed  obligations  should  not  be 
determined    without   regard    to    the 
character  and    objects    of    the   cor- 
poration,  the  nature  of  the  powers 
conferred      or     withheld,     the     par- 
ticular character    of    the  obligations 
assumed  on  contract  entered  into,  the 
relations  of  the   contracting   parties, 
and    the    bona  fides   of    him  against 
whom  the  doctrine  of  ultra  vires  is 
asserted.    In   this   case   the   defense 
sought  to  be  made  to  the  note  is  that 
in  giving  it  the  article  of  the  defend- 
ant's    incorporation,      limiting     the 
amount  of  its  indebtedness,  was  vio- 
lated.    The  debt  was  incurred  in  the 
ordinary  prosecution  of  the  business 
of  the  corporation.     The  defendant  re- 
ceived and  appropriated  the  money 
which  was  the  consideration  of  the 
note,   and  having  authority  to  issue 
negotiable  paper,  it  put  forth  the  note 
in  question,  negotiable,  calculated  to 
circulate  as,  and  perform  the  office  of, 
commercial    paper,    and    expressing 
upon    its   face    the    obligation    and 
promise    of   the   maker   to   pay  the 
bearer,  at  all  events,  the  sum  named. 
It  has  come  into  the  hands  of  a  bona 


fide  purchaser,  and  simple  justice,  as 
well  as  plain  principles  of  law,  forbid 
that  courts  should  listen  to  the  plea 
that  in  this  particular  case  the  corpo- 
ration had  not  authority  to  issue  its 
note.     It  ought  to  be  and  is  estopped. 
To  so  hold  does  not  weaken  the  sanc- 
tion of  the  law  which  restrains  the  ex- 
ercise of  corporate  power  within  the 
limits  prescribed  by  the  creative  act. 
To  refuse  to  recognize  and  enforce, 
when  necessary  to  the  attainment  of 
justice  and  prevention  of  wrong,  such 
contracts,    made  in  violation  of  the 
corporate  charter,  is  not  to  afford  a 
remedy  for  the  wrongful  acts  of  the 
corporation.      When,   in  a  case  like 
this,   the  unauthorized   contract   has 
been  executed  by  the  corporation,  and 
it  has  reaped  the  benefits  of  it,  public 
policy  docs  not  require  the  courts  to 
refuse  to  administer  justice  between 
the  parties  in    accordance    with  the 
plain  principles  of  law.     In  such  a 
case,  the  remedy  for  the  violation  by 
the  corporation  of  its  charter  power 
lies  elsewhere.    We  are  here  seeking  to 
administer  justice  as  between  these 
contracting  parties.     If  j  ustice  did  not 
invoke  the  application  of  other  princi- 
ples of  law,  the  defense  of  ultra  vires 
might  be  sufficient;  but  the  doctrine 
of  estoppel,  as  a  principle  of  law,  is  as 
positive  and  well  recognized  as  is  the 
law  that  a  corporation  may  not  exceed 
its  corporate  powers,  and  although  the 
defendant  exceeded  its  authority,  it 
should  be  denied  the  right  to  assert  the 
fact  of  its  own  wrong,  when  to  allow 
its   plea  would  work    injustice    and 
wrong  to  him  who  has  been  misled  by 
its  acts,  performed  within  the  general 
scope  of  its  powers.    What  has  been 
said  should  be  regarded  only  as  said 
with  reference  to  this  case,  and  should 
not  be  considered  as  stating  a  rule  of 
law  which  should  prevail  generally  in 
the  case  of  contracts  not  negotiable." 


§91] 


PUBLIC  CORPORATIONS. 


109 


I 


CHAPTER  III. 

POWER  OP  AGENTS  AND  OFFICERS— PUBLIC  CORPORATIONS. 


§103. 
104. 
105. 
106. 
107. 
108. 
109. 
110. 
111. 
112, 
113 


§   91.  General  rules. 

92.  More  general  rules. 

93.  Illustrations  of  the  duty    and 

powers  of  municipal  officers. 

94.  Ratification  by  municipal  cor- 

porations of  contracts  made 
by  their  agents  and  officers. 

95.  Agents   and  officers  of  coun- 

ties—genemlly. 

96.  Power  of    county    officers    in 

California. 

97.  Power    of    county    boards  in 

Illinois. 

98.  Power  of  county  commission- 

ers in  Indiana. 

99.  Power  of  supervisors  of  coun- 

ties in  Iowa. 

100.  Power  of  county  commission- 

ers in  Kansas. 

101.  Power    of    County  Courts   in 

Kentucky. 

102.  Power  of  supervisors  in  Mich- 

igan. 

§  91.  General  rules.—  Municipal  officers  have  no  general 
anthority  to  bind  the  corporation.  Their  authority  as  agents  is 
special.^  The  contracts  of  such  officers,  entered  into  with  its 
knowledge,  though  not  expressly  authorized,  will  bind  the  corpo- 
ration.2  In  Uke  manner  as  individual  and  private  corporations, 
municipal  or  public  corporations  may  make  contracts  through 
their  officers  or  agents,  appointed  properly  for  the  purpose,  in  all 
matters  that  appertain  to  the  corporation.  And  such  contracts 
may  be  by  parol.^  Parol  contracts  made  by  authorized  agents  of 
a  municipal  corporation,  within  the  scope  of  its  purposes,  are 
express  promises  of  the  corporation.*    But  contracts  not  within 

»Ro8S  V.  City  of  Philadelphia,  115      »Duncombe  v.  City  of  Fort  Dodge. 

Pii.  St.  222;  8.  c.  8  AU.  Rep.  398.  (1874)  38  Iowa,  281;  City  of  Indianola 

•  Allegheny  City  v.  McClurkan,  14  t.  Jones,  29  Iowa,  282. 
p^  St  81.  *  S*^  Antonio  r.  Lewis,  9  Tex.  69. 


Power    of    County  Courts  in 
Missouri. 

Power  of  county  supervisors  in 
New  York. 

Power  of  county  commission- 
ers in  Pennsylvania. 

Power    of    county    board    in 
Wisconsin. 

Power  of  township  trustees  in 
Indiana. 

Power  of  selectmen  of  towns  in 
Massachusetts. 

Power  of  selectmen  of  towns  in 
New  Hampshire. 

Power  of  supervisors  of  town- 
ships in  Pennsylvania. 

Power  of  selectmen  and  agents 
of  towns  in  Vermont. 

Power    of    town    officers  in 
Wisconsin. 

Power   of   officers    of    school 
districts. 


the  scope  of  their  authority  are  not  enforceable  against  the  corpo- 
ration.^   For  instance,  under  the  ordinances  of  a  Maryland  city, 
as  appeared  in  this  case,  the  city  commissioner  could  make  con- 
tracts for  grading  and  paving,  and  assess  taxes  for  the  same  m  two 
classes  of  ca^es,  to  wit :  (1)  Upon  application  of  the  proprietors 
of  a  majority  of  front  feet,  where  the  street  had  been  condemned ; 
and  (2)  upon  the  like  application  of  all  the  proprietors  of  ground 
fronting  on  the  street,  where  it  had  not  been  officially  condemned. 
The  Court  of  Appeals  held  that  without  such  an  application  the  city 
commissioner  was  entirely  destitute  of  the  official  character  and 
power,  in  and  by  which  alone  he  could  take  any  legal  proceeding  or 
make  any  valid  contract  for  grading  and  paving,  and  the  power  of 
the  mayor  to  approve  of  his  determinations  to  grade  and  pave,  and 
of  his  contracts  for  the  same  was  limited  likewise  and  controlled  by 
the  same  conditions ;  therefore,  it  followed  that  a  contract  made  by 
the  city  commissioner  for  grading  and  paving  a  street  not  formally 
condemned,  upon  the  application  of  the  owners  of  a  majority  of 
feet  fronting  on  it,  and  not  of  all  the  proprietors  of  ground  on  it, 
was  an  invalid  contract,  and  not  binding  on  the  city.^    The  govern- 
ment or  other  public  authority  of  a  municipality  will  not  be  bound 
by  acts  of  public  agents,  unless  it  manifestly  appears  that  the  agent 
is  acting  within  the  scope  of  his  authority,  or  he  has  been  held  out 
as  having  authority  to  do  the  act,  or  has  been  employed  in  his 


» Addis  V.  City,  85  Pa.  St.  379;  Wahl 
«.  Milwaukee,  23  Wis.  272. 

'Mayor  &    City    Council  of  Balti- 
more V.  Eschbach,  (1861)  18  Md.  276. 
In  this  case  the  Court  of  Appeals  of 
that  state  have  expressed  themselves 
fully   upon  the  principles  govcrniug 
the  contracts  of  public  agents  in  these 
words  :  "  The  fact  that  the  contract 
made  related  to  a  subject  within  the 
scope  of  his  powers,  does  not  make  it 
obligatory  on  the    [municipality]   if 
there  was  a  want  of  specific  power  to 
make  it.     Although  a  private  agent, 
acting  in  violation  of  specific  instruc- 
tions, yet  within  the  scope  of  a  general 
authority,  may  bind  his  principal,  the 
rule  as  to  the  effect  of  a  like  act  of  a 
public  agent  is  otherwise.     The  city 
commissioner,  upon  whose  determina- 


tion to  grade  and  pave  the  contract 
was  made,  was  the  public  agent  of  a 
municipal  corporation,   clothed  with 
duties  and  powers  epecially   defined 
and  limited  by  ordinances  bearing  the 
character  and  force  of  public  laws,  ig- 
norance of  which  can  be  presumed  in 
favor  of  no  one  dealing  with  him  in 
matters  thus  conditionally  within  his 
official  discretion.     For  this  reason  the 
law  makes  no  distinction  between  the 
effect  of  the  acts  of  an  officer  of  a  cor- 
poi-ation  and  those  of  an  agent  for  a 
principal  in  common  cases.     In  the 
latter  the  extent  of  authority  is  neces- 
sarily known  only  to  the  principal  and 
agent,  while  in  the  former  it  is  a  mat- 
ter of  record  in  the  books  of  the  corpo- 
ration or  of  public  law." 


110 


.  POWER  OF  AGENTS  AND  0FFICEB8. 


[§93 


§92] 


PUBLIC  COEPOEATIONS. 


Ill 


capacity  as  a  public  agent  to  make  the  declaration  or  representa- 
tion for  the  government^ 

§  92.  More  general  rules.— The  legislature  of  a  state  invest- 
ing a  pnblic  corporation  with  the  power  to  do  certain  acts,  the 
governing  board  of  the  corporation  will  have  an  implied  right  to 
use  the  tit  and  appropriate  means.  For  instance,  where  the 
County  Court  of  a  county  under  the  authority  conferred  upon  it 
to  subscribe  to  the  stock  of  a  railroad  corporation  may  make  an 
order  for  tlie  subscription,  they  may  subsequently  make  an  order 
appointing  an  agent  to  enter  the  subscription  upon  the  books  of 
the  railroad  corporation  as  a  proper  method  for  completing  the 
subscription.''  Where  a  city  has  lawful  authority,  say  to  con- 
struct sidewalks,  involved  in  this  authority  would  be  the  right  to 
direct  the  mayor,  and  the  chairman  of  the  committee  on  streets 
and  alleys,  to  make  a  contract  on  behalf  of  the  city  for  doing  the 
work.'*  So  a  municipal  corporation,  a  city,  may  employ  a  third 
person,  not  an  officer  or  regularly  constituted  agent,  to  negotiate 
for  it  in  procuring  a  right  of  way  for  a  ditcli,  for  instance.*  It 
is  well  settled  that  public  officers  or  agents  are  held  more  strictly 
within  the  limits  of  tlieir  prescribed  powers  than  private  general 
agents  — not  only  because  the  extent  of  their  power  is  more 
easily  seen,  but  because  the  rights  of  large  comumnities  are  in 
greater  need  of  diligent  guards  than  those  of  individuals,  whose 


'  Mayor  &  City  Council  of  Baltimore 
fj.  Reynolds.  (1863)  20  Md.  1.  It  was 
said  by  the  court:  "  Cities  and  other 
purely  municipal  corporations  or 
bodies  politic  which  are  allowed  to  as- 
sume some  of  the  duties  of  the  state, 
in  a  partial  or  detailed  form,  having 
neither  property  nor  power  for  the 
purposes  of  personal  aggrandizement, 
can  be  considered  in  no  other  light 
than  as  auxiliaries  of  the  government, 
and  as  secondary  and  deputy  trustees 
and  servants  of  the  people.  McKim  r. 
Odom,  3  Bland  Ch.  (Md.)  417;  Ang.  & 
Ames  on  Corp.  11.  Agents  themselves, 
not  principals,  answerable  to  their 
constituents,  they  are  not  to  be  pre- 
sumed to  recognize  and  individually 
ratify  and  confirm  the  acts  of  their  of- 


ficers, done  beyond  the  scope  of  their 
authority.  Acts  of  ratification  by  such 
bodies  politic  should  be  direct,  explicit, 
unequivocal,  with  full  knowledge  of 
the  facts." 

« Hannibal  &  St.  Joseph  R.  R.  Co. 
D.  Marion  County.  (1865)  36  Mo.  294. 
The  court  said:  ''The  County  Court 
*  *  *  has  the  control  and  manage- 
ment of  the  property,  real  and  per- 
sonal, of  the  county.  It  is  the  agent 
of  the  county,  and  may  lawfully  and 
of  right  do  whatever  is  necessary  to 
carry  out  and  execute  the  trusts 
reposed  in  it." 

•Hitchcock  V.  Galveston.  (1877)  96 

U.  S.  341. 

*  Stewart  v.  City  of  Council  Bluffs, 
(1882)  58  Iowa,  642. 


selfishness  is  quite  apt  to  hold  in  frequent  review  the  acts  of  all 
employees.^  It  is  well  settled  that  the  fact  that  the  contract 
made  by  a  pubUc  agent,  related  to  a  subject  within  the  general 
scope  of  his  powers,  does  not  bind  his  principal,  if  there  was  a 
want  of  specific  power  to  make  it.  Although  a  private  agent 
acting  in  violation  of  specific  instructions,  yet  within  the  scope  of 
his  general  authority,  may  bind  his  principal,  the  rule  as  to  the 
effect  of  a  like  act  of  a  public  agent  is  otherwise.^  From  this  it 
follows  that  one  who  contracts  or  deals  with  the  agents  or  otiicers 
of  a  municipal  or  public  corporation  must,  at  his  peril,  take 
notice  of  the  limits  of  their  powers.^  The  United  States  Supreme 
Court  has  approved  the  rule  as  declared  by  Judge  Dillon  in  his 
work  on  Municipal  Corporations,  section  283,  in  these  words :  "  As 
a  general  rule,  it  may  be  stated  that  not  only  where  the  corporate 
power  resides  in  a  select  hody,  as  a  city  council,  but  where  it  has 
been  delegated  to  a  committee  or  agents,  then,  in  the  absence  of 
special  provisions  otherwise,  a  minority  of  the  select  body  or  of 
the  committee  or  agents,  are  powerless  to  bind  the  majority  or 
do  any  valid  act.  If  all  the  members  of  the  select  body  or  com- 
mittee, or  of  all  of  the  agents  are  assembled,  or  if  all  have  been 
duly  notified,  and  the  minority  refuse  or  neglect  to  meet  with  the 
others,  a  majority  of  those  present  may  act,  provided  those 
present  constitute  a  majority  of  the  whole  number.  In  other 
words,  in  such  a  case,  a  majority  part  of  the  whole  is  necessary 
to  constitute  a  quorum,  and  a  majority  of  the  quorum  may  act. 
If  the  major  part  withdraw  so  as  to  leave  no  quorum,  the  power 
of  the  minority  to  act  is,  in  general,  considered  to  cease."* 

'  Parsel  r.  Barnes  &  Bro.,  (1868)  25  Starint?.  Genoa,  23  N.  Y.  439,  452;  Peo- 
Ark.  261.  pie  n.  Mead,  36  N.  Y.  224;  Dodge  v, 

«Ibid.  Mayor,  etc.,  of  Baltimore  County  of  Platte,  82  N.  Y.  218; 
D.  Reynolds,  (1862)  20  Md.  1;  Dela-  United  States  p.  City  Bank  of 
field  u.  State  of  Illinois,  (1841)  26  Columbus,  (1858)  21  How.  356; 
Wend.  192.  DeVoss  0.  Richmond,  (1868)  18  Gratt. 

•Mayor,  etc.,  of  Baltimore  «.  Mus-  (Va.)  339;  Lewis  ».  Barbour  Co. 
grave,  (1877)  48  Md.  272;  State  ex  rel.  Comrs.,  3  Fed.  Rep  191. 
Mayor,  etc.,  t.  Kirkley,  29  Md.  85;  *  Brown  ^.  District  of  Columbia, 
Horn  r).  Mayor,  etc.,  30  Md.  218.  See.  (1888)  127  U.  S.  579,  586.  This  rule  is 
also,  The  Floyd  Acceptances,  (1868)  7  supported  by  the  following  cases: 
Wall.  666;  Marsh  v.  Fulton  County,  Day  H).  Green,  (1849)  4  Cush.  433; 
(1870)  10 Wall.  676; Clark??.  Des Moines,  Fisher  t.  Attleborough,  (1849)  4  Cush. 
(1865)  19  Iowa,  199,  210;  Trcadwell  0.  494 ;  Kingsbury  n.  School  District, 
Commissioners,  (1860)  11  Ohio  St.  183;  (1846)  12  Met.  99;  Coffin  z.  Nantucket, 
Gould   n.    Sterling,    23    N.    Y.    464;   (1850)  5  Cush.  269;  Damon  u.  Granby, 


112 


POWER  OP  AGENTS  AND  OFFICERS. 


[§93 


§94] 


PUBLIC  CORPORATIONS. 


113 


§  93.  Illustrations  of  the  duty  and  powers  of  municipal 
officers.—  A  city  comptroller,  being  required  to  perform  "  such 
duties  in  relation  to  the  finances "  as  "  shall  be  prescribed  by 
ordinance,"  would  be  authorized,  upon  an  ordinance  properly 
passed  giving  him  the  power,  to  negotiate  and  dispose  of  city 
bonds.     It  is  his  official  duty,  when  such  bonds  are  in  his  hands 
in  shape  to  be  negotiated,  to  keep  them  safely,  until  he  lawfully 
disposes  of  them,  and  an  unauthorized  disposition  of  such  bonds 
will  subject  him  and  sureties  to  liability  upon  his  bond  for  the 
proceeds.^     The  common  council  of  a  city  being  given  the  power 
by  its  charter  to  audit  and  allow  accounts,  and  the  comptroller 
being  only  permitted  by  the  charter  to  receive,  examine  and 
report  upon  them,  the  comptroller  has  no  power  to  modify  a  con- 
tract on  the  part  of  the  city.*    A  director  of  the  poor  appointed 
by  the  council  of  a  city,  his  duties  and  powers  being  expressly 
such  as  officers  of  like  kind  in  townships,  has  no  power  to  bind 
the  city  by  a  contract  with  a  surgeon  to  perform  a  surgical  opera- 
tion upon  a  pauper  for  a  fixed  sum.^     A  city  charter  providing 
that  no  moneys  could  be  lawfully  paid  out  of  its  treasury,  except 
upon  warrants  regularly  drawn  according  to  the  charter,  its  treas- 
urer cannot  justify  any  payments  of  moneys  made  by  him  other- 
wise, as  to  contractors,  for  instance,  doing  work  for  the  city.*     A 
mayor  and  council  of  a  city  have  no  authority  to  contmct  with  a 
city  treasurer  that  the  latter  may  use  the  funds  of  the  city  and 
pay  a  percentage  therefor ;  such  a  contract  would  be  illegal  and 
void,  and  would  not  authorize  the  treasurer  to  so  use  the  funds.* 
A  city  cannot  be  made  liable,  by  a  resolution  of  the  city  alder- 
men, for  the  expense  of  defending  contempt  proceedings  against 
its  aldermen  who  have  been  convicted  of  contempt  in  disobeying 
an  injunction,  the  conviction  not  having  been   reversed.*    In 
entering  into  a  contract  for  the  grading  of  a  street  a  street  com- 
missioner of  a  city  has  no  power  to  contract,  except  according  to 

(1824)  3  Pick.  345,  355;  State  v.  Jersey  « Barber  v.  City  of  Saginaw,  (1876) 

City,  27  N.  J.  Law.  493;   Charles  v.  34  Mich.  52. 

Hoboken,  27  N.  J.  Law,  203;  Dey  v.  <  McCormick  i>.  Bay  City,  (1871)  23 

Jersey  City,  (1869)  19  N.  J   Eq.  412 ;  Mich.  457. 


Mayor,  etc.,  of  Baltimore  v.  Poultney, 
(1866)  25  Md.  18. 
» Stevenson  v.  Bay  City,  (1872)  26 

Mich  44. 

« Advertiser  &  Tribune  Co.u.  Detroit, 
43  Mich.  116;  a.  c,  5  N.  W.  Rep.  72. 


"^Manley  v.  Ciij  of  Atchison,  (1872) 
9  Eans.  358. 

•  West  V.  aty  of  Utica,  71  Hun,  540; 
8.  c.,24N.  Y.  Supp.  1075. 


the  resolution  of  the  common  council  directing  the  doing  of  the 
work  under  his  direction,  and  the  proposals  and  estimates  received 
in  pursuance  of  the  advertisement  of  the  same.^  There  being  no 
limitation  of  the  power  of  a  city  to  make  purchases  for  fitting  up 
rooms  for  the  use  of  city  officers,  and  no  particular  manner  for 
making  contracts  for  such  a  purpose  prescribed  in  its  charter,  the 
city  council  may  confer  the  power  on  a  committee,  as  the  act  to 
be  performed  would  be  a  mere  business  act,  and  not  of  the  class 
relating  to  tlie  government  of  the  city,  which  they  could  not 
delegate.^  Where  an  order  was  given  by  a  single  member  of  a 
committee  appointed  by  a  city  council  to  perform  a  business  act, 
for  work  to  be  done  and  goods  furnished,  the  New  York  Court  of 
Appeals  held  that  the  city,  having  enjoyed  the  benefit  of  the  same, 
was  liable  for  the  work  and  goods  on  a  quantum  meruit^  Under 
a  city  charter  in  California  authorizing  the  library  board  "  to  con- 
trol and  order  the  expenditure  of  all  moneys  at  any  time  in  the 
library  fund,"  and  "  generally  to  do  all  that  may  be  necessary  to 
carry  out  the  spirit  and  intent  of  this  charter  in  establishing  a 
public  library  and  reading  room,"  the  Supreme  Court  of  that 
state  has  held  that  the  library  board  might  appropriate  money  to 
pay  the  expense  of  a  delegate  to  a  congress  of  librarians.* 

§  94.  Ratification  by  municipal  corporations  of  contracts 
made  by  their  agents  or  officers. — A  contract,  neither  immoral 
nor  unlawful,  entered  into  by  an  agent  of  a  municipal  corpora- 
tion, and  such  as  it  might  make  itself,  may  be  ratified  by  the 
corporation,  as  by  an  individual,  either  formally  or  by  its  con- 
duct.*^  The  contract  of  a  municipal  corporation,  which  is  invalid 
when  made,  as  in  violation  of  some  mandatory  requirement  of 
its  charter,  can  be  ratified  only  by  an  observance  of  the  condi- 
tions essential  to  a  valid  agreement  in  the  first  instance.^  But 
where  the  forms  and  conditions  prescribed  are  not  intended  as  a 


'Bonesteel  v.  City  of  New  York, 
(1860)22  N.  Y.  162.  affirming  Bone- 
steel  V.  City  of  New  York,  6  Bosw. 
550. 

« Kramrath  v.  City  of  Albany,  (1891) 
127  N.  Y.  575;  s.  c,  28  N.  E.  Rep. 
400. 

» Ibid. 

*  Kelso  t.  Teale,  (Cal.  1895)  89  Pac. 
Rep.  948. 

15 


s  City  of  Findlay  v.  Pertz,  (U.  S.  C. 
C.  A.  1895)  66  Fed.  Rep.  427. 

*  Gutta-Pereha  &  Rubber  Manuf. 
Co.  «.  Village  of  Ogalalla,  (Neb.  1894) 
59  N.  W.  Rep.  513;  citing  Town  of 
Durango  v.  Pennington,  8  Colo.  257;  s. 
c,  7  Pac.  Rep.  14;  McCracken  v.  City 
of  San  Francisco,  16  Cal.  623;  San 
Diego  Water  Co.  v.  City  of  San  Diego, 
59  Cal.  522;  Cory  v.   Board,  44  N.  J. 


114 


POWEB  OF  AGENTS  AND  OFFICERS. 


[§'■>* 


Umitation  upon  the  powers  of  the  corporation,  a  comphance  with 
Bucli  conditions  U  not  essential  to  a  binding  ratification.'     Acor- 
poration  retaining  and  using  money  borrowed  for  it  by  its  otficer 
in  excess  of  his  authority  ratifies  the  transaction  and  is  hable. 
A   pubUc  corporation  cannot,  by  subsequent  rat.hcation,  make 
good  an  act  of  an  agent  which  it  could  not  have  directly  author- 
Ld »     A  contract  made  in  behalf  of  a  municipal  corporation, 
void  in  its  inception  from  want  of  authority  in  the  officer  to  make 
it,  cannot  be  vahdated  by  the  subsequent  approval  of  the  council 
A  school  district,  by  its  action  in  completing  a  school  buiUhng,  lett 
nntitushed  by  a.i  absconding  contractor,  by  furtiislang  the  build- 
ing with  desks,  seats  and  other  necessary  schoolhouso  furniture, 
by  occupying  the  building  for  school  purposes  and  insuring  the 

Uw  445-  Keraey  v.  Jersey  City.  47  der  the  board  of  finance  to  make  the 
MW  440,  n-ei     3  vtl  UeD  511-    loan,  and  that  tlierc  could  be  a  recov- 

New  J::;  O  y  of  Eiril/^'^ans:    ery  up-.n  the  note  without  fl.t  dispos- 
^Tc    ivlc.  Rep    815;  McBrinn   ing  of   the  collaterals.    As  to  what 
f^mnd  Cids.  56  Mkh.  103;  s.  c.  22   would  show  a  valid  .ontract  by  mtifl- 
NW  Rep  206;  McDonald  ..Mayor,   cation  on  the  part  of  the  county  see 
^.,68  N    Y.  23;  Smith  r.  City  of   Leon  County  r.  Vann.  (T«.  mi)  .1 
Newburgh.  77  N    Y.   m   Bank  .    8-.»f^,,,„,  B„ff,,<,,3  Denio. 
^■tuttp^r^hriTub't^-  Manuf.    t.o"  «st««.  .•Mayor,  etc.,  of  New 
Co.t  Vm!  e  of  Ogaialla.  (Neb   1894,    York.  3  N.  Y.  4;)0;  Boon.  .  C  y    > 
59  N.  W.  Rep.  513.    An  action  to  r.   ^t-.  f  B„b.    'U^,. ,  ^    \^^^^ 
Ar»xr#vr  the  value  of  goods  sold  to  the   ot  wesi  iioy,  toojw 
cover  tue  vaiue  oi  i,  ification  will  bind  the  corpomtion.  see 

.  WUlis  r  St.  Paul  Sanitation  Co.,  Peterson  r.  Mayor,  etc.,  of  New  York. 
(189^5^  Minn.  370;  B.  c.  55  N.  W.  IT  N.  Y.  449;  People  ..  Flagg.  17  K 
Ren    550     In  White  ..  City  of  Rah-    Y.    584;   8.   c.   16   How.  P-"-  f    jf 

rr^^V=:m'o7ir:    fhe%-,  bavin,  no  ^--X  ^'^ 
a  sam  of  money  and  the  city  ratified   the  city  by  giving  a  note,  for  lack  ot 
rLn  Ide'byits  agent  by  a  re    power  in  the  city  to  raise  money  to do- 
newal  of  the  note  from  time  to  time,    nate  to  a  railroad  company   the  obh- 
aX  payments  upon  it  at  different   gation  could  not  be  made  bmdmg  on 
Snes."d'when  the  note  was  execute.1   the  corpomtion  by  any  subsequent  act 
by  the  treasurerhe  pledged  as  security   of  the  mume.pal  airthont  es^^ 
Sr  its  payment  boodsof  the  city,  sub-       •  Ruggles  r.  Collier,  (1869)  43  Ma 
s^Ltly  substituting  therefor  other   353.    As  to  ratification  of  contract  of 
^Zr  bonds  of  the  city,  and  thert,  an  agent  by  .  municipal  corporation 
remaning  a  sum  due  and  unpaid  upon  see  McCloskey  r.   C.ty  of  Albany.  7 
^ZJ.  it  was  held  in  the  feden.1  Hun.    472.      Where    ■'    cann»t    b^ 
court  that  under  the  laws  of  New  Jer-  inferred,  sec  Burns ,..  Mayor  of  New 
ley  the  treasurer  was  authorized,  un-  York,  5  T.  &  C.  3(1. 


§95] 


PUBLIC  CORPORATIONS. 


115 


game,  will  i*atifj  and  make  binding  upon  the  district  a  contract 
for  constructing  the  school  building  void  because  made  by  only 
one  member  of  the  school  board.^  So  a  school  district  which  had 
received,  retained  and  used  for  a  long  period  of  time  school  fur- 
niture bought  for  it  by  the  members  of  the  school  district  board, 
acting  separately  without  any  meeting  of  the  board,  has  been 
held  to  have  ratified  the  purchase  and  a  recovery  allowed  upon 
the  contract  against  the  district.^  he  Appellate  Court  of  Mis- 
souri has  held  that,  as  the  board  of  directors  of  a  school  district 
can  act  only  when  assembled  in  a  meeting  as  a  board,  and  neither 
two  nor  all  can  bind  the  district  by  a  contract,  the  fact  that  fur- 
niture purchased  by  them  under  a  contract  made  outside  of  a 
board  meeting  had  been  placed  in  the  schoolhouse  and  used 
would  not  amount  to  a  ratification  of  this  illegal  contract.^ 

§  95.  Agents  and  officers  of  counties  —  generally. —  The 
character  of  the  agency  which  the  officers  of  a  county  hold  in 
connection  with  its  financial  affairs  is  well  expressed  and  defined 
by  the  Iowa  Supreme  Court  in  an  early  case  when  the  county 
judge  was  charged  with  the  management  of  the  affairs  of  a 
county  in  that  state.  They  said:  *'The  analogy  between  this 
officer  and  an  agent  will  hold  good  but  a  little  way.  It  does  not 
hold  good  in  any  valuable  sense.  It  is  true  that  the  statute  in 
creating  him  styles  him  the  general  agent  of  the  county.  But 
tliis  is  not  to  institute  this  relation  properly.  It  was  to  declare 
him  to  be  the  general  rather  than  the  special  agent.  At  the  best 
he  is  but  a  qicasi  agent.  Properly  speaking,  he  has  no  principal, 
and  so  far  as  he  has,  this  principal  only  appoints  him  and  has  no 
further  power  over  him.  He  does  not  derive  his  powers  from 
the  county  but  from  the  law,  and  the  county  cannot  revoke  them. 
It  cannot  act  itself  in  any  case.  He  is  the  head  and  hand  of  the 
county.  In  short,  he  is  an  officer  of  the  law,  deriving  his  powers 
from  the  law,  and  governed  by  it."^  The  governing  boards  of 
counties  are  known  under  different  titles  in  the  different  states. 


»  School  District  No.  39  in  Brown 
County  V.  Sullivan,  (1892)48  Kans.  624; 
8.  c,  29  Pac.  Rep.  1141. 

'  Union  School  Furniture  Co.  v. 
School  District  No.  60  of  Elk  County, 
(1893)  50  Kans.  727;  s.  c.  32  Pac.  Rep. 
868. 

•Thomas  Kane   &  Co.   t.    School 


Dist.  of  Calhoun,  (1893)  48  Mo.  App. 
408. 

*  Clapp  V.  County  of  Cedar,  (1857)  5 
Iowa,  15,  55,  a  case  involving  the  au- 
thority of  a  county  judge  in  the 
issuance  of  county  bonds  in  payment 
of  a  subscription  to  the  stock  of  a  rail- 
road company. 


116 


POWER  OF  AGENTS  AND  OFFICERS. 


[§95 


Connty  Courts  in  some,  board  of  county  commissioners  m  otliers ; 
Bupervisors  in  some  and  boards  of  chosen  freeholders  m  others, 
as  well  as  other  titles.    We  will  give  some  illustrations  m  this 
chapter  of  the  powers  of  these  different  officers  in  the  fanancial 
management  of  the  counties  from  different  state  decisions  which 
may  guide  in  determining  the  powers  of  similar  officers  in  any 
other  state.    The  County  Court  in  Arkansas  may  levy  a  tax  for 
the  payment  of  a  judgment  recovered  against  a  county  tor  a 
vaUd  debt  evidenced  by  warrants  duly  issued  by  the  county 
authorities.!    In  affirming  an  order  for  a  peremptory  wnt  of 
mandamus  to  compel  a  county  treasurer  to  pay  certain  warrants 
issued  by  order  of  a  board  of  county  commissioners,  the  Co  orado 
Court  of  Appeals  has  held  that  a  county  treasurer  is  not  clothed 
with  power  to  pass  on  the  legality  of  the  action  of  the  governing 
body  of  the  county.     "Power  to  determine  tlie  validity  of  all 
claims,"  they  said,  is  intrusted  to  the  board.    When  they  have 
audited  and  allowed  a  claim,  and  a  warrant  is  issued  in  accord- 
ance  with  their  determination,  we  cannot  see  that  the  statute  has 
clothed  the  treasurer  with  the  supervisory  power  to  determine  the 
validity  of  their  acts."    County  commissioners  cannot  legally 
transact  county  business  except  at  a  regular  session  of  the  county 
board  or  one  specially  called  by  the  county  clerk,  of  which  notice 
is  oiven  in  the  mode  provided  by  law.»    The  money  in  the  hands 
of ^a  county  treasurer  in  Nebraska  under  the  revenue  bond  road 
laws  of  that  state,  being  held  in  trust  by  the  treasurer  for  the 
road  districts,  the  board  of  county  commissioners  have  no  authority 

.  Bush  r  Wolf.  (1891)  55  Ark.  124;    what  cases  and  under  what  circum- 
17^  W  RCD  709  stances  such  funds  shall  be  pa.d  out. 

"■ .  keenev   County  Treasurer,  v.  Ir-   unless  it  be  in  those  cases  where  fixed 
,.in^otoippl895)39Pac.Rep.900.    rights  are  conferral  by   statute.    In 
I^fn»  up  to  their  conclusion,  the   and  of  itself  this  f.ct  should  be  de- 
^rt  n„Hi  this  lanffua-e:  As  we  said   cisivc  ot  the  preseut  inquiry.    Wher- 
Tco— --"  "°e,  3  Colo.  App.    ever  a  bro.>d.  univcrs.a  and  sweeping 
ITtTc    32PUC.  Rep.  841:  "Under    power  is  thus  given  to  »  gov«».ng 
!Il'st  .t^t'orr  plan  which  divides  the  body  it  cannot  be  conceded  that   by 
stet    intrcountls  and  regulates  the  implication,  any  other  body,  whether 
trernment  of   those  territorial  sub-   it  be  a  court  or  one  resembling  the 
E^  all  power  to  fix,  control,  de-   b,»rd  of  connty  commissioners,  should 
ferudn'orinany  manner  dispose  of  likewise  have  power  to  dispose  of  the 

the  funds  of  a  county,  is  devolved  on  public  revenues.  .onxx  fto  -nt 

the  board  of  county  commissioners.       »  Morris  ..  Merrel,  (Neb.  1895)  62  N. 

They  alone  have  the  right  to  disburse   W.  Rep.  865. 

the  pubUc  moneys  and  to  decide  in 


§96] 


PUBLIC  CORPORATIONS. 


117 


to  draw  warrants  against  sucli  funds.^  Under  the  New  Jersey 
statutes  in  regard  to  such  matters,  a  board  of  chosen  freeholders 
are  not  empowered  to  make  an  excessive  appropriation  for  some 
particular  class  of  expenditures  that  it,  with  the  surplus,  may  make 
up  deficiencies  in  other  classes  of  expenditures.^  Under  the 
statute  of  New  Jersey,  a  board  of  chosen  freeholders  can 
improve  any  ordinary  highway  under  their  control  only  with 
money  obtained  from  the  sale  of  road  bonds.^  A  county  com- 
missioners' court  in  Texas  by  electing,  with  knowledge  of  a  con- 
tract of  a  county  judge  to  purchase  county  bonds  for  the  perma- 
nent school  fund,  to  carry  out  its  provisions  and  to  hold  the  bonds, 
has  been  held  to  be  a  ratification  of  the  contract.*  The  Wash- 
ington Supreme  Court  has  held  that  a  board  of  county  commis- 
sioners in  that  state,  having  power  to  contract  for  the  services  of 
a  county  physician,  though  their  term  of  office  be  about  to 
expire,  may  contract  with  a  physician  for  one  year  extending  into 
the  term  of  office  of  their  successors.^  The  different  statutes  of 
Utah,  the  one  which  empowers  the  County  Court  in  Utah  to  lay 
out  and  maintain  public  roads  and  perform  other  acts  from  which 
indebtedness  must  arise ;  another  which  provides  that  no  county 
shall  incur  any  indebtedness  or  liability  in  any  manner  or  for  any 
purpose  to  an  amount  exceeding,  etc.;  another,  that  the  County 
Court  must  not  contract  liabilities  except  in  pursuance  of  law,  and 
the  one  which  provides  that  warrants  drawn  by  order  of  such 
court  must  specify  the  liability  for  which  they  are  drawn,  have 
been  held  by  the  Supreme  Court  of  that  territory  to  confer  by 
implication  on  the  County  Court  the  power  to  create  indebted- 
ness against  tlie  county.* 

§  96.  Power  of  county  officers  in  California. —  A  board  of 
supervisors  of  a  county  have  no  power  to  create  a  debt  or  liability 
on  the  part  of  the  county  for  any  purpose  except  as  provided  by 
law.''  And  no  order  made  by  a  board  of  supervisors  is  valid  or 
binding  unless  it  is  authorized  by  law ;  thus,  if  they  allow  claims 

»  Oakley  v.   Valley  County,  (Neb.  (1894)  86  Tex.   234;  s.  c,  24  S.  W. 

1894)  59  N.  W.  Rep.  368.  Rep.  272. 

'    City    of   Paterson   v.    Board   of  '  Webb  t).  Spokane  County,  (Wash. 

Chosen   Freeholders,  (N.  J.   1894)  29  1894)  37  Pac.  Rep.  282. 

Atl.  Rep.  331.  « Fenton  ti.  Blair,    (Utah,  1895)  39 

» Ibid.  Pac.  Rep.  485. 

*  Boydston    «.    Rockwall    County,  '' Fosters. Coleman, (1858)  10 Cal. 278. 


n 


118 


POWBK  OF  AGENTS  AND  OFFICERS. 


[§96 


not  legally  cbargeable  to  a  county,  neither  the  Bj^lowance  nor  the 
warrants  drawn  therefor  create  any  legal  liabilities^      They  are 
authorized  to  erect  a  county  jail  without  a  law  authorizing  the 
levy  of  a  special  tax  therefor,  and  the  expenses  of  such  erection 
as  among  the  expenses  of  a  current  year,  may  be  paid  for  out  ot 
the  money  raised  by  the  general  tax  which  the  board  are  author- 
ized  to  levy.     And  a  contract  entered  into  by  a  board  of  super- 
visors  for  this  purpose,  for  and  on  behalf   of  the  county,  and 
signed  by  the  chairman  of  the  board,  wouM  l)e  the  contract  of 
the  county .2     So  far  as  concerns  the  examination  and  settlement 
of  accounts  and  claims  against  a  county,  its  board  of  supervisors 
f^fi  quad  judicial  body,  and  the  allowance  and  settlements  of 
such  a  board  is  an  adjudication  of  the  claims,  and  is  conclusive 
And  an  auditor  of  a  county  cannot  assume  to  set  up  his  judgment 
in  opposition  to  that  of  a  board  of  supervisors  in  respect  to  the 
issuance  of  a  warrant  on  an  account  against  the  county  except  m 
cases  where  the  board  have  exceeded  their  powers.*    Nor  can  he 
refuse  to   issue   a  warrant  when  the  board  of   supervisory  has 
ordered  its  issue,  because  the  person  in  whose  favor  it  is  to  be 
drawn,  and  whose  account  has  been  allowed,  has  committed  a 
fraud  on  the  county  in  relation  to  procuring  the  contract  on 
which  the  warrant  is  to  be  issued.^    If  by  a  contract  of  a  board  of 
supervisors  for  the  erection  of  a  county  jail  it  be  provided  that 
the  work  and  labor  be  paid  for  in  installments,  on  the  certihcate 
of  the  architect  that  a  certain  sum  has  been  expended  an  account 
giving  the  sum  total  of  an  installment,  without  "aU  the  items  of 
the  claim  "  certified  by  the  architect,  would  be  a  sufficient  compli- 
ance with  the  statute   (Pol.   Code  Cal.   §  4072)   to  authorize 
the  board  to  allow  the  same.«     It  cannot  set  apart  a  portion  of 
the  revenue  of  the  county  as  a  fund  for  current  expenses.      They 
have  no  authority  to  allow  an  unaudited  claim  against  a  county, 
except  within  one  year  after  the  claim  accrues  and  becomes  due 
The  board  must  first  give  public  notice  of  a  special  meeting  at 
which  it  proposes  to  settle  with  the  county  treasurer,  and  specify 


>  linden  i^.  Case,  (1873)  46  Cal.  171. 
«Babcock  v.  Goodrich,  (1874)  47  Cal. 

488. 

» El  Dorado  Co.  n.  Elstner,  18  Cal. 
144-  Tilden  v.  Sacramento  Co.,  41  Cal. 
68;  Colusa  County  v.  De  Jarnett,  55 
Cal.  373. 


*Babcock  v.  Goodrich,  (1874)47  CaL 

488. 

» Ibid. 

•Ibid. 

'  Laforge  v.  Magee,  6  Cal.  286. 

•Carroll   v.    Siebenthaler,    37    CaL 
193. 


§  97]  PUBLIC  CORPORATIONS.  119 

in  the  notice  that  such  business  will  be  transacted ;  otherwise 
they  cannot  settle  with  the  officer.^  Unless  specially  authorized 
by  law,  the  board  cannot  allow  the  salary  of  a  county  treasurer 
out  of  county  funds.^  A  county  treasurer,  authorized  to  adver- 
tise for  bids  for  the  surrender  of  bonds  of  the  county,  in  order 
that  he  may  redeem  them  with  money  in  the  treasury,  has  no 
authority  in  the  advertisement  to  insert  a  condition  upon  which 
bids  will  be  received,  which  is  not  to  be  implied  from  the  duty  to 
advertise,  and  which  is  not  necessary  to  the  exercise  of  his  author- 
ity, such  as  that  the  bonds  must  accompany  the  bid.^  The  County 
Government  Act  of  California  authorizes  the  county  boards  of 
supervisors  to  issue  bonds,  and  provides  that  the  bonds  shall  be 
delivered  to  the  county  treasurer,  by  whom  they  shall  be  sold  to 
the  highest  bidder.  Under  the  section  of  that  act,  which  further 
authorizes  these  boards  to  do  "  all  other  acts  and  things  *  *  * 
which  may  be  necessary  to  the  full  discharge  of  the  duties  of  the 
legislative  authority  of  county  government,"  they  have  been  held 
to  have  no  power  to  employ  an  agent  to  procure  bids  to  be  made 
for  such  bonds.* 

§  97.  Power  of  county  boards  in  Illinois. — The  governing 
authorities  of  a  county,  elected  by  the  people  and  becoming 
their  agents  for  the  management  of  the  financial  affairs  of  the 
county,  when  they  act  within  the  scope  of  their  authority,  how- 
ever indiscreet  the  action,  it  is  binding  upon  the  county.  In  an 
Illinois  case,  the  agents  making  the  contract  for  a  county  jail  for 
a  price  in  excess  of  what  was  ordered  by  the  County  Court,  yet 
the  County  Court,  acting  as  such,  having  received  the  jail  and 
appropriated  it  to  the  use  of  the  county,  and  acknowledged  that 
the  county  owed  the  contractors  the  balance  due  upon  the  con- 
tract price,  this  final  action  of  the  County  Court  was  held  to 
bind  the  county  to  pay  the  full  amount  due  the  contractors,  not- 
withstanding the  fact  that  those  making  the  contract  exceeded 
their  authority  so  far  as  the  price  fixed  for  the  cost  of  the  build- 
ing was  concerned.'^  Only  such  powers  can  be  exercised  by 
County  Courts,  when  sitting  for  the  disposition  of  county  busi- 

» El  Dorado  Co.  r.  Reed,  11  Cal.  131.  *  Smith    v.    Los    Angeles    County, 

'County  of  San  Joaquin  v.  Jones,  (1894)  99  Cal.  628;  s.  c,  34  Pac.  Rep. 

18  Cal.  327.  439. 

» Mills  V.   Belhner,    (1874)   48    Cal.  ^  County  of  Jackson  v.  Hall,  (1870) 

124.  53  111.  440. 


I   I 


'I  /.' 


120 


POWEE  OF  AGENTS  AND  OFFICERS. 


[§9T 


§98] 


PUBLIC  CORPORATIONS. 


121 


ness,  as  have  been  conferred  on  them  by  express  law  or  that  it 
may  be  necessary  to  exercise  in  order  to  carry  into  effect  the 
powers  granted  to  them.     So,  where  an  act  to  enable  counties  to 
liquidate  their  debts  provides  that  the  County  Courts  or  other 
governing  boards  may  levy  a  special  county  tax  for  that  purpose, 
the  county  board  has  no  authority  to  take  up  its  outstanding 
orders  and  give  bonds  in  the  place  of  them,  bearing  interest. 
Such  obligations  cannot  be   issued  without    express    statutory 
authority.  Another  statute,  under  which  the  board  would  be  acting 
in  such  case,  would  confine  the  court  to  a  liquidation  through  a 
levy  of  taxes  for  that  purpose.*     A  county  board  having  author- 
ity to  contract  for  the  repair  of  a  county  court  house  and  build- 
ing of  fire-proof  vaults,  in  the  absence  of  any  restrictions  of  law 
as  to  the  amount  of  the  price  they  should  pay  or  its  mode  of  pay- 
ment, it  is  open  to  such  board  to  contract  to  pay  for  such  work 
in  interest-bearing  orders  as  well  as  in  non-interest-bearing  orders.' 
The  governing  authorities  of  a  county,  intrusted  with  exclusive 
power  over  the  county  revenues  and  their  collection,  if,  in  their 
judgment  a  tax  already  ordered  be  found  to  be  unnecessary,  have 
a  right  to  rescind  the  order  and  arrest  the  collection  of  such  tax.'* 
They  are  not  authorized  to  allow  in  a  settlement  with  him  to  a 
collector  more  than  the  sum  fixed  by  law  as  fees  or  commissions, 
and  an  allowance  of  the  kind  does  not  bind  the  county,  nor  is  the 
county  estopped  by  tlie  action  of  the  board  to  object  to  such 
allowance.*     It  being  their  duty  to  protect  the  county's  interest, 
they  have  the  power  to  appoint  agents,  to  employ  counsel,  and 
make  legal   contracts  for   procuring  information  and  evidence 
necessary  and  proper  in  defense  of  suits  against  the  county.' 
The  power  given  by  statute  to  the  board  of  county  commission- 
ers to  construct  a  court  house,  for  instance,  and  connected  with 
it  the  power  to  make  contracts  for  its  construction,  carries  with  it 
of  necessity  the  power  to  exercise  its  discretion  of  settling  and 
adjusting  claims  against  the  county  arising  from  such  construc- 


>  County  of  Hardin  i".  McFarlan, 
(1876)  82  III.  138. 

•  County  of  Jackson  r.  Rendleman, 
(1881)  100  111.  379,  holding  such  orders 
valid  and  the  interest  collectible.  The 
court  distinguished  County  of  Hardin 
f>.  McFarlan.  82  111.  138,  141.  and  Hall 
«.  Jackson  County,  95  Dl.  852. 


•People  ex  rel.  Chase  v.  County 
Court  of  Macoupin  County,  (1870)  64 
111.  217. 

*  Board  of  Supervisors  of  Cumber- 
land County  V.  Edwards,  (1875)  76  111. 
544. 

» Gillett  r.  Board  of  Supervisors  of 
Logan  County,  (1873),  67  111.  256. 


tion,  and  in  case,  under  this  power,  in  the  use  of  their  discretion, 
a  board  has  settled  and  compromised  a  claim  about  which  there 
was  dispute,  in  the  absence  of  anything  sTiowing  fraud  or  cor- 
ruption on  their  part,  a  court  of  equity  has  no  jurisdiction  to 
prevent  the  consummation  of  the  agreement  of  the  board  for  a 
compromise  by  process  of  injunction.^ 

§  98.  Power  of  county  commissioners  in  Indiana.—  The 
board  of  county  commissioners  in  Indiana  is  a  body  corporate 
and  politic,  under  the  statute.  The  statute  authorizes  tlie  board 
to  make  contracts,  and  it  may  make  them  by  parol  in  some  cases, 
and  be  bound  thereby;  but  it  cannot  make  contracts  of  all 
descriptions  and  for  all  purposes  for  which  natural  persons  may. 
It  is  confined  in  making  contracts  to  the  powers  expressly 
granted  to  it  by  the  act  of  its  creation,  and  to  the  implied  powers, 
incidental  and  necessary  to  the  execution  of  such  expressed  pow- 
ers and  the  performance  of  the  duties  enjoined  upon  it.  For 
these  purposes,  it  may  make  contracts,  and  it  will  be  bound  to 
perform  them  the  same  as  individuals.^  The  law  of  Indiana  con- 
ferring no  powers,  and  enjoining  no  duty,  upon  the  board  of 
commissioners  of  a  county  to  aid  in  the  arrest,  prosecution  or 

» Harms  v.  Fitzgerald,  (1878)  1 
Bradw.  (III.)  335.  In  support  of  this 
rule,  see  Attorney-General  r.  Aspin- 
Jill.  2  Mylne  &  C.  618;  Parr  v.  At- 
torney-General, 8  Clark  &  F.  409; 
Attorney -Greneral  v.  Poole,  4  Mylne  & 
C.  17;  Attorney- General  0  Lichfield, 
13  Sim.  547;  Attorney-General  v.  Nor- 
wich, 16  Sim.  225;  Mooers  v.  Smed 
ley,  6  Johns.  Ch.  28;  Livingston  r. 
Hollenbeck,  4  Barb.  10,  14 ;  Meserole 
t).  Mayor  &  Common  Council  of 
Brooklyn,  8  Paige,  198:  Gillespie  r. 
Broas.  23  Barb.  370;  Andrews  i\ 
Board  of  Supervisors  Knox  County, 
70  I\\.  65;  City  of  Galena  v.  Corwith, 
48  111.  423;  Brush  v.  City  of  Carbon- 
dale,  78  111.  74;  Conrad  v.  Trustees  of 
Ithaca,  16  N.  Y.  168;  Storrs  v.  City  of 
Utica,  17  N.  Y.  104.  As  to  the  power 
of  county  board,  see  Prest.  and  Trus- 
tees of  Town  of  Petersburg  v.  Alap- 
pin.  14  ni.  193.    That  the  decision  of 

16 


'.  f 


the  board  in  such  a  matter  is  final,  see 
Supervisors  of  Orleans  v.  Bo  wen,  4 
Lans.  24,  33;  Shank  v.  Shoemaker,  18 
N.  Y.  489;  Russell  v.  Cook,  3  Hill,  504; 
Stover  V.  Mitchell,  45  111.  213;  County 
Comrs.  of  Lucas  County  p.  Hunt,  5 
Ohio  St.  488. 

'  Hight  V.  Board  of  Comrs.  Monroe 
County,  (1879)  68  Ind.  575;  citing 
Seibrecht  v.  City  of  New  Orleans,  12 
La.  Ann.  496;  Douglass  v.  Mayor  & 
Bd.  of  Aldermen  of  Virginia  City,  5 
Nev,  147;  Hay  ward  r.  Davidson,  41 
Ind.  212;  McCabe  v.  Board  of  Com- 
missioners of  Fountain  County,  46 
Ind.  380;  Burnett  v.  Abbott,  51  Ind. 
254;  Gordon  v.  Board  of  Comrs. 
Dearborn  County,  52  Ind.  322;  Board 
of  Comrs.  Jackson  County  v,  Apple- 
white, 62  Ind.  464;  Board  of  Comrs. 
Jennings  County  v.  Verbarg,  63  Ind. 
107. 


«  i 


h 


I '» 


f 


122 


POWER  OF  AGENTS  AND  OFFICBBS. 


[§98 


§99] 


PUBLIC  CORPORATIONS. 


123 


.  .•  ^f  a  T^rson  charged  with  the  commission  of  crime, 
TefCan  oLTr^wl^^^  ^r  by  the  employment  of  detective 
either  by  an  out^i  ui  .1.^1.0  \^an\  to  dbv  a  reward 

f^cair^r^u^  ftlcill  a  coutract  by  such  a  boara  10  p»j  » 

done  or  tiun„  improper  allowances  be  made, 

fully  contract.'     Should  such  hi  p    p    ^  ^^^^^ 

relief  may  be  had  from  ,t  ^J  '^"^ 2^^;^    ^^  the  accounts  of  a 
contract  for  an  exaimnation  and  adjustment  oi 

_  • *  II    n  win 

1  Board  of  Comre.  of  Grant  Co.  r. 
Bradford,  (1880)  72  Ind.   455      Tho 
court  considered  the  case  within  the 
principle  of  Hight  ..  Board  of  Com- 
missioners of  Monroe  County    (1879 
68  Ind.  575,  where  it  was  held  that 
such  board  had  no  power  to  employ  a 
person  to  aid  the  state's  attorneys  m 
prosecuting,  and  procuring  to  be  pros- 
ecuted, a  person  chargeil  with  crime. 
To  the  same  effect,  see  Board  of  Comrs. 
Ripley  County  v.  Ward.  (1880)  69  Ind. 
441    holding  that  the  board  had  no 
power  to  employ  an  attorney  to  a^ist 
in  the  prosecution  of  one  under  indict- 
ment for  embezzUng  county  funds 
•Miller  t.   Embree.   (1882)  88  Ind. 

133. 

•Ibid. 

*Board  of  Comrs.,  etc..  v.  Gregory 

42  Ind.  32;  Grusenmeyer  p.  City  of 
Logansport.  76  Ind.  549;  Kothrock  r. 
Carr.  55  Ind.  334.  See  Waymire  e. 
Powell.  (1885)  105  Ind.  328,  holdmg 
an  allowance  by  a  board  of  commis- 
sioners to  one  or  more  of  its  members 

for  services  rendered  in   inspecting. 

examining  and   measuring  the  abut- 

ments  of  a  bridge  which  had  been 

built  under  a  contract  made  with  the 

board,  to  be  an  illegal  allowance,  and 

that  any  person  interested  had  a  right 

to  appeal  from  such  allowance.    The 

court  said:  "[The  statute]  provides 


that   'The  boards    of   commissioners 
may  make  allowances  at  their  discre- 
tion.' etc..  but.  as  was  said,  in  Roth- 
rock  V.  Carr,  55  Ind.   334.   this  doea 
'  not  mean  an  arbitrary,  uncontrolle<l, 
unlimited  discretion,  contrary  to  law, 
or  without  authority  of  law;  for  where 
there  is  no  law  there  is  no  act  to  do, 
and,   therefore,   no   discretion    to   be 
exercised.'    The  discretion,  therefore, 
must  be  according  to  and  in  subordi- 
nation to  the  law.  and  not  outside  and 
in  violation  of  it."    English  r.  Smock. 
34  Ind.   115;  s.  c.   7  Am.  Rep.  215. 
♦    ♦    ♦    "Where  the  board  of  com- 
missioners of  their  own  motion  do  an 
act  which  under  the  law  they  may  do 
or   not,  as  in  the  exercise    of    their 
discretion  seems  best,  and  the  time 
and  mode  of  doing  the  act  are  not 
prescribed  by  law.  no  appeal  lies  from 
their  decision  in  such  a  case.      But 
when  they  make  an  allowance  which 
is  illegal  and  appears  so  on  its  face, 
any  one  aggrieved  may  appeal^     In 
the  cases  of  Nichols  v.  Howe,  7  Ind.  506; 
Board  of  Comrs..  etc..  f^.  Boyle.  9  IndL 
296;  Simsf.  Board  of  Comrs.,  etc.,  89 
Ind.  40;     Moffit  v.   State  ex  rel..   40 
Ind    217;  Board  of  Comre.,  etc.,   «• 
Richardson,  54  Ind.  153.  where  such 
an  appeal  was  denied,  the  allowances 
were  for  services  which  might  have 
been  made  the  subject  of  a  contract. 


county  treasurer.^  The  county  commissioners  have  no  power  to 
declare,  even  by  express  contract,  a  man's  taxes  paid  before  they 
are  assessed,  and  merely  ministerial  officers,  such  as  the  treasurer 
and  auditor,  have  no  such  authority.^  Among  the  powers  of 
such  boards  fixed  and  designated  by  law  is  not  the  right  to  inter- 
fere with,  or  in  any  way  affect,  the  course  marked  out  for  the  col- 
lector or  treasurer  of  the  county.  They  can  neither  abridge  nor 
enlarge  the  duties  or  liabilities  of  those  officers.  It  follows  that 
an  order  of  such  a  board  giving  the  collector  of  the  county  reve- 
nue a  longer  time  for  payment  of  the  revenue  of  the  year  than 
the  law  prescribes,  would  be  without  authority,  and  inoperative.* 
A  board  of  county  commissioners,  under  the  statutes,  have  no 
power  to  direct  the  county  treasurer  how,  or  where,  he  shall  keep 
the  county  funds ;  and  if  a  county  treasurer,  under  an  order  of 
such  board,  they  having  purchased  an  iron  safe,  keep  the  county 
funds  in  such  safe,  this  order,  being  without  authority,  would  not 
release  the  collector  from  his  liability  to  the  county  to  make  good 
the  loss,  in  case  the  funds  be  stolen  from  the  safe.*  County 
commissioners  in  Indiana  are  not  empowered  by  the  statute 
relating  to  proceedings  to  secure  free  gravel  roads  to  order  pay- 
ments of  fees  of  attorneys  rendered  to  the  petitioners  for  such 
roads.^ 

§  99.  Power  of  supervisors  of  counties  in  Iowa. —  County 
boards  of  supervisors  must  act  as  a  board  in  session  in  order  to 
bind  a  county,  they  not  being  authorized  to  bind  the  county  by  a 


*  Duncan  v.  Board  of  Comrs.  of 
Lawrence  County,  (1884)  101  Ind.  403. 
It  was  said:  "The  board  of  commis- 
sioners have  very  full  powers  in  refer- 
ence to  the  management  of  the  affairs 
of  their  respective  counties.  It  is,  for 
all  financial  purposes,  the  county,  and 
its  contract  in  relation  to  the  adjust- 
ment of  the  finances  of  the  county  is 
the  contract  of  the  county,  and  valid 
as  such."  See  Hoffman  v.  Board,  etc., 
96  Ind.  84;  Moon  v.  Board,  etc.,  97 
Ind.  176;  Nixon  v.  State  ex  rel.,  96 
Ind.  111. 

«Scobey  v.  Decatur  County,  (1880) 
72  Ind.  551. 

*  Coman  r.  State  ex  rel.  Armstrong, 
(1836)  4  Blackf.  (Ind.)  241. 


*Halbert  v.  State  ex  rel.  Board  of 
Comrs.  Martin  County,  (1864)  22  Ind. 
125.  As  to  contracts  in  relation  to 
bridges  entered  into  by  county  boards 
or  superintendents  appointed  by  the 
board,  see  Board  Comrs.  Carroll 
County  V.  O'Connor,  (1894)  137  Ind. 
622;  8.  c.  37  N.  E.  Rep.  16;  Smith  v. 
Comrs. ,  6  Ind,  App.  153.  As  to  county 
board  contracting  with  a  physician  for 
services  in  attending  the  poor,  see 
Woodruff  V.  Comrs.  of  Noble  County, 
(1894)  10  Ind.  App.  179;  B.  c,  37  N. 
E.  Rep.  732. 

^  Board  of  Comrs.  of  Rush  County, 
r.  Cole,  (1891)  2  Ind.  App.  475;  s.  c. 
28  N.  E.  Rep.  772. 


124 


POWER  OF  AGEUTS  AND  OFFICERS, 


[§99 


iv 


contract  made  by  them  individually.*     That  a  contract  made 
with  a  board  of  supervisors  be  entered  on  the  supervisors'  record 
19  not  necessary  to  its  vaUdity,  as  the  contract  may  be  proved  by 
parol.2     There  is  no  authority  in  the  chairman  of  the  board  of 
supervisors  to  contract  \^dtli  an  attorney  for  services  in  a  suit  hi 
which  the  county  is  interested,  but  the  board  of  supervisors  may 
confer  such  authority  upon  the  chairman,  and,  in  case  this  is  done, 
such  a  contract  would  bind  the  county.^     A  county  has  been 
held  not  to  be  bound  by  a  contract  for  building  materials  for  a 
public  building,  made  by  the  chairman  of  a  building  committee 
who  was  also  chairman  of  the  board  of  supervisors  of  the  county, 
i\&  there  was  shown  no  special  authority  from  the  board  to  him 
to  make  such  contract,  and  such  authority  could  not  be  inferred 
from  the  simple  facts  that  he  was  chairman  of  the  building  com- 
mittee and  of  the  board  of  supervisors.*     Further,  that  no  obliga- 
tion could  be  created  against  the  county  by  an  assurance  of  the 
chairman  of  the  board  that  they  would  pay  the  bill,  as  to  bind 
the  county  a  majority  of  the  members  must  assent  to  such  an 
assurance.^     These  boards  have  power,  implied  from  their  power 
under  statutes  "  to  represent  their  respective  counties,  and  to  have 
the  care  and  the  management  of  the  property  and  business  of  the 
county  in  all  cases  where  no  other  provision  is  made,"  to  employ 
one  to  assist  in  the  collection  of  taxes  not  collectible  by  the  county 
treasurer  in  the  discharge  of  his  duty.^*     It  has  been  held  that 
they  have  the  power  to  offer  a  reward  for  the  recovery  of  money 
stolen  from  the  county,  by  necessary  implication  from  the  stat- 
utes giving  them  full  control  of  county  property,  and  the  caro 
and  managenvMit  thereof;'  but  not  for  the  arrest  of  persona 
charged  with  the  commission  of  crime.« 


» Jordan  f>.  Osceola  County.  (1882) 
59  Iowa,  388;  8.   c,  13  N.  W.  Rep. 

344. 

«Ibid.,  following  Tatlock  v.  Louisa 
County,  46  Iowa,  138.  The  same  rule 
recognized  in  Baker  v.  Johnson 
County,  33  Iowa,  151,  153;  Rice  v.  Ply- 
mouth County,  43  Iowa,  136. 

3  Tatlock  r.  Louisa  County,  (1877) 
46  Iowa,  138. 

*Rice  t?.  Plymouth  County,  (1876) 
48  Iowa,  136. 

*Ibid. 


•Wilhelm  v.  Cedar  County.  (1878) 
50  Iowa,  254. 
'  Hawk  V.  Marion  County,  (1878)  48 

Iowa,  473. 

8 Ibid.  The  court  said:  "It  is  the 
duty  primarily  of  the  state  to  cause 
the  arrest  and  conviction  of  criminals, 
in  the  performance  of  which  the  state 
makes  use  of  such  oflBcers  and  agencies 
as  it  sees  proper,  and,  if  the  general 
assembly  saw  proper,  there  is  no 
doubt  a  duty  in  respect  thereto  could 
be  legitimately  imposed  on  counties. 


PUBLIC  CORPORATIONS. 


125 


§  100] 

§  100.  Power  of  county  commissioners  in  Kansas.—  After 
a  vote  of  the  people  in  favor  of  it,  county  commissioners  have 
power  to  borrow  money  to  meet  the  current  expenses  of  the 
county  in  case  of  a  deficit  in  the  county  revenue  and  to  issue  the 
bonds  of  the  county  for  tlie  loan.^     It  is  within  the  scope  of  the 
authority   of    a  board  of    county   commissioners  to  determine 
whether  an  election  has  been  had  authorizing  them  to  subscribe 
stock  in  a  railroad  company,  and  to  subscribe  such  stock  when 
such  election  has  been  held,  and  to  make  all  necessary  orders  with 
reference  to  the  matter.^     The  county  commissioners  alone  pos- 
sess the  power  to  contract  for  the  county  or  to  create  an  indebt- 
edness against  the  county  for  articles,  as  mattings  for  the  floor, 
for  instance,  to  be  used  about  the  court  houses.^     And  the  board 
will  not  be  bound  for  a  debt  created  for  such  purposes  by  the 
court  or  the  sheriff  of  the  county,  without  the  consent  of  the 
county  commissioners.*     They  have  no  power  to  appropriate  the 
fund  raised  by  taxation  to  defray  county  charges  and  expenses  of 
the  current  year  to  the  erection  of  permanent  county  buildings.^ 
And  in  case  a  board  has  contracted  for  the  erection  of  permanent 
county  buildings,  when  it  was  beyond  their  power  as  county  offi- 
cers to  make  such  contracts,  and  propose  to  carry  out  the  terms 
of  the  contract  at  the  cost  of  the  county,  and  to  use  the  general 
revenue  fund  to  pay  for  the  work  done  under  such  contract,  they 
may  be  restrained  by  injunction  from  erecting  the  buildings,  or 
from  drawing  any  warrants  on  the  county  treasurer  on  account  of 
the  contract.^     Medical  services  to  prisoners  confined  in  county 

But  instead  of  doing  so,  the  statute   adopted  in  Borough  of  York  ^.  Forscht, 
expressly  authorizes  the  governor,  in    23  Pa.  St.  391,  on  the  ground  that  the 
certain  specified  cases,  to  offer  a  re-    burgesses  of  the  borough  were  a  part, 
ward  for  the  apprehension  of  persons   of  the  public  police.     Janvnn  v.  Town 
charged  with  crimes  of  murder  or  ar-   of  Exeter,  48  N.  H.  83,  is  not  applicable 
son.      Code,   §  58.     The  statutes  in   because  the  power  in  that  state  is  con- 
Maine,  as  to  the  power  of  towns,  in   ferred  by  statute,  and  such  is  true  as 
this  respect,  are  much  like  ours  as  to   to  Crawshaw   v.  City  of  Roxbury.  7 
counties,  and  there  also  the  governor   Gray.  374." 
is  authorized  to  oflfer  rewards  in  cer-       »  Doty  v.  Ellsbree,  11  Kans.  209. 
tain  cases.     It  was  held  in   Gale  v.       'State  ex  rel.  v.  Allen,  5  Kans.  213. 
South  Berwick,  51  Me.  174,  that  towns       » Neosho   County    v.    Stoddart;,    13 
in  that  state  had  no  power  to  offer  re-   Kans.  207. 
wards    for    the    arrest  of    criminals.       *Ibid. 

Such  seems  also  to  be  the  rule  in  Illi-       "^  State  ex  rel.  v,  Marion  County,  21 
nois.    County  of  Crawford  v  Spenney,    Kans.  419. 
21  111.  288.     But  a  contrary  rule  was       •  Ibid. 


V 


i» 


f^i 


120 


POWEB  OF  AGENTS  AND  OFFICERS. 


[§101 


il 


jails  must   be  authorized   by  the   county  board,  otherwise  the 
county  will  not  be  liable  for  them.*     A  county  having  no  poor- 
house  may  be  bound  by  a  township  trustee  to  pay  for  medical 
services  furnished  to  a  poor  person,  who  is  a  resident  of  the 
county  and  township,  and  who  is  temporarily  a  pauper.*     The 
allowance  of  a  claim  against  a  county  by  its  county  commissioners 
is  not  final  and  conclusive.     The  board  itself  may  re-examine  it, 
and,  on  appeal,  it  may  be  examined  and  disallowed  in  whole  or  in 
part  by  the  court  to  which  the  right  of  appeal   in  such  cases  is 
given.''    Where  a  claim  against  a  county  has  been  disallowed  in 
whole  or  in  part  by  the  countv  commissioners,  it  is  the  right  of 
the  claimant  to  appeal  to  the  District  Court  or  to  commence  an 
original  action  for  it.*     Two  members  of  a  board  of  county  com- 
missioners cannot  enter  into  a  contract  to  bind  the  county,  outside 
of  the  county,   without   previous  authority   from    the   board. ' 
Under  the  statute  of  Kansas  empowering  t\ie  county  commission- 
ers of  a  county  "  to  purchase  at  their  true  value  any  and  all 
bridges  built  upon  the  public  highways  of  said  county  by  any 
township  or  private  person  or  persons,  and  pay  for  the  same  in 
county  bonds,"  they  have  no  authority  to  purchase  such  bridges 
and  pay  for  them  with  county  warrants  or  orders ;  nor  have  they 
power  to  purchase  such  bridges  at  the  original -cost  of  their  con- 
struction,  where   that  cost   exceeds   the  *' true  value"    of   the 
bridges.' 

§  loi.  Power  of  County  Courts  in  Kentucky.—  County 
courts  have  no  power  to  impose  a  tax  in  aid  of  a  railroad  on  the 
people  of  a  county  or  to»submit  the  question  of  taxation  to  popular 
vote  without  some  special  legislative  enactment  authorizing  it.'' 
Such  courts  have  power  to  employ  counsel  to  defend  a  suit 
against  the  counties  and  test  the  validity  of  a  subscription  of  the 
counties  to  a  private  corporation  and  to  bind  the  counties  for  a 
reasonable  fee.^     And  in  a  suit  by  the  attorney  for  the  recovery 


» Roberts  v.  Pottawatomie  County,  10 

Eans.  29. 

•  Board  of  Comrs.  of  Clay  County  v, 
Renner,  27  Kans.  225. 

•Leavenworth  County  v.  Keller,  6 
Eans.  510. 

♦Leavenworth  County  v.  Brewer, 
9  Kans.  307. 

•Board  of  Comrs.  of  Hamilton  Co. 


V.  Webb,  (1891)  47  Kans.  104;  s.  c.  27 
Pac.  Rep.  825. 

•  State  of  Kansas  v.  Pierce,  (1893) 
52  Kans.  521;  s.  c,  35  Pac.  Rep.  19. 

'B.  G.  &  M.  R.  R.  Co.  V.  Warren 
County  Court,  10  Bush,  718. 

"Garrard  County  Court  «.  McKee, 
11  Bush,  286. 


§102] 


PUBLIC  CORPORATIONS. 


12T 


of  his  fee,  the  judgment  of  the  County  Court  as  to  what  was 
beneficial  for  the  county,  and  the  employment  of  counsel  to  effect 
the  object  cannot  be  questioned.^  So  have  they  power  to  employ 
counsel  to  resist  the  application  of  a  railroad  company  for  a 
mandamus  to  compel  the  court  to  subscribe  for  its  stock  and  to 
issue  the  bonds  of  the  county  to  pay  the  subscription  ;  and  the 
County  Levy  Court  should  make  provision  for  the  payment  of  a 
reasonable  compensation  for  the  services  rendered  under  such 
employments.^  They  may  appropriate  money  toward  paying  the 
cost  of  additional  buildings  erected  by  a  society  which  supports 
a  portion  of  the  poor  children  of  the  county,  as  the  authority 
given  them  to  purchase  land  and  establish  poorhouses  is  not  com- 
pulsory and  could  not  constructively  abolish  the  power  to  provide 
for  the  poor  in  other  modes.^  The  power  given  to  employ  phy- 
sicians to  inoculate  the  poor  does  not  empower  them  to  employ 
a  physician  for  the  general  treatment  oi  the  smallpox.*  They 
are  authorized  to  employ  medical  aid  for  the  relief  of  poor  per- 
sons atiiicted  with  smallpox  without  regard  to  the  color  of  such 
persons.^  The  county  judge  and  justices,  those  constituting  the 
tribunal  in  charge  of  county  matters  in  Kentucky,  are  the  judges 
of  the  need  of  a  poorhouse,  and  may  purchase  land  for  such  pur- 
pose and  make  the  necessary  improvements.® 

§  102.  Power  of  supervisors  in  Michigan. —  Unless  dis- 
tinctly authorized  by  legislation,  a  board  of  supervisors  cannot 
incur  debts  or  make  engagements,  except  as  the  basis  of  benefit 
to  the  county  it  represents."^  The  power  of  raising  money 
reposed  in  boards  of  supervisors  is  confined  to  raising  it  for  none 
but  necessary  uses,  and  all  loans  negotiated  by  them  must  be  for 
some  of  the  purposes  mentioned  in  the  statute.^  They  cannot 
delegate  to  a  committee  or  third  parties  such  powers  as  the  law 
requires  to  be  submitted  to  their  own  discretion  and  judgment.' 
They  cannot  delegate  to  the  county  treasurer  the  auditing  of 

•  Jones  V.  Pendleton  County  Court, 
(Ky.  1892)  19  S.  W.  Rep.  740. 

'Stamp  V.  Cass  County,  47  BCch. 
330;  8.  c,  11  N.  W.  Rep.  183. 

*  Davis  V.  Board  of  Supervisors  of 
Ontonagon  County,  64  Mich.  404;  s. 
c,  31  N.  W.  Rep.  405. 

'Maxwell  v.  Bay  aty  Bridge  Co.,  41 
Mich,  453;  s.  c,  2  N.  W.  Rep.  689; 


'  Ibid. 

•Washington  County  Court  v. 
Thompson,  13  Bush,  241. 

•Orphan  Society  of  Lexington  v. 
Fayette  County,  6  Bush,  415. 

*Pusey  r.  Meade  County  Court,  1 
Bush,  218. 

*  Rodman  v.  Justices  of  Larue 
County,  3  Bush,  145. 


128 


POWER  OF  AGENTS  AND  OFFICERS. 


[§103 


accounts  against  the  county.'     A  resolution  of  a  board  of  super- 
visors providing  for  the  raising  of  money  to  be  paid  over  to  the 
towns,  without  any  definition  of  purposes,  and  to  be  spent  under 
a  town  officer's  direction,  would  be  invalid,  as  the  board  must 
exercise  its  own  judgment  in  expending  money  for  roads  under 
its  control.*    There  is  a  presumption  that  the  action  of  a  board 
of  supervisors  in  voting  money  for  a  bridge  or  for  county  build- 
ings is  lawful.^     In  allowing  pay  for  services  as  to  which  the  law 
is  silent,  a  board  of  supervisors  lias  considerable  discretion,  which 
it  must  exercise  if  a  proper  case,  in  its  judgment,  arises.*    Where 
the  determination  of  a  board  of  supervisors  is  conclusive  not  only 
as  to  the  propriety  of  making  an  allowance,  but  as  to  the  amount, 
mandamtis  will  not  lie  to  control  their  action.*    Neither  will  num- 
damus  lie  to  compel  a  board  of  auditors  to  allow  a  demand 
rejected  by  it  on  the  ground  of  non-performance  of  the  services 
charged  for.® 

§  103.  Power  of  County  Courts  in  Missouri.—  County 
Courts  in  Missouri  are  the  administrative  agents  of  the  counties, 
and  can  only  exercise  the  powers  conferred  on  them  by  statute.' 
Their  acts  within  the  course  prescribed  by  the  statutes  are  bind- 
ing upon  the  county  ;  if  beyond,  they  are  not  binding.^  They 
may  make  verbal  contracts,*  but  cannot  bind  the  counties  to  all 
the  contracts  they  may  choose  to  make.^o  n  an  order  of  record 
of  a  County  Court  show  the  subsequent  ratification  and  approval 
of  a  contract  made  by  an  agent,  under  a  mere  verbal  appoint- 
ment, the  contract  will,  notwithstanding  the  irregularity,  be  as 
binding  upon  the  county  as  if  the  appointment  had  been  properly 


People  c.  St.  Clair  County  Officers,  15 

Mich  85. 

» Vincent  t.  Mecosta  County  Super- 
visors, 52  Mich.  340;  s.  c,  17  N.  W. 
Rep.  938. 

•Attorney-General  f>.  Bay  Super- 
visors, 34  Mich.  46. 

»8tockle  u.  Silsbee,  41  Mich.  615;  8. 
c,  2  N.  W.  Rep.  900. 

*Lee  f>.  Board  of  Supervisors  of 
Ionia  County,  68  Mich.  330;  s.  c,  36 
N.  W.  Rep.  83. 

•Mixer  u.  Manistee  County  Super- 
visors, 26  Mich.  422. 


•People    ID.    Wayne    Auditors,    10 

Mich.  307. 
I  State  t).  Shortridge,  (1874)  56  Mo. 

126. 

«  Saline  County  v.  Wilson,  (1875)  61 
Mo.  237;  Sturgeon  v.  Hampton,  (1885) 
88  Mo.  203.  County  Courts  as  agents. 
State  ex  rel.  Quincy,  Mo  «&  Pac.  Ry. 
Co.  V,  Harris,  (1888)  96  Mo.  29;  s.  c, 
8  S.  W.  Rep.  794. 

•Hase  t.  Warren  County,  (1877)  8 

Mo.  App.  567. 
>•  Alderson  v.   St.   Charles  County, 

(1879)  6  Mo.  App.  420. 


§103] 


PUBLIC  CORPORATIONS. 


129 


made  in  the  first  instance.^  Contracts  with  County  Courts  must 
be  proved  by  the  record  alone,  and  cannot  be  varied,  contradicted 
or  destroyed  by  oral  evidence  of  the  intention  of  the  judges.^ 
Their  contracts  cannot  bind  parties  with  whom  they  profess  to 
contract  by  simply  reciting  the  alleged  contracts  on  their  records. 
The  assent  of  the  contracting  party  must  appear.^  They  have  no 
implied  power  to  levy  a  tax.  The  power  must  be  clearly  and 
expressly  given  by  statute.  And  if  the  statute  imposes  conditions 
upon  which  it  is  to  be  exercised,  those  conditions  must  be 
observed  before  the  exercise  of  the  power  to  levy  a  tax  would 
be  lawful.*  They  cannot  alter  the  assessment  of  taxes  to  build 
school  houses  on  the  mere  ground  that  a  school  house  was  unneces- 
sary,* but  may  compromise  disputed  claims  for  taxes.®  Tliey 
may  contract  for  insurance  upon  the  county  buildings  against  fire 
or  liglitning.''  They  would  have  no  authority  to  employ  counsel 
at  the  expense  of  the  county  to  litigate  a  question  as  to  whether 
a  scheme  of  separation  had  been  adopted,  the  effect  of  which  was 
to  abolish  the  County  Court,  but  in  which  the  county  asserted  no 
claim  adverse  to  that  of  either  party  ;  ®  but  may,  by  an  order  of 
record,  employ  attorneys  to  aid  the  prosecuting  attorney  in  any 
civil  business,  upon  such  terms  as  they  may  deem  proper,  if,  in 
the  judgment  of  the  courts,  the  interests  of  the  counties  require 
it.*  They  have  no  power  to  issue  county  certilicates  of  indebted- 
•^°  neither  is  it  in  their  power  to  discount  county  warrants  in 


ness 


payment  of  a  county  debt.^^  They  have  no  authority  to  issue  a 
a  warrant  for  money  expended  by  the  sureties  of  a  defaulting  and 
absconding  county  treasurer  in  bringing  him  back  to  the 
county.^'*  In  case  a  county  treasurer  pays  a  warrant  when  there 
is  no  money  in  the  fund  on  which  it  is  drawn,  he  cannot  recover 


» Walker  v.  Linn  County,  (1880)  72 
Mo.  650. 

•  County  of  Johnson  v.  Wood,  (1884) 
84  Mo.  489. 

"Riley  v.  Pettis  County,  (1888)  96 
Mo.  318;  8.  c,  9  S.  W.  Rep.  906. 

^  State  ex  rel.  Clinton  County  «. 
Hannibal  &  St.  Joseph  R.  R.  Co.,  (1885) 
87  Mo.  2:36. 

» In  re  Petition  of  Powers,  (1873)  52 
Mo.  218. 

•  St.  Louis,  Iron  Mt  &  So.  Ry.  Co. 
«.  Anthony,  (1881)  73  Mo.  431. 

17 


'  Walker  v.  Linn  County,  (1880)  72 
Mo.  650. 

« Henley  v.  Clover,  (1878)  6  Mo. 
App.  181. 

» Thrasher  v.  Greene  County.  (1885) 
87  Mo.  419. 

^^'Smallwood  v.  Lafayette  County, 
(1882)  75  Mo.  450. 

"  Bauer  v.  Franklin  County,  (1873) 
51  Mo.  205. 

"Hooper  v.  Ely,  (1870)  46  Mo. 
505. 


!♦ 


130 


POWER  OF  AGENTS  AND  OFFICERS. 


[§104 


PUBLIC  CORPORATIONS. 


131 


the  amount  from  the  county ;  and  it  does  not  matter  tliat  the 
payment  be  made  at  the  instance  of  the  County  Court,  and  upon 
their  promise  that  the  amount  would  be  made  good,  nor  that  the 
warrant  was  received  from  the  treasurer  and  canceled  by  the 
court.^  * 

§  104.  Power  of  county  supervisors  in  New  York.—  A 
county  cannot  be  bound  by  any  acts  of  a  board  of  supervisors, 
except  within  the  Hmits  of  the  express  power  conferred  upon 
them  by  statute.^     A  county  may  be  bound  by  a  majority  of  the 
board  of  supervisors,  lawfully  convened,  unless  it  be  otherwise 
expressly  provided  bv  law.^     Such  boards  having  no  inherent 
power  to  borrow  money  or  to  issue  negotiable  paper,  must  have 
katutory  authority,  express  or  implied,  to  do  so.*     Money  having 
been  properly  raised  for  a  legitimate  object,  a  board  of  super- 
visors of  a  county  may  change  its  appropriation,  and  devote  it  to 
another  object  within  the  scope  of  their  powers.^     Under  a  power 
given  a  board  of  supervisors  to  provide  for  a  permament  1  oca  ion 
of  an  armory,  by  erecting  it,  they  may  hire  a  building  for  tha 
purpose  fo/aterm  of  years.«    The  execution  of  its  mechanical 
and  phvsical  work  may  be  delegated  by  a  board  of  supervisors 
when  aking  as  a  mere  business  corporation  in  the  same  manner 
as  by  any  other  corporation  J    A  building  committee  autlionzed 
by  a  resolution  of  a  board  of  supervisors  "to  advertise  for  sea  ed 
proposals,"  the  work  -  to  be  let  to  the  lowest  responsible  bidder, 
ihe  building  committee,  together  with  the  architect,  to  furmsh 
the  necessary  plans  and  specifications,"  would  not  be  authonzed 
to  enter  into  a  contract,  but  simply  to  take  the  steps  preliminary 
to  the  execution  of  one.«     A  board  of  supervisors  has  no  authority 
to  contract,  in  advance,  for  necessary  printing  for  county  othcers 
but  they  are  bound  to  audit  an  account  for  such  printing.      And 

^  Cook  ..  Putnam  County,  (1879)  70       '  People   ..   S^P^J^i^-^   '[  ^^°^- 
«,     «ftQ  selaer,  52  Hun,  446;    8.  c,  5  iN.    I. 

Mo.  DO». 

« Chemung    Canal   Bank  r.  Super-  Supp.  600. 

visors  of  Chemung,  5  Denio,  517.  ^  Ibid.                                   n«,H„„H 

Tpeople..BrinkerhofiE.68N.  Y.  259.  'People  ..  Supervisors  of  Cort  and 

^pX..  Supervisors  of  Saratoga,  58  Barb.  139;  s.  c     40  How^  Pr  53. 

,^..  Y.  392;   s.  c.  13  N.  E.  Kep.  ^^^to^^^^^^  pnn^.l^^^^^^^^^^  P^o^e^  . 

^People  .  Baker.  29  Barb.  81.  Pr.   288 ;    People    ..Supervisors    of 

•  People  ex  rel.  Stockwell  v.  Earle.   New  York,  22  How.  Pr.  71. 
(1874)  47  How.  Pr.  370. 


§104] 

they  cannot  bind  a  county  for  the  payment  of  the  expenses  of  a 
litigation  by  an  individual  to  establish  his  rights  to  an  office.^ 
They  liave  no  power  to  control  the  disbursements  of  the  poor 
fund  in  the  hands  of  the  county  treasurer.'*  The  general  power 
of  supervisors  of  a  county  to  maintain  actions  includes  the  power 
to  compromise  a  doubtful  claim  on  which  an  action  has  been 
brought.^  Under  the  power  conferred  by  statute  upon  the 
supervisors  of  a  county  to  provide  for  the  erection  of  bridges, 
they  may  appoint  commissioners  to  carry  out  the  work.*  A 
board  of  supervisors  may  pass  upon  and  audit  a  claim  for  repairs 
to  a  county  building  in  case  the  facts  proved  raise  an  inference 
that  the  committee  of  the  board  ordering  the  repairs  to  be  made 
were  authorized  to  do  so  by  the  board,  and  gave  directions  for 
the  repairs  by  one  of  its  members.^  A  board  of  supervisors, 
where  no  deiinite  or  fixed  sum  is  prescribed  as  compensation  for 
services  rendered  for  a  county,  is  vested  with  discretion,  and  may 
allow  such  sum  as  may  seem  just.*  In  the  statutory  power  of  a 
board  of  supervisors  to  examine,  settle  and  allow  all  accounts 
chargeable  against  a  county,  is  implied  the  exercise  of  judgment 
and  discretion,  and  they  have  the  right  and  power  to  reject  a 
claim  for  sufficient  reasons.''  A  board  of  supervisors,  in  case  they 
have  been  induced  by  misconception  of  fact  to  audit  and  allow 
a  claim  against  a  county,  may.  reconsider  and  reverse  their  action 
in  the  matter.^  Supervisors  should  ascertain  whether  the  county 
is  liable  for  services  rendered  at  the  request  of  an  overseer  of  the 
poor  who  has  confessed  judgment  for  the  same  before  they  allow 
the  claim  against  the  county.^  They  cannot  allow  a  claim  against 
a  county  on  their  own  notions  as  to  its  being  an  equitable  one.^ 


*  Supervisors  of  Richmond  County 
«.  Ellis,  (1875)  59  N.  Y.  620. 

*  People  V.  Demarest,  16  Hun,  123. 
•Supervisors  of  Orleans  County  v. 

Bowen.  4  Lans.  24. 

*  People  V.  Meach,  14  Abb.  Pr.  (N. 
S.)  429. 

'Cogan  D.  Mayor,  etc.,  of  New 
York,  5  Hun,  291. 

•People  ex  rel.  v.  Supervisors  of 
St.  Lawrence  County,  30  How.  Pr. 
173. 

'  People  D.  Supervisors  of  Dutchess 
County,    9   Wend.    508;    People   v. 


Supervisors  of  Warren  County,  1 
How.  Pr.  116. 

*  People  ex  rel.  v.  Supervisors  of 
Broome  County,  65  N.  Y.  222. 

» Gere  v.  Supervisors  of  Cayuga 
County,  7  How.  Pr.  255;  People  v. 
Supervisors  of  Delaware  County,  12 
How.  Pr.  50. 

"Chemung  Canal  Bank  v.  Super- 
visors of  Chemung  County,  5  Denio, 
517.  As  to  the  duty  of  supervisors  in 
auditing  claims  against  a  county,  see 
People  ex  rel.  v.  Supervisors  of  St. 
Lawrence  County,  30  How.  Pr.  173. 


i 


■■'3 


188 


m 


POWKR  OF  AGENTS  AMD  OFFICERS.  [§§  106-lOT 

They  bave  no  power  to  indemnify  a  justice  of  the  peace  against 
the  expenses  of  his  defense  in  impeachment.' 
8  IDS   Power  of  county  commissioners  in  Pennsylvania. 

_A  county  is  not  bound  by  a  contract  made  by  one  county  com- 
missioner.'   But  two  of  the  commissioners  may  bmd  tlie  county 
by  a  contract  made  in  their  official  capacity,  though  not  at  their 
office »    County  commissioners  in  Pennsylyania  haye  power  to 
purchase  eyerything  necessary  for  the  accommodation  of  persons 
employed  in  conducting  a  general  election.*    But  they  cannot 
bind  a  county  by  a  prior  agreement  to  pay  costs  on  ^  nolle 
prosequi  with  leaye  of  court.'    To  bind  a  county  by  an  mf  or.nal 
4reement  made  by  two  of  its  commissioners  wit lun  the  scope  of 
their  powers,  such  agreement  must  be  expressly  or  impliedly 
ratified  and  confirmed  by  its  commissioners  acting  as  a  board 
They  may  also  bind  a  county  by  a  contract  for  the  remoyal  of  an 
insane  prisoner  to  a    hospital  and  his    maintenance  therem. 
County  commissioners  can  only  contract  with  counsel  to  repre- 
sent the  county  in  litigation  for  a  reasonable  compensation. 

8  io6.  Power  of  county  boards  in  Wisconsin.-A  county 
board  may  bind  the  county  by  contracts  as  to  matters  within 
their  control,  but  not  as  to  matters  intrusted  to  a  particul.vr  officer 
A  county  board  may,  by  resolution,  confer  upon  »  comnnttee  of 
ite  number  the  power  to  purchase  a  poor  farm."  And  the  county 
wiU  be  bound  by  the  action  of  such  committee  m  >nak,ng  a  pur- 
chase of  a  poor  farm  and  accepting  the  deed  and  liable  for  the 
price  of  the  same  without  any  further  action  of  the  county  board 
ratifying  the  purchase." 

8  107.  Power  of  township  trustees  in  Indiana.-Town8liip 
trustees  may  leyy  a  tax  to  build  school  houses."    And  a  contract 

.  People  ..  Lawrence.  6  Hill.  344.  '  Allegheny    County    ..    Western 

.Treichlerr.  Berks Couhty.  2  Grant's   Pennsylvanui   Hospital,    48    Pa.    St. 

^,l?ei?  county   .    Slag.e.    66  ^Co-t?    '•    B«ber.    97   Pa.    8t. 
"^cl'^nwealth  ..   Commissioners  "^Beal  ..  St.  CroU  County.  18  Wis. 

of  Philadelphia,  2  Serg.  &  R.  193.         600.  n„„ntv  58  Wis 

.Berks  County  ..  Pile,  18  Pa.  St.       "French  v.  Dunn  County,  5S  wis. 

493. 

•  Township   t>.   County,   3  Wood-      "Ibid, 
ward's  Dec.  (Pa.)  194.  "  ^damson  ..  Auditor.  9  Ind.  176. 


PFBLIO  CORPORATIONS. 


133 


§107] 

of  township  trustees  for  building  such  houses  is  binding  on  the 
township. *  An  order  of  a  board  of  trustees  of  a  township  signed 
by  the  clerk  and  president  of  the  board,  requiring  the  treasurer 
to  pay  a  fixed  sum  for  building  a  school  house,  was  in  this  case 
held  to  be  a  valid  demand  against  the  township.^  A  township 
trustee  has  no  authority  to  borrow  money  or  to  execute  notes  in 
the  name  of  the  school  township.^  The  trustee  of  the  school 
township  in  this  case  borrowed  money  from  a  bank  and  executed 
notes  of  the  corporation  for  the  loan.  He  deposited  the  money 
in  the  bank  in  his  own  name  and  drew  upon  it  as  an  individual. 
The  Supreme  Court  of  Indiana  held  that  this  was  a  transaction 
between  him  and  the  bank,  and  that  the  township  was  not  liable 
upon  the  note."*  On  the  petition  for  a  rehearing  of  this  case  the 
court  adhered  to  the  opinion  that  the  trustee  of  a  school  corpora- 
tion was  a  special  agent  of  very  limited  authority  ;  that  not  only 
was  he  a  special  agent,  but  that  he  was  one  whose  authority  was 
only  such  as  the  public  statute  conferred  upon  him.^ 


»  Crist  V.  Brownsville  Township,  10 
Ind.  461. 

*  Heal  V.  Jefferson  Township  of 
Grant  County,  (I860)  15  Ind.  431. 

»  Union  School  Township  v.  First 
National  Bank  of  Craw  fords  ville, 
(1885)  103  Ind.  464;  Bicknell  v.  Widner 
School  Township.  73  Ind.  501;  Wallis 
v.  Johnson  School  Township,  75  Ind. 
868;  First  National  Bank  v.  Union 
School  Township,  75  Ind.  361;  Pine 
Civil  Township  v.  Huber  Manufactur- 
ing Co.,  83  Ind.  131;  Reeve  School 
Township  v.  Dodson,  98  Ind.  497. 

*  Union  School  Township  v.  First 
Nat.  Bank  of  Crawfordsville,  (1885) 
103  Ind.  464.  It  was  said:  "The 
trustee,  in  the  management  of  the 
financial  affairs  of  the  school  township, 
is  a  special  agent  with  limited  statu- 
tory powers.  He  has  no  general  au- 
thority to  bind  the  corporation.  His 
acts  create  a  binding  obligation  against 
the  school  township  only  when  he  does 
the  acts  which  the  law  authorizes,  and 
does  them  in  the  manner  which  it  pre- 
scribes. All  who  deal  with  him  are 
bound  to  take  notice  of  the  scope  of 


his  authority  *  *  * "  The  court 
said  in  Axt  v.  Jackson  School  Town- 
ship, 90  Ind.  101:  "In  dealing  with 
such  trustee  the  appellant  was  bound 
to  take  notice  of  his  fiduciary  charac- 
ter, and  to  know  that  he  could  only 
bind  his  township  by  his  words  and 
deeds  which  were  authorized  bylaw." 
It  was  not  in  [this  trustee's]  power,  by 
checks,  notes  or  other  instruments,  to 
bind  the  school  corporation  unless  the 
claim  for  which  they  were  given  ex- 
isted against  the  township,  and  in  this 
case  no  claim  did  exist.  Even  if  the 
trustee  had  been  guilty  of  fraud  the 
school  corporation  would  not  have 
been  bound.  Lowell  Five  Cents  Sav- 
ings Bank  v.  Inhabitants  of  Winches- 
ter, 8  Allen,  109;  Benoit  v.  Inhabitants 
of  Conway,  10  Allen,  538;  Dickinson  v. 
Inhabitants  of  Conway,  13  Allen,  487; 
Kelley  v.  Lindsey,  7  Gray,  387;  Rail- 
road Nat.  Bank  v.  City  of  Lowell,  109 
Mass.  314. 

5  Union  School  Township  v.  First 
National  Bank  of  Crawfordsville, 
(1885)  103  Ind.  464,  473.  Elliott,  J., 
speaking  for  the  court,  said:    "That 


U 


m 


134  POWER  OF  AGENTS  AND  OFFICERS.  [§  108,  109 

§  io8.  Power  of  selectmen  of  towns  in  Massachusetts.— 
A  town  cannot  be  bound  by  an  unauthorized  oral  promise  of  its 
selectmen  to  pay  bounty  to  a  soldier.*  Where  the  inhabitants  of 
a  town  have  by  vote  authorized  their  treasurer  to  borrow  money 
for  the' adjustment  of  a  state  tax  for  the  reimbursement  of  boun- 
ties to  volunteers,  and  the  tax  had  been  adjusted  without  the 
necessity  of  borrowinj^  money,  it  was  held  that  the  treasurer's 
authority  to  borrow  money  under  that  vote  of  the  inhabitants  ceased 
upon  the  adjustment  of  tlie  tax.^  Selectmen  have  no  authority, 
merely  mrtute  officii,  to  make  a  contract  on  behalf  of  a  town  for 
the  hiring  of  a  building  in  which  town  meethigs  may  be  held.' 
Selectmen  of  a  town  have  no  authority  to  bind  the  town  by  an 
offer  of  a  reward  for  the  apprehension  and  conviction  of  a  person 
who  has  not  been  charged  with  a  crime  by  complaint  or 
indictment.* 

§  109.  Power  of  selectmen  of  towns  in  New  Hampshire. — 

Selectmen  of  towns  have  no  general  authority  to  bind  the  town 
by  contract.^^  They  cannot  borrow  money  upon  the  credit  of  the 
town.*  Being  general  agents  for  towns  in  respect  to  pecuniary 
matters,  unless  restrained  by  specific  instructions,  they  are  war- 
ranted in  paying  any  existing  debts  of  towns  which,  in  the  exer- 
cise of  a  sound  discretion  on  their  part,  should  be  paid.'     They 

this  conclusion  is  a  just  one  cannot  be  authority  that  is  not  possessed  by  his 
doubted  by  one  who  considers  the  na-  principal.  It  is  perfectly  obvious, 
ture  of  a  school  corporation  and  the  therefore,  that  one  who  deals  with  a 
character  of  the  authority  of  its  agent,  school  trustee  must,  at  his  peril,  ascer- 
the  trustee.  The  corporation  is  itself  tain  that  the  trustee  is  acting  within 
organized  for  a  limited  and  local  pur-  his  authority.  It  is  incumbent  upon 
pose.  It  is  not  a  corporation  with  gen-  a  person  seeking  to  hold  the  corpora- 
eral  powers;  it  has  neither  the  general  tiou  liable  for  a  debt  created  by  the 
power  to  contract  debts  nor  to  buy  trustee  in  the  name  of  the  corporation, 
property.  Its  power  is  to  conduct  the  to  affirmatively  show  that  it  was  one 
local  school  affairs,  and  to  do  this  with  he  had  authority  to  confer." 
the  money  derived  from  the  revenues  »  Barker  r.  Chesterfield,  (1869)  102 
set  apart  for  school  purposes.     There   Mass.  127. 

is,  in  strictness,  no  power  in  the  cor-       « Benoit  v.  Inhabitants  of  Conway, 
poration  to  obtain  or  to  expend  money   (1865),  10  Allen,  528. 
derived  from  any  other  source  than       ^Goff  v.  Rehoboth,  (1846)  12  Met.  26. 


the  school  revenues.  Wallis  v.  John- 
son School  Township.  75  Ind.  368. 
Thus  is  the  power  of  the  cori^oration 
itself  circumscribed,  and  its  agent,  the 
trustee,  can  by  no  possibility  possess 


*  Day  V.  Otis,  8  Allen,  477. 

*  Andover  v.  Grafton,  7  N.  H.  298. 
•Rich  V.  Errol,  51  N.  H.  350. 

'  Sanborn  v.  Deerfield,  2  N.  H.  261 


§110] 


pi;blic  corporations. 


135 


may,  in  some  cases,  bind  the  town  by  a  promissory  note,  but  the 
Jiolder  must  show  that  in  giving  the  note  the  selectmen  acted 
within  the  scope  of  their  authority.*  They  may  institute  a  suit 
in  the  name  of  a  town  to  recover  back  usurious  interest.^  Nego- 
tiable notes,  the  property  of  a  town,  maybe  sold  and  transferred 
by  selectmen.^  Adjustment  of  suits  or  controversies  of  a  town, 
not  being  in  their  power,  as  selectmen,  tliey  cannot  bind  the  town 
to  the  payment  of  money  for  such  an  adjustment  by  a  written 
contract.^  A  town  may  be  bound  by  its  selectmen  for  medical 
services  in  vaccinating,  but  not  for  medical  services  rendered  per- 
sons sick  with  smallpox,  who  are  not  paupers.  TJie  health  officers 
of  a  town  have  no  authority  to  bind  tlie  town  for  medicines  and 
medical  services  furnished  to  inhabitants  who  are  not  paupers.*^ 

§  no.  Power  of  supervisors  of  townships  in  Pennsyl- 
vania.—  A  township  cannot  be  bound  by  one  of  its  supervisors 
in  a  matter  requiring  deliberation,  consultation  and  judgment. 
Such  a  matter  must  be  determined  by  a  majority  of  the  board  at 
a  regular  meeting.®  Nor  can  it  be  bound  by  a  contract  made  by 
one  supervisor,  without  the  assent  of  his  colleague,  with  an  attorney 
for  a  year  at  a  fixed  sum."^  A  township  may  be  bound  by  a  mere 
ministerial  act  of  a  single  supervisor,  such  as  the  employment  of 
hands  and  giving  due  bills  for  the  amount  of  work  done  on  its 
roads.*  In  a  matter  where  the  township  is  bound  by  law  to  per- 
form the  contract  made  by  a  single  supervisor,  it  is  in  the  power 
of  this  single  supervisor  to  contract  if  the  other  refuse  his  assent.* 
A  supervisor  has  no  authority  to  bind  a  township  by  his  agree- 
ment to  pay  a  bounty  for  enlistment  in  United  States  service.*^ 


'  Andover  v.  Grafton,  7  N.  H.  398. 

« Albany  v.  Abbott,  61  N.  H.  157. 

«  West  V.  Errol,  58  N.  H.  233. 

*  Underbill  v.  Gibson,  2  N.  H.  352. 

•Wilkinson  v.  Albany,  28  N.  H.  9; 
Farmington  v.  Jones,  36  N.  H.  271;  Mc- 
Intire  «.  Pembroke,  53  N.  H.  462. 

•Township  v.  Gibboney,  94  Pa.  St. 
534.  As  to  liability  of  a  township  for 
a  contract  made  by  its  supervisors 
within  the  apparent  scope  of  their  au- 
thority, see  Cook  v.  Deerfield,  64  Pa. 
St.  445. 

^Bohan  «.  Township,  4  Kulp,  (Pa,) 
284. 


8  Dull  V.  Ridgway,  9  Pa.  St.  272; 
McNeal  v.  Allegheny  Township,  1 
Am.  Law  Reg.  124. 

*  Pottsville  v.  Norwegian  Township, 
14  Pa.  St.  543.  As  to  contracts  that 
cannot  be  made  by  a  single  supervisor 
which  will  bind  the  township,  see 
Cooper  r.  Lampeter  Township,  8 
Watts,  125;  McNeal  v.  Allegheny 
Township,  1  Am.  Law  Reg.  124;  Bat- 
ten V.  Brandywine,  3  Clark,  (Pa.) 
462. 

^*>Bearce  v.  Township,  27  W.  N.  C. 
(Pa.)  212. 


t» 


136 


POWER  OF  AGENTS  AND  OFFICERS. 


[§i« 


§ni] 


PUBLIC  CORPORATIONS. 


13T 


{■^H 

Supervisors  of  a  township  may  borrow  money  for  the  purpose  of 
repairing    roads  and   building  bridges,   and   confess  judgment 
against  the  township  for  the  amount  borrowed.*     Supervisors  of 
townships  have  p)wer  to  contract  for  making  new  roads  ordered 
to  be  opened  and  building  the  necessary  bridges.^    It  is  within 
the  general  powers  of  the  supervisors  of  a  township  to  contract 
for  the  erection  of  a  township  bridge  in  place  of  one  destroyed 
by  a  freshet.*     They  may  bind  the  township  l)y  a  promise  to 
repay  voluntary  subscriptions  to  a  bounty  fund.*     And  in  case 
supervisors  agree  to  a  division  of  the  charge  of  the  affairs  of  the 
township,  by  apportioning  to  each  a  certain  part  of  the  district, 
the  acts  of  each,  within  the  limits  assigned  to  him,  will  be  bind- 
ing on  the  township.*      Supervisors  have  no  right  to  take  up  an 
old  certificate  of  indebtedness  issued  by  the  township  and  issue  a 
new  one  to  the  assignee  of  the  original  payee.® 

§  III.  Power  of  selectmen  and  agents  of  towns  in  Ver- 
mont.— A  town  cannot  be  bound  by  a  contract  made  by  one 
selectman,  without  the  knowledge  or  consent  of  the  others.''    In 
case  it  be  shown  that  the  three  selectmen  of  a  town  agreed 
together  as  to  the  mode  in  which  the  business  of  the  town  should 
be  transacted  and  the  business  was  intrusted  by  two  of  them  to 
the  third  one,  and  he  made  the  contracts  with  reference  to  the 
business  of  the  town,  a  jury  would  be  justiiied  in  finding  such 
jissent  on  the  part  of  the  others,  or  any  of  them,  as  to  make  the 
act  of  the  one  contracting  the  act  of  the  majority  and  binding 
upon  the  town.»     Selectmen  of  a  town  have  no  right  to  receive 
money  collected  by  a  sheriff  on  an  execution  in  favor  of  a  town 
and  discharge  him,  it  being  the  duty  of  the  sheriff  to  pay  it  to 
the  town  treasurer.*     Selectmen  have  no  autliority  to  draw  town 


*  Maneval  r.  Township,  9  Pa.  Co.  Ct. 

Rep.  28. 
«  Childs  V.  Brown  Township,  40  Pa. 

St.  332. 
'Oakland  Township  r.  Martin,  104 

Ph.  St.  303. 
♦Juniata  Township  r.  Reamer,  2  W 

N.  C.  (Pa.)  91. 

» CJommonwealth  t.   Supervisors  of 
CoUey,   29  Pa,  St.  121;  Hopewell  t. 
Putt,  2  W.  N.  C.  (Pa.)  46.     In  Shep 
paid  *    Township,  4  Del.  Co.  Rep. 


(Pa.)  385,  where  the  supervisors  had 
divided  their  district,  the  township 
was  held  liable  for  stone  purchased  by 
one  of  the  supervisors  for  the  use  of 
the  township,  and  the  other  super- 
visors had  not  dissented  from  the 
purchase. 

•Snyder  Township  v.  Bovaird,  122 
Pa.  St.  442;  8.  c,  15  Atl.  Rep.  910. 

'  Hunkins  v.  Johnson,  45  Vt.  131. 

8  Gurette  v.  Bolton,  46  Vt.  228. 

•Middlebury  c.  Rood.  7  Vt.  125. 


orders  in  their  own  behalf  in  settlement  of  their  own  private 
claims  against  the  town ;  nor  are  such  orders  made  effectual  by 
the  allowance  of  the  town  auditors.^  Selectmen  of  a  town  may 
submit  to  arbitration  a  claim  against  the  town,  for  instance,  for 
building  a  bridge,  under  the  statutory  powers  given  them  "  to 
audit,  and  in  their  discretion  to  allow,  the  claim  of  any  person 
against  the  town  for  money  paid  or  services  performed  for  the 
town."  ^  So  they  may  submit  to  arbitration  claims  against  their 
towns  for  damages  sustained  upon  the  highways  of  the  towns.^ 
The  selectmen  of  a  town  have  tlie  power  to  settle  and  stop  a  suit 
against  a  party  brought  to  recover  a  penalty  for  not  removing  an 
obstruction  out  of  the  highway  under  an  order  of  the  selectmen.* 
And  the  general  authority  of  the  selectmen  over  the  subject 
would  not  be  limited  by  a  vote  of  the  town  "  to  direct  the  town 
agent  to  manage  the  law  suits  as  he  thinks  best.'"'  A  town 
having  appointed  an  agent  for  the  purpose  of  "  compromising"  a 
claim  for  damages  in  the  laying  of  a  highway,  the  agent  may 
refer  the  claim  to  arbitration.*  A  town  agent,  appointed  to 
defend  and  prosecute  suits,  has  no  autliority  as  such  to  bind  the 
town  by  a  promise  to  pay  a  certain  sum  on  settlement  of  a  suit 
against  the  town  to  recover  for  an  injury  occasioned  by  insuffi- 
ciency of  a  highway.*^  A  town  would  be  bound  for  professional 
services  of  the  town  agent,  who  is  an  attorney,  where  he  is  author- 
ized as  town  agent  to  employ  an  attorney  to  prosecute  and  defend 


*  Davenport  v.  Johnson,  49  Vt.  403. 
In  Burnham  v.  Strafford,  53  Vt.  610, 
an  action  of  assumpsit  brought  by  a 
selectman  against  the  town,  the  evi- 
dence tended  to  prove  that  he  borrowed 
for  the  town  a  sum  of  money  and  gave 
a  town  order  for  the  same,  to  which 
he  attached  his  own  name  and  the 
names  of  the  other  two  selectmen,  and 
paid  the  money  into  the  town  treasury; 
that  the  town  denied  his  authority  to 
give  the  order  and  refused  to  pay  it, 
and  denied  that  he  had  paid  the  money 
into  the  treasury,  or  that  the  town  ever 
received  any  part  of  it;  and  upon  this 
refusal  and  denial  on  the  part  of  the 
town,  the  selectmen  took  up  the  order 
by  paying  the  holder  the  amount  for 

18 


which  it  called.  The  Supreme  Court 
held  that,  although  he  could  not  re- 
cover for  the  amount  paid  to  take  u]> 
the  order  as  for  money  paid  at  the 
town's  request,  the  town  having  re- 
pudiated the  order,  nor  upon  the  order 
itself,  it  not  being  negotiable,  yet,  if  in 
fact  he  paid  into  the  treasury  the  sum 
originallv  borrowed  and  he  had  him- 
self  repaid  the  loan,  he  could  recover 
in  this  action. 

« Dix  V.  Dummerston,  19  Vt.  262. 

3  HoUister  v.  Pawlet,  43  Vt.  425. 

*  Town  of  Cabot  v.  Britt,  (1863)  36 
Vt.  349. 

nbid. 

« Schoflf  t,  Bloomfield,  8  Vt.  472. 

'  Clay  V.  Wright,  44  Vt.  538. 


13g  POWER  OF  AGENTS  AND  OFFICERS.  [§§  112,  HB 

siiits  on  behalf  of  the  town.^  In  road  cases,  wliere  the  town 
agent  provides  no  counsel  and  makes  no  objection  to  the  employ- 
ment of  counsel  by  the  selectmen  of  a  town,  it  is  within  the 
scope  of  the  implied  powers  of  the  selectmen  to  protect  the  inter- 
ests of  their  town  by  the  employment  of  counsel  at  the  charge  of 
the  town  in  such  cases.'*  And  the  assent  of  the  town  agent  to 
such  employment  of  counsel  by  the  selectmen  may  be  presumed 
where  he  neglects  to  employ  counsel  and  no  dissent  on  his  part  is 
shown.' 

§  112.  Power  of  town  officers  in  Wisconsin.— The  officers 
of  a  town  when  transcending  their  lawful  authority  cannot  bind 
the  town.*  A  town  may  be  bound  by  a  contract  which  it  is 
authorized  to  make  by  the  joint  act  of  two  supervisors.'  A  town 
board  of  supervisors  is  not  authorized  to  compromise  and  dis- 
charge  an  existing  valid  judgment  in  favor  of  the  town,  without 
full  payment  in  money  or  its  equivalent.*  A  town  board  may, 
without  special  authority  from  the  electors,  defend  a  suit  against 
the  town,  or  take  an  appeal  therein.^  The  cliairman  of  a  town 
board  may  be  directed  by  such  board  to  execute  a  subscription  or 
bond  authorized  to.be  issued  by  the  town,  and  the  act  of  the 
chairman  will  be  essentially  the  act  of  the  board.» 

§  113.  Power  of  officers  of  school  districts.— Scliool  dis- 
tricts can  be  bound  bv  their  directors  by  their  official  acts,  and  of 
these  acts  the  minutes  of  the  board  are  the  best  evidence.^  They 
cannot,  by  contract,  divest  themselves  of  powers  conferred  for  a 
public  purpose.^"  School  directors  have  an  absolute  discretion  as 
to  the  necessity  of  erecting  new  school  houses  and  of  borrowing 
money  to  pay  for  them."  Where  a  committee  has  been  appointed 
by  a  school  board  to  get  up  plans  for  a  new  school  building  and 
submit  them  to  the  board  for  approval,  the  committee  would  be 
authorized  to  contract  with  an  architect  for  plans  and  specifica- 

1  Langdon  v.  Castleton,  30  Vt.  385.       « Hewitt  v.  Town  of  Grand  Chute,  7 

« Burton  V.  Norwich,  34  Vt.  345.         Wis.  282. 

3j^.^  »Wachob  /'.  Bingham  School  Dis- 

*  Hubbard  v.  Lyndon,  28  Wis.  674.    trict,  8  Phil.  568. 

*  Beaver  Dam  v.  Frings.  17   Wis.       '"Conley  r.  Directors  of  West  Deer, 
ggg  33  Pa.  St.  194. 

*  Wttemut  v.O'Malley.50Wis.339.       "In    re    School  Directors.  3  Kulp 
'  Haner  v.  Town  of  Polk,  6  Wis.    (Pa.),  104;  In  re  School  Directors.   3 

350  Pa.  Co.  a.  Rep.  497. 


§113] 


PUBLIC  CORPORATIONS. 


139 


tions.*     Contracts  with  a  school  teacher  cannot  be  made  except 
by  a  vote  of  the  school  board ;  one  made  by  the  president  and 
secretary  of  the  board  cannot  be   enforced.^    As   incidents  to 
theii-  power  to  sell,  directors  of  school  districts  have  power  to 
mortgage  the  real  estate  held  by  them.»    Where  school  officers 
are  authorized  to  make   contracts   only   with   the   assent  of  a 
majority  of  the  electors,  a  contract  made  by  them  without  such 
assent  would  be  void.*     The  officers  of  a  school  district  may 
make  a  valid  contract  with  a  qualified  teacher  extending  beyond 
their  own  term.^     A  valid  contract  with  one  of  their  number  for 
the  purchase  of  a  site  for  a  school  house  in  exchange  for  bonds 
may  be  made  by  commissioners  to  receive  and  negotiate  bonds 
and  purchase  school  sites,  the  vendor  not  acting  in  the  transac- 
tion as  a  commissioner.*     A  school  district  may  avoid  a  contract 
between  a  school  board  and  one  of  the  members  of  the  board  for 
the  erection  of  a  school  house  by  the  latter.^     Directors  of  a 
school  district  voting  for  a  misapplication  of  the  public  funds  are 
personally  liable  therefor  to  the  township.^     Where  it  was  found 
that  a  school  board  had  conspired  with  a  contractor  to  defraud  the 
district  in  the  erection  of  a  school  building,  it  has  been  held  in 
Iowa  that  under  the  statute  authorizing  such  boards  to  employ 
counsel  in   suits  brought  against  any  of  the  school  officers  to 
enforce  the  provisions  of  the  school  law,  they  had  no  power  to 
employ  counsel  in  a  suit  to  enjoin  them  from  accepting  and  pay- 
ing for  the  scnool  building.^     A  de  facto  trustee  of  a  school  dis- 
trict may  bind  tiie  district  by  his  contract  with  a  teacher  for  the 
8chools.^o     The  officers  of  school  districts  are  limited  to  the  pur- 
poses named  in  the  statute  prescribing  their  powers  in  the  matter 
of   raising  or  expending  funds  of  the  school  district.      In  an 
action  against  members    of   a  school  board  of   education,  for 
instance,  for  damages  to  the  business  reputation  of  parties  by 

«McKeesport  District  v.  Miller,   1 
Penny  packer  (Pa.),  510. 


'  Pickett  t).  School  District,  25  Wis, 

551. 
8  Dickinson  Township   1).  Linn,  36 

Pa.  St.  431. 

» Scott  V.  Independent   District   of 
Hardin  County,  (Iowa,  1894)  59  N.  W. 

*Peck  «.  School  District,  21  Wis.   Rep.  15. 
51g  »oO'Neil  V.  Battie,  (1892)  62  Hun, 

•Webster  v.  School  District,  16  Wis.    618;  s.  c,  18  N.  Y.  Supp.  255.    See, 
810  also,  O'Neil  v.  Battie,  61  Hun,  622; 

•  Cady  V.  Watertown,  18  Wis.  322.       s.  c,  15  N.  Y.  Supp.  818. 


« School  District  v.  Padden,  89  Pa. 
St.  395. 

•Morrisville  School  District,  3  Phil. 
181. 


U 


It 


140 


POWER  OF  AGENTS  AND  0FFICEB8. 


[§113 


rt 


11 


il 


reason  of  a  refusal  on  their  part  to  entertain  a  bid  of  such  par- 
ties for  furnishing  supplies  for  the  schools  on  the  ground  that 
such  parties  had  before  dealt  dishonestly  with  the  district,  the 
school  board  would  not  be  authorized  to  expend  the  moneys  of 
the  district  in  defending  the  suit,  it  being  such  a  matter  as  the 
district  itself  has  no  interest  in.^  A  member  of  a  district  school 
board  having  no  school  funds  in  his  hands,  not  being  its  treasurer, 
it  has  been  held  in  New  Hampshire  could  not  recover  of  the  dis- 
trict the  money  he  had  paid  to  a  teacher  hired  by  himself  to 
teach  one  of  the  schools  and  for  board  he  had  furnished  the 
teacher  on  the  ground  that  he  could  contract  only  on  the  credit 
of  the  school  money  of  the  district  and  not  on  the  credit  of  the 
district  itself.^  Directors  of  a  school  district  in  Iowa  have  power 
to  borrow  money  to  discliarge  a  debt  which  has  been  legitimately 
created,  and  may  pledge  the  credit  of  the  district  for  that  pur- 
pose. But  the  obligation  evidencing  the  debt  can  only  bear  six 
per  cent  interest.'  The  district  board  of  primary  school  districts 
in  Micliigan  may  contract  with  qualified  teachers  for  such  term 
a8  shall  be  determined  by  the  qualified  voters  of  the  district  at 
the  annual  school  meeting  thereafter  to  be  held.*  The  presump- 
tion that  a  contract  with  a  teacher  was  authorized  by  a  vote  of 
the  school  board  pursuant  to  the  statute  of  Wisconsin  upon  the 
subject  will  be  raised  by  the  fact  that  the  ofiicers  constituting  the 
board  signed  it.  And  the  mere  fact  that  the  officers  were  not 
together  when  they  signed  it  would  not  tend  to  disprove  that  it 
was  so  authorized.* 

'Hotchkiss   r.    Plunkett .  (1891)  60  *  Cleveland  v.  Amy,  (1891)  88  Mich. 

Conn.  230;  8.  c,  23  Atl.  Kep.  535.  374.  s.  c,  50  N.  W.  Rep.  293. 

«  Wheeler  t.  Alton,  (K.  H.  1892)  33  » Dolan  v.  Joint  School  District  No. 

Atl.  Rep.  89.  13,    Towns    of   Utica   &    Freeman. 

•Austin    t    District    Township  of  (1891)  80  Wis.  155;   B.  c,  49  N.  W. 

Colony,  (1879)  51  Iowa,  102;  s.  c,  49  Rep.  960. 
N.  W.  Rep.  1051. 


CHAPTEK  lY. 


POWER  OF  AGENTS  AND  OFFICERS  -  PRIVATE  CORPORATIONS. 


§  114.  Agency  in  general. 

115.  Rules  as  to  an  agent's  acts. 

116.  To  what  the  powers  conferred 

on  an  agent  may  be  extended. 

117.  Illustrations   of    the    binding 

force  of  an  agent's  act. 

118.  Power  of  general  agents. 

119.  When  the  authority  of  a  general 

agent  will  not  be  implied. 

120.  Power  of  officers  generally. 

121.  The  same  subject  continued. 
123,  Power   of   directors  —  general 

rules. 

123.  Directors  for  the  first  year. 

124.  Directors  de  facto. 

125.  Illustrations  of  the  power  of 

directors. 

126.  More  illustrations  on  this  sub- 

ject. 

127.  Illustrations  of  a  lack  of  power 

in  directors. 

128.  When  notes  will  be  held  to  have 

been  authorized  by  a  board  of 
directors. 

129.  Waiver  by  directors  of   their 

power  to  repudiate   a   con- 
tract. 
180.  Power  of  trustees  of  a  corpora- 
tion. 

131.  Power  of  officers  of  a  corpora- 

tion to  employ  attorneys. 

132.  When  officers  may  use  bonds 

as  collateral. 

133.  When  the  execution  of  a  note 

is  not  authorized. 

134.  Execution  of  promissory  notes 

and  transfer  of  choses  in 
action. 

185.  Notes  signed  by  officers  of  cor- 
poration. 

136.  Power  of  bank  officers. 


137.  Power  of  a  bank  cashier. 

138.  When    the    authority    of    its 

cashier  cannot  be  questioned 
by  a  bank. 

139.  Indorsement    of    a    draft   by 

cashier  and   president   of    a 
bank. 

140.  Power  of  a  treasurer  of  a  sav- 

ings bank. 

141.  Power    of   officers  of   mining 

corporations. 

142.  General  rules  as  to  the  power 

of  a  president. 

143.  Rule  as  to  evidence  in  such 

cases. 

144.  Power  of  president  as  to  trans- 

fer of  assets. 

145.  When  a  president's  act  is  bind- 

ing. 

146.  Illustrations  of  the  power  of  a 

president. 

147.  Illustrations  of  a  lack  of  power. 

148.  What  would  show  the  author- 

ity of  a  president. 

149.  Question  of  authority  for  the 

jury. 

150.  Power  of  a  president  as  to  exe- 

cution of  notes. 

151.  In  what  cases  the  authority  of 

a  president  may  not  be  ques- 
tioned. 

152.  Giving  a  judgment  note — New 

Jersey. 

153.  The  same  subject  — Dlinois. 

154.  Where  contract  of  purchase  in- 

cludes  giving    a    judgment 
note. 

155.  What  raises  a  presumption  of 

authority. 

156.  Power  of  officers  actmg  con- 

jointly. 


I 


f: 


142 

§157. 
168. 
158. 
180. 
161. 
162. 

16a 
164. 

165. 
166. 
167. 

168. 

160. 


170. 


POWER  OF  AOEirrs  AND  OFFICERS. 


[§11* 


PRIVATE  CORPORATIONS. 


143 


An  illustration  on  this  subject. 

One  holding  several  offices. 

Note  executed  by  a  secretary. 

Power  of  superintendents,  etc. 

A  manager's  power. 

Manager  of  a  foreign  corpora- 
tion. 

Authority  of  a  manager. 

What  is  not  within  the  duties 
of  a  cashier  of  a  corporation. 

Auditing  boartl  of  a  corporation. 

Power  of  a  treasurer  generally. 

Power  of  a  treasurer  as  to  trans- 
fer of  a  note. 

Power  of  a  treasurer  as  to  exe- 
cution of  a  note. 

Authority  of  a  treasurer  to  bor- 
row money  by  means  of  ster- 
ling contracts. 

Power  of  a  treasurer  to  indorse 
in  name  of  corporation  a  note 
for  accommodation. 


171.  Power  of  a  treasurer  to  indorse 

a  note  of  another  corporation. 

172.  When   a   corporation  will   be 

bound  by  a  note  executed  by 
its  treasurer. 

173.  When  a  corporation  is  bound 

by  acts  of  its  treasurer. 

174.  When  a  corporation  will  not  bo 

bound  by  the  act  of  its  treas- 
urer. 

175.  Another  illustration  of  such  a 

case. 

176.  When  contracts  of  a  chief  en- 

gineer will  bind  a  railroad 
corporation. 

177.  Ratification  by  corporation  of 

agent's  acts — general  rules. 

178.  Modes  of  ratification. 

179.  Illustration  of    ratification  of 

conduct  of  agent. 

180.  What  does  not  amount   to  & 

ratification. 


§  114.  Agency  in  general. — A  corporation  can  only  act 
through  a  duly  authorized  agent  or  committee.^  Authority  may 
be  conferred  by  a  single  resolution  of  the  directors  for  action  in  a 
class  of  cases  as  well  as  by  a  separate  resolution  in  each  case.* 
Though  a  corporation  must,  in  general,  act  through  its  common 
seal,  yet  it  may  appoint  an  agent  whose  acts,  within  the  sphere  of 
his  powers,  do  not  require  any  such  appendage  to  impart  to  his 
acts  validity.^  The  powei-s  of  an  agent  of  a  corporation  are  such 
as  he  is  allowed  by  the  directors  or  managers  of  the  corporation 
to  exercise  within  the  limits  of  the  charter.  The  silent  acqui- 
escence of  the  directors  or  managers  may  be  as  effectual  to  clothe 
the  agent  with  power  as  an  express  letter  of  attorney.*  A  cor- 
poration will  be  bound  by  a  promissory  note  executed  by  its 
agent  should  he  act  within  the  sphere  of  his  power  or  liis  act  be 
subsequently  ratified.**  An  agent  of  a  corporation  acting  within 
the  scope  of  his  authority  may  bind  his  principal  in  the  same  way 

» Merchants'  Union  Barb  Wire  Co.  ©.  chanics'  Bank  of  Alexandria  v.  Bank 

Rice,  (1886)70  Iowa,  14;  s.  c.  28  N.  of  Columbia.  5  Wheat.  326;  Fleckner 

W.  Rep.  494.  p.  United  States  Bank,  8  Wheat.  339, 

•  Elwell  f>.  Dodge,  33  Barb.  336.  358. 

'Everett  v.  United  States,  (1837)  6      *01cott  1?.  Tioga  R  R.  Co.,  27  N. 

Port.  (Ala.)  166;  citing  Bank  of  Colum-  Y.  546. 
bia  'J.  Patterson,  7  Cranch.  299;  Me-       » Butts  v.  Cuthbertson,  6  Ga.  166w 


as  if  he  were  the  agent  of  a  natural  person  unless  the  charter 
expressly  provides  otherwise.^  Should  an  agent  of  a  corporation 
having  authority  to  execute  a  mortgage  and  affixes  to  one  he 
executes  anything  which  the  law  recognizes  as  a  seal  when 
affixed  by  a  natural  person,  it  will  be  presumptively  a  good 
execution  by  the  corporation  .^  A  contract  in  writing  may  be 
binding  on  a  corporation  though  a  private  seal  of  one  its  officers 
be  used  instead  of  the  corporate  seal,  and  though  no  record  may 
be  found  authorizing  the  officer  to  make  the  contract  if  proven 
bv  other  evidence  that  he  had  such  authority  or  that  the  corpora- 
tion ratified  his  act  afterwards.^  The  authority  of  an  agent  to 
bind  a  corporation  by  a  contract  for  borrowing  money  may  be 
inferred  from  proof  of  the  character  of  the  agency,  the  acts  of 
the  agent  and  the  knowledge  of  the  officers  and  directors  of  his 
habit  to  make  similar  contracts  and  their  acquiescence  in  the 
same  and  the  fact  of  the  money  being  applied  to  the  use  of  the 
corporation.-*  Whatever  the  purpose  of  the  agency,  an  agent  of 
a  corporation  may  be  appointed  without  the  use  of  a  seal.^  The 
appointment  of  an  agent  by  a  corporation  may  be  inferred  from 
the  permission,  or  acceptance,  of  his  services/*  If  one  has  long 
acted  in  the  capacity  of  managing  director  of  a  corporation  with- 
out objection,  and  his  services  as  such  have  been  invariably 
accepted,  it  matters  not,  as  against  strangers,  whether  or  not  he 
has  received  a  specific  appointment  to  such  position  from  the 
directors.''  It  is  not  necessary  tliat  the  authority  be  given  by  a 
formal  vote  in  matters  where  the  acts  of  the  agent  of  a  corpora- 
tion in  the  transfer  of  personal  property  require  no  formal 
instrument  under  seal,  as  in  the  sale  or  mortgage  of  personal 


'  City  of  Covington  v.  Covington  & 
Cincinnati  Bridge  Co.,  (1873)  10  Bush 
(Ky.).  69. 

'Johnston  0.  Crawley,  25  Ga.  316. 

'Eureka  Company  v.  Bailey  Com- 
pany, (1870)  11  Wall.  488. 

*  Allen  V.  Citizens'  Steam  Naviga- 
tion Co,  22  Cal.  28.  In  Savings 
Bank  of  New  Haven  v.  Davis,  8 
Conn.  201,  it  appeared  that  the 
directors  of  a  corporation,  by  the 
charter,  had  the  power  of  disposing  of 
its  property  and  of  appointing  such 
agents  as  should  be  requisite  for  per- 
forming its  business,  and  that,  by  a 


vote  entered  upon  their  record  book, 
they  appointed  an  agent  to  execute  a 
mortgage  deed  of  real  estate  to  secure 
a  creditor.  The  appointment  of  the 
agent,  though  not  otherwise  evidenced 
or  authenticated  by  the  corporate  seal, 
was  held  valid  for  the  purpose  in- 
tended. See,  also,  Beckwith  v.  Wind- 
sor Manufacturing  Co.,  14  Conn.  603. 

6  Fitch  V.  Lewiston  Steam  Mill  Co., 
80  Me.  34;  s.  c,  12  Atl.  Rep.  732. 

•Burgess  v.  Pue,  2  Gill  (Md.),  254. 

'Walker  v.  Detroit  Transit  R.  Co., 
47  Mich.  338;  8.  c,  11  N.  W.  Rep. 
187. 


^m 


144 


POWEB  OF  AGENTS  AND  OFFICBBS. 


[§114 


property.^     The  authority  of  an  agent  of  a  private  corporation 
to  bind  it  by  a  contract  for  borrowing  money  may  be  shown 
without  proof  of  a  resolution  of  the  managing  board  directly  con- 
ferring the  Authority  or  of  any  formal  ratification  of  the  contract 
by  such  board.     His  authority  may  be  inferred  from  proof  of 
the  character  of  the  agency,  of  the  acts  of  the  agent  or  other 
knowledge  of  the  officers  and  directors  of  such  habit  to  make 
such  contracts  and  tlieir  acquiescence  in  the  same  and  the  fact  of 
the  money  being  apphed  to  the  use  of  the  corporation.*     The 
authority  to  an  agent  of  a  corporation  to  contract  in  its  behalf, 
either  under  seal  or  otherwise,  need  not  be  conferred  at  a  meet- 
ing of  the  directors  unless  that  is  the  usual  mode  of  their  doing 
such  an  act.     Should  the  board  adopt  the  practice  of  giving 
assent  to  the  execution  of  contracts  by  their  agents,  assent  so 
criven  is  of  the  same  force  as  if  done  at  a  regular  meeting  of  the 
board  «      Where  an  act  of  incorporation  does  not  require  that  the 
appointment  of  an  agent  of  the  corporation  shall  be  by  written 
instrument,  and  it  does  not  appear  to  have  been  so  made,  the 
appointment  may  be  proved  by  parol.*      It  is  not  necessary  to 
enter  on  the  minutes  of  a  corporation  a  vote  or  resolution  of  the 
directors  appointing  an  agent.     His  appointment  may  be  infer- 
red from  the  permission  or  acceptance  of  his  services  by  the  cor- 
poration."    The  appointment  as  well  as  the  authority  of  an  agent 
^a  corporation  may  be  impUed  from  the  adoption  or  recognition 


>  Pitch  u.  Lewiston  Steam  Mill  Co., 
80  Me.  34;  8.  c.  12  Atl.  Rep.  732. 
As  to  formally  authorizing  the  acts 
of  officers  being  or  not  being  neces- 
sary, see  C<»lvert  v.  Idaho  Stage  Co., 
(1894)  2o  Or.  412;  s.  c,  36  Pac.  Rep. 
34;  Brown  u.  Grand  Rapids  Parlor 
Furniture  Co.,  58  Fed.  Rep.  286;  s.  c, 
7  C.  C.  A.  225;  Burch  v.  Paper  Co., 
141  111.  519;  8.  c,  31  N.  E.  Rep.  420. 

'Alien  c.  Citizens'  Steam  Naviga- 
tion Company,  (1863)  22  Cal.  28. 

•Bank  of  Middlebury  v.  Rutland  & 
Washington  R.  R.  Co.,  30  Vt.  159; 
Stark  Bank  v.'V.  S.  Pottery  Co.,  34 
Vt.  144;  State  ex  rel.  Page  v.  Smith, 
48  Vt.  266.  AS  to  appointment  of 
agents  of  corporations  by  parol,  see 
Jhona  V.  People,   25  Mich.  499;  Tay- 


mouth  p.  Koehler,  35  Mich.  22.  As 
to  proving  by  parol  evidence  their 
official  capacity,  see  Cahill  v.  Kal. 
Mut.  Ins.  Co.,  2  Douglass  (Mich.), 
124;  Druse  v.  Wheeler,  22  Mich.  439. 
*  Hamilton  v.  New  Castle  &  Dan- 
ville R.  R.  Co.,  (1857)  9  Ind.359;  Rich- 
ardson p.  St.  Joseph  Iron  Co.,  5Blackf. 
(Ind.)  146;  Madison  v.  Ross.  3  Ind.  236 
Cincinnati,  etc.,  Co.  v.  Clarkson,  7  Ind. 
595;  Jones  c.  Milton,  etc.,  Co.,  7  Ind. 

547. 

» Burgess  v.  Pue,  2  Gill  (Md.),  254; 
Warren  v.  Ocean  Insurance  Co.,  16  Me. 
439;  Jones,  Admr.,  etc.,  v.  Trustees 
Florence  Wesleyan  University,  46  Ala. 
626;  State  Bank  v.  Comegys,  12  Ala. 
773. 


PRIVATE  CORPORATIONS. 


145 


§115] 

of  his  acts  by  the  corporation.*  So,  also,  from  the  course  of  deal- 
ing and  from  contemporaneous  and  subsequent  acts  on  the  part 
of  the  corporation.*  An  agent  of  a  corporation  will  not  be  per- 
sonally liable  upon  a  contract  in  his  own  name  under  seal  with 
another  person  where,  in  the  body  of  the  contract,  it  is  stated  that 
the  agent  contracted  in  behalf  of  the  body  corporate.^ 

§  115.  Rules  as  to  an  agent*s  acts. —  The  power  of  an  agent 
of  a  corporation,  unless  otherwise  shown,  will  be  limited  to  the 
business  of  the  corporation,  connected  with  or  relating  to  the 
object  and  design  of  the  charter  of  the  corporation.*  And  he  can 
only  make  such  contracts  as  the  corporation  can  lawfully  make.^ 
If  the  acts  of  an  agent  of  a  corporation  are  some  within,  and  some 
beyond,  the  corporate  powers,  the  corporation  may  ratify  his  acts 
so  far  as  they  were  within  its  powers.*  Agents  of  a  corporation 
are  not  required,  by  any  rule  of  the  common  law,  to  act  by  deed 
in  behalf  of  their  principals,  where  they  might  act  themselves  by 
parol.''  Though  not  reduced  to  writing,  their  contracts  bind  a 
corporation.^  Wherever  a  corporation  is  acting  within  the  scope 
of  the  legitimate  purposes  of  its  institution,  all  parol  contracts 
made  by  its  authorized  agents  are  express  promises  of  the  cor- 
poration ;  and  all  the  duties  imposed  on  them  by  law,  and  all 
benefits  conferred  at  their  request,  raise  implied  promises,  for  the 
enforcement  of  which  an  action  will  lie.®  The  acts  of  agents  of 
corporations,  within  the  ordinary  line  of  their  duty,  bind  corpora- 
tions without  any  formal  vote.*^     The  name  of  the  corporation  as 


» Kiley  v.  Forsee,  (1875)  57  Mo.  390; 
Southgate  v.  Atlantic  &  Pacific  R.  R. 
Co.,  (1875)  61  Mo.  89.  As  to  imply- 
ing an  agency  for  a  corporation 
from  facts  and  circumstances,  see 
Korthern  Central  Ry.  Co.  v.  Bastian, 
15  Md.  494. 

« Washington  Mut.  Fire  Ins.  Co.  v. 
St.  Mary's  Seminary,  (1873)  52  Mo. 
480. 

'McDonough  v.  Templeman,  1  H. 
&  J.  (Md.)  156. 

*  Pennsylvania,  Del.  &  Maryland 
Steam  Navigation  Co.  v.  Dandridge,  8 
G.  &  J.  (Md.)  248. 

'Downing    v.    Mount   Washington 
RoadCo.,  40N.  H.  230. 
19 


•  Bangor  Boom  Corporation  v.  Whit- 
ing, (1848)  29  Me.  123. 

'  Buncombe  Turnpike  Co.  v.  McCar- 
son,  1  Dev.  &  Bat.  (N.  C.)  306. 

*City  Bank  of  Baltimore  v.  Bate- 
man,  7  H.  <&  J.  (Md.)  104;  Union  Bank 
V.  Ridgely,  1  H.  &  G.  (Md.)  326. 

•Bank  of  Columbia  v.  Patterson, 
7  Cranch,  299,  306;  Eastman  v.  Coos 
Bank,  1  N.  H.  23;  Smith  v.  Nashua  & 
Lowell  Railroad,  27  N.  H.  86;  Glid- 
den  V.  Unity,  33  N.  H.  571;  Great 
Falls  Bank  v.  Farmington,  41  N.  H. 
33;  Andover  v.  Kendrick,  42  N.  H. 
324. 

'0  Foot  V.  Rutland  &  Whitehall  R. 
R.   Co.,  32  Vt.  633.    As  to  acts  of 


146 


POWER  OF  AGENTS  AND  OFFICERS. 


[§116 


§116J 


PRIVATE  CORPORATIONS. 


147 


M 


the  contracting  party  should  be  in  the  body  of  the  contract, 
where  an  agent  would  bind  the  corporation  only  in  making  a 
contract  in  its  behalf,  and  the  agent  should  sign  it  as  agent  or 
officer  '     A  committee  appointed  by  a  corporation,  having  made 
a  settlement  of  matters  between  the  corporation  and  third  par- 
ties, and  it  appearing  that  the  corporation  liad  received  the  check 
of  the  third  party  from  its  committee,  it  has  been  held  was  suffi- 
cient to  justify  tiie  trial  court  in  submitting  the  question  ot  rati- 
fication of  the  committee^s  action  by  the  corporation  to  the  jury. 
An  attornev  at  law  representing  a  corporation  m  a  suit  in  tlie 
courts,  must  have  special  authority  to  compromise  the  same.    15ut, 
in  case  lie  makes  such  a  compromise,  the  facts  of  which  may  be 
known  to  the  officers  of  the  corporation  intrusted  with  its  attairs, 
and  thev  fre(|uentlv  advise  with  the  attorney  about  the  matter, 
and  make   no   objection   to  it,  and  tlie  corporation  accept  the ^ 
benefit  of  the  compromise,  as  by  receiving  the  money  agreed  to 
be  paid  it,  this  would  amount  to  a  ratification  of  the  attorney  s 
acts '      Authoritv  to  give  a  negotiable  promissory  note  for  the 
amount  advanced   is   not   included  in  an  authority  to  advance 
money  for  a  corporation.*     A  corporation  will  not  be  bound  by 
the  acts  or  knowledge  of  one  of  its  officers  in  a  matter  in  which  he 
acts  for  himself  and  deals  with  the  corporation  as  if  he  had  no 
official  relations  with  it.^ 

S  ii6    To  what  the  powers  conferred  on  agents  may  be 
extended.- The  authority  to  give  to  the  lender  of  money  bor- 

Guttschlick,  14  Pet.  19;  Bank  of  U.  8. 
T.  Dandridge,  13  Wheat.  67;  Bank  of 
Columbia  r.  Patterson,  7  Cranch,  299; 
Flecknor  v.  U.  B.  Bank,  8  Wheat.  839. 

» Hamilton  «.  New  Castle  &  Dan- 
ville R.  R.  Co.,  (1857)  9  Ind.  359; 
Hankins  t.  Shoup,  2  Ind.  342. 

«:Merchants'  Union  Barb  Wire  Co. 
r.  Rice,  (1886)  70  Iowa,  14;  s.  c,  28 
K.  W.  Rep.  494. 

»Wetherbee  v.  Fitch.  (1886)  117  III 
67;  8.  c,  7  N.  E.  Rep.  513. 

<  Webber  r.  Williams  College,  (1839) 

23  Pick.  302. 

*  Piatt    V.   Birmingham    Axle   Co., 
(1874)  41  Conn.  255. 


agents  of  corporations  being  done  in 
the  line  of  •  such  agency  in  order  to 
bind  the  corporations,  see  Queen  v.  Sec- 
ond Ave.  R.  R.  Co..  (1872)  35  N.  Y. 
Super.  Ct.  154.    There  can  arise  no  pre- 
sumption  that  an  agent  has  authority  to 
transact  business,  which  the  corpora- 
tion is  not  authorized  by  its  charter  to 
engage   in.   Alexander  r.  Cauldwell, 
(1881)  83  N.y.  480.   As  to  corporations 
being  bound  by  the  acts  of  their  agents 
made  in  the   ordinary  discharge   of 
their  duty,  though  not  authorized,  or 
executed,    under  corporate   seal,  see 
Mechanics'  Bank  r.  Bank  of  Columbia, 
5  Wheat.   326;    Fanning  v.  Gregoire, 
16  How.  524;  Bank  of  Metropolis  v. 


rowed,  or  to  the  seller  of  things  pnrchased,  the  ordinary  securities 
of  a  corporation  is  included  in  a  general  power  conferred  upon  an 
agent  of  a  railroad  corporation  to  borrow  money  on  its  behalf,  in 
such  sums,  for  such  length  of  time  and  at  such  a  rate  of  interest 
*a8  he  may  think  proper,  and  to  purchase  iron  rails,  locomotives, 
machinery,  etc.,  as  he  may  deem  advisable,  and,  in  order  to  do 
go,  to  make,  execute  and  deliver  obligations,  bills  of  exchange, 
contracts  and  agreements  of  the  corporation.^  And  the  authority 
from  a  corporation  to  an  agent  to  give  a  company  "  note "  has 
been  held  to  authorize  drawing  a  bill  of  exchange  on  a  person 
who  had  no  funds,  and  where  the  company  would  not  by  law  be 
chargeable  with  damages  on  dishonor.'^  While  a  factor  employed 
by  the  general  agent  of  a  corporation  to  sell  its  manufactured 
goods  and  to  purchase  stock  has  power  to  buy  on  credit,  he  is  not 
authorized  to  give  the  note  of  the  corporation  for  the  purchases 
he  makes  on  its  account.^  An  agent  of  a  manufacturing  corpora- 
tion was  empowered  by  its  by-laws  to  manage  the  affairs  of  the 
corporation  committed  to  his  care,  and  to  exercise  the  powers 
committed  to  him  according  to  his  best  ability  and  discretion, 
and  promptly  to  collect  all  assessments  and  other  sums  that 
should  become  due  to  the  corporation,  and  to  disburse  them 
according  to  the  order  of  the  board  of  directors,  who  were  made 
a  board  of  control  over  him.  The  Supreme  Court  of  Judicature 
of  Massachusetts  lield  that  the  agent,  the  board  of  directors  not 
interposing  to  control  his  proceedings,  had  authority  to  employ 
workmen  to  carry  on  the  business  of  the  corporation,  and  to  pay 
them  with  its  funds,  or,  not  being  in  funds,  to  give  the  notes  of 
the  corporation  in  payment.*  An  agent  of  an  incorporated  manu- 
facturing company,  authorized  by  its  by-laws  to  raise  money  and 
create  liability  on  its  part,  may  also  waive  demand  and  notice 
on  a  note  indorsed  by  such  company,  and  this,  too,  after  the  note 
has  been  negotiated.  He  may  waive  demand  and  notice  to  pro- 
cure delay  of  payment  of  the  note  and  bind  the  corporation, 
although,  in  procuring  delay,  he  may  also  be  the  agent  of  the 
maker.  And  the  fact  that  he  agreed  to  pay  more  than  the  legal 
rate  of  interest  for  such  delay  would  prevent  a  recovery  against 

*  Hatch  T.  Coddington,  (1877)  95  U.  '  Emerson  v.  Providence  Hat  Manu- 

S.  48.  facturing  Co.,  (1815)  12  Mass.  237. 

•Tripptj.Swanzey  Paper  Co.,  (1832)  *  Bates  v.  Keith  Iron  Co.,  (184^7 

13  Pick.  291.  Met.  224. 


\: 


148 


FOWEB  OF  AGENTS  AND  OFFICERS. 


[§11T 


PRIVATE  CORPORATIONS. 


149 


i 


the  company,  upon  their  indorsement,  of  the  amount  legaUy 
due.* 

s  117.    Illustration  of  the  binding  force  of  an  agent's 
acts  —  In  a  New  York  case  it  appeared  that  the  president  of  a 
Pennsylvania  corporation,  a  coal  company,  wa^,  during  all  the 
time  of  the  transactions  involved  in  the  action,  the  actual  manager 
of   the    business  of    the  corporation,    and,    with    the    nominal 
treasurer  of  the  corporation,  owned  all  its  stock,  except  a  few  shares 
held  by  persons  employed  in  the  office  of  the  company,  sufficient 
to  qualify  them  for  directors,  and  thus  to  make  and  maintam  a 
corporate  organization.     As  president,  he  drew  the  drafts  and 
indorsed  the  ^checks  and  other  commercial  paper  of  the  company, 
and  directed  all  the  financial  affairs  of  the  corporation  with  tlie 
knowledge  of  the  other  directors  and  stockholders.     The  com- 
pany's  business,  the  sale  of  coal  mined  by  them,  for  cash  and  on 
credit,  at  wholesale  and  retail,  was  quite  large  in  one  of  the  cities 
of  New  York.     The  president  of  the  coal  company  addressed  a 
letter  to  the  president  of  a  bank  it  that  city  informing  him  that 
a  certain  person  was  "  the  authorized  agent  of  the  [corporation] 
for  the  sale  of  its  coal  at  [that  city],"  and  then  added :  "  Any 
paper  he  may  take  for  coal  sold  for  said  company  he  is  authorized 
to  indorse  as  the  agent  of  said  company,  and  get  it  discounted 
at  your  [the  Marine]  bank,  and  that  any  and  all  such  paper  so 
indorsed  which  you  may  discount  for  him  the  said  company  will 

^®  P^^*  "  [Signed  by]  [his  name],  Presidentr 

This  was  an  action  by  the  bank  against  the  company  on  its 
indorsement  of  a  number  of  these  notes  discounted  by  it,  which 
were  not  paid  by  the  makers,  and  for  an  overdraft  made  by  this 
agent  The  Supreme  Court  of  New  York,  in  General  Term, 
sustained  the  conclusion  of  a  referee  in  the  suit  awardmg  a 
recovery  to  the  bank.^ 


» Whitney  t.  South  Paris  Manufac- 
turing Co.,  (1855)  39  Me.  316. 

« Marine  Bank  of  Buffalo «).  Butler 
CoUiery  Co.,  (1889)  52  Hun,  613; 
B.  c,  5  N.  Y.  Supp.  291.  Arguendo, 
it  was  said:  "The  notes  were  evi- 
dently discounted  by  the  [bank], 
relying  upon  '  the  apparent  au- 
thority of  Hubbell,  the  agent,  to  in- 


dorse them  for  the  defendant.  The 
letter  [above  quoted]  gave  the  [bank] 
notice  of  [his]  authority  as  agent  of 
the  defendant  to  sell  its  coal  at  Buffalo, 
to  take  notes  for  coal  sold,  to  indorse 
such  notes  for  the  defendant  and  to 
procure  their  discount  at  the  [bank]. 
The  authority  of  [the  writer]  to  write 
the  letter  and  to  bind  the  defendant 


§118] 

§  118.  Power  of  general  agents. —  A  general  agent  of  a  cor- 
poration has  power  to  direct  and  control  its  general  business,  to 
make  contracts  which  will  bind  the  corporation  in  the  ordinary 
course  of  its  business,  and  to  borrow  money  for  such  purpose  on 


thereby  is  clearly  established  by  the 
undisputed  evidence  of  the  manner  in 
which  the  business  of  the  corporation 
was  conducted.  During  all  the  years 
covered  by  the  transactions  in  question 
the  president  of  the  corporation  was 
permitted  to  be,  and  to  hold  himself 
out  to  the  world  as  being,  the  general 
manager  and  director  of  its  business. 
The  act  in  question  was  within  the 
scope  of  the  authority  thus  practically 
accorded  to  him,  and  the  defendant 
cannot  set  up  its  by-laws,  never  pub- 
lished to  the  world  and  habitually  dis- 
regarded by  itself,  as  countervailing 
the  authority  thus  publicly  conferred. 
Martin  v.  Niagara  Falls  Paper  Manu- 
facturing Co.,  (1887)  44  Hun,  130, 138; 
Martin  v.  Webb,  110  U.  8.  7;  s.  c,  3 
Sup.  Ct.  Rep.  428.  That  the  notes 
were  within  the  terms  of  the  letter 
has  been  found  by  the  referee  on  un- 
disputed evidence.  They  were  given 
for  coal  sold  by  the  agent  for  the  de- 
fendant. That  some  of  them  were 
taken  in  renewal  of  note?s  given  when 
the  coal  was  sold,  does  not  change  the 
character  of  the  indebtedness,  nor  of 
the  evidence  of  it.  Moreover,  the 
[bank]  had  a  right  to  rely  on  the  rep- 
resentations of  the  agent,  not  of  the 
existence  of  his  authority  to  procure 
discounts,  but  that  the  notes  offered 
by  him  for  discount  were  within  the 
scope  of  that  authority,  and  the  [cor- 
poration] is  estopped  to  deny  that 
those  representations  were  true.  Bank 
of  Batavia  «.  New  York,  L.  E.  &  W. 
Railroad  Co.,  106  N.  Y.  195;  s.  c, 
12  N.  E.  Rep.  433.  In  that  case  the 
court  says:  'It  is  a  settled  doctrine  of 
the  law  of  agency  in  this  state  that 
where  the  principal  has  clothed  his 
agent  with  power  to  do  an  act  upon 


the  existence  of   some  extrinsic  fact 
necessarily  and  peculiarly  within  the 
knowledge  of  the  agent,   and  of  the 
existence  of  which  the  act  of  execut- 
ing the  power  is  itself  a  representation, 
a    third    person,    dealing    with  such 
agent  in  entire  good  faith,  pursuant  to 
the  apparent  power,  may  rely  upon 
the  representation,   and  the  principal 
is  estopped  from  denying  its  truth  to 
his  pre j  udice. '    In  this  case  the  extrin- 
sic fact  that  the  notes  were  given  for 
coal,  upon  which  the  authority  of  the 
agent  depended,  and  which  were  solely 
within  his  knowledge,  was  represented 
not  only  by  the  presentation  of  the 
notes  for  discount,  but  by  the  repeated 
assurances  of  the  agent  that  he  never 
did  and  never  should  present  notes  of 
any  other  character.    The  fact  that  the 
indorsements  were  made  in  the  name 
of  E.  S.  Hubbell,  agent  of  the  Butler 
Colliery   Company,    and    not    in  the 
name  of  the  corporation  by  E.  S.  Hub- 
bell, agent,  though  not  strictly  con- 
fined to  the  language  of  the  authority, 
was  within  its  spirit  and  intent,  and 
was  ratified  by  a  long  course  of  dealing 
on  the  part  of  the  [corporation],  with 
full  knowledge  of  the  manner  in  which 
the  business  was  done,  and  with  full 
enjoyment  of  the  fruits  of  the  transac- 
tion."   A  counterclaim  on  the  part  of 
the  corporation  for  moneys  received  by 
the  bank  from  the  corporation's  agent 
and  afterwards  drawn  out  and,  as  was 
alleged,  misappropriated  by  him,  was 
also  disallowed  by  the  referee  below. 
The  court  said:  "  The  same  principles 
[applied  to  support  this  disallowance]. 
The  authority  of  the  agent  to  open 
and  maintain  the  account    with  the 
[bank]  and  to  draw  against  it  for  the 
purposes  of  his  agency,  being  estab- 


150 


FOWEB  OF  AGENTS  AND  OFFICEBS. 


[§118 


=^i 


its  credit.^     But  such  a  general  agent,  tliough  clothed  with  the 
power  to  contract  debts  and  borrow  money  on  the  credit  of  the 
corporation,  has  no  power,  in  virtue  of  such  an  agency  merely,  to 
make  a  mortgage  on  the  property  of  the  corporation,  real  or  per- 
sonal.'     An  agent  appointed  by  the  directors  of  a  corporation  to 
superintend  and  carry  on  its  business,  has  no  power,  as  such 
agent,  to  pledge  or  mortgage  the  machinery  used  by  the  corpora- 
tion for  the  security  of  a  loan.'     A  director  may  act  as  the  agent 
of  a  corporation,  with  the  knowledge  of  the  board,  and  independ- 
ently of  his  duties  as  director,  and  his  acts  will  bind  the  corpora- 
tion.*    Corporations  may  be  bound  by  contracts  of  their  general 
agents  clearly  within  the  scope  of  their  employment,  but  no  fur- 
ther.*    The  general  agent  of  a  corporation  is  not  authorized  to 
give  its  note  for  a  debt  due  from  a  previous  imincorporated  com- 
pany to  which  the  corporation  succeeded.*     An  agent  of  a  cor- 
poration, performing  the  daily  routine  of  his  business,  under  the 
supervision  and  control  of  a  board  of  directors,  would  not  be 
authorized,  as  agent,  to  create  a  hen  upon  the  entire  property  of 
the  corporation  to  secure  advances  of  money  to  it.*^     Managing 
officers  of  a  corporation  may,  without  an  express  delegation  of 
power,  or  a  formal  resolution  to  tliat  effect,  employ  attorneys  to 
represent  the  corporation  in  litigation,  or  for  counsel  in  its  busi- 
ness affairs.®    The  general  agent  of  a  corporation  organized  for 


lished  by  the  letter  of  authority  and 
the  course  of  dealing  between  the 
parties,  the  [bank],  in  the  absence  of 
notice  to  the  contrary,  or  of  facts  to 
put  it  upon  inquiry,  had  the  right  to 
assume  that  the  acts  of  the  agent  in 
this  connection  were  what  they  pur- 
ported to  be,  viz.,  in  the  execution  of 
his  power  as  agent.  The  [bank]  was, 
therefore,  entitled  to  credit  for  all 
moneys  drawn  by  the  agent  in  the 
ordinary  course  of  the  business  and 
apparently  within  the  scope  of  his 
authority  as  agent." 

» Stokes  V.  New  Jersey  Pottery  Co., 
(1884)  46  N.  J.  Law,  237. 

»  Stow  V.  Wyse,  7  Conn.  214;  C.  &  N. 
R  R  Co.  c.  James,  24  Wis.  388. 

•Despatch  Line  of  Packets  v.  Bel- 
lamy Manufacturing  Co.,  12  N.  H.  205. 


*  Holmes  v.  Board  of  Trade,  (1883)81 
Mo.  137. 
»  Odiome  p.  3Iaxcy,  (1816)  13  Mass. 

178. 

«  White  V.  Westport  Cotton  Manu- 
facturing Co.,  (1822)  1  Pick.  215. 

'  Whit  well  V.  Warner.  20  Vt.  425.  As 
to  power  of  managing  agents,  see  Stow 
p.  Wyse,  7  Conn.  214, 219;  Hawtaynei). 
Bourne,  7  Mees.  &  W.  595;  Life  &  Fire 
Ins.  Co.  V.  Mech.  Fire  Ins.  Co.,  7 
Wend.  31;  Knight  v.  Lang,  4  E.  D. 
Smith,  381;  Benedict  v.  Lansing,  5 
Deuio,  283;  Torrey  t>.  Dustin  Monu- 
ment Assn.,  5  AHen,  329;  Despatch 
Line  of  Packets  t>.  Bellamy,  12  N.  H. 
205,228;Luser.  Isthmus  Transit  Ry. 
Co.,  6  0reg.  122. 

•Southgate  v.  Atlantic  &  Pacific  R 
R  Co.,  (1875)  61  Mo.  89. 


§  119]  PRIVATE  CORPORATIONS.  151 

purchasing  timber  land,  converting  the  timber  -into  lumber  and 
selling  it,  and  for  carrying  on  a  trading  establishment,  has  an 
implied  power  from  the  nature  of  his  business  to  give  the  nego- 
tiable note  of  the  corporation  in  payment  for  labor  in  getting  out 
such  lumber.^ 

§  119.  When  the  authority  oi  a  general  agent  will  not  be 
implied. —  A  corporation  engaged  in  a  mining  business  in  Michi- 
jran  had  its  financial  office  in  New  York.  Its  general  agent  in 
Michigan  was  accustomed  to  indorse  the  company's  paper  for 
collection  or  discount,  and  to  draw  on  the  treasurer  in  New  York 
for  the  current  needs  of  the  corporation,  and  his  drafts  were  duly 
paid.  He  executed  several  notes  m  the  name  of  the  corporation. 
In  an  action  upon  these  notes  it  was  held  by  the  Supreme  Court 
of  Michigan  that  a  general  agent,  without  being  specially 
empowered  so  to  do,  had  no  authority  to  make  notes  in  the  name 
of  his  principal.     Also  that  the  facts  stated  above  as  to  what  he 


'  Tappan  v.  Bailey,  (1842)  4  Met  529. 
As  to  power  of  officers  and  agents  to 
make  contracts,  see  Blanding  v.  Da- 
venport,!. &  D.  R.  Co.,  (1894)  Iowa, 
55  N.  W.  Rep.  81;  Cuman  1).  Delaware 
&  O.  R.  Co.,  138  N.  Y.  480;  s.  c,  34 
N.  E.  Rep.  201;  National  Cordage  Co. 
1).  Pearson  Cordage  Co.,  55  Fed.  l^ep. 
812;  Huntsville  Belt  Line  &  M.  S.  Ry. 
Co.  V.  Corpening,  (1892)97  Ala.  681;  8. 
c,  12  So.  Rep.  295;  Moore  v.  H. 
Gaus  &  Sons'  Manufg.  Co..  (1892)  113 
Mo.  98;  8.  c,  20  8.  W.  Rep.  975;  Nich- 
ols V.  Scranton  Steel  Co.,  137  N.  Y. 
471;  33  N.  E.  Rep.  561;  Teitig  v.  Boes- 
man,  12  Mont.  404;  s.  c,  31  Pac.  Rep. 
371;  Thompson  v.  Stanley,  (N.  Y. 
Super.  Ct.  Spl  T.  1892)  20  N.  Y. 
Supp.  317;  Chemical  Nat.  Bank  v. 
Wagner,  (Ky.  1894)  20  8.  W.  Rep.  5^5; 
Levey  v.  New  York  Central  &  Hudson 
River  R.  Co.,  24  N.  Y.  Supp.  124; 
Humes  t>.  Decatur  Land  Improvement 
&  Furnace  Co.,  (1893)  98  Ala.  461;  8.  c, 
13  So.  Rep.  368;  Tuller  v.  Arnold, 
(Col.  1894)  33  Pac.  Rep.  445;  Reynolds 
&  Henry  Construction  Co.  r.  Police 


Jury,  44  La.  Ann.  863;  s.  c,  11  So. 
Rep.  236;  Smith  v.  Car  Heater  Co.,  64 
Hun,  639;  Glover  v.  Lee,  (1891)140111. 
102;  s.  c,  29  N.  E.  Rep.  680;  Matson 
e.  Alley,  (1892)  141  111.  284;  8.  c,  31  N. 
E.  Rep.  419,  affirming  41  111.  App.  72; 
Hamm  v.  Drew,  83  Tex.  77;  Johnson 
V.  Switch  Co.,  59  N.  Y.  Super.  Ct. 
169;  Koch  v.  Association,  137  111.  497; 
8.  c,  27  N.  E.  Rep.  530;  Bank  of  At- 
tica V.  Manufg.  Co.,  49  Hun,  606;  Bank 
of  Yolo  V.  Weaver,  (Cal.  1893)  31  Pac. 
Rep.  160;  Tradesmen's  Nat.  Bank  v. 
Lumber  Co.,  64  Hun,  635.  That  offi- 
cers of  a  corporation  are  special  and 
not  general  agents  of  the  corporation, 
and  their  powers  being  limited  by  the 
charter  and  by-laws,  see  Adriance  'p. 
Roome,  52  Barb.  399.  As  to  their 
power  to  bind  it  within  the  scope  of 
their  authority.see  Alexander  c.Brown, 
9  Hun.  641.  As  to  power  of  an  agent 
of  a  joint-stock  corporation  formed 
under  the  laws  of  Connecticut,  see 
Wood  r).  Wiley  Construction  Co., 
(1887)  56  Conn.  87;  s.  c,  13  Atl.  Rep. 
137. 


152 


POWER  OF  AGENTS  AND  OFFICERS. 


II130 


was  accustomed  to  do  in  the  business  could  not  imply  authority 
in  him  to  make  such  notes.* 

§  120.  Power  of  officers  generally. — Where  persons  are 
named  in  the  statute  of  incorporation  who  may  bind  the  corpora- 
tion, no  others  can  act  as  the  agents  of  the  corporation  in  the  par- 
ticulars designated  in  the  statute.^  While  the  records  of  a  cor- 
poration are  the  best  evidence  as  to  who  its  officers  are,  it  may  be 
shown  by  parol  that  one  was  an  agent  of  tlie  corporation  and 
what  his  duties  as  such  were.®    Powers  may  be  conferred  upon 


'  New  York    Iron   Mine   v.    First 
National  Bank  of  Negaunee,  (1878)  39 
Mich.  644.    Cooley,  J. .  in  the  opinion, 
said   upon  the  subject:  "It  was  not 
disputed  by  the  defense  that  the  cor- 
poration had  power  to  make  the  notes 
in  suit.     The  question  was  whether  it 
had  in  any    manner   delegated    that 
power  to    [its    general    agent].     We 
cannot  agree  with  the  plaintiff  that 
the  mere  appointment  of  general  agent 
confers  any  such  power.    *    *    *    In 
McCuUough  V.  Moss,  5  Denio,  567,  the 
subject  received  careful  attention,  and 
it  was  held  that  the  president  and  sec- 
retary of  a  mining  company,  without 
being    authorized    by    the    board   of 
directors  so  to  do,  could  not  bind  the 
corporation  by    a    note  made  in  its 
name.     Murray  t.  East  India  Co.,  5  B. 
&  Aid.   204;  Benedict  v.   Lansing,  5 
Denio,  283,  and  The  Floyd  Accept- 
ances, 7  Wall.  666,  are  authorities  in 
support  of  the  same  view.    The  plain- 
tiff, then,  cannot  rest  its  case  on  the  im- 
plied authority  of  the  general  agent; 
the  issuing  of  promissory  notes  is  not 
a  power  necessarily   incident   to  the 
conduct  of  the  business  of  mining, 
and  it  is  so  susceptible  of  abuse,  to  the 
injury,  and  indeed,  to  the  utter  de- 
struction, of  a  corporation,  that  it  is 
wisely  left  by  the  law  to  be  conferred 
or  not  as  the  prudence  of  the  board  of 
directors  may  determine."    See,  also, 
Tripp  V.  Swanzey  Paper  Co.,  18  Pick. 
293;  Union  Gold  Mining  Co.  r.  Rocky 


Mountain  Nat.   Bank,  1  Colo    531;  2 
Colo.  565,  570;  In  re  German  Mining 
Co.,  19  E.  L.  &E.  599;  Hawtayne  v. 
Bourne,  7  M.  &  W.  595;  Carpenter  r. 
Biggs,  46  Cal.  91 ;  Lawrence  v.  Geb- 
hard,  41  Barb.  575;  Sewanee  Mining 
Co.  V.  McCall,  3  Head,  619;  Silliman 
V.  Fredericksburg,  O.  &  C.  R.  R.,  27 
Gratt.  120;  Emerson  v.  Providence  Hat 
Co.,  13  Mass.  237;  Hammond  v.  Mich- 
igan State  Bank,  Walk.   Ch.   (Mich.) 
214;    Grover  &  Baker    Sewing    Ma- 
chine   Co.    V.    Polhemus,    34    Mich. 
347,  249;  Reynolds  v.  Continental  Ins. 
Co.,  36  Mich.  131;  Lyell  v.  Sanboum, 
2  Mich.  109;  Marquette  &  Ontonagon 
R.  R.  Co.  V.  Taft,  28  Mich.  289;  Kal. 
Nov.  Mfg.  Co.  V.  McAlister,  36  Mich. 
327.     As  to  corporations  authorizing 
agents  to  make  or  indorse  notes,  see 
Olcottr.  Tioga  R.  R.,  40  Barb.  179; 
Melledge  v.  Boston  Iron  Co.,  5  Cush. 
158;  White  «>.  Westport  Cotton  Mfg. 
Co.,1  Pick.  215,  219;  Odiorne  c.  Maxey, 
13  Mass.  178;  Kelly  v.  Fall  Brook  Coal 
Co.,  4  Hun,  261;  Sedgwick  «?.  Lewis, 
70  Pa.  St.  217;  Pahlman  v.  Taylor.  75 
111.  629;  Bird  r^.   Daggett,   97    Mass. 
494;  Bridgeport  City  Bank  v.  Empire 
Stone  Dressing  Co.,    30    Barb.    421; 
Central  Bank  r.  Empire  Stone  Dressing 
Co.,  26  Barb.  23. 

» Landers  v.  Frank  St.  Meth.  Epis. 
Ch.  of  Rochester,  97  N.  Y.  119. 

*  Leekins  v.  Nordyke  &  Marmon  Co. , 
(1885)  66  Iowa,  471;  s.  c,  24  N.  W. 
Rep.  1. 


i.|» 


§120] 


PBIVATE  00BP0EATI0N8. 


153 


the  officers  of  a  corporation  by  a  course  of  conduct  of  the  corpo- 
ration with  its  officers  and  the  public  which  they  would  not  have 
as  such  officers  but  for  the  usages  of  the  corporation.*  A  corpo- 
ration will  be  bound  by  the  acts  of  one  of  its  officers  performed 
at  his  office,  and  where  they  have  been  numerous  and  long  con- 
tinued this  justifies  a  presumption  that  they  were  done  under 
instructions  of  the  managers  of  the  corporation.^  Courts  of  equity 
will  not  interfere  with  the  actions  of  officers  of  corporations  who 
may  be  vested  with  discretionary  powers  by  statute  to  correct 
mere  errors  of  judgment,  the  power  conferred  not  having  been 
illegally  nor  unconscientiously  executed.^  One  owning  a  majority 
of  the  stock  of  a  corporation  cannot  act  for  the  corporation  in 
selling  leases,  for  instance,  that  it  may  own,  unless  specially 
authorized,  as  a  corporation  can  only  act  through  its  officers  or 
by  expressly  delegating  power  to  others.*  One  openly  and 
notoriously  exercising  the  functions  of  a  particular  agency  of  a 
corporation  will  be  presumed  to  have  sufficient  authority  from 
the  corporation  to  so  act.^  The  authority  of  an  officer  of  a  cor- 
poration to  make  a  contract  in  its  behalf  may  be  inferred  from 
the  fact  of  the  corporation's  knowing  that  he  is  making  such 
contract,  and  that  it  availed  itself  of  whatever  benefit  arose  from 
the  contract.®  A  corporation  will  be  liable  upon  contracts  made 
by  its  officers  and  agents  with  other  persons  if  these  officers  or 
agents,  in  their  negotiations,  so  act  as  to  induce  the  persons  with 
whom  they  make  such  contracts  to  believe  that  they  are  acting 
for  the  corporation,  notwithstanding  the  fact  that  they  were  in 
reaUty  not  acting  for  it.^  Officers  of  a  corporation  have  no  power 
to  bind  the  corporation  as  surety  for  their  private  debts.®  A 
corporation  will  not  be  bound  by  the  release  of  a  debt  given  to  a 


*  Winsor  v.  La  Fayette  County  Bank, 
(1885)  18  Mo.  App.  665. 

•Beers  v.  Phoenix  Glass  Co.,  14 
Barb.  358. 

*  Philips  V.  Wickham.  1  Paige,  590. 

*  Hopkins  v.  Roseclare  Lead  Co. , 
(1874)  72  111.  373. 

'  Singer  Manufacturing  Co.  v.  Hold- 
fodt,  (1877)  86  111.  455. 

*  Chicago  Building  Society  v.  Crow- 
ell,  (1872)  65  HI.  453.  citing  Bradley  i>. 
Ballard,  55  111.  413, 417;  Bufflt  t^.Troy  & 
Boston  R.  R.  Co.,  36  Barb.  420;  Abby 

20 


«.  Billups,  35  Miss.  618;  Parish  v. 
Wheeler,  22  N.  Y.  494;  Noyes  v.  R.  & 
B.  R.  R.  Co.,  27  Vt.  Ill;  Bissell  v.  M. 
S.  &  N.  I.  R.  R.  Co.,  22  N.  Y.  258; 
Perkins  v.  Portland,  Saco  &  Ports- 
mouth R.  R.,  47  Me.  590;  Barry  v. 
Merchants'  Exchange  Co.,  1  Sandf. 
Ch.  280,  289;  Goodwin  v.  Union  Screw 
Co.,  34  N.  H.  378. 

'  Wilson  Sewing  Machine  C!o.  «. 
Boyington,  (1874)  73  111.  534. 

8  Culver «).  Real  Estate  Co.,  91  Pa. 
St.  367. 


V 


r.J 


154 


POWER  OF  AGENTS  AND  OFFICERS. 


[§121 


§121] 


PRIVATE  CORPORATIONS. 


155 


debtor  by  one  of  its  officers  without  authority.*      A  corporation 
cannot  be  bound  by  the  act  of  an  officer  in  a  case  where  he  pro- 
fesses to  represent  only  himself  and  to  deal  with  the  corporation 
as  if  he  had  no  official  relation  to  it.^     Under  a  resolution  of  the 
directors  of  a  corporation,  directing  its  officers  to  use  certain  notes 
in  liquidating  the  liabilities  of  the  corporation,  the  officers  may 
give  such  notes  as  collateral  security  with  the  note  of  the  corpo- 
ration itself  in  payment  of  its  debts.«      The  lon^  usage  of  officers 
in  issuing  stock  in  exchange  for  the  debt  of  a  corporation  for 
more  than  two  years  after  the  resolution  of  the  board  giving  them 
the  power  had  been  rescinded,  has  been  held  to  have  implied  an 
authority  to  make  the  exchange  as  effectually  as  an  express  reso- 
lution.*    A  corporation  will  not  be  bound  by  the  declarations  of 
its  secretary  as  to  the  amount  due  on  a  mortgege  held  by  it  unless 
it  be  shown  that  the  secretary  had  authority  to  bind  it.* 

§  121.  The  same  subject  continued.— The  president  of  a 
corporation  will  be  authorized  to  purchase  the  materials  to  be 
used  in  the  business  of  the  corporation,  and  to  borrow  money  for 
it  and  give  its  note  for  the  money  borrowed,  by  a  vote  of  the 
directors  clothing  him  with  full  power  and  control  of  its  business.* 
Where  a  contract  is  one  which  the  board  of  a  corporation  has 
power  to  authorize  its  president  to  make  or  ratify  it  after  it  has 
been  made,  the  burden,  if  it  is  claimed  to  have  been  unauthor- 
ized, is  on  the  corporation  to  show  that  it  was  not  authorized  or 
ratified  by  its  board.'    A  manufacturing  corporation  cannot  be 


»  Land  Co.   v.    Sloan,    109  Pa.   St. 

632. 

« Winchester    v.  Baltimore  &    Sus- 
quehanna R  R.  Co.,  4  Md.  231. 

»Brookman    u.    Metcalf,   5  Bosw. 

429. 

*  Lohman  w.  New  York  &  Erie  R. 

R.  Co.,  2  Sandf.  39. 

6  Johnston     «.     Building    Associa- 
tion, 104  Pa.  St.  394. 

« Castle  V.  Belfast  Foundry  Co.,  72 
Me.  167.  What  is  within  the  scope  of 
the  business  intrusted  to  a  president  of 
a  corporation.  Seeley  v.  San  Jose  In- 
dependent Mill  &  Lumber  Co. ,  (1881) 
59  Cal.  22.  What  kind  of  a  transaction 
a  board  of  directors  or  stockholders 


can  sanction  or  ratify.    Forbes  v.  San 
Rafael  T.  Co. ,  50  Cal.  340.    As  to  a  note 
signed  by  president  and  secretary,  see 
Duggan  V.  Pacific  Boom  Co.,  (Wash. 
1893)  34  Pac.  Rep.  157.     As  to  a  presi- 
dent's authority,  see  Crowley  v.  Gene- 
see Mining  Co.,   55  Cal.   273;  Union 
Mut.  Ufe  Ins.  Co.  v.  White,  106111.  67. 
'Patterson  v.  Robinson,  (1889)  116 
N.  Y.  193;  8.  C,  22  N.  E.   Rep.  372; 
citing  Bank  of  Vergennes  v.  Warren. 
7  Hill,  91;  Gillett  f>.  Campbell,  1  Den. 
520;  Elwell  t.  Dodge,  33  Barb.   336: 
Chemical  National  Bank  v.  Kohner,  85 
N.  Y.  189,  193;  Smith  v.  Hull  Glass 
Co.,  11  C.B.  897,920;  Leer. Pittsburgh 
Coal  &  Mining  Co.,  56  How.  Pr.  373; 


bound  by  a  contract  of  one  who  is  a  stockholder  and  director  and 
overseer  of  part  of  its  business,  to  aid  in  the  extension  of  a  rail- 
road.^ The  treasurer  of  a  savings  bank,  by  virtue  of  his  office 
merely,  has  no  implied  authority  to  transfer  to  a  purchaser  a 
promissory  note  belonging  to  the  bank.^    A  vote  of  a  newly- 


afflrmed  in  75  N.  Y.  601.  See,  also, 
Patteson  v.  Ongley  Electric  Co.,  (1895) 
87  Hun,  462;  s.  c,  34  N.  Y.  Supp.  209; 
citing  Jourdan  v.  Railroad  Co.,  115  N. 
Y.  381;  8.  c,  22  N.  E.  Rep.  153;  Oakes 
V.  Water  Co.,  143  N.  Y.  430;  s.  c,  38 
N.  E.  Rep.  461. 

*  New  Haven  &  Northampton  Co.  v. 
Hayden,  (1871)  107  Mass.  525.  As  to 
authority  of  officers  to  make  contracts, 
see  Baker  v.  Harpster,  42  Kans.  511;  s. 
c,  22  Pac.  Rep.  415;  Western  Union 
Tel.  Co.  V.  Yopst,  118  Ind.  248;  s.  c, 
20  N.  E.  Rep.  222;  Read  v.  Buffum, 
79  Cal.  77;  s.  c,  21  Pac.  Rep.  555; 
Eureka  Iron  Works  v.  Bresnahan,  60 
Mich.  332;  8.  c,  27  N.  W.  Rep.  524; 
Merrill  v.  Consumers'  Coal  Co.,  114  N. 
Y.  210;  8.  c,  21  N.  E.  Rep.  155. 

» Holden  v.  Upton,  (1883)  134  Mass. 
177.  As  to  what  authority,  ex  officio, 
an  officer  has,  see  Farmers'  Bank  v. 
McKee,  2  Barr,  (Pa.)  318;  Hallowell  & 
Augusta  Bank  ?).  Hamlin,  14  Mass.  178, 
180;  Crump  v.  United  States  Mining 
Co.,  7  Gratt.  352.  Where  it  would  not 
be  assumed  that  the  treasurer  of  a 
board  of  trustees  of  a  corporation  had 
no  authority  to  make  an  indorsement 
upon  a  note.  Sayers  v.  First  National 
Bank,  (1883)  89  Ind.  230.  In  Blake  v. 
Holley,  14  Ind.  383,  it  was  held  that  a 
corporation  might  authorize  its  proper 
officer  to  assign  a  note  by  delivery, 
and  perhaps  it  would  be  within  the 
general  powers  of  officers  of  a  railway 
corporation  to  assign,  in  such  manner 
as  they  might  deem  expedient,  its 
choses  in  action.  In  Schallard  v.  Eel 
River  Steam  Navigation  Co.,  (1886)  70 
Cal.  144;  8.  c,  11  Pac.  Rep.  590,  it  was 
held  that  a  mortgage  executed  in  the 
name  of  a  corporation  by  its  president 


and  secretary  and  having  the  corporate 
seal  attached,  must  be  presumed  to 
have  been  executed  in  pursuance  of  a 
due  authorization  to  such  officers,  and 
the  burden  of  proof  was  on  the  cor- 
poration to  show  the  contrary.  Also, 
that  where  the  circumstances  sur- 
rounding the  execution  of  the  mort- 
gage showed  the  existence  of  proper 
resolutions  of  authorization  and  sup- 
ported the  presumption  of  its  authori- 
tative execution  as  shown  by  affixing 
the  corporate  seal,  and  the  signatures 
of  the  proper  officers,  the  mere  fact 
that  such  resolutions  did  not  appear 
in  the  proper  book  of  the  corporation 
was  not  sufficient  to  disprove  their 
existence  and  invalidate  the  mortgage. 
See,  also,  Southern  California  Colony 
Association  v.  Bustamente,  52  Cal. 
192-196.  Where  acts  of  officers  and 
agents  in  making  contracts  have  been 
held  to  bind  the  company.  Powder 
River  Live  Stock  Co.  v.  Lamb,  (Neb. 
1894)  56  N.  W.  Rep.  1019;  Greig  v. 
Riordan,  99  Cal.  316;  s.  c,  33  Pac. 
Rep.  913;  Carrigan  ».  Port  Crescent 
Imp.  Co.,  6  Wash.  590;  s.  c,  34  Pac. 
Rep.  148;  Oro  Mining  «fe  Milling  Co. 
V.  Kaiser,  (1894)  4  Colo.  App.  219; 
8.  c,  35  Pac.  Rep.  677.  Agreement 
of  officers  that  will  bind  a  corpora- 
tion. Outterson  t.  Fonda  Lake  Paper 
Co.,  66  Hun,  629;  s.  c,  20  N.  Y. 
Supp.  980.  When  a  note  signed  by 
the  president,  secretary  and  two  direct- 
ors will  be  held  to  be  the  note  of  the 
corporation.  In  re  Pendleton  Hard- 
ware &  Imp.  Co.,  (1893)  24  Ore.  330; 
s.  c,  33  Pac.  Rep.  544.  See,  also, 
Reeve  v.  Bank,  54  N.  J.  Law.  208; 
Davis  V.  Lee  Camp  No.  1,  C.  V.  (Va. 
1894)    18  S.    E.   Rep.   839;   Cross  o. 


^w 


:lii!" 


POWEB  OF  AGENTS  AND  OFFICERS. 


[§m 


fonned  manufacturing  corporation  -^empW  ^^^S^^  5^ 
«>yaltiesto  and  the  P-f-j--::^,';;;^"^^  estate  of 
addition  to  toob  and  material  of  f"'^?^;f 'Pertain  number 
«aid  corporation,  giving  in  payment  therefor    a  certam 

of  sharlof  stock  in  the  "«-  -■"P'^f '7,,\^  ^e  pari  in 
president  of  the  old  corporation  as  tn-tee  for  the  pa 

Ler^t,  any  balance  of  s«ch  f^;-—^  ^^  t--»-  of 

liabilities"  of  the  old  corporation  to  ^J^^'^Z^.      ^  ^  „ade 

the  new  corporation.     A  written  "o"*":^*  J'J^f  '"     idente, 

between  the  two  corporations,  ^f  ^,^'g"^2norltion  by  which 

who  were  the  principal  creditors  of  t»^«  f  ^  corp— ,  by 

the  new  corporation,  in  consideration  of  the    ransfer 

stock,  tools,  materials  and  machinery  of  t^^^^^^^";;;"      ^  to 

.g^ment  to  license  the  ii^  one  under  a^  K^^Sn.    No 

pay,  besides  royalties,  aU  the  debt*  ot  tne  o  f 

^diictor  or  stockholder  of  the  -JJi^r^S  the  conUt 

dent,  knew  anything  of  ^''^^  P*'^"'"''*'^t,.  ^  Suure.ne  Court  of 
departed  from  the  terms  of  the  vote      T^>«  S«P^^  « 
MLach„settsheld,inanacUononth^^^  ^^  ^,^^ 

no  evidence  for  a  jury  of  tl»^*~yJJ,^  J,  „f  its  ratifica- 
„ew  corporation  to  make  '-Jl\'^^'^^':tontr.ci  made  by  a 
^'^"■'Jt:?rr;X\?obtarig  a  subscription  of  stock 
Lrr:ror^nirarn  of  the  corporation.     But  after  its  orgam- 


§122] 


PRIVATE  CORPORATIONS. 


157 


Anglo-American  Banking   Co.  (1894) 

79  Hun.  434;  8.  c,  39  N.  Y.  Supp. 

«60;   Merchants  &  Farmers'  Bank  ^. 

Hervey  Plow  Co.,  45  La.  Ann.  1214; 

«.  c.  U  So.  Rep.  139;  ^^^^ 
Washin^on  Life  Ins.  Co.,  73  Hun. 
448;8.  c.,36N.Y.  Supp.  474;  Pren- 
tice f>.  United  States  &  Central  Amen- 
can  Stfiamsliip  Co..  58  Fed.  Rep.  70-. 
Whether  or  not  the  acts  of  officers  or 
agents  bind  the  corporation.  Stanley 
t,  Sheffield.  L.  L  &  C.  Co.,  83  Ala. 
260;S.c.,4So.Rep.  34;Whitaker.. 

Kilroy,  70  Mich.  635;  8.  c,  38  N.  W^ 
Rep.  606;  Little  t.  Kerr.  (N.  J.)  U 
Atl  Rep.  613;  Templin  v.  Chicago,  B. 
&  P.  R.  Co..  73  Iowa,  548;  ».  c,  ^  N. 
W.  Rep.  634;  St.  Louis  /ort  Sco  t 
&  W  R  Co.  t?.  Grove,  39  Kans.  i6i, 
».  c.  18  Pac.  Rep.  958;  Topeka  Pri- 


mary A.  U.  B.  ..   Martin    39  Kans^ 
750-8  c,  18  Pac.  Rep.  941;  Griffith 
r.  Chicago.  B.  &  P.  R-  Co..  74  Iowa. 
85;8.  c.  36N.   W.   Rep.  901;  Mer- 
chants' Nat.  Bk.  of  Chicago  ^Detroit 
Knitting  &  Coreet  Works.  68  Mich. 
620;  s.  c,  36  N.  W.  Rep.  696;  New 
York  P.  &  N.   Ry.   Co.  t.  Bates,  68 
Md.  184;  8.  c.  11  Atl.  Rep.  705;  Getty 

V  C  R.  Barnes  MilUng  Co..  40  Kans. 
281,"  8.  c,  19  Pac.  Rep.  617;  East 
Rome  Town  Co.  v.  Brower.  80  Ga. 
258;  8.  c.  7  S.  E.  Rep.  273;  Bank  of 
Attica  V.  Pettier  &  Stymus  Mfg.  Co.. 
49  Hun.  606;    8.  c,  1  N.  Y.  Supp. 

483.  ^ 

»  Bi-spool  Sewing  Machme  Co.  «. 
Acme  Manufacturing  Co.,  (1891)  158 
Mass.  404. 


zation  the  corporation  may  ratify  it  and  be  estopped  from  deny- 
ing  its  liability  upon  such  a  contract.* 

§  122.  Power  of  directors  —  general  rules.—  The  directors 
have  control  of  the  ordinary  management  of  a  corporation.^  But 
a  corporation  cannot  be  bound  by  the  acts  of  individual  directors.^ 
A  board  of  directors  may,  under  their  power  to  make  by-laws, 
delecrate  their  authority  to  a  quorum  composed  of  less  than  a 
majority  of  their  number,  notwithstanding  a  declaration  m  the 
charter  of  the  corporation  that  its  powers  shall  be  exercised  by  a 
board  of  directors,  consisting  of  a  specified  number.*  A  director 
who  is  permitted  to  act  as  such  after  he  has  sold  all  his  stock  m  a 
corporation  is  a  director  de  facto,  and  the  proceedings  of  the 
board,  in  which  he  takes  part,  are  valid  as  to  third  persons. 
To  bind  a  corporation  by  an  express  promise,  the  individual  direct- 
ors must  be  authorized ;  otherwise  they  have  no  power  to  bind  it.« 
A  corporation  will  be  bound  by  the  action  of  its  directors,  though 
acting  separately,  if  in  the  usual  sphere  of  directors.'    The  axjts 


»  Joy  V.  Manion,  28  Mo.  App.  55. 
Sec  Fawcett®.  New  Haven  Organ  Co., 
47  Conn.  226,  as  to  the  circumstances 
under  which  a  contract  made  by  a  sec- 
retary and  treasurer  was  held  not  to 
bind  the  corporation.     TV  hen  contracts 
made  by  officers  are  not  binding  on 
corporation.      Banks    v.    New    York 
Club,   68  Hun,   92;  8.   c,   22  N.    Y. 
Supp.    727;  Bank    of   New    York   v, 
American  Dock  &  Trust  Co.,  (1893) 
70  Hun,  152;  8.  c,   24  N.  Y.   Supp. 
406.    For  a  full  discussion  on  this  sub- 
ject, see  Edwards  TJ.  Carson  Water  Co., 
(Nev.  1893)  34  Pac.  Rep.  381.    When 
authority  of  officers  to  indorse  a  note 
of  the  corporation  is  shown.    National 
Bank  of  Battle  Creek  v.  Mallan,  (1887) 
37  Minn.  404;  s.   c,  34  N.  W.  Rep. 
901;   First  National    Bank   of    Rock 
Island,  Illinois,  v.  Loyhed,  (1881)  28 
Minn.  396;  8.  c.  10  N.  W.  Rep.  421; 
Farmers'   Nat.    Bank    of   Valparaiso. 
Ind.,   V.   Sutton  Manufacturing  Co.. 
(1892)  52  Fed.  Rep.  191;  s.  c.  6  U.  S. 
App.  312;  3  C.  C.  A.  1.     As  to  corpo- 
rations not  being  liable  for  debts  con- 


tracted by  the  corporators  before  in- 
corporation, see  Hutchinson  v.  Surrey 
Consumers'  Gas  Light  &  Coke  Associ- 
ation, 73  Eng.  C.  L.  689;  White  v. 
Westport  Cotton  Co.,  1  Pick.  215;  In 
re  The  Independent  Assur.  Co.,  30  L. 
J.  Rep.  (Eq.)  222. 

'Genesee  County  Savings  Bank  r. 
Michigan  Barge  Co.,  52  Mich.  438; 
8.  C.  17  N.  W.  Rep.  790;  18  N.  W. 

Rep.  206. 

«Lockwood  V.  Thunder  Bay  River 
Boom  Co.,  42  Mich.  537;  4  N.  W.  Rep. 

292. 

4  Hoyt  V.  Thompson,  19  N.  Y.  207. 

6  Wile  &  Brickner  Co.  v.  Roch- 
ester &  K.  F.  Land  Co.,  (1893)  4 
Misc.  Rep.  570;  25  N.  Y.  Sup-p.  794. 
See.  also,  Despatch  Line  of  Packets  v, 
Bellamy  Manufg.  Co.,  12  N.  H.  205; 
In  re  Mohawk  &  H.  R.  Co.,  19  Wend. 

135. 
6  Workhouse  v.  Moore.  95  Pa.   St. 

408. 
'  Foot  V.  Rutland  &  Whitehall   R 

R.  Co.,  32  Vt.  633. 


158 


POWER  OF  AGENTS  AND  OFFICERS. 


[§122 


of  a  board  of  directors  of  a  corporation,  evidenced  by  a  written 
vote,  as  completely  bind  the  corporation,  and  are  as  complete 
authority  to  its  agents,  as  the  most  solemn  acts  done  under  the 
corporation  seal.^     The  power  of  directors  to  bind  a  corporation 
by  their  contracts  may  be  exercised  by  a  majority  of  the  board. 
It  is  not  necessary  that  aU  the  doings  of  a  board  of  directors 
should   be  entered  on  their  records.     The  corporation  will  be 
bound  by  any  verbal  order  or  direction,  in  which  a  majority  of 
the  board  concurs  in  relation  to  any  matter  of  business  intrusted 
to  them.'    An  act  purporting  to  be  the  act  of  a  board  of  directors 
at  a  meeting  of  such  board  may  be  presumed  to  be  the  act  of  a 
majority  of  the  board,  unless  shown  to  the  contrary.*    Other 
circumstances  proving  the  consent  of  directors  to  a  contract,  it  is 
not  necessary,  to  bind  the  corporation,  that  the  reconds  of  the 
board  should  disclose  a  formal  vote  of  the  directors.*     The  power 
placed  by  a  charter  in  tiie  directors  cannot  be  limited  by  a  by-law 
of  a  corporation.'^     A  charter  of  a  corporation  providing  that  the 
president  is  entitled  to  all  the  powers  and  privileges  of  a  director, 
and  requiring  seven  directors  to  make  a  quorum,  the  president 
and  six    directors  would    constitute  such  a  quorum.*      In  the 
absence  of  a  special  provision  in  a  charter  of  a  corporation  upon 
the  subject,  less  than  a  majority  of  the  board  of  directors  have  no 
power  to  transact  business.     Their  acts  are  absolutely  void  and 
the  corporation  cannot  ratify  them.^      That  it  is  provided  m 
a  charter  of  a  corporation  that  a  majority  of  the  directors  pres- 
ent at  a  regular  meeting  would  be  competent  to  decide  on  all 
business,  is  not  a  declaration  that  a  minority  of  the  directors, 
however  small,  may  act  as  a  board.«     There  is  no  power  in  the 
directors  ot  a  corporation  to  bind  it  by  an  agreement  for  extra 


» Campbell  t.   Pope,  (1888)  96  Mo. 
468;  8.  c,  10  S.  W.  Rep.  187. 

» Cram  t.  Bangor  House  Proprietary, 
(1835)  13  Me  354  In  Trott  v.  Warren, 
(1834)  11  Me.  227  it  was  held  tliat  a 
contract,  made  by  a  minority  of  a 
committee  of  a  corporation,  and  not 
assented  to  by  a  majority,  nor  by  the 
corporation,  was  not  valid. 

•  Despatch  line  of  Packets  t>.  Bel- 
hmy  Manufacturing  Co.,  12  N.  H. 


*  Nashua  &  Lowell  Railroad  Co.  «. 
Boston  &  LoweU  R.  R.  Co.,  27  Fed. 

Rep.  821. 

» Union  Insurance  Co.  «j.  Keyser,  32 
N.  H.  313;  Campbell  v.  Merchants 
&  Farmers'  Insurance  Co.,  37  N.  H. 

35. 
•Bank  of  Maryland  v.  Ruflf,  7  G.  & 

J.  (Md.)  448. 

'  Price  «.  G.  R.  &  I.  R.  Co.,  (186«^ 
13  Ind.  58. 

•Ex  parte  Willcocks,  7  Cow.  402. 


g  123] 


PRIVATE  CORPORATIONS. 


159 


compensation,  not  made  at  a  meeting  of  the  board.*  Directors 
of  a  bank,  in  case  a  deficit  in  the  funds  appears  by  the  accounts 
of  its  cashier,  have  authority  to  make  a  settlement  with  such 
officer.^  A  corporation  having  power  by  its  charter  "  to  make 
contracts  in  writing,  and  signed  by  the  president  and  secretary, 
or  by  such  other  officer  or  officers  as  the  directors  may  appoint 
for  that  purpose,"  the  directors  may  authorize  the  president 
alone  to  sign  for  the  company.  Proof  of  the  formal  vote  of  the 
directors  giving  him  such  authority  is  not  necessary.^  After 
seven  years'  acquiescence  by  a  corporation  in  the  lease  of  its 
property  by  its  directors,  something  more  must  be  shown  than 
that  it  was  executed  in  excess  of  the  powers  of  the  directors 
before  the  lessee  will  be  required  to  surrender  the  profits  he  may 
have  made  upon  it.* 

§  123.  Directors  for  the  first  year.  —  The  New  York  Court 
of  Appeals  has  considered  the  objections  to  the  validity  of  a 
mortgage  executed  by  a  manufacturing  corporation  formed  under 
the  statute  of  1848  relating  to  such  corporations,  that  the  persons 
acting  as  a  board  of  directors  for  the  mortgagee  were  not,  at  the 
time  of  passing  the  resolution  authorizing  the  mortgage,  stock- 
holders of  the  company,  and  were,  therefore,  not  qualified  under 
the  statute  to  act  as  such  directors.  The  court  held  the  objec- 
tion not  tenable,  and  Rcoer,  Ch.  J.,  for  the  court,  arguendo,  said  : 
"  The  provisions  of  the  statute  (§  3,  chap.  37,  Laws  of  1848) 
requiring  the  stock,  property  and  concerns  of  sucli  company  to 
be  managed  by  directors  who  shall  respectively  be  stockholders  of 
the  company,  and  who  shall,  except  the  first  year,  be  annually 

'  Stoystown    &  Greensburg   Turn-   its  by-laws  to  the  directors  to  manage 
pike  Road  Co.   r.  Craver.  45  Pa.  St.    all  its  prudential  concerns. 
386.  *  Pneumatic  Gas  Co.  v.  Berry,  (1884) 

« Frankfort  Bank  v.  Johnson,  (1844)  113  U.  S.  322;  s.  c,  5  Sup.  Ct.  Rep.  525. 
24  Me.  490.  The  court  said:  "A  court  of  equity 

'Topping  ».  Bickford,  (1862)  4  does  not  listen  with  much  satisfaction 
Allen,  120.  In  Sampson  v.  Bowdoin-  to  the  complaints  of  a  company  that 
ham  Steam  Mill  Corporation,  36  Me.  transactions  were  illegal  which  had  its 
78,  it  was  held  that  an  action  could  be  approval  which  were  essential  to  its 
maintained  against  the  corporation  protection,  and  the  benefits  of  which 
upon  a  document  signed  by  its  direct-  it  has  fully  received.  Complaints  that 
ors  in  that  capacity  certifying  that  the  its  own  directors  exceeded  their 
holder  of  it  had  previously  advanced  authority  come  with  ill  grace  when 
a  specified  sum  of  money  for  the  cor-  the  acts  complained  of  alone  procured 
poration,  under  the  authority  given  in  its  existence." 


160 


POWER  OF  AGENTS  AND  OFFICERS. 


[§124 


§125] 


PRIVATE  CORPORATIONS. 


161 


elected  by  the  stockholders,  do  not  apply  to  the  original  organi- 
zation of  a  company  formed  under  said  act.  The  language  of 
section  1  of  the  act,  by  express  terms,  makes  the  persons  named 
in  the  certificate  of  incorporation  as  such,  directors  of  the  com- 
pany for  the  first  year  of  its  existence,  and  confers  upon  such 
persons  full  power  to  act  as  directors  in  tlie  perfonnance  of  any 
corporate  duty  after  the  filing  ot  such  certificate.  The  corporate 
authority  of  such  an  organization  must,  from  necessity,  be  coin- 
cident with  the  inception  of  its  corporate  existence,  and  antedate 
the  acquisition  by  it  of  property,  or  the  issue  of  stock  certificates 
representing  such  property.  It  is  conceded  that  the  persons 
passing  the  resolution  were  those  named  as  directors  in  the  origi- 
nal certificate  of  incorporation,  and  the  purchase  of  the  property 
in  question  was  one  of  the  first  official  acts  of  the  corporation  ; 
that  the  property  thus  purchased  of  the  plaintiff  furnished  the 
basis  of  capital  upon  which  their  corporate  stock  was  distributed, 
and  that  certificates  for  its  entire  amount  in  payment  of  such 
purpose  were  issued  and  delivered  to  the  plaintiff  simultaneously 
with  the  conveyance  of  the  property  to  the  corporation  by  him 
and  the  delivery  to  him  of  the  mortgage.  It  is  quite  obvious 
that  the  statute  cannot  be  made  effective  under  any  other  inter- 
pretation, and  it  is  a  primary  rule  of  construction  to  give  some 
effect  to  the  expressions  of  the  legislative  will,  if  consistent  with  * 
a  reasonable  interpretation  of  its  language.  If  its  provisions  be 
80  construed  as  to  require  the  existence  of  stockholders  before 
there  is  a  legal  organization,  it  must  necessarily  defeat  the  cre- 
ation of  any  corporation  under  it,  as  it  is  quite  manifest  that 
stock  cannot  be  owned  in  a  corporation  which  has  itself  no  legal 
existence.  The  terms  of  the  act  providing  for  the  appointment 
of  directors  for  tlie  first  year  do  not  require  such  an  interpretar 
tion,  and  it  is  contrary  to  reason  and  settled  rules  of  construction 
to  ascribe  to  a  statute  such  a  meaning  as  will  nullify  its  operation 
if  it  is  capable  ol  any  other  interpretation."  * 

§  124.  Directors  de  facto. — One  who  had  been  adjudged 
entitled  to  a  premium  on  cattle  exhibited  at  the  fair  of  an  agri- 
cultural society  in  Pennsylvania  brought  his  action  for  its  recovery. 
It  appeared  that  certain  directors  of  the  corporation  who  had,  in 
proceedings  quo  warranto^  been  adjudged  not  to  be  the  legal 

« Davidson  v.  Westchester  Gaa  Light  Co..  (1885)  99  N.  Y.  668,  566,  66«. 


officers,  had  offered  these  premiums,  and  the  corporation  defended 
on  the  ground  that  the  acts  of  this  board  were  not  binding  upon 
them,  they  not  being  directors  dejure.  The  findings  of  the  trial 
judge  were  that  this  board  of  directors  "  held  the  possession  of 
the  books  of  the  corporation  and  the  custody  and  control  of  its 
property,  both  personal  and  real.  It  was  under  their  direction 
and  management  that  the  fair  was  held,  and  all  purchases  made 
for  the  purpose  of  holding  the  fair.  They  had  custody  also  of 
all  moneys  paid  as  entrance  fees,  as  well  as  all  moneys  received 
for  admission.  The  premiums,  for  the  recovery  of  which  these 
suits  were  brought,  were  premiums  offered  by  this  board  of 
directors."  The  judge  held  that  the  acts  of  the  de  facto  directors 
were  binding  upon  the  corporation,  which  was  affirmed  by  the 
Supreme  Court.* 

§  125.  Illustrations  of  the  power  of  directors. —  It  is  within 
the  power  of  a  board  of  directors  of  a  manufacturing  corpora- 
tion, clothed  with  authority  to  manage  its  concerns,  to  authorize 
the  agent  of  the  corporation  to  raise  money  for  his  own  use  by 


m 


'  Zearfoss  v.  Farmers  &  Mechanics' 
Institute  of  Northampton  County, 
(1803)  154  Pa.  St.  449;  b.  c,  26  Atl. 
Rep  211.  In  the  opinion  per  curiam 
it  was  said:  "Contracts  entered  into 
by  a  corporation  lU  facto  are  binding 
after  having  been  executed  by  either 
party.  2  Morawetz  on  Corp.  §§  750, 
752.  The  act  of  an  officer  de  facto  is 
good  whenever  it  concerns  a  third  per- 
son who  had  a  previous  right  or  had 
paid  a  valuable  consideration  for  it. 
Angell  &  Ames  on  Corp.  (11th  ed.) 
§§  287,  286,  299.  An  officer  de  facto 
is  one  whose  acts,  though  not  those  of 
a  lawful  officer,  the  law,  upon  prin- 
ciples of  policy  and  justice,  will  hold 
valid,  so  far  as  thev  involve  the  inter- 
ests  of  the  public  and  third  persons. 
State  f).  Carroll,  38  Conn.  449.  Our 
own  cases  are  to  the  same  effect. 
Riddle  v.  County  of  Bedford.  7  S. 
&  R.  886,  392;  McGargell  v.  Hazle- 
ton  Coal  Co.,  4  W.  &  S.  424-425. 
In  the  latter  it  was  held  that  *a 
corporation  may  act  by  means  of  an 

21 


officer  de  facto  as  fully  and  effectually 
as  regards  the  public  and  third  per- 
sons as  by  an  officer  de  jure,'  in  all 
matters  within  the  scope  of  the  corpo- 
ration's ordinary  business."  To  the 
contention  that  there  is  a  distinction 
between  de  facto  officers  of  public  cor- 
porations and  de  facto  officers  of  private 
corporations  it  was  said:  "  While  such 
a  distinction  appears  to  be  recognized 
in  some  of  the  cases  cited  and  relied 
on  by  [counsel],  we  are  not  convinced 
that  it  is  sound.  The  weight  of  au- 
thority, in  this  country  especially,  is 
decidedly  against  it.  In  the  case  of 
public  corporations,  the  reasons  for 
holding  the  acts  of  de  facto  officers 
binding  on  the  corporations  they  rep- 
resent are  doubtless  stronger  than  in 
the  case  of  private  corporations;  but, 
to  some  extent  at  least,  they  are  the 
same  in  both,  differing  only  in  degree." 
As  to  a  corporation  being  bound  by  the 
acts  of  its  officers  de  facto,  see  Cahill  v. 
Kal.  Mut.  Ins.  Co.,  2  Douglass,  (Mich.) 
124. 


V 

I       1 


m 


162 


POWER  OF  AGENTS  AND  OFFICERS. 


[§125 


lit' 


giving  therefor  a  "  company  note,"  where  this  is  intended  as  an 
advance  or  payment  of  the  agent's  wages.^     Where  full  power  to 
conduct  the  affairs  of  a  corporation  are  by  its  charter  vested  in 
its  president  and  directors,  they  have  the  right  to  authorize  the 
president  to  indorse  its  notes.^    Tlie  power  to  modify  the  terms 
of  a  guaranty  of  one  corporation  to  another  of  a  certain  annual  divi- 
dend on  its  capital  stock,  under  an  agreement  between  the  two 
corporations,  is  in  the  directors  and  not  in  the  stockholders  of 
the  corporation,  and  a  court  will  not  interfere  in  case  the  board 
exercise  the  power  fairly  and  in  good  faith.^     The  custody  of  the 
assets  of  a  corporation  may  properly  be  placed  with  a  managing 
director,  and  if  he  is  allowed  by  the  corporation  to  hold  himself 
out  to  the  public  as  competent  to  dispose  of  its  assets,  the  public 
are  entitled  to  presume  that  he  has  authority  to  dispose  of  them.* 
There  being  power  in  corporate  authorities,  and  generally  the 
directors,  to  compromise  corporate  debts,  they  can  release  a  part 
of  a  subscriber's  liability  in  case  there  is  doubt  about  it,  for  the 
purpose  of  securing  the  rest ;  and   a  compromise  of  that  kind 
will  bind  the  stockholders  of  any  new  corporation  to  which  the 
property  and  rights  of  the  existing  corporation  may  be  trans- 
ferred, notwithstanding  the  fact  that  it  cannot  extinguish  rights 
that  have  already  been  acquired  by  creditors.^     In  case  there  is 
no  restraint  by  law  or  contract  upon  the  power  of  tlie  directors 
of  a  corporation,  they  may  make  any  disposition  of  the  profits  of 
its  business  deemed  by  themselves  to  be  judicious.*     A  completed 
contract  between  a  corporation  and  an  individual  for  the  sale  of 
stock  by  the  individual  to  the  corporation  could  not  be  proven  by 
statements  of  individual  directors  out  of  a  session  of  the  board, 
and  not  accompanying  any  official  act,  and  statements  made  by 
them  in  debate  while  in  session.'^     The  by-laws  of  a  business  cor- 
poration giving  the  directors  authority  to  appoint  a  treasurer,  they 
may  do  so  without  any  formal  meeting ;  and,  there  being  no  pro- 
hibition in  the  charter  or  by-laws,  may  agree  with  the  treasure  i- 
as  to  his  compensation.*     All  business  of  a  corporation  relating  to 


126] 


PRIVATE  CORPORATIONS. 


163 


» Tripp  V.  Swanzey  Paper  Co.,  (1832) 
13  Pick.  291. 

*  Merrick  v.  Trustees  of  the  Bank  of 
Metropolis,  8  Gill.  (Md.)  64. 

•Flagg  V.  Manhattan  Ry.   Co.,  10 

Fed.  Rep.  413. 
« Walker  r.  Detroit  Transit  R.  Co., 


47  Mich.  338;  s.  c,  11 N.  W.  Rep.  187.   Waite  v.  Mining  Co.,  36  Vt.  18. 


»Whitaker  v.  Grumraond,  68  Mich. 
249;  8.  c,  36N.  W.  Rep.  62. 

« Park  r.  Grant  Locomotive  Works. 
13  Stew.  (N.  J.  Eq.)  114. 

'  Peek  V.  Detroit  Novelty  Works,  29 
Mich.  313. 

"Waite  V.  Mining  Co.,  37Vt.  608; 

Asto 


the  legitimate  objects  of  its  creation  may  be  transacted  by  the 
directors  without  the  sanction  of  the  stockholders.  Where  it  has 
under  its  charter  the  power  to  borrow  money  and  secure  the  same 
by  deed  or  lien  on  its  real  or  personal  property,  or  both,  or  bor- 
rowing money  for  the  purpose  of  forwarding  the  objects  of  the 
corporation  is  among  the  ordinary  duties  of  the  board  of  direct- 
ors, it  follows  that  the  board  may  secure  the  loan  by  deed  or 
other  lien.  This  is  a  part  of  the  business  transactions  of  a  corpo- 
ration which  has  always  been  regarded  as  within  the  province  of 
the  directors  to  perform.*  The  stockholders  of  a  corporation 
would  be  estopped  to  deny  the  authority  of  its  directors  to  bor- 
row money  and  make  a  mortgage  of  the  corporation's  property  to 
secure  the  loan,  even  if  thev  were  not  authorized  to  do  so,  if 
they  ratify  the  action  of  the  directors  in  effecting  the  loan  and 
mortgaging  the  property  by  approving  the  minutes  of  their  pro- 
ceedings before  the  loan  is  effected,  and  afterward  receive  the 
benefit  of  the  loan  and  pay  interest  on  it.*  A  railroad  corpora- 
tion may  be  bound  by  its  directors  under  the  powers  usually  con- 
ferred upon  them  to  pay  interest  on  stock  subscribed  until  the 
completion  of  a  portion  of  its  road.^ 

§  126.  More  illustrations  on  the  same  subject. —  The 
Supreme  Court  of  Colorado  has  held  that  a  proposition  by  the 
officers  of  a  private  corporation  to  pay  a  party  $5,000  in  the 
stock  of  the  company  for  his  services,  if  he  would  procure  a  loan 
of  $15,000  for  the  use  of  such  corporation,  or  a  proportionate 
amount  of  stock  for  a  smaller  loan,  duly  accepted  and  acted  on, 
warranted  the  finding  in  this  case  of  an  agreement  to  pay  such 
party,  in  the  capital  stock  of  the  corporation,  thirty-three  and 
one-third  per  cent  of  any  sum  he  could  procure  to  be  loaned  it ; 
also,  that  the  officers  acted  in  behalf  of  the  corporation,  although 
the  president  testified  that  the  stock  was  to  be  furnished  by  the 
officers  individually.*    Directors  authorized  to  receive  subscrip- 


contracts  made  by  directors,  see  Fisher 
T.  Gas  Company,  1  Pears.  (Pa.)  118; 
Martin  v.  Railway  Co.,  37  Leg.  Int.  132. 

'  Wood  V.  Whelen,  (1879)  93  111.  153. 

'Aurora  Agr.  &  Hort.  Society  of 
Aurora  v.  Paddock,  (1875)  80  111.  263. 

'  Milwaukee  &  Northern  Illinois  R. 
R.  Co.  V.  Field,  12  Wis.  340. 


*  Arapahoe  Cattle  &  Land  Co.  v. 
Stevens,  (1889)  13  Colo.  534;  s.  c,  22 
Pac.  Rep.  823.  The  court,  in  the 
opinion,  discussed  the  question 
whether  the  contract  was  within  the 
scope  and  authority  of  the  officers 
making  it  and  binding  upon  the  cor- 
poration as   follows:    "As   we   have 


t   J 


^  <\ 


a 


;a\ 


r, 

I' 

I 


164 


POWER  OF  AGENTS  AND  OFFICERS. 


[§126 


tions  for  stock,  payable  "  in  such  manner  as  the  board  of  direct- 
ors should  direct,"   may  receive  payment   in   promissory  not«8. 
Under  the  authority  of  the  president  and  directors  of  a  corpora- 
tion to  manage  the  affairs  of  the  corporation  they  may  make  an 
already   seen,   the    corponition   was  labor  and  matorinis  useful  in  carrying 
organized  for  the  purpo=«  of  buying   ou  the  corpomte  ''»'"''««,^    .1°  3' 
and  selling  lands,  horses.  aUtle.  ete..    sueh  payment  may  usually  he  made 
also  all  other  business  ineidental  to   in  n.oney  or  its  ''<1>"''* .«°'' ""f '  '/ J° 
stock    raising.      [The    president    and    the   latter,  the  transae  .on  cannot  be 
^ctaryl  «ere  genend  officers  of  the   impeached  for  error  of  judgment  on 
rC^   and  must  be  presumed  to  the  part  of  the  officers  of  the  company 
ZTZ   powers   usuany  conferred   as   to  the  value  "^   ^-^^  --^  - 
upon   sueh   officers.    In   addition  to   property.    Good  fa.th  and  the  excr 
tL    they  were  duly  empowered  to  else  of  an  hon.«t  judgment  meet  the 
T-h^  the    GebJrdt    stock,    etc.,    requirements  of  the  law.   Moraw  Pnv. 
[frwhieh  purpose  the  money  l«.ned   Corp.  g§  436, 42«;  Schenck  .Andrews, 
w^  to  be  used],  and  this  authority   57N.Y.  133;  Douglass..  Ireland. 73  N. 
IZXe  held  to  be  as  broad  as  the   Y.  100,  Iron  Co.  ..  »-->•  »« /.  Y. 
Tntusaction.    The  power  to  purchase   87;  Lorillard  -  "y/"".  ««  N-  ^^f^^ 
neeessarilv  carried  with  it  the  power   The  [eases    just  cited]  were    a  1  de 
toXate  triompany  to  pay  not-   cided   under  the  provisions  of  the  act 
^ittlUg  the  facftllt  a  by-law  of  of  1853of  thestate  of  f  wj^^;;^-^^ 
the  company  forbade  the  contracting  act  -- "-^'^■''"^f "  "'™ 
of  any  debt  for  the  company  except   of  a  previous  l;iw  ot  the  i'""*  "-"l"'' 
by  oMer  of  the  board  of  directors,    ing  that  nothing  but  money  should  be 
pLnUfl  was  not  a  member    of    the   received  as  payment  for  the  stock  o 
company    and  his  rights  cannot  be  incorpomted     companies.      By     the 
Xted  by  a  by-law  restricring  the   amendment  the  trustees  of  such  com- 
g^re»l  powers  of  the  officers  of  the   panics  were  au.hori.ed  to   purcln^e 
™ny    of  the  existence  of  which  any  property  necessarj-  for  the  cor- 
^  CL  is  not  shown  to  have  had   pornte    business,    and    in     paymen 
IL    Mo4w.Priv.Corp.  §500;  Ang.    therefor  ^'^^'^ T^J^J^^^ 
*  A   Corr.  370  note  a-  FUntr.  Pierce,    and  value  thereof.      Under  this  act  it 
M^IasI^' 0   C^l  Bank  of  India's   may  now  be  considered  as  the  settled 
^  rTd  bhT252;  Maher  ..  City   doctrine  in  that  state  that  the  trustees. 
^hicago,38in.266."    Thequestion   in    taking    P^P-^^f-    --'    ""^.J^"' 
of  the  wment  for  services  of  the   their  discretion,  and  that  their  judg 
agent  negotiating  the  loan  in  stock  of  ment  as  to  the  value  of  the  pro^rty. 
the  company  also  received  the  atten-   and  the  necessity  for  it  wdl  not  be  in- 
tton  ofTcoL  in  this  case.    They   terfered  with,  in  the  absence  of  fraud, 
n  upon  that  question;  "It  is  not   Th,«  it  is  said  in  Schenek  ..  Andrews, 
"itX  that  Zres  in  a  corporation  m-" :    '  They  were  the  agents  in  be- 
rS^Tor  m  cash.     It  has  been  held   half  of  the  company,  for  that  purpo^ 
^Hhe  ^naging  officers  for  a  cor-   and  the  discharge  of  the^  duty  called 
^4t  on  Tay,  in  their  discretion,  issue   for  the  exercise  of  the  r  discretion  and 
^Ti^Lup  shares   for   real   estate,   judgment  (having  reference  and  due 

>  Magee  v.  Badger,  34  N.  Y.  247. 


^ 


§127] 


PRIVATE  CORPORATIONS. 


165 


order  requiring  payment  of  an  installment  on  tho  stock.^  A  cor- 
poration cannot  be  held  to  have  contracted  unless  by  such  agents 
or  officers  as  have  express  or  implied  authority.  Individual 
directors  have  no  power  whatever  to  bind  a  corporation.'  A 
board  of  directors,  when  no  express  restraint  appears  to  have 
been  imposed  upon  it,  may,  in  a  case  where  a  contract  has  been 
made  between  two  corporations  and  circumstances  indicate  an 
inability  on  the  part  of  one  party  to  the  contract  to  fulfill  the 
terms  of  the  agreement,  compromise  or  adjust  the  matter  between 
the  two  corporations  on  a  basis  dispensing  with  full  and  complete 
performance.^ 

§  127.  Illustrations  of  a  lack  of  power  in  directors.— 
Directors  of  a  corporation  cannot  delegate  their  authority  or  any 
portion  of  it  requiring  the  exercise  of  judgment  and  discretion, 
unless,  as  conferred  upon  them,  the  authority  includes  the  power 
of  substitution  in  express  terms,  or  by  necessary  implication.* 
Directors  of  a  corporation  have  no  authority  to  sell  the  stock  of 
the  corporation  at  a  less  sum  than  the  price  fixed  in  the  charter.^ 

rcn-ard  to  the  interests  of  those  repre-    appropriate    his    property,    and    he, 
'  sented  bv  Hiem)  in  determining  what   nevertheless,  be  held  liable  to  a  con- 
should  be  bought,  and  the  price  to  be   tribution  in  favor  of  creditors,  to  the 
paid  therefor.     It  cannot  be  properly   extent  of  the  stock  issued  for  such 
claimed  in   giving   a  construction  to    property,    if    a    jury    should    subse- 
the  power  conferred  on  them  by  the    quently,  and  at  an  indefinite  and  un- 
amendatory    act.    that    the    property    limited  period  thereafter,  find  that  the 
purchased,   and    every   part  thereof,    trustees  had,  under  a  mistake,  but  m 
should  be  indispensable  for  the  prose-   an  honest  exercise  of  their  judgment, 
cutionof  the  business  of  the  company,    soncluded  erroneously  either  that  the 
or   that    the    sum    allowed    therefor   property  was  in  fact,  as  disclosed  by 
should  be  its  precise,  actual,  intrinsic   subsequent  events,  not  absolutely  in- 
value  (and  that  to  be  determined  by  a   dispensable,    or  actually    worth    the 
jury)  for  the  exemption  of  a  stock-    full  sum  allowed  for  it.' " 
holder  from  the  liability   which    the       »  Union  Turnpike  Co.  v.  Jenkins,  1 
orio-inal  act  imposed,  incase  the  whole    Caines.  381. 

capital  was  not  actually  paid  in  cash.  ^  Lockwood  v.  Thunder  Bay  River 
Such  a  construction  would  defeat  the  Boom  Co.,  (1880)  43  Mich.  536,  539; 
evident  object  of  the  law.  which  adhered  to  in  Hartford  Iron  Minmg 
clearly  was  to  encourage  the  forma-  Co.  v,  Cambria  Mining  Co.,  (1890)  80 
tion  of  companies  by  the  appropriation   Mch.  491. 

of  manufactories,    mines    and    other       « People  ex  rel.  Content  v.  Metropol- 
nroDortv    proper  for  their  business,    itan  Elevated  By.  Co.,  36  Hun,  83. 
nnd   at  a  fair    valuation,   instead   of       ^Gillis  v.  Bailey.  31  N.  H.  150^ 
money  as  a  capital  therefor.     No  per-       ^  Oliphant  ..  Woodburn  Coal  &  Mm- 
son  could  be  expected  tc  become  a  ing  Co..  (1884)  63  Iowa,  333;  s.  c.  19 
stockholder  and    pay   his   money  or   N,  W.  Rep.  313.    On  this  point,  see 


..'; 

t 


HGQ 


POWEK  OF  AGENTS  AND  OFFICERS. 


/ 


[§12T 

Keitlier  can  tliey  accept  property  for  a  «tock  subscrtptiou  at  a 
price  largely  in   excess  of  its  value.^     And   a  subscriber  who 
received  the  shares  for  such  property  originally,  or  a  transferee 
of  such  shares  with  notice,  at  the  suit  of  any  one  injured  thereby, 
may  be»  compelled  to  make  up  the  difference  in  value.'    Directors 
of  a  corporation  alone  cannot  increase  the  capital  stock  of  a  cor- 
poration unless  'expressly  authorized.     The  general  power  to  per- 
form  all  corporate  acts  which  they  may  have  refers  to  the  ordi- 
nary business  transactions  of  the  corporation,  and  does  not  extend 
to  a  reconstruction  of  the  body  itself,  or  to  an  enlargement  of  its 
capital  stock.3     The  subscriber  to  the  stock  ot  a  railroad  corpora- 
tion cannot  be  released  from  his  liiUjility  for  his  subscription  by 
its  directors.*     It  is  not  within  the  power  -of  officers  of  a  corpo- 
ration to  ratify  an  unauthorized  act  of  their  own.'    'No  express 
promise  of  an  individual  director  of  a  corporation,  unless  aut'hor- 
ized,  will  bind  the  corporation.'     A  parol  contract  made  by  the 
directors  of  a  bank  is  not  binding  on  the  corporation."^    The  stock 
of  a  member  cannot  be  relieved  by  the  president  and  directors  of 
a  corporation  from  forfeiture  of  its  dividends  by  their  advancing 
the  money  of  the  corporation  to  satisfy  the  conditions  on  which 
a  forfeiture  of  dividends  depends,  as  it  is  not  in  their  power  to 
do  so.«      The  act  of  a  president  of  a  corporation,   which  the 
directors  themselves  have  no  authority  to  perform,  cannot  be 
ratified  by  the  directors.^      Where  a  charter,  while  giving  the 
directors  of  a  corporation  the  power  to  manage  its  stock,  prop- 
erty and  affairs,  provides  that  the  corporation  should  have  the 
power  to  assess  the  stockholders  in  order  to  pay  the  corporation 
debts,  its  directors  cannot  exercise  the  power  of  assessment  with- 
out authority  from  the  corporation.'^     There  is  no  power  in  a 


'Railway  Co.  p.  Allerton,  (1873)  18 
Wall.  233. 
*  Bedford  Railroad  Co.  v.  Bowser,  48 


Sturges  V.  Stetson,  1  Biss.  246;  Fos- 
dick  V.  Sturges.  1  Biss.  255;  Mann  r. 
Cooke.  20  Conn.  188;  Fisk  v.  C.  R.  I. 
&  P.  R.  Co.,  53 Barb.  472.  513;  O'Brien  Pa.  St.  29. 
t>.  C,  K.  I.  &  P.  R.  Co.,  53  Barb.  568;  'Hotchin  v.  Kent,  8  Mich.  526. 
Neuse  River  Navigation  Co.  v.  Com- 
missioners, 7  Jones  Law  (N.  C).  275. 
'  Osgood  T.  King,  42  Iowa,  478 


•Workhouse  v.  Moore,  95  Pa.  St. 

408. 

'  Hughes  V.  Bank  of  Somerset,  (1824) 


Mackson  v.  Traer,  (1884)  64  Iowa,  5  Litt.  (Ky.)  45. 

46»;  s.  c,  20  N.  W.  Rep.  764.     See  •3Iarine  Bank  v.  Biays,  4  H.  &  J. 

Bailey  v.   Pittsburg  &    Conuellsville  (Md.)  338. 

Gas,  Coal  &  Coke  Co.,  69  Pa.  St.  384;  »Crum's  Appeal,  66  Pa.  St.  474. 

Boynton  r.  Hatch.  47  N.  Y.  225;  Tall-  '» Marlborough  Manufactiuing  Co.  v, 

madge  c.  Fishkill  Iron  Co.,  4  Barb.  882.  Smith,  2  Conn.  584. 


M28] 


PRIVATE  CORPORATIONS. 


1G7 


simple  director  or  Yice-president  of  a  railroad  company,  by  virtue 
of  his  office,  to  appoint  agents  to  sell  the  lands  or  the  timber  on 
them.*  Without  special  authority,  a  director,  as  such,  cannot 
make  notes  binding  the  corporation.*  Tlie  directors  of  a  rail 
way  corporation  cannot  give  away  its  stock.^  A  committee  of 
its  directors,  authorized  t)y  a  railroad  corporation  to  enter  into  a 
(contract  for  the  construction  of  its  road,  after  the  contract  is  exe- 
cuted, would  have  no  power  to  modify  the  contract  as  originally 
made.*  Directors,  thougli  they  may  compromise  an  existing 
claim,  have  no  implied  power  to  make  new  agreements  radically 
modifying  previous  agreements  which  they  did  not  make  and 
had  no  power  to  make.^  The  directors  of  a  corporation  have  no 
power  to  make  a  donation  from,  or  misappropriate  the  funds  of 
the  corporation  in  violation  of  the  laws  and  rules  regulating  its 
mode  of  action.^ 


II 


§  128.  When  notes  will  be  held  to  have  been  authorized 
by  a  board  of  directors. —  In  a  case  in  the  federal  court  for  the 
district  of  Kansas  it  was  urged  that  certain  notes  issued  by  a  rail- 
road company  were  in  violation  of  a  l>y-law  of  the  company, 
which  jDrohibited  the  giving  of  notes,  bonds,  bills,  acceptances, 
etc.,  by  the  company  unless  ordered  by  the  board  of  directors, 
t  Foster,  J.,  said  upon  this  that  "  [one]  note  was  made  by  positive 
order  of  the  board  of  directors,  and  by  the  president  and  secre- 
tary, as  therein  directed.  Some  by-law  of  the  company  required 
notes  to  be  made  to  the  order  of  the  president  and  secretary. 
This  is  a  mere  matter  of  form,  and  not  material.  The  other  notes 
were  made  [before  the  adoption  of  the  by-law],  and  besides,  the 
board  of  directors  at  their  meeting  [held  nine  months  before  their 
execution],  directed  that  orders  be  drawn  on  the  company  for 
[their  amount].  Orders  are  not  notes,  but  that  order  of  the  board 
would,  doubtless,  have  been  good  for  acceptances,  which  stand  on 
the  same  footing  as  notes  under  the  by-laws."' 

*  Chicago  &  Northwestern  R.  Co.  v.       *  Metropolitan  Elevated  Ky.  Co.  ». 
James,  22  Wis.  194.  Manhattan  Ky.  Co.,  (Spl.  Term  Sup. 

'Lawrence   r.    Gebhard,    41    Barb.  Ct.  1884)14  Abb.  N.  C.  103;  s.  c.  11 

575.  Daly,  373. 

'Thornton    r.  St.  Paul,  etc.,  R.  R.  « Frankfort  Bank  v.  Johnson,  (1844) 

C-'o.,  6  N.  Y.  Wkly.  Dig.  309.  24  Me.  490. 

*  Western    R.  R.  Co.  r.  Bayne,  11  "' Stewart  r.  St.  Louis,  Ft.  S.  &  W.  R. 
Ilun,  166.  Co.,  (1887)  41  Fed.  Rep.  736.    In  Wile 


168  poWEK  OF  AGENTS  AND  OFFICERS.  [§§  129,  I30 

§  129.  Waiver  by  directors  of  their  power  to  reoudiate  a 

he  by-laws  of  a  corporafon  to  its  board  of  doctors,  provided 

^ome  length  of  t.uie  la.l  to  repudiato  a  contract  made  bv  tbo 
s  M^nnte,  ent  and  treasurer  of  the  corporation,  their  faiuL  o 
to  act  will  be  presumed  to  operate  as  a  waiver  of  their  power/ 

§130.  Power  of  trustees  of  a  corporation.- The  trustees 

™rr;r  '^^  rT' '"  ^-"^^ ""« --^-'^  ^- «- 

imymcnt  of  money,  under  tlic  corporate  seal,  in  furtherance  of 

&  Brickner  Co.  c.  Rochester  &  K.  F.    States  raid  •  ••  The  r„i„    ,  1 

Uud  Co..  (1893)  4  Misc.  Kep.  570;  s.    the    ;uM  ct'   „I,Lv    i  "'~" 

'■..  25  K  Y.  8upp.  794,  where  «;tes   mifioat^on  of  the  a!,,   '?'"""'  "' 
wprp  friv«n  Krr  ♦!,  .  »«iim.auon  01  the  acts  of  an  acrent  rf- 

were  given  bj  the  corporation  to  two   quired  thnt  if  fh«^  i    a  .u    ^  ,    '^ 

»vm„    Deen  adopted  at  a  directors'   be  presumed.      In   retard  In  thic    -.1 
meeting  when  the  vendors  were  prts-  .ippe-irs  thnt  thn  h J  i       , 
ent  and  were  „e<.,..,„ry  to  constitute  a   of'wiL   la^\^en  ^n    h  \u"  '"'"'"' 
quorum,  but  they  did  not  voto  on  the   cli,l  not  d.^,fl^n"t'     ^^^"'^  "Sent., 
resolution,  it  was  hel.l  that  though  the     ime  but  «ef,  T  "     ""  "'  ""' 

transaction  was  voidable  as  b<^w  v„   d™  fflrntn  "     "7^'*°"'«"-  "^ 

the  corporation  and  its  direct,  r^^   t-^^ZZZ.T    T^^  """"'  '"" 

by  the  board  o/director  The    o  it   shL T  t,h°"       ""^  k'^^"    ^'  ""'^ 
ilistinguished    Peooh's    R-nk-    ,.    v  ,   °    ""'    ^^newhat    analogous 

Anthonys  Ronnn  C-.tholt    <V      ,      T'""  °^  ^"^  '^''•'''-'''<--''  »"  ^o.  ..  kr- 

-108.  in  tl^t  i ,  tb...  c  J    it  :.L     ''.  ■    P°""  "f  "'^'  '"'^''^''y  "f  ""• 

siguc.  the  note  acJucp^X  In<     Z' ^  i^  ITb"  "^  '"''","""'  "^ 
notatameeliu:;„fil„.bo.rd   md  .)>.,f     T   ?u  •      "  ""^^onabLy  clone- 

there  w„s  „o  ,;>r„.,„     .,,:,,  after  the  panv.  with  whom  that  right 

of  their  authority !:;:;;;:,; ' " "  ""'^  ^  :p'r"'  r  "•"'"  """••  ^^^^  "••^'■^ 

'  Indianapolis    Rolling    Jlill   Co    ,■     f  »    ^V!'"'  "^''"^  '"'"  ""■'•■"ous. 
^>t.  Loui."!,  PS    *H-  H   ,■,.    .Msr   1     ,  .,  '"'"'''  'rarcnant  arc  iis 

Rep.  140.'      Amfmo^-     •   :di^.!l     f  T  "  "^f^^;  i'i  ^'"'S"-  '  ^«" 


§131] 


PfilVATE  COKPO  RATIONS. 


169 


the  business  of  the  corporation^  A  corporation  may  be  bound 
by  the  conti-act  of  a  Doard  of  trustees  holding  their  office  under  a 
judicial  decision  declaring  their  title  to  the  office.  And  the  cor- 
poration will  not  be  relieved  from  its  liability  by  a  subsequent 
reversal  of  this  decision  on  appeal.^  Under  the  law  of  California 
empowering  the  trustees  of  a  corporation  formed  under  the 
general  laws  of  that  state,  to  levy  and  collect,  for  the  purpose  of 
paying  expenses  incurred  in  the  management  of  the  corporation's 
business,  assessments  upon  the  capital  stock  of  the  corporation 
not  to  exceed  live  per  cent  of  such  capital  stock,  provided  no 
previous  assessment  then  remained  unpaid  or  uncollected,'^  such 
trustees,  where  the  expenses  incurred  in  the  management  have 
largely  exceeded  ten  thousand  dollars,  may  levy  and  collect  such 
assessments  upon  the  stock  as  will  pay  those  expenses,  notwith- 
standing a  by-law  of  the  corporation  limiting  the  amount  of  the 
indebtedness  they  may  incur  to  ten  thousand  dollars.*  It  is  not 
beyond  the  power  of  the  trustees  of  a  secret  society  vested  with 
general  power  to  manage  its  property,  to  lease  the  lodge  room  to 
another  society  for  use  one  night  in  each  week.^ 

§  131.  Power  of  officers  of  a  corporation  to  employ  attor- 
neys.—Attorneys  and  counsellors  may  be  employed  by  the  man- 
aging officers  of  a  corporation  without  any  specific  authorization 
to  that  effect  by  formal  resolution  of  the  board  of  directors.* 


c,  65  Am.  Dec.  691.'  See,  also.  Gold 
Mining  Co.  v.  National  Bank,  96  U.  S. 
640  ;  I^iw  r.  Cros.s,  1  Black,  533." 

'  Clark  r.   Fanners'  Woolen  Manu- 
facturing Co.,  15  Wend.  256. 

'Ebaugh     r.     Grerman      Reformed 
Church,  3  E.  1).  Smith,  60. 

3  Pub.  Laws  Cal.  1864,  402. 

*  Sullivan    r.   Triunfo  Gold  &  Silver 
Mining  Company,   (1866)  29  Cal.  585. 

5  Phillip  r.  Aurora  Lodge,  No.  104, 
I.  O.  G.  T.,  (1882)  87  Ind.  505.  Sec 
Miller  r.  Chance,  3  Edw.  399,  where 
it  was  held  that  a  mortgage  executed 
by  five  of  nine  chosen  trustees  might 
be  presumed  to  have  been  executed 
with  the  concurrence  of  a  majority  of 
the  board.  Under  what  circumstances 
an  executive  committee  appointed  by 
a  board  of  trustees  of  a  manufacturinir 
22 


corporation  may  make  a  contract,  and 
their  power  to  draw  the  money  on 
checks  issued  in  payment  under  such 
contract,  see  Sheridan  Electric  Light 
Co.  V.  Chatham  National  Bank,  (1891) 
127  N.  Y.  517;  s.  c,  28  N.  E.  Rep.  467. 
*  Western  Bank  of  Missouri  v.  Gils- 
trap,  (1870)  45  Mo.  419.  The  Appel- 
late Court  of  Missouri,  in  a  case  where 
one  of  the  contentions  was  that  no  legal 
authority  to  prosecute  the  suit  on  be- 
half of  the  corporation  was  shown, 
said :  ' '  The  law  in  this  state  is  settled 
by  a  course  of  uniform  adjudications 
that  no  formal  resolution  of  the  board 
of  directors  is  prerequisite  for  the  em- 
ployment of  counsel  for  a  corpora- 
tion. Western  Bank  r.  Gilstrap,  45 
Mo.  419;  Southgate  r.  Railroad,  61 
Mo.  89;  Thompson  r.  School  District, 


170 


POWEM  OF  A(JKNTS  A\|>  OFKU'KRS. 


[g  V12 


r 


§  132.  When  officers  may  use   bonds  as  collateral      \ 

in  the  hands  of  ,.>...ht„rs  f,.  I.av,.  ,    rf.   -K       ^  '"..""' 

«  v-d  .  ,v..,vd  ovukMK*  Which  it  was  clai.nc.,    w.,„ld  Thow     ,"t 

with  these.  particuh.r  oreditor.  for  IT  .n  ,  "'"  """^''' 

of  the  r., Jt  of  the  n^V;^^::::^':^^:-'''^^^^ 

the  trial  ind.^  said  \t  .,.„.»  f,ii      V  *'"'  "l'l'li«itu.i. 

purpose  Mith  which  the  Iwnds  in  nuestion  were  iss.i«I  i     1 .  i       1 
m  the  preamble  of  the  r..>l«tio„s  !„.thorizh,g"hr  o  ,V^^^ 
vule  eo„,„,emal  capital  for  the  proper  man^  „  e"t  of    he  b,IT 

o"fTh:  bl  r  T"-^;'     ™^  '''^"''-  accontpli  he       V  t  e     :  : 
of  the  bonds  or  by  their  use  as  collaterals.     I,  the  cour;l .  f  1 
iiess  It  became  necessary  to  raise  nionrv  h.  .       "'^^f''"'^''^"^  '^"«'- 
the  employees  of  the  mil  or    0  sto>      1"    "^'  T"""  "'"'  '"'^'»^ 
made  to  the  bank     *     *     *     l.U?      ^,'"'Pl''«=''t>on  was  then 

""^  t'"-'  resident  directors  to  advance 

Judge  HotoH  says-      V  coTnct  f^        T! '"  "*  -^""'^    """   ""^^  ™«~ct 
legal  services  Jy  Ix.  l.io  bv  th.    ^,"'"'™'' """'•' I'J' the  preside,,  with 

.-it  or  implied  eom^t  „    t,.e  Urd  ndlTni  •  *:?"  "r"' "'  "'"•'^^"'"' 

of  directors.-   and    in  Thon,pJr.  "^Jiforhvh    ""''''''■  ""''■•'* 

School  District,  mpra    Jud  J  S„.-»  I        ,    ■        ^      "  "'""■"'■•    ^'"''  th" 

^voODsays:     '  Of  cTui^,    ,/U  ^on  '^."^'"'S- «f '"<• '"--'"■^.     Th,.  N,.«- 

.ede  the  power,  without  iorZl  Z.    l^^Z surt  ^ "'  """  ""^^ 
lution.    to    employ   an    utornov    iL    ''' .'°*\  ^"«  .sufficient  to  warrant   a 

usuaUesoUsofVchtU^r-tim   .^ftf^^^^^^^^^^^ 

follow   as  a  uecessan-  conseoueno..  •    \ .  .     '-''""'.^'^"  ">  ".^  ""e  .lirectors. 

The  question  in  that  SJZXther  t^  IZTT''  "T""''  "  ""'''"^ 

the  entry  of  the  appeamnce  of  the  cor  ^e  P„  t"      v      7'']l  "'"""■'■  ""'■• 

poration  as  a  party  defendant  bv  "  «  I^u3B-    .'"""'""' ^''^""°- 

.omey  was  duly  authorized."    P-J  ^^Z  ^  ^T?""'  '"'■  '■  ^^^^y- 

dent  Mining  i  Milling  Co  .  Coaund  ^     R    t    '  ^?^  ''  "'""'•  '»  '*^'''" 

U890)40  3Io.App.443.     jSr^^'  mH„T7«V   ™"'   ''    """'    '^^^ 

Consumers-  C.l  Company.  u4T"u  S  Bri LtcUer/i:^::,^'  '^  I  I 

N.  1 .  216,  was  an  action  of  an  attor-  9-  Chemical  Z,  J      ^l     '  ^■ 

ney  against  a  corporation  to  recover  L)    Ct      ^°  /'  '"""'""•  "*  ""'J- 

.bares  of  its  stock  to  which  he  aUe"^  ^w  ft  V  H    ,.   '"l-'"--  •^"'''  '» 

he  was  entitled  for  services  for  ^^  f"^^- P^'^^,  Hooker  r.  Eagle  Bank.  »> 

year  under  a  contract  made  with     s  V    v  ^0    V      ,"  '',  ''"'"'•  '•'"-  " 

Lr2i  "'">'!-'^''««theco;;r  Lio;:S!'^  '""""'^"  "•  """'^''^'  ^ 

ration  luid  from  its  organization  em- 


§133] 


PRIVATE  CORPORATIONS. 


171 


the  money  needed,  and  to  hold  the  bonds  as  collateral  security 
until  they  could  be  sold  outright.     This  arrangement  was  made 
and  the  money  advanced,  and  the  bonds  deposited  as  collateral 
security  with  the  bank  and  the  resident  directors.     This     ^     *     * 
was  done  with  the  full  knowledge  and  consent  of  the  board  of 
directors,  and  the  money  used  to  carry  on  the  mill,  and  all  this 
was  done  before  the  bonds  were  taken  by     *     *     *     the  princi- 
pal moving  creditor."     He  tlien  refers  to  certain  affidavits  made 
in  the  case  and  said  :     "  If  true,  then  there  has  been  no  improper 
or  unauthorized  use  of  said  bonds,  and  if  they  were  not  pledged 
by  resolution  of  the  directors  duly  assembled,  the  company,  with 
their  knowledge  and  approval  or  gratification  [ratification  ?],  have 
received  the  benefit  of  the  money  advanced  on  the  said  bonds, 
and  the  transaction,  in  law  or  equity,  must  stand  as  against  the 
said  company  and  all  creditors." »     The  Supreme  Court  affirmed 
this  judgment,  referring  to  the  action  of   the  judge  in  these 
words :     "  There  can  be  no  doubt  whatever  that  one  of  the  pur- 
poses for  which  the  bonds  were  issued  was  to  raise  money  to  con- 
tinue the  running  of  the  mills,  and  there  is  quite  as  little  that 
upon  apphcation  [the  creditors  whose  claims  were  preferred  by 
the  master]  did  advance  largely  for  that  very  purpose.     Debts 
were  pressing,  two  of  the  directors  were  absent  from  the  state, 
non-residents,  and  a  majority,  the  other  six,  authorized,  infor- 
mally, it  may  be,  these  bonds  to  be  held  by  [them]  as  collateral 
security  for  advances  made  by  them,  as  was  done  in  the  case  of 
other  advances,  and  upon  the  faith  of  this  transaction  the  advan- 
ces were  actually  made  and  used  to  the  relief  of  the  company. 
Under  these  circumstances  it  seems  to  us  that  the  circuit  judge 
did  not  abuse  his  judicial  discretion  in  holding  [as  he  did]."  ^ 

§  133-  When  the  execution  of  a  note  is  not  authorized.— 

In  a  Nevada  case,  where  the  execution  of  a  note  by  a  president 
and  secretary  of  a  corporation  was  held  to  have  been  unauthor- 
ized, the  Supreme  Court  further  held  that  where  information  of 
such  act  was  not  communicated  to  the  trustees  as  a  board,  the 
trustees  could  not  be  held  to  have  ratified  the  act  by  reason  of 
the  knowledge  of  a  majority  thereof  acquired  while  acting  as 

»  Hubbard  v,  Camperdown  Mills,  »  Citing  Ketchum  v.  Duncan,  96  U. 
(1887)  26  S.  C.  581,  584;  s.  c,  3  8.  E.  S.  659;  Claflin  v.  South  Carolina  R.  K. 
Kep.  576.  Co.,  8  Fed.  Rep.  118. 


y 


4 


173 


POWER  OF  AGENTS  AND  OFTICERS. 


[§m 


§135] 


PRIVATE  CORPORATIONS. 


173 


president  and  secretary  ;  also  that  the  fact  that  the  secretary  made 
out  a  statement  of  the  debts  of  the  corporation  in  gross  was  not 
sufficient  to  give  the  stockholders  notice  that  an  unauthorized 
note  was  incUided  therein,  so  that  by  their  inaction  they  should 
l>e  held  fo  have  ratified  it,  or  to  be  estopped  to  deny  its  validity.* 

§  134.  Execution  of  promissory  notes  and  transfer  of 
choses  in  action.—  Authority  to  execute  and  issue  promissory 
notes  of  a  corporation  need  not  be  expressly  given  to  its  officers 
by  the  by-laws  of  the  corporation  or  by  formal  resolution  of  its 
board  of  directors.^    Such  authority  may  be  inferred  from  the 
acquiescence  of  the  corporation  in  or  its  recognition  of  the  acts 
of  its  accredited  officers  in  tlie  regular  course  of  the  authorized 
business  of  the  corporation.^    A  note  executed  by  an  agent  of  a 
maimfacturing  corporation  will  not  be  presumed  to  have  been 
authorized  by  the  corporation.     To  render  such  a  note  valid 
against  the  corporation  the  powers  of  the  agent  must  bo  shown.* 
The  officers  of  a  corporation  have  no  power  to  authorize  the  exe- 
cution of  a  note  as  surety  for  another  in  respect  to  a  matter  having 


» Edwards    r.    Carson    Water    Co., 
(Nev.   1893)  34  Pac.   Rep.  381.    See, 
also,  Hotchin  v.   Kent,   8  Mich.  527; 
Dabney  v.  Stevens,  40  How.  Pr.  344; 
Story  Ag.  §  243;  Howell  v.  McCrie, 
36  Kans.  652;  s.  c,  14  Pac.  Rep.  257; 
Combs  V.  Scott,  12  Allen.  496;  Mallory 
r.  Mallory  Wheeler  Co.,  61  Conn.  141; 
s.  c,  23  Atl.  Rep.  708;  Despatch  Line 
of  Packets  r.  Bellamy  Mfg.  Co.,  12  N. 
11. 205,  232;  Lyndon  Mill  Co.  p.  Lyndon 
Literary  &  Biblical  Inst.,  63  Vt.  581; 
s.    v.,   22  Atl.   Rep.    577;   Owings  v. 
Hull,   9  Pet.  629;  Bohm   r.  Brewery 
Co.,  (1890)  16  Daly,  80;  s.  c,  9  N.   Y. 
Supp.  515;   3Iurray  c.  Lumber  Co., 
143  Mass.   250;  s.  c.   9  N.   E.    Rep. 
634;  Fitzhugh  r.  Umd  Co.,  81  Tex. 
310;  8.  c,  16  S.  W.  Rep.  1078;  Dedham 
Institution    for  Savings    v.   Slack,   6 
Cush.   408,   411.    The  Nevada  court 
in   Edwards    r.    Carson    Water  Co., 
mipra,  give  this  as  their  understand- 
ing  of    the  law   upon    this   subject: 
"That  before   an  individual  or  cor- 
poration can  be  held  to  have  ratified 


the  unauthorized  acts  of  his  or   its 
agents,   every  detail  of  the  transac- 
tion must  have  been  made  known  to 
the  principal.     If,  after  obtaining  such 
knowledge,  the  principal  fails  to  act, 
long  and  continued  silence    will   be 
deemed  an  approval  of  the  act,  and 
such  ratification  relates  back  and  is 
equivalent    to   a    prior   authority  to 
make  the  contract."    Citing  1   Dan. 
Neg.  Inst.  §§  316-319;  Stark  Bank  v. 
United  States  Pottery  Co.,  34  Vt.  144, 
146;  Story  on  Agency,  §  239;  Bank  v. 
Jones,  18  Tex.  816;  Smith  r.  Tracy. 
36  N.  Y.  79,  82;  French  v.  O'Brien,  52 
How.  Pr.  394,  398;  Combs  v.  Scott,  12 
Allen,  493,  497.     See,    also.    Yellow 
Jacket  Silver  Mining  Co.  v.  Stevenson, 
5  Nev.  224,  228;  Hillyer  v.  Overman 
Silver  Mining  Co.,  6  Nev.  51,  55. 

« First  National  Bank  of  Hannibal 
V.  North  Missouri  Coal  Co.,  (1885)  86 
Mo.  125. 
» Ibid. 

*  Benedict  r.  Lansing,  5  Denio,  283j 
Lawrence  v.  Gebhard,  41  Barb.  575. 


.0  relation  to  the  eorporate  business,  and  m  -^^-^   J^^^^; 
tion  has  no  interest.'    Such  a  transaction  is  not  within  the  ^ope 
of  its  business;  and  a  partv  receiving  such  note  with  notice  of  the 
circumstances  under  whic'k  it  is  given  cannot  recover  on  it      A 
corporation  may  authorize  its  proper  officer  to  assign  a  note  by 
SeTy.'    The  authority  of  an  agent  of  a  corporation  to  indorse 
atoten  ay  be  shown  by  other  evidence  than  the  by-laws,  as  for 
LInce,  tiiat  a  president  and  treasurer  of  the  corpora  ion  was  m 
the^iab  t  of  negotiating  notes  of  the  corporation  with  the  saacUou 
of  its  finance  committee.'     An  agent  of  a  corporation  may  have 
authority  to  transfer  a  note  by  indorsement  b»t  lias  no  authorOy  to 
JL  the  corporation  as  indorser.»    Express  authority  from  a  board 
o   directors  of  a  corporation  is  not  necessary  to  enable  ij  managing 
agent,  to  whom  ha«  been  intrusted  the  management  of  the  afiau 
3  th    corporation,  to  assign  the  choses  in  action  heloBg-g  to  ' 
to   its  creditors,  either  in  payment  of,  or  a.  security  for    the 
payment  of  a  precedent  debt.«     Officers  of  a  corporation,  within 
Eil  general  powers,  may  assign  its  choses  in  action  m  such  man- 
nerSey  may  deem  expedient.'      A  corporation,  ,t  seems  would 
b   blnfby  an  assignment  of  its  dues  without  recourse  by  one 
of  its  officers  intrusted  with  the  collection  of  its  debts  upon 
receiving  the  amount.' 

s  135.  Notes  signed  by  officers  of  a  corporation.- Gil- 
bert United  States  Circuit  Judge,  in  sustaining  a  demurrer  to 
the  defense  in  an  action  upon  the  promissory  note  of  a  corpora- 
bn,   hat  the  president  and  secretary  of  the  corporation  had  no 
authority  from  the  corporation,  either  by  by-law  or  rcBolution,  to 
execute  the  note,  and  that  the  corporation  received  no  benefit 
herefrom  and  did  not  ratify  the  same,  declared  these  rules  of 
aw  upon  the  questions  involved,  to  wit :  "  The  payee  or  indorsee 
of  a  negotiable  promissory  note,  signed  by  the  officers  of  a  cor- 
poration as  the  note  of  the  corporation,  is  not  reqmred  to  a.cer- 

ri^^l'^-^ne^e  ..  PatcMn  m  Car^,  .  GUe.  ^0  Ga^  10;  PMl- 

„     ,    -.oxT  V  <iftQ  lips  ij.  Campbell,  43  N.  1.  ^'1. 

^atiale!:  HoU^:  d W 14  Ind.  883.  '  BlaUe   ..    HoUey,   (I860)  14  Ind. 

.Browu  .  Donnell.  (1860)  49  Me.  ^-^^^^^^^^^^  ^  ,.  ^j^.  ^ 

""'ibid.  V'-  ««• 


n 


174 


POWER  OF  AGENTS  AND  OFFICERS. 


[§136 


taiii  whether  the  officers  have  authority  to  make  the  note.  A 
corporation  formed  under  the  General  Incorporation  Laws  for 
the  purpose  of  conducting  business  has,  so  far  as  the  law  is  con- 
cerned, the  same  power  that  an  individual  has  to  contract  debts 
whenever  necessary  or  convenient  in  furtherance  of  its  legitimate 
objects.  It  may  borrow  money  to  pay  its  debts.  It  may  execute 
notes,  bonds  and  bills  of  exchange.  The  power  to  sign  such 
paper  may  be  conferred  upon  any  officer.  If  the  president  and 
secretary  sign,  their  authority  is  inferred  from  their  official  rela- 
tion. All  persons  dealing  with  them  have  the  right  to  assume 
that  there  is  no  restriction  of  that  authority.  They  also  have 
the  right  to  assume,  unless  they  have  actual  notice  to  the  contrary, 
that  a  note  so  signed  is  made  in  the  regular  course  of  the  business 
of  the  corporation.  To  hold  otherwise  would  destroy  the  nego- 
tiability of  all  notes  made  by  corporations."* 

§  136.  Power  of  bank  officers. —  It  is  not  sufficient  to  estab- 
lish the  official  character  of  a  person  to  designate  him  as  an  offi- 
cer. There  must  be  competent  and  official  proof  of  his  authority 
to  act  in  an  official  capacity.  Therefore,  the  assignment  and 
acknowledgment  of  a  judgment,  purporting  to  have  been  made 
by  a  bank,  in  the  absence  of  proof  of  the  authority  of  the  persons 
executing  the  assignment  in  the  name  of  the  bank,  were  held  not 
sufficient  to  establish  the  fact  of  the  assignment.*  An  assignment 
of  the  assets  of  a  banking  corporation  under  a  resolution  of  its 
directory,  for  a  purpose  within  the  scope  of  their  powers,  h  prima 
facie  valid.'  The  settlement  of  a  defalcation  to  a  bank,  and  the 
acceptance  of  a  deed  of  real  estate  in  satisfaction  and  release,  are 
not  transactions  which  fall  within  the  ordinary  powers  of  a  corpo- 
ration which  may  be  exercised  by  its  agents  or  persons  who  are 
held  out  to  the  public  as  such.  Power  to  do  such  acts  must  be 
conferred  by  the  board  of  directors.*  The  president  of  the 
directory  of  a  banking  corpoi*ation  cannot  use  its  cash  or  credits, 

*  American  Exchange  National  Bank       '  Gibson  v.  Qoldthwaite,  (1845)  7  Ala. 
r.  Oregon  Pottery  Co..  (1892)  55  Fed.    381. 

Rep.  265;  citing  Merchants'  Bank  r.  ^Bank  of  Healdsburg  r.  Bailhache, 

State  Bank.  10  Wall.  644;  Crowley  v.  (1884)  65  Cal.  327;  Gashwileru.  Willis, 

Mining  Co.,  55  Cal.  273;  1  Dan.  Neg.  33  Cal.  11;  Blen  v.  Bear  River  Co.,  20 

Inst.  §  381.  Cal.  602. 

•  Klemme  r.  McLay,  (1885)  68  Iowa, 
158;  8.  c,  26  N.  W.  Rep.  53. 


§137] 


PRIVATE  CORPORATIONS. 


175 


etc.,  for  the  purpose  of  settHng  the  demands  of  its  creditors,  in 
the  absence  of  authority  conferred  by  its  charter,  by-laws  or  reso- 
lution of  the  directory  within  their  power  to  adopt.'  And  the 
affixing  of  the  seal  of  the  corporation  to  an  unauthorized  transfer 
by  its  president  of  its  assets  cannot  impart  validity  to  the  transfer.^ 
The  officers  of  a  national  bank,  without  express  authority  from  its 
shareholders,  after  the  bank  goes  into  liquidation,  can  only  bind 
them  by  acts  implied  by  the  duty  of  liquidation. =^  General 
authority,  unrestricted  by  rules  or  by-laws,  given  to  the  president 
and  cashier  of  a  bank  to  manage  and  control  all  of  its  financial 
affairs,  does  not  authorize  them  to  use  the  property  of  the  bank 
for  private  purposes  of  their  own,  or  for  the  benefit  of  them- 
selves ;  therefore,  they  cannot  bind  the  bank  by  a  contract  to 
which  they,  or  either  of  them,  are  parties.'* 

§  137.  Power  of  a  bank  cashier. —  A  cashier  of  a  bank  has 
no  authority,  by  virtue  of  his  office,  to  represent  the  bank  at  a 
meeting  of  the  creditors  ai  an  insolvent,  and  to  vote  for  syndic. 
A  resolution  of  the  board  of  directors  can  alone  empower  him  to 
do  80.=^     The  cashier  of  a  bank  is  held  out  to  the  world  as  its 


'  Gibson  r.  Goldthwaite,  (1845)  7 
Alu.  281.  See  Haliowell  &  Augusta 
Bank  r.  Hamlin,  14  Mass.  180. 

« Gibson  i\    Goldthwaite,    (1845)    T 
Alu.  281.    In  Cross  c.  Anglo- American 
Banking  Co.,  (1894)  79  Hun,  424;  s.  c, 
29  N.  Y.  Supp.  960;  61 N.  Y.  St.  Repr. 
270,  the  president  and  chief  executive 
of  a  foreign  banking  corporation  hav- 
ing its  principal  place  of  business  in 
the  city  of  New  York,  being  author- 
ized by  its  articles  of  incorporation 
and  by  the  action  of  its  directors  to 
open  its  office  in  that  city,  was  held 
presumptively  to  have    authority  to 
purchase    the  furniture   necessary   to 
equip  the  office  of   the  corporation, 
there  being  no  by-law  of  the  corpora- 
tion or  resolution  of  the  directors  lim- 
iting his  power,  or  requiring  that  no 
expenditures  should  be  made  except 
under  a  resolution  of  the   board  of 
directors.     In  First  National  Bank  of 
Whitehall  v.  Tisdale,  (1881)  84  N.  Y. 
655,  it  was  held  to  be  beyond  the  power 


of  a  president  of  a  national  banking 
association  to  bind  the  association  by 
an  agreement  to  hold,  without  collect- 
ing, a  note  which  had  been  indorsed  to 
it  at  the  president's  request,  for  the  pur- 
pose of  increasing  the  bank's  assets 
and  enabling  it  to  pass  an  expected  ex- 
amination of  the  inspector. 

3  Richmond  r.  Irons,  (1887)  121  U. 
S.  27;  s.  c,  7  Sup.  Ct.  Rep.  788.  In 
Schrader  r.  Manufacturers'  National 
Bank  of  Chicago,  (1890)  133  U.  S.  67; 
s.  c.  10  Sup.  a.  Rep.  238,  it  was  held 
that  the  rights  of  the  shareholders  could 
not  be  affected  by  the  acts  of  the  presi- 
dent, done  after  the  bank  had  gone 
into  liquidation. 

*  Rhodes  r.  Webb,  24  Minn.  292. 

'^Reed  r.  Powell.  (1845)  11  Rob. 
(La.)  98.  The  court  said:  "The  di- 
rectors are  the  general  agents  and 
administrators  of  the  corporation,  and 
by  the  charter  are  empowered  to 
appoint  such  officers  and  sub-agents 
as  may  be  necessary  for  the  tranaac- 


176 


POWER  OF  AGENTS  AND  OFFICERS. 


[§137 


executive  officer  intrusted  with  its  notes  and  bills,  and  the  collec- 
tion and  transfer  of  them  in  the  ordinary  course  of  its  business. 
And  in  case  of  promissory  notes  held  by  banks  an  indorsement 
by  the  cashier  of  the  bank,  in  his  official  character,  is  sufficient, 
at  least  prima  facie  to  pass  the  title  of  the  bank  thereto.*  The 
cashier  of  a  bank,  in  the  course  of  his  ordinary  duties  and  by 
virtue  of  the  general  power  appertaining  to  his  office,  has  a  right 
to  transfer  the  paper  securities  of  the  bank,  in  payment  of  its 
debts.' 


tion  of  its  business.  The  powers  and 
duties  of  these  officers  are  defined  by 
the  charter  and  by-laws  of  the  bank. 
Within  the  sphere  of  their  respective 
duties  they  represent  the  corporation, 
and  bind  it  by  their  acts;  but  in  all 
matters  and  things  not  properly  be- 
longing to  their  office  they  cannot  rep- 
resent or  act  for  the  corporation 
unless  specially  or  generally  author- 
ized so  to  do  by  a  resolution  of  the 
board.  Thus,  the  cashier,  who  is 
intrusted  with  the  transaction  of  the 
banking  business  of  the  corporation, 
needs  no  special  authority  to  do  and 
perform  any  act  required  for  the 
proper  management  and  dispatch  of 
the  same;  but  when  it  becomes  neces- 
sary for  the  corporation  to  appoint  an 
agent  for  any  particular  purpose,  or 
to  do  any  other  thing  not  properly  be- 
longing to  the  duties  of  his  office,  he 
has  no  better  right  to  act  than  any 
other  person.  To  say  that  he  can 
make  such  an  appointment,  or  do  any 
other  act  on  behalf  of  the  corporation, 
because  it  is  a  mere  act  of  administra- 
tion, would  be  to  make  the  cashier  its 
general  agent  and  administrator,  in- 
stead of  the  board  of  directors."  See, 
also,  Union  Bank  v.  Bagley,  10  Rob. 
(La.)  43;  Clinton  Company  r.  Keman, 
10  Rob.  (La.)  176;  Union  Bank  r. 
Jones,  4  La.  Ann.  236. 

*  Haynes,  Liquidator,  r.  Succession 
of  Beckman,  (1851)  6  La.  Ann.  224; 
Fleckner  v.  United  States  Bank,  8 
Wheat.   360;  Wild  i\  Bank  of  Passa- 


maquoddy,  3  Mason,  505,  507;  Mer- 
chants' Insurance  Co.  v.  Chauvin,  8 
Rob.  (La.)  49. 

« Everett  v.  United  States,  (1837)  6 
Port.  (Ala.)  166.  The  court  quoted 
the  language  of  Mr.  Justice  Story  in 
Fleckner  «?.  United  States  Bank,  8 
Wheat.  358,  as  clearly  recognizing  the 
right  of  the  cashier  as  stated  in  the 
text.  That  language  was  as  follows: 
*'  The  cashier  is  usually  intrusted  with 
all  the  funds  of  the  bank,  in  cash, 
notes,  bills,  etc.,  to  be  used  from  time 
to  time,  for  the  ordinary  and  extra- 
ordinary exigencies  of  the  bank.  He 
receives  directly  or  through  the  sub- 
ordinate officers,  all  moneys  and  notes. 
He  delivers  up  all  discounted  notes 
and  other  property,  when  payments 
have  been  duly  made.  He  draws 
checks  from  time  to  time,  for  moneys, 
whenever  the  bank  has  deposits.  la 
short,  he  Is  considered  the  executive 
officer,  through  whom,  and  by  whom, 
the  whole  moneyed  operations  of  the 
bank,  in  paymg  or  receiving  debts,  or 
discharging  or  transferring  securities, 
are  to  bo  conducted.  It  docs  not 
seem  too  much,  then,  to  infer,  in  the 
absence  oi  all  positive  restrictions, 
that  it  is  his  duty  as  well  to  apply  the 
negotiable  funds,  as  the  moneyed 
capital  of  the  bank,  to  discharge  its 
debts  and  obligations."  The  cashier 
of  a  bank  has  no  authority  to  pay  a  de- 
positor in  notes  belonging  to  the  bank 
by  transferring  them  to  him.  Schnelt- 
man  tj.  Noble,  (1888)75  Iowa,  120. 


§138] 


PRIVATE  CORPORATIONS. 


177 


§  138.  When  the  authority  of  its  cashier  cannot  be  ques- 
tioned by  a  bank. —  Under  the  facts  disclosed  in  a  case  before 
the  United  States  Supreme  Court,  it  was  held  by  tlie  court  that 
the  binding  force  of  an  agreement  made  by  the  cashier  of  the 
bank,  in  reference  to  the  indebtedness  of  one  of  the  debtors  of 
the  bank,  including  the  cancellation  of  the  debtor's  old  notes  and 
trust  deeds  made  by  him  to  secure  them  and  the  acceptance  of 
new  ones  could  not  be  disputed  by  the  bank.^ 


» Martin  v.  Webb,  (1884)  110  U.  S. 
7.    The  ruling  was  bised  upon  the 
principles    stated    by     Mr.     Justice 
Harlan,  speaking  for  the  court,  in 
these    words:     "It    is     quite    true 
*    *    *    that  a  cashier  of  a  bank  has 
no  power  by  virtue  of  his  office,  to 
bind  the  corporation  except  in  the  dis- 
charge of  his  ordinary  duties,  and  that 
the  ordinary  business  of  a  bank  does 
not  comprehend  a  contract  made  by  a 
cashier  — without  delegation  of  power 
by  the  board  of  directors  —  involving 
the  payment  of  money  not  loaned  by 
the    bank   in   the    customary    way. 
United  States  Bank  v.  Dunn,  6  Pet. 
51 ;    United    States  v.  City    Bank  of 
Columbus,  21  How.  356;  Merchants' 
Bank   v.  State  Bank,    10  Wall.  604. 
Ordinarily,  he  has  no  power  to  dis- 
charge a  debtor  without  payment,  nor 
to  surrender  the  assets  and  securities 
of  the  bank.     And,  strictly  speaking, 
he  may  not,  in  the  absence  of  authority 
conferred  by  the  directors,  cancel  its 
deeds  of  trust    given  as  security  for 
money  loaned  —  certainly  not,  unless 
the    debt    secured   is   paid.     As  the 
executive  officer  of  the  bank,  he  trans- 
acts its  business  under  the  order  and 
supervision  of  the  board  of  directors. 
He  is  their  arm  in  the  management 
of   its    financial    operations.      While 
these   propositions  are  recognized  in 
the  adjudged  cases  as  sound,  it  is  clear 
that  a  banking   corporation    may  be 
represented  by  its  cashier  — at  least 
where  its  charter  does  not  otherwise 
provide  — in   transactions    outside  of 
his  ordinary  duties,  without  his  au- 

23 


thority  to  do  so  being  in  writing  or 
appearing  upon  the  record  of  the  pro- 
ceedings   of  the   directors.      His  au- 
thority may  be  by  parol  and  collected 
from     circumstances.      It    may    be 
inferred  from  the  general  manner  in 
which,  for  a  period  sufficiently  long 
to  establish  a  settled  course  of  busi- 
ness, he  has  been   allowed,  without 
interference,  to  conduct  the  affairs  of 
the  bank.     It  may  be  implied  from  the 
conduct  or    acquiescence  of  the  cor- 
poration, as  represented  by  the  board 
of  directors.     When,  during  a  series 
of    years    or   in    numerous    l)usiness 
transactions,  he  has   been  permitted, 
without  objection  and  in  his  official 
capacity,  to  pursue  a  particular  course 
of  conduct,  it  may  be  presumed,  as 
between  the  bank  and  those  who  in 
good  faith  deal  with  it  upon  the  basis 
of  his  authority  to  represent  the  cor- 
poration, that  he    has    acted  in  con- 
formity   with     instructions    received 
from  those  who  have  the  right  to  con- 
trol its  operations.     Directors  cannot, 
injustice  to  those  who  deal  with  the 
bank,  shut  their  eyes  to  what  is  going 
on  around  them.     It  is  their  duty  to 
use  ordinary  diligence  in  ascertaining 
the  condition  of  its  business,  and  to 
exercise  reasonable  control  and  super- 
vision of  its  officers.     They  have  some- 
thing more  to  do  than,  fronni  time  to 
time,  to  elect  the  officers  of  the  bank, 
and  to  make  declarations  of  dividends. 
That  which   they    ought,  by  proper 
diligence,   to  have  known    as  to  the 
general  course  of  business  in  the  bank, 
they  may  be  presumed  to  have  known 


178 


POWER  OF  AOENT8  AND  OFFIOBB8. 


[§139 


§  139.  Indorsement  of  a  draft  by  cashier  and  president— 

An  English  corporation,  a  ni.>rtgage  company,  by  its  managers  in 
an  American  city,  drew  drafts  upon  its  home  office  in  London 
and  applied  to  a  local  bank  to  have  them  discounted.  The  latter 
signified  that  they  would  discount  the  drafts  if  they  were  indorsed 
by  another  local  bank.  This  was  done  by  the  cashier  and  the 
president  of  the  latter.  Finally,  one  of  these  drafts  was  not  paid 
at  the  home  office  of  the  corporation,  and  the  discounting  bank 
brought  its  action  against  the  receiver  of  the  other  local  bank 
upon'' the  indorsement  of  the  officers  of  that  bank.  The  United 
States  Circuit  Court  held  that  there  could  be  no  recovery .» 

in  any  contest  between  the  corpora-  tion  to  that  effect,  by  subsequent  rati- 
tion  and  those  who  are  justitieti  by  the  fication,  or  by  acquiescence  in  trans- 
circumstances  in  dealing  with  its  actions  of  a  similar  nature,  and  ot 
officers  upon  the  basis  of  that  course  which  the  directors  have  knowledge 

of  business  "  ^^  ^^^^^  ^^^^^^^'  ^  ^^^^^  ^^  °^^^^ 

» National    Bank   of    Commerce    of  that  banks  are  liable  for  the  acts  of 
Kansas  City   r.   Atkinson,   (1893)    55   their  officers,  especially  executive  offi- 
Fed   Rep  465.     The  court  thus  states   ccrs   and  general  agents,   withm  the 
the  contentions:  "  The  defendant  con-   general  scope  and  apparent  sphere  of 
tends-  First   That  [the  cashier]  had  no   their  duties;    but  that  they  are  not 
authority  to  place  the  indorsement  of   liable  for  the  acts  of  their  officers  done 
the  rbankl  upon  those  drafts,  or  either   without    special   authority,   in    cases 
of  them,  and  that    *    •    *    the  presi-    which  are  not  ^vithin  the  general  scop<' 
dent  had   no   authority   whatever  to   and  sphere  of  their  duties  as  such  offl- 
place  the  indorsement  of  the  [bank]   cers.     The  responsibility  of  a  bank  (m 
upon  the  tirst  note,  which  was  given   the  absence  of  express  authonty  to  do 
after  the  drafts  were  protested,  or  any   a  particular  act)  is  limited  to  the  acts 
note  representing  these  drafts.     Sec-    of  its  officers  ami  agents,  performed  ui 
ond    That  the  indorsement,  at  most,    the  discharge  of  their  ordmary  duties 
was  a  U>aning  of  the  bank's  credit,  or,    in  the  usual  course  of  business  and 
in  other  words,  an  accommodation  in-    within  the  sphere  and  scope  of  such 
dorsement     which  the  bank  had  no   duties.     Acts     within     the    ordinary 
power  to  make."    Then  the  question   sphere  and  scope  of  their  business  are 
was  discussed  and  the  law  stated  as   presumed    to    be    by    authority    and 
follows-  "  There  is  no  doubt  but  what   within  the  knowledge  of  the  directors, 
the  law  is  that  a  national  bank  cannot   That  there  was  no  express  authority 
loan  its  credit  or  become  an  accomrao-   given  by  the  board  of  directors    by 
dation  indorser.    On  that  question  the   resolution  or  otherwise,  either  to 
decisions  are  uniform.     It  is  also  true   the  cashier  or  to    *    *    *    the  presi- 
that  the  president  of  a  bank  has  no  dent,  to  indorse  the  drafts  and  notes. 
Dower  inlierent  in  his  office  to  bind  the  is  conceded.     Neither  was  there  any 
bank  by  the  execution  of  a  note  in  its   formal  ratification  of  tfieir  action  by 
name  yet  the  power  to  do  so  may  be  the  directors  or  officers  of  the  bank, 
confe^ed  upon  him  by  the  board  of  Indeed,  none  of  them  had  any  knowl- 
directors,  either  expressly,  by  resolu-  edge  whatever  of  the  transactions  ex- 


§U0] 


PRIVATE  COEPOBATIONS. 


179 


S  140.  Power  of  a  treasurer  of  a  savings  bank.-The  treas- 
urer of  a  savings  bank  is  not  virtute  officii  clothed  with  power  to 
borrow  money  for  the  institution  and  to  pledge  its  securities  as 
collateral.^     The  treasurer  of  a  savings  bank  has  no  authority,  ex 
oifi<^io,  to  release  a  debt  due  the  bank,  upon  payment  of  a  divi- 
dend by  the  debtor.^    A  vote  of  a  savings  bank  corporation  to 
sell  notes  held  by  it  would  not  confer  authority  upon  its  treasurer 
to  bind  the  bank  by  indorsing  its  name  on  a  promissory  note  held 
by  it,  and  he  ha^  no  such  authority  ex  officio}    A  provision  m 
the  by-laws  of  such  an  institution  that  the  treasurer  "  shall  draw 
all  necessary  papers  and  discharge  all  obligations  of  the  corpora- 
tion and  his  signature  shall  be  binding  on  the  corporation,    has 
been  held  to  mean  the  signature  of  the  treasurer  to  necessary 
papers  and  in  discharge  of  obligations  to  the  corporation,  and  not 
to  authorize  him  to  bind  the  corporation  by  such  an  indorsement 
on  a  promissory  note.*    The  title  passes  by  an  assignment  of  a 

cept  [these  two  officers]."    The  court 
then  considered  the  facts  upon  the 
question  of  whether  the  bank  retained 
and  enjoyed  the    proceeds  of   these 
transactions,  and  thereby  became  liable 
by  reason  of  its  indorsement  appear- 
ing upon  those  papers.     In  the  course 
of  the  opinion  it  is  said:  "  It  is  shown 
by  the  record  beyond  all  question  that 
the  [bank]  never  received  any  benefit 
whatever,  by  way  of  discount  or  other- 
wise, out  of  the  transactions  in  relation 
to  these  drafts,  or  either  of  them." 
And  further  on:   "The  [bank]  never 
received  any  benefit  from  discounts  or 
otherwise  on  these  drafts.     The   re- 
newal drafts  and  the  notes  were  not 
placed  upon  the  books  of  the  [bank]. 

When  the  drafts  were  protested,  the 

[bank]  was  not  notified  of  the  protest, 

but,  on  the  contrary,  the  mortgage 

company  only  received  notice  of  their 

dishonor.     The  notes  were  all  indorsed 

in  the  office  of  the  [plaintiff  bank]  by 

♦    *    ♦    the  president  [of  the  bank  of 

which  defendant  is  receiver],  and  away 

from  the  place  of  business  of  [this 

bank],  and  no  mention  of  them  was 

made  upon  its  books.    The  directors 


of  the  bank  did  not  know  of  their  ex- 
istence, and  could  not  have  ascertained 
their  existence  from  an  examination  of 
the  books  or  accounts  of  the  bank. 
Such  a  transaction,  it  seems  to  me, 
cannot  be  said  to  be  in  the  usual  course 
of   business,   or  within    the   implied 
powers  of  the  president  of  a  bank. 
My  attention  is  especially  called  to  the 
case  of   People's    Bank   v.    National 
Bank,  101  U.  S.  181.     That  was  a  case 
upon  a  guaranty.    The  papers  passed 
through  the  bank  in  the  regular  course 
of  business.     The  bank  received  the 
benefit  of  the  transaction,  and  the  offi- 
cer of  the  bank  was  acting  strictly 
within  the  scope  of  his  authority  as 
an  officer  of  the  bank.     The  facts  in 
that  case  are  different  from  the  facts  in 
the  case  at  bar,  and  the  decision,  in  my 
judgment,  does  not  aid  the  plaintiff." 
» Fifth  Ward  Savings  Bank  v.  Firat 
National  Bank,  19  Vr.  (N.  J.)  513. 

'Dedham    Savings    Institution    v. 
Slack,  (1850)  6  Cush.  408. 

« Bradlee  v.  Warren  Savings  Bank, 
(1879)  127  Mass.  107. 
*Ibid. 


n 


180 


POWER  OF  AGENTS  AND  OFFICERS. 


[§141 


mortgage  in  the  name  of  a  savings  bank,  executed  by  its  treas- 
urer who  has  authority  to  execute  it,  and  liis  indorsement  of  the 
note  to  a  Una  fide  holder,  thougli  he  may  in  liis  action  perpetrate 
a  fraud  upon  the  bank  and  convert  the  purchase  money  to  liis 
own  use.* 

§  141.  Power  of  officers  of  mining  corporations.— It  may 
be  assumed  by  persons  dealing  with  mining  superintendents  or 
general  agents  in  charge  of  mines,  in  the  absence  of  notice  to  the 
contrary,  that  their  authority  covers  all  the  ordinary  local  busi- 
ness of  a  mining  corporation.^  The  purchase  of  timber  for  a 
mining  corporation  is  within  the  power  of  its  general  agent.* 
But  such  a  general  agent  of  a  mining  corporation,  unless  speci- 
ally empowered  so  to  do,  has  no  authority  to  make  promissory 
notes  in  the  corporation's  name.*  The  secretary  of  a  mining  cor- 
poration has  no  authority,  by  virtue  of  his  office,  to  make  assign- 
ment of  the  promissory  notes  belonging  to  the  corporation.  Such 
an  assignment  of  notes  by  a  secretary  is  not  a  corporate  act  unless 
it  is  shown  that  the  secretary  was  not  only  authorized  to  make 
the  transfer,  but  to  make  it  in  his  official  capacity.**  The  super- 
intendent  of  a  mining  corporation,  instructed  by  letters  and  other- 
wise from  the  officers  of  the  corporation  not  to  contract  any  debts, 
but  merely  to  expend  such  money  as  niiirht  be  furnished  him, 
cannot  bind  the  corporation  by  a  promissory  note.®    There  is, 

»  Whiting  tj.   Wellington,  10    Fed.  Hallowell  &  Augusta  Bank  v.  Hamlin, 

^P-  ^^^-  14  Mass.  180;  Hoyt  v.  Thompson.  1 

«  Adams  Mining  Co.  v.  Senter,  (1872)  Seld.  320;  Whitwell  c.  Warner  20  Vt 

26  Mich.  73.  425. 

'  ^^»^-  "  Carpenter  n.  Biggs,  (1873)  46  Cal. 

*  New  York  Iron  Mine  10.  Negaunee  91.  In  New  York  Iron  Mine  t.  Citi- 
bank, 39  Mich.  644.  zens'  Bank,  44  Mich.  344;  s.  c,  6  N. 

»  Blood  T.  Marcuse,  (1869)  38  Cal.  W.  Rep.  823,  it  was  held  that  'there 
590.  For  the  same  principles  upon  was  no  presumption  of  authority  of 
which  this  assignment  was  held  to  be  an  agent  of  the  mining  corporation  to 
void  as  not  being  a  corporate  act,  see  draw  post-dated  bills  of  exchange  on 
Gashwiler  t.  Willis,  33  Cal.  11;  Marine  his  principal  from  his  having  done  so 
Bank  r.  Clements,  3  Bosw.  600;  John-  before  without  objection,  there  being 
son  V,  Bush,  3  Barb.  Ch.  207;  Brown  f .  nothing  to  show  that  the  party  relying 
Weymouth,  36  Me.  415;  Barcus  r.  Han-  on  his  authority  knew  the  fact,  and  a 
mbal,  Ralls  County  &  P.  P.  R.  Co..  26  long  interval  having  passed  since  it 
Mo.  102;  Mt.  Sterling  &  Jeffersonville  occurred,  and  the  corporation  having 
T.  R.  Co.  r.  Looney,  1  Mete.  (Ky.)  550;  meanwhile  become  prosperous  and  be* 
Walworth  County  Bank  r.  Farmers'  ing  better  supplied  with  ready  money 
Loen    &    Trust    Co.,    14    Wis.    325;  and  it  also  appearing  that  the  post- 


§142] 


PBIVATE  CORPORATIONS. 


181 


presumably,  power  in  sucli  an  agent  and  manager  of  a  mining 
corporation  power  to  sell  its  personal  property.^ 

§  142.  General  rules  as  to  the  power  of  a  president. — 
The  powers  of  a  president  of  a  corporation  over  its  business  and 
property  are  strictly  the  powers  of  an  agent.*  A  corporation 
will  not  be  bound  by  the  contract  of  its  president,  without  proof 
of  his  agency.^  The  same  evidence  from  which  authority  to  bind 
would  ])e  inferred  in  other  cases,  must  determine  the  authority  of 
the  president  of  the  corporation  to  bind  it  by  a  contract  entered 
into  on  its  behalf.^  It  is  necessary  to  show  that  an  agreement  of 
the  president  of  a  corporation  is  within  the  scope  of  his  authority 
to  make  it  evidence.'^  A  corporation  which,  by  its  charter,  can 
only  act  through  its  board  of  directors,  cannot  be  bound  by  con- 
tracts entered  into  by  its  president,  without  the  authorization  of 
the  board,  except  in  acts  of  simple  administration,  which,  of 
necessity,  should  be  done  without  authorization.®  A  corporation 
cannot  be  bound  by  a  contract  made  by  its  president,  except  it 
be  shown  that  power  to  make  it  was  given  him  by  the  act  of  incor- 
poration, or  that  he  was  authorized  by  the  corporation  to  make  it, 
or  that  there  was  a  subsequent  ratification  of  the  contract.''  The 
power  to  sell  and  assign  the  securities  of  a  corporation  without 
authority  from  the  trustees,  is  not  included  in  the  authority  of  its 
treasurer  to  collect  and  pay  debts.*    Acts  of  the  corporation,  or 

dated    bills  he  had   formerly  drawn  « Bright  ».  Metairie  Cemetery  Asso- 

were  drawn  on  time  and   post-dated  ciation,  33  La.  Ann.  58. 

only  long  enough  to  give  the  drawer  "^  Mount    Sterling    &   Jeffersonville 

the  benefit  of  the  full  period  of  dis-  Turnpike  Road  Co.  t.  Looney,  (1868) 

count  after  receiving  them,  while  in  1  Mete.  (Ky.)  550. 

this  case  they  were  made  payable  at  ®  Jackson  'c.  Campbell,  5  Wend.  572. 

sight  and  post-dated  several  weeks  for  In  Williams  27. Uncompahgre  Canal  Co., 

the  agent's  private  advantage.  (1889)  13  Colo.  469;  s.  c,  22  Pac.  Rep. 

'  Scudder  p.  Anderson,  54  Mich.  122;  806,  it  was  held  that  where  a  contract 

8,  c,  19  N.  W.  Rep.  775.  under  seal  had  been  executed  by  the 

*  State  Bank  r.  Holcomb,  2  Hals.  (N.  officers  of  a  corporation  in  their  indi- 
j  \  j9g  vidual  names  it  was  competent  to  aver 

'Fisher  v.  Gas  Co.,  1  Pears.  (Pa.)  and  prove  by  parol  that  the  corpora- 

118;  Jackson®.  Market  Co.,  12 W.  N.  tion,    as   the  real  party  in   interest, 

C.  (Pa.)  190.  adopted,    ratified   and    undertook   to 

*  Lee  f).  Pittsburgh  Coal  &  Mining  carry  out  the  terms  of  the  contract  in 
Co.,  56  How.  Pr.  373;  s.  c,  75  N.  Y.  such  a  manner  as  to  become  bound 
gOl.  thereby.     Cases  as  to   the  lack  of  a 

«*  Farmers'  Bank  t.  McKee,  2  Pa.  St.  president's  power,  unless  it  be  speci- 
318  ally  conferred  by  the  managing  board: 


182 


POWEK  OF  AORNTS  AND  OFFIOEBS. 


[§142 


§142] 


PRIVATE  C0KP0KATI0N8. 


183 


acts  of  an  autliorized  agent  within  the  scope  of  his  authority, 
from  which  the  promise  may  be  implied,  must  be  shown  to  bind  a 
corporation  by  an  implied  promise.^     It  is  not  in  the  power  of  the 
president  of  a  corporation  to  borrow  money  in  the  name  of  the  * 
corporation  and  pledge  its  responsibility,  without  authority  con- 
ferred by  the  charter  or  by-law  of  the  corporation,  or  a  resolution 
of  the  directors.2     Under  a  by-law  of  a  corporation  giving  the 
president  "  the  general  charge  and  direction  of  the  business  of 
the  company,  as  well  as  all  matters  connected  with  the  interests 
of  the  corporation,"  he  has  no  authority  to  do  an  act  which,  by 
another  by-law  of  the  corporation,  is  expressly  given  to  a  separate 
committee.'     A  president  cannot  borrow  money  on  his  own  note 
and  bind  the  corporation  for  the  loan  by  falsely  representing  that 
he  wishes  the  money  for  his  corporation.*     The  president  of  a 
corporation,  having  full  personal  charge  of  the  business  which 
the  corporation  was  organized  to  transact,  represents  the  corpora- 
tion, a,nd,j>ri7na  facie,  has  power  to  do  any  act  which  the  direct- 
ors can  authorize  or  ratify.'     Unless  authorized  by  the  charter  or 
by-laws  of  a  corporation,  its  president  has  no  authority  to  indorse 
and  negotiate  notes  which  are  its  property.     But  his  authority  to 
do  so  may  be  presumed  from  his  uniform  practice  in  such  mat- 


Holbrook    r.    Fauquier,    etc..    Turn- 
pike   Company,    3    Crancli    C.     Ct., 
425;  Wait  r.  Nashua  Armory  Assn., 
(N.  H.)  23  Atl.  Rep.  77;  s.  c,  34  Cent. 
L.  J.  119;  14  Law  Rep.  Anno.  356; 
Mt.  Sterling,  etc.,  Turnpike  Road  Co.  v. 
Looney,  1  Mete.  (Ky.)  550;  s.  c,  71  Am. 
Dec.  491 ;   Bacon  r.  Mississippi  Insur- 
ance Co.,   31    Miss.    116;    Walworth 
County    Bank   v.  Farmers'    Loan    & 
Trust  Co.,  14  Wis.  325;  Titus  c.  Cairo, 
etc.,   R.  R.  Co.,   37  N.  J.  Law,  98; 
Dawes  c.  North  River  Insurance  Co., 
7  Cowen,  462;  Mahone  v.  Manchester, 
etc.,  R.  R.  Corp.,  Ill  Mass.  72;   a.  c, 
15    Am.    Rep.    9;    Marine    Bank    v. 
Clements,  3  Bosw  600;    Lyndon  Mil- 
Co.   c.   Lyndon  Literary    &   Biblical 
Inst.,  63  Vt.  681;   s.  c,  22  Atl.  Rep. 
575;  25  Am.  St.  Rep.  783;  Westerfleld 
V.  Radde,  7  Daly,  326;   Western  R.  R. 
Co.  V.  Bayne,  11  Hun,  166;   Hodge  v. 
First  National  Bank,  22   QraU.  51; 


Brooklyn  Gravel  Road  Co.  v.  Slaugh- 
ter, 33  Ind.  185;  First  National  Bunk 
V.  Kimberlands,  16  W.  Va.  555.  That 
the  power  of  a  president  in  making 
contracts  on  behalf  of  a  corporation  is 
restricted  to  the  authority  being  con- 
ferred on  him  by  the  corporation,  see 
Bacon  v.  Mississippi  Ins.  Co.,  31  Miss. 
116. 

'Mount  Sterling  &  Jeffersonville 
Turnpike  Road  Co.  v.  Looney,  (1858) 
1  Mete.  (Ky.)  550. 

'  Life  &  Fire  Insurance  Co.  t.  Me- 
chanics' Fire  Ins.  Co.,  7  Wend.  31. 

3  Market  Co.  r.  Jackson,  102  Pa.  St. 
269. 

*  Wright's  Appeal,  (1882)  99  Pa.  St. 
425;  citing  Angell  &  Ames  on  Corp. 
§§  220-297;  Martin  v.  Great  Falls 
Manufacturing  Co..  9  N.  H.  51. 

'  Oakes  r.  Cattaraugus  Water  Co., 
(1894)  143  N.  Y.  430;  s.  c.  38  N.  E. 
Rep.  461;   62  N.  Y.  St.  Repr.  446; 


ters.'  Under  authority  given  him  by  the  directors  of  a  banking 
corporation  to  sell  certain  stock  belonging  to  it,  the  president  of 
the  bank,  where  uninstructed  to  the  contrary,  would  have  author- 
ity to  employ  a  broker  to  sell  it.^  The  acts  of  clerks  of  a  corpo- 
ration in  making  unauthorized  purchases  for  the  corporation  on 
credit  may  be  ratified  by  its  president.^  By  virtue  of  his  office, 
a  president  of  a  corporation  may  collect  subscriptions  to  the 
capital  stock.''  In  a  Missouri  case  a  corporation,  a  transfer  com- 
pany, was  held  liable  upon  promissory  notes,  given  for  the  pur- 
chase of  mules  for  its  use,  and  signed  in  its  name  by  its  presi- 
dent.* 


Hastings  r.  Brooklyn  Life  Ins.  Co.,  138 
N.  Y.  473;  s.  c,  34  N.  E.  Rep.  289; 
Conover  v.  Insurance  Co.,  1  N.  Y.  290; 
Booth  V.  F.  &  M.  N.  Bank,  50  N.  Y. 
396;  Leslie  v.  Lorillard,  110  N.  Y.  519; 
8.  c,  18  N.  E.  Rep.  363;  Holmes, 
Booth  &  Haydensf'.Willard,  125  N.  Y. 
75;  8.  c,  25  N.  E.  Rep.  1083;  Patter- 
son V.  Robinson,  116  N.  Y.  193;  s.  c, 
22  N.  E.  Rep.  372;  Rathbun  r.  Snow, 
123  N.  Y.  343;  s.  c,  25  N.  E.  Rep. 
379;  New  York  P.  &  B.  R.  R.  Co. 
V.  Dixon,  114  N.  Y.  80;  s.  c,  21  N.  E. 
Rep.  110. 

*  Marine  Bank  v.  Clements,  6  Bosw. 
166. 

« Sistare  v.  Best,  16  Hun,  611. 

'  Silva  V.  Metropolitan  Drug  Co. ,  42 
N.  Y.  Super.  Ct.  307.  In  Brouwer  v. 
Harbeck,  1  Duer,  114,  an  insurance 
company  was  authorized  by  its  charter 
to  receive  premium  notes  in  advance 
and  negotiate  them  to  raise  money  for 
the  payment  of  losses  or  otherwise  in 
the  course  of  its  business.  The  presi- 
dent of  the  corporation  was  empowered 
by  its  by-laws  to  sign  policies  and  trans- 
act the  ordinary  business  of  the  corpo- 
ration. It  was  held  that  the  borrowing 
of  money  and  hypothecation  of  these 
premium  notes  for  the  purpose  of  pay- 
ing losses,  and  afterwards  having  these 
notes  discounted  by  the  lender  in  pay- 
ment of  the  loss,  was  in  the  transac- 
tion of  the  ordinary  business  of  the 


corporation,  and  did  not  require  a  pre- 
vious resolution  of  the  board  of 
directors. 

*East  New  York,  etc.,  R.  R.  Co.  v. 
Lighthall,  5  Abb.  Pr.  (N.  S.)  458;  s.  c, 
36  How.  Pr.  481;  6  Robt.  407.  In 
Georgia  Company  r.  Castleberry,  (1871) 
43  Ga.  187,  where  the  corporation  was 
of  the  same  name  with  a  partnership 
doing  business  by  the  same  agent  be- 
fore the  date  of  the  charter,  it  was 
held  that  the  assumption  of  a  debt  due 
by  the  old  partnership  with  no  new 
consideration  was  outside  of  the  scope 
of  the  charter,  and,  therefore,  outside 
of  the  scope  of  the  president's  duties, 
as  they  were  derived  from  the  nature 
of  his  office,  and  even  a  written  con- 
tract promising  to  pay  this  debt  would 
be  of  doubtful  validity  unless  there 
was  special  authority  from  the  com- 
pany. 

^  Sparks  r.  Dispatch  Transfer  Co. , 
(1891)  104  Mo.  531;  s.  c,  15  S.  W.  Rep. 
417;  24  Am.  St.  Rep.  351;  12  Law  Rep. 
Anno.  714;  33  Am.  &  Eng.  Corp.  Cas. 
373.  "The  power  of  [the  president] 
to  bind  [the  corporation],"  said  the 
Supreme  Court  of  that  state,  "is  gov- 
erned by  the  law  of  agency.  The 
principle  underlying  is  the  same, 
whether  the  principal  be  a  corporation 
or  an  individual.  It  is  now  well  set- 
tled that  when,  in  the  usual  course  of 
the  business  of  a  corporation,  an  officer 


184 


POWER  OF  AGENTS  AND  OFFICERS. 


[§143 


I 


§  143.  Rule  as  to  evidence  in  such  cases.-  In  the  Missouri 
case  just  referred  to,  some  of  the  promissory  notes,  with  which  it 
was  sought  to  charge  the  corporation,  were  signed  by  its  presi- 
dent as  an  „.dividua  .  The  Supreme  Court  of  Missouri  held  that 
where  such  negotiable  notes  are  signed  by  tlie  president  of  a  cor- 
poration m  ns  own  name,  and  nothing  appears  in  the  instrument 
to  indicate  lie  was  acting  as  agent  of  the  corporation,  extrinsic 
evidence  was  inadmissible  to  show  such  agency!-    In  a  late  nIw 

has  been  allowed  to  manage  its  affairs,  purcbasinir  ao-ont  ,>f  .1,.  r 

his  authority  to  represent  the  c-orpom:  prio^rtb!  Xn.  of  n.  [corporation] 

tion  may  be  unplied  from  .he  n^ner  ln:7sll'Zf:J^:ZTr^Z- 

m  which  he  has  been  permitted  by  the  The  [corporation]  was  e^  4  to  i 

directors  to  transact  its  business.    This  transfer  business  in  whiH^.t.        1° 

isonly  theappljcation  of  the  principle  powe;;:rmS  "and  ittL  its^writ" 

that  usual  employment  is  evidence  of  ten  charter  privilege  to  buy  mutesand 

Fire  Ins.  Co.  r.  Seminary   53  Mo  480-  tinnl      ttjo  ,            •               Lcorpora- 

Kilev  V  Forsef>   ^7  \Tn  ^io  \r    '.  1   ^"     "'^  transaction,  under  the  evi- 

xviiey  V.  rorsee,  57  Mo.  390;  Martin  r.  dence   was  wifhin   }^^tu  i.;.      *     i 

Webb    1in   TT    sj    '-     xu   •        /,  ^"^t^,  «as  witnin   both  bis  actual  and 

TnTinVif  'J',^'"'"^  ^''-   '•    ^PP'^"^"^      authority     to     bind     the 

Anglo-Cahfornian  Bank.  104  U.  S.  192.    [corporation!" 

The  president  of  a  business  corporation       •  Sparks  r. '  Dispatch  Transfer  Co 
^  Its  chief  executive  officer.    He  may,    (1891)  104  Mo.   5^     s    c   ^5  g  W 
without  any  special  authority  from  the    Kep     417      The     oJ,^  •       7* 

bcrd  of  directors,  perform  all  acts  of  number  of  c2fro:Ze7^::L'^ 
an  ordinary  nature  which,  by  usage  taining  this  view  and  then  as  h 
or  necessity  are  incident  to  his  office,  claimll  that  thL'  doetr^e  had  b^e" 
and  may  bind  the  corporation  by  con-  repudiated  by  the  courts  of  Mis^urf 
tracts  m  matters  arising  in  the  usual  in  certain  cases,  these  lattfrwere 
TlT  S  ^""T-  ^^°^  ^"  ^^^^^P-  ---ed  and  distinguished  a"  ollows 
Lw^23''   r  'The  leading    casf  relied    upon  by 

Law,  237.     Applying  the  principles  to   respondents  is  Washington   etc    Inl 
the  case  at  bar  it  was  said-    "FTiio   n«    „    c      •       ""**"*"Sto".  etc.,  Ins. 
•J     .    *    7  1^^"^    ^^-   ^-   Seminary,    52  Mo    480      Th*. 

eClt '  hTr^  ""'"  "<"«  '^'"^''  -''^«  ''^'ofZ  acul 

ZZL  T        .       ^        corporation]  in  that  case  was  as  follows : 

owned    from   its   organization    until  '$750 
after  the  execution  of  the  notes  sued       '  For  value  received  in  policy  num 

M^oLTthe    "  """""r'^^'y   "-  2,969,  dated  the  fourt^n  h'^Hf 
signed  noto  m  the  name  of  the  corpo-   March,  1866.  issued  by  the  Washing 

hr^era^d^rhtresior::"  rrr-"-?  --— ^"p^" 

PUintiffshad  thirteen  ,m^Zl  t^n^^r  IrZ^Z^^t 
actions  with  him  as  the  president  and   timeVngS  the'tlTS,  L  sucl^ 


§143] 


PRIVATE  CORPORATIONS. 


185 


York  case  there  was  a  contention  that  although  the  corporation 
might  be  legally  liable  for  the  debt,  still  the  notes  in  the  first 
instance  having  been  made  and  discounted  for  the  accommoda- 
tion of  Woodruff  (its  president),  the  debt  was  not  contracted  in 
the  business  for  which  the  corporation  was  created,  and  the  mort- 


portions  and  at  such  time  or  times  as 
the  directors  of  said  company  may, 
agreeably  to  their  acts  of  incorpora- 
tion, require. 
'  rSigned]  DANIEL  MCCARTHY, 

'  President. 
'Per  Thomas  Burke.' 

' '  This  court  held  that  it  was  com- 
petent to  explain  the  ambiguity  on 
the  face  of  the  note  itself.  Speaking 
for  the  court,  Judge  Sherwood  said 
in  that  case  :  '  In  the  present  case, 
the  note  sued  on  is  signed  *  Daniel 
McCarthy,  President.'  But  president 
of  what  ?  Just  here,  under  the  rules 
laid  down  in  the  above  cases,  parol 
evidence  steps  in  and  affords  a  ready 
and  satisfactory  explanation.  The 
word  '  president,'  attached  to  the  name 
of  Daniel  McCarthy,  is  an  earmark  of 
the  official  capacity  in  which  the  note 
was  signed  —  not  evidence,  it  is  true, 
that  the  note  was  signed  in  that 
capacity,  but  a  sufficient  basis  for  the 
introduction  of  testimony  tending  to 
establish  that  fact.'  The  court  re- 
sumed :  '  3Ioreover,  in  that  case  the 
note  on  its  face  referred  to  policy 
number  2,969,  which  insured  the 
seminary  building  and  church  build- 
ing belonging  to  St.  Mary's  Seminary. 
It  will  be  observed,  first,  that  the 
above  note  is  not  negotiable,  and, 
secondly,  that  the  ambiguity  appears 
on  its  face,  growing  out  of  the  word 
•president,'  affixed  to  McCarthy's 
name.  In  the  case  at  bar  the  notes 
are,  by  their  terms,  negotiable,  and 
contain  nothing  but  Jackson's  name 
as  maker ;  so  that  this  case  is  not 
authority,  because  the  facts  are 
entirely  different.'  It  is  true,  however, 
that,  in  this  case,  Judge  Sherwood 
24 


quotes  from  the  decision  in  Mechanics' 
Bank  of  Alexandria  v.  Bank,  5 
Wheaton,  327,  in  which  the  Supreme 
Court  of  the  United  States  says :  '  It 
is  by  no  means  true,  as  was  contended 
in  argument,  that  the  acts  of  agents 
derive  their  validity  from  professing 
on  the  face  of  them  to  have  been  done 
in  the  exercise  of  their  agency.'  If 
this  were  all,  it  must  be  conceded  that 
respondents  are  justified  in  claiming 
that  this  decision  is  broad  enough  to 
permit  parol  evidence  in  any  case  to 
explain  who  was  the  principal,  not- 
withstanding there  is  no  intimation  on 
the  face  of  the  paper  that  any  one 
but  the  agent  is  a  party  to  it.  But  the 
Supreme  Court  of  the  United  States 
did  not  put  their  decision  on  tliat 
ground  ;  but,  on  the  contrary.  Justice 
Johnson,  who  delivered  the  opinion, 
expressly  says :  '  But  the  fact  that 
this  appeared  on  its  face  to  be  a 
private  check  is  by  no  means  to  be 
conceded ;  on  the  contrary,  the 
ajypeaj'ance  of  the  corporaie  name  of  the 
institution  on  the  face  of  the  paper  sX 
once  leads  to  the  belief  that  it  is  a  cor- 
porate, and  not  an  individual,  trans- 
action ;  to  which  must  be  added  that 
the  cashier  is  the  drawer,  and  the  teller 
the  payee,  and  the  form  of  ordinary 
cJi£cks  deviated  from  by  the  substitu- 
tion of  •  to  order '  for  '  to  bearer.'  The 
evidence,  therefore,  on  the  face  of  the 
bill  predominates  in  favor  of  its  being 
a  bank  transaction.  But  it  is  enough 
for  the  purposes  of  a  defendant  to 
establish  that  there  existed  on  the  face 
of  the  paper  circumstances  from  which 
it  might  reasonably  be  inferred  that  it 
was  either  one  or  the  other,  and  in 
such  a  case  to  resort  to  extrinsic  evi- 


186 


POWER  OF  AGENTS  AND  OFFICERS. 


[§  1*3 


§144] 


PEIVATE  CORPOKATIONS. 


187 


I 


gage  could  not,  therefore,  be  enforced  for  its  payment.  The  coui-t 
held  that  the  refusal  to  iind  that  these  notes  were  made  and  dis- 
counted for  the  accommodation  of  the  president  individually,  and 
that  the  debt  was  not  contracted  in  the  business  for  which  the 
company  was  created,  was  justified  by  the  evidence.^ 

dence  to  remove  the  doubt.'     So  that  8.  c,  25  N.  E.  Hep.  303,  iifflrming  44 

it  seems  clear  that  the  Supreme  Court  Hun,    130.     The    court   said:    "The 

placed  its  decisiou  upon  the  fact  that,  burden  of  proving  that  the  notes  were 

upon    the    face    of   the    paper   the  not  given  in  the  business  of  the  cor- 

ambiguity     appeared.      That    court  poration  rested  upon  the   defendant, 

would  never  have  held  that  there  was  [The  plaintilT],  the    president  of  the 

any  ambiguity  on  the  face  of  the  notes  bank,  testified  that  he  had  no  knowl- 

sued  on  [there].     Falk  r.  Moebs,  127  ciigc  of  the  proceeds  being  used  for 

U.  8.  597.     In  31  Mo.   193  (Smith  r.  Woodruflf's  benefit,  and   the  facts  of 

Alexander),  the  action  was  on  the  fol-  the  case  do  not  bring  it  within  the  rule 

lowing  note  :  which  puts  upon  a  holder  of  a  prom- 

'$500.  St.  Louis.  Mo.,  Julyfl,  1855.  issory  note  or  other  corporate  obliga- 

*  Ninety  days  after  date  I   promise  tion  the  burden  of  proving  by  direct 

to  pay  to  the  order  of  Messrs.  Smith  evidence  that  it  was  issued  pursuant 

«&   Co.,    $500,    for    value     received,  to  a  vote  of  the  trustees,  or  for  a  cor- 

negotiable   and   payable  without  dc-  porate   debt,  or  that   the  corporation 

falcation  or  discount.  received  the  consideration,  in  order  to 

'[Signed]    J.  H.  ALEXANDEH,  establish   a   corporate  liability.      The 

•  Trmmrer,  Ohio  &  Miss.  R  R  Co.'  cases  where  this    rule  li.is  been  held 

"In  that  case  Alexander,having been  are    those  of   sj)eeial     agency.      The 

sued  on  this  note,  was  allowed  to  show  gencnil  nde,    of    course,    is   that    the 

that  he  was  treasurer  of  the  Ohio  rail-  agent's  authority  in  all  cases  nni.«>t  be 

road,  and  that  he  gave  the  note  simply  shown  to  charge  the  i)riueii)al  with  an 

as    agent  of    said   company.     Judge  act  performeil   by  the  agent,   but  in 

EwiNG  saying  :  '  A  mere  addition  to  many  instances  this  fact  may  be  estab- 

the  name  of  the  party  signinir  tlie  con-  li.shed  by  presumptive  evidence.     And 

tract  cannot  be  regarded  as  a  certain  this  is  so  where  the  corporation,  whose 

ifidieium  ihiit  it  was  made  on  behalf  obligation  is  in  <iuestion.  is   engage.l 

of  another.      When,    however,    it    is  in  a  business,  the  nature  of  which  and 

doubtful  from  the  fue  of  the  contract  the  duties    in   relation  to  which  de- 

whether  it  was  intended  to  operate  as  volved    upon   its   officers,   require  or 

a  personal   engagement  of  the  party  justify     the     giving    of    negotiable 

signing  it,  or  to  impose  an  obligation  instrunients  without  being  authorized 

on   some   third    person  as  principal,  thereto  by  a  special  vote  to  that  effect, 

evidence    is  admissible    to  show  the  If  the  scope  of  the  agent's  authority 

character  of  the  transaction.'    So  we  be  proven  and  it  appears  that  acts  like 

see  that  Judge  Ewixg  placed  his  rul-  the   one   in    question    would,   under 

ing  on  the  doubt  appearing  on  the  face  ordinary  circumstances,  be  within  the 

of  the  note  whether  it  was  the  obliga-  authority,  a  presumption  arises  that 

tion   of   Alexander    or   the    railroad  the  necessary  circumstances  did  exist 

company."  and  that  the  act  in   question  was  au- 

'  Martin    r.    Niagara    Falls    Paper  thorized.     Morawctz  on  Corp.  §  616 ; 

Manufg.  Co.,  (1890)  123  N.  Y.  165;  Lincohi   p.  Iron  Co.,    103  U.  8.  413 j 


§  144.  Power  of  president  as  to  transfer  of  assets. — 
There  is  no  power  in  a  president  and  general  manager  of  a  cor- 
poration, as  such,  to  borrow  money  for  the  corporation  and  to 
assign  the  assets  of  the  corporation  as  a  security  for  the  loan,*  but 
in  accordance  with  the  uniform  practice  of  a  corporation,  its 
president  may  transfer  the  title  to  a  promissory  note  by  an 
indorsement  signed  by  hhn  as  president.^  Tlie  presumption  that 
the  president  of  a  corporation  had  power  to  execute  it,  is  carried 
with  an  assignment  of  a  claim  owned  by  the  corporation  exe- 


Patterson  v.  Robinson,  116  N.  Y.  193  ; 
F.  &  M.  Bank  v.  B.  &  D.  Bank,  16  N. 
Y.  125 ;  N.  R.  Bank  0.  Aymar,  3  Hill, 
362.  It  was  said  in  Farmers'  Bank  v. 
Butchers  &  Drovers'  Bank  that  the 
sound  rule  is  that  'when  a  party 
dealing  with  an  agent  has  ascertained 
that  the  act  of  the  agent  corresponds 
in  every  particular,  in  regard  to  which 
such  party  has  or  is  presumed  to  have 
any  knowledge,  with  the  terms  of  the 
power,  he  may  take  the  representa- 
tions of  the  agent  as  to  any  extrinsic 
fact  which  rests  particularly  within 
the  knowledge  of  the  agent,  and 
which  cannot  be  ascertained  by  a 
comparison  of  the  power  with  the  act 
done.'  The  court  then  said  :  '  The 
case  is  analogous  to  the  giving  of  a 
firm  note  by  one  partner  for  his  own 
benefit.  When  such  a  note  is  given 
in  a  transaction  unconnected  with  the 
partnership  business  and  known  to  be 
so  by  the  person  taking  it,  the  other 
partners  are  not  bound  without  their 
consent,  but,  prima  facie,  the  firm  note 
binds  all  the  partners,  and  the  burden 
of  proving  a  want  of  authority  lies 
upon  the  finii.  Doty  v.  Bates,  11 
Johns.  544 ;  Glansevoort  v.  Williams, 
14  Wend.  133-138.'  The  nature  of  the 
business  of  the  paper  company  justi- 
fied the  giving  of  negotiable  paper, 
and  the  making  of  such  instruments 
was  an  incident  to  the  business  it 
carried  on.  It  was  a  frequent  occur- 
rence in  the  management  of  its  affairs. 
The  by-laws  which  required  the  secre- 


tary to  sign  all  obligations  of  the  com- 
pany had  never  had  any  force  and 
were  unknown  to  the  bank.  What 
the  bank  did  know  was  that  Wood- 
ruff [who  made  the  notes]  was  presi- 
dent, general  manager  and  financial 
agent  of  the  company.  He  was  such 
by  the  general  acquiescence  of  the 
stockholders.  He  and  *  *  *  daugh- 
ter owned  the  stock  of  the  company. 
For  twenty -five  years  there  had  been 
no  meeting  of  the  stockholders  for  the 
election  of  officers  and  very  few  meet- 
ings of  the  trustees,  and  Woodruff 
had  managed  the  business  as  if  it  w^as 
his  own.  He  bought  its  supplies,  sold 
its  products  and  paid  its  debts.  No 
other  person  was  shown  to  have  had  a 
voice  in  the  management  of  its  affairs. 
Under  such  circumstances,  the  giving 
of  a  promissory  note  in  the  name  of 
the  company  for  money  borrowed  was 
not  only  within  the  apparent  scope  of 
Woodruff's  authority,  but  the  long 
period  during  which,  without  inter- 
ference, he  was  permitted  to  manage 
the  company's  affairs,  justified  the 
inference  that  it  was  within  his  actual 
authority.  Martin  v.  Webb,  110  U. 
S.  7.  The  bank  was,  therefore,  justi- 
fied in  relying  upon  the  presumption 
that  the  notes,  being  made  in  the  name 
of  the  company,  were  given  in  its 
business  and  for  its  benefit." 

'  Hyde  r.  Larkin,  (1889)  35  Mo.  App. 
365. 

2  Scott   r.    Johnson,   5  Bosw.    313; 
Merchants'  Bank«>.McColl,  6Bosw.473. 


188 


POWEB  OP  OFFICERS  AND  AGENTS. 


[§146 


« 


u 


ll 


cuted  by  its  president  under  its  corporate  seal,  reciting  an  authority 
from  the  board  of  directors  to  execute  it.>  When  tlie  transfer  of 
a  note  belonging  to  a  corporation  has  been  autliorized  by  a  reso- 
lution of  its  board  of  directors,  its  president  has  power  to  indorse 
it  over.-^  As  against  tlie  parties  to  a  note,  the  presumption  is 
that  the  president  of  a  corporation  indorsing  it  over  was  author- 
ized to  do  S0.3  The  president  of  a  corporation  may  be  author- 
ized to  indorse  its  notes  by  the  directors,  who  with  the  president 
by  the  charter  have  full  power  to  conduct  its  affairs/ 

§  145,  When  a  president's  act  is  binding.—  A  manufactur- 
ing corporation  of  Connecticut,  for  the  purpose  of  manufacturing 
a  certain  class  of  goods  and  to  prepare  for  the  same,  arranged 
with  a  New  York  firm  of  commission  merchants  that  the  latter 
advance  to  the  corporation,  as  called  for,  money  to  the  amount  of 
$100,000,  to  be  secured  by  a  mortgage  upon  its  real  property  and 
its  personal  property  to  this  extent,  that  the  goods  manufactured 
of  this  kind  would  be  shipped  to  the  firm  to  be  sold  on  commis- 
sion and  the  avails  of  the  sales  applied  to  the  settlement  of  the 
bond  and  mortgage.     Advances  were  made  to  an  amount  slightly 
exceeding  the  amount  of  the  limit ;  goods  were  shipped  and  sold 
on  commission,  etc.     The  president  of  the  corporation,  its  prin- 
cipal business  and  financial  manager,  requested  this  firm  to  make 
advancements  to  the  corporation  in  addition  to  those  contemplated 
and  secured  by  mortgages,  and  verbally  agreed  that  these  should 
be  secured  by  the  mortgages,  by  the  products  of  the  mill  previ- 
ously and  subsequently  consigned  to  them,  and  certain  shares  of 
stock  which  the  corporation  held  in  pledge.     There  was  advanced 
upon  the  agreement  a  large  sum  of  money  in  addition  to  that 
already  advanced.     There  was  no  vote  either  of  stockholders  or 
directors  authorizing  such  borrowing  or  agreement.     In  an  action 
for  foreclosure  of  the  mortgage  the  Supreme  Court  of  Connecti- 
cut held  that  the  firm  was  entitled  to  a  decree  of  foreclosure  and 
sustained  the  right  of  the  firm  to  apply,  as  it  had  done,  the  pro- 
ceeds of  the  sale  of  products  of  the  corporation  to  the  later 

»  Corbit  r.  Nicoll,  12  N.  Y.  Civ.  Pro.  the  Metropolis,  8  Gill.  (Md.)  64.    As 

^'       ,       ^  <^o  president's  power  to  draw,  accept, 

*  Clark  V.  Titcomb,  43  Barb.  122  and  indorse    bills  of   exchange    see 
'Elwell  r.  Dodge,  33  Barb.  336.  Jones  r.  Hawkin.s,  17  Ind.  550; 'aIH- 

*  Merrick  r.  Trustees  of  the  Bank  of  son  c.  Hubbcll,  17  Ind.  559. 


§146] 


PRIVATE  CORPORATIONS. 


189 


advances  made  under  this  arrangement  with  the  president  instead 
of  upon  the  bond  which  the  mortgage  was  executed  to  secure.^ , 

§  146.  Illustrations  of  the  power  of  a  president. —  The  con- ; 
tracts  binding  a  corporation   which  the  president  thereof  lias 
authority  to  make,  by  virtue  merely  of  his  ofiicial  position,  are 
confined  to  those  relating  to  matters  arising  in  the  ordinary  course  . 


»  Lewis  V.  Hartford  Silk  Manufac- 
turing Co.,  (1887)  56  Conn.  25.  In  its 
opinion  as  to  the  binding  effect  upon 
the  corporation  of  the  transactions  of 
its  president  the  court  said:  "  No  vote 
[of  stockholders  or  directors]  was  nec- 
essary to  make  the  acts  of  [the  presi- 
dent] binding  upon  the  corporation. 
Having  made  him  its  principal  and 
general  financial  manager  and  agent, 
with  no  limitation  upon  his  power,  and 
having  notified  all  persons  concerned 
of  such  appointment,  the  company  is 
bound  by  his  act  of  borrowing  for  its 
benefit  and  of  pledging  [the  products 
of  the  mill]  or  any  other  personal 
property  for  repayment.  He  was 
clothed  with  power  to  borrow  money 
for  its  necessary  and  proper  uses  from 
any  person  who  would  lend;  to  sell 
[their  products]  and  repay;  or  consign 
[them]  with  leave  to  retain  the  pro- 
ceeds; or  use  any  other  property  for 
that  purpose.  And  as  in  these  matters, 
in  legal  contemplation,  he  was  the  cor- 
poration, he  could  bind  it  as  effectu- 
ally as  it  could  bind  itself  by  corpo- 
rate vote  when  taking  up  money  by 
an  agreement  that  payment  should  be 
secured  by  the  previous  mortgage,  pro- 
vided (in  the  interest  of  other  credit- 
ors) the  aggregate  should  not  exceed 
the  extreme  limit  of  one  hundred 
thousand  dollars.  Of  course  a  cor- 
porate vote  was  necessary  to  a  valid 
mortgage  by  its  financial  agent  of  the 
real  estate  of  the  [corporation]  to  the 
plaintiffs.  But  all  money  or  other 
personal  property  or  rights  therein 
coming  into  its  possession  because  of 
the  mortgage  security  thus  given  were 


at  the  disposal  of  its  general  un- 
limited financial  agent,  equally  with 
any  other  personal  property  belonging 
to  it.  A  corporate  vote  is  not  made 
necessary  to  the  valid  disposition  of 
this  right  in  personal  property  because 
of  the  mention  of  it  in  a  sealed  in- 
strument. Therefore,  if  we  should 
concede  that,  as  against  the  plaintiffs, 
the  agreement  between  them  and  the 
[corporation]  constituted  a  valuable 
right  in  the  possession  of  the  latter, 
nevertheless  [its  president]  had  abso- 
lute power  of  disposal  of  this  right 
for  its  benefit.  He  could  exchange, 
sell,  pledge  or  annul  it  by  his  indi- 
vidual action  at  his  discretion.  Pre- 
sumably the  agreement  by  the  mort- 
gagor to  deliver,  and  by  the  mortgagee 
to  receive  [the  products  of  the  mill], 
in  payment  was  for  the  benefit  of  the 
latter,  and  although  it  has  a  place  in 
the  condition  of  the  mortgage,  they 
were  under  no  obligation  to  see  in  it 
any  limitation  upon  the  power  of  the 
mortgagor's  general  financial  agent 
thereafter  to  borrow,  if  they  should  be 
willing  to  lend,  other  and  additional 
sums  for  its  benefit,  and  make  pay- 
ment therefor  in  money,  [products  of 
the  mill],  or  any  other  personal  prop- 
erty. The  purpose  of  the  mortgagee 
was  to  give  satisfactory  security  for 
the  loan  of  one  hundred  thousand 
dollars,  not  at  all  to  bar  itself  from 
borrowing  other  money  if  a  willing 
lender  could  be  found.  As  it  is  the 
company's  duty  always  to  pay  its 
debts,  the  application  of  any  of  its 
personal  property  or  rights  in  stock  at 
any  time  to  that  use  by  its  accredited 


1* 

!r  'I 


t 


I: 


w 


11 

» 


190  POWEK  OF  AGENTS  AND  OFFI0EE8.  [§  146 

of  the  business  of  the  corporation.*  And  a  corporation,  for 
instance,  engaged  in  the  business  of  conveying  water  through 
ditches  for  sale  to  miners,  would  not  be  bound  by  a  contract  of 
its  president  for  a  purcliase  of  additional  ditch  property  with  a 
view  of  extending  tlic  operations  of  the  corporation,  as  this  would 
not  be  a  matter  within  the  ordinary  course  of  the  business  of  the 
corporation.^  The  managing  board  of  a  private  corporation  hav- 
ing conferred,  by  a  resolution  of  such  board,  uj)on  the  president 
of  the  corporation  the  full  power  of  tlie  corporation  in  reference 
to  municipal  street  work,  the  president  of  the  corporation  may 
contract  with  a  city  on  behalf  of  the  corporation  to  improve  a 
street.^  If  made  the  duty  of  a  president  of  a  corporation  to  gen- 
erally supervise  its  entire  business,  and  it  be  provided  that  all  of 
the  property  of  the  corporation  shall  be  under  his  control,  by  a 
by-law  of  the  corporation,  and  it  aj)pears  that  for  many  years  its 
president  has  acted  as  its  attorney,  and  looked  after  its  litigation, 
such  facts  will  be  evidence  of  his  authority  to  employ  counsel  to 
look  after  the  interests  of  the  corporation  in  any  pending  litiga- 
tion.'* A  corporation  may  be  bound  by  its  president's  entering 
satisfaction  of  a  judgment  in  its  favor,  after  an  assignment  to  a 
third  person,  though  the  satisfaction  piece  be  not  under  the  seal 
of  the  corporation.^  The  president  of  a  manufacturing  corpora- 
tion, who  is  also  its  superintendent,  clothed  with  general  author- 
ity to  contract  by  parol,  without  the  seal  of  the  corporation,  for 


financial  agent  without  limitation  is 
binding  upon  it.  And  whatever  valu- 
able property  right  as  against  [the 
pledgor],  the  [corporation]  had  in  the 
use  and  application  of  his  shares, 
[stock  of  another  corporation  pledged 
to  it],  that  right  was  at  the  disposal  of 
[its  president]  for  the  benefit  of  the 
company  by  sale  or  pledge,  [the 
pledgor's]  rights  of  course  not  to  be 
affected  by  any  act  of  [the  president] 
not  authorized  or  ratified  by  himself." 

'  Blen  V.  Bear  River  &  Auburn  Water 
&  Mining  Company,  (1862)  20  Cal. 
600. 

•Ibid.  In  Shaver  v.  Bear  River  & 
Auburn  Water  &  Mining  Co.,  (1858) 
10  Cal.  396,  the  court  held  that  the 
president  of  this  corporation  had  au- 


thority to  bind  the  corporation  for  the 
purchase  of  a  house  to  be  used  as  an 
office  for  the  corporation  and  as  a 
boarding  house  for  the  laborers  it  em- 
ployed under  a  resolution  of  the  cor- 
poration vesting  him  with  discretionary 
power  as  to  ' '  all  matters  pertaining  to 
the  prosecution  of  the  projects  of  the 
company,"  and  if  his  authority  were 
doubtful,  the  acts  of  the  corporation 
amounted  to  a  ratification  of  the 
contract. 

» Oakland  Paving  Company  v.  Rier, 
(1877)  52  Cal.  270. 

♦Wetherbee  v.  Fitch,  (1886)  117  111. 
67;  8.  c.  7  N.  E.  Rep.  513. 

'Booth  V.   Farmers  &    Mechanics' 
Bank,  50  K  Y.  396. 


^  146] 


PRIVATE  CORPORATIONS. 


191 


making  and  delivering  its  manufactured  goods,  has  like  authority, 
unless  the  power  is  withdrawn,  to  authorize  the  termination  and 
release  of  such  a  contract.^  A  railway  corporation  will  be  bound 
by  a  contract  made  by  its  president,  in  its  behalf,  and  within  the 
scope  of  its  chartered  powers,  to  pay  fixed  sums  of  money  to  the 
proprietors  of  a  railway  bridge  for  the  use  of  the  same,  where  it 
is  made  known  to  the  directors  and  stockholders  and  not  disap- 
proved by  them  within  a  reasonal)le  time.^  No  proof  of  the 
authority  of  the  president  of  a  corporation  will  be  required  to 
establish  an  assignment  made  by  the  corporation,  through  its 
president,  of  a  special  tax  bill.^  The  lease  of  an  office  is  within 
the  usual  powers  of  the  president  of  a  corporation,  and  his  decla- 
rations, when  making  such  a  contract,  are  evidence  of  the  intended 
purpose  for  which  it  may  be  leased.'*  A  corporation  will  be 
bound  by  the  act  of  its  ])resident,  after  its  organization,  in  receiv- 
ing a  conditional  subscription."'  A  corporation  will  be  bound  by 
its  president's  receiving  a  pnjmissory  note,  on  settlement  against 
the  maker,  though  made  payable  tu  tlie  president  or  his  order  by 
his  individual  name,  if  lie  has  been  in  the  habit  of  acting  as  its 
business  agent,  with  tlie  knowledge  of  the  corporation  and  with- 
out objection  on  its  part.''  It  is  within  the  scope  of  a  president's 
authority,  as  president,  to  undertake  to  bring  before  the  board  of 
directors  of  a  corporation,  at  a  time  specified,  a  demand  against 
the  corporation  for  money  borrowed  by  an  agent  of  the  corpora- 
tion, and  the  cor])oration  will  be  bound  to  consider  the  demand 
at  the  time  specified.' 


'  Indianapolis  Rolling  Mills  r.  St. 
liouis,  Fort  Scott  &  Wichita  Railroad, 
(1887)  120  r.  S.  256;  s.  c,  7  Sup.  Ct. 
Rep.  542. 

^Pittsburgh,  Cincinnati  &  St.  Louis 
Ry.  Co.  r.  Keokuk  &  Hamilton  Bridge 
Co.,  (1889)  131  U.  S.  371;  s.  c,  9  Sup. 
Ct.  Rep.  770. 

■Bambrick  v.  Campbell,  (1889)  37 
Mo.  App.  460. 

*  Baltimore  <fe  Philadelphia  Steam- 
boat Co.  V.  McCutcheon,  13  Pa.  St.  13. 

■Pittsburgh  «fc  Connellsville  R.  R. 
Co.  r   Stewart,  41  Pa.  St.  54. 

f  Dougherty  v.  Hunter,  54  Pa.  St. 
380.  As  to  power  of  president  to  ap- 
point attorneys  for  looking  after  liti- 


gation of  corporation,  see  Reno  Water 
Company  ».  Leeto,  17  Nev.  203;  s.  c, 
30  Pac.  Rep.  702;  American  Insur- 
ance Co.  V.  Oakley,  9  Paige,  496;  s.  c, 
38  Am.  Dec.  561:  Wetherbee  r.  Fitch, 
117  111.  67;  s.  c,  7  N.  E.  Rep.  513. 
As  to  president's  indorsing  commercial 
paper  for  transfer, see  Irwin  v.  Bailey,  8 
Biss.  523;  Howland  v.  Myer,  3  N.  Y. 
290;  Caryl  ??.  McElrath,  3  Sandf.  176; 
Palmer  r.  Nassau  Bank,  78  111.  380. 
As  to  power  of  the  president  of  a 
bank  to  contract  for  the  bank,  see 
Case  T.  Hawkins,  53  Miss.  702. 

'Union  Gold  Mining  Co.  r.  Rocky 
Mountain  Bank,  1  Colo.  531.  As  to 
making  sales  of  commodities  of  cor- 


i    '^ 


192 


POWEK  OF  AGENTS  AND  OFFICERS. 


[§147 


I 


§  147.  Illustrations  of  his  lack  of  power. — The  president  of 
a  corporation  has  no  legal  power  or  autliority  to  deplete  the 
coffers  of  the  corporation  by  instructing  the  treasurer  to  refuse 
to  accept  subscription  money  when  tendered.'  An  authority 
given  by  a  resolution  of  the  board  of  directors  to  a  president  of  a 
corporation  "  to  make  all  contracts  and  draw  on  the  treasurer  for 
all  disbui-senients  (countei-signed  by  the  secretary)  under  the 
direction  of  the  board,"  does  not  confer  upon  the  president  power 
to  make  contracts  for,  or  otherwise  bind,  the  corporation  without 
the  "  direction  of  the  board  "  of  directors,  and  his  acceptance  of 
a  bill  drawn  upon  him  as  president,  without  the  direction  of  the 
board  of  directoi's,  would  not  bind  the  corporation.^  There  is  no 
power  in  the  president  of  a  corporation,  by  virtue  of  his  office,  to 
purchase  or  sell  real  property  for  the  corporation  at  his  discre- 
tion. Such  power  can  be  conferred  only  by  the  board  of  trus- 
tees.* A  resolution  being  upon  the  minutes  of  a  corporation  for- 
bidding its  president  purchasing  such  goods,  the  president  cannot 
bind  it  for  goods  purchased.*  Where  a  contract  has  been  entered 
into  by  authority  of  its  board  of  directors,  the  president  of  a  cor- 


poration in  the  usual  course  of  the 
business  of  the  corporation,  see  Horton 
Ice  Cream  Company  v.  Merritt,  63 
Hun,  628;  s.  c,  17  N.  Y.  Supp.  718; 
43  N.  Y.  St.  Repr.  416.  As  to  the  ef- 
fect of  a  president's  acknowledgment 
of  a  debt,  taking  it  out  of  the  Statute 
of  Limitations,  see  Morgan  r.  Mer- 
chants' Bank,  13  Lea,  (Tenn.)  234. 

»  Potts  r.  Wallace,  (1892)  146  U.  8. 
689,  705;  8.  c,  13  Sup.  Ct.  Rep.  196, 
in  which  the  question  whether  or  not 
a  subscriber  to  the  stock  had  been  re- 
leased from  his  obligation  to  pay  it  for 
the  benefit  of  the  creditors  by  the  ac- 
tion of  the  i)resident  or  otherwise. 
The  court  followed  Bank  of  the  United 
States  r.  Dunn,  6  Pet.  51,  where  it  was 
held  that  an  agreement  by  the  presi- 
dent and  cashier  that  the  indorser  on  a 
note  shall  not  be  liable  on  his  indorse- 
ment does  not  bind  the  bank;  that  it 
is  not  the  duty  of  the  cashier  and 
president  to  make  such  contracts,  nor 
liave  they  the  power  to  bind  the  bank 


except  in  the  discharge  of  their  ordi- 
nary duties.  The  court,  in  Potts  v. 
Wallace,  supra,  further  said:  "  It  is 
true  that  if  the  acts  of  the  president 
are  ratified  by  the  corporation,  or  the 
corporation  permits  a  general  course 
of  conduct  or  accepts  the  benefit  of  his 
act,  they  will  be  bound  by  it.  But  the 
general  rule  is  that  the  president  can- 
not act  or  contract  for  the  corporation 
except  in  the  course  of  his  usual  du- 
ties. And  the  rule  is  still  stronger 
against  the  power  of  the  president  to 
bind  the  corporation  by  giving  up  its 
securities  or  releasing  claims  in  its 
favor." 

*  Lazarus,  Use  of,  v.  Shearer,  (1841) 
2  Ala.  718. 

*  Bliss  V.  Kaweah  Canal  &  Irriga- 
tion Co..  (1884)  6.5  Cal.  502. 

*  Westerfleld  v.  Radde.  7  Daly,  326. 
In  Smith  t.  Smith,  (1875)  117  Mass.  72, 
it  appeared  that  a  corporation  held  a 
mortgage  of  land  assigned  to  it  by  the 
mortgagee  as  collateral  security  for  the 


§  147]  PRIVATE  CORPORATIONS.  193 

poration,  without  the  assent  of  the  directors,  has  no  power  to 
modify  it.*  The  president  of  a  corporation,  as  such,  has  no  power 
to  bind  the  corporation  by  any  act  outside  his  official  duty.^  The 
superintendent  of  a  mining  corporation  has  no  authority,  virtute 
officii  merely,  to  borrow  money  on  the  credit  of  the  corporation.^ 
And  the  president  of  such  a  corporation  has  no  power,  as  presi- 

payment  of  a  note  which  was  also  se- 
cured by  a  mortgage  of  other  land 
owned  by  him.     By  vote  afterwards 
the  corporation  authorized  its  presi- 
dent and  secretary  to  cancel  the  prin- 
cipal mortgage,  but,  by  mistake,  the 
president  discharged  both  mortgages 
upon  the  record.     There  was  a  provis- 
ion in  the  charter  of  the  corporation 
that  the  president  should  keep  the  cor- 
porate seal,  but  the  only  provision  in 
its  charter  or  its  by-laws  relating  to 
the  execution  of  contracts  in  its  behalf 
was,  that  the  corporation  should  be 
bound  by  all  instruments  which    it 
should  lawfully  make,  when  executed 
in  its  name  and  pursuant  to  its  rules, 
signed  and  delivered   by  the    presi- 
dent,   secretary,    treasurer    or    other 
officers  or  persons  it  should  appoint, 
and  sealed  by  its  common  seal.     The 
Supreme  Court  of  Judicature  held  that 
the  discharge  of  the  collateral  mort- 
gage was  without  authority  from  the 
corporation  and  void. 

»  Western  Railroad  Co.  v.  Bayne,  11 
Hun,   166;   8.    c,  75  N.  Y.    1.     For 
classes  of  contracts  or  agreements  in 
which  a  president  cannot  bind  the  cor- 
poration, see  Spyker  b.  Spence.  8  Ala. 
333;  First  National  Bank  v.  Reed,  36 
Mich.  263;  St,  Nicholas  Insurance  Co. 
«.  Howe,  7  Bosw.  450;  First  National 
Bank  v.  Bennett,  33  Mich.  520;  Leavitt 
«.  Connecticut  Peat  Co.,  6Blatchf.  139; 
Leggett  v.  New  Jersey  Manuf.  Co.,  1 
N.  J.  Eq.  541;  s.  c,  23  Am.  Dec.  728; 
Fitzhugh  V.  Franco-Texas  Land  Co., 
81  Tex.  306;  s.  c,  16  S.  W.  Rep.  1078; 
McKeag  v.  Collins,  87  Mo.  164;  Olney 
«.  Chadsey,  7  R.  I.  224;  Hodge®.  First 
National  Bank,  22  Qratt.  51;  Brouwer 
25 


V.  Appleby,  1    Sandf.  158;   Hone  v. 
Allen,  1  Sandf.  171,  note;  Thompson 
V.  McKee,  5  Dak.  172;  s.  c,  37  N.  W. 
Rep.  367;  Ellsworth  Woolen  Manuf  g. 
Co.  V.  Fauuce,  79  Me.  440;  s.  c,  10  Atl. 
Rep.  250;   Ashuelot  Manufg.   Co.  v. 
Marsh,   1  Cush.  507;  Globe  Works  «. 
Wright,  106  Mass.  207;  White  v.  West- 
port  Cotton  Manufg.  Co.,  1  Pick.  215; 
8.  c,  11  Am.  Dec.  168;  E.  Carver  Com- 
pany  r.    Manufacturers'   Ins.   Co.,   6 
Gray,  214;  Markey  v.  Mutual  Benefit 
Ins.    Co.,    103  Mass.    78;    Merchants' 
National  Bank  v.  Rawls,  7  Ga.  191 ;  s. 
c,  50  Am.  Dec  394;  Asher  v.  Sutton, 
31  Kaus.  286;  Reynolds, etc., Constr.  Co. 
V.  Police  Jury,  44  La.  Ann.  863;  s.  c.^ 
11  So.  Rep  236;  Potts  v.  Wallace,  146 
U.  S.  689;  s.  c,  13  Sup.  Ct.  Rep.  196; 
Bank  of  United  States  v.  Dunn,  6  Pet. 
51;  Weeks  v.  Silver  Islet  Consolidated 
Mining  Co.,  55  N.  Y.   Super.  1;  s.c, 
8  N.  Y.  St.  Repr.  110;  First  National 
Bank  v.  Lucas,  21  Neb.  280;  s.  c,  31 
N.  W.  Rep.  805;  Foster  r.  Essex  Bank, 
17  Mass.  479;  s.  c,  9  Am.   Dec.  168; 
Dowd  V.  Stephenson,   105  N.  C.  467; 
s.  c.  10  S.  E.  Rep.  1101. 

«  Perry  v.  Simpson  Waterproof  Man- 
ufacturing Co.,  37  Conn.  531.  In 
Stallcup  V.  National  Bank  of  the  Re- 
public, (1888)  15  N.  Y.  St.  Repr.  39,  in 
the  absence  of  proof  of  the  authority 
of  its  president  to  accept  drafts  of  a 
corporation  upon  the  bank,  and  in  the 
face  of  evidence  that  the  obligee  of  the 
drafts  knew  that  similar  transactions 
of  the  president  had  failed  to  meet  the 
sanction  of  the  directors,  the  bank  was 
held  not  to  be  liable. 

8  Union  Gold  Mining  Co.  v.  Rocky 
Mt.  Bank,  2  Colo.  565. 


Ki 


194 


POWER  OF  AGENTS  AND  OFFICERS. 


[§148 


§148J 


PRIVATE  CORPORATIONS. 


195 


dent,  to  nndertake,  in  the  cor|X)rate  name,  for  the  repayment  of 
such  an  unauthorized  loan.*  The  lUinois  Appellate  Court  sus- 
tained a  decree  dismissing  a  hill  to  compel  a  corporation  to  renew 
a  lease  of  a  huilding  helonging  to  it,  because  of  a  lack  of  power 
or  authority  in  the  president  of  the  association  to  bind  it  by  an 
agreement  to  make  or  renew  a  lease  of  its  estate.^ 

§  148.  What  would  show  the  authority  of  a  president. — 

A  corporation  admitting,  at  the  trial  of  a  case,  that  the  one  mak- 
ing the  contract  which  the  corporation   claimed  to  be  unauthor- 


'Ibid. 

*  Kocb  r.  National  Union  Building 
Association,   (1890)  35  111.  App.  465; 
affirmed  in  137  III.  497;  s.  c,  27  N.  E. 
Rep.    530.     The    court    said:     "The 
president  of  a  corporation  has  not,  as 
matter  of  law,  and  merely  by  reason 
of  his  holding  sjiid  office,  power  or  au- 
thority to  execute  deeds,  mortgages  or 
leases  of  the  real  estate  of  the  corpora- 
tion.    Hoyt  r.  Thompson,  19  N.   Y. 
207.     The  implied  powers  of  the  presi- 
dent of  a  corporation  depend  upon  the 
nature  of  the  company's  business,  and 
the  measure  of  authority  delegated  to 
him    by   the    board   of  directors.     It 
seems  that  the  president  has  no  greater 
powers,  by  virtue  of  his  office  merely, 
than  any  other  director  of  the  com- 
pany, except  that  he  is  the  presiding 
officer  at  the  meeting  of   the  board. 
Morawetz    on    Corporations,    §    537. 
There  is  no  proof  in  the  record  as  to 
what  the  business  of  [defendant  cor- 
poration] is,  but  it  is  shown  that  its 
business,  whatever  it  may  be,  is  car- 
ried on  under  certain  by-laws,  section 
9  of  which  by-laws  relates  to  the  duty 
of  the   president,   and,    among   other 
things,  provides   that  'he  shall  exe- 
cute all    bonds,   contracts,  leases  or 
other  instruments  required  to  be  made 
or  executed  by  authority  of  the  board 
for  and  on  behalf  of  the  association, 
which  shall  also  be  signed  by  the  sec- 
retary.'   Here  we  find  the  authority 
of  the  president  with  reference  to  exe- 


cuting leases  defined,  and  while  it  is 
true  that  it  has  been  said  by  the  Su- 
preme Court  of  this  state  that  an  act 
done  by  the  president  will  be  presumed 
to  be  legally  done  and  be  binding  on 
the  body,  that  rule  applies  '  in  the  ab- 
sence of  legislative  enactment  or  pro- 
vision made  in  the  by-laws.'     Smith 
v.   Smith.   63  III.  493.     The  business 
aflfairs  of  corporations  are  controlled 
exclusively  by  their  boards  of  direct- 
ore,  and  such  board  may  undoubtedly 
invest  the  president  with  authority  to 
bind  the  corporation  by  deed  or  lease, 
either  by  express  resolution  or  by  an 
acquiescence  in  his  assumption  of  au- 
thority in  that  respect,  which  would 
justify  persons  who  dealt  with  him  in 
the  inference  that  he  had  such  author- 
ity in  fact.     80  if  the  act  is  one  inci- 
dent to  the  execution  of  the  trust  re- 
posed in  him,  such  as  custom  or  neces- 
sity has  imposed  upon  this  office,  he 
may  perform  it  without  express  au- 
thority.   Mitchell  V.  Deeds.  49  111.  416. 
As  we  understand  Union  Mutual  Life 
Ins.  Co.  r.  White,  106  111.  67,  it  simply 
holds  the  corporation  bound  by  acts 
which,  from  the  course  of  its  business, 
were  within    apparent  power  of  the 
president  and  general  agent  when  those 
officers  were  acting  for  the  corporation 
in  a  state  where  the  corporation  was 
doing  business  by  comity,  the  home 
or  residence  of  the  corporation  being 
in  anoth3r  state." 


ized  was  its  president  and  superintendent  as  well  as  general 
manager,  the  Supreme  Court  of  California  held  to  be  sufficient 
evidence  of  his  authority  to  make  the  contract,  and  it  was  not 
necessary,  upon  the  party  seeking  to  enforce  it,  to  show  any  vote 
or  other  corporate  act  constituting  him  the  agent  of  the 
corporation.^ 


>  Crowley  t».  Genesee  Mining  Com- 
pany, (1880)  55  Cal.  273.     It  was  said 
in  the  opinion:  ' '  The  common-law  rule 
that  a  corporation  has  no  capacity  to 
act  or  to  make  a  contract,  except  un- 
der its  common   seal,  has  long  since 
been  exploded  in  this  country.    Even 
in  England  it  has  been  found  to  be  im- 
practicable, so  that  the  classes  of  aises 
which   constitute    exceptions   to   the 
rule  have  become  so  numerous  that  the 
exceptions  have  almost  abrogated  the 
rule.     In  the  United  States  nothing 
more  is  requisite  than  to  show  the  au- 
thority of  the  agent  to  contract.    That 
authority  may  be  conferred  by  the  cor- 
poration at  a  regular  meeting  of  the 
directors,  or  by  their  separate  assent, 
or  by  any  other  mode  of  their  doing 
such  acts.     If  this  were  not  so,"  says 
Mr.    Chief     Justice    Redfield,    "it 
would  lead  to  very  great  injustice,  for 
it  is  notorious  that  the  transaction  of 
the   ordinary    business    of    railways, 
banks,  and  similar  corporations  in  this 
country,  is  without  any  formal  meet- 
ings or  votes  of  the  board.     Hence, 
there  follows  a  necessity  of  giving  ef- 
fect to  the  acts  of  such  corporations, 
according  to  the  mode  in  which  they 
choose  to  allow  them  to  be  transacted. 
If  this  were  not  done,  it  would  become 
impossible  to  dispose  of  such  contracts 
with  any  hope  of  reaching  the  truth 
and  justice  of  the  right  and  duties  of 
the  several  parties  involved.    *    *    * 
This  is  merely  holding  corporations  to 
such  rules  of  action  as  they  see  fit  to 
adopt  for  their  own  guidance  and  the 
transaction  of  their  business."    Bank 
of  Middlebury  v.  Rutland  R.  R.  Co., 
80  Vt.  159.    *    *    *    It  would  not  be 


in  accordance  with  justice  or  the  inter- 
ests of  society  to  allow  corporations  to 
deny  the  authority  of  such  agents,  or 
to  repudiate  contracts  made  by  them 
for  work  and  labor  from  which  they 
derive    benefit.      80,    in   Goodwin  p. 
Union  Screw  Company,  34  N.  H.  378, 
where  it  appeared  that  the  business  of 
manfa'cturing  screws  was  conducted 
under  the  general  management  of  one 
of  its  directors,  who  made  verbal  con- 
tract with  the  plaintiff  to  work  in  the 
shop,  at  manufacturing  screws  for  the 
defendant,  the  Supreme  Court  of  New 
Hampshire  held  that  where  one  has 
the  actual  charge  and  management  of 
the  general  business  of  a  corporation, 
with  the  knowledge  of  the  members  or 
the  directors,  this  is  sufficient  evidence 
of  authority,  and  the  company  will  be 
bound  by  his  contracts  made  in  their 
behalf,  within  the  apparent  scope  of 
the  business  intrusted  to  him.     And  in 
Wilson  Sewing  Machine  Company  v. 
Boyington,  73  III.  534,  where  it  ap- 
peared that  an  architect  had  drawn 
plans  for  a  building  for  a  corporation 
under  a  verbal  contract  made  with  one 
who  was  acting  as  president,  execu- 
tive   manager    and    principal    stock- 
holder of  the  company,  the  Supreme 
Court  of  Illinois  held  that  the  contract 
was    binding   upon    the  corporation. 
"  A    corporation,"    says    the    court, 
"which  suffers  appearances  to  exist, 
and  its  officers  and  agents  to  so  act  as  to 
give  one  employed  by  such  officers 
and  agents  reason  to  believe  that  he  is 
employed  by  the  company,  becomes 
liable  to  such  person  as  his  employee, 
to  pay  for  the  services  rendered." 


196 


POWER  OF  AGENTS  AND  OFFICERS.  [§  149,  150 


§  149.  Question  of  authority  for  the  jury. —  In  a  case  before 
the  New  York  Court  of  Appeals,  which  was  an  action  upon  cer- 
tain promissory  notes  made  payable  to  a  domestic  corporation 
and  indoi-sed  by  its  president,  it  appeared  that  the  corporation  had 
its  main  office  in  the  city  of  New  York,  and  wliile  a  portion  of 
its  business  was  transacted  and  most  of  its  purchases  and  sales 
were  made  in  other  states  and  countries,  its  principal  business 
operations  were  carried  on  in  that  city,  and  the  annual  meeting 
of  its  directors  was  there  held.  The  person  who  indorsed  these 
notes  was  president  and  treasurer,  the  general  manager  of  all  the 
corporation's  business  affairs  in  that  city,  and  the  only  officer  in 
attendance  at  its  office  there ;  he  paid  the  current  accounts  of  the 
company  and  indorsed  checks  made  payable  to  its  order.  The 
discount  of  business  paper  and  the  use  of  its  money  for  its  pur- 
poses, and  the  account  of  the  same  on  its  cash  books  were  daily 
and  permitted  transactions.  The  corporation  had  no  cash  capital, 
and  its  working  capital  was  borrowed  on  the  credit  of  the  com- 
pany, and  this  borrowing  was  done  principally  by  the  president, 
and  mainly  by  the  use  of  paper  indorsed  by  him  in  the  name  of 
the  corporation.  The  evidence  on  the  trial  tended  to  show  that 
this  was  with  the  knowledge  and  acquiescence  of  the  directors. 
The  Court  of  Appeals  held  that  it  was  error  in  the  lower  court  to 
dismiss  the  complaint ;  that  the  evidence  required  the  submission 
of  the  question  of  the  authority  of  the  president  of  the  corporar 
tion  to  bind  it  by  indorsements  to  the  jury.^ 

§  150.  Power  of  a  president  as  to  execution  of  notes. — 

The  making  of  promissory  notes  of  a  corporation  by  its  president 
to  one  who,  at  his  instance  and  request,  may  advance  money  to 
pay  indebtedness  of  the  corporation  to  save  it  from  a  law  suit,  is 
within  the  scope  of  the  business  intrusted  to  him  as  superintend- 
ent and  general  agent  of  the  corporation.' 


» Fifth  National  Bank  of  Providence, 
R  I.,  «.  Navassa  Phosphate  Company, 
(1890)  119  N.  Y.  256;  s.  c,  23  N.  E. 
Rep.  737. 

'Seeley  v.  San  Jose  Independent 
Mill  &  Lumber  Co.,  (1881)  59  Cal.  22. 
The  court  distinguished  Hall  v.  Au- 
burn Turnpike  Co.,  27  Cal.  255;  Davis 
V.  Rock  Creek,  L.  F.  &  M.  Co.,  55  Cal. 
859;  San  Diego  v.  S.  D.  &  L.  A.  R.  R. 


Co.,  44  Cal.  106;  Wilbur  p.  Lynde,  49 
Cal.  290.  In  Farmers  &  Mechanics' 
Bank  of  Savings  v.  Colby,  (1883)  64 
Cal.  352,  it  was  held  that  a  note  signed 
by  one  as  president  of  a  corporation 
and  another  as  secretary  pro  tern.,  they, 
at  the  time  of  its  execution,  discharg- 
ing the  duties  of  those  respective 
offices,  was  the  note  of  the  corpora- 
tion, and  imposed  no  personal  liability 


§151] 


PBIVATE  CORPORATIONS. 


197 


§  151.  In  what  cases  the  authority  of  a  president  may  not 
be  questioned.—  The  knowledge  of  all  the  members  of  a  board 
of  directors  of  a  corporation,  except  one,  who  was  absent  from 
the  county,  the  concurrence  at  the  time  of  those  who  remained 
in  the  county,  or  their  long-continued  acquiescence  afterward,  has 
been  held  by  the  Supreme  Court  of  Judicature  of  Massachusetts 
to  have  made  vahd,  as  the  act  of  the  corporation,  the  execution  of 
a  mortgage  of  its  personal  property,  without  special  authority 
therefor,  by  its  president,  who  was  general  manager  of  its  busi- 
ness.* In  case  the  president  of  a  corporation,  who  is  its  manag- 
ing officer  and  makes  its  contracts,  enters  into  a  fraudulent  con- 
tract on  its  behalf,  the  corporation  cannot  escape  Hability  on  the 
ground  that  the  president  conducted  the  transaction  without  its 
knowledge  or  concurrence.^  The  by-laws  of  a  corporation  can- 
not be  set  up  by  the  corporation  as  counteracting  the  authority 
conferred  upon  its  president  by  permitting  him  to  hold  himself 
out  to  the  public  as  its  general  manager  and  du^ctor  of  its  busi- 
ness.' A  corporation  accepting  the  benefit  of  work  done  or  mate- 
rials furnished,  upon  the  order  of  its  president,  will  be  estopped 
to  deny  the  power  of  the  president  to  make  the  contract.*  The 
authority  of  a  president  of  a  corporation  to  subscribe  for  stock  in 
another  may  be  presumed  upon  the  facts  that  the  stock  was 
received  by  an  agent  of  the  corporation  he  represented  and 
retained  by  it,  and  that  the  stock  on  several  occasions  may  have 
been  voted  by  an  officer  or  member  of  such  corporation.^ 


upon  them  as  individuals.  In  Na- 
tional Spraker  Bank  v.  Treadwell  Co., 
(1894)  80  Hun,  363,  where  a  promis- 
sory note  of  a  corporation  was  executed 
by  its  president,  but  not  signed  by  its 
treasurer  in  accordance  with  the  by- 
laws of  the  corporation,  the  Supreme 
Court  of  New  York  in  General  Term 
held  that  the  fact  constituted  no  de- 
fense to  an  action  on  the  note,  if  the 
paper  was  not  diverted  from  its  orig- 
inal purpose  and  went  into  the  hands  of 
a  bona  fide  holder  and  the  corporation 
received  the  benefit  of  the  proceeds. 

» Sherman  v.  Fitch,  (1867)  98  :Mass.  59. 

« Grand  Rapids  Safety  Deposit  Co. 
«.  Cincinnati  Safe  &>  Lock  Co.,  45  Fed. 
Rep.  671. 


•Marine  Bank  of  Buffalo  v.  But- 
ler Colliery  Co.,  52  Hun,  612;  23 
N.  Y.  St.  Repr.  318;  s.  c,  5  N.  Y. 
Supp.  291;  affirmed  in  125  N.  Y.  695; 
Bank  of  Attica  v.  Pettier  &  Stymus 
Mfg.  Co.,  49  Hun,  606;  s.  c,  1  N.  Y. 
Supp.  483;  17  N.  Y.  St.  Repr.  327. 
When  a  corporation  is  estopped  to  deny 
the  authority  of  its  president,  see  Alex- 
ander >€.  Brown,  (1877)  9  Hun,  641. 

*  Brown  v.  Wright,   (1887)  25  Mo. 

App.  54. 

•^Elysville  Manufacturing  Co.  t>. 
Okisko  Company,  1  Md.  Ch.  392;  af- 
firmed in  5  Md.  152.  In  Grape  Sugar 
Manufacturing  Co.  v.  Small,  (1874)  40 
Md.  395,  an  action  to  recover  for  work 
done  under  a  contract  with  the  acting 


ii  '1 


I  ■ 

i 


^ 


198 


POWER  OF  AOENT8  AND  OFFICERS. 


[§153 


§  152.    Giving   a  judgment    note  —  New    Jersey. —  The 

president  of  a  corporation  has  no  power,  in  virtue  of  his  office,  as 
president,  to  execute  a  bond  and  warrant  of  attorney  for  the 
entry  of  a  judgment  by  confession  against  the  corporation.*    The 


president  of  this  manufacturing  cor- 
poration, the  C'ourt  of  Api>eal8  held 
that  it  was  not  necessary  to  prove  that 
the  president  was  authorized  by  a  di- 
rect vote  or  resolution  of  the  corpora- 
tion to  make  the  contract.  The  work 
being  necessary  to  enable  the  corpora- 
tion to  carry  on  the  business  for  which 
it  was  incorporated,  and  accepted  by 
it  without  objection,  and  without  any 
intimation  that  its  acting  president  wjis 
not  authorized  to  make  such  contract, 
the  jury  on  the  trial  might  presume 
that  the  work  was  done  by  the  author- 
ity of  the  corporation,  or  that  it  was 
subsequently  accepted,  and  the  con- 
tract ratified.  In  the  same  case  it  was 
further  held  that  where,  under  the  con- 
tract made  with  the  acting  president 
of  the  corpomtion  after  the  certificate 
of  incorporation  was  signed  by  the 
members  of  the  proposed  corpomtion, 
but  before  it  was  recorded,  as  required 
to  constitute  it  a  body  politic  under 
the  General  Incorporation  Law,  the 
work  was  done  for  the  corporation  and 
accepted  after  its  incorporation  was 
complete,  the  corporation  would  be 
estopped,  both  at  law  and  in  equity, 
from  denying  its  liability  on  account 
of  the  same.  See,  as  to  the  liability  of 
corporations  under  similar  circum- 
stances, Baltimore  City  P.  Ry.  r.  Sew- 
ell,  35  Md.  251;  Edwards  r.  Grand 
Junction  Ry.  Co.,  1  Mylne  &  Cr.  650; 
Wesley  Church  v.  Moore,  10  Pa.  St. 
273;  Attorney-General  v.  Corporation 
of  Leicester,  9  Beav.  546;  Hughes  r. 
Antietam  Manufacturing  Co.,  34  Md. 
324;  Fister  v.  La  Rue,  15  Barb.  323; 
Low  V.  Connecticut  &  Passumpsic 
Railroad,  46  N.  H.  284.  As  to  estop- 
pel of  a  corporation  to  deny  the 
authority  of  its  president  to  bind  it 


where  he  has  been  held  out  to  the 
public  as  possessing  authority,  see 
Ceeder  r.  H.  M.  Loud  &  Sons  Lumber 
C\).,  86  Mich.  541;  s.  c,  49  N.  W.  Rep. 
575;  24  Am.  St.  Rep.  134;  Sherman 
Center  Town  Co.  v.  Swigart,  43  Kans. 
292;  8.  c,  23  Pac.  Rep.  569;  19  Am. 
St.  Rep.  137;  Fitzgerald  Constr.  Co. 
r.  Fitzgerald,  137  U.  S.  98;  a.  c,  11 
Sup.  Ct.  Rep.  36;  Olcott  r.  Tioga,  etc., 
R.  R.  Co.,  40  Barb.  179;  First  Nat. 
Bank  v.  Kimberlands,  16  W.  Va.  555; 
Fitzhugh  V.  Franco-Texas  Land  Co., 
81  Tex.  306;  8.  c,  16  S.  W.  Rep.  1078; 
Washington  Savings  Bank  v.  Butch- 
ers', etc.,  Bank,  107  Mo.  133;  s.  c,  17 
S.  W.  Rep.  644;  28  Am.  St.  Rep.  405; 
Dougherty  r.  Hunter,  54  Pa.  St.  380; 
Libby  v.  Union  National  Bank,  99  111. 
622;  NeifFer  r.  Bank  of  Knoxville,  1 
Head,  (Tenn.)  162.  Estoppel  by  reason 
of  a  presumption  that  corporation  has 
ratified  a  contract  of  its  president.  West 
Salem  Land  Co.  v.  Montgomery  Land 
Co.,  89  Va.  192;  8.  c,  15  8.  E.  Rep. 
524;  Belleville  Savings  Bank  v.  Wins- 
low,  35  Fed.  Rep.  471;  Bagaley  v, 
Pittsburg  Iron  Co.,  146  Pa.  St.  478;  8. 
c,  23  Atl.  Rep.  837;  Shaver  v.  Bear 
River,  etc.,  Co.,  10  Cal.  396. 

»  Stokes  V.  Jersey  Pottery  Co.,  (1884) 
46  N.  J.  Law,  287.  Arguendo,  Depue, 
J.,  for  the  court  said:  "The  powers 
of  the  president  of  a  corporation, 
tirtute  officii,  over  its  business  and 
property  are  strictly  the  powers  of  an 
agent  —  powers  delegated  to  him  by 
the  directors,  who  are  the  managers 
of  the  corporation,  and  the  persons  in 
whom,  as  its  representatives,  the  con- 
trol of  its  business  and  property  is 
vested.  If  the  corporation  be  organ- 
ized for  business  purposes,  the  presi- 
dent is  its  chief  executive  oflScer.    He 


\ 


§  152] 


PRIVATE  CORPORATIONS. 


199 


(^nrt  of  Errors  and  Appeals  of  New  Jersey  lias  liekl  that  sncli  a 
judgment  did  not  acquire  validity  from  the  fact  that  the  money 
advanced  hy  the  plaintiff  was  applied  for  the  benefit  of  the  com- 
pany.    "  From  that  fact,"  it  was  said,  "  a  debt  would  arise  and 

may    without  any   special  authority    duty  or  to  be  within  the  scope  of  his 
from  the  board  of  directors,  perform   employment,  cannot  be  regarded   as 
all  acts  of  an  ordinary  nature  which,    the  act  of  the  corporation,  and  is  not 
by  usage  or  necessity,  arc  incident  to   binding  upon  it.    The  authonty  re- 
his  office,  and  may  bind  the  corpora-    quisite  to  charge  the  company  must 
tion  by  contracts  arising  in  the  usual   therefore,  be  derived  from  the  board 
course  of  its  business.    BooneonCorp.    of  directors  '    «  Vroom,  9^102      The 
g  144     To  this  extent,  the  president,    other  case  is  Leggett  «.  New  Jersey 
Tn  virtue  of  his  election  as  such,  be-    Banking  Co.,  Saxt.  541.     In  that  Oise 
comes  the  agent  of  the  corporation,    the  charter  of  a  bank   provided  that 
Beyond  the  powers  which  usage  and    the  affairs,  property  and  concerns  of 
<Jtom  and   the  necessities  and  con-   the  corporation  should  be  manage!  by 
venience  of  business  require  in  the  its  directors;  and  the  Court  of  Chan- 
executive  officer  of  a  corporation,  he   cerj-  held  that,  although  a  mortgage 
has  no  more  control  over  the  corporate   executed  under  the  authonty  of  the 
property  and   funds  than  any   other   board  of  directors  would  be  valid,  a 
director      As    illustrative  of    the  re-    mortgage  executed  by  the   president 
stricted' powers  of  a  president  of  a   and  cashier  under  the  corporate  seal, 
corporation  in  the  management  of  its   without  the  authority  or  concurrence 
buLess  and  control  over  its  property,    of  the  board  of  directors,  was  not  a 
I  will  refer  only  to  two  cases  in  our   valid  instrument.     The  reasoning  on 
own  courts.     In  Titus  v.  Cairo  &  Ful-   which  the  cases  cited  were  decided 
tonR  R.  Co..  this  court  held   that  a   applies  to  the  case  now  before   the 
power  of  attorney  executed  by  the   court.     The  plaintiflf  by  his  judgment 
president  of  a  corporation,  authoriz-    and   the  execution    thereon,  has  ac- 
ing  a  sale  of  its  bonds  in  the  market,    quired  a  Uen  on  all  the  property  of 
gave  the  agent  no  power  to  sell,  and    the  corporation;  and  I  cannot  find  m 
that  the  president  could  not  execute   principle  any  distinction    between  a 
such  a  power  without  the  authority  of   mortgage  or  conveyance  of  the  lands 
the  board  of  directors.     In  delivering   of  a  corporation  and  a  judgment  upon 
the  opinion  of  the  court,  Mr.  Justice   bond  and  warrant  of  attorney  upon 
Van  Syckel  said:  '  In  the  absence  of   which  the  property,  real  and  personal, 
anything  in  the  act  of  incorporation   of  the  corporation  is  taken.     Such  a 
bestowing    special    power   upon    the   transaction  is  not  within  the  ordinary 
president,  he  has,  from  his  mere  offi-    business  of  a  corporation,  which  the 
cial  station,  no  more  control  over  the   president,  as  its  executive  officer  is,  in 
corporate  property  and    funds   than   virtue   of   his   office,    authorized    to 
any  other  director.    The  affairs  of  cor-   transact.     There  are  cases  in   which 
porate  bodies  are  within  the  exclusive   the  powers  of  an  officer  of  a  corpora- 
control  of  their  boards  of  directors,    tion,  and  his  authority  to  act  for  the 
from   whom  authority  to  dispose  of   company,  are  enlarged  beyond  those 
their  assets  must  be  derived.     The  act   powera  which   are    inherent   m   his 
of  a  president  or  other  officer,  unless   office.    But  these  are  cases  in  which 
it  is  shown  to  pertain  to  his  official   the  agency  of  the  officer  has  ansen 


I 


I  s\ 


I 


200 


FOWEB  OF  AOENTS  AKD  OFFICEBS. 


t§153 


an  obligation  on  the  part  of  the  corporation  to  pay  the  debt  in 
common  with  its  other  debts  would  result ;  but  the  plaintiff  can- 
not hold  his  security  which  gives  him  a  lien  upon  the  company's 
property,  unless  his  security  is  a  valid  security  thereon,  especially 
when  the  rights  of  the  other  creditors  are  hivolved."  *  The  facts 
that  a  president  owned  the  bulk  of  the  capital  stock  of  a  corpora- 
tion, and  that  he  was  the  superintendent  of  its  business  .and  its 
treasurer,  as  well  as  the  active  manager  of  its  affairs,  and  had 
been  accustomed  to  borrow  money  for  the  use  of  the  corporation, 
it  has  been  held  would  not  give  him  power  to  incumber  its 
property  by  mortgage  or  confession  of  judgment  for  money 
borrowed.* 

§153.    The  same  subject  —  Illinois. —  The  Illinois  Appel- 
late Court  has  said,  as  to  the  power  of  a  president  of  a  corpora- 

from  the  assent  of  the  directors,  pre-  proof  on  that  subject  is  that  Cook 
sumed  from  their  consent  and  acqui-  [the  president  of  the  company]  was 
escence  in  permitting  the  officer  to  the  owner  of  all  the  capital  stock  of 
assume  the  direction  and  control  of  the  company  except  two  shares;  that 
the  business  of  the  company,  Taylor  he  was  president  and  treasurer  and 
on  Corp.  202,  236-244;  Ang.  &  A.  on  the  active  manager  of  the  company, 
Corp.  §§  299-302.  Thus,  when,  in  the  using  the  money  of  the  corpomtion  as 
usual  course  of  the  business  of  a  cor-  he  saw  fit,  and  borrowing  money  for 
poration,  an  officer  has  been  allowed  the  company  so  far  as  its  banking 
in  his  official  capacity  to  manage  its  business  was  concerned;  that  at  one 
affairs,  his  authority  to  represent  the  time  he  effected  a  loan  upon  mort- 
corporation  may  be  implied  from  the  gage,  but  that  the  mortgage  was 
manner  in  which  he  has  been  per-  made  by  the  authority  of  the  direct- 
mitted  by  the  directors  to  transjict  its  ors,  and  that  he  never  undertook  to 
business.  Martin  v.  Webb,  110  U.  S.  execute  in  the  corporate  name  papers 
7.  These  are  simply  instances  of  the  of  the  character  of  the  security  in 
application  of  the  principle  that  usual  question,  without  the  assent  of  the 
employment  is  evidence  of  the  powers  directors,  except  in  this  instance.  *  *  ♦ 
of  an  agent,  and  a  resjwnsibility  will  Incident  to  the  power  of  Cook  to  bor- 
be  laid  upon  the  principal  for  the  acts  row  money  for  the  company's  use  was 
of  his  agent  within  the  apparent  the  power  to  secure  the  debt  in  the 
authority  so  conferred  upon  the  agent  usual  way;  but  the  power  to  contract 
— a  doctrine  which  has  come  to  be  the  debt  did  not  carry  with  it  the 
applied  to  corporations  in  many  re-  power  to  incumber  the  company's 
spects  as  well  as  to  individuals,  and  property  by  a  mortgage  or  judg- 
with  the  same  qualifications  and  ment  confessed  as  a  security  for  its 
limitations."    The  crourt  then  applied   repayment." 

these  principles  to  the  case  at  bar,       *  Stokes «?.  New  Jersey  Pottery  Co., 
saying:  '*  But  the  depositions  laid  be-   (1884)   46   N.   J.    Law,    237;     citing 
fore  the  court  do  not  bring  the  case  in   Ilackensack  Water  Co.  v.  De  Kay,  9 
hand  within  the  range  of  the  author-    Stew.  Eq.  548. 
ities    above    referred   to.     Tho   only       '  State  Bank  r.  Ilolcomb,  7  Halst.  196. 


§153] 


PBIVATE  CORPORATIONS. 


201 


tion  to  confess  judgment:  "We  think  it  plain,  both  upon  prin- 
ciple and  from  the  authorities,  that  the  president  of  a  corporation 
has  not,  as  a  matter  of  law,  and  simply  by  virtue  of  his  office  as 
president,  authority  to  either  confess  5udgment  against  such  cor- 
poration or  execute  a  warrant  of  attorney  empowering  another 
80  to  do.  Such  matters  form  no  part  of  the  ordinary  business  of 
the  company  which  the  president,  as  its  executive  officer,  is 
authorized  to  transact  virtute  officii.  The  power  in  question  is 
not  inherent  in  or  incident  to  the  office  from  either  usage  or 
necessity.* 


'  Joliet  Electric  Light  &  Power  Co. 
«.  Ingalls,  (1887)  23  111.  App.  45;  citing 
Stokes  V.   New  Jersey   Pottery  Co., 
(1884)  46  N.   J.  Law,  237;    Thew  v. 
Porcelain    Mfg.    Co.,    5    S.    C.    415. 
The  court,   in  Joliet    Electric  Light 
Co.  V.   Ingalls,   supra,   discussed  the 
facts  and  the  law  applicable  to  them 
in  the  case  in  these  words:    "  It  is  one 
of  the  elements  of  a  prima  facie  case 
that  it  is  subject  to  be  rebutted  and 
destroyed  by  evidence  to  the  contrary. 
The  case  of  the  defendant  in  error  is 
not  that  of  a  stranger  to  the  corpora- 
tion dealing   with  the  agents  of  the 
corporation  and  without  actual  notice 
of  the  power  and  authority  given  to 
such  agents  by  the  corporation  or  its 
directors.     It  would  in  many  instances 
be  diflScult  and  even  impossible  for 
such  stranger  to  ascertain  with  cer- 
tainty and  precision  what  the  proceed- 
ings of  the  corporate  board  were.     As 
between  such  third  party  and  the  cor- 
poration the  rule  sometimes  applies 
that  where  one  of  two  innocent  parties 
must  suffer  for  the  unauthorized  act 
of  an  agent  the  loss  should  follow 
[fall  on?]  him  who  selected  the  agent. 
Taylor  on  Private  Corporations,  §  203. 
Here  defendant  in  error  was  himself  a 
member  of  the  board  of  directors  of 
the  [corporation],  and  present  at  and 
participating  in  its  meeting   of    the 
[date  of  this  action  of  the  officers],  and, 
moreover,  was  secretary  of  the  com- 
pany, and  kept  and  had  the  custody 
26 


of  the  record  of  the  proceedings  of 
such  meeting.    He  had  actual  and  full 
notice  that  all  that  the  board  of  di- 
rectors did  on  that  occasion  was  to  ac- 
cept without  qualification  the  written 
offer  that  he  himself  had  made  for  the 
sale  of  the  plant  of  [another  electric 
light  company],  and  on  the  very  terms 
proposed  by   himself,   and  also  that 
the  only  papers  the  board  authorized 
the  president  to  execute,  and  himself 
as  secretary  to  affix  the  seal  of  the  cor- 
poration to,  were  '  the  necessary  papers 
to  complete  said  contract.'    What  con- 
tract?   Evidently  the  contract  shown 
by  the  written  proposition  of  defend- 
ant in  error  to  sell  the  plant  for  [a 
fixed  sum],  payable  as  stated  therein, 
'  and  secured  by  notes  and  mortgage 
or  other  instruments  upon  all  the  plant 
offered '  for  sale,  and  by  the  resolution 
of  the  board  accepting  the  said  propo- 
sition.    It  would  seem  the  reasonable 
construction  of  the  transaction  must 
necessarily  be  as  shown  by  the  offer 
and    the    simple    acceptance    thereof 
without  qualification  or  counter  offer, 
that  the  completed  contract  between 
the    parties  was,  that  in  respect    to 
security  for  the  purchase  money  the 
special  terms  proposed,  i.  e.,   'notes 
and  mortgage  upon  all  the  plant,'  con- 
stituted the  contract,  and  that  under 
the  agreement  defendant  in  error  could 
liave  demanded  nothing  more  or  other 
than  notes  and  mortgage,  and  that  a 
tender  by  plaintiff  in  error  of  such 


I 

:    1 


i  '1 


I! 


dO» 


POWER  OF  AGENTS  AND  0FFICEK8. 


[§  154 


§  154.  Where  contract  of  purchase  includes  giving  a 
judgment  note. —  In  a  case  where  a  corporation  wishing  to  pur- 
chase property  for  its  use,  contmcteil  fi>r  advances  of  money  for 
the  purpose  for  which  the  corporation  was  to  execute  ite  note 
with  a  warrant  of  attorney  to  have  jiulgnient  on  the  same,  the 
Supreme  Court  of  Illinois  fully  considered  the  propriety  of  the 
judgments  upon  this  particular  note,  the  authority  of  the  officers 
in  the  matter  and  the  execution  of  the  notes,  and  declared  the 
following  rules  in  such  case  to  be  that :  Where  the  president  of 
a  corporation  is  authorized  to  enter  into  a  contract,  under  which 
another  is  to  loan  the  cor{K)ration  money,  and  the  president  is  to 
make  and  deliver,  on  its  behalf,  a  note  for  the  money  loaned, 
secured  by  a  warrant  of  attorney  to  confess  judgment,  and  such 
contract  is  entered  into,  and  the  president,  in  pursuance  of  its 
provisions,  gives  the  warrant  of  attorney,  the  act  will  be  binding 
on  the  corporation,  even  in  the  absence  of  the  adoption  of  any 
resolution  empowering  him  to  give  the   warrant   of   attorney. 


notes  and  mortgage  would  have  been 
in  full  payment  of  the  contract  made. 
Even  if  instruments  other  than  *  notes 
and  mortgage '  could  rightfully  have 
been  asked  for  under  the  contract,  yet 
it  is  plain  they  must  necessarily  have 
been  instruments  which,  when  given, 
extended  to  and  covered  the  plant  of 
the  [other  corporation]  and  no  more, 
the  words  '  upon  all  the  plant  offered ' 
being  words   of   limitation.      It  can 
hardly  be  successfully  contended  that 
under  an  executory  agreement  to  give 
'notes  and  mortgage,'  payment  notes, 
or  notes  with  warrants  of  attorney  at- 
tached   or    incorporated,   authorizing 
confessions  of  judgment,  can  be  de- 
manded.    The  expression  'notes  and 
mortgage '  must  be  presumed  to  have 
been  understood  by   the  contracting 
parties   in  their  usual,  ordinary  and 
natural  sense,  and  as  indicating  only 
simple  promissory  notes  secured  by  a 
mortgage  upon  property.     One  condi- 
tion, then,  is  that  warrants  of  attorney 
were    not  called    for  or  included  in 
either  of  the  expressions  used  in  the 
proposition  submitted  to  the  board  of 


directors  and  accepted  by  them;   that 
defendant  in  error  had  ample  notice 
that  the  authority  given  by  the  board 
of  directors  to  the  president  of  the 
corporation  to  execute  papers  and  to 
the  secretary  to  affix  the  corporate  st^al 
thereto,   was,    by   the    order  of    said 
bojird,  expressly  limited  to  such  papers 
as  were  necessary  in  order  to  cnrry 
into  effect    the    contract    made,   and 
further,  as  has   been  already  stated, 
that    there   was    no    inherent    ])owcr 
vested  in  the  president,  virtvte  officii, 
to  give  a  judgment  note  that  would 
bind  the  company.      In   the  rase  of 
Uoyt  r.   Thompson,  5  N.  Y.  320,  it 
was  held  that  a  deed  formally  exe- 
cuted  under  the  corporate  seal,  and 
bearing  upon  its  face  the  presumption 
that  it  was  executed  by  the  competent 
authority  from  the  corporation,  was 
void,  and  not  the  deed  of  the  corpora- 
tion, because  it  was  actually  executed 
by  the  executive  officers  without  au- 
thority, and  known  by  the  grantee  to 
have  been  so  executed.-  The  same  rule 
has  application  to  the  matter  now  in 
hand." 


§154] 


PBIVATE  CORPORATIONS. 


203 


Where  a  promissory  note  and  warrant  of  attorney  are  executed 
in  the  name  and  under  the  seal  of  a  corporation,  it  will  be  pre- 
sumed that  such  instruments  were  properly  executed  by  the 
authority  of  the  corporation.  The  common  seal  of  a  corporation 
being  affixed  to  an  instniment,'and  the  signatures  of  the  proper 
officers  being  proved,  the  courts  will  presume  that  the  officers  did 
not  exceed  their  authority ;  the  seal  itself  is  prima  facie  evidence 
that  it  was  affixed  by  proper  authority.  Where  a  private  corpo- 
ration allows  its  managing  officer  to  so  conduct  himself,  in  his 
dealings  and  transactions  on  behalf  of  the  company,  as  to  lead 
the  public,  or  those  dealing  with  him,  to  reasonably  believe  him 
as  possessing  certain  powers,  the  company  will  not  be  allowed  to 
question  such  apparent  power  or  authority  as  against  one  relying 
in  good  faith  on  the  same.  If  an  act  performed  by  an  agent  of 
the  corporation  would,  under  any  circumstances,  be  within  the 
authority  delegated  to  the  agent,  a  person  dealing  with  him  on 
the  faith  of  his  apparent  powers,  and  without  a  notice  of  facts 
showing  that  the  act  was  unauthorized,  may  hold  the  principal 
liable,  whether  the  act  was  authorized  or  not.  In  giving  a  note 
and  power  of  attorney  to  confess  thereon  by  a  corporation,  with 
the  president  as  security,  all  the  papers  were  properly  executed, 
except  that  the  corporate  name  was  not  signed  to  the  note. 
Afterwards  the  secretary  of  the  company,  by  the  direction  of  the 
president,  put  the  name  of  the  company  to  the  note.  Such  action 
was  held  sufficient  to  cure  the  defective  execution  of  the  note, 
especially  when  the  power  of  attorney  in  terms  imposed  on  the 
corporation  the  duty  to  pay  this  note.^ 

>  McDonald  v.  Chisholm,  (1890)  131  confession  of  judgment  under  a  war- 
ni.  273;  s.  c,  23  N.  E.  Rep.  596.  rant  signed  by  a  director,  the  treasurer 
The  power  of  a  president  of  a  corpora-  and  general  manager  of  a  corporation 
tion  to  confess  judgment  for  it  with-  without  authority  of  the  board  of  di- 
out  authority  from  the  directors,  has  rectors  or  an  executive  officer,  see  Jack- 
been  questioned  in  Jones  v.  Avery,  50  son  v.  Cartwright  Lumber  Co.,  2  Pa. 
Mich.  326;  s.  c,  15  N.  W.  Rep.  494.  Dist.  Rep.  680.  See,  on  confession  of 
The  power  to  confess  judgment  for  judgment  by  officer,  Adams  0.  Cross- 
the  corporation  has  been  held  not  be  wood  Prg.  Co.,  27  111.  App.  313; 
in  its  treasurer.  Stevens  v.  Carp  Freeman  v.  Plaindealer  Co.,  9  Luz. 
River  Iron  Co.,  57  Mich.  427;  s.  c,  24  Leg.  Reg.  37;  McMurray  r.  Oil  Co., 
N.  W.  Rep.  160.  As  to  the  authority  33  Mo.  377.  In  Chamberlin  v.  Mam- 
of  a  president  of  a  corporation  to  con-  moth  Mining  Co.,  (18.54)  20  Mo.  96,  it 
fess  judgment  against  the  corporation,  was  held  that  the  president  of  a  min- 
see  Raub  v.  Blairstown  Creamery  Assn. ,  ing  corporation  might  appear  and  con- 
(N.  J.  1894)  28  Atl.  Rep.  384.     As  to  fess  judgment  for  the  corporation. 


li  i 


204  POWER  OF  AGENTS  AND  OFFICEKS.  [§§  155?  1^6 

§  155.  What  raises  a  presumption  of  authority. —  The 
common  seal   of  a   corporation   being  affixed   to  a  deed,  as  an 
assignment  for  the  l)enetit  of  creditors,  and  the  deed  being  signed 
by  the  officers  authorized  by  the  charter  to  sign  it  or  attest  ite 
contracts,  raises  the  presumption  that  the  instrument  was  executed 
by  the  authority  of  the  corporation.     Any  one  assaiUng  it  must 
show  its  invalidity.^     When  tlie  common  seal  of  a  corporation  is 
affixed  to  an  instrument  in  writing  purporting  to  l>e  executed  by 
it,  and  the  signatures  of  the  proper  officers  of  the  corporation 
are  affixed  to  it  and  proved,  courts  will  presume  that  the  officers 
did  not  exceed  their  authority,  and  tlie  seal  itself  is  prima  facie 
evidence  that  it  was  affixed  by  proper  authority.''     In  the  absence 
of  the  common  seal  of  a  corporation  or  of  proof  of  facts  from 
which  the  existence  of  a  resolution  of  authorization,  or  of  the 
authority  itself  may  be  inferred,  the  authority  of  the  officers  of  a 
corporation  to  execute  a  conveyance  can  only  be  established  by 
resolution  of  the  managing  board,  entered  in  the  proper  book  of 
the  corporation.' 

§  156.  Power  of  officers  acting  conjointly.— The  govern- 
ment and  direction  of  the  affairs  of  a  corporation  being  vested 
by  statute  in  a  board  of  not  less  than  live,  of  which  a  majority 
"'shall  form  a  board  and  shall  be  competent  to  transact  the  busi- 
ness of  the  company,"  such  majority,  when  assembled,  though 
without  notice  to  the  others,  possess  all  the  powers  of  the  board, 
a£  in  this  case,  to  authorize  a  sale  of  the  stock  of  the  corporation.* 
There  being  no  charter  provision  to  the  contrary,  it  will  be  pre- 

1  Thorin-ton  r.  Gould,  (1877)  59  Ala.    supposes  a  delegated  authority  for  the 
461     Brickell,  Ch.  J.,  said:  In  Bank   purpose,  and  other  corporate  acts  show 
of  United    States    r.    Dandridge.    12   that  the  corporation  must  have  con- 
Wheat  70,  it  is  said,  after  referring  to   templated  the  legal  existence  of  such 
the  presumptions  indulged   for   and   authority,  the  acts  of  such  officers  will 
ac^ainst  natural  persons  :  "  The  same   be  deemed  rightful,  and  the  (lelegated 
presumptions  are.  we  think,  applicable   authority  will  be  presumed 
to  corporations.     Persons  acting  pub-       » Southern  California  Colony  W 
licly  as  officers  of  the  corporation  are  elation  v.  Bustamente.  (1»77)  5^  cai. 
to  be  presumed  rightfully  in  office;    192;  Bliss  r,  Kaweah  Canal  &  Imga- 
acts  done  by  the  corporation  which   tion  Co.,  65  Cal.  502. 
presuppose  the  existence  of  other  acts       ^Southern  California  ^^olony  Asso- 
io  make  them  legally  operative  are  elation  t.   Bustamente,  (1877)  52  Cai. 
presumptive    proofs   of   the   latter."   192. 

Again,  "  if  officers  of  the  corporation       *  State  ex  rel.  Page  v.  Smith,  48  Yt. 
oi^nly  exercise  a  power  which  pre-   266. 


§156] 


PRIVATE  CORPORATIONS. 


205 


Bumed  that  the  president,  secretary  and  treasurer  of  a  corporation 
are  authorized  to  make  all  necessary  contracts  in  transacting  the 
ordinary  business  of  the  corporation,  within  the  legitimate  scope 
objects  and  purposes  of  its  organization.^    The  president  and 
secretary  of  a  corporation  are  proper  officers  to  agree  on  its 
behalf  upon  an  arbitration.^    There  being  in  manufacturmg  and 
trading  corporations  a  power  to  borrow  money,  as  incident  to 
their  power  to  purchase  stock  and  materials,  and  to  give  security 
by  pledging  the  property  so  purchased,  and  as  corporations  can 
act  only  by  their  officers,  the  treasurer  and  general  agent  of  a 
corporation  unitedly  have  power  to  borrow  money  for  the  use  of 
the  corporation,  give  its  negotiable  note  and  pledge  its  personal 
property  for  the  same,  as  well  as  to  execute  the  necessary  docu- 
ments,  notwithstanding  the    by-laws  of   such   corporation   give 
these  officers  specific  powers  not  including  such  acts  as  are  above 
referred  to.«     A  corporation  may  bind  itself  by  a  note  and  mort- 
gage, made  by  its  president  and  secretary  and  signed  by  them  m 
their  official  capacity  as  such.*     The  president  and  secretary  of  a 
manufacturing  corporation,  even  if  the  powers  of  general  man- 
agers be  conceded  them,  though  they  may  bind  the  corporation 
to  any  debt  within  the  scope  of  its  ordinary  business,  cannot  bind 
it  to  assuming  another  and  distinct  corporation's  debts,  nor  by  a 
promissory  note  for  the  payment  of  such  a  third  party  s  deb  . 
The  president  and  secretary  of  a  corporation  are  presumed  to 


» Eureka  Iron,  etc.,  Works  v.  Bres- 
nahan,  60  Mich.  332;  s.  c,  27  N.  W. 

Rep.  524. 
•  Fitch  V.  Constantine  Hydraulic  Co., 

44  Mich.  74;  s.  c,  6  N.  W.  Rep.  91. 

«Fay  V.  Noble,  (1853)  12  Cush.  1. 
In  Leonard  d.  Burlington  Mutual  Loan 
Association,  (1881)  55  Iowa,  594;  s.  c, 
8  N.  W.  Rep.  463,  the  corporation  was 
held  liable  for  money  had  and  received 
on  account  of  suras  advanced  to  its 
secretary  and  manager  and  by  him 
paid  into  its  treasury,  notwithstanding 
this  officer  was  at  the  time  a  defaulter 
and  not  authorized  to  borrow  money 
on  its  account. 

*Rowe   V.  Table   Mountain  Water 
Company,  (1858)  10  Cal.  441;  approved 


in  Verzan  «.  McGregor,  23  Cal.  339, 

347. 

6Rahm    v.    King    Wrought    Iron 
Bridge  Manufactory  of  Topeka,  (1876) 
16  Kans.  277.     In  Stark  Bank  v.  U.  S. 
Pottery  Company,  (1861)  34  Vt.  144, 
is  was  held  that  the  assuming  of  a  debt 
of  a  third  person  was  not  within  the 
ordinary  power  of  the  treasurer  of  a 
corporation,  it  not  being  in  the  usual 
course  of  business,  and  to  bind  the  cor- 
poration, it  would  be  necessary  to  show 
some  special  authority  granted  him  to 
do  so.     Further,  that  the  directors  of 
the  corporation  had  no  power  to  assume 
such  a  debt  except  in  case  of  urgent 
necessity,   which  was  a  question  of 

fact  for  the  j\iry. 


1 


M 


I   u 


206 


POWEE  OF  AGENTS  AND  OFFICEKS. 


[§15T 


liave  authority  to  execute  a  promissory  note  in  the  name  of  the 
corporation,  and  the  holder  of  such  a  note  will  not  be  affected  by 
the  fact  that  such  authority  did  not  exist,  unless  he  is  shown  to 
liave  had  notice  thereof.* 

§  157.  An  illustration  on  this  subject. —  The  Florida 
Supreme  Court  has  held  that  the  assignment  of  a  note  payable  to 
tlie  order  of  a  corporation,  and  the  mortgage  given  to  secure  its 
payment  by  the  president  and  secretary  of  the  corporation,  was, 
upon  its  face,  the  act  of  the  corporation  through  their  officers, 
and  not  their  individual  acts.' 


*  American  Exchange  Nat.  Bank  v. 
Oregon  Pottery  Co.,  (1892)  55  Fed. 
Rep.  265.  See,  also.  Merchants'  Bank 
V.  State  Bank,  10  Wall.  644;  Crowley 
V.  Mining  Co.,  55  Cal.  273.  In  Fur- 
niss  r.  Gilchrist,  1  Sandf.  53,  the  trans- 
fer of  a  note  transferable  by  delivery 
by  the  president  and  secretary  of  a 
corporation  was  held  to  be  valid. 

»I^y  r.  Austin,  (1889)  25  Fla  933; 
8.  c,  7  So.  Rep.  143.  The  court  de- 
clared the  following  rules  established 
by  the  authorities  which  governc<l 
them  in  their  conclusions  :  "  Where  a 
note  is  payable  to  a  corporation  by  its 
corporate  name,  and  is  indorsed  by  an 
authorized  agent  or  official  with  the 
affix  of  his  official  position,  it  will  be 
regarded  that  he  acts  for  his  principal 
disclosed  on  the  paper  as  the  payee, 
and  who,  therefore,  is  the  only  person 
competent  to  transfer  the  legal  title. 
Daniel  on  Negotiable  Instruments, 
§  416;  Randolph  on  Commercial  Pa- 
per, §  145.  An  indorsement  by  an  of- 
ficer of  a  corjwration  is  prima  facie  the 
act  of  the  company.  Randolph,  §  368; 
Frye  v.  Tucker,  24  111.  180.  In 
Mclntire  v.  Preston,  5  Oilman,  48, 
a  note  payable  to  a  corporation  was 
assigned  thus:  'Without  recourse. 
Joel  Scott,  Secy..'  and  it  was  held 
that  when  properly  filled  out,  as  the 
plaintiff  might  do  on  the  trial,  it  was 
sufficient  to  pass  the  legal  title  to  the 
note,  and  that  the  authority  of  Scott, 


the  secretary,  to  assign  it  could  only  be 
questioned  by  plea.  See,  also,  Good- 
rich p.  Reynolds,  Wilder  &  Co.,  31 
III.  491.  Northampton  Bank  v.  Pepoon, 
11  Mass.  288,  decides  the  same  where 
the  indorsement  was  in  blank,  by  an 
authorized  attorney  signing  his  name 
and  styling  himself  attorney.  Folger 
f>.  Chase,  18  Pick.  63,  was  a  case  where 
a  note  was  indorsed  by  the  payee  to  a 
bank,  and  its  cashier  indorsed  it  as 
follows  :  'P.  H.  Folger,  Cashier,'  and 
it  was  objected  that  the  latter  indorse- 
ment was  not  made  in  the  name  of  the 
corporation;  but,  said  the  Supreme 
Court  of  Massachusetts,  we  think  the 
indorsement  by  the  cashier,  in  his  of- 
ficial capacity,  sufficiently  shows  that 
the  indorsement  was  made  in  behalf  of 
the  bank,  and  if  that  is  not  sufficient 
the  plaintiffs  have  the  right  now  to 
prefix  the  name  of  the  corporation. 
Nicholas  v.  Oliver,  36  N.  H.  218,  de- 
cides that  the  indorsement,  •  W.  Earle, 
A.  Secy.,  made  on  a  promissory  note 
payable  to  an  insurance  company,  is 
to  be  considered  the  indorsement  of 
the  company,  if  nothing  further  ap- 
pear to  indicate  that  it  is  intended  as 
the  indorsement  of  some  other  party. 
In  Russell  r.  Folsom,  72  Me.  436,  the 
indorsement  by  the  treasurer  of  the 
payee  corporation  signing  his  name 
and  an  abbreviation  of  his  office  was 
held  to  transfer  the  legal  title,  and  in 
Farrar  v.  Oilman,  19  Me.  440»  the  in- 


§158] 


PRIVATE  00RPOBATION8. 


20T 


§  158.  Another  illustration  —  one  holding  several  offices. 

— The  by-laws  of  a  Michigan  manufacturing  corporation  provided 
that  one  person  might  hold  the  offices  of  president,  treasurer  and 
general  superintendent,  and  vested  in  the  president  the  general 
supervision  of  the  property  and  affairs  of  the  corporation,  and  in 
the  treasurer  the  custody  of  its  funds  and  valuable  papers,  with 
power  to  collect  and  pay  out  all  moneys  and  sign  all  acceptances 
and  notes  in  its  behalf,  while  the  superintendent  was  given  gen- 
eral supervision  and  management  of  its  affairs,  subject  to  the 
president  and  board  of  directors,  with  power  to  make  all  contracts 
in  its  behalf,  except  when  otherwise  provided  by  the  by-laws. 
The  same  person  held  the  three  offices  for  live  years,  and  man- 
aged and  controlled  the  affairs  of  the  corporation,  if  not  without 
advice,  certainly  without  objection,  on  the  part  of  the  stockhold- 
ers or  directors.  lie  finally  assigned  to  a  bank  to  secure  existing 
indebtedness  and  that  which  should  be  thereafter  incurred,  one 
hundred  and  fifty  thousand  dollars  of  good  and  collectible  accounts, 
then  existing  or  thereafter  acquired,  to  be  held  by  the  bank  as 
collateral  security  for  existing  and  future  indebtedness  of  the  cor- 
poration. The  corporation  afterwards  making  an  assignment  for 
the  benefit  of  its  creditors,  the  bank  filed  a  bill  to  enforce  the 
agreement.  Tlie  Supreme  Court  of  Michigan  held  that  the  agree- 
ment wiis  one  which  the  president,  treasurer  and  superintendent 
had  the  power  to  make  and  that  it  was  enforceable  in  equity.* 


dorsemcnt  by  the  cashier  of  the  bank 
was  adjudged  to  be  priuia  facie  evi- 
dence of  a  legal  transfer  of  a  negotiable 
note.  See,  also,  Chase  r.  Hathorn,  61 
Me.  505;  Dunn  v.  Weston,  71  Me.  270; 
Elwell  V.  Dodge,  33  Barb.  336;  Marine 
Bank  v.  Clements,  31  N.  Y.  33." 

^  Preston  National  Bank  of  Detroit 
t>.  George  T.  Smith  Middlings  Purifier 
Co.,  (1890)  84  Mich.  364;  s.  c,  47  N. 
W.  Rep.  502.  Champlin,  Ch.  J.,  dis- 
sented solely  upon  the  ground  that  the 
contract  was  too  uncertain  and  indefi- 
nite to  be  specifically  enforced.  Argu- 
endo, as  to  the  authority  of  this  holder 
of  the  three  positions,  it  was  said  by 
Cahill,  J.,  for  the  court:  "Conced- 
ing that  the  president  must  exercise 
his  powers  of  management  in  subordi- 


nation to  the  board,  yet  when,  as  in 
this  case,  the  stockholders,  being  the 
owners,  have  seen  fit  to  vest  certain 
extraordinary  powers  of  management 
in  the  president,  and  certain  other  pow- 
ers in  the  treasurer  and  superintendent, 
and  the  directors,  with  full  knowledge 
of  this,  elect  a  man  to  fill  all  those  ofli- 
ces,  and  thereafter  put  no  restraint 
upon  his  management,  the  board  must 
be  held  to  have  consented  to  his  exer- 
cising all  the  power  reasonably  in- 
cluded in  the  language  by  which  it 
was  conferred.  Bank  v.  Comegys,  12 
Ala.  772.  The  right  of  the  directors 
to  make  the  security  in  question  is  not 
disputed,  yet  their  authority  is  given 
in  language  no  broader  than  that  which 
defines  the  duties  of  the  president.    If 


-  'y 


208 


POWER  OF  AGENTS  AND  OFFICERS. 


[§159 


§  159.  Note  executed  by  a  secretary. —  In  an  action  against 
a  corporation  on  a  promissory  note,  signed  by  one  whom  the  evi- 
dence tended  to  show  was  the  secretary  of  the  corporation  and 
impressed  with  a  stamp  wliich  ap}>eared  to  have  been  used  as  the 


it  be  said  that  the  stockholders  could 
not  thus  usurp  the  powers  of  the  board 
and  confer  them  on  the  president  it 
may  be  said  that  the  right  of  the  di- 
rectors to  delegate  certain  of  their 
powers  of  management  to  the  oflScers 
is  undoubted,  and  if  the  consent  of  the 
board  was  needed  to  fully  invest  the 
president  with  the  power  given  to  him 
in  the  by-laws  that  consent  has  been 
given  in  this  case.  The  question  of 
[the  president's]  power  is  largely  one 
of  intention  on  the  part  of  the  stock- 
holders and  directors.  As  bearing 
upon  this  question  of  intention,  the 
fact  that  no  corporate  meetings  were 
held  for  five  years  after  the  by-laws 
were  adopted  is  an  important  circum- 
stance.  It  is  claimed  that  the  neglect 
to  hold  corporate  meetings  can  have 
no  bearing  on  this  case,  because  it  is 
not  shown  that  complainant  knew  of 
this  fact  or  was  influenced  by  it,  and 
we  are  referred  to  the  case  of  New 
York  Iron  Mine  v.  Negaunee  Bank,  39 
Mich,  at  page  655,  where  some  lan- 
guage of  Mr.  Justice  Coolet  to  that 
effect  is  found.  In  that  case  the  only 
question  was  whether  the  bank  had 
been  influenced  to  rely  upon  Wet- 
more's  apparent  authority,  which  did 
not  in  fact  exist,  to  make  the  paper  in 
question.  The  question  is  different 
here.  It  is  not  one  of  apparent  power 
to  do  an  act  conceded  to  be  fraudulent 
and  void  unless  ttfe  corporation  was  es- 
topped by  its  conduct  to  allege  the 
fraud,  but  it  is  a  question  of  actual 
power  in  Mr.  Smith,  as  the  president, 
treasurer  and  manager  of  this  corpora- 
tion, to  perform  an  act  entirely  legal 
and  proper  if  authorized.  The  inten- 
tion to  confer  such  power  may  be  evi- 
denced by  their  failure  to  act  in  oppo- 


sition to  or  in  restraint  of  a  course  of 
business  they  have  themselves  per- 
mitted, if  not  estnblishcd.  It  is  an  ordi- 
nary occurrence  for  manufacturing  or 
trading  concerns,  whose  products 
have  sometimes  to  be  carried  to  await 
a  favorable  market,  to  draw  against 
such  products  for  the  money  needed 
to  carry  them;  and.  if  requested,  some 
form  of  security  upon  such  products 
is  given.  If  this  be  permissible  shall 
the  right  to  give  security  exist  only  so 
long  as  the  goods  are  in  stock,  or  may 
they  be  sold  on  credit  and  the  accounts 
due  for  such  sales  be  substituted  with 
the  consent  of  the  creditor?  If  not, 
then  trade  is  hampered,  the  debtor  is 
put  into  the  hands  of  the  creditor,  and 
the  latter  cannot  release  him  if  he 
would  without  risk.  The  right  of  Mr. 
Smith,  as  president  and  treasurer,  to 
borrow  money  for  the  legitimate  needs 
of  the  business  and  to  give  the  com- 
pany's paper  is  not  contested.  The 
duty  to  pay  is  involved  in  the  power 
to  incur  debts.  In  the  case  of  this  cor- 
poration its  power  to  pay  its  debts  de- 
pended on  the  profitable  sale  of  its 
products  and  the  collection  of  the 
money  due  on  such  sales.  If  it  could 
not  otherwise  dispose  of  its  products 
it  could  turn  them  out  to  its  creditors 
in  payment  of,  or  as  security  for,  such 
debts.  If  its  goods  were  sold  on  credit, 
these  credits  stood  as  the  representa- 
tives of  the  goods,  and  the  same  use 
could  legitimately  be  made  of  them. 
This  is  not  like  giving  security  upon 
all  the  corporate  property,  the  enforce- 
ment of  which  may  involve  the  corpo- 
rate existence.  The  giving  of  the  se- 
curity or  its  enforcement  did  not  nec- 
essarily interfere  with  the  prosecution 
of  the  corporate  business.  It  was  given 


\ 


•H 


PRIVATE  CORPORATIONS. 


209 


§160] 

seal  of  the  company,  there  being  evidence  that  the  plaintiff  had 
advanced  to  the  corporation  the  amount  for  which  the  note  was 
given,  the  Supreme  Court  of  New  York,  in  General  Term, 
held  that  a  finding  that-  the  corporation  had  executed  the  note  in 
consideration  of  money  loaned  to  it  would  not  be  disturbed.^ 

§  160.  Power  of  superintendents,  etc. —  A  corporation  will 
be  bound  by  a  contract  made  by  its  superintendent  and  manager 


upon  property  and  credits  already  de- 
voted in  equity  and  good  conscience 
to  the  payment  of  its  creditors,  of 
whom  the  bank  was  one.  The  effect 
of  it  was  simply  to  give  complainant 
priority  of  lien."  The  court  referred 
to  the  following  cases  to  which  it  was 
cited,  to  wit:  Kimball  v.  Cleveland,  4 
Mich.  606;  Joy  v.  Plank  Road  Co.,  11 
Mich.  155;  Peninsular  Bank  v.  Han- 
mer,  14  Mich.  208;  Adams  Mining  Co. 
V.  Senter,  26  Mich.  73;  New  York 
Iron  Mine  v.  Negaunee  Bank,  39  Mich. 
644;  Star  Line  v.  Van  Vliet,  43  Mich. 
364;  New  York  Iron  Mine  v.  Citizens' 
Bank,  44  Mich.  3^57;  Eureka  Iron  & 
Steel  Works  v.  Bresnahan,  60  Mich. 
332;  D wight  v.  Lumber  Co.,  67  Mich. 
507;  Delta  Lumber  Co.  v.  AVilliams, 
73  Mich.  86;  Genesee  Co.  Savings 
Bank  r.  Michigan  Barge  Co. ,  52  Mich. 
438;  Kendall  v.  Bishop,  76  Mich.  634; 
Stokes  V.  Pottery  Co.,  46  N.  J.  L.  237; 
Bank  v.  Bank,  48  N.  J.  L.  527;  s.  c,  7 
Atl.  Rep.  318;  Fay  v.  Noble,  12  Cush. 
1,  as  to  the  powers  of  agents  of  corpo- 
rations in  such  matters.  They  said: 
"They  are  not  altogether  free  from 
conflict,  although  if  the  exact  point 
necessary  to  be  decided  in  each  case  be 
kept  in  mind,  and  the  language  used 
be  given  no  broader  meaning  than  the 
facts  of  the  particular  case  require, 
the  conflict  will  be  found  more  appar- 
ent than  real." 

^Jansen  v.  Otto  Steitz  New  York 
Glass  Letter  Co.,  (1888)  49  Hun,  606; 
8.  c.,lN.  Y.  Supp.  605.  Daniels,  J., 
for  the  court,  said:  "  To  obtain  money 

27 


in  this  manner,  to  meet  its  financial 
necessities,  was  strictly  within  its 
authority  as  a  corporation,  and  it  was 
equally  within  its  power,  after  having 
obtained  it,  to  execute  and  deliver  the 
note  which  was  the  subject  of  the 
action  for  payment  of  the  amount.  It 
is  true  that  it  was  not  subscribed  by 
the  president,  as  contracts  were 
authorized  to  be  made  by  article  7  of 
the  by-laws;  but  while  the  president 
did  not  subscribe  the  note,  his  conduct 
authenticating  its  subscription,  in  the 
name  of  the  company,  was  equal  to 
what  was  in  this  manner  provided  for, 
inasmuch  as  he  directed  the  note  to  be 
made  by  the  secretary.  These  per- 
sons were  vested  with  the  apparent 
authority  for  conducting  and  carrying 
on  the  business  of  the  company.  And 
even  though  they  may  have  omitted 
literally  to  comply  with  the  by-laws, 
as  to  the  form  of  the  contract  for  the 
payment  of  the  money,  the  company 
itself  cannot  be  shielded  from  liability 
on  account  of  that  omission  of  its  con- 
trolling officers.  The  case  in  all  its 
features  differs  from  that  of  Bank  r. 
Church,  39  Hun,  498,  where  the  note 
was  neither  sanctioned  by  the  cor- 
poration, nor  given  by  the  officers 
conjointly  required  to  act  in  the 
transaction  of  its  business.  The  pres- 
ent note  was  the  act  of  the  officers, 
conjointly,  of  a  business  corporation 
empowered  to  borrow  money  and  pro- 
vide for  its  payment,  substantially  the 
same  as  that  might  be  done  by  an  un- 
incorporated partnership." 


) 


210 


POWER  OF  AGENTS  AND  OFFICERS. 


[§160 


relating  to  the  ordinary  concerns  of  its  business.'  It  may  be 
shown  by  the  testimony  of  any  one  who  knows  the  fact  that  one 
is  the  general  manager  of  a  corporation.^  A  corporation  which 
has  authorized  its  agents  to  sign  "  all  notes  and  business  paper," 
will  be  lial)le  on  accommodation  notes  given  by  him  in  the  name 
of  the  corporation  to  a  hmia  fide  holder,  taking  them  in  good 
faith,  for  value  l)efore  maturity,  notwithstanding  any  want  of 
authority  of  the  agent  to  execute  them  for  the  purposes  for  which 
they  were  given.^  The  business  manager  of  a  manufacturing 
corporation  cannot  be  assumed,  as  a  matter  of  law,  to  have  implied 
authority  to  agree,  in  ])ehalf  of  the  corporation,  to  pay  for  medi- 
cal attendance,  however  small  the  sum,  on  one  whom  he  has 
reasonable  ground  to  believe  to  have  been  injured  by  the  fault  of 
the  corporation.*     An  engineer  employed  by  a  railroad  corpora- 


»  Whitaker  r.  Kilroy,  (1888)  70  Mich. 
635;  8.  c,  38  N.  W.  Rep.  606. 

•Corning  r.  Walker,  UN.  Y.  Wkly. 
Dig.  314.  In  Negley  t.  Counting 
Room  Company,  (City  Ct.  N.  Y.  1886) 
IN.  Y.  St.  Repr.  299,  the  evidence 
that  the  agent  of  a  torponition signing 
a  promissory  notr  as  "manager," 
•*had  mostly  the  entire  charge  of  the 
business,"  has  boon  liold  sufficient  to 
show  that  liis  act  in  executing  the 
note  was  within  the  scope  of  the  gen- 
«'nil  powera  conferred  upon  him,  and 
incidental  to,  and  necessary  for,  the 
conduct  of  the  corporation's  business. 
Citing  Farmers'  Bank  of  Bucks  County 
t?.  McKee,  2  Pa.  St.  318. 

•Bird  r.  Daggett,  (1867)  97  Mass. 
494. 

*8wazey  v.  Union  Manufacturing 
Co.,  42  Conn.  559.  As  to  the  power 
of  an  officer  of  a  corporation  author- 
ized to  draw  checks  and  drafts,  and 
charged  with  the  general  management 
of  the  business  of  the  corporation,  in 
the  absence  of  contrary  instructions 
by  the  board  of  directors  to  bind  the 
corporation  by  notes  given  for  moneys 
used  to  pay  off  indebtedness  of  the 
corporation,  which  was  a  railroad  cor- 
poration, in  the  construction  of  its 
road,  see  Fitzgerald  &  ilallory  Con- 


struction Co.  r.  Fitzgerald,  (1890)  137 
U.  8.  98;  s.  c,  11  Sup.  Ct.   Rep.  36. 
Cases  as  to  the  power  of  a  president 
of  a  corporation  growing  out  of  his 
being,  in  the  management  of  its  af- 
fairs, its  managing  officer.      Siebe  r. 
Joshua    llendy    Machine    Works,  80 
Cal.  390;  s.  c,  25  Pac.  Rep.  14;  Lan- 
caster County  r.  Cheraw  &  C.  R.  R. 
Co.,  28  S.  C.  134;  s.  c,  5  S.  E.  Rep. 
338;  Kenton   Insumnce  Co.   v.   liow- 
man,  84  Ky.  430;  s.  c,  1  S.  W.  Rep. 
717;  Maria tt   r.    Levee  Steam  Cotton 
Press  Co.,  10  \a\.   583;  s.   c,   29  Am. 
Dec,  468;   Topeka  Primary  Assn.   r. 
Martin,  39  Kans.   750;  s.   c,  18  Pac. 
Rep.  941;  Bambrick  r.  Campbell,  37 
Mo.  App.  460;  Graflus  v.   Land  Com- 
pany,  3  Phil.   447;  Ceeder  t.  H.  M. 
Loud  &  Sons  Lumber  Co.,  86  Mich. 
541;   s.   c,  49  N.   W.   Rep.   575;   24 
Am.  St.  Rep.  134;  Chicago,  etc.,  R. 
R.  Co.  F.  Coleman,  18  111.  297;  s.  c, 
68  Am.  Dec.  544;  Steamboat  Company 
r.  McCutcheon,  13  Pa.  St.  13;  Smith 
r.  Smith,  62  111.  493;  Richmond,  etc., 
R.  R.  Co.  T..  Snead,  19  Gratt.  354;  8. 
c,  100  Am.  Dec.  670;  Dougherty  i». 
Hunter,   54    Pa.    St.    380;    Moser    «. 
Kreigh,  49  III.  86;  Chicago,  etc.,  R. 
R.  Co.  r.  Boone  C^o.,  44  III.  247;  Voris 
r.  Renshaw,  49  III.  425. 


§161] 


PRIVATE  CORPORATIONS. 


211 


tion,  by  virtue  of  his  position,  has  no  power  to  bind  the  corpora- 
tion by  his  contracts.*  To  bind  the  corporation  special  authority 
to  the  engineer  must  be  shown.'  The  secretary  of  a  corporation 
has  no  authority  to  give  a  memorandum  of  indebtedness  of  the 
corporation,  and  such  a  memorandum  would  not  be  negotiable.' 
The  unauthorized  execution  of  a  promissory  note  by  the  secretary 
of  a  corporation  for  money  borrowed,  may  be  ratified  by  the 
board  of  directors  of  the  corporation  authorized  by  its  by-laws  to 
borrow  money  and  execute  securities  therefor,  and  the  corpora- 
tion be  bound  by  such  ratification.*  It  is  in  the  power  of  the 
supervising  agent  of  a  corporation,  made  by  its  charter  its  execu- 
tive officer,  having  the  care  and  management  of  its  business 
under  the  direction  of  the  general  board  of  directors,  to  accept  a 
draft  for  the  corporation  where  there  is  no  restriction  upon  the 
general  powers  conferred  upon  him.*^ 

§  l6i.  A  manager's  power. —  In  a  case  where  one  as  man- 
ager of  a  corporation,  to  which  position  he  had  been  duly 
appointed,  negotiated  a  loan  with  another,  and  gave  the  latter  his 
note  for  the  amount  payable  to  the  order  of  the  corporation, 
which  note  was  indorsed  by  him  as  such  manager,  and  as  collat- 
eral security  for  its  payment  he  delivered  with  the  note  mortgage 
bonds  of  the  corporation,  the  New  York  Court  of  Appeals  said 
the  evidence  *'  was  sufficient  to  permit  the  court  to  submit,  as  it 
did  to  the  jury,  the  question  whether  the  debt,  to  recover  which 
this  action  was  brought,  was  that  of  the  company."  The  court 
below  was  requested  to  charge  that  before  a  verdict  could  be 
found  for  the  plaintiff  the  jury  must  be  satisfied  by  affirmative 
proof  that  the  manager  was  authorized  to  indorse  the  name  of 
the  company  on  the  note  by  prior  resolution  of  the  executive 
committee  or  by  the  board  of  directors  or  by  ratification,  by  reso- 
lution or  some  equivalent  act  of  such  committee  or  bond.  The 
court  held  that  there  was  no  error  in  the  charge,  which  sub- 
stantially was  that  the  jury,  to  reach  such  result,  must  find  either 

>  Gardner  r.  B.  &  M.  R.  R.  Co.,  70  ^Hascall    t.    Life    Association    of 

Me.  181.  America,   5   Hun,   151.      As   to   the 

'  Ibid.  power  of  a  superintendent  of  a  corpo- 

'  Sears  «.  Trustees  Illinois  Wesleyan  ration  operating  in  a  foreign  country. 

University,  (1862)  28  Dl.  183.  see  Rathbun  «.  Snow,  (1890)  123  N.  Y. 

*  Nebraska  &  E.  Farm  Loan  Co.  n.  343. 
Bell,  58  Fed.  Rep.  326;  s.  c,  7  C.  C. 
A.  258. 


■    ;  fl 


212 


POWER  OF  AGENTS  AND  OFFICERS. 


[§162 


prior  authority  or  subsequent  ratification,  and  that  it  could  be 
evidenced  by  general  course  of  business  as  well  as  by  resolution.^ 

§  162.  Manag^er  of  a  foreign  incorporation. —  Certain  notes 
were  signed  by  the  president  of  a  construction  company,  an 
Iowa  corporation,  and  certain  others  by  an  auditor  of  the  corpo- 
ration, payable  to  the  order  of  certain  banks,  and  indorsed  by  one 
who  was  appointed  a  manager  for  the  construction  company  in 
its  work  of  constructing  railways  in  Nebraska.  Upon  these  notes 
the  latter  realized  money  through  the  banks  and  used  it  in  pay- 
ment of  bills  of  the  construction  company  for  labor,  etc.,  on  their 
work  of  construction.  When  the  notes  became  due  this  manager 
in  Nebraska  arranged  or  paid  oil  the  notes  as  indorser,  and  they 
were  assigned  over  to  him.  He  brought  action  upon  them 
against  the  company  in  the  Nebraska  courts,  and  the  foreign 
corporation  defendant  had  the  cases  removed  to  the  federal 
courts.  When  the  case  came  before  the  Supreme  Court  of  the 
United  States,  in  the  opinion  rendered,  Fuller,  Ch.  J.,  for  the 
court,  said  of  the  evidence,  that  it  "  tended  to  show  that  Mallory 
[the  president  of  the  construction  company]  was  authorized  to 
build  the  line  of  [several  railroad  companies],  being  a  distance  in 
the  aggregate  of  about  six  hundred  miles  of  railroad,  and  which 
cost  some  seven  millions  of  dollars ;  that  he  had  full  charge  of 
the  location  and  construction  of  the  road  ;  that  he  was  authorized 
to  draw  checks  and  drafts,  and  all  these  notes  and  drafts  were 
made,  accepted  or  authorized  by  him  ;  that  the  directors  not  only 
did  not  give  contrary  instructions  in  the  first  instance,  but  knew 
of  the  giving  of  the  notes  and  drafts,  and  did  not  disaffirm  the 
action  of  the  president,  and  that  the  proceeds  were  used  for  the 
payment  of  construction  liabilities  of  the  company  in  every 
instance,  either  directly  or  in  taking  up  paper,  the  proceeds  of 
which  had  been  so  used."     The  argument  before  the  court  was 


»  Huntington  v.  Attrill,  (1890)  118 
N.  Y.  365;  s.  c,  28  N.  E.  Rep.  544. 
In  Deller  v.  Staten  Island  Athletic 
Club,  (1890)  56  Hun,  647;  8.  c,  9  N. 
Y.  Supp.  876,  it  was  held  that  where 
the  board  of  management  of  a  corpo- 
ration like  defendant  was  authorized 
by  the  by-laws  to  make  necessary  con- 
tracts and  regulations,  and  the  oflScers 
of  the  dub,  acting  under  a  resolution 


of  the  board  of  management,  con- 
tracted to  lease  the  club  house  to 
plaintiff,  who  agreed  to  maintain  a 
restaurant  for  the  exclusive  use  of  the 
members  and  their  guests,  subject  to 
the  approval  of  the  house  committee, 
plaintiff  might  recover  for  refresh- 
ments furnished  to  guests  of  the  club 
at  the  request  of  members  of  the 
house  committee. 


162] 


PRIVATE  COEPOKATIONS. 


213 


that  there  could  be  no  recovery  on  the  notes  and  drafts  in  ques- 
tion, because  it  was  said  they  were  made  by  the  president  or 
auditor  of  the  company  without  the  knowledge  or  consent  of  the 
board  of  directors ;  and,  further,  that  the  notes  in  the  first  two 
causes  of  action  named  were  paid  by  the  plaintiff  when  he  was 
under  no  obligation  to  pay,  and  then  and  in  that  respect  was  a 
mere  volunteer.  The  Supreme  Court  of  the  United  States  held 
that  the  instructions  to  the  jury  in  this  case  were  justified  by  the 
evidence.^ 


*  Fitzgerald  &  Mallory  Construction 
Co.  V.  Fitzgerald,  (1890)  137  U.  S.  98; 
8.  c,  11  Sup.  Ct.  Rep.  36.  The 
instructions  of  the  United  States  Cir- 
cuit Court  in  this  case  to  the  jury 
were  as  follows:  "That  if  they  found 
from  the  evidence  that  the  presi- 
dent was  given  entire  management  in 
building  the  railroad,  and  in  the  in- 
curring of  liabilities  and  paying  of 
debts  incurred  therein,  he  might  ap- 
point other  agents,  such  as  a  cashier 
and  auditor,  for  the  purpose  of  making 
the  calculations  on  pay-rolls  and  on 
contracts  for  building  the  road,  and 
might  empower  any  one  of  such 
agents  who  made  such  calculations 
upon  the  pay-rolls  of  the  amount  due 
to  those  who  did  the  work  by  contract 
or  otherwise,  to  draw  any  checks  or 
bills  or  sight  drafts  necessary  to  pay 
the  same,  and  '  if  it  becomes  necessary 
for  the  benefit  of  said  company  to  exe- 
cute promissory  notes  or  to  draw  sight 
drafts,  the  said  president  would  have 
ample  authority  to  do  the  same,  and 
might  likewise  empower  the  cashier, 
or  the  party  whose  duty  it  was  to 
ascertain  the  amounts  due  to  contract- 
ors, materialmen  and  persons  working 
upon  the  construction  or  building  of 
said  railroad  by  the  construction  com- 
pany, to  draw  drafts  or  checks,  or 
even  make  promissory  notes,  and  that 
the  same,  if  done  for  the  company  or 
for  its  use  and  benefit,  would  be  bind- 
ing upon  the  said  company,  unless  the 
president  received  from  the  directors 


certain  instructions  which  limited  hia 
authority  in  the  premises.' "  The  court 
also  instructed  the  jury:  "As  to  the 
promissory  notes  which  were  indorsed 
by  the  plaintiff,  and  upon  which  he 
was  held  as  indorsee,  if  the  jury  found 
from  the  evidence  that  said  notes  were 
executed  in  good  faith  for  the  presi- 
dent of  the  construction  company,  and 
that  the  proceeds,  or  the  proceeds  of 
the  notes  and  drafts  of  which  the  notes 
in  question  were  renewals,  were  re- 
ceived by  and  used  for  the  benefit  of 
the  construction  company,  and  you 
further  find  that  the  plaintiff  is  not  the 
holder  and  owner  of  said  notes,  you 
will  find  for  the  plaintiff  in  the  full 
sum  of  the  notes,  with  interest,"  And 
further:  "  And  although  there  may  be 
a  provision  in  the  by-laws  of  said  con- 
struction company  requiring  certain 
formalities  in  the  execution  of  a  prom- 
issory note  or  draft,  yet  that  does  not 
necessarily  make  such  formalities  es- 
sential to  the  ratification  of  the  con- 
tract; but  if  you  find  from  this  evi- 
dence that  said  notes  were  given  for 
the  purpose  of  paying  off  debts  that 
were  due  by  said  construction  com- 
pany, and  that  the  directors  of  said 
construction  company  had  full  knowl- 
edge of  the  same  and  assented  to  this 
transaction,  to  the  signing  and  execu- 
tion of  the  notes,  you  will  find  that 
said  acts  of  the  president  have  been 
fully  confirmed,  and  you  will  find  for 
the  plaintiff  the  full  amount  of  said 
notes,  with  interest,  provided  you  find 


ill 


hll 


1 


214 


POWER  OF  AGENTS  AND  OFFICERS. 


[§103 


§  163.  Authority  of  a  manag^er. —  One,  a  physician,  manag- 
ing a  medicine  company,  a  corporation  organized  under  the  laws 
of  N'ew  Jersey,  who  had  been  intrusted  with  the  management  so 
far  as  the  collection  of  debts  due  to  it  and  payment  of  debts  due 
by  it,  had  placed  in  a  bank  for  collection  certain  checks  payable 
to  the  order  of  the  corporation,  indorsed  in  the  name  of  the  cor- 
poration by  himself.  The  total  amount  of  the  collections  were 
paid  to  him  by  the  bank,  and  it  appeared  that  a  part  of  the  sum 
he  failed  to  pay  over  to  the  corporation  or  on  its  account.  The 
corporation  brought  action  against  tlie  bank  for  this  balance, 
denying  the  authority  of  this  person  to  indorse,  etc.,  the  paper 


the  plaintiff  was  the  owner  of  the 
same,  and  is  now  the  lawful  holder  of 
them."  It  was  said  by  the  Supreme 
Court  on  the  merits  of  the  case :  * '  If  the 
moneys  were  used  to  pay  off  indebted, 
ness  of  the  company  arising  in  the  con- 
struction of  the  road,  and  for  work  done 
under  proper  authority,  the  transac- 
tions were  in  pursuance  of  the  author- 
ized purposes  of  the  corporation,  and 
occurred  in  its  legitimate  business. 
The  execution  of  the  paper  could  not 
be  held  to  be  in  excess  of  the  powers 
given,  and  it  was  clearly  the  duty  of 
the  directors  to  give  contrary  instruc- 
tions if  they  wished  to  withdraw  tho 
general  management  from  its  presi- 
dent, and  to  disaffirm  the  action  of 
their  agents  promptly  and  at  will,  if 
they  objected  to  it.  Indianapolis 
Rolling  Mill  v.  St.  Louis,  etc.,  R.  R. 
Co.,  120  U.  S.  256;  Cresswell  v.  Lana- 
han,  101  U.  8.  347.  The  company 
was  liable  upon  the  original  indebted- 
ness, and  its  change  of  form  in  order 
to  relieve  the  pressure  of  the  creditors 
was  by  the  direction,  with  the  partici- 
pation, and  the  request  of,  the  presi- 
dent. We  perceive  no  want  of  power 
and  no  omission  of  essential  formali- 
ties in  what  was  done.  Another  mere 
fact  that  [the  plaintiff]  was  a  stock- 
holder in  and  a  promoter  and  director 
of  the  company,  and,  with  the  presi- 
dent, the  manager  of  the  work  in  the 
prosecution  of  which  the  indebtedness 


arose,  would  not  change  the  binding 
character  of  the  obligation.  Twin- Lick 
Oil  Co.   V.   Marbury,   91   U.    8.    587; 
Gardner  v.  Butler,  30  N.  J.  Eq.  702, 
721;    Harts   v.   Brown,    77    111.    226; 
Again,  there  was  evidence  to  the  effect 
that  [the  plaintiff]  indorsed  the  notes 
at  the  request  of  the  president.     Inas- 
much as  the  defendant  was  answerable 
for  the  indebtedness  which  the  money 
received  upon  the  notes  went  to  pay, 
if  in  order  to  obtain  that  money  [the 
plaintiff]  was  called  on  to  indorse  the 
notes,  and  compelled  to  protect  his  in- 
dorsement, he  could  not  be  treated  as 
a  volunteer.     There  would  be  no  ele- 
ment in  such  a  transaction  of  the  vol- 
untary payment  by  one  of  another's 
debt.      So,  if  [the  plaintiff]  was  the 
manager  of  the  work  under  the  presi- 
dent, and  the  money  was  used  to  pay 
off   the   sub-contractor,    materialmen 
and  hands,  then,  upon  the  refusal  of 
the  company  to  repay,  [the  plaintiff] 
had  the  right  to  take  up  the  notes  and 
have   them    assigned    to   him;    and 
whether  he  was  the  owner  and  holder 
of  the  notes  was  left  to  the  determina- 
tion of  the  jury.     By  the  first  section 
of  the  by-laws,  the  oflUcers  of  the  com- 
pany were  declared  to  be  '  a '  president, 
vice-president,  secretary  and  treasurer, 
and  such  other  officers   as    may    be 
deemed   necessary   to   carry  out    the 
object  of  the  articles  of  this  incor- 
poration." 


§163] 


PRIVATE  CORPORATIONS. 


215 


belonging  to  the  company,  and  claiming  that  such  authority  was 
only  in  its  treasurer.  The  trial  court  refused  the  request  of  the 
bank  on  the  trial  to  instruct  "  that  if  the  jury  shall  find  that  by 
the  consent  of  the  [corporation  this  person]  had  conducted  the 
plaintiff's  business,  had  paid  bills,  sold  goods,  received  and  paid 
out  moneys  for  the  [corporation],  and  was  in  fact  ostensibly  in 
charge  of  the  busuiess,  then  [he]  had  apparent  authority  to  indorse 
the  drafts  in  question  and  receive  the  money  in  question,  and  it 
was  immaterial  whether  or  not  he  had  actual  authority."  The 
Supreme  Court  of  New  York,  in  General  Term,  held  that  this 
refusal  to  instruct,  as  requested,  was  error,  for,  said  they :  "  Cor- 
])oration8  can  act  only  through  their  officers  and  agents,  and,  if  a 
person  has  been  instructed  by  the  officers  to  carry  on  tlie  business, 
the  acts  of  that  person  must  be  deemed  to  be  binding  upon  the 
corporation  in  all  cases  where  tlie  parties  dealing  with  him  have 
not  notice  or  knowledge  of  his  want  of  actual  authority."^ 


'Craig  Medicine  Co.  v.  Merchants' 
Bank  of  Rochester,  (1891)  59  Hun,  561; 
8.  c,   14  N.  Y.  Supp.   16.     But  the 
court  considered  another  point  a  more 
radical  reason  for  reversing  this  judg- 
ment,   to  wit:   It  appeared  that  the 
treasurer  had  been  given  a  proxy  by 
the    other  stockholders    to   represent 
them  in  the  meeting  to  be  held  in  New 
Jersey  to  organize  the  corporation  and 
to  vote  for  them.     This  he  did,  organ- 
izing the  company,  electing  himself 
and  the  persons  he  represented  as  a 
board  of  directors,  he  only  being  pres- 
ent, and  afterwards,  in  a  meeting  of 
its  board  of  directors  represented  by 
himself  alone,  elected  officers,  includ- 
ing himself  as  treasurer.     It  was  said 
as  to  the  law  applicable  to  this  state  of 
facts:  "  We  know  of  no  principle  ap- 
plicable to  the  discharge  of  corporate 
functions,  by  which  directors  or  trus- 
tees of  the  corporation  can  vote  at  the 
meeting  of  the  board  of  directors  or 
trustees  by  proxy.    Under  the  act  of 
this  state  (Chapter  40,  Laws  of  1848) 
for  the  organization  of  companies  for 
manufacturing,  mining,  mechanical  or 
chemical  purposes,  stockholders  may, 


at  the  meeting  of  the  stockholders  for 
the  election  of   directors,  vote  when 
absent  by  giving  a  written   proxy  to 
some  other  person.     This  is  also  true 
of  the  statutes  of  New  Jersey,  put  in 
evidence,  but  there  is  no  law  in  New 
Jersey  that  permits  a  director  to  vote 
by  proxy  at  board  meetings.    The  gen- 
eral rule  there,  as  in  this  state,  and 
universally,  is  that  it  requires  a  quo- 
rum of  directors  or  managers  as  trus- 
tees of  a  corpomtion  to  transact  busi- 
ness, and    that,  in  the  absence  of  a 
statute  making    a    different    number 
such  quorum,  a  majority  of  the  whole 
board    is    required.       The    principal 
claim,  therefore,  made  by  the  plaintiff, 
that   it  had  a  legally  elected   treas- 
urer, who  alone  could  transact  busi- 
ness of  the  corpoRition  of  this  charac- 
ter, cannot  be  maintained.     The  proxy 
or  power  of  attorney,  put  in  evidence, 
did  not  give  [its  holder]  the  right  to 
vote  in  the  name  of  the  directors  who 
should  be  chosen  at  the  stockholders' 
meeting,  and  if  it  had,  it  would  have 
been  utterly  void.     It  was  not  known, 
indeed,  who  the  directoi-s  would  be. 
Under  the  power  of  attorney  [he]  had 


\  >f 


n 


216 


POWER  OF  AGENTS  AND  OFFICERS. 


[§164 


§§  165,  166] 


PRIVATE  CORPORATIONS. 


217 


§  164.  What  is  not  within  the  duties  of  a  cashier  of  a 
corporation. —  The  Michigan  Supreme  Court  has  declared  in 
a  case  before  it  that  compromising  claims,  settling  unliquidated 
damages,  and  releasing  debts  due  to  the  corporation,  are  acts 
which  do  not  come  within  the  ordinary  duties  of  a  cashier,  book- 
keeper, or  corresponding  clerk.* 


the  right  to  elect  other  persons  than 
those  whom  he  did  in  fact  designate  as 
directors.     In  the  absence,  therefore, 
of  a  legally  authorized  treasurer,  any 
person  in  the  position  of  [the  person 
here]  who  had  general  management  of 
the  business,  or  any  director,  as  [the 
one  who  signed  for  him]  is  shown  to 
be,  had  the  power  to  indorse  the  cor- 
poration's name  for  the  purpose  of 
collecting  commercial  paper  made  pay- 
able to  its  order.     The  [bank],  having 
acted  in  perfect  good  faith,  has  turned 
its  collections  over  to  the  proper  per- 
son    representing      the    corporation. 
There  being  no  treasurer  by  election 
of  the  directors,  and  none  in  fact  by 
the  usual  conduct  of  the  business,  ex- 
cept the  person  acting  for  the  [corpo- 
ration] in  this  instance,  it  follows  that 
the  manager  or  any  director  of  the  cor- 
poration could,   in   the  absence  of  a 
positive  statute,  sign  the  corporation 
name  for  the  purposes  of  the  collect- 
ing of  commercial  paper." 

'Delta  Lumber  Co.  r.  AVilliams, 
(1888)  73  Mich.  86;  s.  c,  40  N.  W. 
Rep.  940,  Argttendo,  the  court  said: 
"The  statute  authorizing  the  forma- 
tion of  corporations  for  manufacturing 
purposes  enacts  that  the  stock,  prop- 
erty, affairs  and  business  of  every 
such  corporation  shall  be  managed  by 
its  board  of  directors.  The  board 
shall  choose  one  of  their  number  to  be 
president,  one  to  be  vice-president, 
and  also  a  secretary  and  treasurer. 
The  office  of  cashier  is  not  one  that  is 
named  in  the  act,  and  although  such 
corporations  are  authorized  to  elect,  in 
such  manner  as  they  may  determine, 
all  necessary  cheers,  and  to  prescribe 


their  duties,  yet  no  testimony  in  the 
case  was  introduced  to  show  what  the 
duties  of  the    cashier   were    defined 
to  be.      In    banking  institutions    the 
authority  of   a    cashier    has    become 
pretty  well  defined  by  common  usage. 
lie  is  considered  the  executive  officer 
through    whom  and    by    whom    the 
whole  moneyed  operations  of  the  bank 
in  paying  or  receiving  debts,  or  dis- 
charging or  transferring  securities,  are 
to  be  conducted.     Ang.   &  A.  Corp. 
§  299.     But  his  authority  does  not  ex- 
tend so  far  as  to  justify  him  in  alter- 
ing the  nature  of  the  debt,  or  chang- 
ing the  relation  of  the  bank  from  that 
of  a  creditor  to  that  of  an  agent  of  its 
debtor.     And  an    agreement  by  the 
president  and  cashier  of  a  bank,  that 
an  indorser  shall  not  be  liable  on  his 
indorsements,  is    not  binding  on  the 
bank.     Bank  i\  Dunn,  6  Pet.  51 ;  Bank 
r.  Jones,  8  Pet.  16.     In  the  absence  of 
anything  in  the  charter  or  by-laws  of 
the  corporation  known  as  the  '  Delta 
Lumber  Company '  defining  the  duties 
of  the  cashier  of  such  corporation,  and 
in  the  absence  of  any  showing  as  to 
the    usage  of   this   company,   or   of 
manufacturing  corporations    in    this 
state,  by  which  the  duties  of  a  cashier 
may  be  inferred,  we  cannot  ascribe  to 
him  greater  powers  as  an  agent  of  the 
corporation  than  would  pertain  to  the 
agent  of  a  banking  corporation.     He 
may  be  considered  the  executive  officer 
of  the  financial  operations  of  the  cor- 
poration; and  whether  he  would,  in 
an  emergency,  be  considered  as  author- 
ized to  sell  and  convert  the  personal 
property    of     the     corporation     into 
money  to  meet  its  obligations,   need 


§  165.  Auditing  board  of  a  corporation. —  In  the  absence  of 
any  proof  of  authority  conferred  upon  an  auditing  board  of  a 
manufacturing  corporation  of  ^ew  York,  beyond  the  usual  func- 
tions of  such  a  board  to  allow  or  reject  claims,  such  an  audit- 
ing board,  it  has  been  held,  had  no  authority  to  rescind  a  con- 
tract which  it  w^as  claimed  in  the  action  against  the  corporation 
had  been  made  with  a  licensor  by  its  president  representing  the 
corporation,  the  licensee  of  a  patented  article  used  in  its  business, 
or  determine  the  future  action  of  the  corporation,  but  that  such 
authority  was  in  the  trustees  of  the  corporation.^ 

§  166.  Power  of  a  treasurer  generally. —  Title  will  pass  by 
a  sale  made  by  the  treasurer  of  a  corporation,  without  special 
authority,  where  he  has  been  in  the  habit  of  transacting  such 
business  with  the  knowledge  and  sanction  of  the  managing  board 
of  the  corporation.'^  The  authority  of  a  treasurer  of  a  corpora- 
tion to  bind  it  by  the  acceptance  of  a  draft,  may  be  inferred  from 
the  knowledge  and  acquiescence  of  the  directors.^  An  attorney 
may  be  employed  by  the  treasurer  of  a  corporation  without  any 
special  authorization  of  the  board  of  directors.*  A  treasurer  of 
a  corporation  must  have  special  authority,  it  not  being  within  the 
general  ])ower  and  province  of  such  officer,  to  issue  written  admis- 
sions, which  would  bind  the  corporation,  of  the  amount  due  upon 
a  dis])uted  claim  for  salary  of  other  agents  of  similar  grade  ;  the 
power  to  iix  such  amounts  belongs  regularly  to  the  board  of 
directors.^  The  treasurer  of  a  manufacturing  corporation  has  no 
authority  to  release  a  claim  for  a  loss  under  a  policy  of  insurance 
obtained  by  him  in  behalf  of  the  corporation.*'  A  treasurer  of  a 
corporation  is  not  authorized  to  pay  a  claim  of  his  own  against 
the  corporation  where  it  has  not  l>een  a])proved  and  its  payment 


not  now  be  determined,  as  certain  it  is 
that  he  would  have  no  authority,  as 
such  cashier  or  general  financial  agent, 
to  give  away  the  property  of  the  cor- 
poration or  change  its  relation  with  its 
debtor  by  releasing  a  debt  due  to  it, 
without  express  authorization.  Bank 
V.  Dunn,  6  Pet.  51;  Kirk  r.  Bell,  12 
Eng.  Law  &  Eq.  389;  Hoyt  v.  Thomp- 
son, 5N.  Y.  320." 

»  Skinner  v,  AValter  A.  Wood  Mow- 

28 


ing  &  Reaping  Machine  Co.,  (1893)  140 
N.  Y.  217. 

« Phillips  r.  Campbell,  4S  N.  Y. 
271. 

'  Partridge  v.  Badger,  25  Barb.  146. 

*  Turner  v.  Chillicothe  &  Des  Moines 
R.  R.  Co.,  (1873)  51  Mo.  501. 

*  Kalamazoo  Novelty  Manufacturing 
Co.  T.  McAlister,  36  Mich.  327. 

«  E.  Carver  Co.  v.  Manufacturers' 
Insurance  Co.,  (1856)  6  Gray,  214. 


218 


POWER  OF  AGENTS  AND  OFFICEKS. 


[§167 


authorized  by  tlie  corporation.'  On  a  debt  being  paid  to  the 
treasurer  of  a  corporation  he  has  no  power  to  assign  the  security 
without  direction  from  the  board  uf  directors.^  A  vote  of  the 
directors  of  a  corporation  authorizing  its  treasurer  to  hire  money 
on  such  terms  and  conditions  as  lie  may  think  most  conducive  to 
the  interests  of  the  corporation  to  meet  certain  of  the  accept- 
ances by  liim  of  the  drafts  of  the  corporation  upon  him,  carries 
with  it  authority  to  indorse  drafts  drawn  by  himself  to  accom- 
plish the  object.^  Mere  lapse  of  time  will  not  destroy  the  official 
character  of  the  last  secretary  of  a  corporation  so  as  to  prevent 
his  releasing  a  mortgage  given  to  the  corporation.*  In  a  case 
where  the  authority  of  a  treasurer  of  a  corporation  to  sell 
material  or  products  of  the  same  was  questioned,  and  one  of  the 
by-laws  of  the  corporation  was  put  in  evidence  providing  that 
the  treasurer  "  should  discharge  the  duties  usually  and  customarily 
pertaining.to"  this  officer  and  other  testimony  that  witness  was 
familiar  with  the  duties  of  cordage  and  other  manufacturing  cor- 
porations at  the  place  where  the  contract  was  executed  and  where 
this  particular  corporation  was  located,  and  that  they  were  accus- 
tomed to  buy  and  sell  merchandise  and  to  sign  and  accept  con- 
tracts such  as  was  made  in  this  case,  it  was  held  by  the  United 
States  Circuit  Court  of  Appeals  that  the  authority  of  the  treasurer 
to  bind  the  corporation  by  this  contract  was  one  for  the  jurv.^ 

§  167.  Power  of  a  treasurer  as  to  transfer  of  a  note.—  In 

the  absence  of  evidence  of  authority,  the  title  to  a  note  will  not 
pass  by  the  indorsement  of  the  treasurer  of  a  corporation  in  his 
official  capacity.^*  A  treasurer  of  a  corporation  being  intrusted 
by  it  to  take  notes,  an  indorsement  by  him  will  bind  the  corpora- 

*  Peterborough  Railroad  e.  Wood,  61 
N.  H.  418. 

*  Ballou  r.  Campbell,  5  Wend.  572. 
^  Belknap  v.  Davis,  19  Me.  455. 

*  Kimball  v.  Goodburn,  32  Mich.  10. 
'  National  Cordage  Co.   p.  Pearson 

Cordage  Co.,  55  Fed.  Rep.  812;  s.  c, 
5  C.  C.  A.  276.  In  Ellis  v.  Howe 
Machine  Co.,  9  Daly,  78,  it  was 
held  that  the  treasurer  of  the  sewiug 
machine  company,  owning  with  his 
brother,  the  president  of  the  company, 
nearly  the  entire  capital,  had  power  to 
bind  the  corporation  by  a  contract  for 


a  statue  to  be  used  as  an  advertise- 
ment of  its  business;  tliat  the  concur- 
rence in  such  case  of  the  whole  or  of 
the  majority  of  the  board  of  directors 
was  not  essential.  As  to  the  power  of 
a  treasurer  of  a  corporation,  see  Colum- 
bia Bank  v.  Gospel  Tabernacle  Church, 
(1889)  57  N.  Y.  Super.  Ct.  149.  As  to 
the  power  of  a  treasurer  of  a  lumber, 
ranch  and  mining  company,  see  Rum- 
bough  V.  Southern  Improvement  Co., 
(1893)  112  K  C.  751. 

•Knight  c.  Lang,  4  E.  D.  Smith, 
381;  s.  c.,2Abb.  Pr.  227. 


§  168]  PRIVATE  CORPORATIONS.  219 

tion,  his  authority  to  indorse  them  being  implied  from  his  being 
treasurer  and  being  intrusted  with  the  securities,  and  that  they 
are  made  payable  to  the  treasurer,  or  to  him  as  treasurer.^  In 
case  the  directors  of  a  corporation  by  vote  authorize  its  treasurer 
to  indorse  notes  of  the  corporation  to  a  third  person,  or  such 
treasurer  be  suffered  to  draw  and  accept  drafts,  to  indorse  notes 
payable  to  the  corporation,  and  to  do  other  similar  acts  whereby 
he  is  held  out  to  the  public  as  having  the  general  authority 
implied  from  his  official  name  and  character,  an  indorsement  of  a 
note  made  in  pursuance  of  such  express  or  implied  authority 
would  pass  a  valid  title  to  the  indorsee.^ 

§  168.  Power  of  a  treasurer  as  to  execution  of  a  note. — 

A  treasurer  of  a  corporation  may  be  given  authority  by  a  corpora- 
tion by  parol  to  execute  a  promissory  note  in  its  name.'  Where 
a  treasurer  of  a  corporation  has  been  authorized  to  give  the  note 
of  a  corporation  in  payment  of  a  corporate  debt,  he  may  do  so 
after  the  lapse  of  several  years,  provided  the  debt  is  not  barred 
by  the  Statute  of  Limitations.*  The  authority  to  execute  a  note 
of  a  corporation  in  an  officer  of  the  same  may  exist  under  a 
by-law  of  the  corporation,  or  be  based  upon  its  custom  in  such 
matters.  If  its  custom  is  to  permit  its  treasurer  to  execute  its 
promissory  notes,  the  corporation  will  be  bound  by  a  note  exe- 
cuted by  such  treasurer,  especially  where  it  receives  the  benefit  of 
the  money  loaned  upon  the  notes.^     The  board  of  directors  of  a 


»  Perkins  v.  Bradley,  24  Vt.  66. 
•Lester  v,  Webb,  (1861)  1  Allen,  34. 

*  Odd  Fellows  v.  First  National  Bank 
of  Sturgis,  42  Mich.  461;  8.  c,  4  N. 
W.  Rep.  158. 

*  Hay  ward  v.  Pilgrim  Society,  (1838) 
21  Pick.  270. 

"  Foster  v.  Ohio-Colorado  Reduction 
&  Mining  Co.,  (1883)  17  Fed.  Rep.  130. 
McCrary,  J.,  in  this  case  charged  the 
jury  in  these  words:  "Upon  the  first 
question,  as  to  whether  this  is  the  note 
of  the  defendant  corporation,  that  is 
to  be  determined  upon  the  question 
whether  the  person  who  executed  the 
note  on  behalf  of  the  corporation, 
*  *  *  the  treasurer  of  the  company, 
was  authorized  to  execute  such  an  in- 
strument.   The  law  upon  this  subject 


is  that  the  authority  is  not  presumed 
from  the  mere  fact  that  the  person  as- 
sumed the  right  to  give  a  note  in  the 
name  of  the  corporation.  A  corpora- 
tion is  an  artificial  person,  which  must 
act  within  certain  limits.  It  differs 
from  a  natural  person.  If  an  individ- 
ual gives  his  note,  it  is  not  necessary 
to  prove  anything  in  the  way  of  au- 
thority, but  a  corporation  must  act  by 
way  of  agents,  and  the  authority  of 
the  agent  who  acts  for  it  is  not  pre- 
sumed. It  may,  however,  be  shown, 
either  by  showing  an  express  authority, 
as,  for  example,  a  resolution  of  the 
board  of  trustees  authorizing  a  certain 
party  to  execute  a  note  on  behalf  of 
the  corporation,  or  by  a  provision  of 
the  constitution  or  by-laws  of  the  cor- 


)  1 


1 


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2^0 


POWEK  OF  AGENTS  AND  OFFICERS. 


[§169 


construction  company  authorized  the  officers  of  the  company  to 
execute  a  note  for  nine  thousand  dollars  and  a  chattel  mortgage 
upon  the  rolling  stock  of  the  company  to  secure  the  payment  of 
the  same.  The  officers  executed  the  note  and  mortgage  and  stip- 
ulated therein  for  attorney's  fees  in  case  of  suit  for  the  collection 
of  the  same.  In  a  suit  to  foreclose  the  mortgage,  a  District  Court 
of  Iowa  refused  to  allow  attorney's  fees.  Upon  an  appeal,  the 
Supreme  Court  said  as  to  this  matter:  "This  was  an  explicit 
direction  to  execute  a  note  for  nine  thousand  dollars  and  interest, 
and  no  more.  The  company  did  not,  by  any  official  action, 
authorize  the  execution  of  a  note  in  any  amount  exceeding  said 
sum  in  any  event.  We  think  the  court  correctly  held  that  the 
measure  of  liability  was  nine  thousand  dollars  and  interest."  *  It 
is  not  within  the  ordinary  powers  of  the  treasurer  of  a  corpora- 
tion, acting  as  its  financial  agent,  to  give  the  note  of  the  corpora- 
tion for  the  debt  of  a  third  person  ;  neither  is  it  within  the  ordi- 
nary powers  of  the  directoi-s  of  a  corporation,  unless  there  is 
an  urgent  necessity  to  do  so  to  subserve  the  interests  of  the 
corporation.^ 

§  169.  Authority  of  a  treasurer  to  borrow  money  by 
means  of  sterling  contracts.—  In  a  federal  court  case  the 
action  was  assumpsit  for  breach  of  contract  by  a  railroad  com- 
pany in  not  placing  in  the  hands  of  the  drawers  of  a  foreign  bill 
of  exchange  money  to  meet  it  when  matured.     The  company's 


poration  authorizing  a  certain  ofBcer 
to  execute  promissorj'  notes.  It  might 
be  shown  in  that  way,  but  I  believe  it 
is  not  claimed  that  there  is  anything 
of  this  kind  here.  It  may  also  be 
shown  by  the  course  of  dealings  of  the 
corporation  and  by  facts  and  circum- 
stances which  are  sufficient,  in  the 
judgment  of  the  jury,  to  show  that 
the  party  who  executed  the  note  had 
the  authority.  If  it  was  the  custom 
of  this  corporation  to  permit  the  treas- 
urer to  execute  its  promissory  notes, 
and  if  he  was  in  the  habit  of  doing  so, 
with  the  knowledge  of  the  trustees,  or 
of  the  corporation  —  which  means,  of 
course,  the  trustees  —  they  had,  by 
recognizing  that  custom  and  acting 
upon  it,  themselves  become  bound  by 


it,  and,  especially,  if  they  received  the 
benefits  of  transactions  of  this  sort, 
which  they  permitted  the  treasurer  to 
enter  into." 

'Hardin  tj.  (Construction  Co.,  78 
Iowa,  729;  s.  c,  43  N.  W.  Rep.  643. 
See,  also,  Pacific  R.  M.  v.  Dayton, 
S.  &  G.  R.  Ry.  Ck).,  5  Fed.  Rep.  852; 
8.  c,  7  Sawy.  61;  Schallard  v.  Eel 
River  Steam  Navigation  Co.,  (1886)  70 
Cal.  144;  s.  c,  11  Pac.  Rep.  590.  For 
a  case  showing  under  what  circum- 
stances the  signing  of  a  note  by  the 
treasurer  of  a  corporation  was  unau- 
thorized, see  Medberry  v.  Short,  15  N. 
Y.  Wkly.  Dig.  227. 

« Stark  Bank  v.  U.  S.  Pottery  Co.,  34 
Vt.  144. 


§169] 


PRIVATE  CORPORATIONS. 


221 


treasurer  had  borrowed  money  by  the  purchase  of  a  foreign  bill 
of  exchange  and  entered  into  the  contract  signing  the  name  of 
the  corporation  by  himself  "  Treasurer."  The  question  in  the 
case  was  whether  he  had  authority  to  bind  the  corporation  in  this 
way.  The  insistment  of  the  plaintiff  was  that  such  authority 
was  to  be  found  in  the  by-laws  of  the  corporation,  Colt,  J., 
in  his  opinion,  recites  the  by-law's  provision  that  the  treasurer 
"  shall  collect  and  receive  all  assessments,  incomes  and  moneys 
that  may  be  due  to  the  corporation,  and  disburse  the  same  as  the 
board  of  directors  may  order ;  he  shall  surrender  notes  and  other 
promissory  papers  on  payment  thereof,  and  discharge  such  mort- 
gages as  may  have  been  given  securing  the  same ;  he  shall  keep 
a  regular  set  of  books,  containing  the  accounts  of  the  corpora- 
tion, and  of  all  its  funds  that  may  pass  through  his  hands ;  and 
shall  lay  before  the  directors  monthly  a  written  statement  ofaU 
notes,  drafts,  promises,  contracts  made,  signed,  indorsed  or  sur- 
rendered hy  him,  an  abstract  of  all  monevs  received  and  paid  by 
him,  and  a  statement  of  all  property  bought  or  sold,  and  of  such 
other  matters  as  the  directors  may  deem  important."  He  then 
said:  "The  fact  that  this  by-law  directs  the  treasurer  to  lay 
before  the  directors  monthly  a  written  statement  of  all  notes, 
drafts,  promises  and  contracts  signed  or  indorsed  by  him  does 
not,  I  think,  confer  upon  him  the  authority  to  do  these  acts  with- 
out  their  direction  or  approval.  To  confer  such  broad  and  general 
powers  on  the  treasurer  of  a  corporation  is  certainly  unusual. 
The  court  should  not  hold  that  such  authority  is  vested  in  a 
treasurer  by  implication  from  the  language  of  a  by-law,  but  the 
by-law  should  expressly  give  such  authority,  if  it  was  intended  to 
be  so  conferred."^ 


>Page  f>.  Fall  River,  W.  &  P.  R. 
Co.,  (1887)  31  Fed.  Rep.  257,  258,  259. 
The  defendant  called  seveml  officers 
of  different  railroads,  who  testified 
that,  in  their  experience,  they  never 
knew  railroads  to  borrow  money  upon 
such  contracts  as  this  ;  also  two  presi- 
dents and  one  cashier  of  Boston  banks 
were  called,  who  testified,  in  sub- 
stance, that  to  their  knowledge  such 
contracts  were  not  an  ordinary  and 
usual  method  of  borrowing  money, 
and  that  they  had  never  known  of  the 


loan  of  money  on  such  contracts.  On 
the  other  hand,  the  plaintiff  introduced 
evidence  that  at  the  time  of  this  trans- 
action the  borrowing  of  money  by 
means  of  sterling  contracts  similar  to 
the  one  now  in  controversy  was  a 
usual  and  ordinary* way  of  borrowing 
money  in  Boston  among  houses  hav- 
ing foreign  capital  to  loan,  by  persons 
not  importers  or  requiring  to  use 
money  abroad.  Upon  this  the  court 
said  :  "  It  may  be  true  that  to  ordinary 
bankers  this  way  of  borrowing  money 


1 


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POWER  OF  AGENTS  AND  OFFICERS. 


[§1T0 


§  170.  Power  of  a  treasurer  to  indorse  in  name  of  cor- 
poration a  note  for  accommodation. —  It  has  been  held  in  one 
of  the  courts  of  New  York  that  a  negotiable  note  indorsed  in  the 
name  of  a  manufacturing  corporation  by  its  treasurer  for  the 


was  unusual  or  unknown,  but  to 
bankers  having  foreign  funds  it  seems 
to  have  been  a  common  mode.  To 
bankers  like  these  plaintiffs  there 
would  be  nothing  unusual  or  cal- 
culated to  excite  suspicion  for  any  one 
desiring  a  loan  to  apply  to  them,  and 
for  them  to  make  it  in  such  form  as 
was  most  convenient  to  them  at  the 
time.  There  is  no  proof  that  [the 
treasurer]  suggested  the  form  the 
loan  should  take.  The  inference 
rather  would  be  that  he  applied  to  the 
plaintiffs,  and  they  suggested  the 
mode  adopted.  The  fact  that  it  was 
not  customary  for  railroads  to  borrow 
money  in  this  way  was  not  sufficient 
to  put  the  plaintiffs  upon  their  guard. 
or  to  excite  suspicion  of  irregularity. 
The  plaintiffs  were  lenders  of  foreign 
money  in  the  Boston  market.  They 
were  applied  to  by  one  who  was  a 
customary  borrower  of  home  capital 
from  other  parties,  and  whose  notes 
were  bought  by  institutions  not  only 
in  this  state,  but  out  of  it.  Why 
should  they  not  loan  their  funds, 
under  these  circumstances,  in  a  man- 
ner not  unusual  with  them  and 
bankers  of  their  class  ?  If  the  de- 
fendant had  desired  to  restrict  its 
treasurer  to  borrowing  money  from 
[one  certain  bank]  or  through  [certain 
parties]  or  to  the  form  of  borrowing 
by  promissory  notes,  it  could  have 
done  so  by  formal  and  proper  action 
on  the  part  of  the  directors.  In  the 
absence  of  any  such  restriction  the 
defendant  must  be  held  liable.  When 
the  authority  of  the  agent  is  left  to  be 
inferred  by  the  public  from  powers 
usually  exercised  by  the  agent,  it  is 
enough  if  the  transaction  in  question 
involves   the  same   general   powers 


though  applied  to  a  new  subject-mat- 
ter. Merchants'  Bank  v.  State  Bank,  10 
Wall.  604.  '  It  is  not  necessary  in  order 
to  constitute  a  general  agent,  that  he 
should  have  done  an  act  the  same  in 
specie  with  that  in  question.  If  he 
has  usually  done  things  of  the  same 
general  character  and  effect,  and  with 
the  assent  of  his  principals,  that  is 
enough. ' "  Cowen,  J. ,  in  Commercial 
Bank  of  Erie  v.  Norton,  1  Hill,  501, 
503.  The  right  to  recover  in  this 
case  rested  mainly  on  the  ground  of 
an  implied  authority  on  the  part  of  the 
treasurer  to  make  this  contract,  be- 
cause the  corporation  held  him  out  to 
the  world  as  its  general  fiscal  agent 
authorized  to  negotiate  loans,  borrow 
money,  make  notes  and  manage  its 
whole  financial  business.  The  court 
said  :  "  The  legal  principle  relied  upon 
by  the  plaintiff  is  well  stated  in  Lester 
V.  Webb,  1  Allen,  34:  'The  rule  is 
well  settled  that  if  a  corporation  per- 
mit the  treasurer  to  act  as  their  gen- 
eral fiscal  agent,  and  hold  him  out  to 
the  public  as  having  the  general  au- 
thority implied  from  his  official  name 
and  character,  and  by  their  silence 
and  acquiescence  suffer  him  to  draw 
and  accept  drafts,  and  to  indorse  notes 
payable  to  the  corponition,  they  are 
bound  by  his  acts  done  within  the 
scope  of  such  implied  authority.' 
See,  also.  Merchants'  Bank  v.  State 
Bank,  10  Wall.  604;  Mining  Co.  v. 
Anglo-CalifomianBank,  104  U.  S.192." 
Upon  the  facts  in  this  particular  case 
the  court  then  considered  the  ques- 
tions, whether  the  directors  by  their 
course  of  conduct,  held  the  treasurer 
out  to  the  public  as  the  fiscal  agent  of 
the  corporation,  having  authority  to 
make  and  indorse  notes  for  the  cor- 


PBIVATE  CORPORATIONS. 


223 


§171] 

accommodation  of  the  maker  could  not  be  enforced  against 
the  corporation  where  the  note  did  not  concern  any  business  of 
the  corporation  and  there  was  no  by-law  or  resolution  authorizing 
the  treasurer  to  indorse  negotiable  paper  or  any  proof  of  a  recog- 
nized course  of  business  by  which  tlie  treasurer  was  held  out  as 
possessing  such  power,  or  any  evidence  that  the  corporation  had 
ratiiied  the  act  or  derived  any  benefit  from  it  though  the  note 
was  in  the  hands  of  a  bona  fide  holder.* 

§  171.  Power  of  a  treasurer  to  indorse  note  of  another 
corporation. —  A  trading  corporation  sought  in  an  action  to 
recover  of  a  former  treasurer  the  amount  of  money  it  had  been 
compelled  to  pay  on  account  of  an  indorsement  in  its  name 
made  upon  a  note  of  another  corporation,  contending  that  the 
indorsement  was  an  act  ultra  vires  the  trading  corporation.  It 
appeared  that  the  defendant  at  the  time  of  indorsing  the  note  in 
question,  and  for  five  years  prior  thereto,  was  the  treasurer  and 
general  manager  of  the  plaintiff.  As  such  general  manager  he 
was  allowed  to  exercise  his  discretion  in  managing  plaintiff's  busi- 
ness.    During  all  the  years  that  he  was  plaintiff's  manager  the 


poration,  and,  if  so,  whether  there  was 
anything  so  unusual  in  this  trans- 
action as  to  have  put  the  plaintiffs  on 
their  inquiry.  Colt.  J.,  -said :  "I 
have  no  doubt  that  the  directors  by 
allowing  [the  treasurer]  for  several 
years  and  for  a  large  amount  to  sign 
notes  for  the  corporation,  most  of 
which  were  sold  to  different  banks  in 
the  state  and  some  out  of  it  —  some  of 
the  directors  going  so  far  in  recogni- 
tion of  [his]  authority  as  to  indorse 
the  notes  —  conferred  upon  him.  so 
far  as  the  public  is  concerned,  an 
implied  power  to  borrow  money, 
which  the  corporation  cannot  now  dis- 
pute. As  to  the  nature  of  this  trans- 
action, I  am  unable  to  conclude  that 
it  was  of  such  an  extraordinary  char- 
acter as  to  relieve  the  defendant." 
^  Wahlig  r.  Standard  Pump  Mfg. 
Co.,  (N.  Y.  City  Ct.  Spl.  Term,  1890) 
9  N.  Y.  Supp.  739.  "  The  act  of  the 
treasurer  "  (the  corporation  receiving 
no  benefit  from  the  note,  and  the  pro- 


ceeds   never    reaching    its  treasury), 
said   McAdam,  Ch.  J.,  "under  these 
circumstances,    was    not  a  corporate 
act."     Wahlig   v.  Manufacturing  Co., 
(N.  Y.  City  Ct.  Gen.  T.,  1890)  5  N.  Y. 
Supp.  420;  Mather  r.  Trust  Co.,  (N. 
Y.  City  Ct.  Spl.  Term,  1890)  7  N.  Y. 
Supp.   213;  Westerfield  v.   Radde,   7 
Daly  326;    s.   c,   55  How.   Pr.   369. 
"  [This]  treasurer  had  no  power  to 
lend  the  credit  of  the  corporation.     If 
the  indorsement  was  not  a  corporate 
act,  the  fact  that  the  plaintiflf  was  a 
bona,  fde  holder  cannot  even    under 
Mechanics',  etc.,  Assn.  v.  New  York, 
etc.,  Lead  Co.,  35  N.  Y.  505,  make  it 
a  corporate  charge.     In  such  a  case 
the  remedy  would  seem  to  be  against 
the  treasurer  who  acted  without  cor- 
porate sanction,   (Green's  Brice  Ultra 
Vires,  634)  upon  the  theory  that,  where 
the  act  does  not  bind  the  principal,  it 
binds  the  person  who,  without  author- 
ity, assumed  to  act  as  agent." 


i"* 


*■ 


F" 


<fl2nr 


POWER  OF  AGENTS  AND  OFFICERS. 


[§171 


plaintiif  8  board  of  directors  left  the  direction  and  management 
of  the  business  to  his  judgment  and  habitually  held  no  meetings 
except  an  annual  meeting.  The  plaintiff  was  organized  as  a  cor- 
poration under  the  laws  of  Connecticut  for  the  purpose  of  manu- 
facturing and  dealing  in  certain  classes  of  goods,  and  to  exercise 
such  mercantile  powers  as  might  be  convenient  and  necessary 
for  the  prosecution  of  its  particular  business.  It  had  been  the 
practice  of  the  plaintiff  to  extend  financial  assistance  to  parties 
with  whom  it  had  business  relations.  The  whole  management  of 
its  business  was,  in  fact,  intrusted  to  this  treasurer.  He  made  a 
contract  with  a  carbon  manufacturing  company  upon  behalf  of 
his  corporation  by  the  terms  of  which  the  latter  was  to  receive 
and  sell  the  greater  part  of  the  carbon  manufactured  by  the 
former  company  upon  certain  terms,  etc.  For  the  purpose  of 
increasing  its  manufacture  of  carbon,  the  carbon  company  applied 
to  the  treasurer,  as  representing  the  trading  corporation,  for  assist- 
ance, and  made  its  promissory  note  for  $10,000,  payable  to  the 
order  of  the  corporation,  which  note  the  treasurer  in  the  corpora- 
tion's name  indorsed  and  procured  to  be  discounted,  and  handed 
over  the  proceeds  to  the  carbon  manufacturing  company.  The 
Supreme  Court  held  adversely  to  the  claim  of  the  corporation 
that  this  note  was  an  accommodation  indorsement  by  its  treas- 
urer, and,  therefore,  ultra  vires} 


*  Holmes,  Booth  &  Haydens  p.  Wil- 
lard,  (1889)  53  Hun,  629;  5  N.  Y. 
Supp.  610.  Van  Brunt,  P.  J.,  for  the 
court,  said:  "The  transaction  as  it 
took  place  between  the  carbon  com- 
pany and  the  defendant,  representing 
the  plaintiff,  was  simply  a  loan  of 
money.  The  carbon  company  gave 
its  note,  payable  to  the  order  of  the 
plaintiff,  and  the  plaintiff  loaned  the 
money  upon  the  note.  How  it  got  the 
money  was  immaterial,  whether  by 
having  the  note  discounted  upon  its 
own  credit,  or  otherwise,  does  not  alter 
the  relations  of  the  parties.  It  was  a 
loan  made  between  the  plaintiff  and 
the  carbon  company,  by  and  through 
its  treasurer,  and  there  is  nothing  in 
the  case  going  to  show  that  there  was 
any  accommodation  indorsement,  or 
anything  of  that  sort.    The  question 


raised  here,  therefore,  is  whether  a 
loan  of  money  by  a  corporation  is 
ultra  rires.  We  have  not  been  re- 
ferred to  any  authority  or  principle, 
under  which  such  a  transaction  can  be 
held  vltra  vires  of  a  corporation,  par- 
ticularly a  trading  corporation  which 
hsis  the  right  to  exercise  such  mercan- 
tile i>ower8  as  may  be  convenient  and 
necessary  for  the  successful  transac- 
tion of  its  business,  which  clearly 
gives  it  the  authority  to  extend  mer- 
cantile facilities  to  the  persons  dealing 
with  it  if  in  its  judgment  it  thinks  it 
for  the  benefit  of  its  business  so  to  do. 
The  transaction,  therefore,  between 
the  plaintiff  and  the  carbon  company 
was  in  no  respect  ultra  vires.  As  to 
the  power  of  the  treasurer  of  the  cor- 
poration to  use  its  credit  and  money  in 
such  a  way,  it  was  said:  "  It  is  suffl- 


i 
I 


§172] 


PBIVATE  CORPORATIONS. 


225 


§  172.  When  a  corporation  will  be  bound  by  a  note  exe- 
cuted by  its  treasurer. — In  a  case  where  a  bank  discounted  a 
note  for  a  private  corporation  "  in  the  usual  course  of  its  business 
without  notice  of  any  defect  or  infirmity,"  and  its  good  faith  was 
not  questioned,  the  Supreme  Court  of  Massachusetts  held  that  if 
the  note  was  signed  by  an  officer  authorized  generally  to  give 
notes  in  its  behalf  the  corporation  would  be  liable,  although  the 
agent  in  signing  this  particular  note  exceeded  his  authority  or  the 
powers  of  the  corporation.^ 

cient  to  say  that  the  evidence  shows  sons  with  whom  the  plaintiff  had 
conclusively  that  it  had  been  the  prac-  dealings.  If  corporations  choose  to 
tice  of  this  corporation  to  lend  money  place  the  whole  of  the  management  of 
and  extend  financial  assistance  to  par-  their  business  for  the  purpose  of  ex- 
ties  with  whom  it  had  business  rela-  pedition  in  the  hands  of  a  single  indi- 
tions.  It  is  true  that  it  is  claimed  that  vidual,  and  give  him  a  general  author- 
the  only  evidence  of  any  such  course  ity  to  act  as  under  the  circumstances 
is  that  the  defendant  during  his  ad-  may  seem  best  to  him,  unless  absolute 
ministration  often  gave  financial  assist-  fraud  is  shown  on  his  part,  there 
ance  to  customers  by  him,  but  that  seems  to  be  no  ground  upon  which  a 
such  acts  were  not  reported  to  the  right  of  recovery  can  be  had  against 
board  of  directors.  But  the  evidence  him  for  any  such  acts.  Certainly  a 
fails  to  establish  this  proposition.  It  mere  mistake  in  judgment  does  not 
is  true  that  the  subsequent  treasurer  render  him  liable.  Trading  corpora- 
says  that  such  accommodations  were  tions  are  necessarily  managed  in  a 
not  extended  to  any  but  the  customers  more  informal  way  than  those  of  a 
by  him,  but  there  is  no  evidence  but  different  character.  They  are  volun- 
that  it  had  been  the  practice  prior  to  tary  copartnerships,  having  a  right  of 
this  time  to  give  financial  assistance  survivorship,  not  dissolved  by  reason 
to  others  than  customers  strictly  of  the  death  of  any  one  of  the  parties 
speaking,  in  the  shape  of  extending  in  interest,  and  a  director  or  officer  or 
their  paper  as  is  claimed  to  have  been  manager,  w^ith  whom  is  intrusted  all 
only  done  by  [the  last  treasurer].  And  the  business  of  the  corporation,  can 
it  appears  without  contradiction  that  exercise  all  the  powers  which  the 
it  was  not  customary  for  the  board  of  board  of  directors  could  exercise  under 
directors  to  give  the  manager  direc-  the  same  circumstances  in  the  general 
tions  in  these  matters;  that  he  always  management  of  the  corporation  busi- 
cxercised  the  authority,  and  it  was  not  ness.  Hoyt  v.  Thompson,  19  N.  Y. 
customary  to  bring  it  before  the  board  209.  Even  if  we  concede  that  the 
of  directors.  In  other  words,  the  corporation  had  no  power  to  lend  its 
whole  details  of  the  management  of  money,  yet,  when  it  is  found  that  it 
the  corporation  were,  as  above  stated,  had  been  in  the  habit  of  so  doing,  and 
committed  to  the  general  manager,  that  it  had  been  the  course  of  business 
Under  this  state  of  things,  it  is  difficult  of  the  corporation,  certainly  an  officer 
to  see  how  the  defendant  can  be  held  cannot  be  held  liable  simply  because 
liable,  because  of  his  action,  in  con-  he  has  continued  the  practice." 
ducting  the  business  in  precisely  the  *  Merchants'  Nat.  Bank  of  Gardiner 
same  way  in  which  it  had  heretofore  v.  Citizens'  Gras  Light  Co.  of  Quincy, 
been  done,  and  extending  aid  to  per-   (1893)  159  Mass.  505;  s.  c,  34  N.  E. 

29 


\^\ 


•V 


r 


I     ! 


226 


POWER  OF  AGENTS  AND  OFFICERS. 


[§173 


§  173.  When  a  corporation  is  bound  by  acts  of  treasurer. 

—  In  a  recent  case  before  it  the  Supreme  Court  of  New  York, 
in  General  Term,  has  held  that  where  tlie  treasurer  of  a  business 
corporation  was  also  permitted  to  become  and  act  as  its  sole  finan- 
cial manager,  the  corporation  would  be  chargeable,  irrespective 
of  the  question  of  authority,  in  fact,  witli  liability  for  acts  done 
by  him  within  the  apparent  scope  of  the   authority  conferred 


Rep.  1083,  citing  Monument  Nat.  Bank 
V.  Globe  Works,  101  ALiss.  57.     Bar- 
KBR,  J.,  *"or  the  majority  of  the  court, 
said,  argtiendo  :     "  It  is  not  necessary 
that  the  authority  of  an  officer  or  agent 
to  sign  notes  in  behalf  of  a  corporation 
should    appear   in    the    by-laws,    or 
should  have  been  expressly  given  by 
a  vote  of  the  directors  or  of  the  stock- 
holders.    In  Lester  r.  Webb,  1  Allen, 
34,  it  was  said:     *  The  rule  is  well  set- 
tled that  if  a  corporation  permit  their 
treasurer  to  act  as  their  general  fiscal 
agent  and  hold  him  out  to  the  public 
as  having  the  general  authority  im- 
plied from  his  official  name  and  char- 
acter, and  by  their  silence  and  acqui- 
escence suffer  him  to  drr.w  and  accept 
drafts  and  to  indorse  notes  payable  to 
the  corporation,  they  are  bound  by  his 
acts  done  within  the  scope  of  such  im- 
plied   authority.     Fay     r.   Noble,    13 
Cush.  1;  Williams  r.  Cheney,  3  Gray, 
215;  Con  ver  i\  Insurance  Co.,  1  N.  Y. 
290.     On  the  facts  found  at  the  trial 
the  plaintiff  might  well  chum,  if  the 
jury  believed  the  evidence,  that  the 
treasurer  had  authority  to  indorse  the 
notes  in  suit,  derived,  not  from  any 
express  direction,  but  from  the  course 
of  conduct  and  dealing  of  the  treas- 
urer with  the  knowledge  and  implied 
assent  of  the  directors  of  the  corp'^ra- 
tion.' "  See,  also,  McNeil  r.  Chamber  of 
Commerce,  154  Mass.  285;  s.  c,  28  N. 
E.   Rep.  245;  Mining  Co.   v.  Anglo- 
Calif  ornian  Bank,  104 U.  S.  192.  ''But," 
said  the  Massachusetts  court,  "cases 
where  the  actual  authority  of  an  officer 
is  inferred  from  a  course  of  business 
known  to  and  permitted  by  the  stock- 


holders or  directors  of  a  corporation, 
do  not  touch  the  question  whether  au- 
thority is  to  be  implied  as  matter  of 
law  from  the  name  and  nature  of  the 
office  itse'f.     In  the  present  case  the 
jury  were  instru(rted  that  the  treasurer 
of  such  a  corporation  as  the  defendant 
company  has,  by  virtue  of  his  office, 
authority  to  sign  a  note  which  shall 
bind  the  corporation,  and  the  defend- 
ant contends  that  this  instruction  was 
incorrect.     The  incidental  powers  of 
some  officers  or  agents  have  become  so 
well  known  and  defined,  and  have  been 
so  frequently  recognized  by  courts  of 
justice,  that  certain  powers  are  implied 
as  matters  of  law  in  favor  of  third  per- 
sons who  deal  with  them  on  the  as- 
sumption that  they  possess  these  pow- 
ers, unless  such  persons  are  informetl 
to    the    contrary.     The   officers   and 
agents  usually  mentioned  in  this  cate- 
gory are  auctioneers,  brokers,  factors, 
cashiers  of  banks  and  masters  of  ships. 
See  Merchants'  Bank  v.  State  Bank,  10 
Wall.  604;  Case  v.  Bank,  100  U.  S.446. 
Treasurers  of  towns  or  cities  in  this 
commonwealth   are   well-known   offi- 
cers, and  their  powers  are  very  limited. 
They  are  in  general  to  receive,  keep 
and  pay  out  money  on  the  warrant  of 
the  proper  officers  of  the  towns  and 
cities.     Treasurers  of  business  corpo- 
rations usually  have  much  more  ex- 
tensive powers,  and  the  decisions  of 
this  court  hold  that  the  treasurer  of  a 
manufacturing  and  trading  corpora- 
tion is  clothed,  by  virtue  of  his  office, 
with  power  to  act  for  the  corporation 
in  making,  accepting,  indorsing,  issu- 
ing and  negotiating  promissory  notes 


§173] 


PRIVATE  CORPORATIONS. 


227 


upon  him  by  the  corporation.  In  this  case,  for  instance,  the 
treasurer  of  a  water  works  company  had  been  permitted,  through 
the  omission  of  its  other  officers  to  direct  its  financial  manage- 
ment or  supervise  his  acts,  to  become  and  act  as  its  sole  financial 
manager,  and  had  made  and  negotiated  some  fifty  promissory  notes 
in  its  name  during  a  period  extending  over  about  a  year  and  a 
half.  The  court  held  that  the  company  was  liable  to  a  bona  fide 
holder  for  value  of  a  promissory  note  executed  in  its  name  by 
such  treasurer,  which  matured  while  he  was  still  treasurer,  and 
the  proceeds  of  which,  so  far  as  received  by  him,  had  been 
applied  to  the  use  of  the  corporation,  although  the  note  was  not 
specially  authorized.* 


and  bills  of  exchange,  and  that  such 
negotiable  paper  in  the  hands  of  an 
innocent  holder  for  value,  who  has 
taken  it  without  notice  of  any  want  of 
authority  on  the  part  of  the  treasurer, 
is  binding  on  the  corporation,  although 
with  reference  to  the  corporation  it  is 
accommodation  paper.  Narragansett 
Bank  v.  Atlantic  Silk  Co.,  3  Met.  282; 
Bates  V.  Iron  Co.,  7  Met.  224;  Fay  v. 
Noble,  12  Cush.  1;  Lester?).  Webb,  1 
Allen,  34;  Bank  r.  Winchester,  8  Allen, 
109;  Bird  r.  Daggett,  97  Mass.  494; 
Monument  Nat.  Bank  v.  Globe  Works, 
101  Mass.  57;  Corcoran  v.  Cattle  Co., 
151  Mass  74;  s.  c.  23  N.  E.  Rep.  727. 
While  it  is  possible  that  most,  if  not 
all,  of  the  cases  in  which  this  rule  has 
been  stated  as  law  have  some  special 
circumstances  from  which  the  treas- 
urer's authority  could  be  inferred,  and 
that  the  court  was  influenced  in  the  de- 
cisions by  the  well-known  fact  that  in 
many  of  the  manufacturing  corpora- 
tions of  this  commonwealth  the  treas- 
urer not  only  has  the  custody  of  the 
money,  but  is  the  general  financial 
manager,  and  often  the  general  busi- 
ness manager  of  the  corporation,  the 
rule  itself  has  been  frequently  and 
broadly  stated  in  our  decisions  and  is 
well  known  both  to  the  officers  of 
manufacturing  and  trading  corpora- 
tions and  to  those  of  banks  and  finan- 


cial institutions.  It  could  not  now  be 
abrogated  or  unsettled  without  dis- 
turbing commercial  transactions. 
There  are,  however,  many  corpora- 
tions which  transact  more  or  less  busi- 
ness to  which  the  rule  has  been  held 
not  to  apply.  Thus,  it  does  not  apply 
to  a  college  (Webber  r.  College,  23 
Pick.  302);  nor  to  a  parish  (Packard  v. 
Society,  10  Met.  427);  nor  to  a  monu- 
ment association  (Torrey  v.  Dustin 
Monument  Association,  5  Allen,  327); 
nor  to  a  municipality  (Bank  v.  Win- 
chester, 8  Allen,  109;;  nor  to  a  savings 
bank  (Tappan  «?.  Bank,  127  Mass.  107); 
nor  to  a  horse  railroad  company  (Craft 
V.  Railroad  Co.,  150  Mass.  207;  s.  c,  22 
N.  E.  Rep.  920)." 

» Perry  v.  Council  Bluffs  Water 
Works  Co.,  (1893)  67  Hun,  456;  s.  c. 
22  N.  Y.  Supp.  151.  The  court  ap- 
proved the  findings  and  the  reasoning 
and  conclusions  of  the  referee  in  this 
case,  O'Brien,  J.,  speaking  for  the 
court,  referring  to  them  thus:  "He 
finds  that  during  the  period  from  some 
time  in  the  month  of  October,  1885,  to 
February  27,  1887,  Harry  Allen,  as 
treasurer  of  the  defendant  corporation, 
made  and  issued  in  the  name  of  the 
defendant,  and  to  which  the  name  of 
the  defendant  was  signed  by  himself 
as  treasurer  thereof,  some  forty  or  fifty 
promissory  notes,  to  tiie  order  of  and 


w 


\i 


\ 


I 


228 


POWER  OF  AGENTS  AND  OFFICERS. 


[§m 


§174] 


PRIVATE  CORPORATIONS. 


229 


§  174.  When  a  corporation  will  not  be  bound  by  the  act 
of  its  treasurer. —  In  a  case  before  the  Supreme  Court  of  New 
York  the  corporation  provided  for  all  its  obligations  by  the  issue 
of  bonds.  Parties,  among  whom  was  its  treasurer,  became  pos- 
sessed of  these  bonds  by  agreeing  to  pay  the  debts  of  the  com- 
pany. To  discharge  the  personal  liability  thus  incurred,  the 
treasurer  discounted  notes  of  the  company  made  by  him  without 


indorsed  '  Allen  &  Stead,'  which  were 
negotiated      and     money     obtained 
thereon;  that  the  reason  for  the  mak- 
ing of  such  promissory  notes  to  the 
order  of  Allen  &  Stead  was  that  they 
were  acting  as  the  financial  agents  of 
the  defendant,  and  it  was  to  give  ad- 
ditional credit  to  such  notes,  the  credit 
of  the  corporation  itself  being  poor, 
and,  although  the  by-laws  of  the  de- 
fendant required  the   countersigning 
by  the  president,  none  of  these  notes  so 
issued  was  so  countersigned;  that  the 
note  in  suit  was,  in  form,  similar  to 
these  others;  that  during  all  this  pe- 
riod, with  the  exception  of  one  in  May, 
1886,  no  meetings  of  the  board  of  di- 
rectors were  held,  and  at  the  one  meet- 
ing no  business  was  transacted  other 
than  the  re-election  of  officers  of  the 
defendant;    that    Allen,    though    he 
sought  to  consult  and  advise  with  the 
president  of  the  corporation,  was  re- 
ferred to  the  hitter's  law  partner,  who 
was  also  a  director  in  the  corporation; 
that  none  of  the  officers  or  directors 
used  or  exercised  any  official  supervis- 
ion over  Allen  or  his  acts  and  transac- 
tions as  treasurer,  except  the  director 
who  was  the  president's  law  partner, 
and  who,  it  would  appear,  was  not 
only  consulted  with  respect    to   the 
making  of  the  promissory  notes,  and 
the  obtaining  of  money  thereon,  but 
concurred  in  the  very  beginning  with 
the  making  of  such  promissory  notes; 
that  further,  he  not  only  advised  the 
making  and  issuing  of  such  notes  from 
time  to  time,  but  personally  indorsed 
a  lai^e  number  of  them,  and  one  with 


the  name  of  his  firm,  of  which  the 
president  was  a  member.     A  review  of 
the  evidence  supporting  these  findings 
will  sustain  the  referee  and  justify  his 
conclusion  that  Allen  was  practically 
the  corporation,  and  that  the  case  is 
brought  within  the  principle  laid  down 
in    Fifth    National  Bank  v.  Navassa 
Phosphate  Company,  119  N.  Y.  256, 
because  he  was  not  only  the  treasurer 
of  the  defendant,  but,  as  said  in  that 
case,  '  he  was  consciously  invested  by 
the  company  with  the  broad  general 
power  inseparable  from  the  position 
in  which  it  placed  him  as  the  sole  man- 
ager of  its  affairs  at  its  principal  place 
of  business.'    Acting,  therefore,  within 
the  apparent  scope  of  the  authority 
conferred  upon  him  by  the  corpora- 
tion, the  latter  is  charged  with  liabil- 
ity, irrespective  of  the  question  of  au- 
thority in  fact."    This  particular  note 
had  been  placed  as  collateral  security 
with  a  certain  party  who  loaned  a  cer- 
tain amount  upon  it,  under  an  agree- 
ment that  it  was  to  be  paid  within  a 
few  days,  with  interest,  at  the  rate  of 
five  dollars  a  day  until  such  time  as 
the  loan  was  paid.     The  court  limited 
the  measure  of  damages  in  the  recovery 
to  the  amount  loaned  by  this  person, 
with  legal  interest  from  the  date  of  his. 
loan.     It  was   said   in    the  opinion: 
"Taking  the  facts  here,  we  think  that 
this  note  was  not  valid  as  a  legal  obli- 
gation in  the  hands  of  the  payee  nego- 
tiating it,  or  in  the  hands  of  Bradford, 
who  delivered  it  to  the  plaintiff  as  col- 
lateral security  for  a  loan  made  by  him. 
but  that  when  transferred  to  the  plain- 


its  authority  or  knowledge,  or  that  of  its  officers.  It  was  sought 
to  hold  the  corporation  liable  in  an  action  by  the  bank  which  dis- 
counted them  upon  the  ground  that  the  treasurer  was  a  financial 
officer  of  the  corporation,  and,  therefore,  held  apparent  authority 
to  indorse  the  notes,  so  far  as  bona  fide  purchasers  were  con- 
cerned, and  upon  another  ground  that  the  previous  conduct  of 
the  treasurer  had  been  such  in  issuing  the  notes  that  the  corpora- 
tion must  be  held  to  have  authorized  the  making  and  indorsement 
of  the  notes  in  suit.  It  was  held  by  the  court  that  the  treasurer 
of  a  corporation  engaged  in  the  business  of  operating  water  works 
did  not  have,  by  virtue  of  his  office,  any  implied  authority  to 
borrow  money  and  give  the  corporation's  note  therefor.* 


tiff  it  became  in  his  hands  a  legal 
obligation  against  the  defendant,  but 
only  to  the  extent  of  what  was  ad- 
vanced upon  the  faith  thereof.  We 
think  the  principle  of  the  cases,  which, 
under  such  circumstances,  would  pre- 
vent a  profit  being  made  out  of  the 
transaction,  is  applicable,  and  that, 
while  the  plaintiff  is  entitled  to  protec- 
tion to  the  extent  of  the  moneys  ad- 
vanced, and  legal  interest  from  the  date 
of  the  loan,  he  cannot  recover  either 
the  face  value  of  the  note,  with  inter- 
est thereon,  nor  the  amount  loaned, 
with  interest  at  the  rate  agreed  upon  by 
Bradford,  of  five  dollars  a  day." 

*  First  Nat.  Bank  of  Middletown  «?. 
Council  Bluffs  Oty  Waterworks  Co., 
(1890)  56  Hun,  412;  s.  c,  9  N.  Y. 
Supp.  859.  In  support  of  their  con- 
tention the  counsel  of  the  bank  cited 
Bank  of  Batavia  v.  New  York,  L.  E. 
&  W.  R.  R.  Co.,  106  N.  Y.  195;  s.  c, 
12  N.  E.  Rep.  433,  and  Bank  of  Au- 
burn t.  Putnam,  1  Abb.  Dec.  80. 
Pratt,  J. ,  upon  the  question  whether 
the  facts  of  the  case  brought  it  within 
the  rules  of  the  cases  cited,  said: 
"There  was  no  evidence  that  any 
part  of  the  proceeds  of  the  notes  sued 
on  came  to  the  use  of  the  company. 
The  bonds  and  money  which  [the 
treasurer]  received  for  these  notes  be 
retained.     As  to  the  bonds,  the  evi- 


dence was  that  he  still  had  them.  As 
to  the  money,  it  went  into  his  indi- 
vidual bank  account,  and  he  refused 
to  say  that  he  paid  any  debt  of  the 
company  out  of  that  bank  account 
after  he  received  the  money.  He 
would  not  even  say  that  he  kept  the 
money  for  the  payment  of  what  the 
company  owed  him,  although  he  tried 
to  produce  that  impression.  There  was 
no  evidence,  however,  that  the  com- 
pany owed  him  anything,  except  his 
general  stateemnt  that  they  owed  him 
something,  but  what  the  something 
was  he  did  not  attempt  to  say.  Of 
course,  as  treasurer  of  the  company, 
he  could  not  issue  its  notes  and  sell 
them,  and  pocket  the  proceeds,  under 
the  pretense  that  the  company  owed 
him  money,  without  showing  some 
authority  outside  of  himself  for  such 
a  transaction,  and  without  establish- 
ing, in  the  most  satisfactory  manner, 
that  the  company  was  indebted  to  him 
for  the  amount  which  he  so  obtained. 
The  referee  f6und  that  the  proceeds 
of  some  of  the  previous  notes  made  by 
[the  treasurer]  were  applied  'to  at 
least  some  extent,'  to  the  payment  of 
the  debts  and  obligations  of  the  de- 
fendant. This  fact  would  tend  to  es- 
tablish the  company's  liability  for  the 
notes  sued  on,  under  the  theory  that 
they  were  responsible  in  thus  having 


'    I" 


230  POWER  OF  AGENTS  AND  OFFICERS.  [§§  175,  17*» 

§  175.  Another  illustration  of  such  a  case.—  In  a  Massa- 
cluisetts  case  it  appeared  that  a  stockholder,  who  was  the  treas- 
urer of  a  street  railway  corporation,  wrote  to  a  customer  that  he 
could  lend  the  proceeds  of  bonds  sold  by  him  for  her  to  the  cor- 
poration, and  she  told  him  that  she  would  so  lend  a  part  of  the 
proceeds  to  it,  and  left  the  amount  in  his  hands,  receiving  from 
him  a  note  for  the  amount  made  in  the  corporation's  name  by 
him   alone   as  treasurer.     She   was   ignorant   of  and   made   no 
inquiries  as  to  the  by-laws  of  the  corporation,  which  provided 
that  he  could  sign  notes  only  as  the  directors  might  require,  which 
notes,  to  bind  the  corporation,  were  to  be  countersigned  by  the 
president,  but  acted  in  good  faith,  believing  that  the  treasurer  of 
the  corporation  also  acted  honestly  and  had  authority  to  make  the 
loan  and  to  give  a  note  for  the  same  binding  upon  the  corpora- 
tion.    The  treasurer  had  no  such  authority  in  terms,  and,  being  a 
defaulter,  used  the  loan  to  cover  up  his  defalcation  by  paying 
debts  of  the  corporation.     The  Supreme  Court  of  Judicature 
held  that  his  customer  in  the  stock  brokerage  business  could  not 
recover  against  the  corporation  either  upon  the  note  or  for  money 
had  and  received.* 

§  176.  When  contracts  of  a  chief  engineer  will  bind  a  rail- 
road corporation.—  It  appeared  in  a  Michigan  case  that  certain 
individuals  organized  a  railroad  corporation  for  the  purpose  of 
constructing  a  line  of  railroad.     Two  of  these  individuals  entered 


held  out  [the  treasurer],  as  their  agent 
to  make  their  notes.     But  in  order  to 
create  such  an  agency  by  representa- 
tion or  estoppel,  it  is  essential  that  the 
principal  shall  have  knowledge  of  the 
assumption  by  the  agent  of  the  pow- 
ers he  has  exercised.     In  order  to  cre- 
ate a  liability  in  this  case,  therefore, 
it  was  necessary  to  go  a  step  further 
in  the  findings,  and  to  find  that  the 
company  had  knowledge  of  the  fact 
that  [the  treasurer]  had  so  applied  the 
proceeds  of  these  notes.     There  not 
only  is  no  such  finding,  but  the  referee 
has  expressly  found  that  the  directors 
had  no  knowledge  that  [he]  had  as- 
sumed to  make  the  notes  of  the  com- 
pany, and  that  they  never  authorized 


him  to  do  so.  The  finding  with  re- 
gard to  the  application  of  the  proceeds 
of  the  notes,  therefore,  does  not  go  for 
enough  to  establish  a  liability  in  this 
case.  The  fact  that  an  agent  hjis,  in 
one  or  more  instances,  made  notes  and 
applied  the  proceeds  in  part  payment 
of  his  principal's  debts,  without  his 
knowledge,  creates  no  liability  on  his 
part  for  his  subsequently  making 
notes  in  the  name  of  the  principal." 

'  Craft  ».  South  Boston  Railroad 
Co.,  (1889)  150  Mass.  207;  s.  c,  22  N. 
E.  Rep.  920.  Upon  the  first  point  it 
was  said:  "Whatever  may  be  true  of 
trading  corporations  there  is  nothing 
in  the  nature  of  the  business  of  a 
horse  railroad  corporation,  or  of  the 


§176] 


PRIVATE  CORPORATIONS. 


231 


into  an  agreement,  hy  which  the  tliird  interested  party  was  to 
construct  the  road,  to  he  paid  in  honds  and  stock.  Tliis  latter 
was  the  principal  promoter  of  this  railroad  enterprise.  The  work 
was  to  be  done  under  the  supervision  of  a  chief  engineer.  The 
work  for  building  the  road  was  let  to  a  sulvcon tractor.  The 
])laintiff  in  this  action  had  furnished  supplies  for  tliis  work  to  the 
sub-contractor.  Failing  to  be  jmid,  this  action  against  the  com- 
j)any  resulted.  In  it  the  plaintiff  claimed  that  the  goods  were 
delivered  upon  orders  given  by  the  comj^aiiy's  agent,  and  upon 
its  credit.  The  principal  question  in  the  case  arose  upon  the 
authority  of  the  agent  to  bind  the  company.  The  Supreme 
Court  of  Michigan  held  that  the  question  of  tlie  authority  of  the 
agent  was  one  of  fact  ]3roperly  submitted  tu  the  jury,  and 
reviewed  the  evidence  and  affirmed  the  judgment  against  the 
company.  They  said  of  the  testimony :  *^  [It]  brings  the  case 
within  any  one  of  several  well-established  rules.  If  the  company 
relinquished  to  [this  contractor]  the  matter  of  construction  of  this 
road,  and  [he]  knew  that  [its  chief  engineer]  was  contracting 
these  obligations  in  the  name  and  upon  the  credit  of  the  com- 
pany, [the  contractor]  must  be  deemed  to  have  adopted  them. 
His  knowledge  was  the  company's  knowledge,  and  the  company 
is  liable.  If  the  officers  of  the  company  were  advised  tliat  [the 
chief  engineer]  had  incurred  the  indebtedness  to  plaintiff  in  the 
name  and  upon  the  credit  of  the  company,  and  with  that  knowl- 
edge did  not  protest,  but,  on  the  contrary,  corresponded  directly 
with  the  plaintiffs  and  -^aid  that  account,  plaintiffs  were  justified 

duties  of  a  treasurer  of  such  a  corpo-  debts  of  the  company,  which  the 
ration,  which  implies  that  the  treas-  money  of  the  company,  if  he  had  not 
urer,  by  virtue  of  lus  office,  has  au-  embezzled  it,  would  have  been  used  to 
thority  to  borrow  money  for  the  com-  pay.  The  only  reasonable  inference 
pany  and  to  give  its  notes  therefor,  is  that  [the  treasurer's]  primary  pur- 
It  does  not  appear  that  the  company  pose  in  using  the  money  in  this  way 
in  any  way  held  out  [their  treasurer]  was  to  escjipe  detection  and  to  benefit 
to  the  public  or  to  the  plaintiff  as  hav  himself.  Whether  it  was  a  benefit  to 
ing  any  such  authority,  or  that  treas-  the  company  that  he  was  able  to  ob- 
urers  of  horse  railroad  corporations  tain  and  use  money  for  this  purpose  is 
customarily  have  or  exercise  any  such  necessarily  uncertain.  The  money 
authority."  Upon  the  second  it  was  was  not  borrowed  bona  fide  for  the  use 
said:  *'  No  objection  on  the  part  of  of  the  company.  See  Railroad  Na- 
the  [corporation]  ought  to  be  implied  tional  Bank  r.  Lowell,  109  Mass.  214; 
in  this  case,  because  [its  treasurer]  was  Agawam  National  Bank  r.  South 
a  defaulter,  and  the  money  was  used  Iladley,  128  Mass.  503." 
to  cover  up  his  defalcation  by  paying 


Ml 


ir' 


>  J 


232 


POWER  OF  AGENTS  AND  OFFICERS. 


[§17C 


i 


ill  relying  upon  that  action  as  an  assurance  of  [the  chief 
engineer's]  authority,  and  extending  further  credit,  and  defend- 
ant is  estopped  from  the  denying  the  authority  of  [its  chief 
engineer].  If  [the  latter],  in  the  exercise  of  the  authority  given 
to  him  by  the  contract,  in  view  of  [the  sub-contractor's]  inability, 
was  prosecuting  the  work  for  and  on  behalf  of  the  company, 
and  incurred  this  indebtedness  in  such  prosecution  of  the  work, 
the  plaintiffs  were  entitled  to  recover.  If  [the  chief  engineer] 
was  entering  into  contracts  for  the  work  upon  tlie  road,  employ- 
ing men  and  purchasing  supplies  in  the  name  of  tlie  company 
and  upon  its  credit,  and  the  officers  of  the  company  knew  of  ihe 
fact,  or  had  been  advised  of  instances  of  like  conduct  and 
remained  silent,  the  company  cannot  now  be  heard  to  say  that 
such  person  so  acting  was  without  autliority."  *  In  another 
action  against  this  railroad  company  for  supplies  furnished  to  the 
sub-contractor  in  the  construction  of  its  road,  the  same  court 
held  that  upon  the  evidence  the  principles  of  the  last  case  were 
established,  and  that  the  railroad  company  was  properly  found 
liable,  not  only  upon  the  verbal  arrangement  made  by  the  chief 
engineer  with  the  plaintiff  through  its  managing  officer,  but  also 
upon  a  written  guaranty  of  the  sub-contractor's  orders  for  sup- 
plies made  by  the  engineer.-  They  further  held  in  this  case  that 
the  third  of  the  then  parties  organizing  this  railroad  company, 
with  whom  the  two  entered  into  the  agreement  for  the  construc- 
tion of  the  railroad,  who  was  its  president,  could  bind  the  corpo- 
ration for  supplies  used  in  tlie  construction,  though  not  acting  by 
any  corporate  authority.  This  president  was  at  the  same  time 
president  of  the  supply  company  which  brought  this  action.  It 
was  contended  that  from  this  fact,  and  his  powjers  being  limited 
in  the  contract  with  his  associates  for  the  construction  of  the 
road,  which  provided  that  "  no  indebtedness  shall  be  incurred 
and  no  expenditures  made  without  the  free  consent  and  co-opera- 
tion of  all  the  parties  to  the  agreement,"  his  knowledge  of  this 
limitation  was  the  knowledge  of  the  plaintiff,  and,  therefore,  the 

*  Hirschmann  r.  Iron  Range  &  Huron  Mich.   541;    Whitaker    r.    Kilroy,   70 

Bay  R.  R.  Co.,  (1893)  97  Mich.  384;  Mich.  635,  638;  Beattie  <\  Railroad  Ck)., 

8.  c,  56  N.  W.  Rep.  842.     The  court  90  N.  Y.  643. 

referred  in  its  discussion  to  the  follow-       '  Michigan  Slate  Co.  v.  Iron  Range 

ing  cases  as  in  point:   Olcott  r.  Rail-  &  Huron  Bay  R.  R.  Co.,  (1894)  101 

road  Co..  27  N.  Y.  546,  558;  Ceeder  v.  Mich.  14;  s.  c,  59  N.  W.  Rep.  646. 
H.  M.  Loud  &  Sons  Lumber  Co.,  86 


PRIVATE  CORPORATIONS. 


233 


§177] 

latter  was  estopped  from  the  recovery.    The  court  held  adversely 
to  this  contention.* 


fr<f 


§  177.  Ratification  by  corporation  of  agent's  acts  —  gen- 
eral rules. —  If  a  trading  corporation  take  and  hold  the  benefit 
derived  from  a  contract  made  for  it  by  an  agent  not  duly  author- 
ized, it  thereby  makes  the  contract  its  own  by  ratification  or  adop- 
tion and  will  thereby  be  estopped  from  disputing  its  liability 
thereon.*  A  corporation  will  be  held  liable  for  materials  fur- 
nished for  its  use  and  benefit  by  the  order  of  one  not  expressly 
authorized  to  give  such  order,  where  its  officers  have  knowledge 
of  the  order  and  do  not  object  to  it.^  Ratification  of  an  unau- 
thorized act  of  an  agent  of  a  corporation  will  be  inferred  from 
failure  on  the  part  of  the  corporation  to  promptly  disavow  it 
upon  knowledge  of  the  act  being  brought  to  it.*  The  ratification 
of  an  unauthorized  act  of  an  agent  of  a  corporation  is  equivalent 
to  a  previous  authority,  and  such  ratification  need  not  be  by  any 
formal  vote  or  resolution  of  the  corporation,  or  be  authenticated 
by  the  corporate  seal.^  A  ratification  of  an  act  of  an  officer  of  a 
corporation  in  making  a  contract  may  be  implied  by  the  acts  of 
the  corporation  as  well  as  expressed  by  its  vote.  The  acts  and 
assent  of  corporations  may  be  shown  and  inferred  from  facts  and 
circumstances.*    Before  a  corporation  can  be  said  to  have  ratified 


*  Ibid.  The  court  said:  "  A  party 
may  act  in  the  double  relation  of  agent 
for  both  parties."  Adams  Mining  Co.  v. 
Senter,  36  Mich.  73;  Col  well  v.  Keystone 
Iron  Co.,  36  Jflich.  51;  U.  S.  Rolling 
Stock  Co.  v.  Atlantic  &  G.  W.  R.  Co.,  34 
Ohio  St.  450;  Mayor,  etc.,  r.  Inman, 
57  Ga.  370;  Manufacturers'  Sav.  Bank 
r.  Big  Muddy  Iron  Co.,  97  Mo.  38; 
8.  c,  10  S.  W.  Rep.  865;  Kitchen  r. 
Railway  Co.,  69  Mo.  234;  Fitzsim- 
mons  r.  Express  Co. ,  40  Ga.  330.  See, 
as  to  contract  made  by  one  styled  en- 
gineer of  the  railroad  corporation, 
Wilson  i\  Kings  County  Elevated  R. 
R.  Co.,  (1889)  114  N.  Y.  487. 

•Pixley  tj.  Western  Pacific  R.  R.  Co., 
(1867)  33  Cal.  183;  Gas  Company  r. 
San  Francisco,  9  Cal.  453;  Argenti  r. 
30 


San  Francisco,  16  Cal.  365;  Fraylor  v. 
Sonora  Mining  Co.,  17  Cal.  594;  Ros- 
borough  r.  Shasta  River  Canal  Co.,  22 
Cal.  556;  Allen  v.  Citizens'  Steam 
Navigation  Co.,  23  Cal.  28;  United 
States  r.  Dandridge,  13  Wheat.  70; 
Olcott  V.  Tioga  R.  R.  Co.,  27  N.  Y. 
558;  Hoyt  v.  Thompson,  19  N.  Y.  215; 
Bank  of  Kentucky  v.  Schuylkill  Bank, 
1  Parsons'  Sel.  Cas.  in  Equity,  350. 

^  Beattie  v.  Delaware,  Lack.  &  West. 
R.  R.  Co.,  (1881)  12  N.  Y.  Wkly.  Dig. 
334. 

*  First  National  Bank  v.  Fricke, 
(1881)  75  Mo.  178. 

5  Campbell  v.  Pope,  (1888)  96  Mo. 
468;  8.  c,  10  S.  W.  Rep.  187. 

*  Louisville,  New  Albany  &  CJhicago 
Ry.  Co.  V.  Carson,  (1894)  151  111.  444; 


"I  I 


l# 


':u 


POWER  OF  AGENTS  AND  OFFICERS. 


i 


[§17T 

an  unauthorized  contract  of  its  agent  by  receiving  the  considera- 
tion of  the  contract,  there  must  ]>e  ])roof  that  the  corporation, 
through  its  proper  officer,  knew  the  terms  of  the  contract  and 
received  the  money  on  that  account.'  A  contract  having  been 
made  by  an  agent  of  a  corporation  out  of  the  usual  course  of 
luisiness  of  the  corporation,  and  his  receiving  uKuiey  as  a  consid- 
eration of  the  contract  and  paying  it  to  the  corporation,  the  reten- 
tion of  the  money  by  the  latter  will  not  constitute  an  adoption  of 
the  contract,  unless  it  appears  that  the  corporation  knew  on  what 
account  the  money  was  paid  and  what  were  the  terms  of  the 
contract.' 


Farmers  &  Citizens*  Bank  f.  Sherman, 
6  Bosw.  181;  Hoyt  v.  Shelden,  3  Bt>sw. 
267;  Houghton  r.  Dodge,  5  Bosw.  326; 
Madison  Avenue   Baptist  Church   r. 
Baptist  Church  in  Oliver  St.,  2  Abb. 
Pr.  (N.  S.)  254;  8.  c,  32  How.  Pr.  335. 
What  amounts  to  a  ratification  of  the 
contracts  of  officers  or  agents.     Ma- 
rine Bank  r.  Butler  Colliery  Co.,  53 
Hun,  612;  s.  c,  5  N.  Y.   Supp.  291; 
Mobile  &  M.  Ry.  Co.  v.  Gilmer,  85 
Ala.    422;    s.    c,    5    So.     Rep.     138; 
Campbell  t.  Pope,  96  Mo.  468.  s.  c., 
10  S.  W.  Rep.  187;  Hamilton  r.  Bates, 
(Cal.  1894)  35  Pac.  Rep.  304  (holding 
there  was  no  ratification  of  an  agree- 
ment of  the  president  that  the  corpo- 
THtion  should  assume  the  debts  of  a 
person);  Frjmk  v.  Hicks,  (Wyo.  1894) 
35  Pac.  Rep.  475;  Bibb  r.  Hall.  (Ala. 
1894)   14   So.    Rep.    98;    Nebraska   & 
K.  Farm  Loan  Co.   r.  Bell.  58  Fed. 
Rep.  826;  s.  c,  7  C.  C.  A.  253;  West 
Salem  I^nd  Co.  r.  liand  Co..  89  Va. 

192 

» Hyde  r.  Larkin,  (1889)  35  Mo.  App. 
365.  As  to  corporations  receiving  the 
benefit  of  a  contract  made  by  its  agents 
or  officers  being  considered  as  ratify- 
ing it.  see  Jourdan  r.  Long  Island  R. 
R.  Co.,  115  N.  Y.  380;  s.  c,  22  N.  E. 
Rep.  153;  Scott  v.  W.,  etc.,  R.  R.  Co.. 
88  N.  y .  200;  Wild  r.  New  York.  etc. , 
M.  Co.,  59  N.  y.  644;  Decker  r.  O., 
etc.,  Co.,  61  Hun,  516;  Hoag  r.  La- 


mont,  60  N.  Y.  96;  Bommer  r.  8.  8. 
Co.,  81   N.   Y.   468;  Castle  r.   Lewis. 
(1879)  78  N.  Y.  131,  affirming  13  Hun, 
298;   Kickland    r.    Menasha    Wooden 
Ware  Co..  68  Wis.  :«;  Paxton  Cattle 
C\>.  r.  First  Nat.  Bank,  21  Neb.  621; 
Holmes  r.  Kansas  City  Board  of  Trade, 
81  Mo.  137;    Pauling  «.    London  Ry. 
Co..  8  E.\ch.  867;  Beverley  r.  Lincoln 
Gas  Co..  6  Ad.  &  El.  829;  Tuskaloo.sa. 
etc..  Co.  r.  Perry.  85  Ala.   158;  Mel- 
ledge   V.     liostou    Iron    Co..   5    Cush. 
158,   175;     Smith  r.  Martin   Anti  Fire 
Car    Heater    Co.,    64    Hun.    639;    s. 
c.  19   N.  Y.   Supp.   285;   Brower   r. 
Brooklyn  Trust  Co..  21'  N.  Y.  Supp. 
324;  Tryon  r.  White  &,  Corbin  Co.,  62 
Conn.    161;   s.   c,  25  Atl.   Rep.   712; 
Weatherford.  M.  W.  &  N.  W.  R.  Co. 
r.  Granger,  (Tex.  Civ.  App.   1894)  22 
S.  W.  Rep.  70. 

'Pennsylvania,  Del.  &  Maryland 
Steam  Navigation  Co.  r.  Dandridge.  8 
G.  &  J.  (Md.)  248.  As  to  estoppel  to 
deny  authority  of  officers  and  ratifica- 
tion of  their  acts  on  the  part  of  a  cor- 
poration, see  Tuskaloosa  Cotton  Seed 
Oil  Co.  r.  Perry,  85  Ala.  158;  s.  c.  4  So. 
Rep.  635;  Morrell  r.  Long  Island  R.  Co. , 
(N.  Y.  City  Ct.  Spl.  T.)  1  N.  Y.  Supp. 
65;  Fitch  v.  Lewiston  Steam  Mill  Co., 
80 Me.  34;  8.  c,  12  Atl.  Rep.  732;  Metro- 
politan T.  &  T.  Co.  0.  Domestic  T.  <fc 
T.  Co.,  44  N.  J.  Eq.  568;  s.  c,  14  Atl. 
Rep.  907;  Alabama  Great  So.  R.  R. 


§178] 


PRIVATE  CORPORATIONS. 


235 


§178.  Modes  of  ratification. —  The  United  States  Circuit 
Court  of  Appeals  for  the  eighth  circuit  held  that  the  board  of 
directors  of  this  corporation  upon  the  promissory  note  of  which 
this  action  was  brought  by  the  receiver  of  the  bank  which  loaned 
the  corporation  money  on  the  note,  who  were  authorized  by  its 
by-laws  to  borrow  money  and  execute  securities  therefor,  might 
ratify  the  unauthorized  execution  of  the  promissory  note  by  the 
secretary  of  the  corporation,  and  thus  the  corporation  would  be 
bound.*  In  a  case  where  the  foreman  of  a  mining  corporation,' 
with  the  knowledge  and  acquiescence  of  the  officers  of  the  cor- 
poration —  but  without  any  special  request  —  advanced  money  to 
pay  the  debts  of  the  corporation,  and  the  corporation,  with  full 
knowledge  of  all  the  facts,  acquiesced  in  the  acts  of  its  officers 
and  agents  in  their  dealings  with  the  foreman,  the  Supreme 
Court  of  Nevada  held  that  such  knowledge  and  acquiescence 
amounted  to  a  ratification  of  the  acts  of  the  foreman  and  rendered 
the  corporation  liable  to  him  for  the  money  so  advanced.'* 


Co.  V.  South  &  North  Alabama  R.  R. 
Co.,  84  Ala.  570;  s.  c,  3  So.  Rep. 
286;  Hoosac  Mining  &  Milling  Co.  v. 
Donat,  10  Col.  529;  s.  c,  16  Pac.  Rep. 
157;  Second  Nat.  Bank  v.  Pottier  & 
Stymus  Mfg.  Co.,  56  N.  Y.  Super.  Ct. 
216;  8.  c,  2  N.  Y.  Supp.  644;  Getty 
•p.  C.  R.  Barnes  Milling  Co. ,  40  Kans. 
281;  B.  c,  19  Pac.  Rep.  617;  Corn  Ex- 
change Bank  v.  American  Dock  & 
Trust  Co.,  78  Hun,  400;  8.  c,  29  N. 
Y.  Supp.  158;  Thomas  v.  City  Nat. 
Bank,  (Neb.  1894)  58  N.  W.  Rep.  943; 
Moyer  v.  East  Shore  Terminal  Co., 

(1893)  41  S.  C.  300;  s.  c,  19  8.  E.  Rep. 
651;  Norton  v.  Alabama  National 
Bank,  (Ala.  1894)  14  So.  Rep.  872; 
Martin  v.  Santa  Cruz  Water  Storage 
Co.,  (Ariz.  1894)  36  Pac.  Rep.  36 
(where  there  was  lield  to  have  not 
been  a  ratification);  Currie  v.  Bowman, 

(1894)  25  Or.  364;  s.  c,  35  Pac.  Rep. 
848  (ratification  of  execution  of  a  mort- 
gage); Church  V.  Sterling,  16  Conn.  398; 
Howe  «.  Keeler,  27  Conn.  554;  John- 
son V.  Smith,  21  Conn.  632;  Hewitt  t. 
Wheeler,  22  Conn.  564;  Hyde  v.  Lar- 
kin, 35  Mo.  App.  365;   Union  Bridge 


Co.  V.  Troy  &  Lansingburgh  R.  R. 
Co.,  (1872)  7  Lans.  240.  What  does 
not:  Harrington  v.  First  Nat.  Bank  of 
Chittenango,  (1873)  1  T.  &  C.  361.  In 
Liebfritz  t.  Dubuque  Street  Railway 
Co.,  (1878)48  Iowa,  709,  the  managing 
director  of  a  corporation  having 
knowledge  that  an  agent  of  the  com- 
pany had  borrowed  money  and  ap- 
plied it  to  the  payment  of  corporate 
indebtedness,  the  corporation  was  held 
liable  for  the  sum  borrowed. 

'Nebraska  &  Kansas  Farm  Loan 
Co.  V.  Bell,  (1893)  58  Fed.  Rep.  326; 
citing  Allis  v.  Jones,  45  Fed.  Rep. 
148 ;  Indianapolis  Rolling  Mill  Co.  v. 
St.  Louis,  Ft.  S.  &  W.  Ry.  Co.,  120 
U.  S.  256 ;  s.  c,  7  Sup.  Ct.  Rep.  542 ; 
Pittsburgh,  C.  &  St.  L.  Ry.  Co.  r. 
Keokuk  &  H.  Bridge  Co.,  131  U.  S. 
378  ;  8.  c,  9  Sup.  Ct.  Rep.  770. 

*  Martin  v.  Victor  Mill  &  Mining 
Co.,  (1885)  19  Nev.  180  ;  s.  c,  8  Pac. 
Rep.  161.  A  ratification  of  an  agent's 
use  of  the  corporation's  funds  for 
"  special  purposes  "  by  a  resolution  of 
the  directors,  held  not  to  be  void,  as 
constituting  a  fraud  upon  the  stock- 


« 


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1 


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I 


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236 


POWER  OF  AGENTS  AND  OFFICERS. 


[§1T9 


§  179.  Illustration  of  ratification  of  contract  of  agent.— 
In  a  late  California  case  it  appeared  that  a  corporation,  by  resolu- 
tion of  its  directors,  authorized  its  president  to  execute  a  mort- 
gage to  secure  a  loan  at  a  rate  of  interest  and  for  a  length  of 
time  specified.     The  mortgage  executed  by  him  was  for  a  shorter 
period  than  authorized,  and  provided  that  the  interest  should  be 
paid  monthly  ;  that  a  failure  to  pay  interest  when  due  rendered 
the  principal  due  and  that  the  mortgagees  should  recover  attor- 
ney's fees  in  case  of  foreclosure.     In  an  action  to  foreclose  this 
mortgage   the  assignee  of  the  corporation  appointed  after  the 
suit  was  begun,  being  made  a  party,  defended  upon  the  ground 
inter  alia  that  the  execution  of  the  mortgage  on  terms  which 
were  a  departure  from  the  terms  named  in  the  resolution  of  the 
directors  was  in  excess  of  the  authority  of  the  president  and  not 
binding  upon  the  corporation.    The  facts  that  the  president  of  the 
corporation  included  in  the  note  and  mortgage  terms  and  condi- 
tions which  the  corporation  had  power  to  authorize,  but  which  it 
did  not  authorize  him  to  insert ;  that  the  corporation  received  the 
consideration  of  $17,000  from  the  plaintiffs  and  applied  the  money 
to  its  uses,  including  the  payment  of  a  prior  mortgage  upon  its 
property  and  the  extinguishment  of  the  lien  thereof ;  that  the 


holdere.     Clark  r.  American  Coal  Co., 
(1892)  86  Iowa,  436.     As  to  contracts 
being  made  valid  by  ratification  by  a 
corporation,  see  Dubuque  College  r. 
Dubuque,  13  Iowa,  555-560 ;  Beach  on 
Priv.    Corp.   §   195;     Oregon  Ry.    r. 
Oregon  Ry.  &  Nav.  Co.,  28  Fed.  Rep. 
505 ;  Greenleaf  r.  Norfolk   Southern 
Ry.,  91  N.   C.  33  ;  First  Nat.  Bank  v. 
Fricke,75Mo.l78;  Kelsey  v.  National 
Bank,  69  Pa.  St.  426 ;  Eureka  Co.  v. 
Bailey  Co..  11  Wall.  488. 491 ;  Gold  Min- 
ing Co.  V.  National  Bank,  96  U.  S.  640, 
644 ;   Pacific  Rolling  Mill  Co.  v.  Day- 
ton Ry.,  7  Sawy.  61, 67;  Walworth  Co. 
Bank  v.  Farmers'  Loan  &  Trust  Co. ,  16 
Wis.  629 ;  Connett  v.  City  of  Chicago, 
114  111.  233;  Wood  v.  Whelen,  93  111. 
153.     Ratification  generally  :  Nims  p. 
Mt.  Harmon  Boys'  School,  160  Mass. 
177  ;  8.  c,  35  N.  E.  Rep.  776 ;  People 
r.  Eel  River  &  E.  R.  Co.,  98  Cal.  665 ; 


8.  c,  33  Pac.  Rep.  728;  Willis  c.  St. 
Paul  Sanitation  Co.,  (1893)  53  Minn. 
370;  8.  c,  55  N.  W.  Rep.  550; 
Augusta,  T.  &  G.  R.  Co.  v.  Kittel,  52 
Fed.  Rep.  63;  s.  c,  2  C.  C.  A.  615; 
2  U.  S.  App.  409;  Hitchings  v.  St. 
Louis,  N.  O.  &  O.  Canal  &  Transp. 
Co.,  68  Hun,  33;  8.  c,  22  N.  Y. 
Supp.  719;  Tingley  v.  Bellingham 
Bay  Boom  Co.,  5  Wash.  St.  644;  8. 
c,  32  Pac.  Rep.  737;  Goldbeck  r. 
Bank,  147  Pa.  St.  267;  Haines  v. 
Detrick,  75  Md.  256 ;  Smith  v.  Martin 
Anti-Fire  Car  Heater  Co. ,  64  Hun.  639; 
8.  c,  19  N.  Y.  Supp.  285;  Seymour  v. 
Association,  64  Hun,  632;  McComb  v. 
Association,  134  N.  Y.  598 ;  Shaver  r. 
Hardin,  82  Iowa,  378;  Hayden  r. 
Wheeler  &  Tappan  Co.,  66  Hun,  629  ; 
8.  c,  20  N.  Y.  Supp.  902;  Seal  &. 
Puget  Sound  Loan  &  lavest.  Co.,  5 
Wash.  St.  422  ;  8.  c,  32  Pac.  Rep.  214. 


PRIVATE  CORPORATIONS. 


237 


§180] 

corporation,  by  its  representations,  declarations  and  acts,  through 
its  directors,  intentionally  led  the  plaintiffs  to  believe,  and  they 
did  beheve,  the  president  of  the  corporation  was  authorized  to 
execute  the  note  and  mortgage  for  one  year,  with  interest  pay- 
able monthly  ;  that  the  corporation,  with  full  knowledge  of  the 
terms  and  conditions  of  the  note  and  mortgage,  received  and 
used  the  consideration  of  $17,000,  and  paid  the  interest  thereon 
monthly  as  the  same  became  due  for  about  four  months,  were 
held  sufficient  to  constitute  a  ratification  of  the  acts  of  the  presi- 
dent of  the  corporation  and  sufficient  to  support  the  invocation 
of  an  estoppel  in  pais.* 

§  180.  What  does  not  amount  to  a  ratification. —  A  treas- 
urer of  a  Massachusetts  savings  institution  for  the  corporation 
became  a  party  to  an  assignment  for  the  benefit  of  creditors,  and 
thereby  undertook  to  release  one  of  the  promisors  on  a  joint  and 
several  note  belonging  to  the  institution.     The  by-laws  of  the 
corporation,  concerning  the  duties  of  the  treasurer  or  as  ex  officio 
secretary,  after  enumerating  several  particulars,  provided  gener- 
ally that  "  he  shall  perform  and  discharge  all  such  other  duties, 
in  addition  to  the  above,  as  are  usually  required  of  the  treasurer 
and  secretary  of  similar  institutions."     There  was  no  record  of 
any  vote  of  the  institution  to  release  any  claim  against  any  per- 
son, or  to  cancel,  or  discharge,  or  receive  payment,  partial  or  in 
full,  of  any  debt  of  any  person  whatever.     The  binding  effect  of 
this  action  of  the  treasurer  upon  the  corporation  being  for  the 
consideration  of  the  Supreme  Court,  it  was  held  that  the  treasurer 
of  an  incorporated  institution  for  savings  had  no  authority,  as 
such,  and  without  being  specially  authorized  thereunto,  to  exe- 
cute a  release  in  the  name  of  the  corporation.     Further,  they 
held  that  the  facts  that  payments  of  dividends  were  subsequently 
made  to  the  treasurer's  successor  in  office,  and  indorsed  on  the 
note  of  the  one  making  the  assignment,  and  entered  in  the  books 
of  the  institution,  as  so  much  received  of  the  assignees  of  the 
promisor,  and  the  treasurer's   account  and  casli,  including  the 
sum  so  received,  and  the  notes  of  the  institution,  including  the 
note  in  question,  were  subsequently  examined  by  a  committee 
and  certified  as  correct,  were  not  acts  which  amounted  to  a  ratifi- 

»  Gribble  c.  Columbus  Brewing  Co.,  (1893)  100  Cal.  67;  8.  c,  34  Pac.  Rep.  527. 


I 


»  I 


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•  11  II 


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'I' 


238 


POWER  OF  OFFICERS  AND  AGENTS. 


[§180 


^180] 


PRIVATE  CORPORATIONS. 


239 


cation  of  the  release.^     It  appeared,  in  an  action  upon  a  written 
<Mmtract  executed  in  the  name  of  a  corporation  hy  its  president, 
that  there  was  no  vote,  either  of   the  corporation   or   of   the 
ciirectors,  giving  the  president  authority  to  execute  the  contract ; 
that  under  the  by-h\ws,  the  directors  might  confer  upon  him  such 
autliority ;  that  there  were  five  directors,  of  whom  the  president 
was  one,  and  there  was  evidence  that  one  director,  besides  the 
president,  knew  of  this  contract,  but  there  was  no  direct  evidence 
that  the  other  three  directors  had  any  knowledge  of  it.     The 
jury  were  instructed  that  if  "the  coriK)ration,  represented  by  its 
entire  board  of  officers,  knew  of  and  ratified  tlie  contract,  it 
would  be  as  binding  as  if  the  corporation  had  authorized  it  by 
express  vote,"  with  this  addendum ;  "  But  all  directors  of  a  cor- 
poration are  presumed  to  know  what  it  is  their  duty  to  know, 
what  they  are  able  to  know,  and  what  they  undertook  to  know 
when  they  accepted  the  responsibility  of  directors,  and  a  jury 
have  a  right  to  suppose  that  the  directors  of  a  corporation  have  a 
knowledge  of  its  concerns.     In  the  absence  of  direct  and  positive 
evidence  of  the  knowledge  of  the  directors,  jurors  have  a  right  to 
assumti  that  they  are  doing  what  tliey  were  appointed  to  do,  and 
that  they  know  what  they  are  appointed  to  know."     The  Supreme 
Court  of  Massachusetts  held  such  instruction  to  be  erroneous.^ 


>  Dedham  Institution  for  Savings  r. 
Slack,  (1850)  6  Cush.  408. 

'Murray  v.  Nelson  Lumber  Com- 
pany, (1887)  143  Mass.  250;  s.  c,  9  N. 
E.  Rep.  634.  Morton,  Ch.  J.,  speak- 
ing for  the  court,  said:  "  It  is  a  well- 
settled  rule  that  a  ratification  by  a 
principal  of  the  unauthorized  acts  of 
an  agent,  in  order  to  be  effectual,  must 
be  made  with  a  knowledge  on  the 
part  of  the  principal  of  all  the  mate- 
rial facts.  And  the  burden  is  upon 
the  party  who  relies  upon  a  ratifica- 
tion to  prove  that  the  principal,  hav- 
ing such  knowledge,  acquiesced  in 
and  adopted  the  acts  of  the  agent.  It 
is  not  enough  for  him  to  show  that  the 
principal  might  have  known  the  facts 
by  the  use  of  diligence.  Combs  t>. 
Scott,  12  Allen,  493.  Where  the  al- 
leged principal  is  a  corporation,  a  rati- 


fication may  be  shown  by  proving 
that  the  officers  who  had  the  power  to 
authorize  the  act  knew  of  it,  and 
adoptetl  it  as  a  valid  act  of  the  corpo- 
ration, although  no  formal  vote  is 
passed  by  them.  Sherman  v.  Fitch, 
98  Mass.  59;  Lyndeborough  Glass  Co. 
V.  ^Massachusetts  Glass  Co.,  Ill  Mass. 
315;  Kelley  d.  Newburyport  Horse 
Railroad,  141  Mass.  496.  In  the  case 
at  bar,  therefore,  it  was  incumbent 
upon  the  plaintiff  to  show  that  the 
directors,  or  at  least  a  majority  of 
them,  knew  of  the  contract  and  its 
terms,  and  that,  with  such  knowledge, 
they  acquiesced  in  and  adopted  it. 
But  the  instructions  given  by  the 
court  gave  to  the  jury  a  different 
test.  Under  them,  the  jury  would 
naturally  understand  that  it  was  not 
necessary  to  find  that  the  directors 


know  of  the  contract,  and  that  it 
would  be  sufficient  if,  in  their  judg- 
ment, the  directors,  by  the  use  of  dili- 
gence, might  have  known  it.  The 
instructions  are  even  broader  than  this, 
jis  they  told  the  jury  that  the  directors 
were  presumed  to  know  whjit  they 
were  able  to  know,  and  that  the  jury 
had  the  right  to  suppose  that  the 
directors  of  a  corporation  had  a  knowl- 
edge of  its  concerns,"  Knowledge  of 
officer  imputable  to  the  corporation. 
Anderson  v.  Kinley,  (Iowa,  1894)  58 
N.  W.  Rep.  909;  Merchants'  Nat. 
Bank  v.  Tracy,  77  Hun,  443;  s.  c,  29 
N.  Y.  Supp.  77;  Huron  Printing  «fc 
Bindery  Co.  v.  Kittleson,  (8.  D.  1894) 


57  N.  W.  Rep.  233;  Willard  v.  Denise, 
50  N.  J.  Eq.  482.  Estoppel  of  corpo- 
ration to  deny  authority  of  its  officern 
and  agents.  Dallas  v.  Columbia  Iron 
&  Steel  Co.,  158  Pa.  St.  446;  s.  c,  27 
Atl.  Rep.  1055;  St.  Louis  &  S.  F.  R. 
Co.  7J.  Kirkpatrick,  52Kans.  104;  s.  c, 
34Pac.  Rep.  400;  Duggan  v.  Pacific 
Boom  Co.,  6  Wash.  593;  s.  c,  34  Pac. 
Rep.  157;  Merchants'  Nat.  Bank  v. 
Citizens'  Gaslight  Co.,  159  Mass.  505; 
s.  c. ,  34  N.  E.  Rep.  1083;  Jourdan  v. 
Long  Island  R.  Co.,  115  N.  Y.  380;  s. 
c,  22  N.  E.  Rep.  153;  Beach  v.  Miller, 
130  111.  162;  s.  c,  22  N.  E.  Rep.  464; 
Brown  v.  Wright,  25  Mo.  App.  54. 


I 


CHAPTEK  V. 


FRAUDULENT  ACTS  OF  OFFICERS. 


§181. 
182. 
183. 
134. 

185. 


186. 


187. 

188. 

189. 

190. 
191. 


192. 

193. 
194. 

195. 

196. 
197. 
198. 


General  rules. 

General  rules  continued. 

Breaches  of  trust. 

Officers  interested  in  contracts 
with  a  corporation. 

Directors  of  an  insolvent  cor- 
poration preferring  them- 
selves to  other  creditors. 

Directors  contracting  with  a 
syndicate  composed  of  them- 
selves—  when  such  a  con- 
tract cannot  be  rescinded. 

Directors  issuing  shares  of 
stock  to  themselves. 

Officers  profiting  by  their  rela- 
tion to  the  corporation. 

Repudiating  or  avoiding  such 
contracts. 

Rules  as  to  such  contracts. 

Circumstances  under  which  the 
directors  cannot  avail  them- 
selves of  the  defense  of  the 
invalidity  of  the  contract. 

Purchase  by  officers  of  debts 
due  by,  or  property  of,  cor- 
poration. 

Purchase  and  sale  of  property 
of  corporations  by  officers. 

Illustrations  of  a  sale  of  prop- 
erty to  corporation  which 
was  not  fraudulent. 

When  a  transfer  of  prop- 
erty of  corporation  will  be 
upheld. 

Officers  voting  themselves  sala- 
ries or  compensation. 

Interest  upon  exorbitant  salary 
voted  officer  recoverable. 

Contracts  between  corporations 
having  the  same  directors  in 
part. 


§  199.  Issue  of  worthless,  or  overissue 
of,  stock. 

200.  False   representations   of  offi- 

cers —  deceit. 

201.  A  leading  English  decision  on 

this  subject. 

202.  The  rule  adhered  to  in  England. 

203.  Officers  conspiring  to  wreck  a 

corporation. 

204.  President  conspiring  against  a 

corporation  —  terms  on  which 
the  corporation  could  rescind 
the  contract  made  by  him. 

205.  Promoters  of  corporations  ac- 

countable for  profits. 

206.  Promoters  obtaining  stock  of 

corporation  for  nothing, 

207.  Jurisdiction  of  equity  courts  as 

to  breaches  of  trust,  etc, 

208.  When  a  court  of  equity  is  not 

open  to  the  complaints  of 
stockhoklers. 

209.  Remedy  in  equity. 

210.  Malfeasance  of  the  president  of 

a  corporation  —  a  stockhold- 
er's remedy. 

211.  When  a  demand  upon  a  direct- 

ory to  bring  suit  is  not  re- 
quired. 

212.  When  a  stockholder  may  bring 

an  action. 

213.  Dissolution  of  a  corporation  by 

a  scheme  of  stockholders  and 
a  sale  of  the  property  to 
themselves. 

214.  The  rights  of  the  minority  in 

such  a  case. 

215.  Principles  applied  to  this  par- 

ticular case. 

216.  When  a  fraudulent  assignment 

of  a  mortgage  by  the  treas- 


§181] 


FBAUDUENT  ACTS  OF  OFFICERS. 


2^1 


urer  of  a  corporation  will 
bind  it. 
§  217.  When  a  corporation  may  re- 
cover money  fraudulently 
paid  out  by  its  treasurer. 
218.  When  a  corporation  must  re- 
spond for  damages  resulting 
from  a  fraudulent  issue  of  its 
stock. 


§219.  The  same  subject  —  a  Afassa- 
chusetts  decision. 

220.  The  same  subject  —  a  Pennsyl- 

vania decision. 

221.  When  a  corporation  may  not 

respond  for  damages. 

222.  A  Massachusetts    decision  on 

this  subject. 


§  l8l.  General  rules. —  Directors  of  a  corporation  will  be  held 
responsible  to  the  stockholders  for  losses  from  fraud,  embezzle- 
ment, willful  misconduct,  breach  of  trust  and  for  gross  inatten- 
tion or  negligence,  as  a  result  of  which  fraud  has  been  perpe- 
trated by  agents,  officers  or  co-directors.*  It  is  now  well  settled 
that  directors  and  managers  of  corporations  are  equally  within  the 
rule  which  guards  and  restrains  the  dealings  and  transactions 
between  trustee  and  cestui  que  trust  and  agent  and  his  principal, 
such  directors  or  managers  being  in  fact  trustees  and  agents  of 
the  bodies  represented  by  them.'  Bank  directors  are  not  mere 
agents,  like  cashiers,  tellers  and  clerks.  It  is  the  duty  of  the 
board  to  exercise  a  general  supervision  over  the  affairs  of  the  bank 
and  to  direct  and  control  the  action  of  its  subordinate  officers  in 
all  important  transactions.  *  *  *  They  invite  the  public  to 
deal  with  the  corporation,  and  when  any  one  accepts  the  invitation 
he  has  the  right  to  expect  reasonable  diligence  and  good  faith  at 
their  hands,  and  if  they  fail  in  either,  they  violate  a  duty  they  owe 
not  only  to  the  stockholders  but  to  the  creditors  and  patrons  of 
the  corporation.^  The  directors  of  a  banking  or  other  corpora- 
tion are,  in  the  management  of  its  affairs,  only  trustees  for  its 
creditors  and  stockholders,  and  are  bound  to  administer  its  affairs 
according  to  the  terms  of  its  charter  and  in  good  faith.  If  they 
fail  in  either  respect  they  are  liable  to  the  party  in  interest  who 
is  injured  by  it  for  a  breach  of  trust  and  may  be  made  to  account 
with  him  in  a  court  of  chancery.*    The  character  of  directors  as 


>Spering's  Appeal,  (1872)  71  Pa. 
St.  11. 

'  Cumberland  Coal  &  Iron  Co.  «. 
Parish,  42  Md.  598;  Cumberiand  Coal 
&  Iron  Co.  V.  Sherman,  30  Barb.  553; 
Stewart  v.  Lehigh  Valley  Railroad  Co., 
38  N.  J.  Law,  505;  Gardner  v.  Butler, 
80  N.  J.  Eq.  702;  Kitchen  v.  St.  Louis, 

31 


etc.,  Railway  Co.,  69  Mo.  224;  Chou- 
teau V.  Allen,  70  Mo.  290;  Hubbard  v, 
N.  Y.,  etc..  Investment  Co.,  14  Fed. 
Rep.  679. 

'  United  Society  v.  Underwood,  9 
Bush,  609.  See,  also,  Bank  r.  Wulfe- 
kuhler,  19  Kans.  60. 

*  Bank  v.  St.  John,  25  Ala.  566. 


ii 


>  I 


4' 


I 


l!'i 


t> 


242 


FRAUDULENT  ACTS  OF  OFFICERS. 


[§181 


agents  of  a  corporation  for  the  management  of  its  affairs  for  tlie 
benetit  of  its  stockliolders  and  creditoi-s  forbids  the  exercise  of 
their  powers  for  their  own  pei-sonal  ends  against  the  interest  of 
the  corjwration.  Their  position  is  one  of  great  trust,  and  to 
engage  in  any  matter  for  their  personal  advantage  inconsistent 
with  it  would  be  to  violate  their  duty  and  to  commit  a  fraud 
upon  the  company.^  They  cannot,  as  agents  or  trustees,  enter 
into  or  authorize  contracts  on  behalf  of  those  for  whom  they  are 
appointed  to  act  and  then  personally  partici}>ate  in  the  benefits. 
Hence  all  arrangements  by  directors  of  a  corporation  to  secure 
an  undue  advantage  to  themselves  at  its  expense,  by  the  forma- 
tion of  a  new  corporation  as  an  auxiliary  to  the  original  one,  with 
an  understanding  that  they,  or  some  of  them,  should  take  stock 
in  it,  and  then  that  valuable  contracts  should  be  given  to  it,  in  the 
profits  of  which  they,  as  stockholders  in  the  new  corporation,  are 
to  share,  are  so  many  unlawful  devices  to  enrich  themselves  to 
the  detriment  of  the  stockholders  and  creditors  of  the  original 
corporation,  and  will  be  condemned  whenever  properly  brought 
before  courts  for  consideration.^  A  director  of  a  corporation  is  a 
trustee  of  the  corporation,  and  is  under  the  disability  which 
attaches  to  all  trustees  in  dealing  with  trust  property  and  in  trans- 
acting the  business  pertaining  to  the  trust.  lie  cannot  act  as 
trustee  and  for  himself  at  the  same  time,  and  will  not  be  per- 
mitted to  make  a  profit  to  himself  in  his  dealings  with  the  cor- 
poration. It  is  against  public  policy  to  allow  persons  occupying 
fiduciary  relations  to  be  placed  in  such  positions  as  that  there  will 
be  constant  danger  of  a  betrayal  of  trust  by  the  vigorous  opera- 
tion of  selfish  motives.^ 


1  Warden  r.  Railroad  Co.,  (1880)  103 
U.  S.  651. 

» Ibid. ;  citing  Great  Luxembourg 
Railway  Co.  r.  Magnay,  25  Beav.  58G; 
Benson  r.  Heathom,  1  Y.  &  Cal.  C.  C. 
326;  Flint  &  Pere  Marquette  Railway 
Co.  V.  Dewey,  14  Mich.  477;  European 
&  North  American  Railway  Co.  r. 
Poor,  59  Me.  277;  Drury  r.  Cross.  7 
Wall.  299. 

»  Barnes  r.  ^rown,  (1880)  80  N.  Y. 
527;  citing  Risley  r.  Indianapolis,  B. 
&  W.  R.  R.  Co.,  62  N.  Y.  240;  Butts 
«.  Wood,  37  N.  Y.  317;  Stewart  r. 
Lehigh  Valley  R.  R.  Co..  3s  N.  .J.  Law, 


505;  Gardner  f.  Butler,  30  N.  J.  Eq. 
702;  Foster  r.  Oxford,  W.  &  W.  Ry. 
Co.,  14  Eng.  Law  &  Eq.  306;  Aber- 
deen Ry.  Co.  r.  Blakie,  1  MacQueen 
H.  L.  461.  As  to  the  duties  of  direct- 
ors and  the  restrictions  upon  their 
action  in  matters  of  the  corporation 
growing  out  of  their  trust  relation  in 
Bird  Coal  &  Iron  Co.  v.  Humes,  (1893) 
157  Pn.  St.  278;  s.  c,  27  Atl.  Rep. 
750;  33  W.  N.  C.  174,  Mr.  Justice 
Dean  said:  "A  director  is  a  trustee 
for  the  entire  l)ody  of  stockholders, 
and  both  good  morals  and  good  law 
imperatively  demand  he  shall  manage 


§182] 


FRAUDULENT  ACTS  OF  OFFICERS. 


243 


§  182.  General  rules  continued. — A  director  of  a  corporation 
cannot  become  a  contractor  with  the  corporation  nor  can  he  have 
any  personal  or  pecuniary  interest  in  a  contract  between  the  cor- 


all  the  business  affairs  of  the  company 
with  a  view  to  promote,  not  his  own 
interests,  but  the  common  interests, 
and  he  cannot  directly  or  indirectly 
derive  any  personal  profit  and  advan- 
tage by  reason  of  his  position  distinct 
from  his  co-shareholders.  1  Potter  on 
Corp.  §  330;  Moraw.  on  Corp.  517, 
518.  And  by  assuming  the  office  he 
undertakes  to  give  his  best  judgment 
in  the  interests  of  the  corporation  in 
all  matters  in  which  he  acts  for  it  un- 
trammeled  by  any  hostile  interest  in 
himself  or  others.  There  is  an  inherent 
obligation  as  his  part  that  he  will  in 
no  manner  use  his  position  to  advance 
his  own  interest  as  an  individual  as 
distinguished  from  that  of  the  corpo- 
ration. Cumberland  Coal  &  Iron  Co.  v. 
Parish,  42  Md.  598;  Hill  v.  Frazier,  22 
Pa.  St.  320.  And  all  secret  profits  de- 
rived by  him  in  any  dealings  in  regard 
to  the  corporate  enterprise  must  be 
accounted  for  to  the  corporation,  even 
though  the  transaction  in  which  they 
were  made  advantaged  the  corpora- 
tion of  which  he  was  director.  Par- 
ker V.  Nickerson,  112  Mass.  195." 
Fiduciary  relation  of  directors  to 
shareholders  discussed,  and  English 
and  American  decisions  on  the  sub- 
ject examined.  26  Can.  Law  J.  66. 
In  McQourkey  v.  Toledo  &  Ohio 
Central  Ry.  Co.,  (1892)  146  U.  S.  536, 
a  case  involving  the  right  of  the  pur- 
chasers of  railway  property  under  a 
foreclosure  sale  to  certain  rolling 
stock  which  was  claimed  to  be  the 
property  of  those  representing  a 
"contract,"  the  Supreme  Court  of  the 
United  States,  speaking  through  Mr. 
Justice  Brown,  thus  refers  to  the  acts 
of  the  directors  in  the  matter:  "  The 
directors  of  this  road  were  evidently 
acting  in  two  inconsistent  capacities. 


As  directors  they  were  bound  to  watch 
and  protect  the  interests  of  the  road 
and  obtain  the  rolling  stock  upon  the 
most  advantageous  terms.  As  holders 
of  the  car  trust  certificates,  or  repre- 
sentatives of  such  holders,  it  was  to 
their  interest  to  lease  the  same  at  the 
best  possible  rate  and  to  make  sure 
that  as  directors  this  rolling  stock 
should  never  become  their  property 
except  at  the  highest  price.  In  other 
words,  they  were  both  buyers  and  sell- 
ers or  lessors  and  lessees  of  the  same 
property,"  and  their  action  was  con- 
demned by  the  court  upon  authority 
of  the  cases  of  Wardell  v.  Railroad 
Co.,  103  U.  S.  651;  Oilman,  etc..  Rail- 
road Co.  r.  Kelly,  77  111.  426;  Whelp- 
dale  V.  Cookson,  1  Ves.  Sr.  9;  Drury 
V.  Cross,  7  Wall.  299;  York  Buildings 
Co.  t).  Mackenzie,  3Paton  (Scotch)  App. 
Cas.  378;  People  v.  Overyssel  Town- 
ship Board,  11  Mich.  222,  and  others. 
The  competency  of  the  mortgagee  to 
impeach  this  transaction  was  ques- 
tioned in  McOourkey  v.  Toledo  &  Ohio 
Central  Ry.  Co.,  supra.  Upon  this 
question  it  was  said:  *' A  contract  of 
this  kind  is  clearly  voidable  at  the  elec- 
tion of  the  corporation,  and  when  such 
corporation  is  represented  by  the  direct- 
ors against  whom  the  imputation  is 
made,  and  the  scheme  was  in  reality  di- 
rected against  the  mortgagees,  and  had 
for  its  very  object  the  impairment  of 
their  security  by  the  withdrawal  of 
the  property  purchased  from  the  lien 
of  their  mortgage,  it  would  be  mani- 
festly unjust  to  deny  their  compe- 
tency to  impeach  the  transaction. 
The  principle  itself  would  be  of  no 
value  if  the  very  party  whose  rights 
were  sacrificed  were  denied  the  bene- 
fits of  it." 


HI 


Ik! 


9AJL 


FBAUDULENT  ACTS  OF  C    FIOERS. 


[§182 


poration  and  a  tliird  person.*     A  board  of  directors  who  have 
made  a  barter  of  the  assets  ol  the  corporation  for  personal  gain 
cannot,  by  an  act  purporting  to  be  an  acceptance  for    the  corpo- 
jation  of  an  equivalent  for  the  assets,  conclude  tub  stockholders 
or  their  representatives  from  showing  that  no  equivalent  was 
actually  received.'    Officers  of  a  corporation  have  the  custody 
and  charge  of  its  property,  and  occupy  the  relation  of  trustees  of 
the  stockholders.     They  have  no  right  to  enter  into  or  partici- 
pate in  a  combination  as,  in  this  case,  with  a  holder  of  a  few  bonds 
secured  by  a  mortgage  of  the  property  ol  the  corporation,  a  rail- 
road company,  who  had  obtained  a  judgment  upon  his  bonds  in 
a  state  court  and  entered  into  an  agreement  with  certain  officers 
to  have  a  sale  of  the  property  in  an  obscure  place  unknown  to 
others  interested  and  buy  in  the  property,  the  object  of  which 
combination  is  to  divest  the  corporation  of  its  property  and  obtain 
it  for  themselves  at  a  sacrifice,  or  at  the  lowest  price  possible. 
To  seek  their  own  profit  at  the  expense  of  the  corporation,  its 
stockholders,  or  even  its  bondholders,  is  forbidden  by  their  rela- 
tion to  the  corporation.^    It  being  the  duty  of  a  director  of  a  cor- 
poration  to  know  its  financial  condition,  he  cannot  avail  himself 
of  any  dereliction  of  sucn  duty  to  secure  a  personal  advantage 
over  other  creditors  of  the  corporation.*     Directors  acting  hon- 
estly for  wliat  they  esteem  the  best  interests  of  the  corporation, 
and  not  willfully  perverting  their  powers,  but  only  misjudging 
them,  will  not  be  held  to  account  for  money  expended  in  such 
ease.*    The  directors   of   a  corporation  created  for  the  sale  of 
lands  may  reject  ofEers  f o»  the  lands,  this  being  within  their  dis- 
cretion, and  though  imprudently  done,  if  there  be  no  fraud,  they 
will  not  be  liable  for  any  loss  resulting  therefrom.^    Where 
expenditures  may  be  made  by  directors  of  a  corporation  in  carry- 
ing out  its  prime  object,  even  if  such  expenditures  be  ultra  vires, 
stockholders  knowing  of  them  and  not  objecting  until  long  after 
their  completion,  cannot  compel  the  directoi-s  of  the  corporation 

>  Port  V.  Russell,  36  Ind.  60.  account  for  all  moneys  and  profits  re- 

»  Guild  V.  Parker,  43  N.   J.  Law,  ceived  by  them  out  of  the  property  or 

430  its  use. 

«  Jackson  «.Ludeling,(1874)  21  Wall.  *  Clay  v.   Towle,  78  Me.  86;  s.  c. 

616,  ordering  the  setting  aside  and  can-  2  Atl.  Rep.  852. 

ceu'ng  as   fraudulent   and    void   the  ^  Watts'  Appeal,  (1875)  78  Pa.  St. 

sale  and  purchase  of  the  property  by  370. 

these  conspirators  and  holding  them  to  •  Ibid. 


FBAUDULENT  ACTS  OF  0FFICEB8. 


245 


§182] 

to  account  for  the  moneys  expended.^  When  the  act  of  direct- 
ors of  a  corporation  complained  of  is  to  be  followed  by  large 
expenditure  of  money  a  stockholder  should  not  only  make  his 
protest  within  a  reasonable  time,  but  should  follow  it  up  by  active 
preventive  measures.  Six  years',  for  instance,  omission  to  pro- 
ceed will  effectually  bar  a  stockholder's  right  to  an  action  against 
directors  for  the  misuse  of  corporate  property .^  A  court  of  equity 
will  set  aside  the  sale  of  corporate  property  sold  for  much  less 
than  its  value,  on  a  sale  by  trustees  of  a  corporate  mortgage,  if 
shown  that  one  of  the  trustees  had  accepted  a  bribe.^  A  contract 
in  the  name  of  a  corporation,  by  its  board  of  directors,  is  not  void, 
if  otherwise  unassailable,  simply  because  some  of  the  directors 
constituting  a  minority  may  use  their  position  with  the  effect,  or 
even  for  the  purpose,  of  advancing  their  personal  interests  to  the 
injury  of  the  corporation  they  assume  to  represent.*  The  courts 
will  refuse  to  enforce  an  agreement  between  a  director  of  a  cor- 
poration and  a  third  party  whereby  the  director  agrees  to  use  his 
vote  and  influence  to  the  disadvantage  of  the  corporation.* 
Directors  of  a  corporation,  as  they  are  managing  the  funds  as 
trustees  of  the  stockholders,  have  no  right  to  use  or  appropriate 
the  funds  of  their  cestui  qiie  trust  to  themselves.  They  have  no 
power  to  waste,  destroy,  give  away  or  misapply  it,  and,  therefore, 
where  there  is  no  salary  provided  for  their  services  they  are  not 
authorized  to  vote  one  to  themselves  or  to  any  one  of  their 
number.*  A  court  of  equity  will  scrutinize  with  vigorous  and 
jealous  observation  any  attempt  of  directors  of  a  corporation  to 
make  a  pledge  of  its  assets  in  favor  of  themselves.'^  Directors 
and  officers  of  a  corporation  from  their  position  of  trust,  which 
requires  that  they  act  in  the  utmost  good  faith,  will  not  be  allowed 
to  deal  with  corporate  funds  and  property  for  their  private  gain.» 
The  application  of  the  corporate  assets  of  an  insolvent  corpora- 


>  Ibid. 
« Ibid. 

*  White  Mountains  Railroad  «. 
White  Mountains  (N.  H.)  Railroad,  50 

N.  H.  50. 

*  Jesup  t.  Illinois  Central  R.  Co., 
<1890)  43  Fed.  Rep.  483. 

*  Attaway  v.  Third  National  Bank, 
(1887)  93  Mo.  485;  s.  c,  5  S.  W.  Rep. 
16. 


«  Holder  v.  La  Fayette,  Blooming- 
ton  &  Mississippi  Ry.  Co.,  (1873)  71 
ni.  106;  Gridley  v.  La  Fayette,  Bloom- 
ington  &  Mississippi  Ry.  Co.,  (1873)  71 
ni.  200. 

'  Chouteau  v.  Allen,  (1879)  70  Mo. 
290. 

•  Ward  V.  Davidson,  (1886)  89  Mo. 

445. 


1 


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l# 


la 


Me 


FRAUDULENT  ACTS  OF  0FFICEE8. 


[§182 


tion  to  debts  due  the  oflScers,  to  the  exclusion  of  other  creditors, 
by  such  officers  will  not  be  permitted.*  A  trustee  of  a  corpora- 
tion can  make  no  agreement  for  tlie  appropriation  of  the  prop- 
erty of  the  corporation,  authorized  by  his  own  vote,  that  will  bo 
valid  against  the  corporation.  x\nd  where  an  action  is  brought 
against  a  trustee  to  compel  him  to  account  to  the  corporation  for 
its  property  thus  appropriated,  he  cannot  defend  on  the  ground 
that  he  was  a  creditor  of  the  corporation  and  voted  as  one  of  its 
trustees  to  transfer  the  property  of  the  corporation  to  himself  as 
a  creditor  to  pay  the  debt  of  the  corporation  due  to  him,  and 
then,  at  a  subsequent  meeting  of  the  board,  by  his  own  vote,  car- 
ried a  resolution  to  ratify  such  disposition  of  the  property.^  In 
a  case  where  the  controlling  directors  of  two  corporations  were 
the  same  persons  it  was  held  that  a  preferential  mortgage  given 
by  one  to  the  other,  as  security  for  payments  and  liabilities  result- 
ing from  an  acceptance  of  drafts  by  the  latter  for  the  accommo- 
dation of  the  former,  was  invalid  because  it  operated  to  protect 
the  officers  of  the  accepting  company  against  personal  liability  for 
their  maladministration  in  accepting  paper  for  accommodation.' 
A  corporation  having  been  officially  declared  insolvent  by  its 
directors,  and  they  having  detennined  to  wind  up  its  affairs  with 
a  view  of  paying  its  debts,  the  directors  cannot  deliver  the  assets 


»McNeiU  V.  Lacey,  (1890)  33  ill. 
App.  310.  In  Hart  v.  Brock  way,  57 
Mich.  189;  8.  c,  23  N.  W.  Rep.  725, 
where  the  directors  of  a  railway  cor- 
poration had  collected  subscriptions 
and  taken  aid  notes  to  be  used  in  build- 
ing the  road  and  in  discharging  exist- 
ing obligations,  the  court  held  that  an 
individual  director  could  not  apply 
such  funds  as  he  had  collected  to  the 
payment  of  his  own  personal  share  of 
any  obligation  made  jointly  with  the 
other  directors. 

•  Gildersleeve  «.  Lester,  (1893) 
68  Hun,  532;  8.  c,  22  N.  Y.  Supp. 
1026. 

*  Hutchinson  v.  Sutton  Manufactur- 
ing Co..  (1893)  57  Fed.  Rep.  998.  See, 
also,  Lippincott  v.  Carriage  Co.,  25 
Fed.  Rep.  577;  Howe  v.  Tool  Co.,  44 
Fed.  Rep.  231.    As  to  the  right  of  an 


officer  to  loan  money  to  a  corporation 
and  take  a  mortgage  to  secure  the 
loan  upon  the  same  terms  and  in  the 
same  manner  as  other  persons,  see 
Mullanphy  Savings   Bank   v.   Schott 

(1890)  135  111.  655;  s.  c,  26  N.  E.  Rep. 
640,  affirming  34  111.  App.  500.  Cases 
in  which  the  transactions  of  the  corpo- 
ration with  its  directors  were  held  to 
be  valid.  Hannerty  «.  Standard 
Theater  Co.,  (1891)  109  Mo.  297;  s.  c, 
19  S.  W.  Rep.  82;  In  re  Pyle  Works, 

(1891)  1  Ch.  173.  What  class  of  con- 
tracts made  by  directors  with  each 
other  are  voidable.  Mallory  v.  Mallory- 
Wheeler  Co.,  (1891)61  Conn.  131;  s.  c, 
23  Atl.  Rep.  708.  An  illustration  of  a 
case  in  which  a  director  cannot  sell  to 
himself.  Green  v.  Hugo,  (1891)  81 
Tex.  452;  s.  c,  17  S.  W.  Rep.  79.  Aa 
to  acts  by  directors  where  their  inter- 


§183] 


FRAUDULENT  ACTS  OF  0FFICEB8. 


247 


of  the  corporation  to  one  of  the  board  in  payment  of  his  debt,  to 
the  exclusion  of  its  other  creditors.^ 

§  183.  Breaches  of  trust.—  Should  directors  pay  over  the 
funds  of  a  corporation  in  their  hands  or  in  its  treasury  to  an  indi- 
vidual upon  a  pretended  claim  which  they  know,  or  must  be  pre- 
sumed to  know,  is  wholly  unfounded  in  law,  they  will  be  guilty  of 
a  breach  of  trust.'  Directors  of  a  bank  are  personally  responsi- 
ble for  damages  resulting  to  the  bank  from  their  acts  or  neglect.* 
The  measure  of  damages  in  an  action  against  them  would  be  the 
extent  of  the  injury.*  Officers  of  a  bank  are  the  agents  of  the 
corporation,  and  will  be  held  liable  for  the  abuse  of  their  trust 
wherever  the  agents  of  an  individual  will  be.^     Directors  are 

est  is  adverse  to  the  corporation,  see  $15,000,  for  §17,250,  to  an  irrcsponsi- 
Waite  V.  Mining  Co.,  36  Vt.  18;  Waite  ble  person,  and  with  the  connivance  of 
V.  Mining  Co.,  37  Vt.  608.  his  son,  who  was  the  cashier  of  the 

>  Williams  iJ.  Jackson  County  Pa-  bank,  this  irresponsible  pretended  pur- 
trons  of  Husbandry,  (1886)  23  Mo.  App.  chaser  of  stock  hypothecated  the  stock 
-J 32  for  a  loan  of  the  largest  amount  named 

'Butts  T>.  Wood,  (1862)  38 Barb.  181.  above,  and  received  bills  of  the  bank 
In  this  case  one  who  was  secretary  and  for  the  same.  It  was  charged  in  the 
treasurer  of  the  corporation,  as  well  as  action  that  this  was  a  conspiracy  be- 
one  its  directors,  presented  a  claim  to  tween  these  parties  by  which  the  bank 
the  Doardof  directors  for  compensa-  was  to  be  crippled  and  the  president  to 
tion  for  his  services  as  secretary,  and  realize  for  his  stock  from  the  bank 
the  claim  was  allowed  and  ordered  to  more  than  its  real  value.  It  was  held 
be  paid  by  the  vote  of  the  three  di-  that  whether  the  transaction  was 
rectors  present,  himself  being  one  of  treated  as  a  willful  violation  of  the 
them,  liis  father  another,  and  a  relative  duty  which  the  president  and  cashier 
the  third.  The  Supreme  Court  of  New  owed  to  the  bank,  growing  out  of  their 
York,  in  General  Term,  speaking  official  relations  to  it.  or  as  a  direct 
through  Johnson,  J.,  said:  "The  conspiracy  to  cripple  and  defraud  it. 
transaction  challenges  the  most  jealous  the  parties  concerned  in  it  were  liable 
and  severe  scrutiny,  even  if  there  was  to  the  bank  for  the  damages  which  it 
legal  color  for  the  claim.  But  as  there  had  sustained  in  consequence  of  their 
was  in  fact  no  legal  claim  the  court  is  acts.  Further,  that  in  such  a  case  no 
in  duty  bound  to  pronounce  this  dis-  laches  on  tlie  part  of  the  bank,  short 
position  of  the  funds  of  the  company,  of  the  Statute  of  Limitations,  would 
thus  made,  fraudulent  and  void  as  constitute  a  defense  to  the  action, 
against  the  other  stockholders.  It  is  a  *  Austin  1^.  Daniels.  (1847)  4  Denio, 
clear  abuse  of  trust,  and  should  not  be  299.  In  this  case  the  officers  of  the 
allowed  to  stand."  ^ok  purchased  state  stocks  to  carry 

3  Percy  v.  Millaudon.  3  La.  568.  on  a  private  undertaking    in  which 

*Ibid.  In  Ilion  Bank  v.  Carver,  they  were  engaged,  and  signed  a  con- 
(1857)  31  Barb.  230,  it  appeared  that  a  tract  obliging  the  bank  to  pay  for  the 
director  of  the  bank,  its  president,  pre-  stock,  and  then  took  money  from  the 
tended  to  sell  his  stock,  amounting  to  bank  to  fulfill  their  engagement.  They 


•M' 


11 


248 


FRAUDULENT  ACTS  OF  OFFICERS. 


[§183 

authorized  to  manage  and  conduct  the  business  of  a  corporation, 
to  audit  and  pay  its  debts  and  make  sucli  contracts  as  are  within 
the  ordinary  scope  and  business  of  the  corporation.     They  are 
not,  however,  authorized  to  vote  away  the  funds  of  the  stockhold- 
ers upon  claims  known  by  them  to  be  fictitious  or  unfounded,  for 
such  would  be  a  breach  of  their  trust.     They  have  not  the  power, 
as  directors,  to  mortgage  or  consolidate  the  corporation  with  any 
other  corporation,  or  compel  stockholders  to  surrender  up  the 
stock  owned  by  them,  or  to  accept  stock  in  another  corporation. 
This  power  exists  only  in  the  stockholders.*     Directors  of  a  cor- 
poration knowingly  issuing  bonds  of  the  corporation  falsely  pur- 
porting to  be  "  first  mortgage  bonds,"  and  placing  them  in  the 
hands  of  an  agent  who  sold  them  to  a  purchaser  who  was  igno- 
rant of  the  fact  that  they  were  not  first  mortgage  bonds,  have 
l>een  held  liable  to  the  purchaser  of  the  bonds  who  suffered  by 
the  deception  of  the  indorsement  upon  the  bonds  that  they  were 
**  first  mortgage  l>ond8.''»     It  is  beyond  doubt  that  the  directors 
of  a  banking  or  other  corporation  are,  in  the  management  of  its 
affairs,  only  trustees  for  its  creditors  and  stockholders,  and  are 
bound  to  administer  its  affairs  according  to  the  terms  of  its  char- 
ter and  in  gooii  faith.     If  they  fail  in  either  respect  they  are 
liable  to  the  party  in  interest  who  is  injured  by  it  for  a  breach  of 
trust,  and  may  be  made  to  account  with  him  in  a  court  of  chan- 


were  held  liable  to  the  receiver  of  the 
bank  for  the  money  so  taken.     The 
money,  it  appeared  further,  was  taken 
for  this  purpose  by  the  cashier  with 
the  assent  of  the  president,  the  finan- 
cial officer  of  the  bank.     It  was  further 
held  that  this  assent  of  the  president 
did  not  protect  the  cashier,  as  it  ap- 
peared that  he  was  a  party  to  the  pri- 
vate enterprise  in  which  the  money 
was  to  be  used.     As  to  the  liability  of 
the  directors  of  a  moneyed  institution 
for  improperly  obtaining  and  dispos- 
ing of  the  funds  or  property  of  the 
corporation,  see  Franklin  Fire  Insur- 
ance Co.  r.  Jenkins,  3  Wend.  130.    As 
to  the    degree  of  diligence  required 
from  directors  of  a  corporation  in  the 
case  of  its  corporate  affairs,  see  Sitott 
V.  Depeyster,  1  Ed w.  513. 
»Kelsey  r.  Sargent,  (1886)  40  Hun, 


150;  citing  Blatchford  r.  Ross,  54  Barb. 
42. 

•Clark  r.  Edgar,  (1884)  84  Mo.  106. 
affirming  s.  c.  12  Mo.   App.  345.     In 
Bartholomew  v.  Bentley,  (1852)  1  Ohic 
St.  37,  the  Supreme  Court  of  Ohio,  in 
which  a  verdict  had  been  rendered  in 
the  Supreme  Court  on  circuit  in  favor 
of  a  holder  of  bills  of  a  bank  against 
its  managing  officers  under  the  statute 
of  that    state,   allowing   a    recovery 
against  unauthorized  bankers,  and  the 
case  reserved  to  the  Supreme  Court  on 
a  motion  for  a  new  trial,  the   court 
denied  the  motion,  holding  that  the 
fraud  upon  the  charter,  and  the  com- 
bination to  defraud  the  public  would 
prevent  those  participating  in  it  from 
claiming  any  protection  under  its  pro- 
visions to  escape  private  responsibility. 


§184] 


FRAUDULENT  ACTS  OF  OFFICERS. 


249 


cery.»     Should  a  bank  allow  its  stockholders  to  withdraw  its  funds 
to  the  amount  of  their  subscriptions,  and  t^  use  them  without 
security,  in  their  private  business,  such  conduct  will  be  a  fraud 
on  its  creditors  which  would  render  its  directors  liable  in  equity 
for  the  amount  so  withdrawn,  and  each  agent  who  participated  in 
the  fraud  individually  responsible  for  the  amount  traced  to  his 
hands  and  all  profits  made  from  its  use.=^    It  was  further  lield  in 
this  case  that  the  surrender  to  the  bank's  agent  of  its  notes,  and 
the  acceptance  from  him  of  his  draft  on  a  third  person,  was  but 
the  substitution  of  one  security  for  another,  and  did  not  extin- 
guish the  original  liability  on  the  notes,  unless  the   draft  was 
drawn  in  good  faith  and  accepted  as  an  absolute  payment  and  dis- 
charge of  the  notes ;  and  even  if  it  was  through  the  fraud  of  the 
agent  accepted  as  an  absolute  payment,  the  fraud  would  prevent 
it  from  so  operating.^    Directors  of  a  moneyed  corporation  who 
release  shareholders  from  the  payment  in  full  of  their  shares, 
would  be  guilty  of  a  breach  of  trust.* 

§  184.  Officers  interested  in  contracts  with  a  corporation. 
—  Under  the  general  authority  giving  to  the  president  and 
cashier  of  a  bank  entire  control  of  all  financial  matters  of  the 
bank,  unrestricted  by  the  by-laws  or  rules  of  the  board  of 
(lirectors  or  stockholders,  the  Supreme  Court  of  Minnesota  has 
held  they  could  not  bind  the  bank  by  any  contract  to  which  they, 
or  either  of  them,  were  parties.*^     A  contract  made  between  a 


'Bank  of  St.  Marys  v.  St.  John, 
Powers  &  Co.,  (1854)  25  Ala.  566;  cit- 
ing Attorney -General  v.  Aspinall,  2 
Myl.  &  Cr.  625;  Attorney -General  r. 
Kell,  2  Beav.  575;  Attorney -(General  c. 
Corp.  of  Leicester,  7  Beav.  176. 

•Bank  of  St.  Marys  v.  St.  John, 
Powers  &  Co.,  (1854)  25  Ala.  566. 

»Ibid. 

*  Walton  r.  Hake,  (1881)  9  Mo.  App. 
595. 

'Rhodes,  Assignee,  v.  Webb,  (1877) 
24  Minn.  292.  Gilfillan.  Ch.  J., 
said  :  "The  transaction  [in  this  case], 
briefly  stated,  was  an  attempt  by  the 
president  to  use  the  property  of  the 
bank,  this  note,  [upon  which  the 
assignee's   suit  was  brought],  in   his 

32 


own  private  business,  in  payment  for 
a  purchase  made  for  his  own  benefit. 
A  general  authority  to  transact  the 
business  and  manage  the  finances  of 
the  bank  would  not  authorize  such  a 
use  of  its  property.  Nor  do  we  see 
that  the  case  of  defendant  is  in  any 
way  aided  by  trying  to  make  out  of  it 
a  satisfaction  of  the  note  by  sub- 
stituting for  it  the  promise  of  [the 
president]  to  the  cashier  that  he  would 
pay  to  the  bank  the  amount  of  the 
note ;  for  general  authority  in  the 
president  and  cashier  to  make  con- 
tracts on  behalf  of  the  bank  would  be 
subject  to  the  rule  of  law  that  an 
agent  or  trustee  cannot  bind  his  prin- 
cipal, or  cestui  que  trust,  by  a  contract 


I 


i' 


w 


n 


250 


FEAUDULENT  ACTS  OF  OKFICERS. 


[§184 


corporation  and  one  of  its  directors  to  the  pecuniary  advantage 
of  that  director,  if  made  at  a  meeting  of  the  board  of  directors 
when  he  is  present  and  takes  part  in  tlie  proceedings,  is  void.^ 
Directors  of  a  railway  corporation,  to  whom  it  lias  been  confided 


made  by  him  on  behulf  of  bis  prin- 
cipal, or  cestui  que  trmt,  with  himself. 
General  authority  in  these  officers  to 
make  discounts  would  not  authorize 
them  to  bind  the  bank  by  discounting 
their  own  notes.  8uch  authority  to 
the  president  of  a  bank  to  certify 
checks  drawn  on  it  does  not  extend  to 
checks  drawn  by  himself.  [Citing] 
Claflln  V.  Farmers  &  Citizens*  Bank. 
25  N.  Y.  293.  This  restraint  upon 
agents,  and  those  occupying  fiduciary 
positions,  is  essential  to  secure 
absolutely  fair  dealing  and  adequate 
protection  to  those  w^hose  interests  are 
confided  to  them."  In  Adams  r. 
Kehlor  Milling  Co.,  (1888)  36  Fed. 
Kep.  212,  a  preference  was  granted  by 
the  directors  of  the  corporation  known 
to  be  insolvent  to  the  estate  of  one 
who  was  a  director  and  its  president, 
deceased.  The  board  at  the  time  con- 
sisted of  three  persons  ;  two  of  whom 
were  brothers  of  deceased,  and  one  of 
them  his  agent  voting  his  stock  at 
corporation  meetings.  One  of  the 
brothers  was  a  creditor  of  the  osteite 
preferred.  It  was  held  that  the  pref- 
erence under  the  circumstances  was 
illegal,  and  that  an  unsecured  judg- 
ment creditor  of  the  corporation  was 
entitled  to  recover  of  the  two  directors 
who  were  brothers  of  the  deceased, 
who  had  voted  for  the  preference, 
such  percentage  of  his  debt  as  he 
would  have  received  if  the  sum 
wrongfully  paid  by  way  of  preference 
had  been  divided  pro  rata  among  all 
the  unsecured  creditors ;  but  the  other 
director,  not  being  present  at  any 
of  the  meetings  of  the  directors, 
and    not     voting    for     any    of   the 


resolutions  relating  to  this  pref- 
erence, was  held  not  to  be  liable 
personally,  to  the  judgment  creditor. 
Cases  bearing  more  or  less  upon  the 
non -enforceability  of  contracts  of  di- 
rectors with  the  corporation,  (y'onro 
F.  Port  Henry  Iron  Co.,  12  IJarb.  27; 
Buffalo,  etc.,  R.  R.  Co.  ».  Lampson, 
47  Barb.  533;  Morrison  v.  Ogdensburg 
&  L.  C.  R.  Co.,  52  Barb.  173;  Alford 
r.  Miller,  32  Conn.  543;  Coons  v.  Tome, 
9  Fed.  Rep.  532;  Stout  v.  Yaeger,  13 
Fed.  Rep.  802;  Gray  c.  New  York  & 
Virginia  S.  Co.,  3  Hun,  :i88;  Mayor  of 
Griffin  r.  Inman,  57  Ga.  370;  Bestor  v. 
Wathen,  60  III.  138;  Harts  r.  Brown. 
77  III.  226;  Paine  r.  Lake  Erie  &  L.  R. 
Co.,  31  Ind.  283;  First  National  Bank 
■i\  Gifford,  47  Iowa.  575;  Cumberland 
Coal  &  Iron  Co.  v.  Parish,  42  Md.  598; 
Redmond  v.  Dickerson,  9  N.  J.  Eq.  515; 
Gardner  v.  Butler,  30  N.  J.  Eq.  702; 
Claffin  r.  Farmers',  etc.,  Bank,  25  N. 
Y.  293;  U.  S.  Rolling  Stock  Co.  / .  At- 
lantic &  Great  Western  R.  Co.,  34 
Ohio  St.  450;  McAleeru.  McMurruy,  58 
Pa.  St.  126;  West  St.. Louis  Sav.  Bank 
p.  Shawnee  County  Bank,  95  U.  S. 
557;  Cook  v.  Berlin  Woolen  M.  Co.,  43 
Wis.  433.  In  Hubbard  v.  New  York, 
N.  E.  &  W.  Investment  Co.,  (1882)  14 
Fed.  Rep.  675,  676,  Nelson,  D.  J., 
said:  "  A  director  of  a  corpomtion  is 
not  absolutely  prohibited  by  law  from 
entering  into  a  contract  with  the  cor- 
poration through  his  co-directors. 
Whether  such  a  contract  is  binding 
upon  the  corporation  must  depend 
upon  its  terms  and  the  circumstances 
under  which  it  was  made.  Owing  to 
the  peculiar  relation  which  the  direct- 
ors   owe    to    the    corporation,   being 


» Atlanta  Hill  Mining  Co.  r.  Andrews,    Butts  r.  Wood,  37  N.   Y.  317;  Kelsey 
(1887)  55  N.  Y.  Super.  Ct.  93;  citing    c.  Sargent,  40  Hun,  150. 


"It 


§184] 


FRAUDULENT  ACTS  OF  OFFICERS. 


251 


to  pnrchase  the  right  of  way  for  its  road,  will  not  be  allowed  to 
expend  the  funds  of  the  corporation  in  expensive  erections  upon 
land  necessary  for  the  purpose,  and  at  the  same  time  to  purchase 
or  hire  the  land  in  their  individual  right  and  avail  themselves  of 
the  title  thus  acquired  to  make  extortionate  demands  of  the  cor- 
poration for  the  use  of  the  land,  and  in  default  of  submission  to 
such  demands,  to  destroy  the  erections  they  may  have  made  as 
agents  for  and  at  the  expense  of  the  corporation.*  That  some  of 
the  directors  and  stockholders  of  a  corporation  who,  as  such, 
voted  for  a  resolution  authorizing  the  execution  of  mortgages  of 
its  property  to  secure  certain  debts  may  have  been  guarantors 
and  indorsers  upon  most  of  them  will  not  invalidate  the  mort- 
gages.2    It  appeared  in  a  case  in  the  federal   courts  that  the 


strictly  trustees,  and  their  position  be- 
ing in  every  sense  fiduciary,  their  con- 
tracts with  the  corporation  should  be 
scanned,  if  not  with  suspicion,  at  least 
with  the  most  scrupulous  care.    The 
validity  of  such  a  contract  must,  there- 
fore,  depend    upon   the  nature    and 
terms  of  the  contract  itself,  and  the 
circumstances  under  which  it  is  made. 
The  motives  of  the   parties   are  not 
necessarily  material,  but  the  effect  of 
the  provisions  of  the  contract  must  be 
especially  regarded,  and  if  they  are 
pernicious  and  tend  to  work  a  fraud 
on  the  rights  of  the  corporation  and 
stockholders,  in  such  case  the  directors 
must  be  regarded  as  having  no  au- 
thority to  enter  into  it."    Applying 
these  rules  to  the  case  in  hand,  the 
court  held  a  contract  made  by  a  di- 
rector with  the  corporation,  granting 
to  him  enormous  commissions  without 
regard  to  the  debts  or  other  liabilities 
of  the  corporation,  to  affect  injuriously 
the  rights  of  the  stockholders  and  to 
give  this  director  a  right,  without  re- 
gard to  the  rights  of  the  creditors  or 
the  liabilities  of  the  corporation,  to  be 
unreasonable  and  beyond  the  powers 
of  his  co-directors  to  make  with  him. 
•  Blake  ®.  Buffalo  Creek  R.   R.  Co., 
(1874)  56  N.  Y.  485.     Rapallo,   J., 
speaking  for  the  court,  said:      '  Well- 


settled  rules  forbade  their  [the  direct- 
ors] acquiring  for  themselves  the  prop- 
erty which  it  was  their  duty  to  acquire 
for  the  company,  and  which  was  nec- 
essary for  its  purposes.     Such  a  deal- 
ing would  be  equally  objectionable  as 
purchasing  from    the  company  land 
which  it  was  their  duty  to  sell  on  its 
behalf.     In  respect  to  this  last  class  of 
dealings  directors  of  corporations  stand 
upon    the   same  footing  as  ordinary 
trustees.  Citing  Aberdeen  Railway  Co. 
v.  Blakie,  1  MacQueen,  461;  Hoffman 
Coal  Co.  V.  Cumberland  Coal  &  Iron  Co. , 
16  Md.456;  Cumberland  Coal  &Iron  Co. 
V.  Sherman,  30  Barb.  553.     It  is  a  rule 
of  equity  of  universal  application  that 
no  person  can  be  permitted  to  pur- 
chase an  interest  in  property  when  he 
has  a  duty  to  perform  in  relation  to 
such    property   which  is  inconsistent 
with  the  character  of  a  purchaser." 
[Citing]  Ringo  t.  Binns,  10  Pet.  269; 
Van  Epps  t.  Van  Epps,  9  Paige,  238; 
Torrey  v.  Bank  of  Orleans,  9  Paige, 
649;  s.  c,  on  appeal,  7  Hill.  260;  Car- 
ter V.  Palmer,  1  Dru.  &  Walsh,  722; 
York   Buildings  Co.  r.  Mackenzie,   8 
Bro.   P.   C.  42;  Gardner  r.  Ogden,  22 
N.  Y.  327;  Anderson  v.  Lemon,  8  N. 
Y.  236. 

■^  Brown    t.    Grand    Rapids  Parlor 
Furniture  Co.,  58  Fed.  Rep.  286;  s.  c. 


I  .1 


I 


r 


,» 


1'^ 


252 


FRAUDULENT  ACTS  OF  OFFICERS. 


[§184 


1 


directors  of  a  manufacturing  corporation  and  one  other  stock- 
holder conceived  the  idea  that  more  extensive  works  for  their 
business  should  be  erected.     When  submitted   the   proposition 
failed  to  receive  the  approval  of  the  majority  of  the  stockholders. 
Thereupon   these  parties,  with   tlieir  own   funds,  erected  such 
buildings  for  the  purpose  of  carrying  on  the  same  business.     The 
corporation,  through  its  meetings,  afterwards  determined  to  pur- 
chase this  property  of  these  directors  and  their  associate.    The  latter 
sold  it  at  a  profit  to  the  corporation,  but  not  for  an  unconscionable 
price.     The  directors  had  refrained  from  voting  in  the  meeting 
of  stockholders  which  determined  to  purchase  until  it  was  ascer- 
tained by  them  that  a  majority  of  the  stock  represented  favored 
the  purchase.     After  a  lapse  of  two  years  a  stockholder  sought 
to  make  these  directors  account  for  the  profits  they  had  made  to 
the  corporation.     It  was  held  in  the  United  States  Circuit  Court 
for  the  western  district  of  Pennsylvania  that  neither  the  stock- 
holder nor  the  corporation  was  entitled  to  such  relief,  there  hav- 
ing been  shown  no  fraud,  nor  other  conduct  contrary  to  their 
duty  growing  out  of  their  fiduciary  character  on  the  part  of  these 
directors  in  tlie  transaction.*     It  appeared  in  another  case  in  the 
federal  court  that  one,  acting  as  agent  for  the  promoters  who 
subsequently    organized  a  corporation  and  became  its   original 
stockholders,  made  a  contract  with   another  corporation   for  a 
safety  vault  for  the  use  of  the  corporation  the  promoters  of  which 
he  represented.     It  was  to  be  furnished  for  $7,250  cash ;   the 
agent  induced  them  to  give  him  a  contract  specifying  the  con- 
sideration to  be  $13,000,  and  also   upon  the  statement  a  false 
credit  of  $5,750  as  paid  by  him  ;  for  this  latter  sum  he  received 
from  the  company  he  represented  shares  of  its  stock  at  par  value, 
which  was  issued  to  him  in  consideration  of  his  supposed  pay- 
ment of  that  amount.     In  this  action  the  corporation  contracting 
with  the  agent  was  held  liable  to  the  company  he  represented  for 


7  C.  0.  A.  225,  following  Bank  of 
Montreal  ».  J.  E.  Potts  Salt  &  Lumber 
Co.,  90  Mich.  345;  8.  c,  51  N.  W.  Rep. 
512.  That  a  contract  is  not  made  void 
by  the  simple  fact  that  the  president 
of  a  railroad  corporation,  unknown  to 
the  other  directors,  has  an  interest  in  a 
construction  contract  made  with  the 
corporation,  see  Augusta,  T.  &  G.  R. 


Co.  p.  Kittel,  52  Fed.  Rep.  63;  s.  c,  2 
U.  8.  App.  409;  2  C.  C.  A.  615. 

»  Ban  V.  Pittsburgh  Plate  Glass  Co., 
(1892)  51  Fed.  Rep.  33;  affirmed  by  the 
United  States  Circuit  Court  of  Ap- 
peals for  the  third  circuit  in  Barr  f>. 
Pittsburgh  Plate  Glass  Co.,  (1893)  57 
Fed.  Rep.  86;  s.  c,  6  C.  C.  A.  260. 


§185] 


FBAUDULENT  ACTS  OF  OFFICERS. 


253 


the  amount  which  he  had  thus  fraudulently  obtained  from  it. 
The  court  also  held  that  the  fact  that  the  agent  was  also  a  stock- 
holder in  the  plaintiff  corporation  did  not  affect  its  right  to 
recover  for  the  fraud  perpetrated ;  and  further,  that  where  the 
fraudulent  contract  was  made  by  defendant's  president,  who  was 
its  managing  officer,  and  made  its  contracts,  the  defendant  could 
not  escape  liability  on  the  ground  that  this  transaction  was  con- 
ducted by  the  president  without  its  knowledge  or  concurrence.* 

§  185.  Directors  of  an  insolvent  corporation  preferring; 
themselves  to  other  creditors. —  The  majority  of  the  directors 
of  a  manufacturing  corporation  organized  under  the  laws  of 
Illinois,  with  knowledge  of  its  insolvency,  paid  off  certain  debts 
of  the  corporation,  for  which  they  were  liable  as  guarantors,  and 
took  a  judgment  note  of  the  corporation  therefor,  due  one  day 
after  date,  without  grace,  under  which  judgment  was  confessed 
in  favor  of  such  directors,  and  all  the  property  of  the  company 
was  levied  on  by  execution  issued  on  that  judgment.  The 
Supreme  Court  of  Illinois  held  that  the  acts  of  the  directors  in 
attempting  to  secure  themselves  at  the  expense  of  other  creditors 
were  fraudulent  and  void,  and  were  properly  set  aside  at  the 
instance  of  such  other  creditors.^     The  directors  of  an  embar- 


*  Grand  Rapids  Safety  Deposit  Co. 
t>.  Cincinnati  Safe  &  Lock  Co.,  (1891) 
45  Fed.  Rep.  671. 

« Roseboom  v.  Whittaker,  (1890)  132 
111.  81.  Bailey,  J.,  for  the  court,  in 
support  of  this  holding,  said:  "  There 
can  be  no  doubt  of  the  propriety  of  so 
much  of  the  decree  as  declares  the 
judgment  by  confession  to  be  fraudu- 
lent and  void  as  against  the  creditors 
of  the  corporation,  and  orders  it  to  be 
vacated.  This  precise  question  was 
fully  and  elaborately  discussed  by  this 
court  in  Beach  v.  Miller,  130  111.  162, 
and  the  rule  there  laid  down  must  be 
held  to  control  the  present  case.  We 
there  held  that,  so  long  as  a  corpora- 
tion remains  solvent,  its  directors  may, 
with  the  knowledge  of  the  stockhold- 
ers, deal  with  the  corporation,  loan  it 
money,  take  security  or  buy  property 
of  it,  the  same  as  a  stranger;  that,  dur- 


ing the  solvency  of  the  corporation, 
the  directors  are  the  agents  or  trustees 
of  the  stockholders,  and  owe  no  duties 
or  obligations  to  others,  but  that  the 
instant  the  corporation  becomes  insol- 
vent, their  relations  and  duties  become 
materially  changed.  The  assets  of  the 
corporation  then  become  a  trust  fund 
for  the  payment  of  its  creditors,  and 
the  directors  can  no  longer  deal  with 
them  for  their  own  advantage,  or  in 
such  way  as  to  gain  priority  for  them- 
selves over  other  creditors.  They  are 
then  within  the  scope  of  that  wise  and 
equitable  rule  adopted  by  courts  of 
equity  for  the  protection  of  cestui  que 
ti'ustent  or  beneficiaries,  which  pro- 
hibits trustees  and  persons  standing  in 
similar  fiduciary  relations  to  exercise 
their  powers  or  manage  or  appropriate 
the  property  of  which  they  have  con- 
trol for  their  own  profit  or  emolument. 


I  i 


I  I 


t 


254 


FBAUDULENT  ACTS  OF  OFFICERS. 


[§185 


rassed  corporation,  liolding  claims  against  it  wliich  tliey  wished 
to  protect,  had  the  notes  of  the  corporation  payable  to  themselves 
drawn  and  antedated,  and  had  them  discounted  by  a  bank.  They 
then  caused  to  be  executed  a  deed  of  trust  conveying  all  the 
iissets  of  the  corporation  as  security  for  these  notes,  among  others, 
rt  was  held  in  the  United  States  Circuit  Court  for  the  western 
district  of  ^lissouri,  in  a  proceeding  by  unsecured  creditors  to  set 
it  tisido,  that,  being  a  security  for  debts  upon  which  the  directors 
were  themselves  liable  as  indorsers,  it  was,  in  effect,  a  preference 
to  themselvof^.  and  fraudulent  and  void.* 


or,  as  it  is  sometimes  expressed,  shall 
not  take  advantage  of  their  situation 
to  obtain  any  personal  benefit  to  them- 
selves at  the  expense  of  the  cestui  (fni' 
iHtftt." 

^  Consolidated  Tank  Line  Co.  r.  Kan- 
sas City  Varnish  Co.,  (1891)  4.j  Fed. 
Rep.  7.  PniLirs,  J.,  after  referring 
to  the  apparent  insolvency  of  the  cor- 
poration, ssiid:  "  When  a  corporation, 
in  its  business  affairs,  is  thus  innrtkulo 
mortis,  whatever  may  yet  be  main- 
tained on  divided  opinions  as  to  its 
right  to  dispose  of  its  property  so  as 
to  give  a  preference  to  some  general 
creditor,  the  law  is  loo  well  settled,  at 
least  in  this  jurisdiction,  to  admit  of 
extended  discussion  that  its  directors 
cannot  make  a  disposition  of  the  assets 
so  as  to  secure  themselves,  directly  or 
indirectly,  a  preference  over  general 
creditors.  This  is  the  rule  of  the  Mis- 
souri courts.  Williams  r.  Jones,  23 
Mo.  App.  132;  Mill  Co.  v.  Kampe,  38 
Mo.  App.  229;  Roan  r.  Winn.  93  Mo. 
.503;  8.  c,  4  8.  W.  Rep.  736.  It  is  not 
too  much  to  say  that  it  is  the  estab- 
lished doctrine  of  the  federal  courts. 
It  is  strongly  maintained  by  Judge 
Thayer  in  the  eastern  district  of  this 
state.  White,  etc.,  Manufacturing  Co. 
u.  Pettes  Importing  Co. ,  30  Fed.  Rep. 
865;  Adams  1?.  Milling  Co.,  35  Fed. Rep. 
433.  See,  also,  Lippincott  v.  Carriage 
Co.,  25  Fed.  Rep.  577;  Eoehler  v.  Iron 
Co..  2  Black,  715-721;  Railroad  Co.  v. 
Howard,?  Wall.  392;  Twin-Lick  Oil  Co. 


i\  :Marbury ,  91  U.  S.  587.  In  Graham  v. 
Railroad  Co..  102  U.  S.  161,  Mr.  Jus- 
tice Bhadley  said:  '  When  a  corpora- 
t  ion  becomes  insolvent,  it  is  so  finan- 
cially (lead  that  its  property  may  be 
administered  as  a  trust  fund  for  the 
benefit  of  its  stockholders  and  cred- 
itors. A  court  of  equity,  at  the  in- 
stance of  the  proper  parties,  will  then 
take  those  trust  funds,  which,  in  other 
circumstances,  are  as  much  the  abso- 
lute property  of  the  corporation  as 
any  man's  property  is  his.  The  most 
recent  discussion  of  this  question  is  to 
be  found  in  the  very  able  opinion  of 
Judge  Woods,  in  Howe  r.  Tool  Co.,  44 
Fed.  Rep.  231.  I  cannot  better  ex-  • 
press  the  strength  of  the  reason  why  a 
director  should  not  be  permitted  to 
prefer  himself,  under  circumstances 
like  those  under  review,  than  by  quot- 
ing his  language:  'A  sound  public 
policy  and  a  sense  of  common  fairness 
forbid  that  the  directors  or  managing 
agents  of  a  business  corporation,  when 
disaster  has  befallen  or  threatens  the 
enterprise,  shall  be  permitted  to  con- 
vert their  powers  of  management  and 
their  intimate,  or,  it  may  be,  exclusive, 
knowledge  of  the  corporate  affairs  into 
means  of  self-protection,  to  the  harm 
of  other  creditors.  They  ought  not  to 
be  competitors  in  a  contest  of  which 
they  must  be  the  judges.  The  neces- 
sity for  this  limitation  upon  the  right 
to  give  preferences  among  creditors, 
when  asserted  by  a  corporation,  toaj 


§  186J 


FRAUDULENT  ACTS  OF  OFFICERS. 


255 


§  i86.  Directors  contracting  with  a  syndicate  composed 
of  themselves  —  when  such  a  contract  cannot  be  rescinded. 

—  One  of  the  late  cases  before  the  New  York  Court  of  Appeals 
presents  as  facts  tliat  a  railroad  corporation  of  that  state,  tlirough 
its  directors,  recognizing  the  importance  of  a  connection  by  rail 
with  anotlier  point,  promoted  the  building  of  a  street  line  of  rail- 
way to  accomplish  this  purpose.      The  directors  of   this  road 


not  have  been  perceived  in  earlier 
times,  but  the  growing  importance  and 
variety  of  modern  corporate  enter- 
prises and  interests,  I  think,  will  com- 
pel its  recognition  and  adoption. 
*  *  *  Whether  or  not  such  prefer- 
ences are  fairly  given  is  an  impractica- 
ble inquiry,  because  there  can  be,  in 
ordinary  cases,  no  means  of  discover- 
ing the  truth,  and  consequently  the 
presumption  to  the  contrary  should  in 
every  case  be  conclusive,  ('oncede 
that  it  is  a  question  of  proof,  and  that 
a  preference  in  favor  of  a  director  will 
be  deemed  valid  if  fairly  given,  and  it 
may  as  well  be  declared  to  be  a  part  of 
the  law  of  corporations  that,  in  cases 
of  insolvency,  debts  to  directors,  and 
liabilities  in  which  they  have  a  special 
interest,  may  first  be  discharged. 
That  will  be  the  practical  effect,  and 
the  examples  will  multiply  of  indi- 
vidual enterprises  prosecuted  under 
the  guise  of  corporate  organizations 
for  the  purpose,  not  only  of  escaping 
the  ordinary  risks  of  business  done  in 
the  owner's  name,  which  may  be  legiti- 
mate enough,  but  of  enabling  the  pro- 
moters and  managers,  when  failure 
comes,  to  appropriate  the  remains  of 
the  wreck  by  declaring  themselves 
favored  creditors.  Besides,  in  consist- 
ency with  that  equality  which  equity 
loves,  such  favors  involve  too  many 
possibilities  of  dishonesty  and  success- 
ful fraud  to  be  tolerated  in  an  enlight- 
ened system  of  jurisprudence.'  The 
same  thought  was  in  the  mind  of  Mr. 
Justice  MiLJiER,  in  Sawyer  v.  Hoag, 
17  Wall.  620,  when  he  observed: 
'  When  we  consider  the  rapid  develop- 


ment of  corporations  as  instrumentali- 
ties of  the  commercial  and  business 
world,  in  the  last  few  years,  with  the 
corresponding  necessity  of  adapting 
legal  principles  to  the  new  and  vary- 
ing exigencies  of  this  business,  it  is  no 
solid  objection  to  such  a  principle  that 
it  is  modern,  for  the  occasion  for  it 
could  not  sooner  have  arisen.'  It  was 
insisted  on  behalf  of  the  banks  that, 
although  the  deed  of  trust  might  be 
voidable  as  against  the  directors,  yet 
the  banks  were  to  be  regarded  as  bona 
fide  purchasers.  To  this  it  was  said: 
'  But  are  the  banks  such  purchasers? 
In  the  first  place,  they  parted  with 
nothing  on  the  faith  of  the  deed. 
They  loaned  the  money,  as  their  evi- 
dence shows,  on  the  indorsement  of 
the  directors.  They  never  asked  for 
this  deed.  They  did  not  know  of  its 
existence  until  after  it  was  executed 
and  recorded.  Thej"^  may  be  accorded 
the  i)resumption  of  the  law  in  their 
favor  that  where  such  a  deed  is  for 
their  benefit,  they  are  presumed  to  ac- 
cept its  provisions.  But  it  is  apparent 
on  the  face  of  the  deed,  and  from  the 
facts  known  to  the  banks,  that  the 
deed  inured  to  the  benefit  of  the  di- 
rectors as  indorsers  of  the  notes  held 
by  the  banks.  The  banks  could  not, 
therefore,  take  without  being  privy  to 
the  wrong  attempted  by  the  directors. 
If  the  law  were  otherwise,  the  rule 
could  be  of  no  avail  which  seeks  to 
prevent  such  directors  '  from  prefer- 
ring debts  in  the  payment  of  which 
they  have  a  personal  interest,'  as  de- 
clared in  Adams  v.  Milling  Co.,  35 
Fed.  Rep.  435."" 


m 


I .»' 


r' 


256 


FRAUDULENT  ACTS  OF  0FFICEE8. 


[§  186 


d 


became  the  directors  of  the  new  corporation,  and  they  arrangt^d 
a  plan  by  which  the  construction  of  the  road  was  to  be  done  by 
a  syndicate  corajxised  of  themselves,  and  when  completed  a  con- 
tract of  lease  of  this  connecting  road,  which  had  $1,000,000  of 
bonds  issued  upon  it  and  $500,000  of  shares  of  stock,  the  lessee 
company  guaranteeing  interest  of  seven  per  cent  upon  the  bonds 
and  dividends  of  seven  per  cent  upon  the  shares  of  stock,  as  a 
rental  for  the  road.      The  main  corporation,  the  Tesscc,  going 
through  insolvency,  the  hands  of  a  receiver,  and  finally  into  a 
new  corporation,  it  having  been  sold  to  a  purchasing  committee, 
and  reorganized,  continued  to  use  the  property  leased.     At  the 
suggestion  of  the  receiver  the  shares  of  the  stock  of  the  lessor  com- 
pany were  purchased  by  the  successors  of  the  lessee  company  to 
such  an  amount  as  would  give  them  control  of  the  company,  as  a 
means  of  reducing  the  rental  of  this  desirable  and  indispensable 
connection.     The  successors  then  suspended  the  payment  of  the 
guaranteed  dividend  upon  the  shares.    This  resulted  in  the  bring- 
ing of  this  action  by  the  few  individual  holders  of  the  stock 
against  the  company  then  using  the  property  under  the  lease  to 
enforce  a  specific  performance  of  the  contract  of  guarantee  of 
dividends.     The  one  question  as  to  the  liability  of  the  successor 
of  tlie  lessee  company  remaining,  in  the  opinion  of  the  court,  was 
whether  the  taint  of  original  fraud  in  the  procurement  of  the 
lease  operated  to  prevent  the  enforcement  of  the  obligations  of 
that  instrument.     In  discussing  the  question.  Gray,  J.,  deliver- 
ino"  the  opinion,  said  :    '*  That  the  contract  of  lease  was  voidable 
and  quite  indefensible  l)ecause  of  the  immoral  conduct  of  the 
directors,  who  abused  their  trust  in  procuring  its  execution,  I 
quite  concede.     The  proofs  could  lead  to  no  other  finding  than 
that  the  lease  and  the  rental  guarantee  were  the  work  of  a  com- 
bination or  syndicate  composed  of  members  from  the  boards  of 
directors  of  the  two  companies,  who  caused  the  same  to  be  made 
by  the  [lessee  company]  for  purposes  of  their  own  individual  gain 
and  in  fraud  of  that  company's  rights.     The  identity  of  certain 
of  the  directors  of  each  company  when  the  lease  was  made,  the 
interest  of  four  of  these  common  directors  in  the  contract  for  the 
construction  of  the  [lessor  company's]  road,  and  in  the  stock  and 
bonds  to  be  guaranteed,  as  a  condition  of  the  leasing   of   the 
road,  stamped  the  whole  transaction  as  a  fraud  upon  the  [lessee 
company],  and  brought  it  under  the  condemnation  of  the  rule 


§187] 


FRAUDULENT  ACTS  OF  OFFICERS. 


257 


which  forbids  those  who  fill  fiduciary  positions  from  making  use 
of  them  to  benefit  their  personal  interests."  ^  But  while  holding 
this  contract  of  lease  by  the  lessee  railroad  corporation  and  a 
guaranty  of  interest  on  bonds  and  dividends  upon  stock  to  be 
tainted  with  fraud  by  reason  of  the  original  transaction  and 
voidable  at  the  option  of  the  lessee  corporation,  the  Court  of 
Appeals  held  that  by  acquiescence  and  use  of  the  property  for  so 
long  a  time  the  complainant,  successor  to  the  original  lessee,  had 
so  far  ratified  the  contract  that  it  could  not  ask  of  a  court  of 
equity  to  rescind  it.^ 

§  187.  Directors  issuing  shares  of  stock  to  themselves.— 
A  Kansas  corporation,  an  agricultural  society,  had  been  organized 
with  a  capital  stock  of  $5,000,  divided  into  1,000  shares  of  $5 
each,  and  590  shares  of  said  stock  were  subscribed,  but  no  notice 
•  was  ever  given  and  published  where  books  of  subscription  would 
be  open.  The  corporation  continued  in  existence  seven  years, 
and  became  possessed  of  valuable  real  estate,  and  afterwards  sold 
the  same.  After  this  sale,  the  officers  and  directors  of  the  cor- 
poration, without  the  knowledge  or  consent  of  the  other  stock- 
holders, issued  to  themselvesr  the  remaining  stock  at  par  value, 
and  then  declared  a  dividend  upon  the  entire  stock  issued  of  $25 
per  share.  In  an  action  by  a  stockholder  to  enjoin  tliese  officers 
and  directors  from  paying  out  such  dividend  and  to  cancel  the 
stock  issued  to  themselves,  the  Kansas  Supreme  Court  held  that 
the  action  of  the  officers  and  directors  was  without  authority  and 
in  fraud  of  the  rights  of  the  other  stockholders  and  a  plain  breach 
of  duty  upon  the  part  of  such  officers.^ 

^  Ban-  V.  New  York,  L.  E.  &  W.  R.  that  the  corporation  has  no  power  to 

R.  Co.,  (1891)  125  N.  Y.  263,  274;  a.  c,  prescribe  the  character  or  quah'fication 

26  N.  E.  Rep.  145.  of  its  stockholders;  that  the  policy  of 

'  ^^^^-  the  law.  as  declared  by  express  terms 

»  Arkansas  Valley  Agricultural  So-  of  the  statute,  is  to  make  corporations 

ciety  V.  Eichholtz,  (1891)  45  Kans.  164.  open  to  all  persons  alike  to  become 

The  directors  claimed  before  the  court  members  and  stockholders,  etc.     The 

that  the  taking  of  stock  in  a  corpora-  Supreme  Court  said:  "This  rule,  as 

tion    stood  upon  a  different  footing  applied  to  the  directors  or  officers  of  a 

than   ordinary  contracts  of   corpora-  corporation,  cannot  be  upheld.     The 

tions  in  prosecuting  the  business  en-  principle    of   public     policy    forbids 

terprises  for  which  they  are  organized;  transactions  of  this  kind.     It  appears 

that  any  person  has  a  right  to  sub-  from  the  evidence  that  the  property 

scribe  for  stock  in  any  corporation,  so  owned  by  this  corporation  had  been 

long  as  there  are  shares  to  be  taken;  sold,  and  the  proceeds  [of  the  salel 
33 


111 

Hllf 
I 


•1  ,  i> 


S58 


FBAUDULENT  ACTS  OF  OFFICEKS. 


[§188 


8  i88   Officers  profiting  by  their  relation  to  the  corpora- 
tion -The  director,  of  a  corporation  cannot  speculate  with  the 
M  or  c^dit  of  the  corporation  and  appropriate  to  themselves 
Se  protirof  the  specnktion ;  neither  can  they  n>ake  sales,  as 
trch  «er   for  the  corporation,  and  take  advant=vge  of    he.r  i)Osi- 
tion  aHLtors,  and  either  directly  or  indirectly  ^Fcnlate  upon 
Irc"  poration.:     Holding  the  iidnciary  relation  they  do  to  the 
tSders  of  the  corporation,  its  directors  and  n-^^---; -* 
be  i>en«itted  to  acquire  interests  adverse  to  sucli  relation.      Thus 
So   contract  ng  with  certain  parties  for  the  construction  of 
aturtd  for  the  ^.rporation  he  represents,  cannot  receive  or 


held  by  its  officers.     The  assets  at  the 
time  of  the  SiUe  belonged  to  the  then 
stockholders,   and  the   directors   and 
officers  had  no  right  to  subscribe  for 
the  reraaininor  slock  at  par,  and  ennch 
themselves  to  the  detriment  and  loss 
of  the  other  shareholders.    The  direct- 
ors cannot  lawfully  benefit  or  favor 
any  particular   shareholder  or    class 
of    shareholders.      Every     authority 
possessed  by  them  is  a  power   and 
discretion  in  the  directors,  who  are 
trustees    for    the    benefit   of    all   the 
shareholders    ahke,   which   is    to    be 
exercised  for  the  benefit  of  all  of  them. 
1  Waterman  on  Corp.   620;  Harris  r. 
N  D.  Rid.  Co.,  20  Beav.  m      The 
effort  on  the  part  of  the  directors  and 
officers  of  a  society  to  obtain  the  un- 
subscribed stock  at  par,  when  they 
knew  that  each  share  of  the   stock 
already  issued    was    worth    eighteen 
times  its   face  value,  was  cleariy  a 
fraud  upon  the  rights  of   the   other 
stockholders,  and  a  flagrant  violation 
of  their  duties  as  directors  and  officers 
of  such  association.     The  officers  and 
directors  of  a  corporation  are  trustees 
of  the  stockholders,  and  in  securing 
to  themselves  an  advantage  not  com- 
mon to  all  the  stockholders,  they  com- 
mit a  plain  breach  of  duty.     Koehler 
p    Iron  Co.,  2  Black,   715;  Shorb  v. 
Beaudry,  56    Cal.    446;   1  Morawetz 
Private  Corp.  §  518.      The  Inw  does 


not   permit  directors  to  manage  the 
affairs  of  a  corporation  for  their  per- 
sonal and  private  advantage,  and  this 
rule,  we  think,  applies  to  the  disposi 
tion  of  unsubscribed  stock,  as  well  as 
to  other  contracts.     The  character  and 
relation  of  directors    and  officers  of 
a  corporation    require    of   them   th(^ 
higliest    and    most    scrupulous    goo<l 
faith  in  their  transactions  for  the  cor- 
poration and  the  stockholders."    nnl<' 
r.  Bridge  Co.,  8  Kans.  466.  and  author- 
ities there  cited;  Ryan  r.  L.  A.  &K. 
W.  Ry.  Co.,  21  Kans.  3G.V.  Hentig  r. 
Sweet,   33   Kans.   244.     As   to  what 
directors   may   do,   see  Holder  v.  La 
Fayette R.  R.  Co.,  71  III.  106;  Rollins 
r.  Clav,  33  Me.  132;  Abbott  v.  Ameri- 
can  Hard  Rubber  Co.,  33  Barb.  578; 
Bedford  R.  Co.  e.  Bowser,  48  Pa.  St. 
29;   Taylor  v.  Miami  Export  Co.,  5 
Ohio,  162;  19  Cent.  Law  J.  305-310; 
18  Cent.    Law   J.   130;    Union  Mut. 
Life  Ins.  Co.  r.  Frear  Stone  Mfg.  Co., 
97  111.  537;  Burke  v.  Smith,  16  Wall. 
390;  Penobscot  R.  Co.  v.  Dunn,  39  Me. 

587 

»  Redmond  v.  Dickerson,  (1853)  9  N. 
J.  Eq.  507.     As  to  president  and  di 
rectors  not  being  allowed  to  speculate 
in  claims  against  the  corporation,  sec 
McDonald  v.  Haughton,  (1874)  70  N.  C. 

393. 
« European  &  North  American  Ry 

Co.  r.  Poor,  59  Me.  277. 


§188] 


FBAUDULENT  ACTS  OF  OFFICERS. 


259 


retain  any  part  of  the  profits  arising  from  the  contract  for  his 
personal  use  and  benefit.^     Where  directors  of  a  ferry  company, 
in  their  individual  names  bought  a  steamboat,  and  then,  as  direct- 
ors, purchased  it  of  themselves  for  the  corporation  at  a  large 
advance  on  its  cost  and  value,  the  transaction  was  held  to  be  a 
fraudulent  one ;  it  was  held,  also,  that  the  profits  made  by  the 
directors  inured  to  the  benefit  of  the  corporation,  and  that  the  latter 
could  recover  the  profits  from  them,  with  interest.^    The  rule  gen- 
erally is  that  one  acting  in  a  representative  or  fiduciary  capacity  is 
not  allowed  so  to  deal  with  the  subject-matter  of  his  agency  or  trust 
as  to  benefit  himself  privately,  and  an  agent  or  trustee  who  thus 
makes  a  profit  out  of  his  agency  or  trusteeship  must  account  for  the 
same  to  his  principal  or  cestui  que  trust ;  and  it  may  be  conceded 
that  the  rule  applies,  as  a  principle  of  public  policy,  without  regard 
to  the  actual  fairness  of  the  transaction,  or  the  merits  of  the  services 
rendered,  or  the  price  paid,  in  case  of  a  sale  or  purchase.'*   Where 
it  was  represented  by  promoters  of  a  mining  corporation,  who 
afterwards  became  its  trustees,  that  it  would  take  the  proceeds  of 
the  whole  of  its  capital  stock  to  purchase  certain  mming  proper- 
ties and  the  trustee,  to  whom  the  whole  stock  was  turned  over 
for 'the  purpose,  actually  purchased  it  with  the  payments  made 
for  certain  shares  of  stock,  less  than  half  the  issue,  and  appropri- 
ated the  rest  of  the  shares  of  stock  to  himself  and  others,  without 
actually  paying  any  money,  and  concealed  the  facts  from  the 
stockholders  who   had  paid   for  their  shares,  it  was  held  that 


» Ibid. 

•Parker    r.   Nickerson,    (1873)    112 

Mass.  195. 

» Bristol  V.  Scranton,  (1893)  57  Fed. 
Rep.  70,  78;    citing  Sugden  v.  Cross- 
land,  3  Smale  &  G.  192;  McKay's  Case, 
2    Ch.    Div.    5;    Pearson's    Case,    3 
Ch.   Div.    807;    Parker   d.  McKenna, 
L    R.,   10  Ch.  App.  96;    Iron  Works 
Co.  «J.  Grave,  12  Ch.  Div.  738,  746; 
Railway  Co.  v.  Blakie,  1  Macq.  461; 
Warden  v.  Railroad  Co.,   103  U.   S. 
651,  658.    In  Keokuk  Northern  Line 
Packet  Co.  v.  Davidson,  95  Mo.  467; 
8.  c,  8  S.  W.  Rep.  545,  it  was  held 
that  the  president  of  the  packet  com- 
pany, after  having  endeavored  to  ob- 
tain contracts  for  carrying  the  mails 


for  the  company,  was  not  precluded 
from  making  such  contracts  in  his 
own  name,  but,  having  done  so,  he 
using  all  the  facilities  afforded  by  the 
company  in  performing  them,  would 
not  be  allowed  to  make  profit  out  of 
such  use,  but  would  be  held  to  account 
to  the  company  for  all  that  he  received 
for  the  services  performed  by  it.     For 
an  illustration  of  what  will  not  be  held 
a  fraudulent   sale   to  a  corporation, 
where  parties  purchasing  property  at 
a  low  figure  before  the  organization 
of  a  corporation  sold  it  at  a  much 
larger  figure  to  the  corporation,  but 
there  was  some  evidence  of  fraud  or 
deception,  see  Ste^^art  v.  St.  Louis,Fort 
Scott   &  W.  R.  Co.,  41  Fed.  Rep.  73ft. 


I 


,r 


260 


FRAUDULENT  ACTS  OF  OFFICERS. 


[§188 


this  defendant  occupied  a  fiduciary  relation  to  tlie  corporation 
and  the  subscribers,  and  could  not,  nor  could  his  associates,  who 
were  also  familiar  with  the  facts,  make,  through  concealment  from 
the  subscribers,  any  profit  from  the  transaction,  and  they  should 
be  held  accountable  for  the  stock  which  they  had  retained,  or  its 
proceeds.*  The  law  will  not  permit,  for  instance,  one  in  whose 
person  are  vested  the  offices  of  vice-president  and  treasurer  of  a 
corporation  with  the  management  and  control  of  the  corporation 


»  Brewster  r.  Hatch,  (Sp.  Term  Sup. 
a.   1881)  10  Abb.  N.  C.  400;    citing 
Blake  v.  Buffalo  Creek  R.  R.  Co.,  56 
N.  Y.  485;    Cumberland  Coal  &  Iron 
Co.  V.  Sherman,  30  Barb.  553;    Bag- 
nail  V.  Carlton,  L.  R,  6  Ch.  Div.  371; 
Erlanger  «?.  New  Sombrero  Phosphate 
Co.,  L.  R.,  3  App.  Cas.  1218;  Simons 
r.  Vulcan     Oil  &  Mining  Co.,  61  Pa. 
St.    202.       In    East    New    York   & 
Jamaica  R.  R.  Co.  v.  Elmore,  (1875)  5 
Hun,  214,  it  appeannl  that  the  corpo- 
ration had  subscribers  for  seventy -two 
shares  of  its  stock,  who  had  agreed  to 
pay  par  value  for  it.     All  the  shares 
within  its  power  to  issue  having  been 
already  issued,  the  treasurer  and  presi- 
dent purchased  the  number  of  shares 
at  a  price  far  below  par,  and  trans- 
ferred them  to  those  subscribers  on  the 
corporation's  books,  charging  the  cor- 
poration par  value  for  them.     In  an 
action  against  the  treasurer  to  recover 
the  profits  he  made  in  the  transiiction, 
it  was  held  that  the  treasurer  could 
not,  by  charging  over  the  stock  at  its 
par  value,  make  the  corporation  his 
debtor,  and  thus  extinguish  his  lia- 
bility for  moneys  received  by  him  or 
its  treasurer.     For  an  illustration  of 
when  a  purchase  by  one  trustee,  and, 
at  the  same  time  treasurer,  of  a  corpo- 
ration in  his  own  behalf  will  inure  to 
the    benefit  of   the   corporation,  see 
Einsphar  et  al..  Trustees  First  Ger- 
man Lutheran  Zion  Church  of  Adams 
Co.  V.  Wagner,  (1882)  12  Neb.  458.  As 
to  when  and  the  circumstances  under 

which  a  mortgage  of   the    personal 


property  of  a  corporation  executed  to 
its  president,  who  was  also  a  director, 
by  his  vote  and  that  of  another  of  the 
three  directors,  will  be  held  fraudulent, 
see  Burley  v.  Marsh.  (1881)  11  Neb.  291. 
As  to  officers  and   stockholders  con- 
tracting with  corporation,  see  Charter 
Qas-Enginc   Co.    v.    Charter,   47  111. 
App.  36;  Central  Trust  Co.  v.  Bridges, 
57  Fed.  Rep.  753;  s.  c,  6  C.  C.  A.  539; 
Barr  r.  Pittsburgh  Plate  Glass  Co.,  57 
Fed.   Rep.  86;   s.  c,  6  C.  C.  A.  260; 
Foster  v.  Belcher's  Sugar  Refining  Co., 
118  Mo.  238;   s.  c,  24  S.  W.  Rep.  63; 
Wile  &  Brickner  Co.  r.  Rochester  &, 
K.  F.  Ljind  Co.,  4  Misc.  Rep.  570;    s. 
C,   25  N.  Y.   Supp.  '594;    Milbank  r. 
Welch,  74  Hun,  497;    s.  c,  26  N.  Y. 
Supi).  705.      As  to  directors  dealihg 
witli  themselves  or  acting  in  matters 
where  they  are  interested,  see  Coleman 
r.  Second  Avenue  R.  II.  Co.,  38  N.  Y. 
201;   Bltitchford  i\  Ross,  5  Abb.  Pr. 
(N.  S.)434;   s.  c\,37  How.  Pr.  110;    54 
Barb.  42;   Ogden  i\  Murray,  39  N.  Y. 
202;   Bliss  r,  Matteson,  45  N.  Y.  22. 
As   to  various  rules  governing  con- 
tracts in  which  directors  have  an  inter- 
est, see  Duncomb  v.  New  York,  Housa- 
tonic  &  Northern  R.  R.  Co.,  84  N.  Y. 
190;  Western  R.  R.  Co.  v.  Bayne,  11 
Hun,  166;   Barnes  r.  Brown,  80  N.  Y. 
527.     As  to  a  contract  with  a  corpora- 
tion  entered  into  at  a  special  meeting 
of  directors    being  void    because  of 
absent  directors  not  having  notice,  see 
Hill  r.  Rich  HiU  Coal  Min.  Co.,  (Mo. 
1894)  24  S.  W.  Rep.  223;   Minneapolis 
Times  Co.  t>.  Nimocks,  53  Minn.  381. 


§188] 


FEAtJDULENT  ACTS  OF  OFFICEBS. 


261 


also  allowed  him,  to  so  manage  the  affairs  of  tlie  corporation  as 
to  result  to  his  own  pecuniary  advantage.  And  in  case  such  an 
officer  speculate  in  the  funds  of  the  corporation,  or  buy  claims 
against  it  at  a  discount,  he  will  be  required  to  account  to  the 
creditors  or  stockholders  of  the  corporation  for  any  profit  that 
results  from  such  transactions.^  The  contract  made  by  a  director 
of  a  corporation  to  secure  a  personal  advantage  to  himself  will  be 


» Thomas  v.  Sweet,  (1887)  37  Kans. 
183;  8.  c,  14  Pac.  Rep.  545.  For  a 
strong  opinion  on  the  subject  of  the 
duties  of  officers  to  the  corporation,  see 
Ryan  v.  L.,  A.  &  N.  W.  Ry.  Co..  21 
Kans.  365.  In  Powell  v.  Willamette 
Valley  R.  R.  Co.,  (1887)  15  Or.  393; 
8.  c,  15  Pac.  Rep.  663,  where  the  at- 
torney, who  was  also  a  director  in  an 
insolvent  corporation,  had  been  em- 
ployed by  third  parties  to  buy  up  the 
claims  of  creditors  of  the  corporation 
with  a  view  to  its  reorganization,  it 
was  held  that  his  relation  to  the  com- 
pany required  of  him  the  utmost  good 
faith  towards  the  creditors  of  the 
company  in  his  dealings  with  them  in 
the  matter,  but  where  they  had  re- 
ceived all  that  their  claims  were  worth, 
the  fact  that  he  had  not  informed 
them  of  the  contemplated  reorganiza- 
tion would  not  constitute  a  fraud  upon 
the  creditors  upon  this  attorney  and 
director's  part.  In  Smith  v.  Los 
Angeles  Immigration  &  Land  Co- 
operative Assn.,  (1889)78  Cal.  289;  s. 
c,  20  Pac.  Rep.  677,  a.  resolution  of  a 
quorum  of  four  directors,  authorizing 
renewal  of  notes  of  the  corporation  in 
favor  of  two  of  the  four  directors,  was 
held  to  be  void  and  of  no  effect.  In 
Rudd  V.  Robinson,  (1889)  54  Hun,  339; 
8.  c,  7  N.  Y.  Supp.  535,  the  corpora- 
tion had  been  formed  under  the  laws 
of  New  York,  and  succeeded  to  the 
business  of  a  firm.  One  holding  a 
claim  against  this  firm  was  a  trustee 
of  the  corporation,  and  with  two  others 
of  the  board  constituted  a  majority. 
These  two,  it  was  shown,  represented 


the  first  named,  or  acted  in  concert  with 
him  in  any  matters  in  which  he  was 
interested.  He  had  from  time  to  time 
aided  with  money  the  corporation 
upon  call.  Finally  he  had  had  action 
taken  by  the  board  of  trustees,  by 
which  he  had  himself  paid  a  debt  out 
of  the  corporation's  funds  which  he 
held  against  the  firm  which  it  suc- 
ceeded. The  Supreme  Court  of  New 
York  held  that  he  should  account  to 
the  receiver  of  the  corporation  for  this 
money  received  for  this  debt  of  the 
firm,  together  with  interest  upon  it, 
and  also  for  all  excess  of  interest  over 
and  above  legal  interest  which, through 
the  action  of  himself  and  other  trus- 
tees, he  had  received  upon  moneys  ad- 
vanced to  the  corporation,  as  also  the 
profits  he  had  received  in  certain  trans- 
actions and  "ventures "in  which  he 
had  advanced  the  money  and  arranged 
for  a  division  of  the  profits  between 
himself  and  the  corporation,  upon  the 
ground  that  he  had  no  right  to  sharp, 
in  the  profits  of  the  business  which  be- 
longed exclusively  to  the  corporation 
itself.  An  illustration  of  when  the 
profits  of  a  director  nmst  inure  to  the 
benefit  of  the  corporation:  Paducah 
Land,  Coal  &  Iron  Co.  «.  Hays,  (Ky. 
1893)  24  S.  W.  Rep.  237.  As  to  the 
effect  of  laches  of  a  stockholder  in 
complaining  of  a  profit  made  by  a  di- 
rector in  connection  with  a  sale  of  the 
stock  of  a  corporation,  and  an  illustra- 
tion of  what  a  director  might  do  for 
which  he  would  not  be  held  account- 
able, see  Keeney  v.  Converse,  (1894)99 
Mich.  316;   s.  c,  58  N.  W.  Rep.  325. 


ill 


> 


■I' 

( 

I  1 
I 


*l 


262 


FRAUDULENT  ACTS  OF  OFFICERS. 


[§188 


held  to  be  void  or  to  inure  to  the  advantage  of  the  corporation.* 
An  agreement  made  by  a  majority  of  the  directors  of  a  corpora- 
tion among  themselves,  privately  and  unofficially,  that  they  should 
be  paid  a  percentage  upon  all  the  money  raised  upon  the  credit 
of  a  bond  of  indemnity,  signed  by  them,  against  the  future 
indebtedness  of  the  corporation,  has  been  held  not  to  be  binding 
upon  the  corporation.^  Directors  or  other  officei-s  of  a  corpora- 
tion contracting  with  another  for  work  and  material,  paying  an 
excessive  price  for  the  same,  and  reserving  to  themselves  a  dis- 
count or  commission,  will  be  held  to  an  accountability  to  the  cor- 
poration for  what  they  have  profited."     Where  directors  own  all 


'  Sargent  v.  Kansas  Midland  R.  U. 
Co.,  (1891)  48  Kans.  672;  s.  c,  29  Pac. 
Rep.  1063. 

» Butler  V.  Cornwall  Iron  Co  ,  (1853) 
22  Conn.  335. 

*  Perry  p.  Tuskaloosa  Cotton  Seed 
Oil  Mill  Co  ,  (1890)  93  Ala.  364;  s.  c, 
9  So.  Rep.   217.     In  Farmers  &  Mer- 
chants'   Bank    of    I.^s    Angeles    v. 
Downey,  (1879)  53  Cal.  466,  where  a 
director  of  the  bank  who"  had  taken 
from  the  Iwrrowers  a  note  running  to 
the  bank  for  the  principal  sum  loaned, 
at  a  rate  of  interest  therein  stipulated, 
but  at  the  same  time,  and  as  part,  of 
the  same  transaction,  made  an  agree- 
ment with  the  borrowers  that  they 
should  permit  him  to  participate  with 
them  in  the  profits  of  a  purchase  and 
sale  of  certain  lands,  it  was  held  that 
he  could   not  be  permitted  to  retain 
for  himself  the  profits  thus  contracted 
for,  but  must  surrender  those  profits  to 
the  bank  for  the  benefit  of  all  the  stock- 
holders.    As  to  a  city  treasurer  making 
profit  on  public  funds,  see  City  of  Chi- 
cago V.  Gage,  95  111.  593.    As  to  officers 
accounting  to  the  corporation  or  stock- 
holders  or  creditors  of  the  corporation 
for  profits  growing  out  of  transactions 
in  behalf  of  the  corporation  in  which 
they  are  interested,  see  Ward  r.  David- 
son, (1890)  89  Mo.  445;  8.  c,  1  S.  W. 
Rep.  846.     In  Hutchinson  r.  Bidwell, 
(1893)  24  Or.  219;  s.  c,  33  Pac.  Rep. 
560,  it  appeared  that  the  directors  of 


an  insolvent  milling  company  leased 
the  corporate  property  to  themselves 
and  operated    the  plant  at  a  profit. 
The  Supreme    Court   held    that    the 
directors  were  liable  to  account  to  the 
creditors  of  the  coriwration   for  the 
profits  under  the  lease.     In  McClure 
c.  Levy,  (1894)  79  Hun,   235;  s.  c.  29 
N.  Y.  Supp.  352,  it  appeared  that  one 
who  had  secured  his  election  as  presi- 
dent of  a  life   insurance  association 
and  secured  a  board  of  directors  sub- 
servient   to    his     will,     had     gained 
possession    of    certain    notes    of    the 
association  which  he  had  full  knowl- 
edge could  not  be  paid  out  of  the  re- 
serve fund  of  the  association.     He  had 
this  board  order  the  payment  of  the 
notes  by  drawing  all  the  funds  the 
association  had  in  bank  properly  be- 
longing to  the   reserve  fund  in  his 
favor.     The  Supreme  Court  of  New 
York  in   General  Term  held  that  the 
receiver  of  the  association  was  enti- 
tled    to     recover     from     him     the 
money    thus    wrongfully    misappro- 
priated through  his  and  other  willing 
directors'  action.      That  a  president 
and  vice-president  of  a  railroad  com- 
pany who  had  arranged  to  use  certain 
bonds    of   the    company  secured  by 
mortgages  for  their  own  private  use 
instead    of    improving   the    railroad 
property,  has  been  held  to  be  such  a 
fraud  on  the  mortgage    trustee  and 
the    bondholders   as  would  enable  a 


§188] 


FRAUDULENT  ACTS  OF  OFFICERS. 


263 


the  stock  of  a  corporation  they  are  not  within  the  rule  prohibit- 
ing persons  in  a  tiduciary  relation  from  contracting  for  their  own 
advantage  in  the  name  of  their  cestui  que  trust} 


court  of  equity,  at  the  suit  of  one  of 
the  bondholders,  to  compel  tbem   to 
appropriate  the  proceeds  of  the  bonds 
thus  unlawfully  diverted  to  the  pur- 
pose specified  in  the  mortgage.     Bel- 
den  V.  Burke,  72  Hun,  51;  s.  c,  25  N. 
Y.  Supp.  601.      It  WHS  held  in   Pa- 
ducah  Land,  Coal  &  Iron  Co.  v.  Mul- 
holland,  (Ky.  1894)  24  8.  W.  Rep.  624, 
that    stock   which    was   returned    to 
directors  purchasing  land  for  the  cor- 
poration to  be  used  for  their  own  per- 
sonal benefit,  should  be  surrendered 
for  cancellation  unless  in  the  hands  of 
ftonafide  purchasers  for  value.     For  a 
case  holding  that  the  acts  of  the  presi- 
dent and  trustees  of  a  corporation  in  a 
reorganization,  of  the  same,  were  not 
fraudulent,  although  a  large  personal 
profit  accrued  therefrom  to  the  presi- 
dent who  was  the  principal  promoter 
of    the    reorganization,  see   Symmes 
V.  Union  Trust  Co.,  60  Fed.  Rep.  830. 
»McCracken    v.    Robison,   57   Fed. 
Rep.  375;  s.  c,  6  C.  C.  A.  400.     That 
directors  in  a  private  corporation  have 
no  right,  under  any  circumstances,  to 
use  their  ofllcial  position  for  their  own 
individual    benefit,    see     Hoffman    v. 
Reichert,  (1893)  147  111.  274;  Oilman, 
Clinton  «fe  Springfield  R.   R.   Co.  r. 
Kelly,  77  111.  426,  434;  Hoyle  v.  Platts- 
burg  &  Montreal  R.  R.  Co.,  54  N.  Y. 
314;    Oliver    v.    Piatt,    3   How.    333; 
Speidel  v.  Henrici,  120  U.  S.  377,  386; 
Railroad  Co.   r.  Durant,  95  U.  S.  576: 
Van  Epps  v.  Van  Epps,  9  Paige,  241. 
Contracts  of  corporations  made  with 
officers.    President,  etc.,  v.  Ry.  Co.,  44 
Cal.  106;  Pickett  ^.   School   District, 
25  Wis.   552;   Cumberland  Coal  Co.  v. 
Sherman,  30  Barb.  553;  Port  ®.  Rus- 
sell, 36  Ind.  64;  Railway  Co.  v.  Poor, 
59  Me.  277;  Oardner  r>.  Butler.  30  N.  J. 
Eq.  702;  Davis  v.  Mining  Co.,  55  Cal. 
359;  Copeland  v.  Manufacturing  Co., 


47  Hun,  235;  Thomas  v.  Railway  Co., 
1  McCrary,  392.     Thiit  they  are  not 
absolutely  void:  Bundy  v.  Jackson,  24 
Fed.  Rep.  628;    Bank  r.   Patterson,  7 
Cranch,  299;  Canal  Bridge  v.  Gordon,   1 
Pick.  296;  Harts  r.  Brown,  77  111.  226. 
What  may  make  them  valid:  1  Beach 
on  Priv.  Corp.  402;  Battelle  v.  North- 
western   Cement    Co.,   37   Minn.    89 
Pneumatic  Gas  Co.  v.  Berry,  113  U.  S 
322;  Knowles  v.  Duffy,  40  Hun,  485 
Santa  Cruz   Co.  v.  Spreckles,  65  Cal 
193:    Hill    r.   Nisbet,    100    Ind.    341 
Richardson  v.    Green,   133  U.   S.  30 
Union   Mut.    Life  Ins.   Co.  v.  White 
106  III.   68;    Smith  ».   Smith,  62  111 
493;    Addison  v.    I^wis,  75  Va.  701 
Stratton  ».    Allen,   16  N.  J.  Eq.  229. 
As  to  the  effect  of  directors  or  other 
officers  of  corporation  being  interested 
in  contracts,  see  County  Court  v.  Balti- 
more &  Ohio  R.  R.  Co.,  35  Fed.  Rep. 
161;  Holt  V.  Bennett,  146  Mass.  436; 
8.  c,  16  N.  E.  Rep.  5;  Hancock  v.  Hol- 
brook,  40  La.  Ann.  53;  s.  c,  3  So.  Rep. 
351;   Wasatch  Min.   Co.   r.  Jennings, 
5  Utah,  385;  s.  c. ,  16  Pac.  Rep.  399.    As 
to  a  director  dealing  with  the  corpora- 
tion for  his  own  profit,  see  Schetter  v. 
Southern   Oregon  Improvement  Co., 
(1889)19  Or.   192;   s.  c.  24  Pac.  Rep. 
25.      As  to  a  president  and  trustee 
joining  in   voting  himself  compensa- 
tion for  services,  see  Copeland  ??.  John- 
son Manufacturing  Co.,  (1890)47  Hun, 
235.      Transactions  by  officers    with 
corporations:  Raymond  v.  San  Gabriel 
Val.  Land  &  Water  Co.,  53  Fed.  Rep. 
883;    Langan   r.   Francklyn,  29   Abb. 
K  C.  102;  s.  c,  20  N.  Y.  Supp.  404; 
Miner  v.  Belle  Isle  Ice  Co.,  93  Mich. 
97;  8.  c,  53  N.  W.  Rep.  218;  Beers  r. 
New  York  Life  Ins.  Co.,  66  Hun,  75; 
s.  c,  20  N.  Y.  Supp.  788;  Main  Jellico 
Mountain  Coal  Co.  ».  Lotspeich,  (Ky. 
1894)   20   S.   W.    Rep.    377;    Prince 


r 


I 


I 


264 


FKAUDULENT  ACTS  OP  0FFICEK8. 


[§18D 


§  189.  Repudiating  or  avoiding  contracts  made  by  officers 
with  themselves.-  A  contract  nmde  by  a  director  of  a  corpora- 
tion with  himself  may  be  repudiated  by  the  corporation  at  the 
instance  of  the  stockholder..^     If  the  directors  of  a  corporation 
exceed  their  authority  or  are  recreant  to  their  trust,  the  corpora- 
tion may  repudiate  their  fraudulent  contracts.'     Contracts  made 
by  the  directors  of  a  corporation  with  one  of  their  number  are 
voidable  at  the  election  of  the  corporation,  without  reference  to 
the  question  whether  or  not  tliey  are  beneficial  to  the  corpora- 
tion/    This  doctrine  may  be  applied  where  the  contract  is  made 
by  nominal  directors  who  are  in  fact  the  mere  instruments  of  tlie 
other  contracting  party,  and  act  under  his  directions  and  as  he 
Avishes,  m  pursuance  of  a  scheme  planned  by  him  by  which  they 
were  placed  in  office,  and  a  contract  thus  made  would  be  void- 
able at  the  election  of  the  corporation  without  proof  of  unfair- 
ness or  fraud/     In  order  to  defeat  a  contract  entered  into  by  its 
directors  or  in  its  behalf,  in  which  one  or  more  of  them  had  a 
private  interest,  a  corporation  is  not  bound  to  show  that  the 
influence  of  the  director  or  directors  having  the  private  interest 
determined  the  board's  action.^ 


Manufg.  Co.  r.  Prince's  Metallic  Paint 
Oo.,  20  N.  Y.  8upp.  462;  Hannerty  r. 
Theater  Co.,  109  Mo.  297;  Societe  des 
Mines  D' Argent  et  Fonderies  de  Bing- 
ham r.  Mackintosh,  7  Utah,  35. 

'Gardner   r.   Butler,   30  N.   J.  Eq. 
702;  Guild  r.  Parker,  43  N.  J.  J^w 
430. 

'Metropolitan  Elevated  Ry.   Co.   r. 
Manhattan     Ry.      Co.,     (Spl.     Temi 
Sup.    Ct.   1884)  14  Abb.   N.  C.  103 
212. 

•Central  Trust  Co.  c.  N.  Y.  City  & 
Northern  R.  R.  Co..  (Spl.  Term 
Sup.  Ct.  1887)  18  Abb.  N.  C.  381. 

*Ibid. 

•Munson  v.  Syracuse.  Geneva  & 
Coming  R.  R.  Co.,  (1886)  103  N.  Y. 
58 ;  8.  c,  8  N.  E.  Rep.  355,  affirming 
29  Hun,  76;  s.  c,  16  N.  Y.  Wkly. 
IMg.  212.  Andrews,  J.,  said  •  "The 
law  cannot  accurately  measure  the 
influence  of  a  trustee  with  his  as- 
sociates,   nor    will  it  enter    into  the 


inquiry,  in  an  action  by  the  trustee  in 
his  private  capacity  to    enforce    the 
contract  in  the  making  of  which  he 
participated.     The  value  of  the  rule 
of  equity,  to  which  we  have  adverted, 
lies  to  a  great  extent  in  its  stubborn- 
ness and    inflexibility.      Its    rigidity 
gives  it  one  of  its  chief  uses  as  a  pre- 
ventive or  discouraging  influence,  be- 
cause it  weakens  the   temptation   to 
dishonesty  or  unfair  dealing  on  the 
part  of  trustees,  by  vitiating,  without 
attempt  at  discrimination,  all  trans- 
actions in  which  they  assume  the  dual 
character  of  principal  and  representa- 
tive.    This  rule  has  been  declared  and 
enforced  in  a  great  variety  of  cases, 
but  in  none  perhaps  with  more  vigor 
and  completeness,  but  upon  principle 
and  authority,  than  in  the  leading  case 
of  Davoue  v.  Fanning,  2  Johns.  Ch. 
251,  252.     But  the  case  of  Aberdeen 
Railway      Company     r.     Blakie     & 
Others,  2  Eq.   1281,  decided  by  the 


H  ^ 


§190] 


FRAUDULENT  ACTS  OF  0FFICEB8. 


265 


§  190.  Rules  as  to  such  contracts.—  The  relation  as  a 
director  and  officer  to  a  corporation  does  not  preclude  him  from 
entering  into  contracts  with  it,  making  loans  to  it  and  taking  its 
bonds  as  collateral  security ;  but  courts  of  equity  regard  such 
personal  transactions  of  a  party  in  either  of  these  positions  not, 
perhaps,  witli  distrust,  but  with  a  large  measure  of  watchful  care, 
and  unless  satisfied  by  the  proof  that  the  transaction  was  entered 
into  in  good  faith,  with  a  view  to  the  benefit  of  the  company,  as 
well  as  of  its  creditors,  and  not  solely  with  a  view  to  his  own 

House  of    Lords,   is   in  many  of  its 

features  similar  to  the  present  one. 

In  that  case  it  appeared  that  the  pkin- 

tiffs  were  a  manufacturing  firm,  and 

that  one  of  them  was  also  a  manager 

of  the  Aberdeen    Railway  Company, 

the  defendant,  and  the  chairman  of  the 

board.     At  a  meeting  of  the  managers, 

they  by  resolution  authorized    their 

engineer  to  contract    for   iron  chairs 

needed  by  the  company.     The  agent 

contracted   with   the    plaintiffs'  firm. 

It  did  not  appear  that  the  member  of 

the  firm,  who  was  also  a  manager  and 

the  chairman  of  the  company,  inter- 
meddled with   the    dealing  on  either 

side,  further  than  that  it  may  be 
assumed  he  was  at  the  meeting  which 
authorized  the  engineer  to  procure  a 
supply  of  chaii-s.  The  plaintiffs 
brought  their  suit  to  enforce  specifi- 
cally the  performance  of  the  contract, 
or  in  the  alternative  to  recover  dam- 
ages for  its  non- performance.  After  a 
decision  in  their  favor  in  the  lower 
court,  the  company  appealed  to  the 
House  of  Lords,  where  the  ruling  was 
unanimously  reversed  on  the  ground 
that  the  contract  was  condemned  by 
the  rules  of  equity,  as  having  been 
made  between  the  company  of  which 
one  of  the  plaintiffs  was  a  manager 
and  a  private  firm  of  which  he  was  a 
member.  The  opinions  of  Lord  Chan- 
cellor Cranworth  and  of  Lord 
Brougham  vindicate  upon  impreg- 
nable grounds  the  general  rule  and  its 
34 


application   to  the   particular   case." 
Van    Brunt,     J.,    in   Metropolitan 
Elevated  Ry.   Co.   v.  Manhattan  Ry. 
Co.,   (Spl.   Term   Sup.   Ct.    1884)    14 
Abb.  K  C.  103,  272,  said  :  "  The  un- 
doubted rule  of  law  in  this  state  is, 
that  every  contract  entered  into  by  a 
director  with  his  corporation  may  be 
avoided  by  the  corporation  within  a 
reasonable  time,   irrespective    of  the 
merits  of  the  contract  itself.     *    *    * 
I  can  see  no  difference  in  principle  be- 
tween the  case  of  a  director  contract- 
ing with  his  corporation  and  that  of 
directors  of  one  corporation  contract- 
ing with  themselves  as  directors  of 
another  corporation.     The  evils  to  be 
avoided  are  the  same,  the  temptations 
to  a  breach  of  trust  are  the  same,  the 
want  of  independent    action    exists, 
and  the  divided  allegiance  is  just  as 
apparent."      As   to   rules  governing 
where  directors  act  in  their  own  inter- 
est,  see  March  v.  Eastern  Railroad, 
43  N.   H.   515;     Fisher    v.   Concord 
Railroad,  50  N.  H.  200;  Richards  ?7. 
New  Hampshire  Ins.  Co.,  43  N.  H. 
263 ;  Afihuelot  Railroad  v.  Elliott,  57 
N.  H.  397.     As  to  the  acts  of  school 
trustees,  so  far   as    they    should   be 
beneficial  to  themselves,  being  void, 
see  Rhodes  v.  McDonald,  2  Cushman, 
(Miss.)  418.     As  to  contracts  between 
a  director    and  a  corporation,    being 
voidable  only,  see  Stewart  v.  Lehigh 
Valley  R.  R.  Co.,  (1876)  38  N.  J.  Law, 
505. 


j| 


( • 


ii! 


} 


•p 


266 


FRAUDULENT  ACTS  OF  OFFICERS. 


[§190 


tM* 


benefit,  they  refuse  to  lend  their  aid  to  its  enforcement.^  In  this 
case,  plaintiff's  testator  loaned  to  a  railway  corporation  $100,000 
upon  its  notes,  and  receive<l  from  it  1,250  shares  of  paid-up  stock 
as  a  bonus,  and  200  mortgai^e  bonds  of  tlie  corporation,  and  the 
practical  control  of  its  board  of  directors.  After  this,  he 
demanded  of  this  board  100  more  bonds,  as  further  collateral, 
and  they  agreed  to  it.  Subsequently,  this  board  allowed  him  to 
liave  300  more  Iwnds,  as  collateral  security  for  further  advances 
of  money,  but  he  made  no  such  further  advances  of  money 
to  the  corporation.  These  400  bonds  he  obtained  at  a  time 
when  he  was  acting  as,  and  claiming  to  be,  the  treasurer  of 
the  corporation.  After  the  corporation  became  insolvent  he 
claimed  to  hold  these  400  bonds,  individually,  as  collateral  for 
his  debt.  The  Supreme  Court  of  the  United  States  held  that,  as 
between  him  and  the  creditors  of  the  railway  corporation,  he 
could  not,  under  the  circumstances,  hold  them  as  collateral  for 
his  debt.^  Promoters  of  a  corporation,  not  representing  it  in  any 
relation  of  agency,  have  no  authority  to  enter  into  preliminary 
contracts  binding  the  corporation,  when  it  shall  come  into  exist- 


'Mr.  Justice  Lamar,  in  Kichnrd- 
son's  Executor  v.  Green.  (1890)  133  U. 
8.  30;  s.  c,  10  Sup.  Ct,  Rep.  280. 

•  Ibid.  Speaking  for  the  court,  Mr. 
Justice  Lamar  said:  "We  do  not 
deny  that  cases  may  arise  in  which,  if 
everything  were  admitted  to  be  fairly 
done,  with  the  knowletlge  and  acqui- 
escence of  the  company,  such  a  per- 
sonal possession  as  that  which  Rich- 
ardson obtained,  although  not  such  an 
actual  delivery  as  the  board  had  in- 
tended and  directed,  might  be  consid- 
ered as  equivalent  to  a  legal  delivery. 
But  under  the  special  circumstances 
of  this  case,  in  view  of  the  unfair 
means  employed  by  Richardson  to 
have  the  entire  body  of  the  company's 
bonds  transferred  from  the  custody  of 
Ferry  [the  treasurer]  into  his  own  cus- 
tody, and  the  clandestine  manner  in 
wliich  he  took  out  the  400  bonds  from 
that  body,  not  only  without  notice  of 
the  fact  to  the  company,  but  with  an 
implied,  if  not  an  expressed,  denial  of 
the  transactions,  we  do  not  think  that 


he  can  be  regarded  as  standing  in  the 
p)Osition  of  a  legal  and  equitable 
pledgee,  or  that  he  ever  acquired,  as 
such  pledgee,  a  lien  on  the  400  bonds. 
But  even  if  there  could  be  any  doubt 
on  this  point,  Richardson,  himself,  by 
his  own  act,  has  removed  it.  He 
waived  and  almndoned  all  claim  to 
any  lien,  as  a  pledgee,  by  his  volun- 
tary surrender  and  delivery  of  the 
bonds  to  the  sheriff  of  the  county  of 
New  York,  as  the  property  of  the 
company,  to  be  sold  under  execution. 
If  the  400  bonds  were  not  delivered  to 
Richardson,  as  we  think  the  court  be- 
low correctly  held,  it  follows  that  the 
unissued  bonds  were  not  subject  to 
attachment  or  to  execution  as  valid 
and  binding  obligations  against  the 
company,  and  that  Richartison's  pur- 
chase at  the  sheriff's  sale  vested  in  him 
no  title  or  ownership  to  them."  See, 
as  to  the  title  of  Richardson  to  theso 
bonds,  and  their  sale  under  execution. 
Sickles  V.  Richardson,  (1881)  28  Hun, 
559. 


§191] 


FRAUDULENT  ACTS  OF  OFFICERS. 


267 


ence,  and  if  the  sanction  of  the  corporation  to  such  a  contract  is 
obtained  by  the  act  or  co-operation  of  a  director  who  has  a  pri- 
vate interest,  the  corporation  may  resist  an  action  for  specific 
performance,  at  least,  in  a  case  where  it  has  not  accepted  the 
consideration,  or  taken  the  benefit  of  the  contract.* 

§  191.  Circumstances  under  which  the  directors  cannot 
avail  themselves  of  the  defense  of  the  invalidity  of  the 
contract. —  It  appeared  in  an  action  in  the  federal  court  upon 
a  contract,  that  a  railroad  company,  a  corporation  in  form 
o"ly>  l>y  its  president,  entered  into  a  construction  contract, 
whereby  the  contractors  agreed  to  complete  the  stiperstructure  of 
the  road,  furnish  materials  and  equip  it  by  a  certain  date,  and  in 
payment  therefor  certificates  for  a  fixed  amount  of  its  full  paid-up 
stock  and  the  same  amount  of  first  mortgage  bonds  were  to  be 
delivered  to  them.  Contemporaneously  with  the  making  of  this 
contract,  and  on  the  same  day,  the  contractors  agreed  with  one 
acting  on  behalf  of  certain  directors  who  were  the  actual  stock- 
holders, that  if  the  contract  were  complied  with  by  the  company, 
they  would  pay  to  him  one-half  of  the  net  profits  realized  from 


'Munson    v.   Syracuse,    Geneva    & 
Coming  R.   R.   Co.,  (1886)  103  N.  Y. 
58;  s.  c,  8  N.  E.  Rep.  355,  affirming 
29  Hun,  76;  s.  c,   16  K  Y.   Wkly. 
Dig.  212.     Andrews,  J.,  referring  to 
this  director,  said:  "He  stood  in  the 
attitude  of  selling  as  owner  and  pur- 
chasing as  trustee.     The  law  permits 
no  one  to  act  in  such  inconsistent  rela- 
tions.    It    does    not    stop  to  inquire 
whether  the  contract  or  transaction 
was  fair  or  unfair.     It  stops  the  in- 
quiry when  the  relation  is  disclosed, 
and  sets  aside  the  transaction  or  re- 
fuses to  enforce  it,  at  the  instance  of 
the  party  whom  the  fiduciary  under- 
took to  represent,  without  undertak- 
ing   to    deal    with    the    question    of 
abstract  justice  in  the  particular  case. 
It  prevents  frauds  by  making  them, 
as  far  as  may  be,  impossible,  knowing 
that  real  motives  often  elude  the  most 
searching     inquiry,     and    it    leaves, 
neither  to  judge  nor  jury,  the  right  to 
determine,  upon  a  consideration  of  its 


advantages  or  disadvantages,  whether 
a  contract  made  under  such  circum- 
stances shall  stand  or  fall."    As  to 
contracts    of    officers    dealing    with 
themselves  being  voidable  at  the  op- 
tion of  the  corporation,  see  Meeker  v. 
Winthrop  Iron  Co.,  17  Fed.  Rep.  48. 
In  Pneumatic  Gas  Co.  ».  Berry,  (1885) 
113  U.  S.  322;  8.  c,  5  Sup.  Ct.  Rep. 
525,  a  release  by  the  corporation  to 
one  of  its  directors  of  all  claims,  equi- 
table   or    otherwise,    arising    out    of 
transactions  under  a  contract  between 
the  corporation  and  the  director,  made 
in  excess  of  its  corporate  powers,  was 
held   to  be  valid,   if  made    in    good 
faith,  and  without  fraud  or  conceal- 
ment.    As  to  contracts  in  which  the 
interest  of  directors  are  adverse  to  the 
corporation  being  voidable,  at  the  op- 
tion of  the  corporation  or,  upon  its 
refusal,  by  a  minority  of  stockholders, 
see   Graves   ».  Mono  Lake  Hydraulic 
Mining  Co.,  (1890)  81  Cal.  303;  s.  c. 
22  Pac.  Rep.  665. 


w 


i 


i' 


■'I 


268 


FRAUDULENT  ACTS  OF  OFFICEK8. 


[8191 


i 


the  contract,  out  of  the  stocks  and  bonds.  The  road  was  com- 
pleted and  it  was  agreed  between  the  parties  that  the  share  of 
tlie  directors  in  the  net  profits  should  be  fixed  at  $150,000,  for 
which  the  contractors  were  to  give  these  notes.  The  latter  paid 
$50,000  on  this  substituted  contract,  and  this  action  was  to  recover 
of  them  the  balance.  Suipman,  C.  J.,  for  the  United  States  Circuit 
Court  of  Appeals,  refers  to  the  defense  made  in  these  words : 
"  The  defense  made,  as  a  matter  of  law,  was  the  invalidity  of  the 
contracts  [original  and  substituted],  because  by  the  original  con- 
tracts four  directors  had  secretly  provided  for  one-half  of  the 
profits  which  should  arise  out  of  the  construction  of  the  road,  and 
it  was  claimed  there  could  be  no  recovery,  because  the  contract 
being  void,  no  action  could  be  maintained  upon  it  or  upon  its 
successor."  It  was  held  that  the  principle  which  denounces  the 
action  of  directors  of  a  corporation  who,  professing  to  be  its 
agents,  and  to  be  contracting  in  its  behalf,  secretly  agree  for  a 
private  and  personal  benefit  to  themselves,  or  agree  to  sell  their 
official  influence  for  personal  gain,  was  not  available  as  a  defense 
by  the  directors  in  this  particular  case.* 


^Robison  r.  McCracken,  (1892)  52 
Fed.  Rep.  726.  Shipman,  C.  J.,  said: 
'•  The  decisions  of  the  courts  of  the 
United  States  have  been  most  strenu- 
ous in  demanding  that  the  directors  of 
corporations  shall  act  disinterestedly 
in  contracts  which  they  make  in  be- 
half of  the  corporation  for  which  they 
act,  and  in  setting  aside  tainted  con- 
tracts between  a  director  or  an  agent 
and  a  third  person  for  the  sale  of  offi- 
cial influence.  Wardell  v.  Railroad 
Co.,  103  U.  S.  651;  Thomas  v.  Rail- 
road Co.,  109  U.  S.  522;  s.  c,  3  Sup. 
Ot.  Rep.  315;  Woodstock  Iron  Co.  v. 
Richmond  &  Danville  Extension  Co., 
129  U.  S.  643;  s.  c,  9  Sup.  Ct.  Rep. 
402;  West  v.  Camden,  135  U.  8.  507; 
s.  c,  10  Sup.  Ct.  Rep.  838;  Providence 
Tool  Co.  fj.  Norris,  2  Wall.  45."  The 
present  case  was  there  distinguished 
from  those  just  cited:  "  It  is  manifest 
that  the  facts  in  this  case  are  of  a  dif- 
ferent character  from  those  which 
have  ordinarily  marked  contracts 
which  are  the  subject  of  just  rebuke 


by  courts.  The  corporation  which  en- 
tered into  the  construction  contract 
was  one  in  form  only,  and  the  agree- 
ment for  construction  and  division  of 
the  profits  was,  in  fact,  made  by  all 
the  stockholders,  if  ISIason  [another  of 
the  original  subscribers]  was  not  a 
stockholder.  But,  assuming  the  exist- 
ence of  Mason's  character  as  a  stock- 
holder, and  that  an  exorbitant  contract 
of  the  entire  body  of  stockholders  for 
their  own  pecuniary  benefit  can  be 
seasonably  attached  [attacked  ?]  by 
existing  creditors,  it  is  well  settled 
that,  as  a  general  rule,  contracts  of  a 
corporation,  which  which  were  made 
by  directors  who  obtained  a  personal 
pecuniary  benefit  thereby,  are  not,  on 
that  account  alone,  void,  but  are  void- 
able at  the  election  of  the  parties  who 
are  affected  by  the  fraud.  This  is 
clearly  announced  in  Barnes  v.  Brown, 
SON.  Y.  527;  Barr^.  Railroad  Co.,  125 
N.  Y.  263;  s.  c.,26  N.E.Rep.  145;  Twin- 
Lick  Oil  Co.  V.  Marbury,  91  U.  S.  587. 
and  Thomas  v.  Railroad  Co.,  109  U.  S. 


§192] 


FBAUDULENT  ACTS  OF  OFFICERS. 


269 


§  192.  Purchase  by  officers  of  debts  due  by,  or  property 
of,  corporations. —  A  director  may  trade  with,  borrow  from  or 
loan  money  to  a  corporation  on  the  same  terms  and  in  like  man- 
ner as  other  persons.  In  loaning  money  to  the  corporation,  how- 
ever, he  must  act  fairly  and  be  free  from  all  fraud  and  oppres- 
sion ;  and  in  so  doing  must  act  for  the  interest  of  the  corporation 
and  impose  no  imfair  or  unreasonable  terms.*  Directors  may 
purchase  the  bonds  issued  by  a  corporation  or  other  of  its 
indebtedness  in  whatever  form  it  exists.  And  if  such  bonds  or 
indebtedness  is  secured  by  a  trust  deed,  for  instance,  they  have  a 
right  to  proceed,  if  necessary,  to  sell  the  property  for  the  satis- 
faction of  such  indebtedness  as  any  other  person.*  If  the  cor- 
poration has  money  or  property  which  can  be  converted  into 
money  with  which  to  redeem  its  property  from  a  judicial  sale  or 
from  the  lien  of  the  trust  deed,  a  purchase  of  the  bonds  or  other 
indebtedness  by  directors,  as  a  means  of  acquiring  through  a  sale 
the  property  of  che  corporation,  would  be  in  bad  faith,  and  a 


522;  8.  c,  3  Sup.  Ct.  Rep.  315.  In 
the  latter  case  it  is  said,  in  substance, 
that  those  for  whom  the  agent  was 
acting  have  the  option  to  avoid  such  a 
contract,  but  until  they  exercise  their 
option,  and  reasonably  show  that  it  is 
their  purpose  not  to  submit  to  the  act 
of  the  agent,  the  contract  is  in  exist- 
ence, and  is  not  a  nullity.  In  this  case. 
Mason,  the  remaining  stockholder  at 
the  time,  has  not  dissented,  but  desires 
to  enjoy  the  contract.  The  corpora- 
tion has  never  dissented.  [The  con- 
tractors] to  whom  the  whole  stock 
was  issued,  made  both  contracts,  paid 
$50,000  upon  the  [substituted]  con- 
tract, the  last  payment  being  nine 
months  after  its  date.  Neither  cred- 
itors nor  the  present  stockholders  have 
ever  dissented.  The  case  clearly  falls 
within  the  general  rule  which  has 
been  cited.  It  contains  no  circum- 
stances which  create  an  exception,  and 
make  the  contract  one  which  is  abso- 
lutely void.  The  condition  of  the 
defendants  is  this:  They  made  a  void- 
able contract  with  the  plaintiff,  which 
has  not  been  avoided.    The  contract 


is  an  executed  one;  the  defendants  re- 
ceived and  sold  the  entire  stock  and 
bonds  of  the  company  and  have  the 
fruits  of  the  contract,  a  part  of  which 
they  have  paid,  and  the  residue  of 
which  they  refuse  to  pay,  upon  the 
ground  that  the  contract  was  illegal  in 
its  relations  to  the  corporation.  Cases 
may  arise  where  a  court  will  have 
nothing  to  do  with  the  controversies 
in  regard  to  the  proceeds  of  a  business 
of  an  inherently  corrupt  and  wicked 
character,  but  this  is  not  one  of  them. 
The  weakness  of  the  defendants'  posi- 
tion is  clearly  disclosed  in  McBlair  v. 
Gibbes,  17  How  232;  Brooks  v.  Mar- 
tin. 2  Wall.  70;  Planters'  Bank  v. 
Union  Bank,  16  WaU.  483,  and  Rail- 
road Co.  V.  Durant,  95  U.  8.  579.  In 
the  latter  case  the  court  said:  *  The 
appellee  cannot  claim  adversely  to 
those  for  whom  he  acquired  and  holds 
the  property.  The  rights  of  others,  if 
such  rights  exist,  do  not  concern  him. 
He  cannot  vicariously  assert  them. '  " 

» Harts  V.  Brown,  (1875)  77  IlL  226. 

« Ibid. 


iv 


Jti 


I  I 


fi 


I 


( 

1 

1 

i 

i  a 

i 

r 


270 


FRAUDULENT  ACTS  OF  OFFICERS. 


[§192 


|{ 


P 


purchase  by  them  of  the  property  under  such  circumstances 
would  not  be  sustained.*  And  if  a  sale  were  necessary  by  reason 
of  a  lack  of  means  on  the  part  of  the  corporation  to  relieve  the 
property  from  the  Hens  and  prevent  a  sale  of  property  beyond  the 
amount  necessary  to  pay  the  debts  secured  by  the  trust  deed, 
though  made  with  the  assent  and  by  direction  of  the  directors, 
and  they  purchase  it,  the  sale  in  this  respect  would  be  void,  as  it 
would  be  a  sale  to  that  extent  in  which  the  directors  would  be  the 
vendors,  and  they  could  not-purchase  of  themselves.^  A  trustee 
of  a  corporation  may  purchase  with  his  own  funds  a  judgment 
which  has  been  recovered  against  the  corporation  for  less  than 
the  amount  due  thereon,  and  in  case  he  assigns  it  to  a  third  per- 
son, the  assignee  may  enforce  the  judgment  against  the  corpora- 
tion for  the  full  amount  due  upon  it.^    In  case  a  director  or  trus- 


'  Ibid. 

nbid. 

» Inglehart  p.  Thousand  Island  Hotel 
Ck).,  (1884)  32  Hun,  377.  The  Supreme 
C'ourt  of  New  York  in  General  Term 
have  said  upon  this  subject;  "That  a 
trustee  of  a  corporation  organized 
under  the  general  laws  of  this  state 
acts  in  a  fiduciary  character,  is  not  a 
subject  of  doubt,  as  he  is  intrusted 
with  power  and  authority  to  be  exer- 
cised in  the  interest  of  the  stockhold- 
ers and  creditors  of  the  company.  In 
dealing  with  its  property  and  in  the 
management  of  its  affairs  he  is  subject 
to  the  obligations  and  disabilities  inci- 
dent to  that  relation,  and  he  must  so 
act  as  not  to  permit  himself  or  his  own 
private  interests  to  interfere  or  com- 
pete with  his  duty  to  the  company, 
[Citing]  Hoyle  v.  Plattsburgh  &  Mon- 
treal R.  R.  Co.,  54  N.  Y.  314;  Cum- 
berland Coal  Co.  r.  Sherman,  30  Barb. 
553;  Twin-Lick  Oil  Co.  v.  Marbury, 
91  U.  S.  588.  It  is  not,  however, 
deemed  to  be  inconsistent  with  the 
duties  which  a  trustee  owes  a  com- 
pany to  loan  and  advance  to  it  moneys 
to  be  used  in  transacting  its  legitimate 
business  and  to  meet  its  financial 
wants  and  receive  security  therefor  by 
mortgage  or  pledge  of  the  assets  of  the 


company.     By  fair  dealing  and  in  the 
legitimate  business  of  the  company  he 
may    become   one   of    its   creditors. 
Transjictions  of  this  character  between 
an  officer  of  the  company  and  the  com- 
pany itself  are  of  frequent  occurrence, 
and  have  received  the  approval  and 
sanction  of  the  courts  as  appropriate 
and  not  inconsistent  with   the  duty 
which  a  trustee  owes  to  the  stock- 
holders and  creditors  of  the  company. 
[Citing]  Duncomb  v.  N.  Y.,  H.  &  N. 
R.  R.  Co.,  84  N.  Y.  190;  Twin-Lick 
Oil  Co.  0.  Marbury,  91  U.  S.  588.     So 
also  a  trustee  or  director  may,  with  his 
own  money,  purchase  for  himself  of  a 
third  person  a  valid  and  subsisting 
outstanding  debt  owing  by  the  com- 
pany and  secure  a  perfect  title  thereto. 
Such  a  transaction  is  not  even  a  ground 
for  entertaining  the  suspicion  that  it  is 
in  violation  of  any  duty  which  he  owes 
the  corporation,  and  there  is  no  pre- 
sumption of  law  against  its  fairness. 
If  the  obligation  is  valid  the  owner 
may  sell  and  transfer  it  to  any  one 
who  is  willing  to  become  a  purchaser, 
and  he  thereby  secures  an  unquestion- 
able title.    [Citing]  cases  »upra  ;  Clark 
r. Flint  &  Pere  Marquette  R.Co.  ,5  Hun, 
556.     The  other  question  to  be  con- 
sidered in  this  connection  is,  will  the 


.; 


§192] 


FEAUDDLENT  ACl'S  OF  OFFICEKS. 


271 


tee  of  a  corpoi*ation  seek  the  enforcement  of  a  judgment  against 
it  owned  by  himself  by  a  sale  of  the  property  or  assets  of  the  cor- 
poration, it  would  be  incumbent  upon  liim  to  act  with  the  great- 
est fairness  and  publicity  and  to  do  everything  reasonable  within 
his  power  to  secure  the  highest  price  for  the  property  sold ;  and 
if  he  should  be  guilty  of  any  improper  conduct  by  which  he 
secures  to  himself  the  property  of  the  corporation  for  less  than  its 
fair  market  value,  the  sale  may  be  set  aside  on  the  application  of 
any  of  the  parties  interested.*  One  of  the  appellate  courts  of 
Missouri  reversed  a  judgment  in  the  court  Ijelow,  and  held  that 
the  president  of  a  corporation  who  had  voluntarily  purchased  a 
smaTl  debt  against  the  corporation  should  be  enjoined  from  levy- 
ing an  execution  for  the  payment  of  a  balance  on  the  claim  where 
lie  had  already  taken  valuable  ]>roperty  of  the  corporation  in  part 
payment  of  it. 


trustee  or  director  be  permitted  to  en- 
force a  collection  of  the  debt  thus  ac- 
quired for  its  entire  amount,  or  shall 
he  be  limited  to  the  sum  which  he 
actually  paid  for  the  debt  or  obliga- 
tion ?  I  am  unable  to  discover  any 
good  reason  why  he  should  not  be  per- 
mitted to  enforce  judgment  for  the 
full  amount,  nor  can  I  find  any  de- 
cision limiting  the  trustee  to  the  sum 
actually  paid.  In  these  times  a  large 
l)roportion  of  the  mercantile,  com- 
mercial and  manufacturing  business 
of  the  country  is  carried  on  by  cor- 
porations, and  many  of  them  issue,  in 
large  amounts,  securities  in  the  form 
of  negotiable  instruments,  payable  in 
the  future,  which  are  purchased  and 
held  as  investments  by  capitalists  and 
others,  and  it  has  never  been  ques- 
tioned but  that  a  director  in  a  cor- 
poration of  this  character  might  pur- 
chase the  same  of  a  third  person  at  a 
discount,  and  collect  from  the  com- 
pany the  entire  sum  secured  thereby." 

'  Inglehart  i\  Thousand  Island  Hotel 
Co.,  (1884)  32  Hun,  377. 

« Brewster  v.  Stratman,  (1877)  4  Mo. 
App.  41.  Lewis,  P.  J.,  said:  "The 
fiduciary  position  held  by  the  presi- 
dent of  a  corporation  does  not  admit 


of  his  speculating  in  either  its  assets 
or  its  indebtedness,  for  his  own  benefit, 
at  the  expense  of  the  corporation. 
He  is  a  trustee,  and  as  such  can  never 
be  permitted  to  create  such  a  relation 
between  himself  and  the  trust  prop- 
perty  as  will  make  his  own  interest 
necessarily  and  effectually  antago- 
nistic to  that  of  his  beneficiary.  In 
Covington  &  Lexint^ton  Railroad  Co.  v. 
Bowler,9  Bush  (Ky.),468,  a  director  had 
purchased  at  a  judicial  sale  the  rail- 
road belonging  to  his  corporation.  It 
was  held,  upon  the  principle  just 
stated,  that  the  corporation  had  a  right 
to  have  its  road  surrendered  to  it  upon 
placing  the  director  in  statu  quo. 
*  *  *  In  McAUen  v.  Woodcock,  a 
suit  in  ejectment,  60  Mo.  174,  it  was 
held  that  where,  under  execution 
against  a  corporation,  its  land  was  pur- 
chased by  one  who  was  a  stockholder 
and  treasurer  of  the  company,  the  pur- 
chase must  be  regarded  as  having  been 
made  for  the  benefit  of  the  association, 
and  that  the  title  thus  acquired  could 
not  be  considered  as  hostile  thereto." 
In  Lingle  v.  National  Insurance  Co., 
45  Mo.  109,  the  Supreme  Court  of 
Missouri  aflirmed  the  judgment  of  the 
court  below  awarding  out  of  the  assets 


'4 


Ki 


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f 


y 


[< 


> 


272 


FRAUDULENT  ACTS  OF  OFFICERS. 


[§193 


§  195.  Purchase  and  sale  of  property  of  corporation  by 
officers. —  Where  a  sale  of  the  property  of  a  corporation  to  raise 
money  to  pay  its  debts  may  become  necessary  on  account  of  the 
mismanagement  of  its  affairs  by  the  directors,  and  those  directors 
for  that  purpose  sell  it  to  one  of  their  number,  the  sale  may  bo 
set  aside.*  For  a  sale  and  purchase  under  such  circumstances  to 
stand,  it  must  be  shown  that  there  was  a  necessity  for  the  sale 
and  that  the  property  of  the  corporation  was  bought  by  the  direct- 
ors in  open  market  at  a  fair  price  and  without  any  undue 
advantage,  in  good  faith  and  without  the  slightest  unfairness.' 
A  director  of  an  insolvent  corporation,  buying  its  property  at  a 
sale  under  execution  to  which  he  is  not  a  party,  will  be  liable  to 
the  corporation  for  the  value  of  the  property  less  what  he  may 
have  paid  for  it.*  In  case  directors  of  a  corporation  divert  its 
property  from  the  payment  of  its  debts,  by  which  diversion  cred- 
itors may  be  deprived  of  the  opportunity  to  enforce  their  debts 
the  injured  creditors  may  have  relief  through  a  court  of  equity.* 
Should  such  a  diversion  of  the  corporate  property  charged  to  be 
injurious  to  the  creditors  be  a  sale  of  such  property  to  one  of  the 
directors  taking  part  in  the  transaction  as  buyer  and  seller,  the 
directors  must  establish  both  the  good  faith  of  the  transactions 
and  that  the  sale  was  for  the  full  value  of  the  property.    If  these 


of  the  company  to  its  president,  upon 
a  judgment  which  he  had  purchased 
against  the  corporation,  the  amount 
he  actually  paid.  The  court  said: 
"At  the  time  [appellant]  purchased 
the  judgment  he  was  president  of  the 
company  and  acting  for  the  company. 
The  company's  interest  and  his,  in 
the  transaction,  were  identical,  and 
could  not  be  separated.  Whatever 
advantage  he  gained  inured  to  its 
benefit.  To  permit  the  chief  managing 
officer  of  a  company  in  such  a  man- 
ner to  speculate  for  his  private  gain 
would  be  detrimental  to  the  company 
and  the  other  stockholders,  and  would 
lead  to  fraud,  injustice  and  wrong. 
Public  poUcy  and  morality  alike  for- 
bid that  such  a  proceeding  should  be 
sanctioned .  It  is  true  that  in  ordinary 
cases  no  person  would  have  a  right  to 
complain  of  the  transaction  but  the 


company  who  suffered  by  the  acts  of 
its  officer.  But,  in  a  case  hke  this, 
the  creditors  whose  rights  are  im- 
paired should  be  permitted  to  make 
the  objection."  As  to  the  incompe- 
tency of  a  director  in  a  corporation  to 
become  the  purchaser  of  a  portion  of 
its  property,  who  has  actively  partici- 
pated in  all  measures  pending  the 
completion  of  the  arrangements  for  its 
sale,  with  full  knowledge  of  all  the  cir- 
cumstances attending  their  progress, 
see  Iloffman  Steam  Coal  Co.  t>.  Cum- 
berland Coal  &  Iron  Co.,  16  Md.  456. 

*  Crescent  City  Brewing  Co.  v.  Plan- 
ner, (1892)  44  La.  Ann.  22;  8.  c,  10 
80.  Rep.  384. 

•Ibid. 

» Tobin  Canning  Co.  v.  Fraser,  (1891) 
81  Tex.  407;  8.  c.  17  8.  W.  Rep.  25. 

*  Wilkinson  v.  Bauerle,  (1887),  41  N. 
J.  £q.  635;  8.  c,  7  Atl.  Rep.  514. 


§193] 


FRAUDULENT  ACTS  OF  OFFICERS. 


273 


facts  be  not  estabhshed  the  directors  taking  part  in  the  sale  will 
be  held  answerable  to  the  creditors  for  their  losses  by  the  diversion 
of  the  corporate  property.^  Where  a  railroad  company  had 
become  insolvent  and  discontinued  its  operations,  and  a  director 
of  the  company  had  purchased  certain  railroad  ties  from  the  con- 
tractor furnishing  them  to  the  company,  it  was  attempted  to 
enforce  an  execution  in  favor  of  creditors  of  the  corporation  upon 
this  property.  Andrews,  J.,  for  the  New  York  Court  of  Appeals, 
said  :  "  Assuming  tliat  the  plaintiff  was  disabled  by  the  rule  in 
equity  from  purchasing  the  ties  on  his  own  account  or  from  hold- 
ing them  as  against  the  company,  nevertheless  the  legal  title  was 
vested  in  him  by  tlie  purchase,  and  the  property  could  not  be 
taken  from  liis  possession  under  an  execution  against  the  corpora- 
tion. *  *  *  The  purchase  by  a  trustee  of  trust  property  is 
voidable,  not  void.  The  company  could  only  claim  the  benefit 
of  the  purchase  by  the  plaintiff  on  reimbursing  the  sum  expended 
by  him  in  obtaining  the  title."  ^  A  director,  for  instance,  pur- 
chasing the  lands  of  a  corporation  for  one-tenth  of  their  value, 
there  would  be  raised  against  him  a  presumption  of  fraud,  and  he 
would  be  required  to  show  affirmatively  that  the  transaction  was 
a  perfectly  fair  one.^  The  Civil  Code  of  California,  section  2228, 
requires  the  highest  good  faith  from  a  trustee  towards  his  bene- 
ficiary, and  section  2230  prohibits  the  trustee  from  taking  part  in 
any  transaction  adverse  to  the  beneficiary.  Under  these  sections 
the  Supreme  Court  of  that  state  has  held  a  secretary  of  a  corpo- 
ration, at  the  same  time  its  general  manager,  to  whom  all  its 
affairs  were  intrusted,  to  have  been  guilty  of  a  fraud  upon  the 
corporation  in  secretly  purchasing  its  property  in  his  own  name 
when  sold  under  execution  or  at  tax  sales.^  A  director  may  loan 
money  to  the  corporation,  take  a  mortgage  to  himself  securing 
the  loan,  and  upon  foreclosure  of  the  mortgage  may  purchase  the 
property  and  obtain  title  to  the  property  mortgaged.**    A  director 


» Ibid. 

« Cornell  v.  Cl|rk,  (1887)  104  N.  Y. 
451;  8.  c,  10  N.  E.  Rep.  888. 

'  Woodroof  V.  Howes,  (1891),  88  Cal. 
184;  8.  c,  26  Pac.  Rep.  111. 

*  San  Francisco  Water  Co.  v.  Pattee, 
(1890)  86  Cal.  623;  a.  c,  25  Pac.  Rep. 
185. 

35 


5  Preston  d.  Loughran,  (1890)  58 
Hun,  210;  s.  c,  12  N.  Y.  Supp.  313. 
As  to  a  purchase  by  a  director  of  the 
property  of  a  corporation  at  a  fore- 
closure mortgage  sale  being  valid, 
see  Saltmarsh  v.  Spaulding,  (1888)  147 
Mass.  224;  8.  c,  17  N.  E.  Rep. 
316. 


II 


!^ 


♦: 


i 

1 


274 


FRAUDULENT  ACJTS  OF  OFFICERS. 


[§m 


of  a  corporation  cannot,  for  instance,  take  possession  of  corpo- 
rate property  and  set  np  his  individual  possession  to  the  exclu^on 
of  the  corporation  of  whicli  he  is  an  e(]iiita])le  trustee.*  The 
directors  of  ''  a  going  concern^'  though  the  corporation  be  insol- 
vent, will  not  be  held  liable,  as  for  a  breach  of  trust,  for  making 
a  honajlde  advantageous  sale  out  and  out  of  the  corporate  assets, 
all  of  which  assets  may  have  been  attacihed,  to  one  of  the  attach- 
ing creditors  on  condition  that  he  would  cancel  his  own  debt  and 
discharge  the  debts  of  other  attaching  creditors,  esi^ecially  where 
the  directors  have  nu  means  with  which  to  control  tlie  attachment 
suits,  and  the  transfer  be  advised  by  counsel.' 

§  194.  Illustrations  of  a  sale  of  property  to  corporation 
which  was  not  fraudulent.  —  The  corporation,  upon  the  notes 
of  which  tliis  action  was  brought  in  the  federal  court  of  the  dis- 
trict of  Kansas,  in  its  answer  denied  the  authority  of  the  presi- 
dent and  secretary  of  the  company  to  execute  or  issue  such  notes, 
and  further  claimed  that  the  notes  were  fraudulently  and  wrong- 
fully issued  through  the  colhision  of  the  officers  and  directors  of 
the  companv,  and  without  any  consideration  whatever  therefor. 
The  facts  ^xeve  that  two  of  the  directors  had,  previously  to  the 
organization  of  the  company,  purchased  a  roadbed  for  a  very 
small  sura  of  money.     They  afterwards  caused  the   defendant 
company  to  be  organized,  and,  while  in  the  relation  of  directors 
with  others  of  the  newly  organized  company,  contracted  with  the 
other  directors  to  sell  the  roadbed  to  the  company  for  $200,000 
cash  or  bonds  and  $3,600,000  of  the  capital  stock.     The  sale  was 
formally  ratified  at  a  meeting  of  the  directors  and  entered  on  the 
records  of  the  company ;  and  afterwards  the  stockholders  unan- 
imously approved  the  purchase.     At  the  time  of  the  sale  there 
were  no  stockholders,  and  the  stock  issued  was  all  that  had  been 
subscribed.     The  company  had  no  property  except  its  charter 
and  the  roadbed,  and  the  notes  [which  were  issued  instead  of 
bonds]  and  stock  issued  to  [the  vendors]  had  no  marketable  value. 

>  Hoffman  r.  Reichert,  (1889),  31  111.  movable    property   of   a  corporation 

Add  558  ^^^^  ^^  ^^^  corporate  business  and  dis- 

« White    Potter  &  Paige  Mfg.  Co.  able  the  corporation  from  fulfilling  the 

V    Henry'  B.   Pettes  Importing  Co..  purposes  for  which  it  was  created. 

(1887),  30  Fed.  Rep.  864.     That  direct-  see  Abbot  r.  American  Hard  Rubber 

ors  have  no  power  to  sell  the  entire  Co.,  33  Barb.  578. 


§194] 


FRAUDULENT  ACTS  OF  OFFICERS. 


275 


It  was  held  that  the  sale  w^as  not  fraudulent.^  In  a  Kansas  case 
it  was  attempted  to  make  certain  persons,  directors  of  a  railroad 
corporation,  account  for  the  profits  made  by  them  in  selling  to  it 
a  roadbed  which  they  had  purchased  before  the  organization  of 
the  railroad  corporation  for  a  small  sum  for  a  much  larger  sum 
than  they  had  paid.    The  Supreme  Court  ruled  that  the  owners  of 


» Stewart  v.  St.  Louis,  Ft.  8.  &  W. 
R.  Co.,  (1887)  41  Fed.  Rep.  736. 
Foster,  J,,  discussed  the  actions  of 
these  directors  in  the  premises  as  fol- 
lows :  "There  is  no  doubt  but  the  di- 
rectors [the  vendors],  and  perhaps 
[another  director],  while  directors  of 
the  company,  used  their  influence  to 
consummate  this  sale  from  themselves 
as  individuals  to  the  company;  and  it 
is  altogether  probable  they  had  that 
object  in  view  when  they  bought  the 
roadbed  from  [the  vendor  to  them]. 
But  the  question  still  remains,  were 
they  guilty  of  fraud,  deception  or  any 
other  breach  of  good  faith  in  their 
fiduciary  relations  as  directors  ?  At 
the  time  they  bought  the  property 
the  defendant  company  had  not 
been  organized,  and  at  that  time, 
of  course,  they  could  not  have  held 
any  fiduciary  relations  to  stockholders 
or  any  one  else.  When  the  sale  to  the 
company  was  made  they  did  hold  a 
position  of  trust,  and  were  bound,  in 
their  official  action,  to  faithfully  and 
honestly  execute  their  duties,  and  not 
to  make  a  deal  where  their  personal 
interest  should  be  served  at  the  ex- 
pense of  the  company  they  represented. 
Warden  v.  Railroad  Co.,  103  U.  S. 
651;  Ryan  v.  Railroad  Co.,  21  Kans. 
365;  Koehler  v.  Iron  Co.,  2 Black,  715; 
1  Moraw.  Priv.  Corp.  §  517;  Michaud  r. 
Girod,  4  How.  513.  But  it  does  not 
follow  that  the  directors  are  prohibited 
imder  all  circumstances  from  dealing 
with  a  member  or  members  of  the 
board  as  individuals.  But  there  must 
have  been  a  fair  open  deal.  It  must 
have  been  free  from  fraud  or  col- 
lusion, and    characterized   by  entire 


good  faith."  Hotel  Co.  v.  Wade,  97 
U.  S.  13;  1  Mor.  Priv.  Corp.  §§  292, 
521,  545;  Van  Cott  v.  Van  Brunt,  82 
N.  Y.  535;  Simons  v.  Oil  Co.,  61  Pa. 
St.  202;  Oil  Co.  «.  Densmore,  64  Pa. 
St.  43;  Rice's  Appeal,  79  Pa.  St. 
168;  Parker  v.  Nickerson,  137  Mass. 
487.  The  judge  then  discussed  the 
particular  facts  of  this  case  in  these 
words:  "It  does  not  appear  in  this 
case  that  there  was  any  deception  or 
fraud  practiced  by  the  parties.  The 
property  was  open  to  inspection,  and 
the  approximate  cost  of  conotructing  it 
was  easily  obtainable.  Its  value  to  the 
company  for  the  purpose  desired  was 
not  difficult  to  ascertain.  I  find  no  evi- 
dence of  any  representations  as  to  its 
value  or  cost,  or  purchase  prce,  made 
by  the  parties  selling;  but  there  is 
record  evidence  that  the  board  of 
directors  several  months  after  the 
sale,  and  with  full  knowledge  of  the 
transaction,  formally  approved  and 
ratified  it,  and  not  only  that,  but 
subsequently,  at  a  meeting  of  all 
the  stockholders,  the  transaction 
was  again  ratified.  Now,  who  were 
defrauded  or  deceived  ?  All  parties 
—  directors  and  stockholders — as- 
sented to  it,  and  surely  subsequent 
purchasers  of  the  stock,  or  the  cor- 
poration itself,  cannot  now  object 
to  it.  1  Moraw.  Priv.  Corp.  290.  It  is 
true  the  vendors  got  a  very  large  ad- 
vance on  the  price  they  paid,  but  that 
is  not  alone  the  test  by  which  the  bona 
fides  of  the  transaction  is  to  be  tried, 
i  Moraw.  Priv.  Corp.  293.  To  them  as 
individuals  the  property  was  of  little 
or  no  value.  To  the  railroad  company 
it  could  be  made  worth  the  price  paid 


I 


•' 


i' 


276 


FRAUDULENT  ACTS  OF  OFFICERS. 


r§  195 


a  graded  roadbed  could  sell  to  a  railroad  corporation,  the  officers, 
directors  and  stockholders  of  which  were  composed  of  these 
owners,  and  receive  in  payment  therefor  shares  in  its  capital  stock 
at  a  time  when  those  selling  the  roadbed  owned  and  controlled  the 
corporation,  and  are  the  absolute  owners  of  all  the  stock  issued 
by  it,  and  where  the  terms  of  sale  and  the  issue  of  the  stock  are 
matters  of  record  on  the  corporation's  books,  and  where  the 
transaction  occurs  months  before  any  other  or  additional  stock  is 
issued  by  the  corporation.^  This  rule  was  based  upon  the  fact 
that  at  the  time  of  the  purchase  of  this  roadl)ed  by  the  vendors 
of  it  to  the  corporation  the  corporation  really  had  no  corporate 
existence,  and  that  there  could  not  have  existed  any  fiduciary 
relations  between  them  before  that  time,  because  there  was  no 
corporation  in  existence  to  create  them.* 

§  195.  When  a  transfer  of  property  of  corporation  will  be 
upheld.— These  facts  are  disclosed  in  a  New  York  case.  A 
manufacturing  corporation  was  organized  for  the  purpose  of 
manufacturing  carpets  by  machinery  covered  by  certain  letters 
patent,  and  issuing  licenses  for  the  use  of  the  invention  ;  its  capital 
stock  was  $40,000,  which  was  issued  to  the  defendants,  the 
owners  of  the  letters  patent,  as  the  consideration  for  the  assign- 
ment by  them  of  the  letters  patent  to  the  corporation.  The 
actual  value  of  the  patent  was  much  more  than  the  sum  specified, 
and  the  transfer  was  made  without  regard  to  its  value,  as  a  con- 
venient mode  of  holding  title,  and  for  the  exclusive  benefit  of 
the  owners,  who,  as  sole  stockholders  and  trustees  of  the  corpora- 
tion, carried  on  the  business  of  issuing  licenses  to  use  the  inven- 


for  it;  and  the  vendors  bent  every 
energy  to  make  the  property  useful  to 
the  company,  and  to  make  the  enter- 
prise successful,  for  their  chances  of 
getting  money  or  any  other  value  for 
the  property  depended  very  largely 
on  the  result.  As  before  remarked, 
parties  having  stock  afterwards  in  the 
company  cannot  complain  of  the  pur- 
chase. The  records  of  the  company 
show  the  transaction.  It  was  not  kept 
a  gecret.  There  was  no  compelling 
any  person  or  municipality  to  take 
stock  in  the  company  unless  they  vol- 
untarily chose  to  do  so;   and,  if  they 


were  deceived  by  misrepresentations 
of  the  officers,  their  cause  of  action 
rests  on  that  deception,  and  not  in  an 
jittack  on  the  original  contract  of 
purchase." 

'  St.  Louis,  Ft.  Scott  &  Witchita  R. 
R.  Co.  V.  Tiernan,  (1887)  37  Kans.  606; 
8.  c,  ISPac.  Rep.  544. 

« Ibid.  There  is  a  very  full  discus- 
sion of  the  questions  relating  to  pro- 
moters of  corporations,  their  rights, 
duties  and  liabilities,  as  viewed  in 
English  and  American  courts,  in  this 
case. 


§195] 


FRAUDULENT  ACTS  OF  OFFICERS. 


277 


tion  and  collecting  royalties.  Subsequently,  concluding  to  go 
into  the  business  of  manufacturing,  the  defendants,  as  trustees, 
transferred  back  to  themselves  the  letters  patent,  they  surrender- 
ing the  stock  issued  to  themselves  as  above  stated.  The  stock  of 
the  corporation  was  increased  to  $600,000,  all  of  which  was  issued 
to  defendants,  they  paying  first  $250,000  in  cash,  and  for  tlie 
residue  granting  to  the  corporation  a  license  to  manufacture 
under  the  patent,  on  payment  of  a  specified  royalty.  It  was 
found  by  the  trial  court  that  this  transaction  was  in  good  faith 
and  with  no  intent  to  defraud  any  future  liolder  of  the  stock,  and 
that  $350,000  of  stocks  was  not  an  inadequate  consideration  for 
the  license.  Defendants  thereafter  assigned  to  plaintiff  and 
another  $100,000  of  the  stock,  as  the  consideration  of  their  assign- 
ment to  the  corporation  of  certain  other  letters  patent.  These 
assignees  were  informed  of  all  the  facts  relating  to  the  retransfer 
to  defendants  and  the  consideration  for  the  issuing  to  them  of  the 
increased  stock.  Stock  was  also  sold  to  another  person  who  had 
knowledsre  of  the  facts.  Plaintiff  was  elected  a  trustee.  The 
corporation  erected  manufactories  and  carried  on  the  business  for 
a  time,  which  resulted  in  a  loss.  Defendants  and  another,  com- 
prising a  majority  of  the  board  of  trustees,  as  sucli,  adopted  a 
resolution  to  sell  the  stock  on  hand,  lease  the  manufactories,  and 
to  secure  defendants  for  advances  made  by  them  by  mortgage 
on  the  property  of  the  corporation  which  was  executed  with  the 
assent  of  two-thirds  in  interest  of  the  stockholders.  Defendants 
were  the  only  creditors  of  the  corporation,  and  the  trial  court 
found  that  the  resolution  above  referred  to  was  adopted  in  good 
faith,  without  intent  to  injure,  and  that  it  did  not  affect  plaintiff, 
and  was  for  the  best  interests  of  the  corporation  and  its  stock- 
holders. The  mortgage  was  thereafter  foreclosed  and  the  prop- 
erty bought  in  by  one  of  the  defendants.  Plaintiff  brought  his 
action  as  trustee  of  the  corporation  to  set  aside  the  transfers  of  its 
property,  which  he  alleged  had  been  made  or  authorized  by  the 
defendant  trustees  as  such  to  themselves  individually,  and  for  an 
accounting.  The  Court  of  Appeals  of  New  York,  upon  the  facts 
stated  above,  held  that  the  complaint  was  properly  dismissed.* 

» Skinner  r.  Smith,  (1892)  134  N.  Y.  and  for  their  benefit,  or  a  transfer  of 

240,affirming  56  Hun,  437.     The  court  its  property  by  the  authority  of  the 

said:  "A  contract  entered  into  by  a  trustees  to  themselves,   may   be   set 

corporation  by  the  authority  or  direc-  aside,  in  case  it  injures  any  public 

tion  of  its  trustees,  with  themselves  interest,  or  the  private  interest  of  any 


i 


t  r 


,f' 


278 


FRAUDULENT  ACTS  OF  OFFICERS. 


"[§  19^> 


§  196.  Officers  voting  themselves  salaries  or  compensa- 
tion.—  The  vote  of  a  director  for  his  own  salary  is  manifestly 
illegal.*  An  agreement  of  directors  to  pay  themselves  a  stipula- 
ted snm  for  services  in  the  employment  of  a  corporation  is  void.' 
The  salary  of  the  president  of  a  corporation  having  been  fixed 
by  its  directors,  as  the}^  have  a  right  to  do,  and  accepting  the  office 
under  their  action,  he  cannot,  by  his  vote  as  a  director,  increase 
his  salary.^  Where  the  superintendent  of  a  corporation  is  also  a 
director,  his  compensation  must  be  fixed  by  corporate  action,  a 
record  of  which  should  be  made  upon  the  books  of  tlie  corpora- 
tion.* Should  directors,  who  are  not  entitled  to  compensation  for 
their  services  as  directors  by  the  provisions  of  the  charter  of  the 
corporation  or  by  its  by-laws,  or  some  custom  or  usage  allowing 
such  compensation,  make  such  allowance  to  tliemselves  for  past 
services  and  issue  bonds  or  orders  for  such  allowances,  their  acts 
will  be  void  and  of  no  effect.^  Salaries  voted  by  its  board  of  direct- 
ors to  one  or  more  of  their  number,  who  are  present  and  partici- 
pating in  the  action,  are  not  binding  upon  acorporation.**     Where 


shareholder  or  creditor,  even  though 
the  COD  tract  or  transfer  was  executed 
in  good  faith  by  the  trustees.  Dun- 
comb  r.  N.  Y.,  H.  &  N.  R.  R.  Co.,  84 
N.  Y.  190.  But  this  rule  is  not  broad 
enough  to  condemn  as  void  on  the 
ground  of  public  policy  all  contracts 
and  transfers  executed  by  a  purely 
private  business  corporation,  with  or 
to  its  trustees,  in  good  faith,  in  case 
no  public  or  private  interest  is  harmed 
thereby.  Such  contracts  arc  not  void, 
but  voidable,  at  the  election  of  those 
who  are  aflfected  by  the  fraud.  Twin- 
Lick  Oil  Co.  V.  Marbury,  91  U.  S.  587- 
589;  Thomas  r.  Brownville,  etc.,  R.  R. 
Co.,  109  U.  S.  522-524;  Risley  v.  In- 
dianapolis,  B.  &  W.  R.  R.  Co.,  62  N. 
Y.  240;  Barnes  v.  Brown,  80  N.  Y. 
527-536;  Munson  v.  8,  G.  &  C.  R.  R. 
Co..  10.3  N.  Y.  5a-73;  Barr  v.  N.  Y., 
L.  E.  &  W.  R.  R.  Co.,  125  N.  Y.  263- 
277."  The  court,  in  the  opinion  in  this 
case,  concluded  w^ith  this  statement: 
**The  right  of  a  manufacturing  cor- 
poration to  discontinue  its  operations 
when  they  have  become  unprofitable. 


for  the  purpose  of  protecting  share- 
holders from  further  loss,  does  not  ad 
mit,  we  think,  of  doubt.  Treadwell 
i\  Salisbury  Mfg.  Co..  7  Gray.  395.' 
Hancock  r.  Holbrook,  9  Fed.  Rep.  353; 
Boston  &  P.  R.  R.  Co.  v.  N.  Y.  &  N. 
E.  R.  R.  Co.,  13  R.  I.  263:  Buloni  v. 
Keokuk  L.  Packet  Co.,  69  Mo.  611; 
Morawetz  Corp.,  i-§  413  et  neq.  1004. 

» Davis  Mill  Co.  v.  Bennett,  (1889) 
39  Mo.  A  pp.  460. 

'  Guild  r.  Parker,  43  N.  J.  Law, 
430. 

3  Ward  V.  Davidson,  (1886)  89  Mo. 
445. 

*  Besch  V.  West.  Carriage  Manufac- 
turing Co.,  (1889)  36  Mo.  App.  333. 

'  Manx  Ferry  Gravel  Road  Co.  v. 
Branegan,  (1872)  40  Ind.  361. 

« Kelsey  v.  Sargent,  (1886)  40  Hun, 
150.  In  Copeland  r.  .Johnson  Manu- 
facturing Co.,  (1888)  47  Hun,  2^5,  the 
contracts  made  between  one  who  was 
president  and  one  of  the  trustees  of 
the  corporation,  and  two  of  the  other 
four  trustees  of  the  corporation,  for 
the  payment  to  him    of  fixed   com- 


§196] 


FRAUDULENT  ACTS  OF  OFFICERS. 


279 


a  board  of  directors  had  assigned  to  one  of  their  number  the  per- 
formance of  the  duties  of  treasurer  of  tlie  corporation,  and  no 
salary  had  been  fixed  for  sucli  office  by  the  board,  tlie  Illinois 
Supreme  Court  assumed  that  the  board  chose  to  regard  his  serv- 
ices in  that  capacity  as  a  part  of  his  duty  as  director,  and  held 
that  he  could  not  recover  an  allowance  made  by  them  to  him  for 
such  services.*  The  directors  of  a  corporation  occupying  a  fidu- 
ciary relation  to  it,  should  they  vote  themselves  an  excessive  com- 
pensation for  services  in  disposing  of  its  stock,  such  an  act  would 
be  an  actual,  not  merely  a  constructive  fraud.^  In  a  case  where 
the  treasurer  of  a  corporation  had  appropriated  corporate  funds 
to  his  own  use  as  for  a  salary,  and  the  court  found  the  amount 
was  excessive,  the  money  was  held  to  have  been  obtained  by 
fraud  and  the  treasurer  liable  for  interest  on  the  sum  that  he  had 
thus  appropriated.^     In  a  case  before  the  Supreme  Court  of  New 


pensation  for  the  performance  of 
services  rendered  by  him  for  the  cor- 
poration, being  dependent  for  their 
validity  upon  his  vote,  together  with 
that  of  the  two  directors,  were  held  to 
be  illegal.  See,  also,  Coleman  v. 
Second  Avenue  R.  R.  Co.,  38  N.  Y. 
201. 

*  Holder  v.  LaFayette,  Blooming- 
ton*  Mississippi  Ry.  Co.,  (1873)  71 
111.  106.  It  was  said  by  the  court : 
"  [These  directors]  are  managing  a 
fund  as  trustees  for  the  stockholders; 
and  they  have  no  right  to  use  or 
apropriate  the  funds  of  their  cestuis  que 
trust  to  themselves.  They  have  no 
power  to  waste,  destroy,  give  away  or 
misapply  it,  and  when  they  were 
elected  by  the  shareholders,  no  pro- 
vision having  been  made  for  their 
compensation,  the  stockholders  had 
a  right  to  suppose  they  were  acting 
under  the  common-law  rule,  that,  as 
trustees,  they  could  not  claim  pay- 
ment for  their  services."  See  Kirk- 
patrick  V.  Penrose  Ferry  Bridge  Co., 
49  Pa.  St.  121 ;  Loan  Association  r. 
Stonemetz,  29  Pa.  St.  534;  New  York 
&  N.  H.  R.  R.  Co.  V.  Ketchum,  27 
Conn.  170;  Henry  v.  Rutland  &  B.  R. 


R.  Co.,  27  Vt.  435;  Butts  v.  Wood,  37 
N.  Y.  317;  Merrick  r.  Peru  Coal  Co., 
61  111.  472;  Rockford,  Rock  Island  & 
St.  Louis  R.  R.  Co.  v.  Sage,  65  111. 
328;  Cheeney  v.  LaFayette,  Blooming- 
ton  &  Western  Ry.  Co.,  68  111.  570; 
American  Central  R.  R.  Co.  r.  Miles, 
52  111.  174;  Gridley  v.  LaFayette,  B. 
&  M.  Ry.  Co.,  71  111.  200;  LaFayette, 
B.  &  M.  Ry.  Co.  V  Cheeney,  87  111. 
446;  Illinois  Linen  Co.  v.  Hough,  91 
111.  63. 

« Freeman  v.  Stine,  (Pa.)  38  Leg. 
Int.  268;  Fareira  v.  Riter,  (Pa.)  38  Leg. 
Int.  450. 

3  Wayne  Pike  Co.  v.  Hammons, 
(1891)  129  Ind.  368;  s.  c,  27  N.  E. 
Rep.  487.  In  Emporium  Real  Estate 
&  IManufacturing  Co.  v.  Emrie,  (1870) 
54  111.  345,  it  ^vas  held  that  the  presi- 
dent of  the  corporation,  who,  claiming 
that  the  corporation  was  indebted  to 
him  for  his  salary  as  president  and  for 
services  as  attorney  at  law,  had 
caused  the  secretary  of  the  corpora- 
tion to  assign  to  him  certain  certifi- 
cates of  purchase  of  land  held  by  the 
corporation,  and  in  their  possession  as 
officers,  should  surrender  these  certifi- 
cates to  the  corporation.     It  was  said 


i 


'. 


'  I 


^ 


^,i' 


280 


FRAUDULENT  ACTS  OF  OFFICERS. 


[§1% 


York  these  facts  were  shown :  That  the  corporation  had  been  man- 
aged by  the  owners  of  the  stock  m  harmony  and  at  a  small  salary 
until  the  president  of  the  corporation  wanted  a  part  of  the  plain- 
tiff's stock ;  to  compel  the  sale  a  threat  was  made  to  raise  the 
salaries  of  the  officers.  A  subsequent  raise  of  the  salaries  fol- 
lowed. Again  there  was  the  same  refusal  to  sell,  another 
similar  threat,  and  this  was  followed  by  an  extremely  large 
increase,  and  this  was  followed  by  a  threat  that  there  nmst  be 
another  increase  accompanied  by  an  averment  that  there  was  no 
limit  to  the  raise  except  the  will  of  the  trustees.  The  court  held 
that  the  action  of  the  trustees  in  the  matter  of  raising  the  salaries 
of  its  officers  was  a  spoliation  of  the  corporation  for  an  unworthy 
purpose,  and  trustees  would  not  be  permitted  to  act  in  such  a 
manner  with  the  corporation's  funds.'  A  majority  of  the  direct- 
ors, there  being  three,  and  all  stockholders  of  a  corporation,  hav- 
ing combined,  so  managed  the  business  of  the  corporation  as  to 
divert  all  the  profits  of  the  enterprise  from  their  legitimate  desti- 
nation, and  to  appropriate  them  to  their  own  use,  as  by  voting 
to  themselves  extraordinary  salaries,  the  chancellor  held  that  as 
they  had  in  part  executed  their  plan,  and  the  circumstances  ren- 
dered any  change  in  the  personnel  of  the  management  impracti- 
cable, a  proper  case  had  arisen  for  the  intervention  of  the  court 
to  make  a   division   of  the   assets.     He  also   held    that  such   a 


by  the  court:  "The  claim  of  the 
president  hud  not  been  allowed  by  the 
board  of  directors  or  by  a  committee 
appointed  by  them.  In  effect,  the 
president  audited  his  own  demand, 
and  then  seized  upon  property  for  its 
payment.  This  can  never  be  per- 
mitted to  the  oflBcers  of  corporations. 
The  toleration  of  such  practice  would 
be  destructive  of  the  rights  of 
creditors  and  of  stockholders.  The 
assets  would  be  at  the  mercy  of  the 
officers,  who  have  no  legal  or  equita- 
ble rights  to  control  them,  except  for 
the  benefit  of  the  company."  In 
Ashley  v.  Kinnan,  (Sup.  Court,  Spl. 
Term,  1888)  2  N.  Y.  Supp.  574,  it  was 
held  that  the  amount  received  by  an 
officer  presiding  over  the  board  of 
trustees,  when  the  board  voted  him  a 
salary  for  certain  services,  and  it  not 


appearing  that  he  dissented  to  this 
action,  could  be  recovered  of  him  by 
the  receiver  of  the  corporation  on  the 
general  ground  of  equity  controlling 
the  actions  of  directors  or  officers  of  a 
corporation  as  holding  a  fiduciary 
position  in  connection  with  voting  or 
granting  anything  to  their  personal 
advantage.  As  to  the  action  of  three 
of  five  directors  of  a  corporation  in 
voting  a  salary  to  one  of  the  three  as 
secretary  being  void,  see  Martin  t». 
Santa  Cruz  Water  Storage  Co.,  (Ariz. 
1894)  36  Pac.  Rep.  36. 

•Ziegler  r.  Hoagland,  (1889)  52 
Hun,  385;  8.  c,  5  N.  Y.  Supp.  305, 
affirming  the  judgment  restraining 
such  conduct  on  the  part  of  the 
trustees,  citing  to  the  point  Butts  v. 
Wood,  37  N.  Y.  317;  Ogden  v. 
Murray,  39  N.  Y.  202. 


t 


§197] 


FRAUDULENT  ACTS  OF  0FFICEB8. 


281 


trustee,  having  committed  a  breach  of  trust  by  deliberately 
extracting  and  appropriating  to  his  own  use  a  portion  of  the  tmst 
fund,  could  not  cure  the  breach  and  demand  the  further  custody 
of  the  fund  by  simply  restoring  it.* 

§  197.  Interest  upon  exorbitant  salary  voted  officer 
recoverable. —  There  was  a  contention  in  an  Indiana  case  that 
the  damages  assessed  by  the  court  were  too  large.  It  w^as  based 
upon  the  fact  that  the  court  allowed  interest  on  the  amount,  or 
a  portion  of  the  amount,  appropriated  or  used  by  the  appellants. 
The  argument  was  that  the  money  received  by  the  treasurer 
belonged  to  him  and  that  he  had  the  right  to  use  it  so  long  as  he 
furnished  the  amount  due  when  called  upon  to  do  so.  The 
Supreme  Court  said  of  this:  "The  argument  is  based  upon 
false  premises.  The  treasurer  of  a  private  corporation  does  not 
bear  that  relation  to  the  funds  which  come  into  his  hands  sus- 
tained by  a  public  officer.  A  public  officer,  when  called  upon  to 
account  for  moneys  which  come  into  his  hands,  as  such,  cannot 
excuse  himself  on  the  ground  that  the  funds  have  been  stolen,  or 
destroyed  without  his  fault,  because,  by  legal  fiction,  the  money 
is  supposed  to  belong  to  him,  and  he  must  bear  the  loss.  Such 
fiction  is  thought  to  be  necessary  for  the  safety  of  the  public 
funds.  But  it  is  not  so  with  the  treasurer,  or  agent,  of  a  private 
corporation.  If  the  funds  in  bis  hands  are  lost,  or  destroyed, 
without  his  fault,  the  loss  is  the  loss  of  the  principal  and  not  the 
loss  of  the  treasurer  or  agent.  Mowbray  v.  Antrim,  123  Ind.  24. 
A  large  portion  of  funds  involved  in  this  suit  was  allowed  to  the 
secretary  and  treasurer,  as  salary,  and  presumably  he  used  the 
sum  so  allowed  him.  Tlie  court  found  that  such  salary  was 
exorbitant  and  unreasonable  and  required  the  appellants  to 
account  for  all  the  funds  used  in  that  way  over  and  above  a 
reasonable  compensation  for  the  services  of  the  secretary  and 
treasurer.  If  these  funds  were  so  used,  we  know  of  no  good 
reason  why  those  who  used  them  should  not  account  for  the 
interest.  We  do  not  think  the  court  erred  in  charging  the 
appellants  with  interest  on  the  funds  which  came  into  their 
hands,  and  which  were  used  by  the  secretary  and  treasurer  in  his 
private  business,  under  the  guise  of  an  exorbitant  salary."^ 

"Fougeray  v.  Cord,  (1892)  50  N.  J.       ^  Wayne    Pike  Company    v.   Ham- 
Eq.  185;  s.  c,  24  Atl.  Rep.  499.  mons,  (1891)  129  Ind.  366,  378,  379. 

36 


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282 


FBAUDULENT  ACTS  OF  OFFICERS. 


[§  19B 


§  198.  Contracts  between  corporations  having  the  same 
directors  in  part.—  Where  the  managers  of  a  railroad  corpora- 
tion, acting  in  its  interests,  buy  a  controlling  interest  in  the  stock 
of  a  connecting  railroad  for  the  purpose  of  making  with  them- 
selves as  controlling  managers  of  the  connecting  road  contracts 
more  favorable  to  the  former,  and  accomplish  their  i)urpo8e,  the 
question  whether  the  contracts  are  fair  and  just  is  immaterial  m 
a  stockholder's  injunction  suit  to  restrain  the  execution  of  the 
contracts.^     A  construction   company  contracted  with  a  radway 

1  Pearson  r.  Concord  Railroad  Cor-    tercsted  in  any  contract  with  a  corpo- 
pomtion.   (1883)    62    N.    H.    537.     It   mtion  shall    be    capable  of    being  a 
was  said  by  the  court,  in  the  opinion:   director  thereof,  and  if  any  director 
-A  director  of  a  railroad  corporation     shalldirectly  or  indirectly  bo  concerned 
though  not  technically  a  trustee,  stands   in  any  contract  with  the  c-o.poration. 
in  a  fiduciary  relation  to  the  corpora-   his  office  shall  become  vacant.     Ihe 
tion  and  is  under  the  disjxbility  of  a   office  becorac>s  vacant,  although  in  a 
trustee.     Practically,  the  directors  are   suit  at  law  between  the  parties  upon 
trustees,  and  the  stockholders  are  the   such  a  contract  the  contract  is  not  held 
restuis  qm  trust.     Like  all  other  per-    void.     Foster  r.  liadway  Co..    3  C.  B. 
sons    where   this   relation   exists,    he   200.     Such  contracts  are  voidable  in 
cannot,  as  buyer  for  his  corporation,    equity  at  the  suit  of  a  stockholder, 
buy  of  himself  against  the  objection  of   We  have  no  such  sUxtute;  but  reason 
his  cestui  que  trust,  nor  as  seller  for  the   and  common  sense,  and  all  the  analo- 
tK>rporation  become  the  purchaser,  nor,    gies  of  the  law,  forbid  that  a  person 
being  its  agent  and  trustee,  contract   should  act  in  a  position  of  trust  when 
with  himself  or  secure  to  himself  ad-    self-interest  confficts  with  duty.     The 
vantages  not  common  to  other  stock-   consciences  of  men  in  such  positions 
holdere    because  such  contracts   and    will  not  stand  the  strain  ot  self-inter^ 
relations  are  likely  to  bring  him  in   est.      We   approve    the    remarks   of 
conflict  with  his  dutv  and  self-interest,    Welch,  J.,  in  Gocniin  r.  Canal  Co..  18 
and  tempt  him  to  b;  unfaithful  to  the   Ohio  St.  169:    'A  director  whose  per- 
superior  obligations  he  has  assumed,    sonal  interests  are  adverse  to  those  of 
rating]  Pierce  on  Railroads,  36;   Mo-    the  corporation  has  no  right  to  be  or 
raw  on  Corp    §  215;  Ang.  &  Ames  on   act  as  a  director.     As  socm  as  he  finds 
Corp    ^  233    kote  a,  ^  312;  Butts  r.    that  he  has  personal  interests  which  are 
Wood    37  N   Y.  317; 'Hoy le  r.  Rail-    in  conflict  with  those  of  the  company, 
road   '54  N    Y    315,    328;    Blake    r.    he  ought  to  resign.     No  matter  if  a 
Railroad  56  N.  Y.  485,  490;  Barnes  r.    majority  of  the  stockholders  as  well  as 
Brown    80  N   Y.  527,  535;  Duncomb   himself  have  personal  interests  in  con 
t  Railroad.  84  N.  Y.  190.  198;  Robin-    flict  with  those  of  the  company.     He 
son  V  Smith  3  Paige,  222.  232;  Koeh-   does  not  represent  them  as  persons,  or 
lew  Iron  Company.  2  Black.  715.  721;    represent  their  personal  interest.     He 
Bliss  V    Matteson,  45  N.  Y.  22;  1  Per.    represents  them  as  stockholders,  and 
Tr  ^207-  Booth  r.  Robinson,  55  Md.    their  interests  as  such.'     Rolhng  Stock 
419    436  '  440     ♦    ♦    »    In  England    Co.  v.  Railroad,  34  Ohio  St.  465,  was  a 
parliament  has  declared  by  statute  (8  stockholders'  bill  for   an   injunction. 
&  9  Vict  chap  16)  that  no  person  in-   The  plaintiff's  board  of  five  directors 


1)1 


FBAUDULENT  ACTS  OF  OFFICERS. 


283 


§198] 

corporation  for  the  construction  of  a  portion  of  its  road,  the  pay- 
ment to  be  made  in  the  mortgage  bonds  of  the  latter.  Two  of 
the  directors  of  the  railway  corporation  were  also  parties  in  the 
construction  contract.  The  other  parties  in  the  construction 
contract  agreed  to  assume  the  subscriptions  of  all  the  individual 
directors  of  the  railway  corporation  to  the  capital  stock  of  that 


were  members  of  the  defendant's  board 
of  thirteen.     The  bill  was  dismissed 
because  not  seasonably  brought;  and 
the  remarks  of  the  court,  to  the  effect 
that  the  agreements  ought  to  be  set 
aside  was  valid  because  executed  by  a 
majority  of  the  board  without  the  in- 
terested directors,  would  seem  to  be 
dicta.     Ashhurst's  Appeal.  60  Pa.  St. 
291,  and  Watts'  Appeal,  78  Pa.  St.  370. 
are  sometimes  cited  to  the  point  that 
contracts  or  sales,  made  by  a  board  of 
directors   with   or   to   some   of  their 
number,  may  be  sustained  in  equity, 
and  the  remarks  of  the  court  are  to  the 
point  that  such   contracts  and  sales 
may  be  upheld  if  their  perfect  fair- 
ness is  shown.    These  cases  were  stock- 
holders' bills  to  set  aside  sales  of  prop- 
erty, upon  the  ground  of  a  violation  of 
fiduciary  duty.  Relief  was  denied  upon 
the  ground  that  the  applications  came 
too  late.  Flagg  u.  Railway  Co,  20  Blatch. 
142;  8.  c,  21  Am.  Law  Reg.  775,  de- 
cides that  where  an  agreement  is  made 
by  the  directors  relinquishing  the  right 
to  a  guaranty  of  dividends  to  a  corpo- 
ration by  another  corporation,  the  exe- 
cution of  the  agreement  will  not  be 
enjoined  at  the  suit  of  a  stockholder, 
because  three  of  the  directors  voting 
were  also  stockholders  in  the  guarantor 
corporation,  it  appearing  that,  without 
counting  their  votes,  a  majority  of  the 
directors  voted  for  the  measure.     In 
Butts  V.  Wood,  38  Barb.  181;  8.  c,  [on 
appeal]  37  N.  Y.  317,  the  action  of  the 
majority  of  two  in  a  board  of  three, 
passing  upon  the  claim  of  a  third  di- 
rector, who  also  voted,  was  set  aside 
at  the  instance  of  one  of  the  stock- 
holders.     See,  also.  Wardens  of    St. 


James  v.  Rector,  etc..  Church  of  the 
Redeemer,  45  Barb.  356;   Kitchen  v. 
liailroad.  69  Mo.  224;  Railroad  v.  Kelly, 
77   111.    426;    Koehler  v.    Black,    etc.. 
Iron  Co.,  2  Black.  720;  Moraw.  on  Corp. 
245,  and  cases;  1  Perry  on  Tr.  §  207, 
and  cases;  Pierce  on  Rjiilroads.   36- 
40.  and  cases;  Green  Brice  Ultra  Vir. 
477.  note  (a)  and  cases.     Stockholders 
and  creditors  are  entitled  not  only  to  the 
vote  of  a  director  in  the  board  but  to 
his  influence  and  argument  in  discus- 
sion.    Ogden  V.  Murray.  39  N.  Y.  202, 
207;  Railway  Co.  v.  Blakie.  1  Macq. 
(H.  L.  Cas.)  461,  where  the  court  said: 
'  It  was  Mr.  Blakie's  duty  to  give  his 
co-directors,  and  through  them  to  the 
company,  the  full  benefit  of  all  the 
knowledge  and  skill  which  he  could 
bring  to  bear  on   the    subject.'     In 
Barnes  v.  Brown.  80  N.  Y.  527,  536, 
the  court  said:  '  If  he  [plaintiff]  had 
attempted    to    perform    the    contract 
while  he  was  director,  the  .stockholders 
could    probably  have    intervened   by 
some  suit  in  equity  adapted  to  the 
nature  of  the  case  to  nullify  the  con- 
tract as  to  him,  or  to  restrain  him  as 
to  the  performance  thereof,  or  to  com- 
pel him  to  elect  to  resign  his  office  of 
director,  or  to  give  up  the  contract.' 
Our  conclusion  upon  this  part  of  the 
case  is,  that  the  directors  of  the  Con- 
cord could  not  make  the  contracts  with 
the  upper  companies,  nor  settle   the 
claims  of  those  companies  against  th(^ 
Concord.     For  the  transaction  of  that 
part  of  the  business  of  their  office  they 
were  disabled   by  the  understanding 
on  which,  the  purpose  for  which,  and 
the   interest  in  and   by   which,  they 
were  elected." 


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284 


FKAUDULENT  ACTS  OF  OFFICERS. 


[§198 


ij..,. 


corporation  (wliicli  was  worthless)  and  relieve  tlie  directors  from 
all  liability  under  it.     This  contract  the  Supreme  Court  of  the 
United  States  held  not  to  be  enforceal)le  in  equity  when  resisted 
by  stockholders  in  the  railway  corporation ;  and  the  bonds  issued 
under  it  to  the  construction  company  were  held  to  be  voidable  at 
the  election  of  the  parties  affected  by  the  fraud,  while  in  the 
hands  of  parties  who  took  them  from  the  construction  comi)any, 
not  in  the  ordinary  course  of  business,  but  under  circumstances 
which  threw  doubt  upon  their  being  holders  for  value  or  without 
notice.^    The  stockholders  had  been  allowed  to  come  into  the  suit 
for  foreclosure  of  the  mortgage  and  tiled  their  cross-bill.    The  court 
said :  "  In  this  condition  of  the  case  they  are  amenable  to  the 
rule  that  they  who  seek  equity  nmst  do  equity.     It  is  just  that 
they  should  pay  a  fair  price  for  what  they  have  received ;  that 
this  mortgage,  given  for  the  construction  of  the  road,  though 
excessive  by  reason  of  the  fraud  in  the  contract,  should  stand  for 
the  reasonable  value  of  what  the  com])any  actually  received  m 
the  way  of  construction.     To  permit  these  interveners  to  defeat 
the  mortgage  on  any  other  ground  would  be  unjust,  and  would 
make  the  court  the  instrument  of  this  injustice."^     In  a  leading 
Missouri  case,  where  a  railroad  corporation  was  not  m  financial 
condition  to  complete  its  road  in  all  its  branches,  which  was  essen- 
tial to  its  proving  profitable,  an  association  of  capitalists   was 
formed,  the  object  of  which,  as  expressed  in  its  articles,  was  the 
purchase  of  the  bonds  of  the  corporation,  and  ultimately,  if  found 
profitable  to  do  so,  the  purchase  of  the  road  itself,  provided  the 
association  could  obtain  control  of  the  company.     The  bonds  of 
the  corporation  were  subsequently  purchased  of  it,  and  the  asso- 
ciation allowed  to  name  a  majority  of  the  directors.     It  was 
insisted  that  this  transaction  was  fraudulent  by  reason  of  the 
I  Thomas.    Trustee.   ..   Brownville.    indefensible."    Referring  to  ^ardell 
Fort  Kearney  &  Pacific  R.   R.   Co..    ..  Union  ^^^^^^^  «•.  «,  ^j '  ^f.  ^^  f, 
(1883)  109  U.  S.  522;  8.  c,  3  Sup.  Ct.    651.  and  same  case  in  4  Dill.  330.  as  in 
RcD    315     The  court  said:    "In  the   precise  analogy  to  this, 
pr^ent  case  the  stockholders  of  the       'Thomas.   Trustee.   ..    Brownville, 
corporation,   whose   officers  accepted   Fort  Kearney  &  P«^«fic  R.  R.  Co 
tbrbenefits  at  the  hands  of  the  par-   (1883)  109  U.  S.  522;  b.  c.  3  Sup  Ct. 
^with  whom  they  were,  in  the  name   Rep.  315.    As  to  the  effect  of  a  nulway 
of  the  corporation,  making  a  contract   corporation  and  a  construction  com- 
L  over  a  million  of  dollars,  do  de-   pany  having  mainly  the  «ame  offic^^ 
nounce  and  repudiate  that  contract,    see  Davidson  r.  Mexican  National  R. 
The  conduct  of  these  directors  is  utterly    Co..  58  Fed.  Rep.  God. 


§198] 


FBAUDULENT  ACTS  OF  OFFICERS. 


285 


control  of  the  corporation  being  surrendered  to  the  association, 
and  because  the  latter  looked  to  the  ultimate  acquisition  of  the 
road.  These  facts  were  held  not  to  establish  fraud.^  It  was  also 
insisted  in  this  case  that  the  transaction  was  fraudulent  because, 
at  the  time  of  its  consummation,  three  of  the  thirteen  directors  of 
the  railroad  corporation  were  members  of  the  association  pur- 
chasing. The  court  held  that  this,  if  a  fact,  would  not  make  the 
sale  void.2  The  fact  that  shortly  after  the  contract  for  purchase 
of  bonds,  etc.,  was  proposed  to  the  railroad  corporation,  and 
before  its  acceptance,  several  of  the  directors  became  members  of 
the  association  was  held  to  render  the  contract,  when  made,  void- 
able only,  and  not  absolutely  void.«     It  was  further  held  m  this 

» Kitchen  v.  St.  Louis.  Kansas  City 

&  Northern  Ry.   Co.,  (1878)  69  Mo. 

224.     The  court  said:  "  There  is  noth- 
ing inconsistent  with  the  utmost  good 

faith  in  either  of  these  stipulations  [as 

to  purchase  of  the  road  or  securing  con- 
trol of  it].     The  last  might  well  have 

been  insisted  on  because  the  purchase 

of  the   bonds,  if  made,  involved  and 

would    require    millions    of     money, 

and  the  only  security  which  could  be 

relied  upon  to  save  harmless  those  who 

furnished  it.  would  be  a  faithful  and 

honest  application  of  it  to  the  comple- 
tion   and    equipment    of    the    road. 
Hence,  there  was  a  propriety  in  the 
demand  of  these  capitalists  that  they 
should  have  a  controlling  voice  in  the 
directory  in  order  that  the  money  fur 
nished  might  be  thus  applied  and  re- 
sult in  giving  them  ample  security  for 
their  investment  in  the  bonds.     So,  in 
regard  to  the  first  stipulation,  '  to  buy 
the  road  ultimately,  if  deemed  profit- 
able to  do  so,'  it  may  be  said  that  there 
was  nothing  illegal  or  fraudulent  in 
that  alone,  as  we  cannot  presume  and 
infer  from  it,  that  if  they  should  pur- 
chase they  would  purchase  it  in  any 
other  than  a  lawful  manner  and  under 
circumstances  which  would  authorize 

them  to  buy." 

« Kitchen  i).  St.  Louis,  Kansas  City 
&  Northern  Ry.  Co.,  (1878)  69  Mo. 


224;  citing,  as  authority,  Buell  v. 
Buckingham,  16  Iowa,  284;  Hartridge 
v.  Rockwell,  R.  M.  Charlton's  Rep. 
260;  Twin-Lick  Oil  Co.  v.  Marbury, 

91  U.  S.  587. 

3  Kitchen  v.  St.  Louis,  Kansas  City 
&  Northern  Ry.  Co.,   (1878)  69  Mo. 
224.     The  court  said,  arguendo,  lead- 
ing up  to  the  conclusion  stated  in  the 
text:    "Viewing    the    transaction    as 
one  under  which  the  Missouri  Rail- 
road Company  was  to  receive  sufficient 
money  to  complete  the  road,  as  therein 
stipulated,  and  pay  the  interest  on  the 
first  mortgage  bonds  and  save  the  road 
from  sale,  we  have  the  highest  author- 
ity for  saying  that  it  was  not  void,  as 
is  contended  by  plaintiffs.    In  the  case 
of  the  Twin-Lick  Oil  Co.  v.  Marbury, 
91  U.  S.  588,  which  is  a  recently  and 
thoroughly  considered  case,  the  court, 
after  recognizing  to  the  fullest  extent 
that  a  director  of  a  corporation  occu- 
pying a  fiduciary  relation  in  his  deal- 
ings with  the   subject-matter  of  his 
trust  or  agency,  and  with  the  bene- 
ficiary whose  property  is  confided  to 
his  care,  is  viewed  with  jealousy,  and 
that    his    acts   may   be  set  aside    on 
sliirht  grounds,  declares  '  that  the  gen- 
eral doctrine  in  regard  to  contracts  of 
this  class  is  not  that  they  are  absolutely 
void,  but  that  they  are  voidable  on  the 
election  of  the  party  whose  interest 


k  \ 


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11 


286 


FRAUDULENT  ACTS  OF  OFFICERS. 


[§199 


ease  that  the  stockholders  in  meeting,  having  had  this  proposi- 
tion made  to  them  for  the  purchase  of  the  bonds  and  obtaining 
control  of  the  road,  etc.,  submitted  to  them  and  making  no  objec- 
tions, it  was  too  late,  after  the  lapse  of  five  years,  for  them  to 
impeach  the  transaction.^  The  mere  fact  that  the  president  of  a 
railroad  company,  unknown  to  the  other  directors,  is  interested 
in  a  construction  contract  let  by  the  company  would  not  make 
the  contract  void  if  it  be  otherwise  free  from  fraud.'^ 

§  199.  Issue  of  worthless,  or  overissue  of,  stock. —  Directors 
issuing  spurious,  worthless  stock  woukl  perpetrate  a  wrong  upon 
the  corporation  and  its  stockholdei-s,  and  a  fraud  upon  every  one 
who  might  take  it  as  fully  paid-up  stock,  relying  upon  the  appear- 
ances and  deceived  thereby.^  In  case  an  attempted  organization  by 
failure  to  comply  with  the  statute  for  organizing  corporations  of 
its  kind  does  not  become  a  corporation  (lejure,  and  cannot  legally 
issue  stock,  the  issue  of  stock  by  it  will  not  alone  make  the 
directors  liable  for  a  fraudulent  conspiracy  to  issue  worthless 
stock.*  Neither  can  an  intent  to  deceive  on  the  part  of  the 
directors  be  inferred  from  such  issue  of  worthless  stock,  and  the 
fact  that  the  nominal  is  largely  in  excess  of  the  actual  capital.'* 
One  who  had  purchased  shares  of  stock  of  a  corporation,  the 
managing  officers  of  which,  president,  vice-president  and  director 
and  treasurer,  had  made  an  overissue  of  stock  for  a  large  amount 


lias  been  so  represented  by  the  party 
claiming  under  it.  While  it  is  true 
that  a  director  of  a  corporation  is 
bound  by  all  those  rules  of  conscien- 
tious fairness  which  courts  of  equity 
have  imposed  as  guides  for  dealing  in 
such  cases,  it  cannot  be  maintained 
that  any  rule  forbids  one  director 
among  several  from  loaning  money  to 
the  corporation  when  the  money  is 
needed  and  the  transaction  is  open  and 
otherwise  free  from  blame.  *  *  * 
No  adjudged  case  has  gone  so  far  as 
this.  Such  a  doctrine,  while  it  would 
afford  but  little  protection  to  the  cor- 
poration against  actual  fraud,  would 
deprive  it  of  the  aid  of  those  most 
interested  in  giving  aid  and  best  quali- 
fied to  judge  of  the  necessity  of  that 
aid  and  the  extent  to  which  it  might 


be  given.'  The  same  doctrine  was,  in 
the  strongest  terms,  announced  in 
Judge  RvTiAND's  opinion  in  the  case 
of  The  Citv  &  Countv  of  St.  Louis  v. 
Alexander.  23  3Io.  528,  and  the  au- 
thorities cited,  upon  which  the  opinion 
is  based." 

'  Kitchen  v.  St.  Louis,  Kansas  City 
&  Northern  Ry.  Co.,  (1878)  69  Mo.  224. 

'Augusta,  Tallahassee  &  Gulf  R. 
Co.  r.  Kittel,  (1892)  52  Fed.  Rep.  63. 

3  Barnes  v.  Brown,  (1880)  80  N.  Y. 
527,  534;  citing  Mechanics'  Bank  r. 
New  York  &  New  Haven  R.  R.  Co., 
13  N.  Y.  599;  Bruff  i\  Mali,  36  N.  Y. 
200;  Morgan  v.  Skiddy,  62  N.  Y.  319; 
Shotwell  V.  Mali,  38  Barb.  445. 

*  Nelson©.  Luling,  (1875)  62  N.  Y. 
645. 

» Ibid. 


§199] 


FBAUDULENT  ACTS  OF  OFFICERS. 


287 


and  converted  the  proceeds  to  their  own  use,  was  held  to  have 
stated  a  good  cause  of  action  in  his  complaint  against  those  officers 
in  alleging  the  abov.e  facts,  and  the  further  allegation  that  by  the 
overissue  of  stock  the  genuine  stock,  including  that  held  by  him- 
belf,  was  rendered  valueless  and  became  unsalable.'     Officers  of  a 
corporation  issuing  false  certificates  of  stock   authenticated   by 
.them  as  genuine  and  placed  by  them  on  the  market  with  fraudu- 
lent intent,  are  lial)le  to  every  holder  into  whose  hands  they  may 
come  by  fair  purchase.^     In  a  Vermont  case,  where  the  treasurer 
of  the  corporation  had  fraudulently  overissued  stock  of  the  cor- 
poration and  sold  the  same  for  money,  it  was  held  that  the  cor- 
poration might  recover  in  general  assumpsit  from  him  the  money 
he  had  received  for  such  stock,  where  the  spurious  stock  had 
become  so  intermingled  with  the  genuine  as  to  be  indistinguishable 
and  the  corporation  liad  been  compelled  to  and  had  treated  it  as 
genuine  ^    Further,  that,  although  the  stock,  when  issued,  may 
have  been  absolutely  void,  and  the  issuing  of  it  by  the  treasurer 
a  crime,  the  treasurer  could  not  allege  the  illegality  of  his  act  as 
a  reason  why  he  should  not  pay  over  the  money.'* 

1  Cazeaux  r.  Mali,  (1857)  25  Barb.  ^  Ibid.  In  Wright's  Appeal  (1882) 
578-  .  c,  as  Mead  r.  Mali,  15  How.  Pr.  99  Pa.  St.  425,  the  president  of  a  rail- 
347'  See  also.  Wells  r.  Jewett,  11  way  corporation,  it  appeared,  induced 
How  Pr  '242;  Bell  r.  Mali,  11  How.  a  stockholder  in  the  corporation  to 
p     2^4  '  surrender  to  him  her  shares  of  stock, 

''Bruff  r  Mali   (1867)  36  N.  Y.  200;   together  with  blank  powers  of  attor- 
Seiser  r  Mali,  6  Abb.   Pr.  270,  rwte;    uey  to  transfer  the  same,  by  means  of 
Shotwell  V    Mali,  38  Barb.  445.     For   false  representations  that  they  were 
a  case  illustrating  under  what  circum-    needed  to  aid  the    corporation.     He 
stances  the  purchasers  of  stock  endan-    gave  to  her  his  individual  due  bill 
irered    thereby    would    not  have    a   transferred  the  stock  and  embezzled 
remedy  in  equity  against  the  fraudu-    the  proceeds.     Subsequently,  by  com- 
lently  acting  directors,  see  Morrison   bination  with  other  officers,  he  fraudu- 
T    Globe  Panorama  Co.,  28  Fed.  Rep.    lently  issued  stock  in  excess  of  the 
817    Fraudulent  issue  of  stocTi:  Clark   charter  limit,  and  of  this  overissue  of 
V    American  Coal  Co.,  (Iowa,  1894)53   stock  he  awarded    to  the  use    from 
N  W   Rep   291-  Citizens'  Nat.  Bank    whence  he    had    secured    the  shares 
of  Cincinnati^.  Cincinnati,  N.O.&T.    which    he    transferred  a  number    of 
R   Ry    Co    29  Wkly.   Law  Bull.  15;    shares  equal  to  the  number  of  her 
Brown  r.  Duluth,  M.  &  N.  Ry.  Co.,    voted  shares.     In  an  equity  proceed- 
53  Fed    Rep    889;   Florida  Land  &  ing  by  her  to  determine  her  rights  and 

Imp   Co   ..  Merrill,  52  Fed.  Rep.  77:   the  corporation's  growing  out  of  this 

8  c    2  C  C  A  629.  transaction,    the    Supreme  Court  ol 

3  Rutland    Railroad   Co.   r.  Haven,    Pennsylvania  held  that  she  must  bear 

(1889)  62  Vt.  39;   8.  c,  19  Atl.  Rep.    the  loss  resulting  from  the  embezzle- 

„^  ment  by  the  president  of  the  funds  re- 


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288 


PEAUDULENT  ACTS  OP  0FFICEB8. 


[§200 


■  f 


i  200.  False  representations  of  officers  —  deceit  —  Tlic 
directors  of  a  corporation  are  personally  liable  to  pereons  who 
may  snstain  loss  in  consequence  of  false  representations  made  by 
tiie  dir^tors  to  them  or  to  the  pnhlic  at  large,  snch  representa 
tions  bemg  fraudulently  and   designedly   made,   or  ignorantly 
made  concernmg  facts  susceptible  of  knowledge,  and  of  which 
1     heofficaldutyof  the  directors  to  obtain  correct  informa-. 
t.on.      A  stockholder  ,n  this  Texas  case  had  l«en  induced  by  the 
representations  of  these  director,  to  deposit  money  with  the  com- 
I»ny,  winch  wa.  then  insolvent,  and  these  directo'rs  had  accepted 
the  deposits  and  applied  them  to  the  payment  of  a  debt  for  which 
they   were   sureties.     The   court   held   that   the   directors  were 
estopped   m  this  action  to  charge   them  pemnally  to  set  up 
as  a  defense  their  want  of  authority  to  receive  the  deposits^ 
It  was  further  held  that  the  fact  that  the  plaintiff  was  a  stock- 
holder  and  had  access  to  the  books  of  the  concern,  and  the  means 
of  knowing  Its  true  condition  would  not,  of  itself,  prevent  a 
recovery  against  the  directors.^     Persons  representing  to  the  pub- 
lic that  a  corporation  had   been  regularly  organized,^in  circular 
Bigned  by  them  ^  regularly  elected  officers,  and  prematurely 
issning  stock  certificates,  one  purchasing  such  certificates  will  be 
entitled  to  recover  damages  for  his  injury,  the  result  of  such  pur- 
chase, irrespective  of  any  intent  on  their  part  to  defraud  him  in 
particular.'    In  an  action  against  the  directors  of  an  insurance 


suiting  from  a  sale  of  her  valid  shares, 
and  that  the  shares  he  issued  to  her 
in  excess  of  the  charter  limit  were 
invalid  and  valueless.  The  ground 
was  that,  under  the  facts  of  the  case, 
the  president  was  acting  as  her  agent 
and  not  as  agent  for  the  corporation. 
For  another  case  involving  the  fraudu- 
lent issue  of  stock  by  this  president  of 
this  railroad  corporation,  see  Mount 
Holly  Paper  Co.'s  Appeal,  (1882)  12 
W.  N.  C.  (Pa.)  228. 

» Kinkier  v.  Junica,  (1892)  84  Tex. 
116;  s.  c.  19  8.  W.  Rep.  359,  adhering 
to  Scale  V.  Baker,  70  Tex.  286;  s.  c  7 
8.  W.  Rep.  742. 

*  Kinkier  v.  Junica,  (1892)  84  Tex 
116;  a  c,  19  8.  W.  Rep.  359. 

*Ibid.     The  court  said:  "A  stock- 


holder in  a  corporation  has  as  much 
right  to  protection  against  the  fraudu- 
lent acts  of  the  trustees  or  directors  as 
any  one  else,  if,  indeed,  he  has  not 
more  right,   although  on  account  of 
his  access  to  the  books,  he  may  be 
held  to  greater  care  in  his  dealings 
with  the  corporation."    As  to  what 
would  be  proper  instructions  to  the 
jury  in  an  action  of  deceit  to  charge  a 
president  of  a  corporation   with   the 
debt  of  the  corporation  by  reason  of 
his  representations  to  a  creditor  as  to 
the  solvency  of  the  corporation,  see 
King  V.  Davis,  (1891)  61  Hun,  627;  s. 
c,  16N.  Y.  Supp.  427. 

*Fenn  v.   Curtis.    (1881)   23   Hun, 
384. 


200] 


FBAITDULENT  ACTS  OF  OFFICEBS. 


289 


corporation  for  damages  incurred  bj  one  who  had  been  induced 
by  a  statement  made  by  its  officers  as  to  its  assets,  to  insure 
his  property,  and  had  met  with  a  loss,  which,  by  reason  of  the 
utter  insolvency  of  the  corporation,  he  was  unable  to  make  good 
out  of  the  corporation,  based  upon  the  misfeasance  of  the  direct- 
ors in  fraudulently  permitting  such  statement  to  be  made,  one  of 
the   defendants   denied  his  participation  in  the  fraud,  and  all 
knowledge  that  certain  bonds  belonging  to  him  were  represented 
in  the  official  published  statement  as  property  of  the  company. 
The  Supreme  Court   of   Connecticut   held   that   evidence   was 
admissible  on  the  part  of  the  plaintiff  to  show  that  the  president 
and  another  director  of  the  corporation  had,  shortly  before  the 
publication  of  the  statement,  solicited  the  director  denying  his 
liability  to  make  some  arrangement  by  which  the  bonds  could  be 
represented  to  be  the  property  of  the  corporation ;  also,  that  a 
receipt  given  by  him  to  the  corporation,  acknowledging  that  the 
bonds  were  the  property  of  the  corporation,  and  were  held  by 
him  subject  to  its  order,   was  admissible ;  further,  that  his  acts 
after  the  plaintiff  had  taken  his  policy,  not  in  themselves  inde- 
pendent, but  connected  with  and  growing  out  of  the  previous 
fraudulent  purpose,  were  admissible  to  show  his  knowledge  of, 
and  participation  in,  the  fraud.^     The  United  States  Supreme 
Court  affirmed  the  sustaining  of  a  demurrer  to  a  bill  filed  by 
bondholders  against  the  president  of  a  railroad  corporation  and 
others,  to  make  him  liable  to  them  on  allegations  of  fraudulent 
representations  on  his  part  as  to  the  length  of  the  road,  a  mort- 
gage on  which  was  to  be  a  part  of  the  security  for  the  payment 
of  the  bonds,  and  for  fraudulently  allowing  a  misapplication  of 
the  moneys  realized  upon   the  sale  of  the  bonds  to  them,  etc. 
They  held  that  the  allegation   in  the  bill  that   the   president 
received  money  from  the  sale  of  the  bonds,  but  not  averring  that 
the  bondholders  had  obtained  judgment  against  the  corporation 
upon  their  bonds,  and  that  execution  issued  on  the  judgment 
against  the  corporation  had  been  returned  nulla  bona,  showed 
nothing  entitUng  the  bondholders  to  relief  in  equity  as  a  creditor 
of  the  corporation  ;  further,  that  the  president  of  such  a  corpora- 
tion held  no  fiduciary  relation  to  the  bondholders  of  the  corpora- 
tion which  required  him,  as  their  trustee  or  agent,  to  see  to  the 

'Salmon  v.  Richardson,  (1862)  30  Conn.  360. 
37 


4 
i 

I 


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I' 


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290 


FRAUDULENT  ACTS  OF  OFFICERS. 


[§  200 


proper  application  of  the  moneys  received  by  the  corporation 
from  the  sale  of  the  bonds,  or  to  account  to  the  bondholders  for 
any  surplus  from  the  proceeds  of  their  bonds  after  constructing 
the  works  for  which  they  were  issued  ;  that  his  fiduciary  relations 
and  duties  in  these  respects  were  to  the  corporation  and  its  stock- 
holders, and  not  to  the  creditors  of  the  corporation ;  that  the 
representations  made  in  the  circular  issued  under  his  name  were 
the  representations  of  the  corporation,  and  in  no  respect  his  per- 
sonal representations.*     The  president  of  a  manufacturing  cor- 
poration writing  to  induce  one  to  purchase,  and  pay  in  cash  for 
it  $10,000,  value  of  its  stock  at  par,  offered  a  position  for  her  son, 
and  represented  to  her  by  letter  that  the  corporation  was  in  a 
flourishing  condition,  and  that  there  had  been  paid  a  dividend  of 
seven  per  cent  upon  the  stock,  as  she  reasonably  understood  the 
letter,  nine  months  before,  wlien  in  fact  it  was  paid  one  year 
before  that  date.     This  was  three  months  before  the  close  of  a 
fiscal  year,  and  when   that   j)eriod   of   time   was   reached,   she 
expected  a  dividend,  but  was  informed  that  the  condition  of  the 
corporation  was  such  that  the  managers  had  deemed  it  best  to 
withhold  declaring  a  dividend.     This  president,  it  afterwards,  in 
her  action  by  bill  in  equity,  developed,  had  sold  certain  recipes 
and  good  will,  etc.,  for  manufacturing  the  articles  which  they 
manufactured,  which  were  utterly  worthless,  and  for  which  he 
had  been  paid  largely  out  of  the  money  she  paid  in  for  stock 
purchased  under  the  inducements  he  had  held  out  to  her,  and 
upon  his  representations.     Her  bill  was  filed  against  the  corpora- 
tion and  the  president  for  recovery,  account,  etc.,  to  have  the 
assets  of  the  corporation,  in  so  far  as  they  would  be  available  to 
her  claim,  for  the  amount  of  money  she  had,  in  the  mode  pro- 
posed to  her,  contributed  to  the  corporation,  and  for  general 
relief  for  the  deficiency  against  the  president  on  account  of  his 
fraudulent  representations  and  wrongdoings  in  the  management 
of  the  corporation's  finances  in  his  own  interest  by  which  she  was 
damaged.     It  was  contended,  before  the  Supreme  Court  of  the 
United  States,  that  the  court  had  no  jurisdiction  in  equity,  as 
against  him.     The  court  sustained  its  jurisdiction  on  the  various 
grounds  of  equity  as  shown  in  the  allegations  of  the  bill,  and  the 
findings  as  to  the  facts,  and  aflSrmed  the  decree  in  her  favor  for 
the  deficiency  against  the  president  of  the  corporation  individu- 

» Van  Wed  r.  Winston,  (1885)  115  U.  8.  228;  8.  c,  6  Sup.  Ct.  Rep.  22. 


§200] 


FRAUDULENT  ACTS  OF  OFFICERS. 


291 


ally.*  An  officer  of  a  corporation  making  false  statements  with 
reference  to  the  financial  status  of  the  corporation,  and  thereby 
inducing  an  exchange  of  property  by  another,  for  such  stock, 
would  be  liable  to  the  latter  in  a  personal  action  for  the  damages 
caused  to  him  by  the  transaction.*  This  would  be  true  even  if 
the  false  statement  be  made  by  the  officers  in  a  statement  as  to 
the  resources  and  liabilities  of  the  corporation,  required  by  stat- 
ute, if  such  statement  is  relied  upon  in  purchasing  the  stock.' 
"Where  several  persons  engage  in  business  jointly,  and,  to  facilitate 
such  business,  use  a  corporate  name  and  issue  stock,  and,  in  the 
promotion  of  the  scheme,  false  representations  are  made  by  those 
holding  themselves  out  as  promoters  and  managers  of  the  busi- 
ness, as  to  the  material  facts  of  inducement  and  as  to  matters 
peculiarly  within  the  knowledge  of  all  the  associates  or  their 
agents,  all  those  engaged  in  the  promotion  of  the  business,  as 
associates  of  those  making  the  false  representations,  are  liable  to 
those  who,  relying  upon  such  representations,  purchase  stock  to 
their  cost  and  injury.* 


» Tyler  v.  Savage,  (1892)  143  U.  S. 
79;  8.  c,  12  Sup.  Ct.  Rep.  340.  Mr. 
Justice  Blatchfori),  referring  espe- 
cially to  the  statement  as  to  the  prior 
declanition  of  a  dividend,  in  his  letter 
to  complainant,  said:  "This  suppres- 
sion of  a  material  fact  [the  date  when 
the  dividend  was  actually  declared] 
which  Tyler  [the  president]  was  bound 
in  good  faith  to  disclose,  was  equiva- 
lent to  a  false  representation.  Stewart 
V.  Wyoming  Ranche  Co..  128  U.  S. 
383,  388.  The  effect  of  the  fraud  com- 
mitted by  Tyler  inured  directly  to  his 
personal  advantage.  Not  only  was  he, 
as  a  large  stockholder  and  salaried 
officer,  benefited  by  the  plaintiff's  pay- 
ment into  the  treasury  of  the  company 
of  the  $10,000,  but,  as  already  shown, 
$6,200  of  that  sum  went  directly  to 
his  benefit,  and  the  remainder,  he  tes- 
tifies, went  to  the  purchase  of  material 
and  ordinary  expenses  of  the  company. 
The  latter  amount  enabled  the  com- 
pany to  continue  paying  to  Tyler  his 
salary  for  some  time  longer." 

•Newbery    v.    Garland,    (1860)   31 


Barb.  121.  See,  also,  Bagshawt'.  Sey- 
mour, 4  C.  B.  (N.  S.)  873. 

3  Morse  v.  Swits,  19  How.  Pr.  275. 

■'Hornblower  v.  Crandall,  (1879)  7 
Mo.  App.  220;  affirmed  in  Hornblower 
V.  Crandall,  (1883)  78  Mo.  581.  It  was 
said  in  Hornblower  v.  Crandall,  7  Mo. 
App.  220,  232:  "The  doctrine  by 
which  the  defendants  are  here  made 
liable  is  a  well-settled  doctrine.  Per- 
sons investing  in  stock,  under  circum- 
stances like  the  present,  have  a  right 
to  confide  in  those  who  hold  themselves 
out  as  the  promoters  and  managers  of 
a  business  which  they  are  carrying  on, 
so  far  as  concerns  representations  made 
by  such  promoters,  or  under  their  au- 
thority, as  to  material  facts  of  induce- 
ment peculiarly  within  the  knowledge 
of  the  associates  or  their  agents." 
Citing  Cross  «.  Sackett,  2  Bosw.  617; 
Cazeaux  v.  Mali,  25  Barb.  583;  Simons 
V.  Vulcan,  etc.,  Co.,  61  Pa.  St.  202; 
Morgan  v.  Skiddy,  62  N.  Y.  319;  Mil- 
ler V.  Barber,  66  N.  Y.  558;  Bradley 
V.  Poole,  98  Mass.  169;  New,  etc.,  Co. 
V.  Erlanger,  4  Cent.  L.  J.  510. 


i 


^  \ 


292 


FRAUDULEIJT  ACTS  OF  0FFICEB8. 


[§201 


§202] 


FRAUDULENT  ACTS  OF  OFFICEES. 


293 


§  201.  A  leading  English  decision  on  this  subject— In  a 
comparatively  late  English  case,  an  action  of  deceit  brought  by  a 
shareholder  against  the  directors  of  a  tramway  company,  based 
upon  statements  in  a  prospectus  which  they  issued,  which  induced 
him  to  purchase  his  shares,  it  appeared  that  the  company  was 
incorporated  with  the  right  to  move  their  carriages  by  animal 
power,  and,  with  the  consent  of  the  board  of  trade  of  the  city,  by 
steam  power.     It  was  stated  in  the  prospectus  that  the  company 
had  the  right  to  use  steam  power  instead  of  horses.     On  the  faith 
of  this  statement  the  plaintiflF  purchased  his  shares.     The  board  of 
trade  afterwards  refused  their  consent  to  the  use  of  steam  power 
and  the  company  was  wound  up.     The  justice  before  whom  the 
action  was  first  tried  gave  a  decision  upon  the  case  made  before 
him  in  favor  of  the  directors.     This  decision  was  reversed  by  the 
Court  of  Appeal.^     Upon  appeal  to  the  House  of  Lords,  the  Court 
of  Appeal's  decision  was  reversed  and  the  trial  justice's  decision 
restored.    The  decision  of  the  House  of  Lords  was  that  the  direct- 
ors were  not  liable,  inasmuch  as  their  statement  in  the  prospectus 
as  to  the  use  of  steam  power  was  made  by  them  in  the  honest 
belief  that  it  was  true.     The  main  opinion  in  the  case  was  by  Lord 
Herschell,  whose  discussion,  treatment  of  and  conclusions  from 
all  the  leading  English  cases  upon  actions  of  deceit  were  accepted 
by  the  others  in  tlieir  opinions.     These  conclusions  were  thus 
summarized  and  stated  by  Lord  Herschell  :  *'  F'irst.  In  order  to 
sustain  an  action  of  deceit  there  must  be  proof  of  fraud  and  noth- 
ing short  of  that  will  suffice.     Second  It/,  Fraud  is  proved  when  it 
is  shown  that  a  false  representation  has  been  made  knowingly  or 
without  belief  in  its  truth,  or  recklessly  careless  whetlier  it  be 
true  or  false.     Although  I  have  treated  the  second  and  third  as 
distinct  cases,  I  think  the  third  is  but  an  instance  of  the  second, 
for  one  who  makes  a  statement  under  such  circumstances  can 
have  no  real  belief  in  the  truth  of  what  he  states.     To  prevent  a 
false  statement  being  fraudulent  there  must,  I  think,  always  be 
an  honest  belief  in  its  truth.     And  this  probably  covers  the  whole 
ground,  for  one  who  knowingly  alleges  that  which  is  false  has 
obviously  no  such  honest  belief.     Thirdly.  If  fraud  be  proved, 
the  motive  of  the  person  guilty  of  it  is  immaterial.     It  matters 
not  that  there  was  no  intention  to  cheat  or  injure  the  person  to 
whom  the  statement  was  made.     *    *    *     In  my  opinion,  mak- 

» Bee  Peek  v.  Deny,  37  Ch.  Div.  541. 


ing  a  false  statement  through  want  of  care  falls  far  short  of,  and 
is  a  very  different  thing  from,  fraud,  and  the  same  may  be  said 
of  a  false  representation  honestly  believed,  though  on  insufficient 
grounds.  *  *  *  I  am  unable  to  hold  that  anything  less  than 
fraud  will  render  directors  or  any  other  persons  liable  in  an  action 
of  deceit."  * 

§202.  The  rule  adhered  to  in  England. —  In  a  later  Eng- 
lish case  it  appeared  that  one  who  was  the  principal  partner  in  a 
trading  firm  concurred  in  steps  for  turning  the  partnership  into  a 
company  with  limited  liability.  His  name  appeared  on  the 
prospectus  as  managing  director  of  the  new  company,  with  a  note 
that  he  would  not  join  the  board  till  after  the  transfer  of  the 


» Derry  v.  Peek,  (1889),  14  App.  Cas. 
337.  Lord  Herschell  took  occasion 
to  say  further:  "  At  the  same  time  I 
desire  to  say  distinctly  that  when  a 
false  statement  has  been  made  the 
questions  whether  there  were  reason- 
able grounds  for  believing  it,  and  what 
were  the  means  of  knowledge  in  the 
possession  of  the  person  making  it, 
are  most  weighty  matters  for  consid- 
eration. The  ground  upon  which  an 
alleged  belief  was  founded  is  a  most 
important  test  of  its  reality.  I  can 
conceive  many  cases  where  the  fact 
that  an  alleged  belief  was  destitute  of 
all  reasonable  foundation  would  suf- 
fice of  itself  to  convince  the  court 
that  it  was  not  really  entertained,  and 
that  the  representation  was  a  fraudu- 
lent one.  So,  too,  although  means  of 
knowledge  are,  as  was  pointed  out  by 
Lord  Blackburn  in  Brownlie  v. 
Campbell,  (5  App.  Cas.  at  page  952), 
a  very  different  thing  from  knowl- 
edge, if  I  thought  that  a  person 
making  a  false  statement  had  shut  his 
eyes  to  the  facts,  or  purposely  ab- 
stained from  inquiring  into  them,  I 
should  hold  that  honest  belief  was  ab- 
sent, and  that  he  was  just  as  fraudu- 
lent as  if  he  had  knowingly  stated 
that  which  was  false.  I  have  arrived 
with  some  reluctance  at  the  conclu- 


sion to  which  I  have  felt  myself  com- 
pelled, for  I  think  those  who  put 
before  the  public  a  prospectus  to  in- 
duce them  to  embark  their  money  in  a 
commercial  enterprise  ought  to  be 
vigilant  to  see  that  it  contains  such 
representations  only  as  are  in  strict 
accordance  with  fact,  and  I  should  be 
very  unwilling  to  give  any  counte- 
nance to  the  contrary  idea.  I  think 
there  is  much  to  be  said  for  the  view 
that  this  moral  duty  ought  to  some 
extent  to  be  converted  into  a  legal 
obligation,  and  that  the  want  of  rea- 
sonable care  to  see  that  statements 
made  under  such  circumstances  are 
true  should  be  made  an  actionable 
wrong.  But  this  is  not  a  matter  for 
fit  discussion  on  the  present  occasion. 
If  it  is  to  be  done  the  legislature  must 
intervene  and  expressly  give  a  right 
of  action  in  respect  of  such  a  depar- 
ture from  duty.  It  ought  not,  I 
think,  to  be  done  by  straining  the  law, 
and  holding  that  to  be  fraudulent 
which  the  tribunal  feels  cannot  prop- 
erly be  so  described.  I  think  mischief 
is  likely  to  result  from  blurring  the 
distinction  between  carelessness  and 
fraud  and  equally  holding  a  man 
fraudulent  whether  his  acts  can  or 
cannot  be  justly  so  designated." 


!■ 


294 


FKAUDULENT  ACTS  OF  OFFICERS. 


[§  203 


business  of  the  company  had  been  completed.     lie  did  not  issue 
the  prospectus,  but  furnished  materials  for  it ;  saw  it  in  draft, 
though  not  in  its  linal  shape,  and  made  alterations  in  it.     It  was 
held  by  the  Court  of  Appeal  that,  under  the  circumstances,  he 
was  liable  to  the  same  extent  as  if  he  had  been  the  person  issuing 
the  prospectus.     Tlie  prospectus  contained  a  statement  that  the 
business  had  paid  seventeen  per  cent  upon  the  capital  employed 
in  it.     This  statement,  it  appeared,  might  be  true  if  "  capital 
employed"  did  not  include  the  business  premises,  or  only  included 
their   value  subject  to  mortgages  upon  tliem,  but  was  grossly 
untrue  if  the  whole  value  of  the  business  premises  was  taken  as 
part  of  the  capital.     This  action  was  brought  by  one  who  had 
taken  shares  on  the  faith  of  the  prospectus  for  damages  for  mis- 
representations.   The  Court  of  Appeal  held  that,  in  order  to  make 
a  person  liable  for  damages  for  misrepresentation,  it  was  not 
enough  that  the  statement  should  be  untrue,  and  made  without 
any  reasonable  ground  for  believing  it  to  be  true,  but  it  must  be 
made  dishonestly  ;  that  the  onus  of  proving  dishonesty  lay  on  the 
plaintiff ;  that  if  the  party  making  the  statement  believed,  how- 
ever unreasonably,  that  it  was  true,  he  was  not  liable.     And  as 
the  plaintiff  in  this  case  had  not  shown  that  the  statement  was 
made  dishonestly,  the  Court  of  Appeal  reversed  the  judgment 
and  dismissed  the  action.^ 

§  203.  Officers  conspiring  to  wreck  a  corporation.—  The 
power  given  to  a  president  of  a  corporation  to  borrow  money 
will  not  embrace  the  power  to  buy  stock  in  the  corporation,  or 

»  Glasier  v.  Rolls,  (1889)  42  Ch.  Div 
436,  following  Derry  v.  Peek,  14  App 


Cas.  337.  As  to  the  liability  of  cor- 
poration and  officers  making  them  for 
damages  resulting  to  individuals  from 
false  statements  of  such  officers  in 
prospectuses  or  otherwise,  see  Moffat 
t?.  Winslow,  7  Paige,  124;  National 
Exchange  Co.  v.  Drew,  32  Eng.  Law 
&  Eq.  Rep.  1,  14;  Pontife  t.  Bignold, 
3  Man.  &  Gr.  63;  Bagshaw  v.  Sey- 
mour, 93  Eng.  Com.  Law  Rep.  873; 
Johnson  tJ.  Goslett,  3  C.  B.  (N.  S.) 
569;  Colt  V.  Woolaston,  2  P.  Wms. 
154;  Green  v.  Barrett,  1  Sim.  45; 
Jones  V.   Garcia  Del  Rio,   1  Tur.  & 


Russ.  297;  Blain  v.  Agar,  1  Sim.  37; 
Gerhard  v.  Baley,  20  Eng.  Law  &  Eq. 
Rep.  130;  Colman  v.  Riches,  29  Eng. 
Liiw  &  Eq.  Rep.  323:  Hichens  v.  Con- 
greve,  4  Russ.  562;  Walburn  v.  In- 
gilby,  1  Mylne  &  K.  61;  Foss  v.  Har- 
bottle,  2  Hare,  461;  Pasley  v.  Free- 
man, 3  Term  Rep.  51;  Shrewsbury  v. 
Blount,  2  Scott's  N.  R.  588;  Gallager 
V.  Brunei,  6  Cowen,  346;  Allen  v.  Ad- 
dington,  7  Wend.  9;  Bailey  v.  Mayor, 
etc.,  3  Hill.  531;  City  of  Buffalo  v. 
Holloway,  3Scld.  493;  Culverts.  Avery, 
7  Wend.  384;  Upton  v.  Vail,  6  Johns. 
181;  Barney  v.  Dewey,  13  Johns.  224; 
Williams  v.  Wood,  14  Wend.  126. 


§204] 


FRAUDULENT  ACTS  OF  OFFICERS. 


295 


other  corporate  stocks  or  such  articles  as  the  corporation  may 
need  in  its  business.  Upon  this  construction  of  such  a  power 
given  to  a  president  of  a  corporation  in  an  Illinois  case  where  it 
appeared  that  the  president  of  a  private  corporation,  who  held  a 
controlling  share  of  the  stock,  was  given  the  power  to  borrow 
money,  sold,  as  the  agent  of  his  wife,  her  stock  to  the  company, 
and  gave  her  judgment  notes  payable  on  demand,  for  such  stock, 
upon  which  notes  judgment  was  confessed  in  favor  of  the  wife, 
under  which  judgment  all  the  corporate  property  was  sold,  and 
the  proof  showed  that  the  president,  in  the  transaction,  was  seek- 
ing to  break  down  the  corporation,  and  transfer  its  property 
fraudulently  to  his  wife,  and  there  being  proof  of  a  conspiracy 
on  the  part  of  the  president  and  secretary  to  wreck  the  corpora- 
tion, the  Supreme  Court  held  that  the  sales  of  the  corporate 
property  under  the  judgments  conferred  were  properly  set  aside 
on  the  bill  of  stockholders  and  creditors  filed  for  that  purpose.^ 

§  204.  President  conspiring  against  corporation  —  terms 
on  which  the  corporation  could  rescind  the  contract  made 
by  him. —  A  corporation  sought  to  recover  from  defendant  the 
money  which  had,  as  alleged,  been  paid  out  of  its  funds  by  its 
president,  in  carrying  out  a  conspiracy  between  defendant,  a 
holder  of  its  stock,  for  such  stock  at  par  value  when  it  was  only 
worth  seventy-iive  per  cent  of  its  par  value,  and  the  corporation 
itself  was  offering  unsubscribed  shares  of  its  capital  stock  at 
eighty  per  cent  of  its  par  value,  on  the  ground  of  fraud,  etc.,  the 
corporation  itself  at  the  time  being  financially  embarrassed  and 
its  then  president  acting  under  threats  from  the  defendant  of 
exposure  of  his  having  embezzled  funds  of  the  corporation.  The 
Supreme  Court  of  Cahf ornia  held  that  the  court  below  properly 
sustained  a  demurrer  to  the  complaint  of  the  corporation  upon 
the  ground  that  it  did  not  state  facts  sufficient  to  constitute  a 
cause  of  action.^ 


» J.  W.  Butler  Paper  Co.  v.  JefEery, 
(1894)  151  111.  588. 


V. 

s. 


•Bank  of  San  Luis  Obispo 
Wickersham,  (1893)  99  Cal.  655; 
c,  34  Pac.  Rep.  444.  The  court  said. 
arguendo:  "The  [corporation]  is  not 
entitled  to  any  relief  because  of  the 
alleged  fraud  practiced  upon  it  in  the 
sale  of  the  stock  without  a  complete 


rescission  of  the  contract  of  sale;  and  to 
effect  this  it  was  incumbent  upon  [the 
corporation]  to  act  with  reasonable  dili- 
gence and  return  or  offer  to  return  to  de- 
fendants the  stock  received  from  them 
under  the  contract.  It  cannot  be  per- 
mitted to  retain  the  shares  of  stock 
thus  received  by  it,  and  at  the  same 
time   recover   from    defendants   the 


f 


• 


296 


FBAUDULENT  ACTS  OB^  OFFICERS. 


[§205 


§  205.  Promoters  of  corporations  accountable  for  profits. 

—  The  cases  settle  that  it  is  incumbent  upon  a  promoter  of  a  cor- 
poration, if  he  wish  to  sell  property  of  his  own  to  it,  to  make 
full  and  fair  disclosure  of  his  interest  and  position  with  respect  to 
the  property,  and  to  furnish  the  corporation  with  a  board  of 
directors  capable  of  forming  a  competent  and  impartial  judgment 
as  to  the  wisdom  of  the  purchase,  and  the  price  to  be  paid ;  and, 
if  he  do  not,  he  will  not  be  allowed  to  retain  any  prolit  he  may 


money  paid  to  them  as  the  purchase 
price  of  such  stock.  This  would  be 
contrary  to  justice,  and  can  receive  no 
counteniince  in  a  court  of  equity. 
There  is  no  averment  in  the  complaint 
of  any  oflEer  on  the  part  of  [the  cor- 
poration] to  return  the  stock  pur- 
chased and  [it]  apparently  rested 
satisfied  with  the  contract  for  more 
than  fifteen  years.  Counsel  for  [the 
corporation]  do  not  dispute  the  gene- 
ral proposition  that,  to  entitle  one  to 
rescind  a  contract,  he  must  restore  to 
the  other  party  every  thing  of  value 
received  from  him  under  such  con- 
tract ;  but  it  is  claimed  by  them  that 
the  stock  was  extinguished  by  the 
sale,  and,  therefore,  cannot  be  legally 
returned,  and  that  all  defendant 
Wickersham  can  justly  claim  is  to  re- 
ceive in  the  statement  of  the  accounts 
demanded  in  the  complaint  a  credit 
for  the  value  of  such  stock  at  the  time 
of  the  sale.  We  do  nt>t  agree  with 
counsel  on  this  point.  The  shares  of 
stock  were  not  extinguished  by  the 
sale  in  such  sense  th:xt  they  could  not 
be  reissued  by  [the  cc»rporation]  to  any 
one  subsequently  subscribing  for 
shares  of  its  capital  stock.  [The  cor- 
poration's] purchase  did  not  reduce 
the  number  of  shares  which  [it]  was 
authorized  to  issue  by  its  articles  of 
incorporation.  The  only  effect  of  the 
transaction  w^as  to  reduce  the  amount 
of  the  subscribed  capital  stock  leaving 
the  [corporation]  free  to  again  issue 
the  same  number  of  shares  to  any  one 
desiring  to  subscribe    for  its  capital 


stock.  Cook  Stock  &  S.  §§  282,  314; 
1  Moraw.  Priv.  Corp.  §  114;  State  v. 
Smith,  48  Vt.  266;  Williams  v. 
Manufg.  Co.,  3  Md.  Ch.  451;  Railway 
Frog  Co.  V.  Haven,  101  Mass.  398. 
The  contract  of  sale  was  ultra  vires, 
and  resulted  in  an  illegal  withdrawal 
of  [the  corporation's]  capital  actually 
paid  in,  but  the  stock  was  not  actually 
extinguished,  and  so  long  as  there 
remained  that  number  of  shares  of  its 
capital  stock  unsold  the  [corporation] 
could  at  any  time  have  issued  a  new 
certificate  therefor,  and  tendered  the 
same  to  the  defendants  which  would 
in  legal  effect  have  been  a  tender  of 
the  same  shares  sold  by  them  to  [the 
corporation]."  In  Coal  Co.  «j.  Lots- 
peich,  (Ky.)  20  S.  W.  Rep.  378,  the 
president  of  the  coal  company  entered 
into  a  contract  with  one  of  the  stock- 
holders to  deliver  to  him  a  quantity  of 
coal,  the  pay  therefor  to  be  applied  on 
the  payment  of  the  individual  in- 
debtedness of  the  president  to  the 
stockholder.  The  stockholder  brought 
an  action  to  enforce  the  contract  and 
asked  to  be  permitted  to  apply  the 
price  of  the  coal  on  the  debt.  The 
Kentucky  Court  of  Appeals,  in  pass- 
ing upon  the  question,  said:  "The 
pleadings  do  not  present  the  question 
of  fraud  by  way  of  defense,  but, 
nevertheless,  in  construing  a  contract 
made  between  officers  of  a  corpora- 
tion, by  which  a  corporate  liability  is 
attempted  to  be  created  to  the  one 
officer  or  the  other,  that  construction 
should  be  placed  on  terms  most  favor- 


§205] 


FBAUDULENT  ACTS  OF  OFFICERS. 


297 


have  made  out  of  the  corporation  in  such  a  sale.*  It  appeared 
in  a  case  reserved  from  the  Superior  Court  for  the  adjudica- 
tion by  the  Supreme  Court  of  Errors  for  Connecticut,  that 
the  promoter  of  a  corporation  had  secretly  agreed  with  a 
patentee  to  form  this  corporation  to  buy  his  patent,  the  patentee 
to  pay  the  promoter  half  of  the  price  paid  for  the  patents.  The 
promoter  induced  subscriptions  to  the  stock  of  the  corporation  by 
stating  that  he  was  subscribing  on  equal  terms  with  the  rest,  and 
being  elected  a  director,  voted  for  the  resolution  to  buy  the 
patents.  The  Supreme  Court  held  that  the  corporation  might 
recover  of  him  (the  promoter)  his  secret  profits,  and  that  it  was 
not  obliged  to  rescind  the  purchase,  and  so  destroy  its  own  reason 
for  being.  The  secret  contract  between  the  promoter  and  the 
owner  of  the  patents  was  held  by  the  court  to  be  void  as  against 
public  policy.^ 

able  to  the  corporation;  and  particu-  fiduciary  relation  toward  the  company 
larly  when  the  great  weight  of  the  or  corporation  whose  organization  they 
evidence  and  in  fact  all  of  it,  shows  seek  to  promote  is  well  settled  by  the 
that  corporate  property  was  being  decisions  of  both  [America  and  Eng- 
held  by  reason  of  this  contract,  to  land].  Lord  Cotton  prefers  to  call 
pay  'an  individual  debt  of  one  director  them  "  trustees."  Bagnall  v.  Carlton, 
to  the  other."  6  Ch.  Div.  385.     Sir  George  Jessel, 

» Plaquemines  Tropical  Fruit  Co.  v.  M.  R.,  in  a  case  (Phosphate  Co.  v.  Er- 
Buck,  (N.J.  Eq.  1893)  27  Atl.  Rep.  Ian  ger,  5  Ch.  Div.  73)  said:  "Promoters 
1094,  in  which  the  chancellor  reviews  stand  in  a  fiduciary  relation  to  that 
the  cases  and  discusses  the  subject  at  company  which  is  their  creature." 
]      g  In  Erlanger  v.  Phosphate  Co.,  L.  R.,  3 

«Yale  Gas  Stove  Co.  t>.  Wilcox,  App.  Cas.  1218,  the  lord  chancellor  said 
(1894)  64  Conn.  101;  8.  c,  29  Atl.  Rep.  of  promoters:  "  They  stand,  in  my 
303  The  court  reviewed  a  number  of  opinion,  undoubtedly  in  a  fiduciary 
cases  to  which  the  defendant's  counsel  position.  They  have  in  their  hands 
had  cited  it,  and  then  discussed  the  the  creation  and  molding  of  the  com- 
relations  of  promoters  to  the  corpora-  pany.  They  have  the  power  of  defin- 
tions  which  they  helped  to  form,  as  ing  how.  and  when,  and  m  what  shape 
follows-  "A 'promoter'  has  been  de-  and  under  what  supervision,  it  shall 
fined  to  be  a  person  who  organizes  a  start  into  existence,  and  begin  to  act 
corporation.  It  is  said  to  be  not  a  as  a  trading  corporation.  If  they  are 
legal  but  a  business  terra,  '  usefully  doing  all  this  in  order  that  the  com- 
summed  up  in  a  single  word,  a  num-  pany  may,  as  soon  as  it  starts  mto  bfe, 
ber  of  business  operations  familiar  to  become,  through  its  managing  direct- 
the  commercial  world  by  which  a  com-  ors,  the  purchasers  of  the  property  of 
pany  is  generally  brought  into  exist-  themselves  (the  promoters)  it  is,  m  my 
ence.'"  Bowen,  J.,  in  Printing  Co.  d.  opinion,  incumbent  upon  the  pro- 
Green.  28  Wkly.  Rep.  (Q.  B.  Div.  1880)  meters  to  take  care  that,  informing 
351,  352.    That  such  persons  occupy  a   the  company,  they  provide  it  with  an 

38 


»! 


» 


298 


FKAITDULKNT  ACTS  OF  OFFICERS. 


[§206 


§206] 


FRAUDULENT  ACTS  OF  OFFICERS. 


209 


l» 


§206.  Promoters  obtaining  stock  of  corporation  for 
nothing.—  In  a  case  in  the  federal  conrt  it  appeared  that  two 
individuals,  as  promoters  of  a  projected  corporation,  entered  mto 
an  agreement  with  the  owners  of  certain  patents  and  this  pro- 
posed corporation,  by  which  a  certain  number  of  shares  were  to 

executive:  that  is  to  say,  with  a  board    former.     Foes    f^.   Uarbottle    2  Hare, 
of  directors,  who  shall  both  be  aware   461,  468;  McElhenny's  APPf*^^'^!  f»- 
that  the  property  which  they  are  asked   St.  188;  Simons  v.  Vulcan  Oil  &  Mining 
'to  buy  is  the  property  of  the  pro-   Co.,  6lPa.  St.  202;  Dcnsmore  Oil  Co.  r. 
moters,  and  who  shall  be  competent   Densmore,  64   Pa.   St.    43;   Pittsburg 
and  impartial  judges  as  to  whether  the   Mining  Co.  r.  Spooner,  74  Wis.  30<;  8. 
purchase  ought  or  ought  not  to  be   c.  42  N.  W.  Rep.  259;  South  Jophn 
made.     I  do  not  say  that  the  owner  of   Und  Co.  v.  Case,   104  Mo.  5-2;  sc 
property  may  not  promote  and  form  a   16    8.  W.    Rep.    390;     l^^-e  British 
joint-stock  company  and  then  sell  his   Seamless  Paper  Box  Co.,  1.  ^h.   Uiv. 
property  to  it;  but  I  do  s^iy  that  if  he   467;  Sewage  Co.  v.  Hartmont   5  Ch. 
does,  he  is  bound  to  tt^ke  care  that  he   Div.  394.     In  the  last  case  the  distmc- 
sell  it  to  the  company  through  the   tive  feature  was  that  the  vendors  paid 
medium  of  a  board  of  directors  who   the  commission  to  the  trustees,  who 
can  and  do  exercise  an  independent   received  the  property  on  behalf  of  the 
and  intelligent  judgment  on  the  trans-   company.     They  were  compelled  to 
action  and  who  are  not  left  under  the   pay  it  to  the  company.     In  Hichens  v. 
belief 'that  the  property  belongs,  not   Congreve,  1  Russ.  &  M.  150  (on  ap- 
to  the  promoter,  but  to  some  other  per-   peal,    4  Russ.   562),  three  promoters 
son."    Continuing,  -  Lord  O'Hagan,    induced    their    company    to    buy    a 
referring   to    the    same  subject,   ex-   mine    for    £25,000.    of    which    they 
pressed  a  similar  opinion  in  even  more   received  from  the  vendor  and  divided 
emphatic   language,    declaring    that,    among    themselves,     £15.000.      This 
while  an  original  purchase  might  be   they    were     compelled     to    account 
legitimate,  and  not  less  so  because  the   for   to  the   company.     Similar  (^ses 
object  of  the  purchaser  was  to  sell  it   are  Beck  v.  Kantorowicz,  3  ^X  & /• 
again,  and  to  sell  it  by  forming  acorn-   230;  Printing  Co.  r.  Gre^"'  ^g  Wkly. 
p^anywhichmightaffordthem  a  profit   Rep.   (Q.   B.  Div    lf>)  351  ^  fining 
on  fhe  transaction,  yet  'the  privilege   Co.  ..  ^-^t.  11  Ch.  Div.  918;  Bagnall 
given  them  for  promoting  such  a  com-    r.  Carlton    6  Ch.   Div.   38o;  Kent  r 
pany  for  such  an  object  involved  ob-    Brickmaking  Co.,  17  Law  T.  (N.  8.) 
Sons  of  a  very   serious  kind.     It   77;  Water  Co.  ..  Flash,  97  Cal.  610;  s.c, 
required    in  its  exercise,  the  utmost   32  Pac.  Rep.  600.      See,  also,  Mallory 
good  faiih,   the  completest  truthful-    r.  Mallory-Wheeler  Co.,  61  Conn.  135; 
n^and  a  careful  regard  to  the  pro-   8.  c.  23  Atl.  Rep.  708.  and  the  recent 
tection  of  the  future  stockholders."'   English  case:  In  re  North  Australian 
The  test,  therefore,  of  the  validity  of   Territory  Co.,  Archers  Case.  (1892)  1 
such  transactions  is  that  it  must,  in  all   Ch.  322.     See.  also.  Ore  Co.  ..  Bird, 
its  parts,  be  open  and  fair,  so  that  the   33  Ch.  Div.  85 ;  Gover^  Case.  1  Ch. 
promoters  shall  not.  in  fact,  substan-    Div.    182;   Atwool  ..    Menyw«jther, 
Uallyactbothasvendorsandvendees,    37    L.    J    C^'    f  ^  J^"*.!! .  ^"  ^i 
and  in  the  latter  capacity  approve  a    Hartmont.    5    CTi.   Div.    395  ^ts 
transaction  suggested  by  them  in  the   burg  Mining  Co.  v.  Spooner.  74  Wia. 


be  issued  to  these  owners  for  the  patents.  They  then  offered  the 
pubHc  an  option  to  take  stock  in  the  corporation,  disclosing  the 
purchase  of  the  patents,  and  that  a  portion  of  the  stock  was  to 
be  issued  to  the  former  owners  in  part  payment,  but  not  that 
they  were  to  have  stock  on  different  terms  or  conditions.  They 
were  elected  president  and  treasurer  of  the  corporation  as  was 
further  agreed  between  tliem  and  the  owners  of  the  patents. 
They  succeeded  in  placing  a  large  amount  of  the  stock  at  seven 
dollars  per  share,  obtaining  their  own  stock  for  nothing.  In  this 
action  against  them  it  was  held  that  they  occupied  a  fiduciary  rela- 
tion to  the  other  shareholders,  and  were  liable  to  account  in  one 
of  several  modes  for  the  benefit  of  the  shareholders.^  As  to  the 
measure  of  damages,  the  court  said  :  "  I  think  the  company  had 
a  right  to  elect,  (1)  whether  they  would  have  the  shares  trans- 
ferred back  to  them  ;  or  (2)  if  the  shares  had  been  sold,  that 
these  defendants  should  turn  over  the  entire  profit  made  by  the 
sale;  or  (3)  that  the  company  may  say,  'Although  you  have 
derived  no  profit  by  selling  the  shares,  yet  you  deprived  us  of 
placing  tllem  with  other  persons,  and  you  must,  therefore,  pay  us 
the  sum  we  have  lost  by  reason  of  our  being  deprived  of  the 
right  of  placing  these  shares  with  other  persons.'  "  ^ 

307-8.  C,  42  N.  W.  Rep.  259;  24  any  fraudulent  intent,  or  that  the  price 
Am.'  &  Eng.  Corp.  Cas.  1 ;  In  re  paid  for  the  patents  was  fair  and  rea- 
Cape  Breton  Co..  26  Ch.  Div.  221;  sonable,  cannot  retrieve  these  defend- 
8  c.  on  appeal,  29  Ch.  Div.  795;  Lady-  ants.  The  law  forbids  them,  from 
wellMining  Co.  ©.Brookes,  34  Ch.  Div.  their  position,  to  secretly  derive  any 
398;  8.  c,  on  appeal,  35  Ch.  Div.  400.  benefit  over  other  stockholders,  and 
'  Chandler,  Receiver,  v.  Bacon,  (1887)  makes  them  accountable  to  the  com- 
30  Fed.  Rep.  538;  Browne  v.  National  pany  for  any  profit  so  derived."  Citing 
Color  Printing  Co.,  ibid.  Colt,  J.,  Bagnall  v.  Cariton,  6  Ch.  Div.  371; 
said:  "  The  defendants  could  not  law-  Whaley.  etc.,  Co.  v.  Green,  5  Q.  B. 
fully  [take  their  shares  of  stock  with-  Div.  109;  Sombrero  Phosphate  Co.  t^. 
out  consideration,  while  other  stock-  Erianger.  5  Ch.  Div.  73;  Emma  Sil- 
holders  paid  seven  dollars  per  share],  ver  Mining  Co.  v.  Grant,  11  Ch.  Div. 
As  promoters  of  the  new  company,  918;  Densmore  Oil  Co.  v.  Densmore, 
they  occupied  a  fiduciary  relation  64  Pa.  St.  43;  McElhenny's  Appeal,  61 
towards  it  similar  to  that  of  agent  to  Pa.  St.  188;  Simons r.  Vulcan  Oil,  etc., 
a  principal,  and  they  had  no  right  in  Co..  61  Pa.  St.  202;  Emery  t?.  Parrott, 
these  negotiations  to  derive  any  ad vant-  107  Mass.  95;  Getty  v.  Devlin,  54  N. 
age  over  other  stockholders  without  a   Y.  403. 

full  and  fair  disclosure  of  the  trans-  « Chandler,  Receiver,  p.  Bacon.  (1887) 
actions,  and  any  secret  profits  so  made  30  Fed.  Rep.  638;  Browne  v.  National 
they  must  refund  to  the  company.  Color  Printing  Co..  ibid.;  citing  Cari- 
That  this  mav  have  been  done  without   ing's  Case.  1  Ch.  Div.  115,  126,  127; 


;joo 


FRAUDULENT  ACTS  OF  OFFICERS. 


•I 
11 


[§207 

§  207.  Jurisdiction  of  equity  courts  as  to  breaches  of  trust, 
etc. —  The  United  States  Supreme  Court  long  since  accepted  as 
settled  law,  both  in  England  and  the  United  States,  that  courts 
of  equity  in  both  countries  have  a  jurisdiction  over  corporations, 
at  the  instance  of  one  or  more  of  the  stockholders,  to  apply  pre- 
ventive remedies  by  injunction,  to  restrain  those  who  administer 
them  from  doing  acts  which  would  amount  to  a  violation  of  char- 
ters, or  to  prevent  any  misapplication  of  their  capitals  in  profits, 
which  might  result  in  lessening  the  dividends  of  stockholders  or 
the  value  of  their  shares,  as  either  may  be  protected  by  tlie  fran- 
chises of  a  corporation,  if  the  acts  intended  to  be  done  create 
whatever  the  law  denominated  a  breach  of  trust.  And  the  juris- 
diction extends  to  inquire  into  and  to  enjoin,  as  the  case  may 
require  that  to  be  done,  any  proceedings  by  individuals,  in  what- 
ever character  they  may  profess  to  act,  if  franchise,  or  the  denial 
of  a  right  growing  out  of  it,  is  involved,  for  which  there  is  not 
an  adequate  remedy  at  law.*  In  a  case  where  the  directors  recog- 
nized their  duty  to  resist  the  collection  of  a  state  tax  upon  the 
corporation  (a  bank),  their  refusal  to  do  so  was  held  to  be  an  act 
contrary  to  the  obligation  which  the  charter  imposed  upon  them 
to  protect  what  they  conscientiously  believed  to  be  the  franchise 
of  the  bank,  and  was  a  breach  of  trust ;  that  it  amounted  to  an 
illegal  application  of  the  profits  due  to  the  stockholders  of  the 
bank,  into  which  a  court  of  equity  will  inquire  to  prevent  its 
being  made.^  Officers  and  directors  of  a  corporation,  being  trus- 
tees of  the  stockholders,  in  securing  to  themselves  an  advantage 
not  common  to  all  the  stockholders,  as,  for  instance,  executing  a 
mortgage  to  themselves,  to  secure  indebtedness  of  the  corporation 
to  themselves,  would  be  guilty  of  an  unauthorized  act,  plainly  a 


McKay's  Case,  2  Ch.  Div.  1; 
De  Ruvigne's  Case,  5  Ch.  Div.  306; 
Nant-y-glo,  etc.,  Co.  v.  Grave,  12  Ch. 
Div.  738.  Contracts  with  promoters, 
see  Bash  t>.  Culver  Gold  Mning  Co.,  7 
Wash.  122;  8.  c,  34  Pftc.  Rep.  462; 
Weatherford,  M.  W.  &  N.  W.  R.  Co. 
V.  Granger,  (Tex.  av.  App.)  23  S.  W. 
Rep.  425;  Winters  v.  Hub  Mining  Co., 
57  Fed.  Rep.  287;  Burbank  v.  Dennis, 
(Cal.  1894)  35  Pac.  Rep.  444;  Cornell  v. 
Corbin,  64  Cal.  197;  s.  c,  30 Pac.  Rep. 
629;  Ex-Mission  Land  &  Water  Co.  v. 


Flash,  97  Cal.  610;  s.  c,  32  Pac.  Rep. 
600. 

»  Dodge  V.  Woolsey,  (1855)  18  How. 
331;  citing  Cunliffe  v.  Manchester  & 
Bolton  Canal  Co.,  2  Russ.  &  Mylne 
Ch.  480,  n.;  Ware  v.  Grand  Junction 
Water  Co.,  2  Russ.  &  Mylne,  470- 
Bagshaw  v.  Eastern  Union  Railway 
Co.,  7  Hare  Ch.  114;  Ang.  &  Ames  on 
Corp.  (4th  ed.)  424. 

« Dodge  V.  Woolsey,  (1865)  18  How. 
331. 


FltAUDULENT  ACTS  OF  OFFICEES. 


301 


§207] 

breach  of  trust,  for  which  a  stockholder  would  be  entitled  to  a 
remedy  in  a  court  of  chancery.^    Contracts  made  by  the  direct- 
ors of  a  railroad  corporation  for  the  construction  of  the  road,  for 
running  cars  of  another  corporation  upon  its  road,  for  mining  its 
coal  lands  and  purchasing  the  coal  so  mined,  which  allow  exorbi- 
tant prices  for  work  done  and  material  furnished,  that  are  advan- 
tageous to  the  other  contracting  parties  and  injurious  to   the 
railroad    corporation,  in  which    the  directors,  or  a  controlling 
majority  of  them,  are  interested  adversely  to  the  corporation,  in 
short,  contracts  made  with  themselves,  are  frauds  such  as  courts 
of  equity  will  relieve  against  in  a  proper  case.^     For  such  acts 
the  remedy  would  be  as  follows :  Parties  who  make  such  con- 
tracts and  receive  the  pecuniary  benefit  of  them  can  at  law  be  made 
responsible  in  damages,  or  held  in  equity  to  compensation  for  the 
loss  suffered.     In  a  proper  suit  such  contracts  may  be  adjudged 
void,  and  then  an  accounting  ordered,  on  the  basis  of  a  fair  com- 
pensation for  what  may  have  been  done  in  the  way  of  construc- 
tion, building,  opening  mines,  furnishing  coal,  etc.,  and  what  had 
been  received  for  such  work  and  materials.     But  this  can  be  done 
only  in  an  action  brought  by  hona  fide  stockholders  who  may 
have  taken  no  pai-t  in  and  had  no  interest  in  the  fraudulent  con- 
tracts, in  case  the  corporation  be  disabled  to  complain.^    The 
directors  of  a  joint-stock  corporation,  who  willfully  abuse  their 
trust  or  misapply  the  funds  of  the  company,  by  which  a  loss  is 
sustained,  are  personally  liable  as  trustees  to  make  good  that  loss  ; 
and  they  are  also  liable  if  they  suffer  the  corporate  funds  to  be 
lost  or  wasted  by  gross  negligence  and  inattention  to  the  duties 
of  their  trust.*     And  a  court  of  equity  has  jurisdiction  to  enter- 
tain a  suit  to  enforce  the  proper  remedy  in  such  a  case.     If  the 
corporation,  or  the  then  present  directors  of  the  corporations  and 
the  parties  who  have  made  themselves  answerable  for  the  loss, 
refuse  to  bring  such  a  suit,  then  an  action  will  lie  in  the  name  of  a 
stockholder  in  his  own  behalf  or  in  behalf  of  all.^    The  chancellor 


» Koehler  v.  Black  River  Falls  Iron 
Co.,  (1862)  2  Black,  715;  citing  Ang. 
&  Ames  on  Corp.  (ed.  1861)  §  312; 
The  Charitable  Corporation  v.  Sutton, 
2  Atk.  404;  Robinson  r).  Smith,  3 
Paige,  220;  Hodges  v.  New  England 
Screw  Co.,  1  R.  I.  312;  York  &  North 
Midland  Ry.  Co.  v.  Hudson,  19  Eng. 
L.  &  E.  861. 


« United  States  x.  Union  Pacific  Rail- 
road Co.,  (1878)  98  U.  S.  569,  609,  610. 

8  Ibid. 

*  Robinson??.  Smith,  (1832)  3  Paige, 
222,  a  case  involving  the  loss  of  corpo- 
rate funds  by  a  speculation  in  stocks 
of  other  corporations  by  the  directors. 

5  Ibid. 


» « 


302 


FBAUDULENT  ACTS  OF  OFFICERS. 


[§207 

held  in  this  case  that  independent  of  the  Revised  Statutes  of  New 
York  the  Court  of  Chancery  had  jurisdiction,  so  far  as  the  rights  of 
the  individual  corporators  were  concerned,  to  call  the  directors  to 
account,  and  to  order  them  to  make  suits  of  action  for  losses  aris- 
ing from  a  fraudulent  breach  of   trust.^     And  in  such  suits 
the  corix)ration  is  a  necessary  party .'^     Directors,  like  any  other 
trustees,  may  be  restrained  from  the  performance  of  unauthorized 
acts,  or  to  rescind  and  cancel  them  when  performed.     And  the 
stockholders,  occupying  the  relation  of  cestiiis  que  trmt,  may 
invoke  the  aid  of  equity  to  thus  protect  their  interests.'     Officers  of 
a  corporation  may  be  compelled  by  a  court  of  equity  to  account 
for  any  breach  of  trust,  but  the  jurisdiction  for  this  purpose  is 
over  the  officers  personally.*     Where    directors  of  a  corpora- 
tion have  so  mismanaged  its  affairs  as  to  be  fraudulent,  a  bill  may 
be  maintained  against  them  personally  by  a  stockholder.     The 
stockholder  may,  in  such  case,  interpose  for  the  protection  of 
the  corporation.*     In  a  stockholder's  action  brought  by  himself 
on  behalf  of  a  corporation  against  its  officers  for  misapplication 
and  misappropriation  of  its  funds  and  charging  a  violation  of 
trust  on  their  part,  the  right  of  action  in  the  corporation  must  be 
alleged,  just  as  if  the  action  had  been  brought  by  the  corporation. 
And  he  cannot  join  in  the  action  causes  of  action  accruing  to 

I  Ibid  See,  also.  Scott  t.  Depeyster.  unfaithful  trustee  has  been  constantly 
1  Edw  Ch  513-  Cumberland  Coal  Co.  brought  before  it,  and  made  both  to 
V  Sherman  30  Barb.  553;  Cross  v.  discover  the  fund  belonging  to  the 
Sackett,  16  How.  Pr.  63.  trust  and  to  account  for  its  manage- 

« Robinson  v.  Smith,  (1832)  3  Paige,  ment  and  misapphcation.  If  fraud  in 
222-  Cunningham  r.  Pell,  (1836)  5  the  management  of  the  fund  is  charged 
Paiee  607  ^^  ^^^  ^^"'  ^^  ^°®  interested  m  the 

*»Chetlain  r.  Republic  Life  Ins.  Co.,  trust  estate,  and  who  has  been  injured 
(1877)  86  111.  220.  i^  consequence  of  such  fraud,  there  is 

*Neall  ^.  Hill.  16  Cal.  145.  no  doubt  of   the  junsdiction  of  the 

i  Watts'  Appeal.  (1875)  78  Pa.  St.  court.  If.  superadded  to  the  matters 
370  In  Bank  of  St.  Marys  v.  St.  of  trust  and  fraud,  the  bill,  as  in  this 
John  Powers  &  Co.,  (1854)  25  Ala.  case.seeksadiscoveryandaccount.it 
566  609.  an  action  to  enforce  the  lia-  will  embrace  nearly  every  ground  on 
bility  of  directors  of  a  bank  for  un-  which  the  original  jurisdiction  of  the 
faithful  management  of  its  affairs,  the  Chancery  Court  is  said  to  rest^  In 
Supreme  Court  of  Alabama,  as  to  there  such  case  it  is  immaterial  whether  a 
being  no  equity  in  the  bill,  speaking  court  of  law  c^n  afford  to  the  com- 
through  LiGON,  J.,  said:  "  It  may  be  plainant  partial  or  ful  rehef  m  the 
remarked  that  strict  trusts  are  admit-  matter  complained  of;  it  cannot  hinder 
ted  to  be  open  at  all  times  to  the  ex-  the  aggrieved  party  from  resorting  to 
amination  of  a  court  of  equity,  and  an  a  court  of  equity  for  redress. 


,^  208]  FRAUDULENT  ACTS  OF  OFFICERS.  303 

himself  personally   with  causes    of    action    belonging    to    the 
corporation.^ 

§  2o8.  When  a  court  of  equity  is  not  open  to  the  com- 
plaints of  stockholders. —  A  company  was  organized  upon 
property,  and  not  cash,  as  its  capital,  bonds  and  stock  being  issued 
to  the  organizers  and  owners  of  the  land,  their  respective  hold- 
ings being  in  proportion  to  their  rights  in  the  property.  The 
stockholders,  and  the  holders  of  the  bonds  as  well,  tiled  a  bill  in 
equity  complaining  of  the  management  of  the  company's  affairs 
by  its  officers.  The  court  held  that  stockholders,  after  voting  for 
and  approving  of  an  appropriation  of  corporate  funds  to  a  purpose 
fairly  within  the  scope  of  the  corporate  powers,  will  not,  in  the 
absence  of  fraud,  be  heard  to  complain  thereof  in  a  court  of 
equity.  Neither  can  they  proceed  in  chancery  to  protect  their 
equitable  rights,  unless  the  corporation  has  been  dissolved,  or  has 
itself  been  prevented  from  proceeding  by  the  misconduct  of  its 
officers.^  GoFF,  Circuit  Judge,  in  his  opinion,  states  the  com- 
plaints of  these  stockholders  and  declares  as  to  the  rights  of  stock- 
holders as  follows  :  "  As  stockholders  the  complainants  are  inter- 
ested in  the  proper  management  of  the  company ;  in  the  pay- 
ment of  all  its  liabilities ;  in  the  sale  of  its  real  estate,  and  the 
distribution  of  its  assets.  They  charge  that  the  funds  of  the 
company  have  been  wasted,  and  its  assets  misappropriated  and 
diverted  to  purposes  wholly  foreign  to  those  for  which  it  was 
organized,  to  their  loss  and  injury.  I  do  not  iind  that  these 
charges  are  sustained.  The  appropriations,  donations  and  sub- 
scriptions to  stock  by  the  company  to  the  various  purposes  and 
enterprises  set  forth  in  the  bill  were  all  made  with  tlie  assent  of 
the  stockholders,  including  complainants,  most  of  whom  voted 
for  them,  as  they  were  in  the  line  of  the  enterprise  in  which  the 
company  was  engaged,  and  to  which  the  stockholders  were  com- 
mitted. It  was  simply  an  effort  to  carry  out  the  object  had  in 
view  when  the  company  was  organized,  for  which  the  one-fourth 
portion  of  the  income  received  from  the  sale  of  lots  was  set 
apart,  as  was  provided  in  the  charter  and  nominated  in  the  bond. 
I  find  that  the  stocks  and  bonds  held  and  owned  by  defendant, 

•  Whitney  v.  Fairbanks,    (1893)   54      « McGeorge  v.  Big  Stone  Gap  Imp. 
Fed.  Rep.  985;  citing  Briggsi?.  Spauld-   Co.,  (1893)  57  Fed.  Rep.  262. 
ing,  141  U.  8.  132;  s.  c,  11  Sup.  Ct. 
Rep.  924. 


304 


FEAUDULENT  ACTS  OF  0FFICEB8. 


[§208 


issued  bj  other  corporations,  were  purchased  and  secured  with 
the  one-fourth  part  so  received,  and   not  with  trust  funds  to 
which   the   bondholders  were    entitled.     The    directors   of   the 
defendant  seem  to  have  advised  fully  with  its  stockholders,  and 
consulted  with  its  bondholders,  more  so  than  is  usually  done  ;  and, 
as  the  evidence  discloses,  they   were   always  governed   by  the 
advice  received.     It  is  true  that  a  number  of  the  enterprises  that 
were  assisted  with  the  funds  of  the  company  have  not  as  yet 
developed  into  remunerative  investments  by  demonstrating  their 
dividend-earning  capacities.     Still  the  evidence  shows  that  the 
officers  honestly  endeavored  in  these  instances  to  enhance  the 
interest  of  the  company,  and  that,  in  their  efforts,  they  had  the 
approval  of  the  stockholders  and  the  commendation  of  the  present 
complainants.     It  is  clearly  shown  that  complainants  were  not 
only  aware  of  the  proceedings  had  at  the  meetings  of  the  stock- 
holders and  directors,  when  the  expenditures  complained  of  were 
authorized,   but   that  they  gave    them   their   cordial    support." 
Upon  this  statement  of  the  facts  the  court  held  that  the  bill  of 
the  complainants  was  not  maintainable.^ 


*  Ibid.      Arguendo,    it    was    said : 
'•  Stockholders  of  a  corporation  that  has 
been  managed  without  fraud  will  not 
be  permitted  after  they,  for  reasons  of 
their  own,   have  become  dissatisfied 
with  the  plan  of  organization,  or  the 
management    thereof,    to   force    the 
abandonment    of   the    business,    and 
compel  the  majority  of  the  stockhold- 
ers to  submit  to  the  will  of  the  minor- 
ity by  the  decree  of  a  court  of  equity. 
If  they  had  this  power  it  would  fre- 
quently be  exercised  to  the  detriment 
of  the  corporation,  the  very  existence 
of  which  might  be  thus  destroyed,  or 
the  value  of  its  stock  seriously  im- 
paired.    Rival  companies  might  make 
it  to  the  interest  of  this  minority  so  to 
act,  or  the  stock  of  a  corporation  might 
be    purchased  with   such    object   in 
view,  and  the  result  would  be  that  the 
security  relied  upon  by  those  invest- 
ing in  corporate  property  would  be 
seriously     impaired.      The    charters 
under  which  corporations  are  organ- 
ized, and  the  laws  by  virtue  of  which 


they  are  created,  provide  the  way  in 
which  they  shall  be  managed,  as  well 
as  the  mode  of  voting  the  stock  and 
the   manner   of   electing   the  officers 
thereof;  and,  if  these  provisions  have 
been  fairly  complied  with,  then  there  is 
no  ground  for  the  interference  of  a 
court  of  equity  at  the  complaint  of  a 
dissatisfied  minority  shareholder.  If  he 
disapproves  of  the  management  that 
has  been  conducted  without  fraud,  and 
under  the  requirements  of  the  law,  his 
only  remedy  is  to  elect  new  officers  in 
favor  of  another  policy  by  appealing  to 
the  stockholders,  or,  failing  in  that,  to 
sell  his  stock  and  retire.     Certainly, 
the  equity  courts  of  the  country  will 
not  undertake  to  manage  it  for  him, 
nor   will  they,   under   such   circum- 
stances, take  jurisdiction  for  the  pur- 
pose of  closing  up  the  affairs  of  the 
corporation.     Such    power   is  never 
exercised  in  the  absence  of  a  statute 
giving  the  jurisdiction,  and  I  find  no 
such  enactment  applicable  to  this  case. 
In  the  absence  of  such  legislation  the 


§  209] 


FRAUDULENT  ACTS  OF  OFFICERS. 


305 


A)\ 


§  209.  Remedy  in  equity.—  A  stockholder  may  bring  a  suit 
in  equity  where  a  president  of  a  corporation  which  has  been 
steadily  earning  profits  has  received  the  same  and  not  accounted 
for  them,  and  the  directors  are  under  his  influence  and  control 
and  mere  instruments  to  do  his  bidding,  and  have  surrendered  the 
entire  control  of  the  affairs  of  the  corporation  to  him,  for  such  relief 


business  matters  of  a  corporation  can 
only  be    controlled,    or    its   charter 
privileges  taken  from  it,  by  the  proper 
and  usual  proceedings  in  such  cases 
provided    in     the    courts    of     law. 
Chancellor    Kent,"   said    the    court, 
"in  a  leading  case  on  this   subject, 
said  :    '  I  admit  that  the  persons  who 
from  time    to  time  exercise  the  cor- 
porate powers  may,  in  their  character 
of   trustees,  be   accountable   to   this 
court  for  a  fraudulent  breach  of  trust, 
and  to  this  plain  and  ordinary  head  of 
equity  the  jurisdiction  of  this  court 
over  corporations    ought    to    be  con- 
fined.'   Attorney-General  v.  Utica  Ins. 
Co.,  2  Johns.  Ch.  371.     'It  cannot  be 
concealed,'  said  the  chancellor  in  Bay- 
less  0.  Orne,  1  Freem.  Ch.  (Miss.)  173, 
'  that  to  decree  the  prayer  of  complain- 
ant's bill  would  be  to  decree  a  dissolu- 
tion of  the  corporation.    In  this  respect 
it  differs  materially  from  bills  which 
have  frequently  been  entertained  by 
courts  of   equity  at  the    instance  of 
stockholders  against  the  directors  of  a 
corporate  company  to  compel  them  to 
account  for  the  improper  use  of  funds, 
or  to  restrain  them  from  violating  their 
trust.    That  a  court  of  equity,  as  such, 
has  not  jurisdiction  or  power  over  cor- 
porate bodies  for  the  purpose  of   re- 
straining their  operations,  or  winding 
up  their  concerns,   is,  I  think,  well 
settled  by  various  authorities  ' "    See 
on  this  subject  Verplanck  v.  Insurance 
Co.,  1  Edw.  Ch.  84;  Attorney -General 
«.  Bank  of  Niagara,  1  Hopk.  Ch.  354; 
Neall  v.  Hill,  16  Cal.  145.     In  Tread- 
well  V.  Salisbury  Manufg.  Co.,  7  Gray, 
393,  it  is  said :  ' '  Indeed,  it  is  too  well 
settled  to  admit   of   question  that  a 
39 


court   of   chancery  has  no    peculiar 
jurisdiction   over  corporations  to  re- 
strain them   in  the  exercise  of   their 
powers,  or  control  their  action,  or  pre- 
vent them  from  violating  their  charter 
in  cases  where  there   is  no  fraud  or 
breach  of  trust  alleged  as  the  founda- 
tion of  the  claim  for  equitable  relief. 
Their  rights  and  duties  are  regulated 
and   governed  by  the  common   law, 
which,  in  most  cases,  furnishes  ample 
remedies  for  any  excess  or  abuse  of  cor- 
porate powers  and   privileges,  which 
may  injuriously  affect  either  public  or 
private  rights.     It  is  only  when  there 
is  no  plain  and  adequate  remedy  at 
law,  and  a  case  is  presented  which 
entitles    a  party  to   equitable  relief, 
under  some  general  head  of  chancery 
jurisdiction,  that  a  bill  in  equity  can 
be  maintained  against  a  corporation. 
And  this  rule  is  applicable  to  stockhold- 
ers as  well  as  to  other  persons."    See 
Ang.  &  A.  Corp.  §  312;  Grant  on  Corp. 
71,  271;  Mozley  v.  Alston,  1  Phil.  Ch. 
790;    Hodges  v.    Screw  Co.,  1  R.    I. 
350;  Bakem?.  Railroad  Co.,  34 La.  Ann. 
754.      The    circuit  judge    resumed: 
"  The  rule  is  also  well  established  that 
a    corporation    claiming    redress    for 
wrongs    must    proceed    through    its 
regularly    appointed    agents.      It   is 
only  when  the  company  has  been  dis- 
solved, or  is  prevented  from  proceed- 
ing by  the  misconduct  of  its  officers, 
that  the  stockholders  may  themselves 
proceed  in  chancery  for  the  protection 
of   their   equitable   rights.      If    the 
directors  refuse  to  act,  or  are  them- 
selves guilty  of  a  wrong  that  the  ma- 
jority of  the   stockholders  refuse  to 
correct,  equity  will  interfere  at  the 


\\ 


aoe 


FRAUDULENT  ACTS  OF  OFFICERS. 


[§  201) 


as  lie  may  be  entitled  to.»    And  in  addition  to  these  facts,  should 
it  appear  that  a  number  of  the  directoi-s,  especially  if  includ- 
ing a  relative  of  the  president,  are  not  Una  fide  stockholders,  but 
-made  such  merely  by  a  voluntary  transfer  of  stock  to  them  by 
him  to  quahfy  them  as  directors,  it  may  not  be  alleged  that  the 
directors  have  been  requested  to  bring  suit  and  refused.^     One 
having  a  claim  for  a  loss  against  a  mutual  insurance  corporation  is 
entitled  to  bring  his  bill  in  equity  against  the  directors  of  such  a 
corporation  who,  having  funds  belonging  to  it  in  their  hands  to 
pay  the  claim,  have  neglected  and  refused  to  pay  it,  and  fraudu- 
lently applied  the  funds  to  other  purposes.^     The  managers  of  a 
saving  fund  are  liable  in  equity  as  trustees  for  the  proper  man- 
agement of  the  fund.*    The  proper  remedy  for  the  defrauded 
depositors  of  a  saving  fund  is  a  bill  in  equity  against  the  directors 
of  such  an  institution ;  and  these  directors,  although  ignorant  of 
the  fact  of  a  fraud  in  its  organization,  will  be  liable  to  the  deposit- 
ors for  the  proper  care  and  management  of  the  deposits  intrusted 
to  its  safe-keeping.'*    The  directors  of  a  savhig  fund  will  be  lield 
liable  to  the  depositors  for  maladministration  of  their  office,  and 
suits  may  be  brought  by  the  depositors.*    But  directors  who  did 


suit  of  a  stockholder.     Moraw.  Priv, 
Corp.    ^^    239.   381,    386;     Moore    t. 
Schopp'ert,  22  W.  Va.  282,  291;  Hawes 
«.  Oaklaud,  104  U.  S.  450,  460;  Foss  ». 
Harbottlc,  2  Hare.  493.     In  this  c-ase 
the  complainants  allege  that  they  con- 
trol a  majority  of  the  shares  of  stock 
of  the  defendant.     If  that  is  so  they 
will  have  no  trouble  in  caUiuga  stock 
holders'  meeting  of  the  company  and 
therein  so  voting  their  stock  as  to  cor- 
rect the  wrongs  of  which  they   now 
complain,  and  fully  protect  their  in- 
terests in  the  future." 

'  Rogers  ».  La  Fayette  Agricultural 
Works,  (1875)  52  Ind.  296. 

« Ibid. ;  citing  March  t.  Eastern  R.  R. 
Co.,  40  N.  H.  548;  Robinson  r.  Smith, 
3  Paige,  222;  Dodge  p.  Woolsey,  18 
How.  331;  Brewer  r.  Boston  Theatre, 
104  Mass.  378;  Hodges  r.  New  Eng- 
land Screw  Co.,  1  R.  1. 312;  Goodin  f. 
ancinnati,  etc.,  Co.,  18  Ohio  St.  169; 
Peabody  c.  Flint,  6  Allen,  52;  Sears  v. 


Hotchkiss,  25  Conn.   171;  Wright  «?. 
Oroville  Gold,  Silver  &  Copper  Min- 
ing Co.,  40  Cal.  20;  Allen  p.  Curtis,  26 
Conn.  456. 
3  Lyman  p.  Bonney,  (1869)  101  Mass. 

562. 
*  I^ffman  p.  Flanigan,  (1863)  5  Phil. 

155. 

» Ibid. 

•Maisch  p.  Saving  Fund,  (1862),  5 
Phil.  30.  Sharswood,  P.  J.,  in  his 
opinion,  said:  "We  are  by  no  means 
announcing  any  new  docrtrine  when 
we  say  that  the  directors  of  corpora- 
tions are  responsible  for  gross  negli- 
gence, as  well  as  fraud,  in  the  man- 
agement of  the  interest  intrusted  to 
them.  It  has  received  the  indorse- 
ment of  courts  of  the  highest  character 
for  learning.  Robinson  ».  Smith,  3 
Paige,  222;  Scott  «.  Depeyster,  1 
Edw.  Ch.  513;  Allen  r.  Curtis,  26 
Conn.  456.  No  one  doubts  the  per- 
sonal UabiUty  of  the  president,  treas- 


If 


It 


§209] 


FRAUDULENT  ACTS  OF  OFFICERS. 


307 


>.  » 


not  participate,  and  never  took  their  seats  in  the  board,  and 
against  whom  there  be  no  allegation  of  knowledge  of  the  fraud, 
need  not  be  held  liable.*  A  president  of  a  corporation  may  be 
called  upon  by  bill  in  equity  to  account  for  and  make  restitution 
of  any  part  of  the  property  of  the  corporation  confided  to  his 
care  where  he  has  improperly  applied  it  to  his  own  use.^  Where 
by  a  contract  with  its  president  a  corporation  may  deliver  to  him, 
its  unissued  stock,  with  power  of  sale,  as  security  for  money 
loaned  the  corporation  by  him,  the  contract  will  be  enforced 
if  shown  to  have  been  made  for  the  benefit  of  the  corporation, 
and  to  be  just  and  fair.^     An  action  by  a  stockholder  to  set 


urer  and  other  officers  who  are  paid 
for  their  services.  Why  should  there 
exist  any  doubt  as  to  directors  who 
are  also  officers?  The  difference  is 
only  in  the  measure  and  degree  of 
their  respective  responsibility.  It 
would  be  monstrous  if  a  director 
could  look  on  and  see  a  cashier  or 
treasurer  embezzling  the  funds  of  a 
corporation  and  not  be  responsible  if 
he  gave  no  information,  and  took  no 
measures  to  prevent  it.  Equally  mon- 
strous would  it  be  to  say  that  the 
directors  of  a  saving  fund,  insurance 
office  or  bank  should  allow  their  names 
to  go  forth  to  the  public  in  connection 
with  representations  of  the  nature  and 
value  of  the  assets  which,  if  the  ordi- 
nary means  of  examination  and  super- 
vision had  been  resorted  to,  they  would 
have  easily  discovered  to  be  false.  If 
they  have  such  unbounded  faith  in 
the  faithfulness  and  integrity  of  their 
officers  as  to  trust  the  whole  affairs  of 
the  corporation  to  their  management, 
without  any  attention  on  their  part, 
they  must  accept  the  alternative  of 
responsibility  for  their  conduct.  It  is 
important  that  the  community  at  large 
should  know  this,  and  that  gentlemen 
of  wealth  and  respectability  should  be 
careful  how  they  suffer  their  names  to 
be  held  forth  as  the  trustees  or  man- 
agers of  institutions  to  which  they 
have  not  the  time  or  inclination  to 
give  their  personal  attention." 


» Maisch  id.  Saving  Fund,  (1862),  5 
Phil.  30.  In  Flagler  Engraving  Ma- 
chine Co.  ®.  Flagler,  (1884)  19  Fed. 
Rep.  468,  it  appeared  that  the  organ- 
izers of  the  joint  stock  company  put 
in  as  a  part  of  the  capital  stock  cer- 
tain patent  rights  and  by  fraudulent 
puffing  induced  others  to  purchase  the 
stock  at  fictitious  prices.  It  was  held 
that  whether  the  purchasers  could  set 
aside  the  sales  or  not,  they  were  not 
entitled  to  gain  control  of  the  com- 
pany and  pursue  their  remedy  against 
the  fraudulent  directors  in  the  name  of 
the  company. 

"Combination  Trust  Co.  v.  Weed,  2 
Fed.  Rep.  24. 

'Ibid.  In  Pneumatic  Gas  Co.  x>. 
Berry,  (1885)  113  U.  8.  322;  s.  c,  5 
Sup.  Ct.  Rep.  525,  where  the  objec- 
tion was  made  to  a  contract  entered 
into  with  a  director  of  the  corporation 
seven  years  after  its  execution  and  had 
been  repeatedly  ratified,  the  Supreme 
Court  of  the  United  States  said:  "A 
court  of  equity  does  not  listen  with 
much  satisfaction  to  the  complaints  of 
a  company  that  transactions  were  ille- 
gal which  had  its  approval,  which  were 
essential  to  its  protection,  and  other 
benefits  of  which  it  has  fully  received. 
Complaints  that  its  own  directors  ex- 
ceeded their  authority  come  with  ill 
grace  when  the  acts  complained  of 
alone  preserved  its  existence."  In 
Jesup  t.  Illinois  Central  R.  Co.,  (1890) 


I  • 


h 


fi 


k 


"\ 


I 


308  FRAUDULENT  ACTS  OF  OFFICERS.  [§  209 

aside  a  resolution  of  a  board  of  trustees  of  a  corporation  fix- 
ing the  salaries  and  compensation  to  be  received  by  them 
respectively  as  secretary,  treasurer  and  vice-president  of  the  cor- 
poration, and  to  compel  the  restoration  of  the  money  paid  them, 
although  it  is  not  binding  upon  the  corporation  and  may  at  the 
election  of  the  corporation  be  set  aside,  cannot  be  maintained 
unless  he  shows  that  the  corporation  ought  to  exercise  its  rights 
to  avoid  the  resolution  or  contract  made  by  its  trustees  in  v^rhich 
they  were  personally  interested.*  The  presumption  does  not 
arise  in  such  an  action  that  the  trustees  acted  dishonestly,  which 
must  be  overcome  on  their  part  by  affirmative  evidence,  as  it 
would  in  case  the  corporation  had  sought  to  set  aside  the  contract.* 
A  stockholder  has  a  right  of  action  for  losses  sustained  by  him  by 


43  Fed.  Rep.  483,  it  was  held  that  sea 
Bonable  resistance  could  not  be  predi- 
cated of  a  case  of  a  merely  voidable 
contract,  where  the  party  complaining 
had  not  simply  been  silent  for  twenty 
years,  but  with  knowledge  of  the  facts, 
or  with  free  opportunity  to  ascertain 
them,  has  enjoyed  the  fruits  of  the 
contracts,  and  treated  it  as  valid.     Mr. 
Justice  Harlan  said  generally:  "  The 
rule  is  a  wholesome  one  that  requires 
the  court,  in  cases  of  merely  voidable 
contracts,  to  withhold  relief  from  those 
who,  with  knowl"dge  of  the  facts,  or 
with  full  opportunity  to  ascertain  the 
facts,  unreasonably  postpone  applica- 
tion for  reUef.     A  contract  not  wholly 
invalid  when  executed,  nor  prohibited 
by  law,   as  relating  to  some  illegal 
transaction,  and   which  is,   therefore, 
voidable  only,  may  become,  by  the  acts 
of  the  parties  or  by  long  acquiescence, 
binding  upon  them,  especially  where 
the  nature  of  the  property  which  is 
the  subject  of  the  contract  is  such  that 
its  value  may  be  affected  by  its  rela- 
tions to  other  property  of  like  kind, 
and  by  the  changing  business  of  the 
country."      As  to  the  right  of    one 
wishing  to  fix  liability  upon  directors 
of  a  corporation  on  account  of  fraudu- 
lent transactions  by   which    he    had 
been  endangered  to  file  a  bill  for  dis- 


covery against  them  personally,  see 
Stebbins  v.  Cowles,  (1835)  10  Conn.  399. 

>  MacNaughtou  v.  Osgood,  (1886)  41 
Hun,  109. 

« Ibid.     As  to  the  rule  which  would 
govern  in  case  the  corporation  Itself 
sought  to  set  aside  such  a  resolution, 
it  was  said  by  the  court:  "  The  corpo- 
ration may  avoid  such  a  contract  with 
its  trustees,  but  cannot  do  so  except 
upon  equitable  terms,  and   must  re- 
store to  him   what  is  received   from 
him.     Duncomb  v.   N.  Y.,  H.  &  N. 
R.  R.  Co.,  84  N.  Y.  190.     Hence  the 
corporiition,  upon  rescinding,  ought  to 
pny  the  reasonable  value  of  the  serv- 
ices of  these  officers,  rendered  in  a  de- 
partment of  labor  beneficial  to  it,  and 
outside  of  the  duty  of  direction  which 
the  office    of    director    implies.      See 
Metropolitan   Elevated   Rjiilway    Co. 
V.   Manhattan  Railway  Co.,  14  Abb. 
N.  C.  at  pages  258,   259,  where  the 
case  of  Jackson  v.  New  York  Central 
Railroad  Co.,   2   Sup.  Ct.   (T.    &  C.) 
653;  affirmed,  58  N.  Y.  623,  is  com- 
mented upon,  and  other  cases  are  cited 
in  which  the  right  of  a  director  to  re- 
cover for  such  services  is  shown  to 
rest  solely  upon  quantum  meruit,  and 
such,  we  have  no  doubt,  is  the  law." 
That  it  must  be  a  clear  case  demand- 
ing its  interference  before  a  court  will 


If 


!ii 


§209] 


FRAUDULENT  ACTS  OF  OFFICERS. 


309 


reason  of  the  fraudulent  acts  and  a  misapplication  or  waste  of  the 
corporate  funds  and  property  by  an  otficer  of  the  corporation.^ 
But  before  bringing,  in  his  own  name,  an  action  against  an  officer 
of  a  corporation  to  recover  damages  for  a  fraudulent  misappro- 
priation and  conversion  by  such  officer  of  the  corporate  earnings 
and  funds,  he  must  first  apply  to  the  corporation  to  bring  the 
action  and  the  latter  refuse  to  bring  it.  In  case  the  corporation 
do  refuse  to  bring  the  action,  then  the  stockholder  may  bring  it 
in  behalf  of  himself  and  other  stockholders,  makmg  the  corpora- 
tion a  party  defendant,  alleging  its  refusal  in  his  complaint  and 
proving  it.'^  And  an  action  in  iiis  own  name,  without  making 
the  corporation  a  party  defendant,  to  recover  the  difference 
between  the  actual  loss  and  depreciation  will  not  be  authorized 
by  the  fact  that  the  wrongful  acts  of  the  officer  have  depreciated 
the  market  value  of  the  capital  stock  held  by  the  stockholder  to 
an  extent  greater  than  its  share  of  the  actual  loss  sustained.' 
Where  the  officers  and  trustees  of  a  corporation  alien  and  trans- 
fer the  whole  property  of  a  corporation  to  one  to  enable  him  to 
appropriate  it  to  his  own  use  and  to  render  valueless  the  stock  of 
the  corporation  to  effect  a  dissolution  of  the  corporation  without 
due  process  of  law,  and  also  to  oust  one  who  has  been  chosen  to 
have  ihe  "  management  of  the  affairs  of  "  the  corporation  for  a 
stated  time  and  for  the  purpose  of  defrauding  its  creditors,  an 
action  will  He  to  set  aside  such  alienation  as  fraudulent.'*  And 
such  manager  would  be  a  proper  party  to  bring  such  an  action 
under  tlie  New  York  Code  of  Civil  Procedure,  sections  1781, 
1782,  which  provide  that  such  an  action  may  be  brought  by  a 
creditor  of  the  corporation,  or  by  a  trustee,  director,  manager,  or 

interfere  with  the  management  of  a 
corporation,  see  Barnes  v.  Brown,  80 
N.  Y.  527;  Chautauqua  County  Bank 
«  Risley,  19  N.  Y.  381;  Hawes  v.  Oak- 
land, 104  U.  8.460. 

'Greaves  v.  Gouge,  (1877)  69  N. 
Y.  154.  As  to  a  stockholder's  having 
a  remedy  for  losses  produced  by  the 
fraud,  culpable  neglect  of  duty  or  a 
violation  of  law,  on  the  part  of  an 
officer  of  the  corii)ration,  see  Bissell  v. 
Michigan  Southern  &  N.  I.  R.  R.  Co., 
22  N.  Y.  275;  Butts  v.  Wood,  37  N. 
Y.  317;  Cross  v.  Sackett,  6  Abb.  Pr. 
347,  266;  House  v.  Cooper,  16  How. 


Pr.  293;  Mead  v.  Mali,  15  How.  Pr. 
347;  Crook  ®.  Jewett,  12  How.  Pr.  19; 
Cazeaux  v.  Mali,  25  Barb.  578;  Abbot 
V.  Am.  H.  R.  Co.,  33  Barb.  578;  Howe 
V.  Deuel,  43  Barb.  505;  Gardiner  t>. 
Pollard,  10  Bosw.  675;  Gray  v.  New 
York  &  Virginia  St.  Ship  Co.,  5  T.  & 
C.  224. 

«  Greaves  v.  Gouge,  (1877)  69  N.  Y. 
154. 

»Ibid. 

*Beecher  t?.  Schieffelin,  (Spl.  Term 
Sup.  Ct.  1883)  4  N.  Y.  Wv.  Pro.  Rep, 
230. 


m\\ 


I 


i 


310 


FRAUDULENT  ACTS  OF  OFFICERS. 


[§  200 


otlier  officer  of  the  corporation  having  a  general  superintendency 
of  its  affairs.*  A  treasurer  of  a  corporation  failing  to  pay  over 
to  it  money  whicii  he  has  collected  whereby  the  corporation  is 
compelled  to  borrow  money  and  to  pay  a  rate  of  interest  greater 
than  six  per  cent  in  an  action  against  him  for  the  recovery  of 
that  money,  would  not  be  liable  in  equity  to  pay  on  tlie  sums  he 
had  withheld  more  than  six  per  cent  interest  should  the  bill  not 
seek  to  recover  any  profits  he  had  made.^  Where  stock  of  a  cor- 
poration has  been  fraudulently  issued  by  one  of  its  officers  and 
transferred  to  a  third  person  as  collateral  security  for  a  debt,  it  is 
in  the  power  of  a  court  of  equity,  upon  a  bill  filed  for  the  pur- 
pose by  a  stockholder,  to  order  the  certificates  of  such  stock 
returned  and  canceled.^  And  in  such  a  bill  the  corporation  is 
not  a  necessary  party.*  A  treasurer  of  a  corporation  who  has 
sold  for  its  benefit  a  bond  issued  by  it,  in  case  he  is  unable  or 
refuses  to  disclose  the  exact  amount  for  whicli  he  sold  it,  will  be 
chargeable  in  equity  for  at  least  the  full  market  value  of  the 
bond  at  the  time  of  the  sale.''  In  this  case  the  treasurer  of  the 
corporation  had  purchased  on  his  own  account  a  quantity  of  coal, 
when  it  was  not  his  duty  as  treasurer  to  purchase  it,  and  with  no 
intention  of  selling  it  to  the  corporation.  He  afterwards  sold  it 
to  the  corporation  at  its  then  fair  market  value,  whicli  was^more 
than  it  cost  him.  It  was  held  that  he  was  not  chargeable  in  equity 
for  the  difference  in  price  between  what  he  paid  for  it  and  sold  it 
for  to  the  corporation.'  The  Supreme  Court  of  New  York,  in  a 
case  where  two  of  the  directors  of  a  corporation  acquired  title  to 
patents  for  use  in  the  business  in  their  own  name,  and  transferred 
them  to  another  corporation,  which  in  turn  assigned  them  to  one 
of  these  directors  as  trustee,  held  that  a  decree  that  this  director 
should  assign  all  the  interest  which  he  held  individually  and  as 
trustee  in  the  patents  to  the  receiver  appointed  in  the  action,  and 
that  both  of  these  directors  should  account  for  all  the  profits  they 
had  made  in  the  transactions  was  proper.''     An  action  at  law  can- 

»Ibid.     As  to  the  rules   governing       » Campbell    v.    Morgan,    (1879)    4 
the  bringing  of  suits  to  compel  the   Bradw.  (111.)  100. 


Nickcrson,  (1884)    137 


ministerial  oflScers  of  a  private  cor-       *  Ibid. 

poration  to  account   for  a  breach  of       '  Parker    r. 

official  duty  or  misapplication  of  ror-  Mass.  487. 

porate  funds,  see  Hyde  Park  Gas  Co.       •  Ibid. 

V.  Kerber  (1879)  5  Bradw.  (111.)  132.  ■»  Averill  v.  Barber.  (1889)  53  Hun, 

•Parker    o.    Nickerson,   (1884)   137  636;  s.  c,  6  N.  Y.  Supp.  255. 
Mass.  487. 


hi 


IH 


§209] 


FRAUDULENT  ACTS  OF  OFFICERS. 


311 


not  be  maintained  by  a  stockholder  of  a  corporation  against  the 
officers  and  directors  of  the  corporation  to  recover  damages  for 
willful  waste  of  the  assets,  by  reason  of  which  the  value  of  his 
shares  of  stock  may  have  been  decreased,  and  he  may  have  become 
liable  to  an  assessment  upon  his  shares.  His  remedy  lies  in  a 
court  of  equity.^  It  should  appear  very  clearly  that  the  loss  of 
a  stockholder  in  a  diminution  of  the  value  of  his  stock  was 
occasioned  by  the  gross  negligence  or  willful  misconduct  of 
directors  to  charge  the  officers  of  a  corporation  with  such  loss 
whicli  he  may  allege  had  been  caused  by  their  mismanagement* 
While  accountable  in  equity  as  trustees,  in  case  the  officers  of  a 


« Hirsh  V.  Jones,  (1893)  56  Fed.  Rep. 
1 37.  McCoRMiCK,  Circuit  Judge,  said : 
"  The  authorities  are  uniform  in  sup- 
port of  the  proposition  that  where  the 
cause  of  action  affects  all  the  interests 
of  the  corporation,  as  such,  the  cor- 
poration is  the  proper  party  to  sue, 
and  on  its  refusal  to  sue,  or  falling 
under  the  control  of  those  liable  to  the 
suit,  and  thus  not  to  be  trusted  to 
bring  and  conduct  the  action,  the  in- 
jured stockholder  has  his  remedy  in 
equity,  and  must  seek  it  in  that  juris- 
diction." Citing  Kendig  v.  Dean,  97 
U.  8.  423;  Dewing  v.  Perdicaries,  96  U. 
8.  193;  Dodge  v.  Woolsey,  18  How. 
341;  Conway  v.  Halsey,  44  N.  J.  Law, 
462. 

« Neall  v.  Hill,  16  Cal.  145.    As  to 
the  rule  with  reference  to  an  action  by 
a  stockholder  of  a  corporation  against 
the  directors  for  a  misapplication  of 
funds  of  the  corporation,  see  Cogswell 
«.  Bull,  (1870)  39  Cal.  320;  Parrott  v. 
Byers,  40  Cal.  614.    In  Allen  v.  Cur- 
tis, (1857)  26  Conn.  456,  an  action  on 
the  case  brought  by  a  stockholder  of  a 
bank  against  the  directors  of  the  same 
for  mismanagement  and  willful  neglect 
on  their  part  of  the  affairs  of  the  bank 
which  caused  insolvency  of  the  bank 
and  a  loss  to  him  in  the  value  of  his 
stock,  the  case  being  referred  to  the 
Supreme  Court  of  Connecticut  on  a 
demurrer,  the  court  sustained  the  de- 
murrer,   and   in   their  opinion  said: 


"  The  general  rule  of  law  is,  that  an 
action  at  law  must  be  brought  by  the 
person  having  the  title  or  right  to  the 
damages  which  are  sought  to  be  re 
covered  for  the  injury.     Hence  the 
Woodbury  Bank  should  have  brought 
this  suit.     It  is  its  property  which  has 
been  misappropriated  and  lost,  and  the 
damages  to  be  recovered  belong  to  it  — 
to  be  sure— in  trust  for  billholders, 
depositors  and  other  creditors,  if  any 
there  be,  and  finally  for  the  stock- 
holders, but  for  all  of  them  and  not 
for  some  of  them  exclusively.    The 
ba?ik  then  must  sue.     It  may  compro- 
mise and  settle  or  release  the  defend- 
ants on  terms  mutually  satisfactory, 
which  the  stockholders  cannot  do,  and, 
should  they  do  it,  it  would  be  no  bar  to 
a  suit  afterwards  brought  by  the  bank. 
In    this   respect   the  defendants   are 
liable  to  the  bank  as  any  other  agents 
or  persons  would  be  for  robbing  or  de- 
frauding it  or  in  any  way  injuring  the 
corporate  property.     *    *    *    Besides 
the  directors  of  the  bank  are  the  agents 
of  the  bank.     The  bank  is  the  only 
principal,  and  there  is  no  such  trust 
for  or  relation  to  a  stockholder  as  has 
been  claimed  by  the   plaintiff.     The 
entire  duty  of  the  directors  growing 
out  of  their  agency    is  owed  to  the 
bank,  which,  under  the  charter,  is  the 
sole  representative  of  the  stockholders 
and  the  legal  protector  and  defender 
of  their  property.    Nor  is  any  other 


^  'i 


*i^ 


;,)>; 


liil 


312 


FKAUDULENT  ACTS  OF  OFFICEKS. 


I      .  i 


:  \ 


:  u 


|i 


[§210 

corporation  have  gone  out  of  office,  the  remedy  against  them  for 
an  appropriation  of  corporate  funds  to  their  own  use  is  at  law 
and  not  in  equity  unless  discovery  is  sought.^ 

§  210.  Malfeasance  of  the  president  of  a  corporation  —  a 
stockholder's  remedy.—  In  a  federal  court  a  stockholder's  bill 
in  equity  charged  that  the  president  of  the  corporation  had  taken 
possession  and  control  of  the  moneys  of  the  corporation,  deposit- 
ing them  in  bank  in  liis  own  name,  in  defiance  of  the  express 
provision  of  the  by-laws,  and  drawing  them  out  on  his  own 
check,  in  his  own  discretion,  for  liis  own  purposes ;  that  espe- 
cially he  had  in  his  own  hands  the  sum  of  $25,660,  money  of  the 
corporation,  which  he  had  converted  to  his  own  use,  and  for 
which  he  failed  and  refused  to  account ;  that  by  this  action,  and 
the  further  misuse  of  the  corporation's  funds  by  lending  them  in 
his  own  name,  this  stockholder  had  failed  to  receive  his  proper 
share  of  the  funds  of  the  company  in  the  shape  of  a  dividend  on 
his  stock  ;  that  all  his  efforts  to  ascertain  the  truth  about  this  mis- 
use of  funds  by  the  president,  on  examination  of  the  books,  or  in 
calling  the  president  to  an  account  therefor,  had  been  baffled  and 
defeated  by  the  direct  and  active  effort  of  the  president  himself, 
aided  by  the  other  officers,  going  so  far  as  to  receive  and  put  a 
motion  for  investigation  made  at  a  stockholders'  meeting,  and 
that  there  was  a  definite  purj)ose  so  to  use  the  affairs  of  the  com- 
pany as  to  depress  the  stock  so  as  to  compel  this  stockholder  to 
sell  out  at  a  loss.  There  was  a  general  demurrer  to  the  bill. 
The  United  States  Circuit  Court  overruled  the  demurrer  and  sus- 
tained the  bill.' 


§211] 


FRAUDULENT  ACTS  OF  OFFICERS. 


313 


protector  or  defender  necessary  until 
the  bank  shall  neglect  its  duty  in  re- 
fusing to  call  the  directors  to  account; 
in  which  event,  upon  a  case  properly 
stated  and  with  proper  parties  before 
the  court,  a  court  of  equity  may  grant 
relief  according  to  the  existing  ex- 
igency." ating  Smith  p.  Hurd,  13 
Met.  371;  Bishop  r.  Houghton,  1  E. 
D.  Smith,  566;  Ang.  &  Ames  on  Corp. 
§  312;  Hodsdon  v.  Copeland,  16  Me. 
314;  Hersey  r.  Veazie,  24  Me.  9.  See, 
also,  Ruby  c.  Abyssinian  Society,  15 
Me.  306. 


'  Bay  City  Bridge  Co.  v.  Van  Etten, 
36  Mich.  210. 

'  Ranger  v.  Champion  Cotton-Press 
Co..  (1892)  52  Fed.  Rep.  611.  Simon- 
ton,  J.,  said,  referring  to  the  demurrer 
and  its  admissions:  "Here  we  have 
the  admission  that  a  complaining 
stockholder  in  a  trading  corporation 
has  been  defrauded  and  deprived  of 
his  share  of  its  property  applicable  to 
dividends,  by  the  action  of  the  presi- 
dent in  misusing  for  his  own  purposes 
the  moneys  of  the  company.  That 
every  effort  made  by  him  to  ascertain 


§  211.  When  a  demand  upon  directors  to  bring  suit  is  not 
required. —  Certain  stockholders  of  an  Indiana  corporation 
brought  an  action  against  the  corporation  and  the  officers  of  the 
same  charging  a  conspiracy  between  the  latter,  they  controlling  a 
majority  of  the  stock,  by  which  in  electing  and  continuing  cer- 


the  facts  connected  with  this  charge 
have  been  thwarted  by  the  positive 
and  distinct  refusal,  at  the  hands  of 
the  president,  made  at  an  annual 
meeting  of  the  stockholders,  to  give 
any  information  or  explanation  what- 
ever. This  admission  is  made.  It  is 
denied  that  a  court  of  equity  can  give 
any  relief.  Strong,  indeed,  must  be 
the  formal  or  technical  difficulties 
which  will  forbid  this  court  from,  at 
least,  hearing  such  a  complaint."  The 
bill  and  the  rights  of  the  stockholder 
are  then  discussed  in  these  words: 
"  Does  the  bill  make  out  prima,  facie  a 
case  for  equitable  relief?  There  can 
be  no  doubt  that  in  a  proper  showing 
this  court  will  come  to  the  aid  of  a 
minority  of  stockholders.  Dodge  t. 
Woolsey,  18  How.  831.  The  doctrine 
is  well  stated  in  Waterman  on  Corpo- 
mtions  (page  578,  §  319):  'A  court  of 
equity  will  enjoin,  on  behalf  of  the 
stockholders,  any  improper  alienation 
or  disposition  of  the  property,  other 
than  for  corporate  purposes,  and  will 
restrain  the  commission  of  acts  which 
are  contrary  to  law,  and  tend  to  the  de- 
struction of  the  franchises,  as  well  the 
improper  management  of  the  business 
of  the  corporation,  or  a  wrongful  di- 
version of  its  funds,  and  in  such  case 
equity  may  grant  relief  at  the  suit  of 
a  single  stockholder.' "  The  court  re- 
sumed: "There  are  three  classes  of 
cases  in  which  stockholders  may  com- 
plain. A  minority  may  object  to  the 
business  policy  pursued  by  the  major- 
ity, as  tending  to  injure,  perhaps  de- 
stroy, their  interests.  In  such  cases 
the  court  will  seldom  or  never  inter- 
fere. The  majority  must  govern,  un- 
less there  be  a  palpable  abuse  of 
40 


power,  or  an  interference  with  vested 
rights.  Another  class  of  cases  is  where 
the  rights  and  interests  of  a  corpora- 
tion as  a  whole  are  threatened  by  the 
action  of  a  third  party,  an  outsider, 
and  the  corporate  authorities,  through 
inadvertence,  negligence  or  willful- 
ness, will  not  move  in  their  defense." 
In  such  cases,  following  Dod^e  v. 
Woolsey,  supra,  the  courts  of  the 
United  States  lent  a  ready  ear  to  the 
complaint  of  stockholders  who  inter- 
fered in  behalf  of  the  corporate  rights. 
But  this  indulgence  of  the  courts  was 
greatly  abused.  Many  cases  were 
brought  in  the  United  States  courts  in 
which  the  jurisdiction  was  secured  by 
collusion  between  a  non-resident 
stockholder  and  the  corporation  which 
itself  could  not  come  into  this  court. 
This  abuse  was  rebuked  in  Hawes  v. 
Oakland,  104  U.  S.  450.  The  evil  was 
cured  by  the  passage  of  the  ninety- 
fourth  equity  rule,  consequent  on  this 
case.  This  rule,  by  its  terms,  is  made 
applicable  to  "every  bill  brought  by 
one  or  more  stockholders  in  a  corpora- 
tion against  the  corporation  and  other 
parties,  founded  on  rights  which  may 
properly  be  asserted  by  the  corpora- 
tion." Hawes  v.  Oakland  (page  454) 
shows  that  these  words,  "other  par- 
ties," means  "an  outsider."  But  this 
case,  and  the  rule  consequent  upon  it, 
do  not  apply  to  cases  in  which  there  is 
a  real  contest  between  the  stockholder 
and  his  corporation.  Leo  v.  Railway 
Co.,  17  Fed.  Rep.  273.  ECawest?.  Oak- 
land draws  the  distinction  broadly  and 
clearly:  "That  the  vast  and  increas- 
ing proportion  of  the  active  business 
of  modern  life  is  done  by  corporations, 
should  call  into  exercise  the  beneficent 


314 


FRAUDULENT  ACTS  OF  OFFICERS. 


[§  211 


tain  ones  of  them  as  officers  they  were  enabled  to,  and  did, 
misappropriate  and  vaste  the  funds  of  the  corporation,  by  a 
system  of  paying  exorbitant  and  unreasonable  salaries  to  each 
other  as  officers  and  thus  disabled  the  corporation  to  declare  divi- 
dends, there  being  many  different  allegations  of  wrongdoing  on 
their  part  in  the  complaint.  The  Supreme  Court  sustamed  the 
overruUnc-  of  the  demurrers  to  each  of  the  allegations  m  the 

powers  and  flexible  methods  of  courts  because  they  "were  applicable  todivi- 
ot  equity  is  neither  to  be  wondered  at  dends:  that  the  president  misuses  his 
nor  regretted,  and  this    is  specially   powers,  and  conducts  the  business  of 
true  of  controversies  growing  out  of  the  corporation  to  his  own  P»yP<»««- 
the  relations  between  the  stockholder  that  he  controls  and  uses   m  his  own 
and  the  corporation  of  which  he  is  a   private  banking  account  and  for  hta 
member.    The  exercise  of  this  power  own  private  purposes,  all  the  funds  of 
in  protecting  the  stockholder  against  the  company,  against  the  express  pro- 
the  frauds  of  the  governing  body  of   visions  of  *e  by-laws    and  that  m 
directors  or  trustees,  and  in  prevent-   this  he  is  sustained  .^Jl'*  "«;«"  f 
tag  their  exercise,  in  the  name  of  the  the  company,  who  aided  him  in  a  per^ 
corporation,  of  powers  which  are  out-  emptory  refusa    even  t«  con«der  a 
side  of  thei;  charters  or  articles  of  at-   motion  of  taquiry  on   this   subject, 
sociation,  has  been  frequent,  and  is   made  at  a  general  meetmg  of  stock- 
^rbeneflcial,  and   is  undisputed,   holders.     He  charges  that  his   own 
»    •    •    The  case  before  us  goes  be    personal  nghts  are  infringed  and  for 
yond  this."     After  stating  tl»t  case   this  he  seeks  his   ■•^"'^^y-      f  J*^ 
and  the  principle  of  Dodge  v.  Wool-   rights  are  similar  to  those  of  the  other 
sey  m  both  of  which  the  action  of  an   stockholders,   he  makes  them  parties 
outsider  was  the  ff™m,«««  of  the  com-   to  his  suit,  as  parties  m  .nterest,  so 
Plaint    the   court   adds   (page  4M):   that  they  may  take  sides  as  they  are 
"  This  is  a  very  different  affair  from  a   -dvised,  and,  at  least,  may  be  present 
controversy  between  the  shareholder  at  the  division  of  the  common  prop- 
of  a  corporation  and  the  corporation  erty,  and  see  that  he  gets  his  ]ust 
itself    or  its  managing   directors  or  share  and  no  more.    His   prayer   is 
trustUs,  or  the  other  shareholders  who  that  the  money  unlawful  y  converted 
may  be  violating  his  rights,  or  destroy-   be  returned^  and  out  of  it  a  divulend 
tag  the  property  in  which  he  has  en  be   declared    and   that    he    get   his 
inferest.-    Simonton,  J.,  then  refers  dividend.    This  is  a  suit  withm  the 
to  the  case  before  him:  "The  bill  in   corporation,   concerning  no   one  but 
this  case  does  not  complain  of  any   the  stockholders  and  the   company, 
business  policy  on  the  part  of  the  cor-   seektag  rights,  claimed  as  »   s*^"" 
Deration  or  of  the  other  stockholders,   holder,  against  the  company  and  other 
Zr  does  it  charge  suptaeness,  or  neg-   stockholders.    The  complainant  could 
lect  or  collusion  with  any  attack  on   not  work  out  his  ease  through  the 
corporate    rights,   interests    or  privi-   oorpomtion."    The  court  then  stated 
lee^  by  an  outsider.    The  complain-   the  particular  facts  as  to  who  hold  the 
.nt  charges  that  the   president   has  stock  and  are  officers,  and  said:     Un- 
converted to  his  own  use  moneys  of  der  these  circumstances,  it  would  be 
the  company  m  which,  as  a  stock-   absurd  to  require  the  complainant  to 
holder   complainant  has  an  interest,   ask  these  gentlemen  to  institute,  m 


§211] 


FRAUDULENT  ACTS  OF  OFFICERS. 


315 


complaint,  holding  that  each  one  of  them  stated  a  cause  of  action 
against  the  defendants.  One  of  the  main  contentions  of  the 
defendants  was  that  there  should  have  been  a  demand  upon  them 
to  bring  the  action  and  an  allegation  in  the  complaint  that  it  had 
been  made.  The  court  held  this  was  particularly  a  case  in  which 
such  a  demand  upon  the  directors  was  not  required.^ 


the  name  of  the  corporation,  a  suit 
against  [the  president]  involving  the 
grave  charges  of  this  suit.  Tazewell 
Co.  V.  Farmers'  L.  &  T.  Co.,  12  Fed. 
Rep.  752;  Heath  v.  Railway  Co.,  8 
Blatchf.  347." 

*  Wayne  Pike  Company  v.  Ham- 
mons,  (1891)  129  Ind.  368.  Arguendo, 
it  was  said:  "Conceding  that  the  cases 
are  numerous  in  which  such  demand 
is  necessary,  we  do  not  think  this  case 
belongs  to  that  class.  In  this  case 
something  more  than  a  mere  account- 
ing is  sought,  namely,  the  appointment 
of  a  receiver  to  take  charge  of  the  cor- 
porate property.  The  parties  out  of 
whose  hands  it  is  proposed  to  take  the 
management  of  the  affairs  of  the  cor- 
poration, and  who  are  called  upon  to 
account  for  a  misappropriation  and 
conversion  of  the  corporation  assets, 
constitute  a  majority  of  the  directors. 
It  would  not  be  reasonable  to  require 
those  who  are  charged  with  a  conver- 
sion of  the  assets  to  bring  suit  in  the 
name  of  the  corporation  against  them- 
selves, and  to  furnish  the  proof  to 
sustain  the  charge,  and  at  the  same 
time  ask  the  court  to  take  the  prop- 
erty from  their  charge  on  account  of 
their  misconduct.  Such  a  suit  would 
be  a  farce,  and  it  would  be  beyond 
reason  to  refuse  the  appellees  relief 
because  they  did  not  demand  that  such 
a  proceeding  be  had  before  they  com- 
menced their  suit.  Cook  on  Stocks  & 
Stockholders,  section  741,  in  treating 
this  subject,  says:  'There  are  occa- 
sions when  the  allegation  that  the 
stockholder  has  requested  the  directors 
to  bring  suit,  and  they  have  refused, 
may  be  omitted  since  the  request  itself 


is  not  required.     This  occurs  when  the 
corporate    management  is  under  the 
control  of  the  guilty  parties.     No  re- 
quest need  then  be  made  or  alleged, 
since  the  guilty  parties  would  not  com- 
ply with  the  request;  and  even  if  they 
did  the  court  would  not  allow  them  to 
conduct  the  suit  against  themselves.* 
The    author    cites    many    authorities 
which    fully  support   the  text.     Mr. 
Waterman,  in  his  work  on  Corpora- 
tions, vol.   1,  page   467,    says:    'The 
corporation    may    call  its  officers  to 
account  if  they  willfully  abuse  their 
trust  or  misapply  the  funds  of  the 
company;  and  if  it  refuses  to  sue,  or 
is  still  under  the  control  of  those  who 
must  be  made  defendants  in  the  suit, 
the  stockholders  who  are  the  real  par- 
ties in  interest  may  file  a  bill  in  their 
own  names,  making  the  corporation  a 
party  defendant,  or  part  of  them  may 
file  a  bill  in  behalf  of  themselves  and 
all  others  standing  in  the  same  rela- 
tion.    Where  a  majority  of  the  stock 
of  a  corporation  is  held  by  one  family, 
who  vote  away  the  corporation  profits 
for  salaries,   a  court   of   equity  will 
remedy    the    fraud.     Cook    Stock    & 
Stockholders,  section  567.     In  the  case 
of  Carter  v.  Ford,  etc.,  Co.,  85  Ind. 
180,  it  was  held  that  where  the  corpo- 
ration was  in  the  hands  of  its  enemies 
the  stockholders   might   maintain  an 
action,   which,   if   successful,    would 
inure  to  the  benefit  of  the  corporation.' 
See,  also,  Rogers  v.  La  Fayette,  etc., 
Works,  52  Ind.  296.     '  The   officers  of 
a  corporation  are  its  agents,  and  they 
are  governed  by  the  rules  of  law  ap- 
plicable to  other  agents,   as  between 
themselves  and  their  principal,  in  so 


til 

III 


H 


,1 


i 


316 


FRAUDULENT  ACTS  OF  OFFICERS. 


[§212 


\i»i 


9 


§  212.  When  a  stockholder  may  bring  an  action.—  It 
appearing  in  a  case  that  a  stockholder  had  written  to  the  presi- 
dent of  a  corporation  to  take  action  against  certain  directors  for 
breaches  of  their  trust,  and  he  replied  that  he  had  resigned  the 
presidency  two  years  before  this  time,  and  further  that  tlie  direct- 
ors complained  of  were  the  active  managers  of  the  business,  and 
there  being  no  evidence  that  any  successor  to  the  president  had 
been  elected  in  the  meantime,  the  Supreme  Court  of  New  York 
held  that  the  stockholder  could  properly  bring  an  action  in  his 
own  name  against  these  directors.*  An  action  for  an  accounting 
and  an  injunction  in  the  name  of  a  corporation  may  be  authorized 
and  maintained  by  the  president  of  a  corporation  who  is  also  a 
trustee,  without  the  authority  of  the  board  of  trustees,  or  against 


far  as  such  rules  relate  to  honesty  and 
fair  dealing  in  the  management  of  the 
affairs  of  their  principal.     They  can 
no  more  use  the  business  of  their  prin- 
cipal for  their  own  private  gain  than 
any  other  agent,  and  should  they  do 
so  they  should  be  held  to  the  same 
strict    rule  of    accountability  as  the 
agent  of  a  private   person.     Port  v. 
Russell,  86  Ind.  60;  Aberdeen  Railway 
Co.  V.  Blakie,  1  Macq.   461;  Michoud 
r.  Girod,  4  How.   502;    Cumberland, 
etc.,  Co.  V.   Sherman,   30  Barb.   553. 
If  the  appellants  conspired  together 
for  the  purposes  alleged  in  the  com- 
plaint, each  became  liable  for  any  act 
done  by  any  of  the  three  in  furtherance 
of  the  common  design.     By  the  act  of 
conspiring  together  the   conspirators 
assumed  to  themselves  the  attribute  of 
individuality  so  far  as    regards   the 
proscution  of  the  common  design,  thus 
rendering  what  was  said  or  done  by 
any  one  in  furtherance  of  the  design, 
the  act  of  all.     [Citing  authorities.]'" 
'  Averill  p.  Barber,  (1889)  53  Hun, 
636;  8.  c,  6  N.  Y.  Supp.  255.     As  to 
the  general  rule   in    such  cases,    see 
Doud  r.  Wisconsin  P.  &  S.  Railway 
Co..  65  Wis.  108;  s.  c,  25  N.  W.  Rep. 
533;   Boyd  v.  Sims,  3  Pickle  (Tenn.), 
771;  8.  c,  11  S.  W.  Rep.  948;  Bacon 
w.  Irvine,  70  Cal.  221;  11  Pac.  Rep. 


646;  Dannmeyer  v.  Coleman,  11  Fed. 
Rep.  97;  City  of  Detroit  v.  Dean,  106 
U.  S.  537;  s.  c,  1  Sup.  Ct.  Rep.  560; 
liathbone  v.  Parkersburg  Gas  Co.,  31 
W.  Va.  798;   8.  c,  8  S.  E.  Rep.  570; 
Alexander  v.  Searcy.  81  Ga.  536;  8.  c, 
8  S.  E.   Rep.  630;  City  of  Chicago  v. 
Cameron,  120  111.  447;  8.  c,  UN.  E. 
Rep.  899;  Dunphy  v.  Traveller  News- 
paper Association,   146  Mass.  495;  s. 
c,  16  N.  E.  Rep.  426;  Allen  v.  Wilson, 
28  Fctl.  Rep.  677;  Slattery  v.  St.  Louis 
&  N.  O.  Transportation  Co.,  91  Mo. 
217;  8.  c,  4  S.  W.  Rep.  79;  Taylor  r. 
Holmes,  127  U.  S.  489;   8.  c,  8  Sup. 
Ct.  Rep.  1192;  Dimpfel  v.  Ohio  &  M. 
Railway  Co.,  110  U.  S.  209;  8.  c,  3 
Sup.  Ct.  Rep.  573;  McHenry  v.  Rail- 
road Co..  22  FchI.  Rep.  130;  Foote  u. 
Mining  Co.,  17  Fed.  Rep.  46;  Bill  i>. 
Telegraph  Co..  16  Fed.  Rep.  14;  aty 
of  Quincy  f>.  Steel,  120  U.  S.  241 ;  8. 
c,  7    Sup.  Ct.    Rep.  520;    Byers  v. 
Rollins,   13   Colo.   22;    8.  c,  21  Pac. 
Rep.  894;  Poole  v.  Association,  30  Fed. 
Rep.  513;  Wilcox  r.  Bickel,  11  Neb. 
154;  8.  c.  8  N.  W.  Rep.  436;  Davis  v. 
Gemmell,  70  Md.  356;  s.  c,  17  Atl. 
Rep.  259;   Hazeltine  t.  Belfast  &  M. 
L.  Railroad  Co.,  79  Me.  411;  8.  c,  10 
Atl.  Rep.  328;  Oliphant  v.  Woodburn 
C.  &  Mining  Co.,  63  Iowa,  332;  s.  c, 
19  N.  W.  Rep.  212. 


I 


§212] 


FRAUDULENT  ACTS  OF  OFFICEES. 


317 


its  express  direction  where  a  majority  of  the  trustees  may  have 
wrongfully  converted  corporate  funds  and  threaten  to  convert 
other  of  the  funds,  especially  where  the  neglect  of  the  board  of 
trustees  to  sue,  and  its  resolution  to  discontinue  a  suit  already 
commenced,  are  simply  acts  in  furtherance  of  the  unlawful 
design  of  the  majority  of  the  trustees.^    Where  the  assignee  in 


« Recamier  Manufg.  Co.  v.  Seymour, 
(Com.  PI.    New  York    City,   1889)  5 
N.  Y.  Supp.  648.     In  Merchants  & 
Planters'  Line  v.  Waganer,  (1882^  71 
Ala.  581,  a  stockholder's  action  against 
the  corporation  and  certain  directors 
based  upon  alleged  mismanagement, 
etc.,  Stone,  J.,  asks  :  "  Have  the  com- 
plainants averred    sufficient    facts  to 
authorize  them,  representing,  as  they 
do,  a  minority  of  the  stock,  to  come 
into   equity    for   the   redress  of  the 
wrongs    they  complain  of  while  the 
corporate  powers  are  still  in  exercise  ?  " 
and  answers  as  follows  :  "  Very  true, 
the  present  bill  charges  that  three,  a 
majority  of  the  directors,  have  com- 
bined and  formed  a  ring  for  their  own 
private  profit,  at  the   expense  of  the 
other  stockholders  and  many  acts  of 
wrongdoing  are  charged  against  those 
three  directors.     No  act  is  charged  that 
is  itUra  vires,  and  there  is  no  averment 
that    the     corporation     effects     are 
imperiled    by  the  insolvency   of  the 
parties.     Neither  is  there  averment  in 
the   bill  that    any  request    has  been 
made  known,  soliciting  the  use  of  the 
corporate     name     in     bringing    suit 
against  the  alleged  offenders.     Nor  is 
it  shown  that  any  attempt  has  been 
made  to  obtain  a  meeting  of  the  stock- 
holders.    In  Tuscaloosa  Manufactur- 
ing Co.  V.  Cox,  68  Ala.  71.  the  ques- 
tions presented  arose  on  bill  filed  by 
a  minority  of  stockholders.     True,  the 
abuses  charged  in  that  case  were  less 
flagrant  than  those  complained  of  in 
this;  but  the  difference  is  in  degree, 
not  in  kind.     In  that  case  we  ruled 
that     complainants    had    shown    no 
ground    for    equitable    relief.      We 


said  :  '  In  the  government  of  corpora, 
tions  much  must  be  left  to  the  judg- 
ment and  discretion  of  the  directory, 
and  much   must  be  credited  to  the 
fallibility  of  human  judgment.     If  it 
be  supposed  an  unwise  course  is  being 
pursued,  or  that  the  interests  of  the 
corporation  are  suffering,  or  likely  to 
suffer  though  the  inefficiency  or  faith- 
lessness of  an  official  an  appeal  should 
first   be    made   to   the    directory    or 
governing  body,  to  redress  the  griev- 
ance.   Failing  there,  in  ordinary  cases, 
the  next  redress  will  be  found  in  the 
power  of   the  ballot,  which    usually 
comes  into  exercise  at  short  intervals.' 
We  quoted  approvingly  the  case  of 
Greaves  v.  Gouge,  69  N.  Y.   154,  and 
Brewer  v.  Boston  Theatre,  104  Mass. 
378.     In  Hawes  v.  Oakland,  104  U.  8. 
450,   Justice    Miller,    in   delivering 
the  opinion  of  the  court,  stated  that  a 
stockholder  could  appeal  to  the  courts 
for  relief,  '  when  the  board  of  direct- 1 
ors  or  a  majority  of  them,  are  acting 
for   their  own  interest,   in  a  manner 
destructive    of  the  corporation  itself, 
or  of  the  rights  of  the  other  share- 
holders.'    That  is  precisely   what  is 
averred  in  this  case.      '  But,'  Justice 
Miller    adds,     *in   addition  to  the 
existence  of  grievances  which  call  for 
this  kind  of  relief,  it  is  equally  im- 
portant that  before  the  shareholder  is 
permitted  in  his  own  name  to  institute 
and  conduct  a  litigation  which  usually 
belongs  to  the  corporation,  he  should 
show  to  the  satisfaction  of  the  court 
that  he  has  exhausted  all  the  means 
within  his  reach,  to  obtain,  within  the 
corporation  itself,  the  redress  of  his 
grievances,  or  action  in  conformity  to 


II 


.      b. 


I     I 


H 


tf 

I. 


318 


FRAUDULENT  ACTS  OF  OFFICERS. 


[§213 


II 


•  '  i 


II 


L  1 


insolvency  of  a  corporation  refuses  to  sue,  a  stockholder  may  sue 
to  enforce  a  claim  of  the  corporation  against  its  managing  officer 
for  diversion  of  funds.  At  the  same  time  it  has  been  held  that  a 
stockholder,  seeking  to  enforce  right's  of  the  corporation  against 
its  managing  officer  for  diversion  of  funds  arising  from  an  unau- 
thorized "swapping"  of  checks,  who,  alleging  that,  being  a 
director,  he  protested  iu  writing  against  such  acts  when  Urst 
apprised  of  them,  but  that  they  were  nevertheless  continued  for 
two  years,  showed  facts  convicting  himself  of  laches,  by  failing- 
to  aver  that  he  was  ignorant  of  such  continuance.^  A  stock- 
holder of  a  construction  company  which  had  constructed  a  rail- 
road which  became  connected  with  and  was«controlled  by  another 
corporation,  a  railroad  company,  the  latter  assuming  by  contract 
the  liabilities  of  the  company  absorbed  by  it  to  the  construction 
company,  brought  his  action  as  a  stockholder  of  the  latter  against 
the  construction  company  and  the  railroad  company  which  had 


his  wishes.  He  must  make  an  earnest, 
not  a  simulated,  effort  with  the  manag- 
ing body  of  the  corporation,  to  induce 
remedial  action  on  their  part,  and  this 
must  be  made  apparent  to  the  court. 
If  time  permits,  or  has  permitted,  he 
must  show,  if  he  fails  with  the  direct- 
ors, that  he  has  made  an  honest  effort 
to  obtain  action  by  the  stockholders 
as  a  body,  in  the  matter  of  which  he 
complains  ;  and  he  must  show  a  case, 
if  this  is  not  done,  where  it  could 
not  be  done,  or  it  was  not  reasonable 
to  require  it.'  The  principles  com- 
mend themselves  to  our  approval  by 
the  strongest  of  considerations.  A 
corporation,  to  attain  the  highest  suc- 
cess, should,  like  a  family,  dwell  to- 
gether in  unity.  And  when  disputes 
arise  between  members  of  this  body 
politic,  or  law-created  household,  they 
should,  if  possible,  be  adjusted  among 
themselves.  It  should  be  a  strong 
case  to  justify  a  resort  to  personal 
litigation,  which  almost  invariably 
leads  to  personal  alienation  if  not 
open  hostility.  Pratt  f>.  Jewett,  9 
Gray,  34."  As  to  actions  against 
ministerial  officers  of  a  corporation  for 


breaches  of  trust  and  misappropria- 
tion of  funds,  see  Hyde  Park  Q&s  Co.  v. 
Kerber,  5  Bradw.  (111.)  132.  As  to  what 
is  required  and  what  not  required  of 
stockholders  before  they  can  institute 
suits  for  mismanagement,  etc.,  on  the 
part  of  directors  and  officers,  for  the 
redress  of  grievances,  see  Bell  v.  Mont- 
gomery Light  Co.,  (Ala.)  15  So. 
Rep.  569;  McCrory  y.  Chambers,  48 
111.  App.  445;  George  v.  Central  R.  R. 
&  Bkg.  Co.  of  Georgia,  (Ala.)  14  So. 
Rep.  753;  Earle  v.  Seattle,  L.  S.  &  E. 
Ry.  Co.,  56  Fed.  Rep.  909;  Sage  v. 
Culver,  71  Hun,  42;  b.  c,  24  N.  Y. 
Supp.  514;  Putnam  v.  Ruch,  54  Fed. 
Rep.  216;  Putnam  v.  Ruch,  56  Fed. 
Rep.  416;  Atchison,  T.  &  S.  F.  R 
Co.  V.  Comrs.,  51  Kans.  617;  Eaton 
V.  Robinson,  (R.  I.)  27  Atl.  Rep.  595; 
Pondir  r.  New  York,  L.  E.  «&  W.  R. 
Co.,  72  Hun,  384;  s.  c,  25N.  Y.  Supp. 
560;  31  Abb.  N.  C.  29;  Whitney  v. 
Fairbanks,  54  Fed.  Rep.  985;  Fitz- 
gerald V.  Fitzgerald  &  Mallory  Con- 
struction Co.  et  al.,  (1894)  41  Neb.  374; 
8.  c,  59N.  W.  Rep.  839. 

»  Streight  v.  Junk,   (1893)  69  Fed. 
Rep.  321. 


* 


§212J 


FRAUDULENT  ACTS  OF  0FFICEK8. 


319 


also,  by  purchase  of  the  stock  of  the  construction  company,  and 
electing  so  great  a  number  of  its  directors,  obtained  full  control 
of  its  management,  charging  great  wrongs  perpetrated  on  the 
part  of  the  railroad  company  acting  through  its  directors  and 
management  so  as  to  create  liabilities  to  the  construction  company 
growing  out  of  their  wrongdoing  for  which  this  action  was  brought 
to  secure  such  equitable  decree  against  the  railroad  company  in 
favor  of  the  construction  company,  its  co-defendant,  as  would 
inure  to  the  benefit  of  the  complainant  and  others  holding  judg- 
ments and  claims  against  the  construction  company.  The 
Nebraska  Supreme  Court  held  tliat  the  action  was  maintainable.* 
Two  receivers  of  this  construction  company  had  been  appointed, 
it  appeared  in  the  petition  in  this  case,  one  in  a  court  of  general 
jurisdiction  in  two  different  states.  It  was  insisted  upon  the  part 
of  defendants  that  as  this  appeared  the  receivers  were  indispen- 
sable parties  to  the  suit.  But  the  court  held  to  the  contrary .^ 
There  was  also  a  contention  in  this  case,  it  being  found  by  the  court 
that  this  stockholder  and  one  other  representing  one-fifth  interest  in 
the  whole  of  the  shares  of  the  corporation,  having  acquiesced  in 
these  particular  acts  of  tlie  directors  of  the  railroad  corporation,  the 
corporation  itself  was  estojiped  from  recovery.  The  court  below 
found  in  accordance  with  this  contention.  The  Supreme  Court 
of  Nebraska,  however,  held  this  finding  of  the  court  below  to 
be  erroneous.  The  position  of  the  latter  as  to  the  law  involved 
upon  this  point  is  tlius  stated  iu  tlie  syllabus  by  the  court:  The 
acquiescence  of  a  stockholder  will  not  preclude  a  recovery  in  an 
action  brought  by  him  in  a  proper  case  for  the  benefit  of  such 
corporation  in  respect  of  wrongs  committed  by  the  managmg 
otticers  of  said  corporation  against  it  for  the  benefit  of  another 
corporation  in  which  they  were  also  officers.  In  such  case,  while 
the  stockholder  is  nominally  the  plaintiff,  he  is  only  nominally  so; 
the  action  is  in  reality  between  the  corporations  joined  as  defend- 
ants —  the  one  as  the  party  wronged,  the  other  as  the  party  which 
profited  by  the  wrong.'     The  corporation,  a  railroad  company, 


*  Fitzgerald  r.  Fitzgerald  &  Mallory 
Construction  Co.  et  al.,  (1894)  41  Neb. 
374;  8.  C..59N.  W.  Rep.  839. 

Mbid. 

*  Ibid.  Arguendo,  it  was  said  by 
the  court:  "It  is  difficult  to  conceive 
why  the  acquiescence  of  stockholders 


in  the  wrong  found  by  the  court, 
whereby  its  ability  to  pay  its  debts 
was  greatly  impaired,  should  preclude 
the  right  of  the  construction  company 
to  relief  as  against  such  wrong.  The 
trial  court  found  that,  aside  from  the 
acquiescence  of  [the  two  stockholders]. 


m 


s     I* 


r 


'■I 


< 


1      I 

_ri 


"  1 


M 


320 


FRAUDULENT  ACTS  OF  OFFICERS. 


[§212 


§218] 


one  of  the  defendants  in  this  case,  was  held  liable  civilly  for  the 
damages  occasioned  by  the  torts  of  its  officers,  its  directors,  to  the 
construction  company,  its  co-defendant,  those  torts  being  the 
result  of  the  acts  of  those  directors  of  the  railroad  company 
while  acting  in  its  interest  in  the  management  of  the  financial 
settlements  based  upon  the  contracts  between  the  two  on  behalf 
of  the  construction  company,  which  management  the  raUroad 
company  dominated.* 


FRAUDULENT  ACTS  OF  OFFICERS. 


321 


there  had  been  the  active  commission 
of  the  wrong  by  the  other  four-fifths 
of  the  construction  company's  stock. 
Of  what  greater  avail  should  be  the 
mere  acquiescence  of  the  other  fifth? 
In  Quincy  «?.  Steel,  120  U.  8.  344;  s.  c, 
7  Sup.  Ct.  Rep.  520,  it  was  said  that  a 
suit  brought  by  a  stockholder  for  the 
benefit  of  the  corporation  was  in  fact 
a  suit  for  the  corporation  itself.    That 
the     acquiescence     of    stockholders 
merely  as  such  could  be  held  to  imply 
more  than  by  an  affirmative  act  such 
stockholder,  as  such,  could  perform, 
can  scarcely  be  seriously  argued.     In 
the  brief  of  the  defendants  is  found 
the  following  quotjition  from  the  lan- 
guage of  Field,  J.,  in  Humphreys  v. 
McKissock,  140  U.  S.  311.  312;  s.   c. 

11  Sup.  Ct.  Rep.  779:  '  The  property 
of  a  corporation  is  not  subject  to  the 
control  of  individual  members, 
whether  acting  separately  or  jointly. 
They  can  neither  incumber  nor  trans- 
fer that  property,  nor  authorize  others 
to  do  so.  The  corporation,  the  artifi- 
cial being  created,  holds  the  property, 
and  alone  can  mortgage  or  transfer  it. 
and  the  corporation  acts  only  through 
its  officers,  subject  to  the  conditions 
prescribed  by  law.'  In  this  brief  it  is 
also  stated  that  Justice  Field,  in  the 
case  cited,  approved  the  language  of 
Chief  Justice  Shaw  in  Smith  v.  Hurd, 

12  Met.  (Mass.)  3a5,  where  he  says: 
'  The  individual  members  of  a  corpo- 
ration, whether  they  should  all  join  or 
each  act  severally,  have  no  right  or 
power  to  intermeddle  with  the  prop- 


erty or  concerns  of  the  bank,  or  call 
any  officer,  agent  or  servant  to  ac- 
count,  or  discharge  them   from  any 
liability.     Should  all  the  stockholders 
join  in  a   power  of  attorney  to  any 
one,  he  could  not  take  possession  of 
any  real  or  personal  estate,  any  se- 
curity or  choice  in  action,  could  not 
collect  a  debt  or  discharge  a  claim  or 
release  damages  arising  from  any  de- 
fault, simply  because  they  are  not  the 
legal  owners  of   the    property,    and 
damage  done  to  such  property  is  not 
any  injury  to  them.     Their  rights  and 
their  powers  are  limited  and  well  de- 
fined.'   If   all  the    stockholders,    by 
joining  in  a  power  of  attorney  for  that 
purpose,   could    not    release   damage 
arising  from  any  default,   upon  what 
principle  could  such  release  be  inferred 
from  the  mere  acquiescence  in  such 
release  by  one-fifth  in  amount  of  the 
stockholders?    Most   manifestly  such 
an  anomaly  cannot  be  tolerated,  much 
less  enforced,  by  judicial  tribunals.    In 
argument  it  is  tenaciously  contended, 
however,  that  the   long  acquiescence 
of  the  construction  company  effected 
the  same  result.     There  was  no  find- 
ing of  such  acquiescence  by  the  court. 
Indeed,   there  could  not  be,  consist- 
ently with  the  finding  that  the  con- 
struction company  was  dominated  in 
all  things  by  the  officers  of  the  Mis- 
souri  Pacific  Railway  Company    [its 
CO  defendant.]" 

'  Fitzgerald  ».  Fitzgerald  &  Mallory 
Construction  Co.  et  al.,  (1894)  41  Neb. 
374;  8.  c,  69  N.  W.  Rep.  839.    It  was 


§  213.  Dissolution  of  a  corporation  by  a  scheme  of  a 
majority  of  stockholders  and  a  sale  of  the  property  to 
themselves.-  In  a  bill  filed  by  a  minority  of  stockholders  of 
a  corporation  against  the  representatives  of  a  majority  of  stock- 
holders for  an  accounting  as  to  the  disposal  of  the  property  of 
the  corporation  to  a  new  corporation  formed  by  this  majority  of 
stockholders,  the  case  disclosed  therein  was  thus  stated  by  Wal- 
lace, J.,  of  the  United  States  Circuit  Court :  "  A  majority  of 
the  stockholders  of  a  corporation  resolve  to  avail  themselves  of 
their  power  as  a  quorum  to  sacrifice  the  interests  of  tlie  minority 


insisted  that  the  acts  of  these  directors 
were  not  imputable   to  the   railroad 
company  itself.     This  contention  was 
disposed  of  by  the  Supreme  Court  of 
Nebraska    in    the    following    words: 
"The  following  apt  language  is  em- 
ployed by  Harlan,  J.,  in  the  opinion 
of  the  Supreme  Court  of  the  United 
States  in  Railway  Co.  v.  Harris,  122 
U.  S.  on  page  607;  7  Sup.   Ct.  Rep. 
1286:  « In  Railroad  Co.  v.  Quigley,  21 
How.  202,  this  court  held  that  a  rail- 
road corporation  was  responsible  for 
the  publication  by  them  of  a  libel  in 
which  the  capacity    and    skill   of    a 
mechanic    and     builder    of    depots, 
bridges,  station  houses  and  other  struc- 
tures   for    railroad    companies    were 
falsely  and  maliciously  disparaged  and 
undervalued.     The  publication  in  that 
case  consisted  in  the  preservation  in 
permanent  form  of  a  book  for  distribu- 
tion among  the  persons  belonging  to 
the  corporation,  of  a  report  made  by 
a  committee  of  the  company's  board 
of  directors  in  relation  to  the  adminis- 
tration and  dealings  of  the  plaintiff  as 
a  superintendent  of  the   road.     The 
court,  under  a  full  review  of  the  au- 
thorities, held  it  to  be  the  result  of  the 
cases  that  for  acts  done  by  the  agents  of 
a  corporation,  either  in  contractu  or  in 
delicto,  in  the  course  of  its  business 
and  of  their  employment,  the  corpora- 
tion is  responsible  as  an  individual  is 
responsible     under    similar     circum- 
stances.    In  State  t.  Morris  &  Essex 
41 


R.  Co.,  23  N.  J.   Law.   369,   it  was 
well  said  that,  if  the  corporation  has 
itself  no  hands  with  which  to  strike, 
it  may  employ  the  hands  of  otliers,  and 
it  is  now  perfectly  well  settled,  con- 
trary to  the  ancient  authorities,  that  a 
corporation  is  liable   cioiliter  for  all 
torts  committed    by  its    servants    or 
agents  by  authority  of  the  corpora- 
tion, express  or  implied.     The  result 
of  the  modern  cases  is  that  a  corpora- 
tion  is  liable  cimliter  for  torts  com- 
mitted by  its  agents  or  servants  pre- 
cisely as  a  natural  person,  and  that  it 
is  liable  as  a  natural  person  for  the 
acts  of  agents  done  by  its  authority, 
express  or  implied,  though  there  be 
neither  a  written  appointment  under 
seal  nor  a  vote  of  the  corporation  con- 
stituting the  agency  or  authorizing  the 
act.     See,  also.  Salt  Lake  City  ij.   Hol- 
lister,  118  U.  8.  256,  260;  s.  c,  6  Sup. 
Ct.    Rep.    1055;    Steamboat     Co.     «. 
Brockett,  121  U.  S.  637;  s.  c,   7  Sup. 
Ct.   Rep.  1039;  Bank  r.  Graham,  100 
U.  S.  699-702.'    In  Booth  v.  Bank,  50 
N.  Y.  on  page  400  et  seq.,  is  found  the 
following  language:  '  When  an  officer 
does  an  act  which  is  within  the  gen- 
eral scope  of   his  powers,   although 
circumstances  may  exist  which  render 
the  particular  act  a  violation  of  his 
duty,  the  corporation  is  nevertheless 
bound  by  his  acts  as  to  persons  deal- 
ing in    ignorance    of    those    circum- 
stances, and  is  responsible  to  innocent 
third  parties  who  have  sustained  dam- 


!H 


iVift 


II 

I 


322 


FRAUDULENT  ACTS  OF  OFFICERS. 


[§  213 


§213] 


FRAUDULENT  ACTS  OF  OFFICERS. 


'"'t 


stockholders  for  their  own  profit,  by  destroying  the  corporation 
and  selling  its  property  and  franchises  to  themselves  at  half  their 
real  value.  Tliis  scheme  they  have  carried  out,  and  now  retain 
its  fruits.  They  have  thrust  out  the  complainants,  the  minority, 
from  their  position  as  stockholders,  terminating  their  relations  with 
the  corporation  as  such,  and  have  deprived  them  from  realizhig 
what  would  belong  to  them  upon  a  fair  disposition  and  division 
of  the  corporate  property."  The  court  then  discusses  those  acts 
and  the  powers  of  the  majority  and  tlie  rights  of  the  minority 
of  the  stockholders,  as  follows :  "  It  is  to  be  observed  that  the 

company,    or    that    the   act   omitted 
w:is     required      to     be     performed. 
Wiiether  it  was  wise  to  depart  from 
this  rule,  that  excepted  corporations 
from  liabihty  for  the  acts  of  its  agents 
in  cases  where  ihe  character  of  the  act 
depended  upon  motives  or  intent,  seems 
no  longer  an  open  question.     The  old 
idea,  that  because  a  corporation  had 
no  soul,  it  could  not  commit  torts,  or 
be  the  subject  of  punishment  for  tor- 
tious acls,  may  now  be  regarded  as  ob- 
solete.    The  rights,   the   powers  and 
the  duties  of   corporate  bodies  have 
been  so  enlarged  in  modern  times,  and 
these  artificial  persons  have  become  so 
numerous,  and  enter  so  largely  into 
the    every -day    transactions    of    life, 
that  it  has  become  the  policy  of  the 
law  to  subject  them,  so  far  as  practi- 
cable,  to  the  same  civil  hability  for 
wrongful  acts  as  attach  to    rational 
persons,  and  its  liability  is  not  re- 
stricted to  acts  committed  within  the 
scope  of  granted  powers,  but  the  cor- 
I)omtion  may  be  liable  for  an  action 
for  false  imprisonment,  malicious  prose- 
cution and  libel.     Pierce  on  Railroads, 
2: 3.'    In  3Iiller  v.  Railroad  Co. ,  8  Neb. 
219,  it  was  said  that  a  corporation  is 
liable  the  same  as  a  natural  person  for 
the  tortious  acts  of  its  servants  and 
agents  in  the  course  of  their  employ- 
ment, but  to  make  a  corporation  liable 
for  such  acts  they  must  be  connected 
with  the  transaction  of  the  business 
for  which  the  company  was  incorpo- 


323 


ages  occasioned  by  such  acts.     And  the 
liability  of  a  corporation  for  the  con- 
sequences of  acts  of  its  officers  come 
within    the    scope    of    their    general 
powers,  and  is  not  affei  ted  by  the  fact 
that  the  act  which  the  officers  have  as- 
sumed to  do  is  one  which  the  corpora- 
tion itself  could  not  rightfully  do.    A 
corpomtion  may  do  wrong  through  its 
agent  as  well  as  a  private  individual. 
Railroad  Co.  r.  Schuyler,  34  N.  Y.  30; 
Farmers  &  Mechanics'  Bank  v.  Butch- 
ers &  Drovers'  Bank,   16  N.   Y.  125; 
Bissell  r.  Rtiilroad  Co.,  22  N.  Y.   258; 
Bank  of  Genesee  v.  Patchin  Bank,  13 
N.  Y.  309.'    In  Hussey  v.  King,  (N. 
C.)  3  S.  E.  Rep.  on  page  926.  Davis, 
J.,  delivering  the  opinion  of  the  court, 
said:  'It  was  long  thought  that,  as  a 
corporation  has  no  mouth  with  which 
to  utter  slander,  or  hand  with  which 
to  write  libels  or  commit  batteries,  or 
mind  to  suggest   malicious  prosecu- 
tions or  other  wrongs  — as  it  was  an 
artificial  person  and  could  speak  and 
act  only  through  the  agency  of  others 
—  it  was  not,  therefore,  liable  for  any 
torts  except  such  as  resulted    from 
some  act  of  commission  or  omission 
of  its  agents  or  servants  while  acting 
within  the  scope  of  granted  powers, 
or  wrongfully  omitting  and  negfect- 
ing  some  duty  imposed  by  its  charter 
or  by  law;  and,  consequently,  it  was 
necessary    to    allege     that    the    act 
committed    was   done    while    acting 
-within  the  scope  and   power  of  the 


proceedings  of  the  defendants  were  not  outside,  of  the  charter  or 
articles  of  association  of  the  corporation,  but,  on  the  contrary, 
were  carefully  pursued  according  to  the  form  of  the  organic  law. 
They  had  a  right  to  dissolve  the  corporation  and  dispose  of  its 
property  and  distribute  the  proceeds.     The  minority  cannot  be 
heard  to  complain  of  this,  because  the  laws  of  Oregon  permitted 
it  and  because  it  is  an  implied  condition  of  the  association  of 
stockholders  in  a  corporation  that  the  majority  shall  have  power 
to  bind  the  whole  body  as  to  all  transactions  witliin  the  scope  of 
the  corporate  powers.^    Nor  does  it  matter,  in  legal  contemplation, 
that  the  majority  were  actuated  by  dishonorable  or  even  corrupt 
motives,  so  long  as  their  acts  were  legitimate.    In  equity,  as  at  law, 
a  fraudulent  intent  is  not  the  subject  of  judicial  cognizance  unless 
accompanied  by  a  wrongful  act.^    In  other  words,  if  the  majority 
had  the  right  to  wind  up  the  corporation  at  their  election,  and  they 
availed  themselves  of  it  in  the  mode  which  was  permitted  by  the 
organic  law  of  the  corporation,  neither  a  court  of  law  or  equity  can 
entertain  an  inquiry  as  to  the  motives  which  influenced  them.    The 
power  to  do  this  was  undoubted."     "  But,"  the  court  said,  "  the 
right  of  the  majority  to  sell  the  property  to  themselves  at  their 
own  valuation  is  a  very  different  matter ;  it  cannot  be  implied 
from  the  contract  of  association,  and  will  not  be  tolerated  by  a 
court  of  equity-    As  is  said  by  Mellish,  L.  J.,  in^  [case  cited  below]  : 
^Although  it  may  be  quite  true  that  the  shareholders  of  a  company 
may  vote  as  they  please  and  for  the  purpose  of  their  own  inter- 
ests, yet  the  majority  cannot  sell  the  assets  of  the  company  and 
keep  the  consideration,  but  must  allow  the  minority  to  have  their 
share  of  any  consideration  which  may  come  to  them.'     If  the 
majority  sell  the  assets  to  themselves  they  must  account  for  their 
fair  value.     They  cannot  bind  the  minority  by  fixing  their  own 
price  upon  the  assets.     A  majority  have  no  right  to  exercise  the 
control    over    the    corporate    management   which    legitimately 


rated,  for  the  officers  themselves  are 
the  mere  agents  of  the  corporation, 
and  their  powers  are  necessarily 
limited  within  the  scope  of  the  pur- 
poses of  the  corporation.  The  stock- 
holders, however,  by  electing  officers, 
assume  the  risk  of  the  faithful  or  un- 
faithful management  of  the  corpora- 
tion, and  cases  may  arise  where,  if  one 
of  two  innocent  persons  has  to  suffer, 


the  one  who  has  created  the  power 
and  selected  the  persons  to  enforce  it 
must  sustain  the  loss."*' 

» Citing  Durfee  v.  Old  Colony  &  F. 
R.  Co.,  87  Mass.  (5  Allen)  250;  BiU  v. 
Western  Union  Tel.  Co.,  16  Fed.  Rep. 
19. 

» CiUng  Clarke  v.  White,  12  Pet.  178. 

'Menier  v.  Hooper's  Telegraph 
Works,  L.  R.,  9  Ch.  App.  Cas.  350, 354* 


I 


'    1     i.   ii 


l|*l 


I   I 


V. 


324 


rEACDULENT  ACTS  OF  0FFICEB8. 


[§214 


i« 


belongs  to  them  for  the  purpose  of  appropriating  the  corporate 
property  or  its  avails  to  themselves,  or  to  any  of  the  shareholders, 
to  the  exclusion  or  prejudice  of  the  others.*  In'*  [case  cited  below], 
the  property  of  a  company  was  transferred  to  two  shareholders 
in  lieu  of  their  shares,  and  tlie  company  was  thereby  practically 
put  an  end  to,  and  the  debts  were  thrown  on  the  remaining  share- 
holders. This  was  sanctioned  by  a  majority  of  the  shareholders 
at  a  general  meeting,  but  it  was  held  that  the  majority  could  not 
bind  the  minority  in  such  a  transaction,  and  it  was  set  aside.'"* 

§  214.  The  rights  of  the  minority  in  such  a  case. —  The 
same  judge,  in  the  same  court,  in  the  same  case,  upon  its  second 
hearing,  thus  states  the  position  and  insistment  of  the  defendants : 
"  They  have  adjusted  tlieir  own  interests  on  the  basis  of  a  con- 
solidation of  the  two  corporations  and  a  continuance  of  their 
business  as  a  joint  venture  ;  but  they  now  insist  that  the  interests 
of  the  minority  stockliolders,  who  have  not  been  permitted  to  par- 
ticipate with  them,  shall  be  adjusted  on  the  basis  of  a  dissolution 
and  a  cessation  of  the  business  which  they  originally  associated 
together  to  conduct.  More  than  this,  the  defendants  insist  that 
the  value  of  the  assets,  for  the  purpose  of  determining  the 
interests  of  the  minority,  is  fixed  by  the  appraisal  of  persons 
selected  by  the  defendants  themselves,  in  wliose  selection  the 
minority  had  no  voice ;  and  they  have  assumed  to  deny  all  recog- 
nition to  those  of  the  minority  wlio  will  not  consent  to  surrender 
their  stock  and  accept  a  final  dividend  upon  the  basis  of  this 
appraisal."  He  then  continues  the  discussion :  "  Plainly,  the 
defendants  have  assumed  to  exercise  a  power  belonging  to  the 
majority  in  order  to  secure  personal  profit  for  themselves  with- 
out regard  to  the  interests  of  the  minority.  They  repudiate  the 
suggestion  of  fraud,  and  plant  themselves  upon  their  rights  as  a 
majority  to  control  the  corporate  interests  according  to  their  dis- 
cretion. They  err  if  they  suppose  that  a  court  of  equity  will  tol- 
erate a  discretion  which  does  not  consult  the  interests  of  the 
'minority.     It  cannot  be  denied  that  minority  stockholders  are 

*  Citing  Brewer  v.  Boston  Theatre,  'Gregory    v.    Patchett,    33    Beav. 

104  Mass.  378,  395;  Preston  v.  Grand  595. 

Collier  Dock  Co.,  11  Sim.  327;  Hodg-  "Ervin  r.  Oregon  Ry.  &  Nav.  Co., 

kinson  v.  National  Live  Stock  Ins.  Co.,  (1884)  20  Fed.  Rep.  577,  580. 
26  Beav.  473;  Atwoolt\  Merry  weather, 
L.  R.,  5Eq.  464,  note. 


§214] 


FKAUDULENT  ACTS  OF  OFFICERS. 


325 


bound  hand  and  foot  to  the  majority  in  all  matters  of  legitimate 
administration  of  the  corporate  affairs ;  and  the  courts  are  power- 
less to  redress  many  forms  of  oppression  practiced  upon  the 
minority  under  the  guise  of  legal  sanction  which  fall  short  of 
actual  fraud.  This  is  a  consequence  of  the  implied  contract  of 
association  by  which  it  is  agreed  in  advance  that  a  majority  shall 
bind  the  whole  body  as  to  all  transactions  within  the  scope  of  the 
corporate  powers.  But  it  is  also  of  the  essence  of  the  contract 
that  the  corporate  powers  shall  only  be  exercised  to  accomplish 
the  objects  for  whicli  they  were  called  into  existence,  and  that 
the  majority  shall  not  control  tliose  powers  to  pervert  or  destroy 
the  original  purposes  of  the  corporations.^  It  is  for  this  reason 
that  the  majority  cannot  consolidate  the  corporation  with  another 
corporation  and  impose  responsibilities  and  hazards  upon  the 
minority  not  contemplated  by  the  original  enterprise,  unless 
express  statutory  authority  for  this  purpose  is  conferred  upon  the 
majority.  It  is  no  more  repugnant  to  the  purposes  of  the  associ- 
ation to  permit  the  majority  to  merge  and  consolidate  the  corpo- 
ration with  another  corporation  than  it  is  to  permit  them  to  dis- 
solve it  or  abandon  the  enterprise  for  which  it  is  created,  where  no 
reasons  of  expediency  require  this  to  be  done.  A  dissolution 
under  such  circumstances  is  an  abuse  of  the  powers  delegated  to 
the  majority.  It  is  no  less  a  wrong  because  accomplished  by  the 
agency  of  legal  forms.  In  the  language  of  Blackburn,  J.,  in^  [case 
cited  below]  :  *  As  the  shareholders  are,  in  substance,  partners  in  a 
trading  corporation,  the  management  of  which  is  intrusted  to  the 
body  corporate,  a  trust  is,  by  implication,  created  in  favor  of  the 
shareholders  that  the  corporation  will  manage  the  corporate  affairs, 
and  apply  the  corporate  funds  for  the  purpose  of  carrying  out  the 
original  speculation.'  When  a  number  of  stockholders  combine  to 
constitute  themselves  a  majority  in  order  to  control  the  corporation 
as  they  see  fit,  they  become,  for  all  practical  purposes,  the  corpora- 
tion itself,  and  assume  the  trust  relation  occupied  by  the  corpora- 
tion towards  its  stockholders.  Although  stockliolders  are  not  part- 
ners, nor  strictly  tenants  in  common,  they  are  the  beneficial  joint 
owners  of  the  corporate  property,  having  an  interest  and  power  of 

'  Citing    Livingston    v.    Lynch,    4  v.  Clay.  33  Me.  132 ;  Clinch  v.  Finan- 

Johns.  Ch.  573;  Hutton  v.  Scarborough  cial    Corporation,    4    Ch.   App.    117 ; 

Cliflf  Co.,  2  Drew.  &  S.  514 ;  Brewer®.  Clearwater  v.  Meredith,  1  Wall.  25. 
Boston  Theatre,  104  Mass.  378;    Kean       *  Taylor  v.  Chichester  Ry.  Co.,  L. 

r.  Johnson,  9  N.  J.  Eq.  401;  Rollins  R.,  2  Exch.  379. 


»    I 


326 


FRAUDULENT  ACTS  OF  OFFICERS. 


[§215 


§216] 


FEAUDtTI.ENT  ACTS  OF  OFFICERS. 


327 


!■ 


^1 


m 


legal  control  in  exact  proportion  to  their  respective  amounts  of 
stock.  The  corporation  itself  holds  its  property  as  a  trust  fund 
for  the  stockholders  who  have  a  joint  interest  in  all  its  property 
and  effects,  and  the  relation  between  it  and  its  several  members 
is,  for  all  practical  purposes,  that  of  trustee  and  cestui  que  truest} 
When  several  persons  have  a  common  interest  in  property,  equity 
will  not  allow  one  to  appropriate  it  exclusively  to  himself  or  to 
impair  its  value  to  the  others.  Community  of  interest  involves 
mutual  obligation.  Persons  occupying  this  relation  towards  each 
other  are  under  no  obligation  to  make  the  property  or  fund  pro- 
ductive of  the  most  that  can  be  obtained  from  it  for  all  who  are 
interested  in  it ;  and  those  who  seek  to  make  a  profit  out  of  it,  at 
the  expense  of  those  whose  rights  in  it  are  the  same  as  their  own, 
are  unfaithful  to  the  relation  they  have  assumed,  and  are  guilty  at 
least  of  constructive  fraud."  * 

§  215.  Principles  applied  to  this  particular  case. —  Apply- 
ing the  principles  as  to  the  acts  of  fiduciaries  with  reference  to 
the  property  intrusted  to  them,  established  in  such  cases  as 
[those  cited  below] '  to  the  case  in  hand,  Wallace,  J.,  said : 
"  *  *  *  Although  the  minority  of  stockholders  cannot 
complain  merely  because  the  majority  have  dissolved  the 
corporation  and  sold  its  property,  they  may  justly  complain 
because  the  majority,  while  occupying  a  fiduciary  relation 
towards  the  minority,  have  exercised  their  powers  in  a  way 
to  buy  the  property  for  themselves,  and  exclude  the  minority 
from  a  fair  participation  in  the  fruits  of  the  sale.  In  the  lan- 
guage of  Mellish,  L.  tl.,  in  Menier  v.  Hooper's  Telegraph 
Works,  9  Ch.  App.  Cas.  350,  354 :  *  The  majority  cannot  sell  the 
assets  of  the  company  and  keep  the  consideration,  but  must 
allow  the  minority  to  have  their  share  of  any  consideration  which 
may  come  to  them.'  The  minority  stockholders  are,  therefore, 
entitled  to  demand  their  fair  share  in  the  transaction,  and  to  be 
placed  upon  terms  of  equality  with  the  majority.    It  may  be  that 


» Peabody  v.  Flint,  6  Allen,  53,  56; 
Hardy  v.  Metropolitan  Land  Co.,  L. 
R.,  7  Ch.  427;  Stevens  v.  Rutland  R. 
Co.,  29  Vt.  550. 

^  Ervin  v.  Oregon  Ry.  &  Nav.  Co., 
(1886)  27  Fed.  Rep.  625 ;  citing  Jack- 
son V.  Ludeling,  21  Wall.  616,  622; 
Btory  Eq.  §  323. 


'Greenlaw  t.  King,  3  Beav.  49,  63; 
Gibson  v.  Jeyes,  6  Ves.  278;  Torrey  u. 
Bank  of  Orleans,  9  Paige,  663;  Mi- 
choud  V.  Girod,  4  How.  555;  Gardner 
V.  Ogden,  22  N.  Y.  327;  and  Hoyle  v. 
Plattsburgh  &  M.  R.  Co.,  54  N.  Y.  315. 


the  property  of  the  old  company  was  not  worth  more  than  the 
sum  fixed  by  the  appraisers,  estimating  its  value  with  a  view  of 
the  winding  up  of  the  corporation  ;  but  for  several  months  the 
property  had  been  used  by  the  defendants  in  a  joint  venture  with 
the  other  property  of  the  new  corporation,  and  its  value,  at  the 
time  of  the  sale,  should  be  estimated  at  what  the  property  was 
worth  as  then  situated.  This  results  from  the  rule  of  equity 
which  entitles  those  whose  property  has  been  misapplied  by  an 
agent  or  fiduciary  to  follow  it  into  any  form  in  which  it  has  been 
converted,  and  impress  it  with  a  trust  whenever  its  identity  can 
be  traced,  or,  at  their  election,  to  recover  the  value  of  the  prop- 
erty in  any  form  into  which  it  has  been  transmuted.  Story  Eq. 
§§  1261,  1262.  If  it  was  worth  much  more  as  a  constituent  of 
the  new  corporation  than  it  would  have  been  worth  otherwise, 
the  minority  stockholders  are  entitled  to  the  benefit  of  the  increase. 
The  majority  of  the  stockholders  are  not  to  be  permitted  to 
segregate  it  from  the  conditions  in  which  they  have  placed  it,  for 
the  purpose  of  fixing  its  value  to  the  minority.  For  this  reason 
the  estimate  made  by  the  appraisers  is  not  controlling,  even  if  it 
is  of  any  value  in  determining  the  price  for  which  the  defendants 
should  account.  This  is  so,  not  only  because  the  appraisers  were 
the  agents  of  those  who  were  at  the  same  time  negotiating  as  the 
purchasers  and  the  sellers  of  the  property,  but  also  because  they 
adopted  a  basis  of  valuation  which  will  not  be  sanctioned  by  a 
court  of  equity."  * 

§  216.  When  a  fraudulent  assignment  of  a  mortgage  by 
the  treasurer  of  a  corporation  will  bind  it. —  In  a  case  where 
it  appeared  that  the  treasurer  of  a  savings  bank,  clothed  with 
authority  to  do  so,  executed  an  assignment  of  a  mortgage  in  the 
name  of  the  bank  in  due  form,  and  indorsed  the  note  secured  by 
it  to  a  honajid^  purchaser,  it  was  held  in  the  United  States  Cir- 
cuit Court  for  the  district  of  Massachusetts  that  the  title  passed, 
notwithstanding  the  treasurer  perpetrated  a  fraud  upon  the  bank, 
and  converted  to  his  own  use  the  purchase  money.  It  was 
further  held  that  the  corporation  was  estopped  to  prove,  as 
against  bona  fide  purchasers,  either  irregularity  or  fraud  upon  the 
part  of  its  officers  when  acting  within  their  authority.* 

» Ervin  t.  Oregon  Ry.  &  Nav.  Co..  » Whiting   r.  Wellington,  (1882)  10 

(1886)  27  Fed.  Rep.  625.     A  rehearing  Fed.    Rep.    810.      Lowell,     Circuit 

of  this  case  was  denied  in  28  Fed.  Rep.  Judge,  referring  to  a  certificate  of  the 

833.  treasurer  given  to  the  purchaser,  that 


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328 


FRAUDULENT  ACTS  OF  OFFICEES. 


tHHI 


[§217 

§  217.  When  a  corporation  may  recover  money  fraudu- 
lently paid  out  by  its  treasurer.— Two  manufacturing  corpora- 
tions of  Massachusetts  had  a  common  treasurer.  Money  was 
loaned  by  one  to  the  other  when  needed,  and  the  loans  were 
effected  by  the  check  of  one  payable  to  the  order  of  the  other 
drawn  by  the  common  treasurer.     This  treasurer  had  by  a  series  of 


a  certain  note  was  found  upon  the 
records  of  the  corporation,  said:  "  The 
estoppel  arises  from  the  certificate. 
*  *  *  In  a  recent  case  in  England 
a  statute  declared  that,  unless  certain 
things  were  done,  no  shares  of  a  joint- 
stock  company  should  be  issued  except 
for  cash,  and  all  which  should  be  is- 
sued otherwise  should  be  subject  to 
assessment.  Shares  were  issued  as 
'  paid  up,'  and  were  bought  by  a  boiui 
fide  purchaser.  The  company  and  its 
liquidator  were  held  estopped  to  prove 
that  the  statute  had  not  been  followed. 
In  re  British,  etc.,  Co.,  7  Ch.  D.  533; 
8.  c^  nom.  Burkinshaw  tJ.  Nicolls,  3 
App.  Cas.  1004.  In  that  case  (page 
1026)  a  very  able  judge  says  that  the 
doctrine  of  estoppel  in  pais  is  a  most 
equitable  doctrine,  and  one  without 
which  the  law  of  the  country  could  not 
be  satisfactorily  administered.  '  When 
a  person  makes  to  another  the  repre- 
sentation, '  I  ttike  upon  myself  to  say 
such  and  such  things  do  exist,  and  you 
may  act  upon  the  basis  that  they  do 
exist,'  and  the  other  man  does  really 
act  upon  that  basis,  it  seems  to  me  it 
is  the  very  essence  of  justice  that,  be- 
tween those  two  parties,  their  rights 
.should  be  regulated,  not  by  the  real 
state  of  the  facts,  but  by  that  conven- 
tional state  of  facts  which  the  two  par- 
ties agree  to  make  the  basis  of  their 
action;  and  that  is,  I  apprehend,  what 
is  meant  by  estoppel  in  pais  or  homo- 
logation.' This  doctrine  has  been  af- 
firmed by  the  Supreme  Court  in  a  large 
class  of  cases  where  the  facts  are 
much  more  open  to  public  observation 
than  are  the  notes  of  a  private  corpo- 
ration, in  which  counties  and  towns 


having  power  to  issue  bonds  upon  cer- 
tain terms  and  conditions  are  held  es- 
topped to  prove,  as  against  bona  fide 
purchasers,  either  irregularity  or  fraud 
on  the  part  of  their  own  officers  in  is- 
suing the  bonds,  especially  if  they  con- 
tain upon  their  face  a  certificate  that 
the  terms  of  the  law  have  been  com- 
plied with.  These  decisions  do  not 
depend  upon  the  negotiable  character 
of  the  bonds,  excepting  when  there  is 
a  question  of  notice.  Comrs.  v.  As- 
pinwall,  21  How.  539;  Moran  v.  Comrs. 
of  Miami,  2  Black,  722;  Rogers  v.  Bur- 
lington, 3  Wall.  654;  Grand  Chute  v. 
Winegar,  15  Wall.  355;  Comrs.  v. 
January,  94  U.  S.  202;  San  Antonio  v. 
Mehafify,  96  U.  S.  312;  County  of 
Warren  r.  Marcy,  97  U.  S.  96.  So.  if 
a  cashier  has  authority  to  certify  a 
check,  the  bank  is  estopped  to  say  that 
his  authority  is  false  in  fact.  Mer- 
chants' Bank  r.  State  Bank,  10  Wall. 
604.  If  a  company  has  issued  a  certifi- 
cate of  shares,  it  is  estopped  to  prove 
against  one  who  has  bought  the  shares 
in  good  faith,  or  even  one  who  has 
paid  one  call  or  assessment  to  a  third 
person  on  the  strength  of  the  certifi- 
cjite,  that  it  was  issued  im providently. 
In  re  Bahia,  etc.,  Co.,  L.  R.,  3  Q.  B. 
584;  Hart  p.  Frontino,  etc.,  Co.,  L.  R., 
5  Exch.*  111.  Where  the  president, 
who  was  also  transfer  agent  of  a  rail- 
road company,  issued  an  immense 
amount  of  false  and  fraudulent  certifi- 
cates of  shares,  beyond  the  whole 
capital,  the  company,  after  '  a  decade 
of  litigation,'  was  held  bound  to  in- 
demnify the  honest  purchasers.  New 
York  &  New  Haven  R.  R.  Co.  v. 
Schuvler,  34  N.  Y.  30." 


II 


§  217]  ■ 


FRAUDULENT  ACTS  OF  0FFICER81. 


329 


embezzlements  from  the  corporations  created  a  deficit  in  their 
funds.  He  had  concealed  this  deficit  by  at  certain  times  draw- 
ing checks  in  the  name  of  one  corporation,  payable  to  the  order 
of  the  other,  and  placing  it  with  the  funds  of  the  latter.  When 
his  embezzlements  were  discovered  these  fraudulently  drawn 
checks  were  about  equally  divided  between  the  corporations. 
There  was  an  action  for  accounting  brought  by  one  against  the 
other  claiming  a  large  balance  in  the  mutual  account.  The 
defendant  corporation  pleaded  as  a  set-off  the  amount  of  its  funds 
received  by  the  plaintiff  through  these  fraudulent  checks,  and  the 
plaintiff  contended  that  the  transfers  of  checks  from  one  com- 
pany to  the  other  were,  in  fact  and  law,  payments  by  the 
treasurer  to  an  innocent  creditor  without  notice,  and,  therefore, 
could  not  be  reclaimed ;  that  the  losses  must  be  borne  as  they 
stood  at  the  time  of  the  discovery  of  the  frauds.  The  Supreme 
Court  of  Judicature  held  that  the  corporation  using  the  money 
was  affected  with  the  knowledge  of  its  treasurer  and  the  transac- 
tion did  not  amount  to  a  payment  of  the  deficit,  and  that  the 
other  corporation  was  not  guilty  of  such  negligence  as  to  pre- 
clude it  from  recovering  back  the  money.^ 


'  Atlantic  Cotton  Mills  v.  Indian 
Orchard  Mills,  (1888)  147  Mass.  268. 
C.  Allen,  J.,  speaking  for  the  court 
said:  "The  ground  on  which  the 
plaintiff  asserts  a  right  to  retain  the 
money  is,  that  [its  treasurer]  had 
embezzled  its  funds,  as  well  as  the 
funds  of  the  defendant,  to  a  large 
amount,  and  that  it  is  entitled  to  apply 
the  money  thus  received  from  him  to 
reduce  his  indebtedness  for  such  em- 
bezzlements, and  treat  the  same  as  a 
payment  pro  tanto ;  that  from  the 
nature  of  the  transaction  the  law 
stamps  it  as  a  payment,  and  that  thus 
the  plaintiff  is  a  holder  of  the  funds 
for  a  valuable  consideration.  There 
is  no  doubt  that  a  thief  may  use  stolen 
money  or  stolen  negotiable  securities 
before  their  maturity,  to  pay  his  debts, 
and  in  such  case  an  innocent  creditor 
may  retain  the  payment.  But  this 
doctrine  is  inapplicable  to  the  present 
42 


case  for  two  reasons:  In  the  first  place, 
under  the  circumstances  disclosed  in 
the  auditor's  report,  the  plaintiff  can- 
not be  considered  as  an  innocent  cred- 
itor, that  is,  a  creditor  without  notice, 
and,  moreover,  the  transaction  did  not 
amount  to  payment.  It  is  true  that 
no  officer  of  the  plaintiff  besides  [its 
treasurer]  knew  of  the  fraudulent 
origin  of  these  checks;  but  in  the  very 
transaction  of  receiving  them,  the 
plaintiff  was  represented  by  [him]  and 
by  him  alone,  and  is  bound  by  his 
knowledge.  It  is  the  same  as  if  the 
plaintiff's  directors  had  received  the 
checks,  knowing  what  he  knew.  For 
the  purpose  of  accepting  the  checks, 
[he]  stood  in  the  place  of  the  plaintiff, 
and  was  the  plaintiff.  It  is  quite  im- 
material, in  reference  to  this  question, 
in  what  manner  or  by  what  officer  of 
the  corporation  the  funds  were  re- 
ceived.    The  important  consideration 


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330 


FSAUDnLKNT  ACTS  OF  OFFICERS. 


[§218 


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II 


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§  2i8.  When  a  corporation  must  respond  for  damag:es 
resulting  from  a  fraudulent  issue  of  its  stock. —  One  who 

was  the  secretary,  treasurer  and  transfer  agent  of  a  domestic  cor- 
poration, a  street  railroad  company  of  the  city  of  Kew  Y.ork,  and, 
as  such  secretary,  kept  and  had  in  his  custody  the  books  of  the 
corporation  relating  to  the  issue  and  transfer  of  stock,  filled  out 
a  blank  certificate  taken  from  the  company's  certificate  book, 
forged  the  name  of  its  president  thereto,  signed  his  own  name  as 
treasurer,  then  countersigned  it  and  impressed  thereon  the  cor- 
porate seal.     The  by-laws  of  the  corporation  required  that  "  all 


is  how  the  plaintiff  became  possessed 
of  the  money,  and  it  is  apparent  that 
it  was  through  the  act  of  no  other 
person  than  of  [the  treasurer]  himself. 
It  is  not  as  if  he  had  stolen  the  money, 
and  then  called  the  directors  of  the 
plaintiff  corporation  together  and  in- 
formed them  of  his  indebtedness  and 
of  his  desire  to  make  a  payment  on 
account,  and  had  then  paid  over  to 
them  the  money  as  money  coming 
from  himself,  and  they  had  received 
it  without  knowledge  or  suspicion  that 
it  had  been  stolen,  and  given  him 
credit  for  i^  as  part  payment.  There 
was  no  transaction,  whatever,  between 
[the  treasurer]  and  the  plaintiff,  in  re- 
spect to  the  transfer  of  this  money,  in 
which  the  plaintiff  was  represented 
either  in  whole  or  in  part  by  any  other 
person  than  by  [him],  and,  therefore, 
even  though  the  transfer  to  the  plain- 
tiff had  been  made  in  bank  bills  or  in 
gold  coin  (which  it  was  not),  the  plain- 
tiff must  be  deemed  to  have  had 
knowledge  of  the  true  ownership,  be- 
cause in  receiving  the  funds  it  acted 
solely  through  [his]  agency.  It  must 
be  deemed  to  have  known  wliat  he 
knew,  and  it  cannot  retain  the  benefits 
of  his  acts,  without  accepting  the  con- 
sequences of  his  knowledge.  The 
plaintiff  cannot  obtain  greater  rights 
from  his  act  than  if  it  did  the  thing 
itself,  knowing  what  he  knew.  Su(;h 
is  the  doctrine  either  expressly  de- 
clared or  necessarily  involved  in  nu- 


merous adjudged  cases.  The  leading 
case  in  this  commonwealth  is  Atlantic 
Bank  r.  Merchants'  Bank,  10  Gray, 
532,  where  there  was  the  semblance  of 
an  accounting  between  the  guilty 
agent  and  other  officers  of  the  bank 
which  received  the  money,  but  it  was 
held  that  there  was  no  real  accounting 
and  the  general  principle  was  held  to 
be  applicable.  That  case  was  followed 
by  Skinner  ».  Merchants'  Bank.  4 
Allen,  290,  where  the  facts  were  simi 
lar."  After  reviewing  and  citing  many 
cases,  it  is  further  on  in  the  opinion 
said:  "We  have  preferred  to  put  the 
decision  of  this  point  upon  the  broad 
ground  that,  if  the  treasurer  of  a  cor- 
poration is  a  defaulter,  and  his  defalca- 
tion is  as  yet  unknown  and  unsus- 
pected, and  he  steals  money  from  a 
third  person  and  places  it  with  the 
funds  of  the  corpomtion  in  order  to 
conceal  and  make  good  his  defalcation, 
and  the  corporation  uses  the  money  as 
its  own,  no  other  officer  knowing  any  of 
the  facts,  the  corporation  does  not 
thereby  acquire  a  good  title  to  the 
money,  as  against  the  true  owner,  but 
the  latter  may  maintain  an  action 
against  the  corporation  to  recover  back 
the  same.  But  it  is  also  apparent  that 
in  the  present  case  the  decision  might 
rest  upon  a  narrower  ground.  The 
fraudulent  transfers  were  made  by 
checks  of  the  defendant,  payable  to 
the  order  of  the  plaintiff,  and  these 
checks  before   being   available  must 


%^f 


§218] 


FRAUDULENT  ACTS  OF  OFFICERS. 


331 


certificates  shall  be  issued  and  signed  by  the  president  and 
treasurer  and  countersigned  by  the  transfer  agent."  The  certificate 
upon  its  face  was  perfect  and  regular  in  every  respect,  and  showed 
a  partner  pf  the  secretary  and  treasurer  to  be  the  owner  of  the 
shares  of  stock  stated  therein.  The  in  testimonium  clause  recited 
that  the  corporation  had  caused  the  certificate  to  be  signed  by  its 
president  and  countersigned  by  its  treasurer  and  transfer  agent, 
and  sealed  with  its  corporate  seal.  The  partner  of  this  officer  of 
the  corporation  procured  of  a  bank  a  loan  upon  his  note  secured 
by  a  pledge  of  the  certificate.     Before  acting  upon  the  applica- 


necessarily  have  been  indorsed  by  the 
plaintiff,  acting  by  some  officer  au- 
thorized to  indorse  checks  payable  to 
its  order.  If  these  checks,  therefore, 
were  taken  by  the  plaintiff  in  payment 
of  indebtedness  of  [the  treasurer]  they 
carried  notice  upon  their  face  that 
they  were  checks  of  the  defendant, 
not  payable  to  [his]  order  but  to  the 
order  of  the  plaintiff.  Now,  assuming 
that  [his]  transaction  had  been  con- 
ducted with  some  other  officers  of  the 
plaintiff,  who  represented  that  corpo- 
ration, it  is  impossible  to  suppose  that 
they  could  have  accepted  these  checks 
in  extinguishment  of  a  known  in- 
debtedness of  [the  treasurer]  without 
being  put  uj^on  inquiry  as  to  how  he 
came  by  the  defendant's  checks  to  so 
large  an  amount,  made  payable  to  the 
plaintiff,  which  he  could  apply  upon 
his  private  account.  National  Bank 
of  North  America  v.  Bangs,  106  Mass. 
441,  445."  After  commenting  upon 
various  cases  cited  by  the  plaintiff's 
counsel  the  discussion  of  this  point 
closes  with  this:  ' '  Thus  far  the  discus- 
sion has  proceeded  upon  the  assump- 
tion that  even  if  the  transfer  of  the 
defendant's  property  to  the  plaintiff 
were  intended  as  a  payment  on  account 
of  [the  treasurer's]  indebtedness  to  the 
plaintiff,  yet  the  plaintiff  would  not  be 
entitled  to  hold  the  same  on  the  ground 
that  it  would  be  chargeable  with  [his] 
knowledge  of  the  source  from  which 
the   money   came.     But  it  is  equally 


clear  that  the  transfer  cannot  be  con- 
sidered as  a  payment  by  [him]  to  the 
plaintiff,  because  it  was  not  so  under- 
stood. Nobody  on  the  part  of  the 
plaint'ff  called  [the  treasurer]  to  any 
account,  or  knew  that  he  was  account- 
ing or  that  he  was  indebted  to  the 
plaintiff,  or  that  these  funds  had  come 
into  the  plaintiff's  possession  or  that 
they  had  come  from  [the  treasurer]. 
Nobody  but  [he]  could  possibly  have 
intended  that  the  transaction  should 
amount  to  a  paj^ment,  and  his  inten- 
tion, if  entertained,  was  ineffectual 
because  of  his  fraud.  It  is  not  neces- 
sary to  deny  or  doubt  that  [he]  might 
secretly  transfer  to  the  treasury  of  the 
corporation  money  or  property  of  his 
own,  and  thus,  if  the  same  should  be 
kept,  extinguish  an  indebtedness  aris- 
ing from  a  former  embezzlement. 
There  would  be  nothing  fraudulent  in 
the  act  of  such  a  transfer;  and  the  cor- 
poration, being  lawfully  in  possession 
of  the  money  or  property,  might  prop- 
erly keep  it.  But  where  he  undertook 
in  this  manner  to  make  a  payment  by 
secretly  transferring  the  property  of  a 
third  person  the  act  cannot  take  effect 
as  a  payment,  because  it  was  not  re- 
ceived as  such  by  any  person  acting  in 
behalf  of  the  plaintiff.  There  was  not 
even  the  semblance  of  an  accounting. 
And  under  these  circumstances  if  the 
plaintiff  would  adopt  the  intention  to 
make  it  a  payment  it  must  also  adopt 
the  fraud.     It  cannot  adopt  so  much 


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382 


FRAUDULENT  ACTS  OF  OFFICERS. 


[§218 


tion  for  a  loan  the  bank  sent  a  clerk  with  the  certificate  to  the 
office  of  the  corporation,  who  showed  it  to  the  secretary,  who  was 
in  charge  of  the  office,  who,  in  response  to  inquiries,  stated  that 
the  certificate  was  genuine  and  all  right,  and  that  the  applicant 
for  the  loan  was  a  stockholder,  and,  relying  thereon,  the  bank  dis- 
counted the  note.  The  bank  afterwards  was  compelled  to  sell  the 
certificate  held  as  collateral  to  a  hanajide  purchaser,  and  when  he 
presented  it  to  the  proper  officers  of  the  corporation  for  a  trans- 
fer the  corporation  refused  to  recognize  the  certificate  as  valid 
evidence  of  title  to  the  shares  of  stock  stated  therein.  The  bank 
upon  this  being  brought  to  its  knowledge,  refunded  the  purchase 
money,  and  had  the  purchaser  reassign  the  certificate  to  the  bank, 
and  brought  its  action  against  the  corporation  for  damages  incur- 
red by  its  refusal  to  recognize  the  certificate,  its  right  of  recovery 
being  based  upon  the  corporation's  liability  on  account  of  the  fraud 
of  its  officer.  The  New  York  Court  of  Appeals  declared  these 
general  rules,  that  where  a  certificate  of  stock  contained  apparently 
all  the  essentials  of  genuineness  a  hona  fide  holder  thereof  was 
entitled  to  recognition  as  a  stockholder,  if  a  new  certificate  could 
l)e  issued  to  him,  or  to  indemnity,  if  this  could  not  be  done ;  that 
the  fact  that  an  official  signature  to  the  certificate  had  been  forged 
did  not  extinguish  this  right  where  the  forgery  had  been  done  by, 
or  at  the  instance  of,  an  officer  of  the  corporation  intrusted  with 
the  custody  of  its  stock  books,  and  held  out  by  the  company  as 
the  source  of  information  on  that  subject ;  that  while  certificates 
of  stock  in  railroad  and  other  business  corporations  do  not  possess 
in  full  the  qualities  of  commercial  paper,  when  the  transfer 
indorsed  thereon  is  signed  in  blank  by  the  stockholder  named 
therein,  they  become  in  effect,  so  far  as  the  public  is  concerned, 
the  same  as  if  they  had  been  issued  to  bearer.^    It  appeared  in  a 


of  [the  treasurer's]  act  as  was  benefi- 
cial and  reject  the  rest.  As  Lord 
Kenyon  said  in  Smith  v.  Hodson,  4 
T.  R.  211,  it  cannot  blow  hot  and  cold. 
This  ground  also  is  fully  covered  by 
the  decisions  ih  Atlantic  Bank  «.  Mer- 
chants' Bank,  10  Gray,  532,  547-553, 
and  in  Skinner  t.  Merchants'  Bank,  4 
Allen,  290." 

*  Fifth  Avenue  Bank  of  New  York 
f>.  Forty -second  Street  &  Grand  Street 
Ferry  R.  R  Ck).,  (1893)  137  N.  Y. 


231;  8.  c,  33  N.  E.  Rep.  378,  affirm- 
ing judgment  in  favor  of  the  bank. 
Referring  to  the  ruling  of  the  court 
that  the  corporation,  in  this  case, 
was  liable  on  account  of  the  acts  of 
its  officer,  the  court,  speaking  through 
Maynard,  J.,  said:  "This  result  fol- 
lows from  the  application  of  the  funda- 
mental rules  which  determine  the 
obligations  of  a  principal  for  the  acts 
of  its  agent.  They  are  embraced  in 
the  comprehensive  statement  of  Story 


FRAUDULENT  ACTS  OF  OFFICERS. 


333 


§218] 

l^ew  York  case  that  the  by-laws  of  the  corporation  required  cer- 
tificates of  stock  to  be  issued  under  the  corporate  seal  and  signed 
by  the  president  and  treasurer.  Tlie  treasurer,  upon  the  faith  and 
pledge  as  collateral  of  spurious  certificates  of  its  stock,  drawn  up 
and  executed  in  the  form  and  manner  prescribed  by  the  by-laws 
(the  signature  of  the  president  having  been  negligently  affixed), 
purporting  on  their  face  to  be  of  stock  owned  by  the  treasurer, 


in  his  work  on  Agency  (9th  ed.  §  453), 
that  the  principal  is  to  be  '  held  liable 
to  third  persons  in  a  civil  suit  for  the 
frauds,  deceits,  concealments,  misrep- 
resentations,   torts,    negligences    and 
other  malfeasances,    or    misfeasances 
and  omissions  of  duty  of  his  agent  in 
the  course  of  his  employment,  although 
the  principal   did    not  authorize,   or 
justify,  or  participate  in,  or,  indeed, 
know  of  such  misconduct,  or  even  if 
he  forbade  the  acts  or  disapproved  of 
them.   In  all  such  cases  the  rule  applies 
respondeat  mperior,    and    is  founded 
upon  public  policy  and  convenience, 
for  in  no  other  way  could  there  be  any 
safety  to  third  persons  in  their  dealings, 
either  directly  with  the  principal,  or 
indirectly  with  him  through  the  instru- 
mentality of  agents.     In  every  such 
case  the  principal  holds  out  his  agent 
as  competent  and  fit  to  be  trusted,  and 
thereby,  in    effect,    he  warrants  his 
fidelity  and  good  conduct  in  all  mat- 
ters within  the  scope  of  his  agency.' 
It  is  true  that  the  secretary  and  trans- 
fer agent  had  no  authority  to  issue  a 
certificate  of  stock  except  upon  the 
surrender  and  cancellation  of  a  previ- 
ously existing  valid  certificate,  and  the 
signature  of  the  president  and  treasurer 
first  obtained  to  the  certificate  to  be 
issued;  but  these  were  facts  necessarily 
and  peculiarily  within  the  knowledge 
of  the  secretary,  and  the  issue  of  the 
certificate  in  due  form  was  a  repre- 
sentation by  the  secretary  and  transfer 
agent  that  these  conditions  had  been 
complied  with,  and  that  the  facts  ex- 
isted upon  which  his  rights  to  act 


depended.     It    was   a  certificate  ap- 
parently  made  in   the  course  of  his 
employment,  as  the  agent  of  the  com- 
pany,  and  within  the  scope  of   the 
general  authority  conferred  upon  him, 
and  the  [corporation]  is  under  an  im- 
plied obligation  to  make  indemnity  to 
the  plaintiff  for  the  loss  sustained  by 
the  negligent  or  wrongful  exercise  by 
its  officers  of  the  general  powers  con 
f erred  upon  them.    Griswold  v.  Haven, 
25  N.  Y.  599;  New  York  &  New  Haven 
R.  R.  Co.  V.  Schuyler,  34  N.  Y.   30; 
Titus  V.  G.  W.  Turnpike  Co.,  61 N.  Y. 
237;  Bank  of  Batavia  v.  New  York, 
L.  E.  &  W.  R.  R.  Co.,  106  N.  Y.  199." 
It  was  said  further  in  this  opinion: 
"  The  learned  counsel  for  the  defend- 
ant seeks  to  distinguish  this  case  from 
the  authorities  cited,  because  the  signa- 
ture of  the  president  to  the  certificate 
was  not  genuine;  but  we  cannot  see 
how  the  forgery  of  the  name  of  the 
president  can  relieve  the    defendant 
from  liability  for  the  fraudulent  acts 
of  its  secretary,  treasurer  and  transfer 
agent.     They  were  officers  to  whom  it 
had   intrusted  the  authority  to  make 
the  final  declaration  as  to  the  validity 
of  the  shares  of  stock  it  might  issue, 
and  where  their  acts,  in  the  apparent 
exercise  of  this  power,  are  accompanied 
with  all  the  indicia  of  genuineness,  it 
is  essential  to  the  public  welfare  that 
the  principal  should  be  responsible  to 
all  persons  who  receive  the  certificates 
in  good  faith  and  for  a  valuable  con- 
sideration and  in  the  ordinary  course 
of  business   whether   the  indicia  are 
true  or  not.    2  Beach  on  Pr.  Corp. 


M 


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FRAUDULENT  ACTS  OF  OFFICERS. 


[§219 


i 


li 


obtained  a  loan  of  one  acting  in  good  faith  and  in  ignorance  of 
the  fraud.  The  Court  of  Appeals  held  that  there  was  nothing 
upon  the  face  of  the  certificate  to  notify  the  lender  of  any  defect 
in  the  title  of  the  treasurer  to  these  ehares,  and  that  the  corporar 
tion  was  liable  to  him  for  the  damages.* 

§219.  The   same   subject  —  Massachusetts  decisions.— 

Several  cases  have  been  adjudicated  by  the  Supreme  Court  of 
Judicature  of  Massachusetts,  growing  out  of  the  fraudulent 
transactions  of  a  treasurer  of  a  railroad  corporation  of  that  state. 
The  facts  were  that  he  was  supplied  by  the  president  with  blank 
certificates  of  its  stock,  signed  by  the  president.  The  treasurer 
was  also  a  stockbroker.  In  this  latter  capacity  he  told  a  customer 
on  one  occasion,  that  he  had  purchased  snares  of  this  stock  tor 
her  as  ordered,  and  she  paid  iiim  for  it.  On  another  occasion  he 
ordered  certain  brokers  to  sell  shares  of  the  stock  for  him,  and 
they  did  so,  and  received  payment  for  it.  He  owned  no  stock, 
and  held  none  as  agent  or  otherwise,  and  the  whole  amount  of 
the  capital  stock  had  already  been  issued.  In  each  case  he  fraud- 
ulently made  a  fictitious  transfer  of  stock  on  the  books  of  the 
corporation,  in  one  case  from  himself  as  agent  to  his  customer, 
and  m  the  other  from  himself  as  agent  to^'the  brokers,  and  by 
means  of  a  blank  power  of  attorney  furnished  by  the  brokers 
and  delivered  to  him,  made  a  further  transfer  as  their  attorney  to 
their  customers.  He  then  filled  out  blank  certificates  of  the 
shares  in  the  usual  form  unaer  the  corporate  seal,  and  delivered 


790;  North  River  Bank  v.  Aymar,  3 
Hill,  262;  Jarvis  v.  Manhattan  Beach 
Co..  53  Hun,  362;  Tome  v.  Parkers- 
burg  Branch,  39  Md.  36;  Baltimore, 
etc.,  R.  R.  Co.  r.  Wilkens,  44Md.  11,  28; 
Western  M.  R.  Co.  r.  Franklin  Bank, 
60  Md.  36;  Com.  v.  Bank,  137  Mas.s. 
431;  Holden  v.  Phelps,  141  Mass.  456; 
Manhattan  Beach  Co.  v.  Harned, 
27  Fed.  Rep.  486;  Shaw  v.  Port 
Philip  &  Colonial  Gold  Mining  Co, 
13  Q.  B.  Div.  103.  The  rule  is', 
we  think,  correctly  stated  in  Beach  on 
Private  CorpoT»itions  (Vol.  2,  §  488,  p. 
791):  'When  certificates  of  stock  con- 
tain  apparently  all  the  essentials  of 
genuineness,  a  bona  fide  holder  thereof 


has  a  claim  to  recognition  as  a  stock- 
holder, if  such  stock  cjin  be  legally  is- 
sued, or  to  indemnity  if  this  cannot  be 
done.  The  fact  of  forgery  does  not 
extinguish  his  right  when  it  has  been 
perpetrated  by  or  at  the  instance  of  an 
officer  placed  in  authority  by  the  cor- 
poration and  intrusted  with  the  cus- 
tody of  its  stock  books  and  held  out 
by  the  company  as  the  source  of  in- 
formation upon  the  subject.' " 

» Titus  v.  President,  etc..  Great 
Western  Turnpike  Road,  (1876)  61  N. 
Y.  237.  Claffin  D.  Farmers* Citizens' 
Bank,  25  N.  Y.  293,  was  distinguished 
by  the  Court  of  Appeals. 


FRAUDULENT  ACTS  OF  OFFICERS. 


335 


§  219] 

them  to  the  purchasers,  each  of  whom  received  dividends  regu- 
larly until  the  fraud  was  discovered,  after  which  the  corporation 
refused  to  recognize  the  certificates  as  vaUd,  or  to  allow  a  trans- 
fer of  the  stock.  The  purchasers  and  the  brokers  acted  in  good 
faith,  and  the  brokers  acted  according  to  the  general  custom  of 
brokers.  The  treasurer  had  made  nearly  all  the  transfers  on  the 
books  of  the  corporation  as  attorney  under  like  powers ;  and  it 
was  not  the  custom  of  brokers  to  take  transfers  of  certificates  to 
themselves  when  ordered  to  sell  stocks.  The  court  upon  these 
agreed  facts  held  that  the  plaintiffs  were  entitled  to  damages  from 
the  company,  as  the  company  could  issue  no  more  stock,  and  the 
measure  of  the  damages  was  the  market  value  of  the  shares  at 
the  time  the  corporation  first  refused  to  recognize  the  certificates 
as  valid.* 


»  Allen  V.  South  Boston  Railroad  Co. , 
(1889)  150  Mass.  200;  Craft  v.  South  Bos- 
ton Railroad  Co.,  (1889)  150  Mass.  200. 
"  The  agreed  facts  in  both  cases,"  said 
Field,  J.,  speaking  for  the  court, 
"show  gross  carelessness  on  the  part  of 
the  president  in  signing  certificates  in 
blank,  and  negligence  on  the  part  of  the 
directors  in  not  examining  the  books 
and  discovering  the  fictitious  trans- 
fers of  stock  made  by  the  treasurer." 
Then,  as  to  the  admissions  on  the  part 
of  the  defendant,  it  is  said:  "The 
counsel  for  the  defendant  does  not 
deny  that  if  these  certificates  of  stock 
had  been  sold  and  duly  assigned  by 
the  plaintififs  for  value  to  one  who  had 
no  knowledge  that  they  had  been 
fraudulentlv  issued,  the  defendant 
would  be  liable  in  damages  to  the  pur- 
chaser. He  admits  the  general  rule 
that  a  corporation  is  estopped  to  deny 
the  validity  of  certificates  issued  in 
proper  form  under  its  seal,  and  duly 
signed  by  the  officers  authorized  to 
issue  certificates,  if  they  are  held  by 
persons  who  took  them  for  value  with- 
out knowledge  or  notice  that  they  had 
been  fraudulently  issued."  Moores  v. 
Citizens'  National  Bank,  111  U.  8. 156; 
Boston  &  Albany  Bailroad  v.  Richard- 
son, 135  Mass.  473;  Machinists'  Na- 


tional Bank  v.  Field,  126  Mass.  345; 
Pratt  V.  Taunton  Copper  Manuf.  Co., 
123  Mas8.110;  New  York  &  New  Haven 
Railroad  ^.  Schuyler,  34  N.  Y.  30,  64; 
Titus  V.  Great  Western  Turnpike  Road, 
61  N.  Y.  237,  245 ;  Holbrook  v.  New 
Jersey  Zinc  Co.,  57  N.  Y.  616;  Shaw 
r.  Port  Philip  Mining  Co.,  13  Q.  B.  D. 
103.  Of  the  contention  on  behalf  of 
the  corporation,  it  is  said:  "But  he 
contends  that  the  plaintiffs  were  negli- 
gent iu  accepting  the  new  certificates 
without  taking  pains  to  ascertain 
whether  old  certificates  of  a  corre- 
sponding number  of  shares  had  been 
surrendered,  and  a  transfer  made  upon 
the  books  of  the  company.  Each 
certificate  of  stock  in  the  defendant's 
company,  as  the  plaintiff  knew,  de- 
clared that  the  shares  are  'transfer- 
able by  an  assignment  in  the  books  of 
said  company  upon  a  surrender  of  this 
certificate.  When  a  transfer  shall  be 
made  in  the  books  of  the  company, 
and  this  certificate  surrendered,  a  new 
one  will  be  issued.'  See  Pub.  Sts. 
Mass.  chap.  113,  §  13.  The  contention 
is,  that  one  object  of  this  provision 
was  the  protection  of  the  corporation 
against  the  frauds  of  its  officers  in 
issuing  false  certificates,  and  that  if 
the  plaintiffs  in  these  cases  had    re- 


ir 


10 


I  [: 


336 


FRAUDULENT  ACTS  OF  OFFICERS. 


[§220 


§220.  The  same  subject  — a  Pennsylvania  decision. — 
A  president  of  a  corporation  having  fraudulently  issued  false 
certificates  of  stock  of  the  corporation,  properly  signed  and 
sealed,  in  excess  of  the  amount  authorized  by  law,  a  Court  of 


quired  that  a  certificate  of  shares  be 
delivered  to  them  with  an  assignment 
of  it,  or  a  power  of  attorney  to  assign 
it.  [the  treasurer]  could  not  have  com- 
mitted these  frauds."    ITie  court  said 
to  this:  ''We  do  not  see  why   [the 
treasurer],  having  been  intrusted  with 
blank  certificates  signed  by  the  presi- 
dent, might  not  have  issued  certifi- 
cates to  himself,  and  then  assigned 
them  when  the  stock  was  sold,  and  on 
the  surrender  of  the  old   certificates 
have  issued  new  certificates.     Perhaps 
the  chances  of  detection  would  have 
been  slightly  greater  if  he  had  pro- 
ceeded   in    this  way.     But  certainly 
this  provision  regulating  the  transfer 
of  stock,  if   intended  as  a  protection 
to  the  corporation  against  the  frauds 
of   its  officers,  is   insufficient.     The 
primary  purpose  of   it  undoubtedly 
was  to  prescribe  the  manner  in  which 
such  intangible  property  as  shares  of 
stock  should  be  transferred  from  one 
person  to  another,  and  it  required  the 
transfer  to  be  made  on  the  books  of 
the  company  that  the  company  might 
know  who  its  stockholders  were,  and 
it  required  the  surrender  of  the  old 
certificate  before  the  new  one  was  is- 
sued, that  there  might  not  be  two  or 
more  certificates  outstanding  for  the 
same  shares  of  stock.     The  ground  on 
which  a  corporation  is  held  liable  to  a 
bmia  fide  purchaser  for  value  of  false 
certificates  of  its  stock  issued  under  its 
seal,  signed  by  the  proper  officers,  and 
apparently  genuine,  is  that  the  certifi- 
cates are  statements  by  the  corpora- 
tion of  facts  which  it    is  its  duty  to 
know,   and    which    cannot    well    be 
known  to  the  purchaser.    It  is  the  duty 
of  the  proper  officer  of  the  corpora- 
tion to  ascertain  that  its  stock  has  been 


transferred  in  accordance  with  its  by- 
laws and  in  accordance  with  law,before 
they  issue    a    new    certificate.      The 
transfer,  which  must  be  made  on  the 
books  of  the  company,  must  be  made 
by  the  owner  of  the  old  certificate,  or 
by  his  attorney  for  him.     The  sur- 
render of  the  old  certificate  must  be 
made  by  him  or  his  attorney.     There 
is  no  provision  that  it  shall  be  made 
by  the  purchaser,  as  the  assignee  of 
the  attorney  of  the  seller.     If  the  sel- 
ler undertakes  with  the  purchaser  to 
make  the   surrender  and   the  transfer 
on  the  books  of  the  company,  the  only 
thing  left  for  the  purchaser  to  do  is  to 
call  upon  the  corporation  for  the  new 
certificate.      We  see  no  good  reason 
for  holding  that  there  is  a  duty  on  the 
part  of  the  purchaser  towards  the  cor- 
poration, to  see  to  it  that  the  seller  of 
stock  surrenders  his    certificate    and 
transfers  it  on  the  books  of  the  cor- 
poration.   That  is  the  duty  of  the  cor- 
poration towards  both  the  seller  and  the 
purchaser  before  it  issues  a  new  certifi- 
cate.   If  the  purchaser  exhibits  to  the 
corporation    a  forged   assignment   of 
stock  or  a  forged  power  of  attorney  to 
assign  it,  and  thus  obtains  a  new  certifi- 
cate, which  he  sells,  he  is  liable  to  the 
corporation,  not  because  it  is  his  duty 
to  attend  to  the  transfer  of  stock,  but 
because  he  has  impliedly  represented 
the  forged  signature  to  be  the  genuine 
signature  of  a  stockholder,  whereby 
he    has    deceived    the    corporation. 
Boston      &      Albany      Kailroad      v. 
Richardson,   135  Mass.   473.     Before 
the  passage  of  the  statute  of  1884, 
chapter  229,  if  not  since,  the  transfer 
of  stock  was  usually  attended  to  by 
brokers,  if  the  stock  was  bought  and 
sold  through  brokers.    Many  shares 


8  220] 


FRAUDULENT  ACTS  OF  OFFICERS. 


337 


Common  Pleas  of  Pennsylvania  held  that  bona  fide  purchasers  of 
such  stock  were  entitled  to  relief  against  the  corporation  which 
could  not  gainsay  its  own  certificates.  They  held  further  that 
the  measure  of  damages  in  such  a  case  would  be  the  market  value 


of  stock  represented  by  a  single  cer- 
tificate were  often  sold  in  parcels  to 
many  different  persons,  and  the  seller 
made  but  one  surrender,  with  powers 
of  attorney  to  transfer  the  parcels  to 
the  different  purchasers.  A  purchaser 
of  stock  violated  no  duty  to  the  corpo- 
ration when  he  trusted  to  the  seller  to 
make  the  assignment  and  the  surrender 
of  the  old  certificate.  The  utmost  that 
cjin  reasonably  be  contended  is  that 
the  fact  that  a  certificate  was  not  ex- 
hibited and  delivered  with  a  power  of 
attorney  to  the  purchaser,  was  a  cir- 
cumstance to  be  considered  upon  the 
question  whether  the  purchaser  acted 
in  good  faith  and  with  due  care. "  The 
court  then,  in  detail,  states  the  facts 
iittending  the  purchase  and  transfer 
of  shares  through  the  brokers,  and 
said:  "  On  these  facts,  we  think  it 
clear  that  [this  plaintiff]  exercised  due 
care  in  obtaining  a  transfer  of  the 
stock,  and  that  [the  treasurer]  in  mak- 
ing the  transfer  was  not  his  agent,  but 
the  agent  of  [the  broker  selling  it],  or 
the  undisclosed  principal.  In  issuing 
the  new  certificate  he  was  the  agent 
of  the  defendant,  and  as  the  plaintiff 
cannot  now  be  put  in  statu  quo,  the 
defendant  must  bear  the  loss."  Of 
the  second  case,  it  was  said:  "The 
plaintiff  received  from  [the  treasurer], 
as  broker,  a  certificate,  in  her  name, 
of  the  stock  which  he  said  he 
had  bought  for  her,  and  there  is 
nothing  to  show  that  this  was  not  the 
usual  way  in  which  brokers  transacted 
such  business.  Apparently  [she] 
acted  as  a  purchaser,  though  a  broker 
usually  acted,  and  we  see  no  want  of 
due  care  on  her  part."  They  then  re- 
fer to  a  question  in  her  case:  "An- 
other question  arises  in  her  case  from 

43 


the  fact  that  [the  treasurer],  who 
committed  the  fraud  upon  the  defend- 
ant, was,  also,  her  agent  in  the  trans- 
action. If  he  be  regarded  as  acting 
in  two  capacities,  and  as  having  com- 
mitted the  fraud  in  his  capacity  as 
treasurer,  he  yet,  as  her  agent,  knew 
of  and  participated  in  it.  Is  this 
knowledge  to  be  imputed  to  her  in  de- 
termining her  rights  against  the 
defendant?  The  general  rule  is  that 
notice  to  an  agent,  wliile  acting  for 
his  principal,  of  facts  affecting  the 
character  of  the  transaction,  is  con- 
structive notice  to  the  principal.  Suit 
«?.  Woodhall,  113  Mass.  391;  National 
Security  Bank  v.  Cushman,  121  Mass. 
490;  Sartwell  v.  North,  144  Mass. 
188;  The  Distilled  Spirits,  11  Wall. 
356.  There  is  an  exception  to  this 
rule,  when  the  agent  is  engaged  in 
committing  an  independent  fraudulent 
act  on  his  own  account,  and  the  facts 
to  be  imputed  relate  to  this  fraudulent 
act.  It  is  sometimes  said  that  it  can- 
not be  presumed  that  an  agent  will 
communicate  to  his  principal  acts  of 
fraud  which  he  has  committed  on  his 
own  account  in  transacting  the  busi- 
ness of  his  principal,  and  that  the  doc- 
trine of  imputed  knowledge  rests  upon 
a  presumption  that  an  agent  will  com- 
municate to  his  principal  whatever  he 
knows  concerning  the  business  he  is 
engaged  in  transacting  as  agent.  It 
may  be  doubted  whether  the  rule  and 
the  exception  rest  on  any  such  reasons. 
It  has  been  suggested  that  the  true 
reason  for  the  exception  is  that  an  in- 
dependent fraud  committed  by  an 
agent  on  his  own  account  is  beyond 
the  scope  of  his  employment,  and, 
therefore,  knowledge  of  it,  as  matter 
of  law,  cannot  be  imputed  to  the  prin- 


' 


m 


1 


i 


aas 


FRAUDULENT  ACTS  OF  OFFICERS, 


[§  220 


of  the  stock  at  the  date  of  a  demand  by  the  holders  for  a  trans- 
fer, or,  if  no  demand  were  made,  at  the  date  of  filing  the  bills ; 
and,  where  specific  performance  was  impossible,  a  pecuniary 
equivalent  might  be  awarded.* 


cipal,  and  the  principal  cannot  be  held 
responsible  for  it.  On  this  view,  such 
a  fraud  bears  some  analogy  to  a  tort 
willfully  committed  by  a  servant  for 
his  own  purposes,  and  not  as  a  means 
of  performing  the  business  intrusted 
to  him  by  his  master.  Whatever  the 
reason  may  be,  the  exception  is  well 
established.  Kennedy  r.  Green,  3 
Myl.  &  K.  699;  Espin  r.  Pemberton, 
3  De  G.  &  J.  547;  Holland  v.  Hart.  L. 
R.,  6  Ch.  678;  In  re  European  Bank, 
L.  R,  5  Ch.  358;  Cave  r.  Cave,  15  Ch. 
D.  639;  Kettlewell  v.  Watson,  21  Ch. 
D.  685,  707:  Innerarity  r.  Merchants' 
National  Bank,  139  Mass.  332;  Dilla- 
way  V.  Butler,  135  Mass.  479;  Atlantic 
Cotton  Mills  r.  Indian  Orchard  ^lilis, 
147  Mass.  268;  Howe  v.  New  march, 
13  Allen,  49.  The  case  [of  Craft  r. 
South  Boston  li.  II.  Co.]  seems  to  me 
to  fall  within  this  exception.  Al- 
though the  fraudulent  act  of  [the 
treasurer]  may  not  have  been  com- 
mitted with  the  intention  of  cheating 
the  plaintiff,  yet  that  was  its  legal 
effect,  and  it  was  a  fraudulent  act 
committed  by  him  for  his  own  benefit. 
the  actual  effect  of  which  wt)uld  have 
been  wholly  to  avoid  the  tran.saction 
if  the  plaintiff  had  known  of  it.  The 
present  cases  we  think  fall  within  the 
principle  that  where  one  of  two  inno- 
cent persons  must  suffer  a  loss  from 
the  fraud  of  a  third,  the  loss  must  be 
borne  by  him  whose  negligence  en- 
abled the  third  person  to  commit 
fraud." 

•  Willis  p.  Philadelphia  &  Darby  R. 
R.  Co.,  (Pa.  1878)  6  W.  N.  C.  461.  The 
court  said  :  "It  is  well  settled  that  one 
who,  as  a  purchaser  or  lender,  gives 
value  on  the  faith  of  a  certificate  of 
stock,  authenticated  by  the  seal  of  the 


corporation  and  the  signatures  of  the 
proper  oflicers,  acquires  an  equitable 
title,  and  m;iy  require  the  corporation 
to  transfer  the  stock  to  him  or  respond 
in  damages  for  the  default.  It  is  not 
a  sufficient  answer  to  such  a  demand 
that  the  certificate  was  fraudulently  is- 
sued, becMUse  corporations  are,  not  less 
than  natural  persons,  answerable  for 
the  conduct  of  their  agents  in  the  busi- 
ness intrusted  to  their  care.  Nor  is  it 
necessarily  conclusive  against  such  a 
purchaser  that  the  party  from  whom 
he  bought  was  cognizant  of,  or  par- 
ticipated in,  the  fraud.  If  a  certificate 
of  stock  is  not  a  negotiable  instrument, 
it  is  a  written  declaration  that  the 
holder  has  a  definite  share  in  the 
capital  or  profits  of  the  concern,  which, 
though  delivered  to  him,  is  intended 
for  circulation  and  virtually  addressed 
to  all  the  world,  and  third  persons 
who  are  misled  by  such  an  instrument 
may  justly  require  that  the  loss  shall 
fall  on  the  corporation  and  not  on 
them.  New  York  &  New  Haven  R. 
R.  Co.  v.  Schuyler,  34  N.  Y.  30,  52,  80; 
Bank  of  Kentucky  v.  Schuylkill  Bank, 
1  Pai-sons  Eq.  180;  In  re  Bahia  &  San 
Francisco  R.  R.  Co.,  L.  R.,  3  Q.  B. 
595.  *  *  » "  The  defendants  an- 
swered that,  however  sound  the  argu- 
ment might  be  under  other  circum- 
stances, it  was  inapplicable  here,  be- 
cause the  railway  company  was  limited 
by  its  charter  to  ten  thousand  shares. 
When  that  number  was  reached  the 
power  was  exhausted,  and  any  subse- 
quent proceedings  under  it  merely 
void.  The  barrier  thus  set  was  in- 
superable, and  could  not  have  been 
surmounted  by  a  vote  of  the  directors 
or  stockholders,  or  by  both  conjoined. 
To  hold  that  the  president  and  treaa- 


221] 


FEAUDULENT  ACTS  OF  OFFICEES. 


339 


§  221.  When  a  corporation  may  not  respond  for  damages 
for  fraudulent  issue  of  stock. —  The  officer  of  a  corporation  in 
a  New  York  case  obtained  certain  certificates  of  stock  of  a 
corporation,  which  had  been  signed  by  a  former  president  of 
the  corporation  in  blank,  and  left  with  the  other  then  officers 


urer  could,  by  a  fraudulent  and  un- 
authorized overissue,  bind  the  com- 
pany to  that  which  the  company  was 
powerless  to  perform,  was  to  hold  that 
an  agent  might  acquire  a  power 
through  fraud  which  the  principal  did 
not  possess  and  could  not  have  con- 
ferred. The  court  said  :  "  This  argu- 
ment might  be  unanswerable  if  the 
power  to  give  certificates  was  identical 
with  the  power  to  create  stock,  or  if  a 
certificate  could  not  legitimately  be 
issued  to  any  one  who  claimed  under 
a  derivative  title,  because  it  would 
then  be  incumbent  on  third  persons  to 
take  notice  of  the  limited  nature  of  the 
power  and  ascertain  whether  it  had 
been  strictly  pursued.  It  is,  however, 
plain  that  the  legislature  did  not  in- 
tend to  impose  a  rule  contrary  to  the 
ordinary  course  of  business,  and  which 
would  have  enhanced  the  market 
value  of  the  stock.  Although  the 
company  could  not  issue  a  larger 
number  of  shares  than  that  prescribed 
by  its  charter,  it-  might  well  give  a 
new  certificate  to  a  purchaser  in  lieu 
of  that  surrendered  by  the  vendor, 
and  repeat  the  act  as  often  as  the  occa- 
son  required.  This  was  virtually 
conceded  during  the  argument,  but  it 
was  at  the  same  time  strenuously 
urged  that,  to  render  such  a  substitu- 
tion valid,  the  pre-existing  certificate 
must  be  given  up  as  other  stock  duly 
transferred  on  the  corporate  books. 
If  this  method  was  observed  the  public 
and  stockholders  would  be  safe,  and  a 
departure  from  it  involved  an  excess 
of  power  which  rendered  the  trans- 
action void,  not  only  between  the 
original  parties,  but  as  it  regarded 
purchasers  claiming  UDderthem.   The 


cogency  of  this  reasoning  should  not 
render  us  unmindful  of  a  considera- 
tion by  which  it  is  controlled.  That 
which  a  corporation  is  not  authorized 
to  do  under  any  circumstances,  or 
which  is  absolutely  forbidden  by  its 
charter,  is  so  entirely  void  that  not  hing 
short  of  an  act  of  assembly  can  render 
it  valid,  but  that  which  it  may  do  for 
certain  purposes  and  not  for  others,  or 
on  the  happening  of  a  particular  event, 
is  not  necessarily  within  this  rule,  and 
may  take  effect  although  the  pre- 
requisites were  not  fulfilled.  N.  Y.  & 
N.  H.  R.  R.  Co.  V.  Schuyler,  34  N.  Y. 
30,  68.  The  case  in  hand  apparently 
belongs  to  the  latter  category.  We 
have  seen  that  although  the  railway 
company  could  not  create  new  stock, 
it  might  properly  give  a  certificate  to 
a  purchaser  as  evidence  that  he  had 
acquired  a  title  regularly  deduced  on 
the  books,  and  the  legal,  as  well  as  the 
natural,  presumption  in  every  such 
case  is  that  the  power  has  been  ex- 
ercised for  a  legitimate  end,  and  not 
in  a  way  to  render  it  invalid.  N.  Y. 
&  N.  H.  R.  R.  Co.  V.  Schuyler,  34  N. 
Y.  30,  63.  'Acts  of  corporations,' 
says  Judge  King  in  Bank  of  Kentucky 
V.  Schuylkill  Bank,  1  Pars.  253, 
'  which  presuppose  the  existence  of 
other  acts  to  make  them  legally  oper- 
ative, are  presumptive  proof  of  the 
latter.  In  short,  the  acts  of  artificial 
persons  afford  the  same  presumptions 
as  the  acts  of  natural  persons.  Each 
afford  presumptions,  from  acts  done, 
of  what  preceded.  A  vote  of  a  cor- 
poration may  be  presumed  from  other 
acts,  though  there  is  no  proof  of  such 
vote  on  the  corporate  records.  *  *  * 
The  source  from  which  these  priii-> 


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II 


1 


340 


FBAUDULENT  ACTS  OF  OFFICERS. 


MH 


[§221 

to  be  used  in  case  a  stockholder  desired  to  transfer  his  stock  in 
the  presidcDt's  absence.  He  filled  out  the  blanks  in  one  of  these 
certiUcates,  inserting  his  own  name  as  stockholder,  forging  the 
name  of  one  who  was  the  treasurer  of  the  corporation  when  the 
president  signed  them,  and  si.ned  his  own  name  as  transfer 
agent,  which  position  he  occupied  at  that  date,  and  dating  the 
transaction  to  make  it  conform  to  the  date  when  the  president's 
signature  was  affixed.  When  he  did  this  he  was  president  of  the 
company.  He  used  the  false  certificate  of  stock  by  pledging  it 
as  a  collateral  security  for  a  loan  made  to  him  personally.  In  an 
action  by  the  holder  of  this  certificate  against  the  corporation  for 
damages,  by  reason  of  his  fraud,  the  New  York  Court  of  Appeals 
held  that  there  could  be  no  recover3\* 


ciples  have  been  drawn  is  the  judg- 
ment of  Justice  Story  in  The  Bank  v. 
Dandridge,  12  Wheat.  64.'  This  cita- 
tion would  seem  to  be  a  conclusive 
answer  to  the  argument  that  the  pro- 
duction of  a  certificate  of  stock  is  not 
prima  facie  evidence  of  a  title,  and 
that  a  purchaser  must  examine  the 
records  of  the  corporation  and  ascer- 
tain from  them  whether  the  vendor 
has  the  right  which  the  certificate 
avers.  Such  an  investigation  is  abso- 
lutely superfluous  where  the  ofiicers 
of  the  corporation  have  done  their 
duty,  and  will  generally  be  unavailing 
when  they  are  engaged  in  the  per- 
petration of  a  fraud.  N.  Y.  &  N.  H. 
R.  R.  Co.  V.  Schuyler,  34  N.  Y.  30, 
71.  It  is  no  doubt  true,  as  the  counsel 
for  the  defense  contend,  that  the 
formal  mode  of  deducing  title  to  stock 
is  by  a  transfer  regularly  made  in  some 
book  kept  for  the  purpose  by  the  cor- 
poration or  its  duly  constituted 
agents.  But  although  a  certificate  of 
stock  is  not  the  title,  it  is  an  authorita- 
tive declaration  that  such  a  title  exists, 
which  may  operate  as  an  equitable 
estoppel  in  favor  of  third  persons  who 
part  with  value  in  the  belief  that  it  is 
true.  The  legal  title  does  not  pass  to 
the  purchaser,  but  he  acquires  an 
equitable  right,  and  may  insist  that 


the  corporation  shall  transfer  the 
stock,  or,  if  unable  to  do  so  in  conse- 
quence of  an  obstacle  which  cannot  be 
removed,  give  an  equivalent  for  that 
which  is  withheld.  N.  Y.  &  N.  H. 
R.  R.  Co.  V.  Schuyler,  34  N.  Y.  30, 
80,  83." 

•Manhattan  Life  Insurance  Co.  v. 
Forty -second  Street  &  Grand  Street 
Ferry  R.  R.  Co.,  (1893)  139  N.  Y.  146; 
8.  c,  34  N.  E.  Rep.  776.  This  opinion 
was  rendered  by  Maynard,  J., 
who  said  :  "The  rule  which  imposes 
a  liability  upon  the  principal  for  the 
unauthorized  acts  of  his  agent,  is 
founded  upon  public  policy,  and  is 
well  defined.  It  is  limited  to  cases 
where  there  was  an  apparent  au- 
thority to  do  the  act  in  question  ;  and 
it  appeared  to  have  been  done  in  the 
course  of  his  employment  as  agent 
and  was  within  the  scope  of  his  gen- 
eral powei-s.  None  of  these  grounds 
of  liability  have  been  shown  here. 
The  agency  did  not  exist  in  1888, 
which  was  necessary  in  order  to  de- 
prive the  principal  of  the  right  to  dis- 
claim responsibility  for  the  unauthor- 
ized act.  With  respect  to  the  creation 
of  certificates  bearing  date  in  1881,  he 
was  as  destitute  of  authority  as  if  he 
had  been  a  stranger  to  the  corporation. 
He  not  only  could  not  issue  them,  but 


§  222]- 


FRAIJDULENT  ACTS  OF  OFFICERS. 


341 


§  222.  Massachusetts  decisions  on  this  subject. —  In  a  case 
in  Massachusetts  it  appeared  that  the  treasurer  of  a  railroad  cor- 
poration had  for  a  private  debt  placed  fraudulently  issued  stock 
with  his  creditor  as  security  in  the  creditor's  name  and  the  cred- 
itor had  afterwards  used  it  as  a  collateral  himself  for  a  loan,  but 
upon  payment  of  his  loan  it  was  reassigned  to  him.  The  court  held 
to  this  effect:    That  if  an  officer  of  a  corporation  having  the 


he  could  take  no  part  in  their  issue, 
or  do  any  act  required  by  law,  or  by 
the  by-laws,  essential    to    give  them 
validity.     When  he  issued  such  a  cer- 
tificate in  his  own  name,  he  was  not 
apparently  acting  within  the  scope  of 
any  general  authority  conferred  upon 
him  by  the  corporation.     The  defend- 
ant cannot  justly  be  held  liable  for 
the    misuse   of  a    power    which     it 
never   created.      This    case    has    no 
feature   in   common    with  the.  Fifth 
Avenue  Bank    against  the  same  de- 
fendant,   137  N.  Y.  231.     There   [this 
officer],   at   a    time    when     he     was 
treasurer  and  transfer  agent,  and  in- 
vested with  authority  in  both  capaci- 
ties to  sign,  countersign  and  seal  valid 
certificates  of  stock,  forged  the  name 
of  the   president  to  a  certificate   and 
issued     it    to    a    confederate,     who 
negotiated  a  loan  upon  it  at  the  bank, 
which,    before    receiving    it,    caused 
inquiry  to  be  made  at  the  office  of  the 
defendant,  and  was  informed  that  the 
certificate  was    genuine.      [He]  was 
there  acting  within  the  scope  of  his 
apparent  authority,  and  whether  the 
certificate  had    been    actually  signed 
by  the  president   and  was   issued  in 
the  regular  course  of  the  administra- 
tion of  the  affairs  of  the  company, 
were    facts    peculiarly    within     his 
knowledge,    and   the   countersigning 
and  issue  of  the   certificate  in   due 
form  was  a  representation  by  him  that 
these    conditions  had  been    complied 
with,  and  that  the  facts  existed,  upon 
which    his    right    to   act    depended. 
Here  there  was  a  total  lack  of  dele- 


gated power  to  [him]  to  do  a  single 
lawful  act  in  the  issue  of  the  certifi- 
cate in  the  form  in  which  it  was  pre- 
sented to  the  plaintiff.  There  was  no 
negligent  or  wrongful  use  by  him  of 
any  authority  derived  from  the  [cor- 
poration]. It  was  a  willful  and 
criminal  act,  perpetrated  for  private 
gain  and  not  connected  with  the 
exercise  of  any  official  authority  or 
semblance  of  authority  which  he 
possessed  as  the  [corporation's]  agent. 
The  plaintiff  insists  that  there  is 
another  ground  upon  which  a  re- 
covery is  permissible.  When  [this 
officer]  made  the  loan  and  pledged  the 
forged  certificate,  he  represented  to 
the  plaintiff  that  it  was  a  genuine 
certificate  of  the  stock  of  the  corpora- 
tion ;  and  as  he  was  then  its  president 
and  chief  administrative  officer,  the 
claim  is  made  that  the  [corporation] 
is  bound  by  his  representations. 
*  *  *  [This  officer],  when  he 
negotiated  the  loan,  was  not  engaged 
in  the  transaction  of  the  [corporation's] 
business,  or  in  the  discharge  of  any 
duty  imposed  upon  him  by  the  [cor- 
poration]^ The  declarations  of  an 
agent  are  only  admissible  against  his 
principal  when  made  as  a  part  of  a 
transaction  undertaken  in  behalf  of 
his  principal,  or  in  the  performance  of 
the  duties  of  his  agency.  First  Nat. 
Bk.  of  Lyons  v.  Ocean  Nat.  Bk., 
60  N.  Y.  278.  Or,  as  is  sometimes 
stated,  the  representations  of  the 
agent,  when  not  expressly  authorized 
by  the  principal,  must,  in  order  to 
bind  him,  be  within  the  scope  of  his 


\\ 


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I 


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I 


842 


FRATTDITLENT  ACTS  OF  OFFICERS. 


[§222 


power,  either  alone  or  with  others,  to  issue  certificates  of  stock, 
fraudulently  issues  as  security  for  his  private  debt  a  certificate  to 
his  creditor  in  the  latter's  name,  such  creditor  cannot  rely  upon 
the  certificate  and  recover  damages  from  the  corporation  upon 
its  refusal  to  recognize  it  as  valid,  although  he  has  no  knowledge 
of  the  fraud ;  but  if  upon  taking  it  he  fails  to  investigate 
the  title  to  tlie  stock  he  is  affected  with  notice  of  what- 
ever he  might  have  discovered  upon  making  proper  inquiry.* 


agency,  which  is  but  another  form  of 
expressing  the  same  proposition.  N. 
Y.  Life  Ins.  Co.  r.  Beebe,  7  N.  Y.  364. 
But,  without  determining  what  are 
the  duties  of  the  officers  of  a  corpora- 
tion, when  called  upon  to  respond  to 
the  inquiries  of  intending  purcliasers  of 
the  stock,  there  is  a  sufficient  reason 
why  the  plaintiff  cannot  avail  himself 
of  the  representations  of  [this  officer] 
in  regard  to  the  gcnuiueaess  of  tliis 
certificate.  They  were  made  in  a 
private  and  personal  transaction, 
undertaken  for  his  individual  benefit 
and  so  understood  by  the  plaintiff. 
The  plaintiff  knew  that  [this  officer], 
in  the  negotiation  of  the  loan,  was  not 
acting  as  the  officer  or  ageut  of  the 
[corporation],  or  in  its  behalf,  and  that 
his  personal  interest  in  the  transaction 
might  lead  him  to  betray  his  prin- 
cipal. It  is  an  old  d(x;trine,  from 
which  there  has  never  been  any  de- 
parture, that  an  agent  cannot  bind  his 
principal  even  in  matters  touching  his 
agency,  where  he  is  known  to  be  act- 
ing for  himself,  or  to  have  an  adverse 
interest."  See,  also.  Stone  p.^  Hayes,  3 
Denio,  575;  Bentley  t.  Columbia  Ins. 
Co.,  17  N.  Y.  423;  Claffin  r.  Farmers 
&  Citizens'  Bank,  25  N.  Y.  293;  Wil- 
son V.  M.  E.  K.  Co.,  120  N.  Y.  145; 
Moores  ».  Citizens'  Nat.  Bank,  111  U. 
S.  156;  Farrington  p.  South  Boston  li. 
R  Co.,  150  Mass.  406. 

*  Farrington  v.  South  Boston  Rail- 
road Company,  (1890)  150  3Iass.  406. 
Arguendo,  it  was  said:  "The  present 
case  cannot  be  distinguished  in  prin- 


ciple from  Moores  «j.  Citizens*  National 
Bank,  111  U.  8.  156.     In  that  case  Mr. 
Justice  Bradley  dissented,   and  the 
decision  has  been  the  subject  of  some 
criticism.     Lowell  Transfer  of  Stock, 
^112,  note  2.     The  ground  of  that  de- 
cision iis  stated  in  the  opinion  is  as  fol- 
lows: The  plaintiff    'having  distinct 
notice  that  the  surrender  and  transfer 
of   a   former  certificate   were  prereq- 
uisites to  the  lawful   issue  of  a  new 
one,  and  having  accepted  a  certificate 
that  she  owned  stock  without  taking 
any  steps  to  assure  herself  that  the 
legal  prerequisites  to  the  validity  of 
her  certificate  which  were  to  be  ful- 
filled by  the  former  owner  and  not  by 
the  bank  had  been  complied  with,  she 
does  not,  as  against  the  bank,  stand  in 
the  position  of  one  who  receives  a  cer- 
tificate of  stock  from  the  proper  offi- 
cers without  notice  of  any  facts  im- 
pairing its  validity.'    Upon  a  review 
of  the  authorities  in  the  opinion  it  is 
said:  '  This  review  of  the  cases  shows 
that  there  is  no  precedent  for  holding 
that  the  plaintiff,  having  dealt  with 
the  cashier  individually  and  lent  money 
to  him  for  his  private  use,  and  received 
from  him   a   certificate  in   her  own 
name,  which  stated  that  shares  were 
transferable  only  on  the  books  of  the 
bank  and  on  siu'rendered  former  cer- 
tificates, and  no  certificate  having  been 
surrendered  by  him  or  by  her,   and 
there  being  no  evidence  of  the  bank 
having  ratified  or  received  any  benefit 
from  the  transaction,  can  recover  from 
the  bank  the  value  of  the  certificate 


II 


FBAUDULENT  ACTS  OF  OFFICEES. 


343 


§222] 

These  facts  appear  in  another  Massachusetts  case.  The  by-laws 
of  a  corporation  provided  that  "  each  stockholder  shall  be  entitled 
to  a  certificate  of  his  stock  under  the  seal  of  the  corporation  and 
signed  by  its  president  and  treasurer.'*  The  president  had  no 
authority  to  issue  certificates  of  stock.  He  had  access  to  the  stock 
book  and  issued  to  certain  parties  certificates  of  shares  of  tlie  cor- 
poration, signed  by  himself,  and  forged  the   signature   of  the 


delivered  to  her  by  its  cashier.'     In 
that  case  the  president  of  the  bank  had 
left  blank  certificates  of  stock  signed 
by  him   with  the   cashier,  as  in  the 
present  case  the  president  of  the  rail- 
road company  had  left  similar  blank 
certificates  with  the  treasurer.     At  the 
trial  of  that  case  in  the  United  States 
Circuit  Court  a  verdict  was  directed 
for  the  defendant  on  the  ground  that 
the  plaintiff  having  had  knowledge  of 
the  fact  that  Moores,  upon  whom  she 
relied  to  have  the  stock  transferred  to 
her,  was  acting  for  himself  as  well  as 
in  his  capacity   of  cashier  —  that  is, 
acting  for  the  bank  upon  one  side  and 
for  himself  on  the  other  in  reference  to 
the  matter  of  issuing  this  certificate  — 
she  is  not,   in  the  judgment  of  this 
court,  an  innocent  holder  of  the  stock. 
Moores  v.  Citizens'  National  Bank,  15 
Fed.   Rep.   141."    The  Massachusetts 
Supreme  Court  resumed:  "  We  have 
decided  in  Allen  v.  South  Boston  Rail- 
road Co.,   150  Mass.   200,  204,  that  a 
purchaser  of  stock  owes  no  positive 
duty  to  the  corporation  to  see  to  it 
that  the  seller  surrenders  the  old  cer- 
tificate and  makes  an  assignment  of 
the  stock  on  the  books  of  the  company, 
but  that  it  is  the  duty  of  the  corpora- 
tion which  requires  these  things  to  be 
done  to  see  that  they  are  done  before 
a  new  certificate  is  iasued  to  the  pur- 
chaser.    The  plaintiff,  in  the  case  at 
bar,  knew  that  he  was  dealing  with 
the  treasurer  of  the  defendant  in  his 
personal  capacity  as   a  borrower  of 
money.     If  the  by-laws  of  the  com- 
pany had  provided  that  certificates  of 


stock  should  be  signed  only  by  the 
treasurer,  and  if  he  were  charged  with 
the  duty  of  attending  to  the  transfer 
of  stock  and  the  issuing  of  certificates, 
any  person  lending  money  to  him  for 
his  private  use  and  taking  in  his  own 
name  a  certificate  of  the  company's 
stock    as    collateral    security,     could 
reasonably  be  required  to  investigate 
the  title  of  the  treasurer  to  the  certifi- 
cate delivered,  because  in  issuing  such 
a  certificate  the  treasurer  would  have  a 
personal  interest  adverse  to  that  of  the 
corporation.     An  agent  cannot  prop- 
erly act  for  his  principal  and  himself 
when  their  interests  are  adverse,  and 
any  person  dealing  with  an  agent  in  a 
matter    affecting     his    principal    and 
knowing  that  the  interests  of  the  agent 
are  adverse  to  those  of  his  principal, 
ought  to  be  held  to  the  duty  of  ascer- 
taining that  the  acts  of  the  agent  are 
authorized    by    his    principal.      The 
difficulty  in  the  present  c^se  is  that 
these  considerations  are  only  partially 
applicable  to  it.    It  is  on  account  of  the 
danger  that  one  officer  may  abuse  his 
power  to  issue  stock  certificates  that 
the  by-laws  of  corporations  usually  re- 
quire the  certificates  to  be  signed  by  at 
least  two  officers  of  the  corporation. 
If  one  of  these  neglects  his  duty  or 
delegates  the  performance  of  it  to  the 
other,  the  safeguard  intended  by  this 
requirement  of   the   by-law  becomes 
ineffectual,  and  if  one  of  these  officers 
in  issuing  a  stock  certificate  has  a  per- 
sonal interest  adverse  to  that  of  the 
corporation,  a  person  dealing  with  him 
and  knowing  this  may  well  be  required 


S\ 


344 


FRAUDULENT  ACTS  OF  OFFICERS. 


[§222 


treasurer  to  the  same.  The  holders  of  these  certificates  sought 
by  action  to  hold  the  corporation  responsible  for  these  spurious 
certificates  of  stock,  contending  that  the  corporation  was  bound  to 
make  the  certificates  good,  or  was  responsible  for  their  being  bad, 
on  the  ground  that,  in  view  of  his  previous  known  misconduct, 
the  corporation  was  negligent  in  permitting  its  president  to  remain 
in  that  official  position,  and  to  have  control  of  its  certificate  book 
and  seal,  and  that  the  cases  fall  within  the  principle  that,  where 
one  of  two  innocent  persons  must  suffer  a  loss  for  the  fraud  of  a 
third,  the  loss  must  be  borne  by  the  one  whose  negligence  enabled 
the  third  person  to  commit  the  fraud.  The  Supreme  Court  of 
Judicature  of  that  state  held  that  the  corporation  was  not  liable 
for  the  acts  of  its  president  in  issuing  these  certificates.^ 


ri;.,' 


to  take  notice  that  the  rights  of  the 
corporation  are  not  protected  in  the 
transaction  to  the  full  extent  intended 
by  the  by-laws." 

'Hill  P.  C.  F.  Jewett  Publishing 
Co.,  (1891)  154  Mass.  172;  s.  c,  28  N. 
E.  Rep.  142.  Allen,  J.,  said:  *In 
the  absence  of  any  previous  miscon- 
duct on  [the  president's  part],  it  could 
hardly  be  maintained  that  there  was 
any  negligence  on  the  part  of  the  cor- 
poration in  keeping  its  seal  and  book 
of  certificates  of  shares  where  the 
president  could  have  access  to  them, 
so  as  to  be  able  to  remove  blank  cer- 
tificates from  the  end  of  the  book  and 
impress  the  corporate  seal  upon  them. 
We  are  not  aware  that  it  is  customary 
for  corporations  in  this  country  to  keep 
their  seals  or  books  of  certificates  in 
such  a  way  that  access  can  only  be  had 
to  them  when  two  or  more  officers  are 
present.  The  chief  safeguard  in  respect 
to  the  certificates  is  the  necessity  of  two 
signatures.  And,  accordingly,  when 
one  who  has  had  confidence  reposed  in 
him  has  availed  himself  of  his  oppor- 
tunity to  commit  a  fraud  upon  others 
by  means  of  forgery,  it  has  usually 
been  held  in  England  that  the  loss  was 
not  a  natural  or  probable  result  of  the 
confidence  thus  imposed,  even  though 
it  showed  carelessness,  and  that  it  was 


too  remote  to  be  properly  chargeable 
upon  those  who  were  thus  careless  in 
reposing  the  confidence.  Bank  of 
Ireland  r.  Evans'  Charities,  5  H.  L. 
Cas.  389;  Mayor  etc.,  of  Staple  of 
England  r.  Governor  etc.,  of  Bank 
of  England,  21  Q.  B.  D.  160,  176; 
Swan  V.  North  British  Australasian 
Co.,  2  H.  &  C^  175,  189.  See,  also. 
Vagliano  r.  Bank  of  England,  22  Q. 
B.  D.  103.  117;  8.  c,  on  appeal,  23  Q. 
B.  D.  243,  255.  263.  The  plaintiffs  rely 
much  on  Shaw  r.  Port  Philip  &  Colo- 
nial Gold  Mining  Co.,  13  Q.  B.  D.  103, 
which  in  many  of  its  general  features 
much  resembles  the  present  case,  but 
with  certain  differences.  In  that  case 
the  secretary  of  the  defendant  com- 
pany issued  a  certificate  of  shares, 
with  the  name  of  a  director  forged  by 
himself.  The  person  to  whom  it  was 
issued  bought  shares  on  the  market, 
through  a  broker,  who  received  a 
transfer  signed  by  the  secretary,  ac- 
companied by  what  purported  and  in 
all  respects  appeared  to  be  a  regularly 
issued  certificate  of  those  shares. 
These  were  deposited  at  the  com- 
pany's office,  with  the  request  for  the 
issue  of  a  new  certificate,  in  the  usual 
way.  The  new  certificate  was  issued 
in  the  usual  form  bv  the  secrctarv. 
but  the  signature  of  a  director,  which 


§222 


FRAUDULENT  ACTS  OF  OFFICERS. 


345 


was  required,  was  forged.  It  was  a 
part  of  the  regular  and  authorized 
duty  of  the  secretary  to  receive  and 
examine  transfers  and  certificates  of 
shares,  to  have  transfers  registered,  to 
procure  the  preparation,  execution 
and  signature  of  certificates  with  all 
requisite  and  prescribed  penalties,  and 
thereupon  to  issue  them  to  the  persons 
entitled  to  receive  them.  Moreover, 
the  company,  after  the  issue  of  the 
certificate,  paid  a  dividend  thereon,  by 
check  signed  by  the  secretary  and  two 
directors.  The  decision  of  the  case, 
which  was  not  heard  before  the  Court 
of  Appeal,  was  placed  on  the  ground 
that  the  company  had  made  it  the 

U 


duty  of  the  secretary  to  procure  the 
preparation,  execution  and  signature 
of  certificates  with  the  prescribed  pen- 
alties, and  thereupon  to  issue  them  to 
the  person  entitled  to  receive  them. 
The  principal  facts  upon  which  the 
decision  turned  are  wanting  in  the 
case  before  us.  The  president  of 
the  defendant  corporation  was  not  the 
proper  officer  to  issue  certificates,  and 
the  certificates  which  the  plaintiff  re- 
ceived did  not  come  from  the  office  of 
the  defendant  in  the  regular  course  of 
business,  but  they  were  received  by 
the  plaintiffs  under  private  and  per- 
sonal transactions  between  themselves 
and  Jewett,  the  president." 


I 


,f 


r:J 


m 


CHAPTER  VL 

PERSONAL  LIABILITY  OF  OFFICERS. 


§223. 

Directors'     liability  —  general 

§239. 

Statutory    liability  —  Colorado 

rules. 

statutes. 

224. 

Liability   of    other  officers  — 

240. 

Statutory       liability  —  Iowa 

general  rules. 

statutes. 

225. 

Rules  as  to  liability  of  officers 

241. 

Statutory  liability  —  Massachu- 

for diversion  of  property  of 

setts  statutes. 

corporation. 

242. 

Statutory  liability  —  Minnesota 

226. 

Liability  of  officers  arising  from 

statutes. 

manner  of  execution  of  com- 

243. 

Statutory    liability  —  Missouri 

mercial  paper. 

statutes. 

227. 

Liability  of  officers  arising  from 

244. 

Statute  of  New  York  —  liability 

indorsement    of   commercial 

for   failure   to    file    annual 

paper. 

report. 

228. 

Liability  of  officers  of  savings 

245. 

Actions  to  enforce  this  liability. 

banks. 

246. 

What  are,  and  what  are  not. 

220. 

Liability  of   a  treasurer  of  a 

"debts"  for  which  liability 

corporation  for  payment  of 

under  this  statute  may  arise. 

orders   on    forged    indorse- 

247. 

A  United  States  Supreme  Court 

ments. 

decision  on  this  subject. 

230. 

Liability    on     contract    made 

248. 

Statute  of  New  York  —  liability 

before    complete    organiza- 

for creation  of  debts  in  excess 

tion  of  the  corporation. 

of  capital  stock. 

281. 

Rule  as  to  recovery  in  such  a 

249. 

Liability  for  incurring  indebt- 

case. 

edness  in  excess  of  capital 

282. 

County  treasurer   liable  upon 

stock  —  Illinois  statute. 

his  receipts  to  collector  for 

250. 

United  States  Supreme  Court 

money. 

decision    on  a    similar  stat- 

283. 

County  treasurer  liable  as  bailee 

ute —  the    proper   action   in 

of  county  funds. 

such  a  case. 

284.  County  treasurer  paying  court 

251. 

New    York   statute— liability 

orders  on  forged  instruments. 

for  false  statement  in  certifi- 

285. 

Arbitration  as  to  liability  of  a 

cate,  etc.,  filed. 

treasurer  of  a  township. 

252. 

Illustrations. 

236. 

Liability  under  special  provis- 

253. 

Statutory  Uability  —  Rhode  Is- 

ions of  charter  or  statute. 

land  statutes. 

237. 

T«iability  under    provisions  of 

254. 

Statutory     liability  —  various 

charter  —  Pennsylvania. 

states. 

288. 

Statutory  liability  —  California 

255. 

Liability  of  directors  or  officers 

statutes. 

under  an  English  statute. 

§  223.  Directors*  liability  —  general  rules. —  Whether  direct- 
ors of  a  corporation  are  to  be  regarded  as  its  agents  or  its  ele- 
ments, impartial  justice  and  public  policy  require  that  as  all  nat- 


%»x  *" 


ll 


§223] 


PEESONAL  LIABILITY  OF  OFFICERS. 


347 


ural  persons  are,  so  they  should  be  held  responsible  to  third 
persons  for  the  malfeasance  by  them  in  fact  committed  or 
commanded.*  Directors  or  officers  of  a  corporation  acting  beyond 
their  power,  whereby  loss  inures  to  the  corporation,  or  disposing 
of  its  property,  or  paying  away  its  money  without  authority,  will 
be  required  to  make  good  the  loss  out  of  their  private  estates.' 
But  they  are  not  liable,  in  the  absence  of  fraud  or  intentional 
breach  of  trust,  for  negligence,  mistakes  of  judgment  and  bad 
management  in  making  investments  on  doubtful  or  insufficient 
security.  Where  they  have  not  profited  personally  by  bad  man- 
agement or  appropriated  any  of  the  property  of  the  corporation 
to  their  own  use,  courts  of  equity  treat  them  with  indulgence.* 
The  directors  of  a  corporation,  as  trustees  of  its  shareholders,  are 
liable  for  all  losses  caused  by  their  willful  failure  to  exercise  the 
care  and  attention  to  the  affairs  of  the  corporation  which  would 
prevent  a  misappropriation  of  the  trust  or  corporate  funds.*  But 
directors  and  officers  of  a  company  will  not  be  held  personally 
liable  to  its  creditors  on  the  ground  that  they  have  mismanaged 
its  business  and  contracted  an  indebtedness  in  excess  of  the  limit 
prescribed  in  its  charter,  unless  they  are  made  liable  by  the  pro- 
visions of  the  charter  or  some  general  statute  regulating  such  cor- 
porations. And  it  would  make  no  difference  that  the  credit  be 
extended  in  reliance  upon  the  business  character  and  financial 
responsibility  of  the  directors  and  othcers.^     If  directors  of  a  cor- 


*Rule  declared  in  Salmon  v.  Rich- 
ardson, (1862)  30  Conn.  360,  374,  in 
which  case  the  directors  of  an  insur- 
ance company  who  had  fraudulently 
permitted  false  statements  to  be  offi- 
cially made  by  the  president  and 
secretary  of  the  company,  as  to  its 
assets  and  condition,  which  induced  a 
person  to  insure  in  the  company  when 
the  company  was  utterly  insolvent, 
and  after  his  loss  he  could  recover 
nothing  from  the  company,  were  held 
not  to  be  saved  from  personal  liability 
for  the  injury  by  reason  of  the  fact 
that  they  were  acting  officially. 

'  Joint- Stock  Discount  Co.  v.  Brown, 
L.  R.,  8  Eq.  381;  Flitcroft's  Case,  L. 
R.,  21  Ch.  Div.  519;  Franklin  Ins.  Co. 
f>.  Jenkins.  3  Wend.  130. 

*Briggs  V.  Spaulding,  141  U.  S.  130; 


Spering's  Appeal,  71  Pa.  St.  11;  Citi- 
zens' B.  L.  &  S.  Association  v.  Coriell, 
34  N.  J.  Eq.  383,  392;  Swentzel  v. 
Penn.  Bank,  (1891)  147  Pa.  St.  140; 
8.  c,  23  Atl.  Rep.  413;  In  re  Forest  of 
Dean  Coal  Mining  Co.,  L.  R.,  10  Ch. 
Div.  450;  Ackerman  v.  Halsey,  37  N. 
J.  Eq.  363;  Hun  v.  Cary,  82  N.  Y.  65; 
In  re  Denham  &  Co.,  L.  R.,  25  Ch. 
Div.  752;  Watts'  Appeal,  78  Pa.  St. 
391.  Liability  of  directors  for  acts 
idtra  vires  discussed,  and  decisions 
showing  the  current  of  authority  in 
England  on  the  subject  reviewed,  34 
Solic.  J.  503. 

*  Lewis  V.  St.  Albans  Iron  &  Steel 
Works,  50  Vt.  477. 

*  Frost  Manufacturing  Co.  r.  Foster, 
(1889)  76  Iowa,  535;  s.  c,  41  N.  W. 
Rep.  212.     That  directors  are  not  re- 


I 


I 


I 


348 


PERSONAL  LIABILITY  OF  OFFICEKS. 


[§223 


poratioii  are  guilty  of  gross  negligence  and  inattention  to  the 
duties  of  their  trust,  tliey  will  be  personally  liable  if  they  suffer 
the  corporate  funds  or  property  to  be  wasted  or  lost  by  reason  of 
such  negligence  and  inattention.*  The  care  and  diligence  required 
of  directors  in  the  discharge  of  their  duties  as  such,  must  be 
determined  in  each  case  in  view  of  all  the  circumstances.^  The 
directors  of  a  corporation  in  whom  its  constitution  reposes  an 
enlarged  discretion  in  the  management  of  its  business,  are  respon- 
sible to  its  stockliolders  only  for  good  faith  and  reasonable  dili- 
gence ;  a  mere  error  of  judgment  on  their  part  in  compromising 
a  debt  due  to  the  corporation,  would  not  entitle  a  stockholder  to 
relief  against  the  directors  in  equity.^  The  directors  of  a  manu- 
facturing corporation  liave  no  authority  to  divert  the  corporate 
property  by  issuing  accommodation  paper,  or  otherwise  loaning 
its  money  or  credit  without  consideration.*  And  where  officers 
of  such  a  corporation  accept  accommodation  paper  in  the  name  of 
the  corporation,  they  will  be  held  personally  responsible  to  it  for 
payments  made  or  liabilities  incurred  in  consequence  of  such 
acceptance  on  their  part  in  its  behalf.'  A  board  of  directors,  in 
carrying  out  the  vote  of  the  required  majority  of  the  board,  direct- 
ing a  total  cessation  of  the  business  of  the  corporation  and  a 
liquidation  of  its  affairs,  would  be  acting  within  the  sphere  of  its 
lawful  authority  and  would  not  be  held  liable  for  any  loss  occur- 
ring to  the  minority  from  the  step  they  had  taken  in  carrying  out 


lieved  from  liability  by  the  fact  that 
they  act  gratuitously  in  that  capacity, 
see  Donaldson  v.  Haldane,  7  CI.  & 
Fin.  771;  Thome  u.  Deas,  4  Johns.  84, 
96,  97;  Charitable  Corporation  v.  Sut- 
ton, 2  Atk.  405;  Litchfield  v.  White,  3 
Sandf.  551;  Spering's  Appeal,  71  Pa. 
St.  11,  21;  GMinv.  McMullen,  L.  R.,  2 
Privy  Council  Cas.  318,  337;  First 
Nat.  Bank  v.  Ocean  Bank,  60  N.  Y. 
295;  Grill  v.  S.  C.  Co.,  L.  R..  1  C.  P. 
612;  Beal  r.  R.  R.  Co.,  3  Hurlst.  & 
Colt.  341;  Nolton  v.  R  R.  Co.,  15  N. 
Y.  444;  Wilson  v.  Brett,  11  Mees.  &  W. 
113.  115. 

*  Horn  Silver  Mining  Co.  v.  Ryan, 
(1889)  42  Minn.  196;  s.  c,  44  N.  W. 
Rep.  56.  See,  also,  Brinkerhoflf  v.  Bost- 
wick,  88  N.  Y.  52. 


•Horn  Silver  Mining  Co.  v.  Ryan, 
(1889)  42  Minn.  196;  8.  c,  44  N.  W. 
Rep.  56. 

3  Smith  V.  Prattville  Manufg.  Co., 
(1857)  29  Ala.  503;  citing  Augell  & 
Ames  on  Corp.  §§  312-314;  Robinson 
V.  Smith,  3  Paige,  222;  Forbes  v.  Whit- 
lock,  3  Edw.  Ch.  446;  Bushwick,  etc.. 
Turnpike  Co.  v.  Ebbetts,  3  Edw.  Ch. 
353;  Van  Cortlandt  v.  Underbill,  17 
Johns.  405;  Dodge  v.  Woolsey,  18 
How.  331;  Godbold  v.  Branch  Bank 
at  Mobile,  11  Ala.  191;  Mozley  v.  Als- 
ton. 1  Phil.  Ch.  790;  Ware  v.  Grand 
Junction  Water  Works  Co.,  2  Russ.  & 
Myl.  470. 

*  Hutchinson  v.  Sutton  Manufactur- 
ing Co.,  (1893)  57  Fed.  Rep.  998. 

» Ibid. 


§223] 


PERSONAL  LIABILITY  OF  OFFICEES. 


349 


the  vote  of  the  majority.*  An  action  against  directors  of  a  cor- 
poration for  misfeasance  or  culpable  negligence  in  the  discharge 
of  their  official  duty,  may  be  in  form  legal  or  equitable  according 
to  the  circumstances  of  the  particular  case.  The  proper  plaintiff 
in  such  a  case  is  the  corporation.^  The  complaint  in  such  a 
case  need  not  negative  knowledge  of,  or  acquiescence  on  the  part 
of  the  stockholders  in  the  negligence  or  misconduct  of  the  direct- 
ors.'* Where  directors  waste  or  misappropriate  the  funds,  or 
convert  assets  of  the  ccjrporation  in  violation  of  their  trust,  or  lose 
them  in  speculations,  a  recovery  at  law  may  be  had  against  the 
defaulting  directors,  while  a  suit  in  equity  might  also  be  main- 
tained for  an  accounting,  at  the  election  of  the  corporation.* 
The  directors  of  a  corporation  which  has  purchased  the  fran- 
chises and  property  of  another  corporation  under  an  agreement 
that  its  debts  would  be  paid,  misapplying  the  assets  of  the  latter, 
and  leaving  its  debts  unpaid,  will  be  held  individually  responsible 
to  the  creditors  of  that  corporation  to  the  extent  of  the  assets 
received  and  misapplied.**  Directors  of  a  life  insurance  company 
who  had  transferred  its  entire  stock  and  assets  to  another  in  which 
its  policyholders  reinsured  their  risks,  which  transaction  resulted 
in  great  loss  to  policyholders  and  creditors  of  the  company,  have 
been  held  liable  to  the  receiver  of  the  company  to  the  full  extent 
of  the  damage  caused  by  such  misapplication  and  waste  of  the 
company^s  funds.     And  the  fact  that  these  directors  carried  out 


f'*' 


» Trisconi  v.  Winship,  (1890)  43  La. 
Ann.  45;  s.  c,  9  So.  Rep.  29.  In 
Baily,  Receiver,,  v.  Burgess,  (1891)  48 
N.  J.  Eq.  411;  s.  c,  22  Atl.  Rep.  733, 
a  director  of  a  corporation  who  was 
appointed  as  agent  to  secure  a  plant 
of  another  corporation  for  its  use,  and 
to  remove  incumbrances  from  it.  and 
furnished  a  sum  of  money  for  the  pur- 
pose, was  held  to  account  to  the  re- 
ceiver of  the  corporation  for  the 
amount  not  expended  by  him  as  well 
as  interest  on  various  sums  of  money 
which  he  could  have  applied  to  the  re- 
moval of  incumbrances  upon  the  prop- 
erty, but  negligently  delayed  doing  so 
with  the  funds  in  his  hands. 

'  Horn  Silver  Mining  Co.  v.  Ryan, 
(1889)  42  Minn.  196;  el  C,  44  N.  W. 
Rep.  58 


«Ibid.  See  Rolseth  v.  Smith.  38 
Minn.  14;  s.  c,  35  N.  W.  Rep.  565. 

*  Franklin  Fire  Ins.  Co.  v.  Jenkins, 
3  Wend.  130;  Robinson  v.  Smith,  3 
Paige,  222. 

"  National  Bank  of  Jefferson  v. 
Texas  Investment  Co.  (Lim.),  (1889)  74 
Tex.  421;  s.  c,  12  S.  W.  Rep.  101.  In 
Holt  V.  Bennett,  (1888)  146  Mass.  437; 
8.  c,  16  N.  E.  Rep.  5,  it  was  held  that 
payments  made  by  a  corporation  in- 
tending in  good  faith  to  go  on  and 
develop  valuable  patents  owned  by  it, 
to  its  directors  of  money  borrowed 
from  them  in  the  ordinary  course  of 
business,  were  not  recoverable  from 
such  directors  by  a  creditor  of  the 
corporation  whose  debt  at  the  time 
was  not  due  and  payable. 


M 


il 


350 


PERSONAL  LIABILITY  OF  OFFICERS. 


[§224 


the  transactions  under  the  advice  of  able  and  experienced  counsel 
.  was  held  not  to  relieve  them  from  their  Jiability ;  nor  did  the 
action  of  the  policyholders  in  reinsuring  their  risks  in  the  other 
company  to  which  the  assets  were  transferred,  and  receiving,  by 
order  of  court,  dividends  upon  their  policies  from  the  assets  of 
this  company,  amount  to  a  ratification  of  the  illegal  transactions 
of  the  directors  so  as  to  preclude  them  or  a  receiver  of  the  com- 
pany from  niaintaining  an  action  against  the  directors  for  their 
misconduct  in  the  matter.* 


§  224.  Liability  of  other  officers  —  general  rules. —  The 
officers  of  a  corporation  are  not  liable  personally,  at  common  law, 
on  a  promissory  note  of  the  corporation,  made  by  them  as  such 
officers,  in  which  the  promise  to  pay  is  made  by  the  corporation, 
and  not  by  the  officers  personally.*  If  any  personal  liability 
exists  against  officers  of  a  corporation  who  have  executed  a  note 
binding  the  corporation  by  its  terms,  and  not  themselves  person- 
ally, and  the  contract  is  made  without  authority,  and  the  corpo- 
ration cannot  be  holdeu  responsible  on  the  contract,  the  liability 
results  from  the  wrong  done  by  the  officers  in  undertaking  to  act 
without  authority.*  When  a  corporation  has  in  fact  no  authority 
to  contract  debts,  a  contract  of  a  debt  upon  its  supposed  credit  by 
its  officers  would  impose  a  personal  liability  upon  them.*  One,  a 
director,  vice-president  and  general  foreman  of  a  corporation,  who 
signed  the  name  of  the  corporation  to  an  agreement  to  contribute 
to  the  expenses  of  a  suit  at  law,  without  informing  the  other  par- 
ties of  his  want  of  authority  to  do  so,  thus  giving  them  to  under- 
stand that  tlie  corporation  was  interested,  was  held  by  the  Michi- 
gan Supreme  Court  liable  to  contribute  the  share  of  the  expenses 
otherwise  chargeable  to  the  corporation.*    The  president  of  a  cor- 


'  Hereon  v.  Cronk,  (Sup.  Ct.  N.  Y. 
SpL  Tenn,  1890)  26  Abb.  N.  C.  25; 
8.  c,  13  N.  Y.  Supp.  845. 

«  Hall  V.  Crandall,  (1866)  29Cal.  567. 
See,  alpo,  Blanchard  v.  Kaull,  (1872) 
44  Cal.  440;  Lander  v.  Castro,  43  Cal. 
497. 

»  Hall  i».  Crandall,  (1866)  29  Cal.  567. 

*  Drake  v.  Flewellen,  33  Ala.  106; 
Harwood  v.  Humes,  9  Ala.  659. 

»  Solomon  v.  Penoyar,  (1891)  89  Mich. 
11;  8.  c,  50  N.  W.  Rep.  644    In  Vin- 


cent V.  Chapman,  10  G.  &  J.  (Md.)  283, 
the  Maryland  Court  of  Appeals  held 
that  there  could  be  imposed  no  per- 
sonal responsibility  upon  the  members 
of  the  vestry  of  a  church  by  proceed- 
ings as  vestrymen  pledging  the  corpo- 
rate funds  to  persons  who  might  per- 
form work  for  it,  which  the  vestry 
then  thought  adequate,  if  the  funds 
should  prove  to  be  merely  nominal  and 
inadequate;  further,  that  their  subse- 
quently manifesting  an  impression  that 


PEB80NAL  LIABILITY  OF  OFFICERS. 


351 


§224j 

poration  may  be  held  individually  liable  on  an  implied  war- 
ranty of  his  authority  where  he  executes  a  written  guaranty 
in  the  name  of  the  corporation  without  authority.*  The  presi- 
dent of  a  corporation  would  not  make  himself  personally  liable 
to  a  stockholder  by  a  promise  upon  his  transferring  the  stock  he 
owned  to  him,  that  when  the  corporation  was  wound  up  the  stock- 
holder should  receive  the  proportion  of  the  proceeds  to  which  he 
would  be  entitled.*  An  officer  of  a  corporation,  in  an  action 
against  him  to  recover  moneys  wrongfully  retained  by  him  belong- 
ing to  the  corporation,  cannot  defend  on  the  ground  that  the 
receipt  of  such  moneys  by  the  corporation  was  for  work  or  busi- 
ness illegal  or  ultra  vires  the  powers  of  the  corporation,  or  that 
its  charter  was  fraudulently  obtained  and  the  election  of  its  offi- 
cers illegal.'  The  president  of  a  bank  has  been  held  chargeable 
with  constructive  notice  of  the  management  of  its  affairs  by  the 
cashier  and  other  subordinate  officers ;  and  where  the  bank  was 
doing  business  without  legal  organization  he  could  not  escape  the 
responsibility  resulting  from  such  notice  by  showing  that  he  sup- 
posed himself  the  president  of  a  legally  constituted  bank,  if  he 
had  contributed  the  influence  of  his  reputation  to  give  undeserved 
credit  to  a  spurious  cor2)oration.'»  The  liability  of  an  ostensible 
president  of  a  spurious  bank,  in  a  depositor's  suit  for  damages,  is 
direct  and  original,  and  he  will  be  held  responsible  in  damages 
to  the  same  extent  as  the  bank,  if  legally  constituted,  would  have 
been  liable.^  In  a  Wisconsin  case,  seeking  to  charge  certain  offi- 
cers of  a  corporation  individually  for  negligence  in  the  conduct 
of  its  affairs,  it  appeared  that  these  officers,  president,  secretary 
and  treasurer,  who  had  been  intrusted  with  the  management  by 
the  directors,  who  held  no  meetings  and  gave  no  attention  to  their 
duties,  had  conducted  the  affairs  of  the  corporation  in  good  faith, 
though  negligently  and  in  the  exercise  of  powers  belonging  solely 
to  the  board  of  directors.  The  Supreme  Court  held  that  these 
officers  could  not  be  charged  as  ex  officio  members  of  the  board 

« 

they  had  assumed  a  personal  responsi-  »  Thompson  c.  Stanley,  (1893)  20  N. 

bility,  without  an  act  to  fix  the  lia-  Y.  Supp.  317. 

bility,  could  not  vary  the  interpreta-  *  Haacke    v.    Knights   of    Liberty 

tion  of  the  instrument  nor  entitle  the  Social  &  Literary  Club,  (1892),  76  Md. 

pledgers  to  a  recovery  upon  a  claim  429;  s.  c,  25  Atl.  Rep.  422. 

not  otherwise  well  founded.  *  Hauser  v.  Tate,  (1881)  85  N.  C.  81. 

•  Nelligan    v.   Campbell,    (1893)  65  » Ibid. 
Hun.  622;  8.  c,  20  N.  Y.  Supp.  234. 


# 


w 


352 


PERSONAL  LIABILITY  OF  OFFICERS. 


[§224 


of  directors,  and  that  neither  of  tliera  was  liable  for  the  negli- 
gence or  unauthorized  acts  of  the  others  in  which  he  did  not  par- 
ticipate.*     The  court  also  ruled  upon  some  questions  of  evidence 
in  such  a  case  as  follows :     That  mere  proof  of  failure  to  collect 
certain  moneys  due  to  the  corporation  was  not  proof  that  such 
moneys  were  lost ;  also,  that  in  respect  to  losses  alleged  to  have 
been  sustained  because  of  insufficient  payments  to  the  corporation 
on  certain  accounts,  a  report  of  the  secretary  was  not  competent 
evidence  against  the  president  and  treasurer  to  charge  them  with 
such  losses  or  to  show  that  no  more  was  paid  to  him  than  he 
reported.'     A  corporation  obligating  itself  to  aid  another  in  its 
enterprise,  and  placing  funds  in  the  hands  of  its  treasurer  for  the 
purpose  of  meeting  the  obligation,  cannot  hold  him  liable  for  the 
funds  where  he  has  expended  them  in  the  interest  of  the  other 
corporation  and  this  expenditure  has  been  assented  to  by  resolu- 
tion of  the  corporation's  board  of  directors  entered  in  the  records 

»  North  Hudson    Mutual  Building   croft's  Case,  L.  R..  21  Cb.  1^^519; 
&  Loan    Association  v.   Childs.  (1892)   Franklin  Ins.  Co.  v.  Jenkins,  3  Wend. 
82  Wis.  460;  s.  c,  52  N.  W.  Rep.  600.    130.     *    *    *    This  is  the  rule  where 
The  Wisconsin    Supreme    Court  de-   the    disposition    made   of    money   or 
clared    the    rules    as    to    liability   of   property   of  the    corporation    is    one 
officers  in  these  words:  '•  The  liability   either  not  within  the  lawful  power  of 
of  officers  to  the  corporation  for  dam-   the  corporation,  or,  if  withm  the  power 
ages  caused  by  neglect  or  unauthor-   of  the  corporation,  is  not  withm  the 
ized  acts  rests  upon  the  common-law    power  or  authority  of  the  particular 
rule  which  renders  every  agent  liable   officer  or  officers.  Where  the  ground  of 
who  violates  his  authority,  or  neglects   liability  is  for  nonfeasance,  neghgence 
his  duty  to  the  damage  of  his  princi-   or  misjudgment  in  respect  to  matters 
pal     It  seems  to  be  now  universally   within  the  scope  of  the  proper  powers 
agreed  that,  no  matter  whether  the  act   of  the  officer,  he  will  be  held  responsi- 
is  prohibited  by  the  charter  or  by-laws,    ble  only  for  a  failure  to  bnng  to  the  dis- 
the  liability  is  on  the  ground  of  viola-   charge  of  his  duties  such  degree  of 
tion  of  authority  or  neglect  of  duty,    attention,  care,  skill  and  judgment  as 
Thomp.  Liab.  Off.  Corp.  357;  Briggs  are  ordinarily  used  and   practiced  m 
«    Spaulding    141   U.  S.  14G.     There   the  discharge  of  such  duties  or  em- 
can  be  no  doubt  that  if  the  directors   ployments;   the  degree  of  care,  skill 
or  officers  of  a  company  do  acts  clearly   and    judgment  depending  upon    the 
beyond    their    power,    whereby    loss  subject  to  which  it  is  to  be  applied, 
ensues  to  the  company,  or  dispose  of   the  particular   circumstances  of   the 
its  property  or  pay  away  its  money   case  and  the  usages  of  business, 
without   authority,   they  ^ill  be  re-       «  North  Hudson    Mutual   BuilchE| 
ouired  to  make  good  the  loss  out  of  &  Loan  Association  v.   Childs,  (!»>«) 
Lir  private  estates.    Thomp.    Liab.   82  Wis.   460;  b.  c,  52  N.  W.   Rep. 
Off.  Corp.  375;  Joint-Stock  Discount  600. 
Co.  V.  Brown,  L.  R.,  8  Eq.  381;  FUt- 


§224] 


PEE80NAL  LIABILFFY  OF  OFFICERS. 


35:3 


of  the  corporation.^  The  treasurer  of  a  railroad  corporation  gave 
a  bond  to  the  corporation,  conditioned  tliat  he  should  "  faithfully 
discharge  the  duties  of  the  office,  and  well  and  correctly  behave 
therein."  The  Supreme  Court  of  North  Carolina  held,  in  an 
action  against  him  and  his  sureties  on  this  bond,  that  the  bond 
did  not  bind  him  to  keep  the  money  of  the  corporation  safely 
against  all  hazards  ;  that  it  only  bound  him  to  an  honest,  diligent 
and  competently  skillful  effort  to  keep  the  money.  The  treas- 
urer having  deposited  the  money  of  the  corporation  to  his  credit 
as  treasurer  in  a  banking  house,  at  the  time  in  good  standing  and 
credit,  and  considered  by  the  community  a  safe  place  of  deposit 
for  money,  the  treasurer  and  his  sureties  were  held  not  to  be  lia- 
ble for  its  loss  by  the  sudden  and  unexpected  failure  of  the  bank- 
ing house.^  An  action  of  contract  by  the  corporation  against  a 
person  to  whom  the  treasurer  of  the  corporation  has,  without 
authority,  loaned  to  that  person,  thus  misappropriating  its  funds, 
will  not  be  held  such  a  ratification  of  the  treasurer's  act  as  will 
relieve  him  from  liability  to  the  corporation.^  It  appeared  also 
in  this  case  that  in  the  action  brought  against  the  borrower  of  its 
funds  from  its  treasurer  the  corporation  attached  personal  prop- 
erty of  the  borrower,  a  manufacturing  corporation,  of  an  uncer- 
tain value ;  that  a  mortgagee  duly  notified  the  officer  that  he 
claimed  the  attached  property  under  a  mortgage  ;  that  a  receiver 
of  the  corporation  appointed  in  New  Jersey,  where  it  was  incor- 
porated, offered  to  pay  the  plaintiff,  in  settlement  of  the  suit, 
almost  fifty  per  cent  of  its  claim  ;  that  the  plaintiff  notified  its 
treasurer  and  the  sureties  on  the  treasurer's  bond  of  this  offer,  and 
offered  to  permit  him,  upon  paying  the  amount  due  the  plaintiff, 
to  assume  the  control  of  the  suit,  and  to  assign  to  him  its  cause 
of  action.  The  treasurer  declined  this  proposition  and  the  plain- 
tiff made  a  compromise  with  the  borrower  of  its  funds  through 


*  Bay  View  Homestead  Assn.  v. 
Williams,  (1875)  50  Cal.  353. 

•  Atlantic  &  North  Carolina  R.  R. 
Co.  V.  Cowles,  (1873)  69  N.  C.  59.  That 
the  rule  does  not  apply  to  public  offi- 
cers or  officers  of  public  corporations, 
the  same  court  has  held  in  Comrs. ,  etc. , 
f.  Clarke,  73  N.  C.  255;  Havens  v. 
Lathene,  75  N.  C.  505. 

45 


'  Goodyear  Dental  Vulcanite  Co.  v. 
Caduc,  (1887)  144  Mass.  85;  s.  c,  10 
N.  E.  Rep.  483.  The  court  said:  "T» 
hold  that  bringing  a  suit  under  such 
circumstances  not  only  ratifies  the 
loan,  so  far  as  the  borrower  is  con- 
cerned, but  condones  the  offense  of 
the  agent  and  relieves  him  from  all  lia' 
bility,  would  be  carrying  the  doctrine 


!. 


t  * 
1 


» 


'X- 


,1 


354 


PERSONAL  LIABILITY  OF  OFFICERS. 


[§225 


the  receiver,and  gave  a  release  reserving  to  itself  ^ts  eights  agam^^ 
the  treasurer.  The  eourt  held  that  this  compromjse  -^^^^^  be 
facts  stated,  did  not  release  the  treasurer  from  his  liability  to  the 
corporation  for  misappropriation  of  its  funds. 

S  225    Rules  as  to  liability   of  officers  for  diversion  of 
property  of  corporation.- The  New  Jersey  Cou^t  of  Error^^ 
Ld  Ippeals  has^leclared  the  following  rules  as  to  the  liability  o 
^:l;u!r^  who  have  diverted  the  property  of  ^^^^^^^^^ 
the  principle,  upon  winch  they  are  founded.     R  for nng  first  to 
the  change  of  legislation  in  tliat  state  repealing  the      at  to^pr 
vent  fraiuls  bv  incorporated  companies,"  Maoie,  J  ,  sa  d  .      but 
in  my  jud.mJnt  the  change  in  legislation  has  not  deprived  ci.d- 
i^o^s'of  incorpoi^tod  companies  of  all  rights  in  respecUo  the 
property  out  of  which  their  debts  must  be  paid,  if  at  aU      As 
Cween  creditors  and  stockholders,  the  corporate  property  ha. 
X:     bLn  held  to  be  a  fund  for  the  W"-/ of  debts,  to  which 
crediLs  have  a  right  in  preference  to  stockholders.     2  Story  > 
Fa   Tnri<    ^   1252.     So   the  assets  of  a  corporation  cannot  be 
dWi  el  amon.  it.  stockholders,  nor  diverted  to  uses  not  contem- 
J  :Sb;  its  diarter,  for  the  ben^t  of  s^ocHjholde.  to  the  d^n- 
nent  of  creditors.     Nat.  Trust  Ca  v.  ^^^^7' ^/'^^'^^.^^^^^^ 
(luild  r    Parker,  U  Vr.  430.     Nor  can  directors,  b)  fictitious 
ri    oi   l>v  accepting    overvalued  property  in   payment  for 
tollubscriptions,  Wive  creditors  of  the  fuiul  o^J  o  J^^  ^ 
their  debts  should  be  paid.     Wetherbee  ..  Baker,  8  Stew.  Eq 
501      These  doctrines  do  not  at  all  depend,  as  I  conceive,  on  the 
exitenc    of  a  corporation  bankrupt  law,  or  other  like  legislation 
Tof  on  the  prohibitions  of  the  statutes  respecting  transactions  m 
fid  of  creditors,  but  rather  on  principles  inherent  m  the  nature 
oTcorporations  as  to  artificial  persons  whose  creditors  can  only 
iorcT  their  debts  by  a  resort  to  the  property  the  corpc..tion 
has  acquired.     So,  upon  like  principles    I  apprehend  tha^l. 
propertv  of  an  incorporated  company  is  devoted  to  the  payment 

o.   i.p.ea   raU.c.Uon  to  an    unrea-    ^^^^^^^^^^^^^ 

CadtllsST)  144  Mass.  85;  s.  c.  10  pon.ion^  see     ^sher    .     S^nn.n. 

K.  E.  Hep.  48;..     As  to  the  pex^na  ^^\'^  ^^^'^'^^  ^^^ 

liability  of  an   agent   representing  a  Rep.  5.i..  .»  vy.  i^. 
foreign  corporation  in  Pennsylvania. 


§225] 


PERSONAL  LIABILITY  OF  OFFICERS. 


356 


of  the  creditors  thereof,  at  least  to  this  extent,  that  it  may  not  be 
diverted  to  other  purposes.     The  corporation  and  its  olficers  owe 
to  their  creditors  this  duty,  not  to  divert  the  corporate  property 
from  the  general  purpose  of  paying  the  creditors.     While  they 
may  dispose  of  the  corporate  property,  and  even  prefer  one  cred- 
itor to  another,  they  may  neither  give  away  the  corporate  prop- 
erty by  a  direct  gift,  nor  by  sale  at  less  than  its  full  and  fair  value, 
to  the  detriment  of  creditors.     A  violation  of  this  duty  will 
entitle  the  creditors  who  suffer  thereby  to  rehef .     If  the  diversion 
of  the  corporate  property  from  the  payment  of  debts  is  effected 
by  a  mere  gift,  it  is  not  necessary  to  discuss  what  relief  could  be 
afforded  to  creditors.     If  the  diversion  is  effected  under  the  guise 
of  a  sale,  and  the  sale  is  not  objectionable,  as  being  made  with 
intent  to  defraud  creditors,  then  it  is  plain  that  relief  cannot  be 
afforded  to  creditors  by  setting  aside  the  sale,  for  that,  as  we  have 
seen,  is  not  now  prohibited.     But,  in  such  a  case,  it  is  equally 
plain  that  the  directors  who  have  effected  such  a  diversion  of 
corporate  property  from  the  payment  of  debts,  have  violated  a 
duty,  and  will  be  personally  liable  to  make  up  to  creditors  what 
lias,  by  tlieir  acts,  been  thus  diverted.     When  such  diversion  is 
charged  to  have  been  produced  by  a  sale  of  corporate  property 
to  a  stranger,  the  complaining  creditors  could  obtain  relief  only 
by  clear  proof  that  by  the  fault  of  the  directors,  and  in  violation 
of  their  duty,  the  sale  was  made  for  less  than  the  full  and  fair 
value  of  the  property.     But  when  directors  make  sale  of  corpo- 
rate property  to  one  of  their  number,  who  takes  part  in  the  trans- 
action, as  both  buyer  and  seller,  and  creditors  are  thereby  deprived 
of  the  opportunity  to  enforce  their  debts,  then  it  results  from  the 
relation  al)ove  mentioned  as  existing  between  them  and  the  cred- 
itors ;  that  it  devolves  on  the  directors  to  show  that  the  transac- 
tion was  made  in  good  faith,  and  that  the  sale  produced  the  full 
value  of  the  property.     If  they  fail  to  show  these  facts,  creditors 
are  entitled  to  compel  them  to  account  for  the  full  value  of  the 
property.     The  fact  that  by  reason  of  the  sale  it  has  been  ren- 
dered difficult  to  determine  the  real  value  of  the  property  sold, 
will  not  alter  the  measure  of  the  directors'  liability.     If  there  is  a 
conflict  of  evidence  respecting  value,  the  fact  that  by  the  act  of 
one  of  the  parties,  the  determination  of  the  question  has  been  ren- 
dered difficult  or  impossible,  may  be  considered,  but  it  cannot 
enlarge  the  liabiUty  of  the  directors,  which  is  only  for  so  much 


V      I 


I 


:ii 


356 


PERSONAL  LIABILITY  OF  OFFICERS. 


[§225 


as  has  been  lost  to  the  creditors  by  their  luisconduct.*     In  an 
action  by  a  receiver  of  an  insolvent  Illinois  corporation  against  its 
directors  to  recover  misappropriated  moneys  of  the  corporation, 
the  Snpreme  Court  of  that  state  has  held  that  if  the  directors  of 
an  incorporated  company  apply  the  funds  of  the  corporation  to 
the  discharge  of  their  own  indebtedness,  or  wrongfully  pay  an  out- 
going president  a  salary  for  past  services  not  agreed  to  be  paid 
until  after  their  performance,  they  will  be  liable  to  the  creditors 
of  the  company  for  the  amount  of  the  funds  thus  misapplied.     It 
was  also  held  that  where  a  president  of  an  incorporated  company 
performs  services  as  such,  without  any  by-law  or  resolution  pro- 
viding compensation  for  his  services,  and  afterwards  accepts  a 
salary  voted  to  him  for  pa^t  services,  he  will  be  liable  to  refund 
the  same  in  favor  of  creditors  of  the  company  .^     The  court  fur- 
ther held,  in  this  case,  that  the  Statute  of  Limitations  was  no  bar 
to  a  recovery,  by  the  receiver  of  the  insolvent  corporation,  from 
the  directors,  of  the  sums  of  money  misappropriated  by  them.* 

» Wilkinson  tJ.  Bauerle,  (1886)  41  N.  ington  &  Mississippi  Ry.  Co.,  71  III. 
J.  Eq.  635,  645,  646,  in  which  the  106;  Gridley  «'.  La  Fayette,  Blooming- 
principles  of  the  text  were  applied  to  ton  &  3Iississippi  Ry.  Co.,  71  111.  200; 
the  case  before  the  court.  See,  also,  Illinois  Linen  Co.  v.  Hough,  91  111.  63. 
on  this  subject,  Dodd  r.  Wilkinson,  The  rule  is  analogous  to  that  govern- 
(1886)  41  N.  J.  Eq.  566.  ing  trustees  generally,  who,  at  com- 

» Ellis  p.   Ward,  (1890)  137  111.  509.    mou  law,  were  not  entitled  to  compen- 
The  court  said,  upon  this  last  point:    sation.  except  as  there  was  warrant 
"The  doctrine  is  well  settled  in  this   therefor  in  the  contract  or  statute  un- 
couriithat  the  law  will  not  imply  a   der  which  they  acted." 
promise,  on  the  part  of  a  private  cor-       » Ellis  r.  Ward.  (1890)  137  111.  509. 
poration    to  pay  its  officers  for  the    In  this  connection,  it  was  said:  "It  is 
performance   of   their    usual    duties,    a  principle  of  general  application,  and 
In  order  that  such  officers  may  legally    recognized    by  this    court,   that    the 
demand  and  recover  for  such  services,    assets  of  a  corporation  are.  in  equity, 
or  the  corporation  legally  make  all   a  trust  fund  (St.  Louis  &  Sandoval 
awards    and    payment    therefor,    it   Coal  &  Mining  Co.  v.  Sandoval  Coal  & 
must  appear  that  a  bv-law  or  resolu-    Mining  Co..  116  111.  170).  and  that  the 
tion  has  been  adopted,  authorizing  and   directors  of  a  corporation  are  trustees, 
fixing  such  allowance  before  the  serv-   and  have  no  power  or  right  to  use  or 
ices  were  rendered.      American  Cen-   appropriate  the  funds  of  the  corpora- 
tral  Ry   Co.  v.  Miles,  52  111.  174;  Mer-   tion,  their  cestui  que  trust,  to  them- 
rick  V.  Peru    Coal.  Co.,  61  111.  472;   selves,    or   to    waste,    destroy,    give 
Rockford.  Rock  Island  &  St.    Louis   away,  or  misapply  them.     Holder  v. 
Railroad  Co.   v.    Sage,    65   111.    328;   La  Fayette,  Blooraington&  Mississippi 
Cheeney  v.  La  Fayette.  Bloomington   Ry.  Co.,  71  III.   106;   Cheeney  r.  I^ 
&  Mississippi  Ry.  Co..  68  III.  570;  87   Fayette,   Bloomington  &  Mississippi 
HI  446-  Holder  v.  La  Fayette,  Bloom-   Ry.  Co..  68  111.  570;  1  Morawetz  on 


§226] 


PERSONAL  LIABILITY  OF  OFFICERS. 


357 


§  226.  Liability  of  officers  arising  from  manner  of  execution 
of  commercial  paper. —  In  a  case  before  the  Appellate  Court  of 
Illinois  the  note  sued  on  was  subscribed  by  the  defendants  with  the 
affix  to  one  signature  "  Pres.,"  to  the  other  '*  Sec,"  and  below  the 
signatures  "  Salem  Coal  and  Mining  Co."  They  specially  pleaded 
that  the  note  was  the  note  of  the  coal  and  mining  company.  It 
was  held  by  the  court  that  the  fact  that  the  note  was  signed  by 
defendants  as  officers  of  a  corporation,  and  the  name  of  the  cor- 
poration attached,  did  not  release  them  from  individual  liability, 
in  the  absence  of  evidence  tliat  they  were  officers,  and  that  the 
note  was  intended  as  the  note  of  the  corporation  only.^  In  a 
case  before  the  Minnesota  Supreme  Court,  the  note  given  to  the 
plaintiff  was  signed  by  the  defendant  with  the  affix  "  Pres."  to 
his  signature.  Its  defense  was  that  he  was  the  president  of  a 
certain  "  club,"  a  corporation  organized  under  the  laws  of  that 
state,  and  that  he  made  the  contract  for  articles  for  that  club  and 
gave  this  note  for  it.  The  Supreme  Court  held  that  where 
defendant  undertook  to  overcome  the  ^l&iutiWs  prima  facie  case 
by  testimony  tending  to  show  that  the  notes  were  executed  by 
him  in  behalf  and  as  the  act  of  a  corporation  of  which  he  was 


Private  Corpor.  §§  516,  517.     And  it 
is  equally  well  settled  that  no  lapse  of 
time  is  a  bar  to  a  direct  or  express 
trust    as    between    the    trustee    and 
cestui  que  trust.     Chicago  &  Eastern 
Illinois  Railroad  Co.  r.  Hay,  119  111. 
493;  Wood  on  Limitation  of  Actions, 
§  200,  and  cases  cited  in  note.     If  the 
trust  assumed  by  the  directors  of  a 
corporation  in  respect  of  the  corporate 
property  under  their  control,  is  to  be 
regarded  as  a  direct  trust,  as  contra- 
distinguished from  simply  an  imphed 
trust,  then  it  is  apparent,  under  the 
rule  announced,  the  statute  presents 
no  bar  to  this  proceeding  by  the  re- 
ceiver of  the  corporation.     Ordinarily, 
an  express  trust  is  created  by  a  deed 
or  will,  but  there  are  many  fiduciary 
relations    established    by    law,    and 
regulated  by  settled  legal  rules  and 
principles,  where  all  the  elements  of 
an  express  trust  exist,  and  to  which 
the  same  legal  principles  are  appli- 


cable, and  such  appears  to  be  the  re- 
lation established  by  law  between 
directors  and  the  corporation.  2  Pom- 
eroy's  Eq.  §  6;  Id.  §§  108B-1090, 1094. 
And  see,  also,  as  respects  stockholders, 
Hightower  v.  Thornton,  8  Ga.  486; 
Payne  v.  Bullard,  23  Mi.ss.  88;  Curry 
r.  Woodward,  53  Ala.  371." 

>  Williams  v.  Miami  Powder  Co., 
(1890)36111.  App.  107.  The  court  said: 
"  The  absence  of  all  evidence  on  these 
questions  renders  it  necessary  to  con- 
strue these  notes  according  to  the  face 
of  the  notes,  and  in  doing  so  the  rec- 
ords 'Pres.'  and  'Secy.'  are  to  be  re- 
garded as  descriptions  personm  merely. 
They  must  be  held  according  to  their 
contract."  Citing  Hypes  v.  Griffin, 
Admr.,  etc.,  89111. 134;  Stobie  v.  Dills, 
62111.  432;  Bickford  t.  First  Nat.  Bank 
of  Chicago,  42  111.  238;  Trustees  of 
Sfchools  V.  Rautenberg,  88  111.  219; 
Powers  r.  Briggs,  79  111.  493;  Scanlan 
u.  Keith,  102  111.  634. 


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358 


PERSONAL  LIABILITY  OF  OFFICERS. 


[§  2-2r> 


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president,  and  for  its  debt,  and  that  this  wn»  well  known  and 
understood  by  the  payee  of  the  notes,  to  sustain  the  defense  lie 
should  have  gone  further,  and  shown  that  not  only  the  debt  was 
one  which  the  corporation  had  the  power  to  incur,  but  that  the 
corporation  authorized  it  to  be  incurred.'     Where  in  a  negotiable 


•  Brunswick-Balke  Colleiuler  C'o.  r. 
Boutell,  (IbOO)  4o  Minu.  21;  s.  c,  47 
N.  W.  Rep.  261.  The  court  said:  *  It 
is  well  settled  in  this  court  tliat  wlien 
such  a  word  as  'agent'  or  'trustee,' 
which  may  be  descriptive  of  the  per- 
son, or  may  be  descriptive  of  the  char- 
acter in  which  the  signer  contracts,  is 
affixed  to  the  name  of  the  party  enter- 
ing into  a  contract,  it  is  prima  facie 
descriptive  only,  and  that  it  may  be 
shown  by  extrinsic  evidence  that  the 
attached  word  was  undcrstooil  by  all 
interested  as  determining  the  character 
in  which  the  person  using  it  contracted. 
Pratt  ».  Beaupre,  13  .Minn.  187,  189; 
Bingham  r.  Stewart.  14  Minn.  153,  214; 
Deering  r.  Thom,  29  Minn.  120;  s.  c, 
12  N.  W.  Rep.  aj();  Peterson  r.  Ho- 
man,  44  ^linn.  166;  s.  c.  46  N.  W. 
Rep.  303.  In  the  earlier  of  these  cases, 
where  the  words  *  Agents  Steamer 
Flora,'  had  been  affixcil  to  the  defend- 
ants' signatures  to  a  shipping  contract, 
it  was  also  settled  that  where  a  party 
seeks  to  change  the  prima  facie  char- 
acter of  the  contract  on  the  ground  of 
agency,  it  is  incumbent  upon  him  to 
prove  the  fact  of  the  agency.  To  es- 
tablish that  he  acted  in  a  representa- 
tive cap)acity  he  must  first  show  the 
existence  of  the  capacity.  If  he  as- 
sumes to  act  as  an  agent  he  must  prove 
his  authority  to  do  so,  or  his  liability 
uix)n  the  contract  is  nccess;irily  of  a 
personal  character."  In  Frankland  r. 
Johnson,  (1893)  147  111.  520,  an  action 
was  brought  upon  a  note  which  was 
in  these  words:  "On  or  before,  etc., 
the  Western  Seamen's  Friend  Society 
agrees  to  pay  or  order  the  sum  of 
♦  ♦  *  with  interest,  etc.,  [signed] 
[defendant's    name]   general  superin- 


tendent," against  the  signer  individ- 
ually. The  Supreme  Court  of  Illinois 
said  of  this  writing  :  "  [It]  is  not  dis- 
tinctly the  note  of  [defendant].  A  per- 
sonal note  by  him,  in  proper  form, 
would  have  used  the  personal  pronoun 
'  I '  instead  of  the  name  of  the  corpo- 
ration, and  would  have  been  signed 
without  the  description  *  Gen.  Supt.* 
Neither  is  it  by  its  terras  the  note  of 
a  corporation.  As  such  it  should  have 
been  signed  with  the  name  of  the  cor- 
poration by  its  president,  .secretary  or 
other  officers  authorized  to  execute  it, 
or,  as  in  Scanlan  r.  Keith.  102  111.  634, 
by  the  proper  officers  designating 
themselves  officers  of  the  corporation 
for  which  they  assumed  to  act,  or,  as 
in  Newmarket  Savings  Bank  v.  Gillet, 
100  111.  254.  using  the  corporate  name 
both  in  the  Ixxly  of  the  note  and  in  the 
signatures  to  it.  But  if  it  be  conceded 
that,  prima  facie,  a  general  superin- 
tendent of  a  corporation  has  authority 
to  make  promissory  notes  in  its  name, 
and  this  instrument  be  held  to  appear 
on  its  face  to  be  the  obligation  of  the 
society,  rather  than  of  [defendant], 
certainly  it  could  not  even  then  be  con- 
tended that  it  Avas  conclusively  so.  It 
is  well  understood  that  if  the  agent, 
either  of  a  corporation  or  an  individ- 
ual, makes  a  contract  which  he  has  no 
authority  to  make,  he  binds  himself 
personally  according  to  the  terms  of 
the  contract.  Angell  &  Ames  on  Corp. 
§  303.  It  was  said  by  Sutuer- 
L.\ND,  J.,  in  Mott  r.  Hicks,  1  Cow.  513. 
8.  c,  13  Am.  Dec,  556 :  '  It  is  perfectly 
well  settled  that  if  a  pei*son  undertake 
to  contract,  as  agent,  for  an  individual 
or  corporation,  and  contracts  in  a  man- 
ner which  is  not  legally  binding  upon 


§  226]  PERSONAL  LIABILITY  OF  OFFICERS.  359 

promissory  note,  given  for  the  debt  of  a  corporation,  the  language 
of  the  promise  does  not  disclose  the  corporate  obTigation,  and  the 
signatures  to  it  are  in  the  names  of  individuals  who  were  in  fact 
officers  of  the  corporation,  a  hona  fide  holder,  without  notice  of 
the  circumstances  of  its  making,  is  entitled  to  hold  it  as  the  per- 
sonal undertaking  of  its  signers,  although  they  have  affixed  to 
their  names  the  titles  of  their  respective  offices,  as  this  will  be 
regarded  as  descriptive  of  the  persons  and  not  of  the  character 
of  the  liability.* 


his  principal,  he  is  personally  respon- 
sible (citing  authorities).  And  the 
agent,  when  sued  upon  such  a  con- 
tract, can  exonerate  himself  from  per- 
sonal liability  only  by  showing  his 
authority  to  bind  those  for  whom  he 
has  undertaken  to  act.  It  is  not  for 
the  plaintiff  to  show  that  he  had  not 
authority.  The  defendant  must  show 
affirmatively  that  he  had.'  This  rule 
is  quoted  with  approval  in  Wheeler  ». 
lleed,  36  111.  91."  They  then  consider- 
ing it  a  question  of  fact  which  had 
been  properly  referred  to  the  jury,  and 
the  latter,  upon  what  the  court  deemed 
the  strength  of  the  testimony,  having 
determined  adversely  to  the  defend- 
ant, held  their  conclusion  not  subject  to 
review.  As  to  such  notes  being  prima 
facie  the  personal  notes  of  the  signers, 
see  McNeil  v.  Shober  &  Carqueville 
Lithographing  Co.,  (1893)  144  111.  238; 
Sturdivant  v.  Hull,  59  Me.  172;  Tucker 
Manuf.  Co.  ».  Fairbanks,  98  ]\Iass.  101; 
Savage  v.  Hix,  9  N.  H.  263;  Bank  r. 
Hooper,  5  Gray,  567;  Trustees  i\ 
llautenberg,  88  111.  219;  Powers  v. 
Briggs,  79  111.  493;  Stobic  v.  Dills,  62 
111.  433;  Fiske  r.  Eldridge,  12  Gray, 
474;  Seaver  c.  Coburn,  10  Cush.  324. 
As  to  the  admissibility  of  parol  evi- 
dence in  such  cases  to  show  whose  note 
it  was,  see  La  Salle  National  Bank  v. 
Tolu  Rock  &  Rye  Co. ,  14  111.  App.  141 ; 
Mechanics'  Bank  v.  Bank  of  Columbia, 
5  Wheat.  326;  Baldwin  v.  Bank  of  New- 
bury, 1  Wall.  234;  Brockway  r.  Allen, 
17  Wend.  40;  Keanr.  Davis,  21  N.  J.  L. 


683;  llailc  r.  Peirce,  32  Md.  327;  Rich- 
mond K.  Co.  V.  Snead,  19  Gratt.  354; 
Lazarus  r  Shearer,  2  Ala.  718;  Owings 
/•.  Grubbs"  Admr.,  6  J.  J.  Marsh.  31; 
McClellan  r.  Hevnolds,  49  Mo.  312; 
Hardy  r.  Pilcher,  57  Miss.  118;  Hager 
c.  Rice,  4  Col.  90;  Magill  i\  Hinsdale, 
6  Conn.  404;  Mann  r.  Chandler,  9  Mass. 
335;  Neill  v.  Spencer.  5  111.  App.  473; 
Western  Union  v.  Smith,  75  111.  496; 
Bowles  r.  Lambert,  54  111.  237;  Stookey 
n.  Hughes,  18  111.  55;  Scanlan  v.  Keith, 
102  111.  634. 

'  Casco  National  Bank  of  Portland  r. 
Clark,  (1893)  139  N.  Y.  307;  s.  c,  34N. 
E.  Rep.  908.  In  this  case  the  note  sued 
on,  given  for  the  debt  of  the  corpora- 
tion, was  written  on  a  blank  having 
printed  on  its  margin  the  name  of  the 
corporation.  No  reference  to  the  corpo- 
ration was  made  in  the  body  of  the  note, 
which  read:  "We  promise  to  pay."  It 
was  signtKl  by  the  president  of  the  cor- 
poration in  his  individual  name,  with 
"  Prest."  written  after,  and  in  the  same 
manner  by  its  treasurer,  with  "  Treas." 
added  to  his  signature.  The  note  was 
discounted  by  the  bank  for  the  payee 
before  maturity.  The  New  York 
Court  of  Appeals  held  that  an  action 
against  the  signers  individually  was 
maintainable;  that  the  appearance  in 
print  upon  the  margin  of  the  name  of 
the  corporation  was  not  a  fact  carry- 
ing any  presumption  that  the  note  was, 
or  was  intended  to  be,  the  note  of  the 
company;  that  it  was  competent  for 
the  officers  to  obligate  themselves  per- 


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360 


PERSONAL  LIABILITY  OF  OFFICERS. 


[§227 


§  227.  Liability  of  officers  arising  from  indorsement  of 
commercial  paper. —  A  promissory  note  executed  by  a  corpora- 
tion, the  name  of  which  was  subscribed  to  the  note  and  those  of 
the  president  and  secretary  attached,  and  the  names  of  its  direct- 
•ors  indorsed   upon   the'   back    of   it 


designating   tliemselves  as 


sonally,  and  apparently  they  did  so  by 
the  language  of  the  note.  The  court 
said:  "This  must  be  regarded  as  the 
long  and  well-settled  rule.  Byles  on 
Bills,  §§  36,  37,  71;  Pentz  r.  Stanton, 
10  Wend.  371;  Taft  v.  Brewster.  9 
Johns.  334;  Hills  r.  Bannister,  8  Cow. 
31;  Moss  V.  Livingston.  4  N.  Y.  208; 
De  Witt  r.  Walton.  9  N.  Y.  571;  Bot- 
tomley  v.  Fisher,  1  Hurlst.  &  Colt.  211. 
It  is  founded  on  the  general  principle 
that  in  a  contract  every  material  thing 
must  be  definitely  expressed,  and  not 
left  to  conjecture.  Unless  the  lan- 
guage creates,  or  fairly  implies,  the 
undertaking  of  the  corporation,  if  its 
purpose  is  equivocal,  the  obligation  is 
that  of  its  apparent  makers.  It  was 
said  in  Briggs  r.  Partridge,  64  N.  Y. 
357,  363,  that  persons  taking  nego- 
tiable instruments  are  presumed  to 
take  them  on  the  credit  of  the  parties 
whose  names  appear  upon  them,  and 
a  person  not  a  party  cannot  be  charged 
upon  proof  that  the  ostensible  party 
signed  or  indorsed  as  his  agent.  It 
may  be  perfectly  true,  if  there  is  proof 
that  the  holder  of  negotiable  paper 
was  aware,  when  he  received  it,  of  the 
facts  and  circumstances  connected 
with  its  making,  and  knew  that  it  was 
intended  and  delivered  as  a  corporate 
obligation  only,  that  the  persons  sign- 
ing it  in  this  manner  could  not  be  held 
individually  liable.  Such  knowledge 
might  be  imputable  from  the  language 
of  the  paper,  in  connection  with  other 
circumstances,  as  in  the  case  of  Mott 
r.  Hicks,  1  Cow,  513,  where  the  note 
read,  'the  president  and  directors 
promise  to  pay.'  and  was  subscribed 
by  the  defendant  as  '  president.'  The 
court  held  that  that  was  sufficient  to 


distinguish  the  case  from  Taft  r. 
Brewster,  »upra,  and  made  it  evident 
that  no  personal  engagement  was 
entered  into  or  intended.  Much  stress 
was  placed  in  that  case  upon  the  proof 
that  the  plaintiff  was  intimately  ac- 
quainted with  the  transaction  out  of 
which  arose  the  giving  of  the  corpo- 
rate obligation.  In  the  case  of  Bank 
of  Genesee  v.  Patchin  Bank,  19  N.  Y. 
312,  referred  to  by  the  appellant's 
counsel,  the  action  was  against  the  de- 
fendant to  hold  it  as  the  indorser  of  a 
bill  of  exchange,  drawn  to  the  order 
of  'S.  B.  Stokes,  Cas.,'  and  indorsed 
in  the  same  words.  The  plaintiff  bank 
was  advised,  at  the  time  of  discount- 
ing the  bill,  by  the  president  of  the 
Patchin  Bank,  that  Stokes  was  its 
cashier,  and  that  he  had  been  directed 
to  send  it  in  for  discount,  and  Stokes 
forwarded  it  in  an  official  way  to  the 
plaintiff.  It  was  held  that  the  Patchin 
Bank  was  liable,  because  the  agency 
of  the  cashier  in  the  matter  was  com- 
municated to  the  knowledge  of  the 
plaintiff  as  well  as  apparent.  Inci- 
dentally, it  was  said  that  the  same 
strictness  is  not  required  in  the  execu- 
tion of  commercial  paper  as  between 
banks;  that  is,  in  other  respects,  be- 
tween individuals.  In  the  absence  of 
competent  evidence  showing  or  charg- 
ing knowledge  in  the  holder  of  nego- 
tiable paper  as  to  the  character  of  the 
obligation,  the  established  rule  must 
be  regarded  to  be  that  it  is  the  agree- 
ment of  its  ostensible  maker  and  not 
of  some  other  party,  neither  disclosed 
by  the  language  nor  in  the  manner  of 
execution."  To  obviate  the  effect  of 
this  rule,  the  appellant  in  this  caso 
proved  that  one,  a  director  of  the  cor- 


§  227] 


PERSONAL  LIABILITY  OF  OFFICERS. 


361 


"  board  of  directors,"  was  the  cause  of  action  in  a  Kansas  case. 
The  lower  court  refused  any  evidence  as  to  the  circumstances 
under  which  the  names  of  the  directors  were  indorsed  upon  the 
note,  and  they  were  held  bound  as  guarantors  of  the  note  of  the 
corporation.     The  Supreme  Court  held  that  as  between  the  origi- 


poration,  the  payee  company,  was  also 
a  director  in  the  plaintiff  bank  at  the 
time  when  the  note  was  discounted, 
and  it  was  argued  that  the  knowledge 
chargeable  to  him  as  director  of  the 
former  company  was  imputable  to  the 
piaintiff.     To  this  argument  the  Court 
of  Appeals  said:  "But  that  fact  is  in- 
sufficient to  charge  the  plaintiff  with 
knowledge  of  the  character  of  the  ob- 
ligation.    He  in  no  sense  represented 
or  acted  for  the  bank  in  the  transac- 
tion, and  whatever  his  knowledge  re- 
specting the  note,  it  will  not  be  imput- 
able to  the  bank.     National  Bank  r. 
Norton.  1  Hill,  572,  579;  Mayor,  etc., 
v.  Tenth  National  Bank,  111  N.  Y.  44G, 
457;  Farmers',  etc..  Bank  v.  Payne,  25 
Conn.   444.     He  was  but  one  of  the 
plaintiff's  directors,   who  could  only 
net  as  a  board.     National  Bank  r.  Nor- 
ton, supra.     If  he  knew  the  fa(  t  that 
these  were  not  individual,  but  corpo- 
rate, notes,  we  cannot  presume-  that  he 
communicated  that  knowledge  to  the 
board.     An    officer's    knowledge,   de- 
rived as  an  individual,  and  not  while 
acting  officially  for  the  bank,  cannot 
operate  to  the  prejudice  of  the  latter. 
Bank  of  U.  S.  v.  Davis,  2  Hill,  451. 
The  know^ledge  with  which  the  bank 
as   his    principal   would    be   deemed 
chargeable  so  as  to  affect  it  would  be 
where,  as  one  of  the  board  of  directors 
and  participating  in  the  discount  of 
the  paper,  he  had  acted  affirmatively, 
or  fraudulently,  with  respect  to  it,  as 
in  the  case  of  Bank  r.  Davis,  supra, 
by  a  fraudulent  perversion  of  the  bills 
from  the  object  for  which  drawn;  or 
as  in  Holden  r.  New  York  &  Eric 
Bank,  72  N.  Y.  286,  where  the  presi- 
dent of  the  bank,  who  represented  it 
46 


in  all  the  transactions,  was  engaged  in 
a  fraudulent  scheme  of  conversion. 
It  was  said  in  the  latter  case  that  the 
knowledge  of  the  president,  as  an  in- 
dividual or  as  an  executor,  was  not 
imputable  to  the  bank  merely  because 
he  was  the  president,  but  because 
when  it  acted  through  him  as  presi- 
dent, in  any  transaction  where  that 
knowledge  was  material  and  applica- 
ble, it  acted  through  an  agent.  The 
rule  may  be  stated,  generally,  to  be 
that  where  a  director  or  an  officer  has 
knowledge  of  material  facts  respecting 
a  proposed  transaction,  which  his  re- 
lations to  it,  as  representing  the  bank, 
have  given  him,  then,  as  it  becomes 
his  official  duty  to  communicate  that 
knowledge  to  the  bank,  he  will  be  pre- 
sumed to  have  done  so,  and  his  knowl- 
edge will  then  be  imputed  to  the 
bank."  See,  also,  Merchants'  Na- 
tional Bank  of  Gardner  r.  Clark,  (1893) 
139  N.  Y.  314  (an  action  upon  similar 
notes  to  those  in  the  case  above,  made 
by  the  same  parties  defendant).  In 
Bremen  Saving  Bank  v.  Branch- 
Crookes  Saw  Company,  (1891)  104  Mo. 
425,  the  defendant  corporation  was 
sued  on  a  note  purporting  to  be  signed 
by  it  as  maker  and  one  B.  as  indorser. 
It  defended  in  its  answer  on  the  ground 
that  it  was  a  manufacturing  and  busi- 
ness corporation;  that  its  name  was 
used  by  B.,  the  then  president  of  the 
corporation,  for  his  own  accommoda- 
<^'on,  and  for  the  purpose  of  satisfying 
bis  prior  individual  debt;  that  the  note 
was  so  executed  without  any  consid- 
eration moving  to  the  defendant,  and 
that  the  plaintiff,  when  it  accepted  the 
note,  had  knowledge  of  the  foregoing 
facts.     The    court    held    that  if  the 


^ 


■in 


l! 


li 


.%2 


PERSONAL  LIABILITY  OF  OFFICERS. 


[5^  '^'27 


na!  parties  or  any  subsequent  holder  of  tliis  note  accepting  the 
same  as  collateral  witli  full  notice  of  all  the  facts  and  circum- 
stances connected  with  the  execution  and  delivery  thereof, 
extrinsic  evidence  was  admissible  to  show  not  only  that  the 
president  and  secretary  executed  the  instrument  in  their  official 
capacity  as  officers  of  the  corporation,  but  also  that  the  directors 
signed  the  note  on  the  back  thereof  solely  as  officers  of  the  cor- 
poration and  to  bind  the  corporation  only.^  In  a  Georgia  case  the 
promissory  note  on  which  the  action  was  brought  was  signed  by 
one  as  "  ag't "  payable  to  another,  *'  pres't,"  and  indorsed  by  the 
latter  "  president  [name  of  corporation].""  The  action  was 
brought  by  the  indorsee,  a  bank,  against  the  indorser  individually 
and  the  corporation.  In  addition  to  the  statutory  form  of  such 
actions  in  that  state,  it  was  alleged  that  the  maker  was  the  agent 
and  the  indorser  the  president  of  the  corporation,  and  that  the 
money  borrowed  from  the  bank,  and  for  which  the  note  was 
given,  was  received  and  used  by  the  corporation,  and  it  under- 
took and  promised  to  pay  the  bank.  The  effect  of  the  statute  of 
Georgia,  that  "  where  the  agency  is  known,  and  this  credit  is 


plaintiff  was  induced  by  defendant's 
conduct  under  the  circumstances  to 
believe  in  good  faith  that  the  defend- 
ant had  assumed  to  piiy  the  debt, 
though  it  did  not  in  ftict  assume  to 
pay  it,  defendant  was  liable.  Citing 
Deere  r.  Marsden,  88  Mo.  512;  Craw- 
ford V.  Spencer,  92  ^lo.  498;  Fitzger- 
ald V.  Barker,  96  Mo.  661;  ^lechanics' 
Banking  Assn.  r.  N.  Y.,  etc..  White 
Lead  Co.,  35  N.  Y.  505;  National  Park 
Bank  v.  (Jerman- American  Mut.  W. 
&  S.  Co.,  116  N.  Y.  292;  National 
Bank  of  Republic  v.  Young,  (N.  J.)  7 
Atl.  Rep.  488;  Holmes,  Booth  &  Ilay- 
dens  f>.  Willard,  24  N.  Y.  St.  Repr. 
260;  Second  National  Bank  r.  Pottier 
&  Stymus  Mfg.  Co.,  18  N.  Y.  St.  Repr. 
954;  Supervisors  v.  Schenck,  5  Wall. 
784;  La  Fayette  Savings  Bank  r.  Stone- 
ware Co.,  2  Mo.  App.  299. 

^  Kline  v.  Bank  of  Tescott,  (1892)  50 
Kans.  91.  It  was  claimed  in  the  case 
that  the  cashier  of  this  bank,  the 
assignee  of  the  note,  who  was  mIso  a 
director  of  the  corporation  to  the  order 


of  which  the  note  was  payable,  as- 
sured these  directors  that  the  only  way 
to  make  acorpomtion  not<'  was  for  the 
officers  and  directors  of  the  corpora- 
tion to  sign  their  names  and  afli.x  their 
official  positions  thereto,  and  that  the 
note  was  thus  signed  under  his  direc- 
tion to  bind  the  corporation,  but  not 
the  officers  individually.  The  court 
said:  "  If  the  parties  who  wrote  their 
names  upon  the  back  of  the  note  as 
directors  had  signed  their  names  upon 
the  face  thereof,  they  could  have 
shown  by  extrinsic  evidence  that  they 
were  acting  for  the  corporation  only, 
and  we  perceive  no  reason  why,  as  be- 
tween the  original  parties  or  any  sub- 
sequent holder  of  the  note  accepting 
the  same  a?!?  collateral,  with  full  notice 
of  all  the  facts  and  circumstances  con- 
nected with  the  execution  and  deliv- 
ery thereof,  the  same  rule  will  not 
apply  when  such  signatures  are  upon 
the  back  of  the  instrument  before 
delivery." 


PERSONAL  LIABILITY  OF  OFFICERS. 


363 


§228] 

not  expressly  given  to  the  agent,  he  is  not  personally  responsible 
upon  the  contract.  The  question  to  whom  the  credit  is  given  is  a 
question  of  fact  to  be  decided  by  the  jury  under  the  circum- 
stances of  each  case,"  was  considered.  The  Supreme  Court  held 
that  the  suit  against  the  payee  individually  was  demurrable,  the 
liability  sought  to  be  enforced  being  that  of  the  corporation  and 
not  of  its  president  individually  ;  that  the  declaration  showing  on 
its  face  that  the  agency  of  the  president  was  known,  and  that 
credit  was  extended  to  the  principal,  there  being  no  allegation 
that  credit  was  expressly  extended  to  the  agent ;  there  was  no 
issue  which  required  submission  to  the  jury.  It  was  argued  to 
the  court  that  the  statute  had  no  application  to  the  law-merchant 
and  promissory  notes  the  offspring  of  that  law,  and  that  the 
payee  having  been  designated  as  "  Pres't "  merely  when  made 
the  payee  by  the  face  of  the  note,  was  responsible  individually, 
because  he  could  not  by  the  indorsement  explain  what  that  term 
"  Pres't "  meant ;  and  when  he  turned  over  the  note  to  the  bank  by 
his  indorsement  and  gave  them  the  control  of  the  paper  and  title 
to  sue  it,  he  could  not  then  hmit  his  liability  and  indorse  only  as 
president.  Of  this  contention  the  court  said  :  "  We  cannot  see 
the  logic  of  any  such  conclusion,  nor  do  we  think  that  any  such 
point  has  ever  been  adjudicated,  even  under  the  laws  governing 
commercial  paper  unaffected  by  statute,  as  it  is  here,  by  the  alle- 
gation that  [the  payee]  and  [maker]  had  power  to  contract  for  the 
corporation,  and  did  so,  and  borrowed  the  money  for  the  corpo- 
ration that  used  it."  It  was  also  held  that  outside  of  the  statute 
prior  to  indorsing  the  note  payable  to  the  order  of  the  payee  no 
liability  arose  against  him  ;  and  when  he  indorsed  it,  the  terms  of 
such  indorsement  determined  the  contract  between  the  indorser 
and  indorsee,  and  the  indorser  could  limit  his  liability  by  the 
terms  thereof.^ 

§228.  Liability  of  officers  of  savings  banks.— In  a  case 
where  the  trustees  of  a  savings  bank,  the  business  of  which  had 
been  a  losing  one  from  the  start,  its  deposits  not  large  and  its 
expenses  exceeding  its  income,  doing  business  in  hired  rooms, 
purchased  real  estate  for  a  large  sum  out  of  the  funds  in  its  care 

»  Bank  of  the  University  r.  Harail-  Veneer  Mfg.  Co.,  4  N.  Y.  Supp.  385; 

ton,  (1886)  78  Ga.  312.     Cases  as  to  in-  Sheridan  Electric  Light  Co.  v.  Chat- 

dorsement  of  paper  by  officers:  Mid-  ham  National  Bank,  52  Hun,  575;  s. 

dlesex  County  Bank  v.  Hirsch  Bros,  c,  5  N.  Y.  Supp.  529. 


ii 


• ' 


364 


PERSONAL  LIABILITY  OF  OFFICERS. 


[§228 


and  agreed  to  erect  a  building  tliereon  at  a  further  large  cost, 
before  the  completion  of  the  same  the  bank  became  hopelessly 
insolvent  and  passed  into  the  hands  of  a  receiver.  T)ie  receiver 
brought  his  action  against  the  trustees  for  damages  on  account 
of  an  improper  investment  of  its  funds  on  their  part  in  the  matter 
above  stated.  The  New  York  Court  of  Appeals,  considering 
the  relation  between  these  trustees  and  the  bank  to  be  that  of 
agents  and  principals,  and  between  them  and  the  depositors  as 
similar  to  that  of  trustee  and  cestui  que  trusty  held,  that  in 
transcending  the  limits  placed  upon  their  power  m  the  charter 
of  the  bank  and  causing  damage  to  the  bank  or  its  depositors, 
they  would  be  personally  liable  for  the  damages.  They  affirmed 
the  judgment  against  the  trustees  in  the  lower  courts  and  dis- 
missed the  appeal.^     As  agents  of  the  bank  such  trustees  are 


'Hun,  Receiver,  v.  Cary,  (1880)  83 
N.  Y.  65,  affirming  59  How.  Pr.  426. 
The  contention  in  this  case  on  the  part 
of  the  defense  involved  the  extent  of 
the  care  to  be  exercised  by  such  trus- 
tees of  the  funds  and  the  uses  to  which 
they  devoted  them.  Earl,  J.,  speak- 
ing for  the  court,  after  referring  to  the 
following  cases:  Scott  v.  De  Peyster, 
1  Edw.  Ch.  513;  Spering's  Appeal,  71 
Pa.  St.  11;  Hodges  v.  New  England 
Screw  Co.,  1  R.  I.  313;  s.  c.  in  3  R. 
1.  1;  The  Liquidators  of  Western  Bank 
T.  Baird,  11  Sess.  Cas.  (3d  series) 
112  (Scotch);  The  Charitable  Corpora- 
tion 0  Sutton,  2  Atk.  405,  and  Litch- 
field V.  White,  3  Sandf.  545,  said:  "  In 
Spering's  Appeal  Judge  Suarswood 
said  that  directors  '  are  not  liable  for 
mistakes  of  judgment,  even  though 
they  may  be  so  gross  as  to  appear  to 
us  absurd  and  ridiculous,  provided 
they  were  honest,  and  provided  they 
are  fairly  within  the  scope  of  the 
powers  and  discretion  confided  to  the 
managing  body,'  As  I  understand 
this  language  I  cannot  assent  to  it  as 
properly  defining  to  any  extent  the 
nature  of  a  director's  responsibility. 
Like  a  mandatoiy,  to  whom  he  has 
been  likened,  he  is  bound  not  only  to 
exercise  proper  care  and  diligence,  but 


ordinary  skill  and  judgment.  As  he 
is  bound  to  exercise  ordinary  skill  and 
judgment,  he  cannot  set  up  that  he 
did  not  possess  them.  When  damage 
is  caused  by  his  want  of  judgment  he 
cannot  excuse  himself  by  alleging  his 
gross  ignorance.  One  who  volunta- 
rily takes  the  position  of  director,  and 
invites  confidence  in  that  relation,  un- 
dertakes, like  a  mandatory,  with  those 
whom  he  represents  or  for  whom  ho 
acts,  that  he  possesses  at  least  ordinary 
knowledge  and  skill,  and  that  he  will 
bring  them  to  bear  in  the  discharge  of 
his  duties.  Story  on  Bailments,  §  182. 
Such  is  the  rule  applicable  to  public 
officers,  professional  men  and  to  me- 
chanics, and  such  is  the  rule  which 
must  be  applicable  to  every  person 
who  undertakes  to  act  for  another  in  a 
situation  or  employment  requiring 
skill  and  knowledge,  and  it  matters 
not  that  the  service  is  to  be  rendered 
gratuitously.  These  defendants  volun- 
tarily took  the  position  of  trustees  of 
the  bank.  They  invited  depositors  to 
confide  to  them  their  savings,  and  to 
intrust  the  safe  keeping  and  manage- 
ment of  them  to  their  skill  and  pru- 
dence. They  undertook  not  only  that 
they  would  discharge  their  duties  with 
proper  care,  but  that  they  would  exer- 


§228] 


PERSONAL  LIABILITY  OF  OFFICERS- 


365 


responsible  to  it  for  misfeasance  or  nonfeasance  causing  damage 
to  the  bank,  upon  the  same  principle  that  any  agent  is  for  like 
cause  responsible  to  his  principal.^  The  Chancery  Court  of  New 
Jersey  has  held  the  treasurer  of  a  savings  bank,  at  the  same  time 
one  of  its  managers,  who  had  assigned  to  the  bank  a  bond  and 
mortgao'e  owned  by  him  on  land  not  worth  double  the  mortgage 
as  required  by  the  bank's  charter,  and  without  submitting  the 
investment  to  the  finance  committee  for  approval,  as  required  by 
its  by-laws,  personally  liable  for  the  loss  sustained  on  the  bond 
and  mortgage.  Further,  that  the  fact  that  the  manager  did  not 
object  or  repudiate  the  transaction  for  six  years  was  no  defense 
whether  his  breach  of  duty  was  known  or  not  known  by  the 
other  managers.' 


dse  the  ordinary  skill  and  judgment 
requisite  for  the  discharge  of  their 
dehcate  trust." 

»  Hun  V.  Cary,  (1880)  82  N.  Y.  65. 
That  they  may  be  treated  as  agents  of 
the  bank,  see  In  re  German  Mining 
Co.,  27  Eng.  Law  &  Eq.  158;  Belknap 
V.  Davis,  19  Me.  455;  Bedford  R. 
R.  Co.  V.  Bowser,  48  Pa.  St.  29; 
Butts  V.  Wood,  38  Barb.  181;  Austin 
D.  Daniels,  4  Denio,  299;  O.  &  N.  R. 
R.  Co.  V.  McPherson,  35  Mo.  13.  As 
to  the  liability  of  trustees  to  restore 
the  money  illegally  invested  by  them, 
see  Adair  v.  Brimmer,  74  N.  Y.  553; 
London  v.  Birmingham  R.  R.  Co.,  5 
De  Gex  &  Smales,  414. 

« Williams,  Receiver,  v.  Riley,  (1881) 
34  N.  J.  Eq.  398.  It  was  said  by  the 
chancellor:  "The  defendant  willfully 
disregarded  the  regulations  made  by 
the  board  of  managers  for  the  security 
of  the  depositors,  by  which  it  was,  in 
effect,  provided  that  no  investment 
should  be  made  unless  approved  by 
the  finance  committee,  and  that  all 
applications  for  investment  of  the 
funds  should  be  made  to  them  alone. 
With  full  knowledge  that  the  invest- 
ment not  only  had  not  been  duly 
authorized,  but  was  one  forbidden  by 
the  charter,  he,  with  the  concurrence 
of  the  president,  indeed,  but,  never- 


theless,  in  violation  of  his  duty  and 
trust,  as  it  was  in  violation  of  the  duty 
and  trust  of  the  president,  took  from 
the  funds  of  the  bank,  by  check  drawn 
by  himself  as  treasurer,  the  amount  of 
the  bond  and  mortgage  on  the  assign- 
ment of  these  instruments  to  the  bank. 
Nor  can  he  shelter  himself  under  the 
suggestion  that  though  he  was  a  mana- 
ger and  officer,  he  is  to  be  regarded  as 
standing  in  the  relation  of  a  stranger 
to  the  bank  in  this  transaction.     He 
was  a  trustee,  and,  as  such,  bound  to 
protect  the  interests  of  his  cestuis  que 
trust.      That    obligation    involved    a 
strict  adherence  to  the  provisions  of 
the  charter  and  the  regulations  of  the 
bank  designed   for    their   protection. 
He  would  not  have  been  at  liberty  to 
disregard  them  if  the  application  had 
come  from  a  stranger.     On  what  prin- 
ciple can  he  be  justified  in  disregard- 
ing them  in  his  own  dealings  with  the 
bank?    Had  a  stranger  sought  to  obtain 
from  the  bank  the  money  for  the  bond 
and  mortgage,  it  would  have  been  the 
duty  of  the  defendant,  if  the  matter 
came  to  his   knowledge  in  time,   to 
object  to  it,  and  if  his  objection  had 
been  unheeded  it  would  have  then  been 
incumbent  on  him  to  do  what  he  could 
to   prevent   the    illegal    transaction. 
Crane  'c,  Hearn,  11  C.  E.  Green  (N.  J.), 


m 


1 1 


m. 


i  II 


366 


PEliSOifAL  LIABILITY  OF  OFFICEBS. 


[§229 


, 


1   1 


§  229.  Liability  of  a  treasurer  of  a  corporation  for  pay- 
ment of  orders  on  forged  indorsements. —  Certain  orders  upon 
tlie  treasurer  of  a  building  association,  a  Pennsylvania  corpora- 
tion, signed  by  the  president  and  attested  by  tlie  secretary,  to  cer- 
tain payees,  were  paid  by  the  treasurer  to  the  secretary,  tlie  latter 
having  forged  indorsements  of  the  payee  upon  the  same.  The 
association  brought  its  action  upon  the  bond  of  the  treasurer  to 
hold  him  liable  for  these  improper  payments,  as  they  contended. 
The  Supreme  Court  of  the  state  held  that  the  treasurer  should 
have  had  judgment  in  his  favor.^ 


378.  Manifestly  he  is  without  excuse 
now.  He  has  been  guilty  of  a  misappli- 
cation, at  least,  of  the  funds  of  the  bank, 
and  where  there  has  been  a  waste  or 
misapplication  of  the  funcis  of  a  cor- 
poration by  an  officer  or  agent  of  the 
corporation  suit  may  be  brought  in 
equity,  in  the  name  of  the  company, 
to  compel  him  to  account  for  such  waste 
or  misapplication  or  breach  of  trust. 
Citizens'  Loan  Association  r.  Lyon,  29 
N.  J.  Eq.  110;  8.  c,  affd.  on  appeal, 
30  N.  J.  Eq.  732.  Here  the  misappli- 
cation was  by  one  who  was  not  only 
an  officer  of  the  institution  but  a  trus- 
tee also.  Stockton  v.  Mechanics  & 
Labor.  Sav.  Bank,  32  N.  J.  Eq.  163; 
Hannon  i\  Williams,  34  N.  J.  Eq.  255. 
And  he  is  bound  to  indemnify  his 
citituis  que  trust,  and  the  receiver  may 
maintain  suit  against  him  to  obtain  the 
indemnity." 

'  Hibernia  Building  Assn.  v.  Mc- 
Grath,  (1893)  154  Pa.  St.  296.  The 
opinion  rendered  by  Thompson,  Jus- 
tice, fully  presented  the  facts  and  the 
by-laws  regulating  the  conduct  and 
acts  of  officers,  and  fully  discussed  the 
law  applicable  to  such  a  case,  as  fol- 
lows: "The  ground  of  liability  was 
negligence  in  making  these  payments, 
although  made  upon  orders  signed  by 
the  president  and  secretary,  who  also 
attested  the  signatures  of  the  payees. 
The  money  was  either  paid  in  cash  to 
the  secretary,  or  by  cheques  payable 
to  Ms  order.    Under  the  by-laws  the 


president  was  required  to  sign  all  or- 
ders drawn  upon  the  treasurer  for 
appropriations  made  by  the  board,  the 
secretjiry  to  keep  accurate  minutes,  to 
attest  all  orders  drawn  on  treasurer 
for  appropriations  made  by  the  board, 
the  treasurer  to  pay  all  orders  drawn 
on  him  by  order  of  the  board,  if  signed 
by  the  president  and  attested  by  the 
secretary.  The  orders  upon  which 
these  payments  were  made  were  in  the 
usual  form,  and  signed  by  the  presi- 
dent and  attested  by  the  secretary. 
The  [treasurer]  having  no  reason  to 
suspect  or  doubt  the  integrity  of  either 
the  president  or  the  secretary,  and 
acting  in  good  faith,  paid  them.  As 
the  [treasurer]  served  without  compen- 
sation for  his  services  he  became  a 
gratuitous  bailee,  and  as  such  is  to  be 
held  liable  for  gross  neghgcnce  only. 
In  Tompkins  v.  Saltmursh,  14  Serg.  & 
R.  275,  it  was  said :  *  Tompkins  is 
charged,  as  the  bailee  of  Saltmarsh, 
on  an  undertaking  to  perform  a  gra- 
tuitous act,  from  which  he  was  to  re- 
ceive no  benefit,  and  the  benefit  was 
solely  to  accrue  to  the  bailor,  in  which 
case  the  bailee  is  only  liable  for  gross 
negligence,  dolo  proximus,  a  practice 
equal  to  a  fraud.'  This  rule  thus 
stated  is  repeated  in  Scott  ».  Bank  of 
Chester  Valley,  72  Pa.  St.  471;  Bank 
of  Carlisle  v.  Graham,  79  Pa.  St.  117. 
His  designation  as  treasurer  did  not 
change  the  character  of  the  bailment. 
As  provided  in  the  by-laws  the  money 


§230] 


PERSONAL  LIABILITY  OF  OFFICERS. 


3G7 


§  230.  Liability  on  a  contract  made  before  complete  organ- 
ization of  the  corporation.—  In  an  Ohio  case  it  appeared  that 
individuals  who  had  undertaken  to  liave  an  association  known  as 
the  "  Wool  Growers'  Exchange ''  incorporated  under  the  laws  of 
Ohio  obtained  a  certificate  of  incorporation,  and  before  the 
requirement  of  the  law  as  to  the  subscription  to  the  stock  of  a 
certain  percentage  of  the  capital  stock  before  doing  business  had 

was  deposited  with  him  to  be  paid  out    fully  perforin  the  duties  in  regard  to 
when  required  upon  orders  drawn  in    the   bailment  that  the    law    required 
the  manner  as  stated.     A  treasurer  or   him  to  perform.     It  is,  however,  con- 
•i  director  may   become  a   gratuitous    tended  that  as  the  bond  provides  that 
bailee    and   his   otHcial    position   mid    he  shall  discharge  all  the  duties  now 
designation   will   not    in    any   degree    reciuired  or  may  hereafter  be  required 
change  his  liability  as  such  bailee.     In    of  him  us  treasurer  by  the  constitu- 
Swentzel  r.  Bank,   147  Pa.  St.  l.VJ,  il    tion.  charter,  by-laws,  rules  and  regu- 
was  held  that  directors  who  are  gra-    lations  of  said  association,  and  as  the 
tuitous  mandatories  were  only  liable    board    passed    a    resolution    that    all 
for  fraud  or  such  gross  neglect  that   applications  for  withdrawals  of  stock 
amounts   to   fraud.     In  this  case  tin.    must   be  approved   by   the  board  of 
[treasurer]   had  no  office  or  place  in    dire(tors  at  regular  or  special  meet- 
which  as  treasurer,  he  transacted  the   ings  of  the  association  before  payments 
business    of    the    association.     When    are  made,  the  [treasurer]  was  guilty  of 
orders  were  to  be  paid  he  testities  he    negligence,    without    examining    the 
would  cret  notice  from  the  secretary  to   minutes  and  without  satisfying  him- 
come  down  and  see  him;  that  he  had    self  that  the  board  had  acted  upon  the 
some  that  he  wanted  paid,  and  that  he   withdrawals  for  which  the  orders  m 
would  go  to  the  secretary's  store  and    cpiestion     purported    to    have    been 
would  there  pay  them  to  him.     The   drawn.     It  is  established  by  the  proofs 
[association's]  business  was  managed    that  no  entries  were  made   upon  the 
principally  by  its  secretary,  who  came   minutes  for  [of?]  application  of  [for?  J 
ill  contact  directlv  with  its  members,    withdrawals  after  1884.     In  point  ot 
In  view  of  the  by-law  and  the  modes   fact  the  secretary,  after  this  date,  kept 
of  payment,   it  is  very  clear  that  he    no  record  in  the  minutes  of  any  with- 
was  a  gratuitous  bailee,  and  is  to  be    drawals.     The  duty  of  the  president 
held  only  to  that  diligence  required  as   is  to  preside  at  all  meetings  of  the 
such      It  is  true  he  gave  a  bond  as  re-    l)oard  and  to  sign  all  orders  for  appro- 
quired  by  the  by-law  for  the  faithful   priations   authorized    by    the   board; 
performance  of  his  duties,  but  that  did   that  of  the  secretary  is  to  keep  accu- 
not  change  the  duty  cast  upon  him  by    rate  minutes  of  all  meetings  of  the 
law  as  a  bailee.     The  condition  of  the   board,  the  accounts  of  the  association, 
bond  was  that  he  should  perform  and   and  to  attest  all  orders  on  the  treasurer 
discharge  the  duties  of  the  office,  and    for  appropriations  of  the  board^   These 
shall  keep  a  just  and  true  account  of   orders  in  question  were  signed  by  the 
the  moneys  received,  and  shall  pay  to   president  and  were   attested  by  the 
his  successor  the  moneys  received,  and   secretary    in    the    usua     form^    The 
shall  account  for  the  moneys  so  re-    president  was  and  is  still  regai-ded  as- 
ceived      The  condition  of  the  bond,    an   upright  man;   the    secretary  was 
therefore    was  that  he  should  faith-   also  at  this  time  so  regarded;  the  asso- 


''     1 


368 


PERSONAL  LIABILITY  OF  OFFICERS. 


[§230 


§230] 


PERSONAL  LIABILITY  OF  OFFICERS. 


369 


been  complied  with,  had  a  meeting  of  stockholders  and  were 
elected  directors  and  oflScers  of  the  association.  They  then 
entered  into  a  contract  for  the  purchase  of  wool,  and  for  an  unpaid 
balance  gave  a  note  through  the  officers  of  the  association.  The 
holder  of  the  note  brought  action  upon  the  note  as  the  founda- 
tion of  the  suit  against  these  directors  as  personally  liable  on  the 
contract  under  the  facts  disclosed  in  the  case.  The  Supreme 
Court  of  Ohio  held  them  liable  i)ersonally  on  the  contract.^     The 


ciution  trusted  both  of  them  implicitly, 
and  had  no  reason  or  cause  to  doubt 
them.  If  it  treated  them  thus,  it  was 
natural  that  the  [treasurer]  should  in 
no  manner  suspect  or  doubt  them. 
These  orders,  therefore,  came  to  him 
with  the  certificate  of  the  presiding 
officer,  whose  duty  it  was  to  preside 
at  all  meetings,  and  with  the  attesta- 
tion of  the  secretary,  whose  duty  it 
was  to  keep  all  records  of  the  meet- 
ings. If  the  [treasurer]  had  gone  to 
the  secretary  he  would  doubtless  have 
been  assured  that  the  board  had  acted 
upon  these  withdmwals,  and  having 
been  so  advised  he  would  have  been 
justified  in  paying  them.  It  can  be 
scarcely  said  to  be  want  of  ordinary 
diligence  to  have  paid  these  orders 
under  these  circumstances  and  with 
these  signatures.  They  were,  in  fact, 
as  express  an  authorization  as  if  he 
had  seen  these  officers  officially.  It 
was  said  in  Swenzel  v.  Penn.  Bank, 
»upra:  *  Nor  do  we  think  the  directors 
were  bound  to  regard  the  statements 
submitted  to  them  as  false,  and  the 
president,  cashier  and  clerks  as  thieves. 
They  had  nothing  to  arouse  suspicion. 
All  of  these  gentlemen  stood  high. 
They  were  the  trusted  agents  of  the 
corporation.'  The  [treasurer]  was  not 
guilty  of  negligence  in  trusting  the 
secretary  and  in  putting  full  faith  in 
his  action,  and  that  of  the  president  in 
signing  and  sendiog  to  him  the  orders 
in  question.'* 

» Trust  Co.  V.  Floyd,  (1890)  47  Ohio 
St.  525;  8.  c,  26  N.  E.  Rep.  110.   The 


court  discussed  quite  at  length  the  lia- 
bility of  agents  under  such  circum- 
stances, and  then  Siiid:  '*  While,  how- 
ever, the  authorities  generally  agre<; 
that  a  person  who,  without  having  in 
fact  authority  to  make  a  contract  as 
agent,  yet  does  so  under  the  bona  fide 
belief  that  such  authority  is  vested  in 
him,  is  nevertheless  personally  respon- 
sible to  those  who  contract  with  him 
in  ignomnce  of  his  want  of  authority, 
a  diversity  of  opinion  is  found  in  the 
cases  in  regard  to  the  exact  nature  of 
the  liability,  and  the  character  of  the 
action  by  which  it  may  be  enforced. 
In  Jenkins  r.  Hutchinson,  13  Ad.  &  E. 
746,  it  is  intimated  by  Erle,  J.,  that 
an  action  of  decit  would  lie  in  such 
cases,  notwithstanding  the  good  faith 
of  the  agent,  and  some  authorities  may 
be  found  to  that  effect.  Another  class 
of  cases  hold  that  the  liability  is  upon 
the  contract;  but,  it  is  believed,  that 
whether  the  agent  is  so  liable,  depends 
upon  the  intention  of  the  parties  as 
discovered  from  the  contract  itself; 
and  on  this  question  the  form  of  the 
agreement  and  the  mode  of  signature 
may  be  quite  conclusive.  The  rule  on 
this  subject,  as  stated  in  Story  on 
Agency,  is  that  an  agent  cannot  be 
sued  on  the  very  instrument  itself,  as 
a  contracting  party,  unless  there  be 
apt  words  to  charge  him.  Section 
264«.  Still  another  class  of  cases  es- 
tablish the  rule,  which  we  are  inclined 
to  adopt,  that  in  cases  like  the  one  we 
are  considering,  the  agent  is  liable 
upon  his  implied  promise  that  be  pos- 


Supreme  Court  of  Kansas  affirmed  a  judgment  against  alleged 
directors  of  an  athletic  association  upon  a  contract  for  goods  fur- 
nished, holding  them  individually  liable  on  the  ground  that  the 
corporation  had  not  been  fully  organ'^ed  under  the  law.  They 
said  upon  the  subject  generally :  "  The  rule  is  well  established 


I       t 


sesses  the  authority  he  assumes  to 
have.  Smith's  Leading  Cases,  vol.  2, 
pt.  1,  408  (8th  ed.),  and  cases  there 
cited;  Lewis  v.  Nicholson,  83  Eng.  C. 
L.  512.  In  White  v.  Madison,  26  N. 
Y.  117,  in  a  learned  opinion,  it  is  held 
that  the  liability  of  the  agent  in  such 
cases  rests  upon  the  ground  that  he 
warrants  his  authority,  and  not  that  the 
contract  is  to  be  deemed  his  own. 
Bartholomew  c.  Bentley,  15  Ohio,  659, 
is  referred  to  as  establishing  both  that 
the  liability  of  the  agent  in  cases  of 
this  kind  is  founded  on  fraud,  and  that 
the  petition  should  charge  a  fraudulent 
intent  in  direct  terms.  That  was  an 
action  in  case  for  deceit  under  the 
practice  which  prevailed  before  the 
adoption  of  the  Code  of  Civil  Proced- 
lu-e.  The  questions  arising  upon  the 
demurrer  related  to  the  form  of  the 
remedy,  and  the  sufficiency  of  the  dec- 
laration in  such  an  action.  They  are 
stated  by  Birchard,  J.,  to  be:  'First. 
Can  a  special  action  on  the  case  for 
fraud,  whiqh  has  resulted  in  damage 
of  the  plaintiffs,  be  maintained  in  a 
case  like  this  upon  sufficient  declara- 
tion ?  Second.  Is  this  declaration  good 
upon  demurrer  ? '  The  court  answers 
the  first  question  in  the  affirmative, 
and,  in  speaking  of  the  declaration, 
says:  '  The  objection  taken  by  counsel 
is  a  want  of  certainty.  The  action  is 
founded  on  a  fraudulent  combination, 
and  for  holding  out  false  colors  at  the 
commencement  of  the  banking  opera- 
tions, and  at  various  subsequent 
periods.  The  only  direct  charge  of  a 
fraudulent  intention  is  in  the  with- 
drawal of  the  funds,  and  this,  for 
aught  that  appears,  may  have  been 

47 


long  since  the  bills  in  plaintiffs  hands 
were  issued.  *  *  *  It  is  thought 
that  the  averment  of  a  fraudulent  de- 
sign should  have  been  made  in  positive 
terms  as  to  each  specific  act  relied 
upon  to  sustain  the  action.'  Under 
the  practice  then  in  force,  pleadings 
were  subject  to  demurrer,  unless  they 
were  appropriate  in  their  form  and 
allegations  to  the  particular  action 
pursued ;  and  we  do  not  understand  it 
to  be  there  decided  that  no  other  action 
could  be  maintained  on  the  facts  of 
tliat  case.  A  different  action  was 
maintained  in  Medill  v.  Collier,  16 
Ohio  St.  599,  which,  so  far  as  the 
ground  upon  the  liability  of  the  bank 
directors  was  placed,  is  not  greatly 
dissimilar  to  the  case  before  us.  Under 
our  present  system  of  pleading,  it  is 
not  important  what  was  formerly  the 
most  appropriate  remedy.  Upon  the 
facts  stated  in  the  petition,  the  law, 
we  think,  implied  a  promise  on  the 
part  of  the  defendants,  that  in  making 
the  contract  with  the  plaintiff,  thiy 
had  authority  to  bind  the  corporation 
they  assumed  to  represent;  and  if  they 
had  not,  they  are  answerable  for  the 
consequences.  That  they  were  with- 
out such  authority  seems  clear.  Upon 
the  lack  of  authority  upon  the  part  of 
the  directors,  it  was  then  sjiid:  '  It  was 
held  by  this  court  in  Bartholomew  v. 
Bentley,  1  Ohio  St.  37,  that  while 
mere  irregularities  in  organizing  a 
corporation  would  not  subject  the 
officers  to  private  liability,  to  protect 
them  from  such  liability,  the  provisions 
of  the  act  of  incorporation  must  be 
substantially  pursued.  By  our  stat- 
utes, under   which   the   proceedings 


ft 


'I 


ii 


I 


*1 


370 


PERSONAL  LIABILITY  OF  OFFICERS. 


[§230 


that  a  corporation  must  liave  a  full  and  complete  organization 
and  existence  as  an  entity,  and  in  accordance  with  the  law  to 
which  it  owes  its  orijjjin,  before  it  can  assume  its  franchise  or  enter 
into  any  kind  of  a  contract  or  transact  any  business ;  and  what- 
ever be  the  mode  prescribed  by  the  act  of  incorporation,  a  sub- 
stantial compliance  with  all  the  provisions  of  the  law  under  which 
it  is  created  is  required  before  the  corporation  can  be  said  to  have 
such  an  existence  as  will  entitle  it  to  do  business.^     And  it  is  con- 
ceded in  this  case  that  nothing  was  done  to  perfect  the  organiza- 
tion after  the  charter  was  tiled.     A  corporation  cannot  act  with- 
out officers  and  agents,  and  it  is  powerless  to  do  anything  until 
its  incorporators  or  promoters  give  it  the  means  whereby  it  can 
act.     The  words  "organize'  or   "organization"  have  a  well- 
understood  meaning ;  and  as  we  construe  them  they  mean  the 
election  of  officers,  providing  for  the  subscription  and  payment 
of  the  capital  stock,  the  adoption  of  by-laws  and  such  other  steps 
as  are  necessary  to  endow  the  legal  entity  with  the  capacity  to 


were  taken  for  the  formation  of  the 
corporation  referred  to  in  the  petition, 
the   corporate   powers,   business   and 
property  of  corporations  formed  for 
profit  must   be  exercised,  conducted 
and  controlled  by  a  board  of  directors, 
all  of  whom  must  be  stockholders;  the 
articles  of  association  must  stjite  the 
amount    of    the    capital    stock,    and 
the  number  of  shares  into  which  it  is 
divided;  and  at  least  ten  per  cent  of 
that  amount  must  be  subscribed   be- 
fore directors  can  be  chosen.     So  that 
the    subscription    of    the    necessary 
amount  of  the  capital  stock  to  author- 
ize the  election  of  directors  is  not  only 
a  matter  of  substance,  but  is  essential 
to  the  organization  of  the  corporation, 
and   necessary  to   the  transaction   of 
business  by  it.    It  is  the  security  which 
the  law  requires  shall  be  provided  be- 
fore the  corporation  enters  upon   its 
business  for  the  protection   of   those 
who  may  deal  with  it.     The  statutory 
liability  of  the  stock  subscribers  is  an 
additional  security.  In  the  effort  to  form 
the  corporation  in  question,  neither  of 
these  securities  was  provided.   Counsel 


contend  that  it  is,  nevertheless,  a  cor- 
poration (/«/rt<?to,  and  estopped  to  deny 
its  liability  to  the  plaintiff.    If  it  were, 
it  is  not  readily  perceived  how  this 
would  aid  the  defendants.    Until  there 
were  stock  subscriptions  to  an  amount 
warranting  the  organization,  the  sub- 
scribers could  not  be  compelled  to  pay 
beyond  the  sum  required  at  the  time 
of   the   subscription;   nor   would   the 
statutory  liability  attach,  unless  there 
were  some  ground  of  estoppel,  not  ap- 
pearing   in    the   aise.      The    impUed 
undertaking  of    the   defendants   was 
that   they  represented   a   corporation 
with  the  capital  stock  required  bylaw; 
while  the  one  to  which  they  insist  the 
plaintiff  shall  be  compelled  to  resort 
was,  if  a  de  facto  corporation,  so  only 
in  name,  without  substance  or  capac- 
ity;  and  if   the   doctrine  of  estoppel 
could  be   brought  to  the  aid  of   the 
plaintiff  against  it,  the  defendants  are 
not  in  a  position  to  require  a  resort  to 
that  remedy  to  relieve  them  from  the 
liability  they  have  incurred.'  " 

» Citing  4  Am.  &  Eng.   Encycl.  <rf 
Law,  197,  and  authorities  cited  there. 


§  230] 


PERSONAL  LIABILITY  OP  OFFICERS. 


371 


transact  the  legitimate  business  for  which  it  was  created.  In 
this  sense  the  corporation  was  not  fully  organized.  While  it  had 
an  existence,  the  organization  was  never  completed  so  that  the 
corporation  could  do  business.  In  the  case  of  Hart  v.  Salisbury, 
55  Mo.  310,  which  was  an  action  brought  upon  a  note  purporting 
to  have  been  executed  by  the  directors  of  an  agricultural  associa- 
tion, the  suit  was  brought  against  the  directors  upon  the  ground 
that  the  association  was  not  incorporated  at  the  time  the  note  was 
given,  and  that  the  directors  were,  therefore,  individually  liable. 
It  appeared  that  the  association  was  not  fully  incorporated  when 
the  note  was  executed.  The  law  required  the  charter  to  be  filed 
with  the  recorder  of  the  county  where  the  corporation  was  located, 
and  also  in  the  office  of  the  secretary  of  state.  The  charter  was 
only  tiled  with  the  recorder.  The  court  held  that  the  officers  of 
the  corporation  had  no  power  to  issue  the  note,  and  that  a  note 
issued  and  signed  by  them  would  bind  them  personally  and  not 
the  corporation.  The  court  said,  in  speaking  of  the  attempted 
organization  of  that  corporation :  It  had  organized  under 
section  2,  chapter  69,  General  Statutes  of  1885,  page  367,  by  sign- 
ing and  acknowledging  and  recording  in  the  recorder's  office  of 
the  proper  county  tlie  articles  of  the  association.  This  step  being 
taken,  it  was  an  organized  corporation,  not  for  the  transaction  of 
business,  but  for  the  purpose  of  taking  the  next  and  last  step  to 
complete  its  authority  to  transact  business  and  give  date  to  its 
legal  existence.  Until  the  officers  took  this  final  and  necessary 
step  by  depositing  and  filing  in  the  office  of  the  secretary  of 
state  a  copy  of  the  articles  of  association  as  they  stood  recorded 
in  the  county,  this  corporation  had  no  power  to  issue  the  note 
sued  on.  As  it  had  no  power  to  issue  this  note,  the  defendants 
are  undoubtedly  liable."  "  If  a  corporation  be  illegally  formed, 
its  members  or  stockholders  are  liable  as  partners  for  its  acts  or 
contracts  ;  and  directors,  officers  or  agents  acting  and  contracting 
in  its  name  render  themselves  personally  liable."  Beach  Priv. 
Corp.  §  16 ;  Marshall  v.  Harris,  55  Iowa,  182  ;  Kaiser  v.  Savings 
Bank,  56  Iowa,  104 ;  Coleman  v.  Coleman,  78  Ind.  344.  The 
Kansas  court  resumed  :  "  While  in  this  case  the  charter  was  tiled 
with  the  secretary  of  state,  the  corporation  had  no  officer  outside 
of  the  directors  named  for  the  tirst  year.  No  portion  of  the 
capital  stock  had  been  subscribed  and  no  books  opened,  as 
required  by  section  1173  of  the  General  Statutes  of  1889.    In 


f'!( 


\- 


372 


PERSONAL  LIABILITY  OF  OFFICERS. 


[§231 


fact  nothing  bad  been  done  to  complete  the  preliminary  business 
of  organizing  the  corporation.  We  do  not  understand  that  a  cor- 
poration can  proceed  to  the  transaction  of  business  without  any 
^  portion  of  its  capital  stock  being  subscribed  or  paid.  It  may  have 
been  the  English  rule,  but  in  the  United  States  it  is  otherwise. 
Boone  Corp.  §  113.  The  corporation  has  no  means  or  capacity 
to  act  until  some  portion  of  the  capital  stock  named  in  the  charter 
has  been  subscribed  and  paid.  Some  states  have  by  a  legislative 
rule  made  directors  of  certain  corporations  jointly  and  severally 
liable  for  all  debts  of  the  corporation  until  the  whole  amount  of 
the  capital  stock  has  been  paid  in.  Rev.  Stat,  of  Wis.  1878 
§  1901."*  * 

§  231.  Rule  as  to  recovery  in  such  a  case.—  The  measure 
of  damages  in  such  a  case  was  one  of  the  questions  in  this  Ohio 
case.  Referring  to  the  theory  upon  which,  as  it  appeared,  the 
case  was  tried,  that  if  the  defendants  were  liable  at  all,  the  amount 
which  the  plaintiff  was  entitled  to  recover  was  the  balance  due  on 
the  contract,  the  Supreme  Court  of  Ohio  said :  « This  was  not 
necessarily  the  measure  of  recovery.  As  we  have  already  seen, 
the  action  in  such  cases  is  not  founded  on  the  contract  made  for 
the  supposed  principal,  but  as  the  implied  promise  of  the  agent 
that  he  had  authority  to  bind  the  principal ;  and  the  damages 
which  may  be  recovered  for  its  breach  is  the  loss  sustained  by 
the  plaintiff  by  reason  of  his  not  having  the  valid  contract  which 
the  agent  undertook  that  he  should  have.  The  damages  may 
sometimes  exceed  the  amount  due  on  the  contract  made  in  the 
name  of  the  principal,  for  it  is  held  they  may  include  the  costs 
and  expenses  of  an  unsuccessful  action  against  the  principal  to 
enforce  the  contract.  White  v.  Madison,  26  N.  Y.  117;  Simons 
V.  Patchett,  7  E.  &  B.  568 ;  Collen  v.  Wright,  7  E.  &  B.  301 ;  2 
Smith's  Leading  Cases,  410.  In  Morawetz  on  Corporations  it  is 
said  that  the  measure  of  damages  in  an  action  against  directors 
or  oflScers  of  a  corporation,  who  induce  a  person  to  deal  with  it 
before  the  capital  indicated  in  its  charter  has  in  fact  been  pro- 
vided,  is  the  loss  sustained '  by  reason  of  the  difference  between  the 
capital  which  he  has  received  and  that  which  he  was  entitled  to 
expect.'  Under  this  rule,  we  think,  the  plaintiff  might  properly 
recover  the  balance  remaining  unpaid  and  the  purchase  price  of 
» Walton  V.  OHver.  (1893)  49  Kans.  107.  112, 113, 114;  s.  c,  30  Pac.  Rep.  172. 


§232] 


PERSONAL  LIABILITY  OF  OFFICEES. 


373 


the  wool  sold.  Prima  facie,  that  is  the  amount  of  the  plaintiff's 
Joss,  and  it  does  not  exceed  the  amount  of  the  capital  which  the 
corporation  was  required  by  law  to  have  before  it  could  be  repre- 
sented by  the  directors,  and  which  the  defendants,  by  assuming 
to  act  lor  it,  undertook  that  it  did  have.  It  is  true  the  petition 
alleges  that  the  corporation  is  insolvent  with  an  indebtedness 
exceeding  ten  per  cent  of  the  capital  stock ;  but  whether  the 
claims  of  other  creditors  stand  upon  a  like  footing  with  that  of 
the  plaintiff,  or  will  be  enforced  against  the  defendants,  does  not 
appear.  Besides,  if  the  proper  stock  subscriptions  had  been 
obtained,  the  corporation  might  not  have  become  insolvent,  or, 
before  it  did,  the  plaintiff's  claim  might  have  been  paid  or  secured. 
If,  in  such  case,  the  plaintiff  could  recover  no  more  than  a  sum 
equal  to  the  proportion  of  the  capital  which  should  have  been 
provided  that  his  claim  bears  to  the  whole  indebtedness  contracted 
in  the  corporate  name,  it  would  be  necessary  to  take  an  account 
of  the  assets  and  liabilities  to  determine  the  amount  of  the 
recovery.  That  rule,  applied  to  this  case,  would  require  that  the 
defendants  be  charged  with  an  amount  equal  to  the  necessary 
stock  subscriptions,  and  the  statutory  liability  of  the  subscribers, 
and  that  all  the  creditors  be  brought  in  to  have  their  claims 
adjusted,  before  the  amount  of  the  verdict  could  be  arrived  at."* 

§  232.  County  treasurer  liable  upon  his  receipts  to  col- 
lector for  money. —  A  county  auditor  in  California  made  a 
settlement  with  a  collector  of  license  taxes  of  the  county,  deter- 
mined the  amount  due  the  county  from  this  collector  and  certified 
the  same  to  the  county  treasurer.  The  county  treasurer  gave  a 
receipt  for  the  amount  to  the  collector,  and  the  collector,  upon 
presenting  it  to  the  county  auditor,  received  his  discharge,  and  the 
auditor  charged  the  same  to  the  treasurer.  The  latter,  also, 
debited  himself  to  that  amount  in  his  account  with  the  county. 
When  he  went  out  of  office  there  was  a  deficiency  of  a  certain 
amount,  and  an  action  was  brought  upon  his  bond  by  the  county 
to  recover  the  deficiency.  The  defense  made  by  the  treasurer 
and  his  sureties  was  that,  in  reality,  the  sum  of  money  due  from 
the  collector  was  not  paid  in  full  to  him,  and  that  the  collector 
was  the  one  indebted  to  the  county.     The  Supreme  Court  of 

'  Trust  Company  r.  Floyd,  (1890)  47  Ohio  St.  525,  543,  543;  s.  c,  26  N.  E. 
Kep.  110. 


♦  . 


'' 


37^ 


PERSONAL  LIABILITY  OF  OFFICERS. 


[§233 


^1 


Calif oriiia  held  that,  assuming  the  facts  to  be  as  contended  by  the 
treasurer  and  his  sureties,  they  did  not  constitute  a  defense  to  the 
action.* 

§  233.  County  treasurer  liable  as  bailee  of  county  funds. — 

In  a  Colorado  case  the  governing  authorities  of  a  county  sought, 
claiming  a  shortage  in  the  accounts  of  a  county  treasurer, 
deceased,  to  follow  the  funds  as  tnist  funds  in  his  estate  as  held 
by  his  representatives  and  to  liave  a  preference  over  other  credit- 
ors of  the  estate.  The  Supreme  Court  in  its  opinion  iirst  con- 
sidered the  question  of  the  relationship  held  by  a  county  treas- 
urer to  the  funds  coming  into  his  hands  by  virtue  of  his  office, 


'  San  Luis  Obispo  County  r.  Pettit, 
(Cal.  1893)  34  Pac.  Rep.  1082.  The 
court  said:  "Section  115  of  the  County 
Government  Act  (St.  1891,  p.  323)  re- 
quires the  county  auditor  to  settle  the 
accounts  of  all  persons  holding  moneys 
payable  into  the  county  treasury,  and 
to  certify  the  amount  to  the  treasurer; 
and  provides  that,  upon  the  presenta- 
tion and  filing  of  the  treasurer's  re- 
ceipt therefor,  he  shall  give  to  such 
persons  a  discharge,  and  charge  the 
treasurer  with  the  amount  received  by 
him.  In  Butte  Co.  r.  Morgan,  76  Cal. 
1;  8.  c,  18  Pac.  Rep.  115,  it  was  held 
that  the  auditor  is  not  required  to  go 
to  the  treasurer  and  ask  him  whether 
the  amount  has  been  actually  paid, 
or,  in  other  words,  whether  the  receipt 
states  the  truth.  He  is  authorized  to 
accept  the  receipt  as  sufficient  evidence 
of  the  fact  of  payment.  This  case 
presents  many  points  similar  to  the 
present  one,  and  must  be  regarded  as 
controlling.  Section  80  of  the  County 
(Government  Act  requires  the  treasurer 
to  settle  his  accounts  with  the  auditor 
on  the  first  Monday  of  each  month, 
and,  for  the  purpose  of  making  such 
settlement,  to  make  a  statement  under 
oath  of  the  amount  of  money  received 
prior  to  the  period  of  such  settlement, 
the  sources  w^hence  the  same  was  de- 
rived, and  the  amount  remaining  on 
hand.     These  settlements  and  state- 


ments were  made  by  [this  treasurer], 
and  he  ought  not  now  to  be  pennitted  to 
exonerate  himself  from  liability  to  the 
county  by  showing  that  these  state- 
ments were  false,  and  that,  instead  of 
requiring  [the  collector]  to  pay  the 
money  into  the  treasury,  he  had  taken 
his  individual  promise  to  pay  it  at  a 
subsequent  date.  By  delivering  to  the 
auditor  his  receipt  for  the  moneys 
which  [the  collector]  had  collected, 
he  had  authorized  the  auditor  to  enter 
upon  his  books  a  discharge  of  [the 
collector's]  liability,  and  is  thereby 
estopped  from  questioning  the  correct- 
ness of  his  receipt.  If  he  chose  to 
permit  [the  collector]  to  retain  this 
money  upon  his  promise  to  subse- 
quently pay  it  to  him,  to  that  extent 
he  failed  to  perform  his  official  duty 
in  requiring  the  money  to  be  paid  into 
the  treasury,  and  must  be  regarded  as 
having  become  himself,  rather  than 
the  county,  the  creditor  of  [the  col- 
lector]. If  any  loss  occurred  by  rea- 
son of  [the  collector's]  subsequent 
failure  to  pay  his  check,  it  should  be 
borne  by  [the  treasurer],  rather  than 
by  the  county,  since  the  loss  had  been 
made  possible  by  reason  of  [the  col- 
lector's] violation  of  his  official  duty, 
and  his  sureties  are  liable  to  the  county 
equally  with  him  for  such  misappro- 
priation or  loss  of  the  money." 


§233] 


PERSONAL  LIABILITY  OF  OFFICEES. 


375 


the  contention  by  the  county  authorities  l>eing  that  the  relation 
was  that  of  bailee  of  the  funds,  and  that  of  the  representatives  of 
the  estate  that  the  relation  of  debtor  and  creditor  existed  between 
him  and  the  county.  The  court  said :  "  Without  determining 
where  the  weight  of  authority  lies  on  this  question,  as  there  is 
much  conflict  between  the  adjudged  cases,  we  think  that,  under 
the  provisions  of  the  statute  relating  to  a  county  treasurer,  the 
money  collected  and  received  by  him  belongs  to  the  county,  and 
that  he  holds  a  fiduciary  relationship  thereto  that  constitutes  him 
a  bailee,  with  express  and  extraordinary  liability.  The  bond  he 
is  required  to  give  before  entering  upon  the  duties  of  his  office  is 
conditioned  that  he  *  shall  faithfully  and  promptly  perform  the 
duties  of  said  office  *  *  *  pay,  according  to  law,  all  moneys 
which  shall  come  to  his  hands  as  treasurer,  and  shall  render  a 
just  and  true  account  thereof,  whenever  required  by  said  board 
of  commissioners  or  by  any  provision  of  law,  and  shall  deliver 
over  to  his  successor  in  office,  or  to  any  other  person  authorized 
by  law  to  receive  the  same,  all  moneys,  books,  papers,  and  other 
things  appertaining  thereto  or  belonging  to  his  office.'  Mills' 
Ann.  St.  §  886.  Section  890  of  Mills'  Annotated  Statutes  pro- 
vides :  *  It  shall  be  the  duty  of  the  county  treasurer  to  receive 
all  moneys  belonging  to  the  county  from  whatever  source  they 
may  be  derived.  *  *  *  All  moneys  received  by  him  for  the 
use  of  the  county  shall  be  paid  out  by  him  only  on  the  orders  of 
the  board  of  commissioners,  according  to  law,  except  where  spe- 
cial provision  for  the  j^ayment  thereof  is  or  shall  be  otherwise 
made  by  law.'  It  is  further  provided  in  section  901  of  Mills' 
Annotated  Statutes :  '  Upon  the  resignation  or  removal  from 
office  of  any  county  treasurer  all  the  books  and  papers  belonging 
to  his  office  shall  be  delivered  to  his  successor  in  office,  upon  the 
oath  of  such  preceding  treasurer,  or,  in  case  of  his  death,  upon 
oath  of  his  executors  or  administrators,  etc'  The  Supreme 
Court  of  Indiana  having  announced  the  doctrine  in  several  cases 
that  a  township  trustee,  in  common  with  a  county  treasurer,  was 
not  a  mere  bailee,  but  the  owner  of  the  money  that  came  into  his 
hands  by  virtue  of  his  office,  that  court  distinguished  and  limited 
such  ownership  in  Eowley  v.  Fair,  104  Ind.  189;  s.  c,  3  N.  E. 
Rep.  860,  as  follows :  '  But  the  title  of  a  township  trustee  in  the 
money  for  which  he  is  held  accountable  is  only  recognized  to  the 
extent  that  is  necessary  for  the  better  preservation  of  the  various 


i 


376 


PERSONAL  LIABILITY  OF  OFFICERS. 


[§234 


funds  which  the  money  represents,  and  is,  in  fact,  a  legal  title 
only  in  a  technical  and  very  limited  sense.  The  equitable  title 
to,  and  the  beneficiary  interest  in,  such  money  is  in  the  township, 
and  in  that  view  the  money  for  which  the  trustee  is  liable  upon 
Ids  bond  really  belongs  to  the  township.'  It  follows  that,  if  the 
money  received  by  the  treasurer  by  virtue  of  his  ofiice  belongs  to 
the  county,  it  constitutes  a  trust  fund,  which,  if  diverted  and 
misappropriated,  may  be  recovered  in  an  action  upon  his  bond, 
or  the  county  may,  if  it  elect,  treat  it  as  a  trust  fund,  and  follow 
it  wherever  it  can  be  traced."  ^ 

§  234.  County  treasurer  paying  court  orders  on  forged 
indorsements. —  It  appeared  in  a  Minnesota  case  that  a  deputy 
clerk  of  the  District  Court  issued  false  and  fraudulent  certificates, 
in  which  he  certified  that  certain  named  persons  had  served  as 
jurors  in  said  court,  and  were  each  entitled  to  a  stated  sum  of 
money  payable  to  their  order  as  compensation.  He  obtained  the 
written  order  of  the  county  auditor  on  each,  directing  the  county 
treasurer  to  pay  the  same.  He  forged  the  names  of  the  respec- 
tive payees  on  the  back  of  each  certificate,  presented  the  same  to 
the  treasurer,  and  the  latter  paid  over  to  him  the  amounts  called 
for  out  of  the  county  funds,  without  attempting  to  satisfy  him- 
self of  the  genuineness  of  the  indorsements  upon  the  backs  of 
the  instruments.  The  Supreme  Court  lield  that  the  treasurer 
was  liable  to  the  county  for  the  sums  so  paid  out.' 


^  McClure  i\  Board  of  Comrs.  of  La 
Plata  County,  (Colo.  1893)  34  Pac. 
liep.  763;  citing  Sauer  v.  Town  of 
Kevadaville,  14  Colo.  54;  s.  c,  23 
Pac.  Rep.  87. 

'  Board  of  County  Commissioners  of 
Ramsey  Co.  v.  Nelson,  (1892)  51  Minn, 
79.  Arguerido,  the  court  said:  "The 
distinction  between  a  case  arising  on 
these  facts  and  ♦  ♦  »  Sweet  v. 
County  Commissioners  of  Carver 
County,  16  Minn.  106,  is  obvious. 
There  the  county  orders  or  warrants 
had  been  issued  and  accepted,  made 
payable  to  a  certain  named  person  or 
to  bearer.  They  were  transferable  by 
simple  delivery,  and,  in  terms,  the 
treasurer  was  expressly  authorized  to 


pay  to  the  bearer.  This  he  did  with- 
out knowledge  of  any  defect  in  the 
title  of  the  bearer,  and  it  was  held, 
such  payment  being  in  good  faith 
every  way,  that  the  county  was  ex- 
onemted  from  further  liability.  The 
conclusion  of  the  court  was  expressly 
placed  upon  the  fact  that  in  good 
faith  the  county  treasurer  had  paid 
these  obligations  precisely  as  he  was 
authorized  and  directed  to  do,  to  the 
person  who  presented  them,  the  bearer 
thereof.  But  the  cases  are  not  analo- 
gous, for,  giving  to  defendant  the  ben- 
efit of  all  that  is  possible,  namely, 
that  together  the  certificates  as  issued 
and  the  indorsements  thereon  as  made 
by  the  county  auditor  amounted  to 


i< 


§235] 


PERSONAL  LIABILITY  OF  OFFICERS. 


377 


§  235.  Arbitration  as  to  liability  of  a  treasurer  of  a  town- 
ship.—  The  treasurer  of  a  township  having  used  the  moneys  of 
the  public  corporation  there  was  a  submission  of  the  question  of 
the  extent  of  his  Hability  upon  his  bond  to  arbitration,  and  a 
settlement  made  upon  the  basis  of  the  award,  the  bondsmen 
released  and  in  part  settlement  of  the  matter  notes  given  to  the 
township.  In  an  action  upon  one  of  these  notes  the  treasurer 
intervened,  and  the  insistment  on  his  behalf  was  that  the  arbitra- 
tion could  not  be  sustained  because  the  corporation's  powers  were 
only  such  as  were  given  by  statute,  and  no  express  power  was 
given  to  submit  to  arbitration.     To  this  the  Supreme  Court  of 


orders  or  warrants  upon  the  county 
treasury,  the  prominent  and  stubborn 
fact  remains  that  the  amounts  Siiid  to 
be  due  thereon  were  not  to  be  paid  to 
a  bearer  of  the  instruments,  but  to  the 
order  of  the  several  persons  named 
therein  as  payees.  As  in  the  case  j  ust 
referred  to,  the  authority  to  pay  was 
express  and  distinct,  but  instead  of 
directing  that  such  payment  should 
be  to  whomsoever  might  present  the 
orders  or  warrants,  the  direction  was 
that  payment  should  be  made  to  the 
order  of  a  person  designated  by  name. 
And  at  this  time  it  may  be  well  to 
state  that  it  does  not  appear  in  the 
c*)mplaint,  as  appellant's  counsel  seem 
to  assume,  that  fictitious  or  nonexistent 
persons  were  named  as  payees  in  these 
certificates.  It  is  of  no  importance, 
probably,  but  from  the  language  of 
the  pleading  the  presumption  is  other- 
wise. Payments  were  not  made  to 
the  persons  named  as  payees,  or  to 
their  order,  in  accordance  with  the 
terms  of  the  certificates,  but  were 
made  to  *  *  *  the  very  person 
who  as  deputy  clerk  had  the  oppor- 
tunity and  had  fraudulently  issued  the 
sjime,  solely  upon  the  false  and  forged 
indorsements  of  the  names  of  the 
payees.  Common  prudence  ought  to 
have  suggested  to  [the  treasurer]  that 
before  making  such  i)ayments  it  was 
incumbent  upon  him  to  ascertain  and 
satisfy  himself  of  the  genuineness  of 
48 


the  signatures  which  he  found  in- 
dorsed upon  the  backs  of  the  instru- 
ments purporting  to  be  those  of  the 
payees  therein  named.  He  failed  so 
to  do,  and  this  of  itself  is  sufficient  to 
sustain  the  charge  of  negligence  in  the 
performance  of  his  official  duty.  As 
was  said  by  the  learned  trial  judge, 
had  defendant  observed  the  rule  of 
law  which  governs  in  conmiercial 
transactions  of  the  same  nature,  he 
would  have  detected  the  forgeries  at 
the  outset,  and  there  could  have  been 
no  great  loss  to  the  county  or  to  him- 
self. His  disregard  of  this  rule  was 
negligence,  undoubtedly,  and  it  was 
the  immediate  and  proximate  cause 
of  the  loss  to  the  county,  for  which 
defendant  must  be  held  responsible, 
unless  the  fact  that  the  certificates 
were  fraudulently  issued  by  the  dep- 
uty of  another  county  officer  for 
whose  malfeasance  such  officer  was 
also  responsible  to  the  county  can  be 
allowed  to  excuse  and  relieve  him. 
The  instruments  in  question  were  cer- 
tificates of  indebtedness  for  jurors' 
services  falsely  stated  to  have  been 
rendered  by  the  payees  therein  named, 
and  on  whose  order  payment  was  to 
be  made.  At  most,  they  were  the 
orders  of  one  officer  of  a  municipal 
corporation  upon  another  officer  for 
the  paying  out  of  municipal  funds. 
Although  negotiable  in  form,  they 
were    not    commercial    paper  in  any 


t 


'•pf 


It  I 
1,^1 


'■" 


378 


PERSONAL  LIABILITY  OF  OFFICERS. 


[§23S 


Iowa  said :  "  A  corporation  has,  however,  not  only  such  powers 
as  are  expressly  conferred,  but  such  others  as  are  reasonably 
incident  to  the  exercise  of  those  expressly  conferred.  The  inter- 
venor's  theory  is  that  the  plaintiff  [the  corporation]  should  be 
confined  to  its  remedy  by  action.  But  the  power  which  it  is 
conceded  that  the  plaintiff  has  to  maintain  an  action  does  not 
appear  to  be  expressly  conferred.  The  plaintiff  has  express 
power  to  make  settlement  with  its  treasurer,  and  must  be  deemed, 
by  implication,  to  have  power  to  enforce,  by  action,  both  settle- 
ment and  payment,  if  necessary.     But  an  arbitration  of  differ- 


sense.  That  they  were  in  fact  fraud- 
ulently issued  could  not  relieve  the 
defendant  treasurer  from  the  obliga- 
tion which  rested  upon  him  to  see  to 
it  that  he  paid  the  same  to  the  persons 
to  whom  payment  was  directed.  Had 
he  done  this  in  good  faith,  we  are  un- 
able to  see  why  his  duty  would  not 
have  been  performed,  and  in  his 
failure  to  pay  as  directed  lies  the 
claim  that  he  was  negligent.  Had  the 
certificates  been  regularly  issued  pay- 
ment upon  forged  indorsements  would 
not  have  excused  the  defendant  treas- 
urer, nor  could  it  have  relieved  the 
county  from  a  just  indebtedness  for 
jurors'  services.  The  liability  of  the 
county  treasurer  for  the  funds  in- 
trusted to  his  care  cannot  be  allowed 
to  depend  upon  the  fidelity  of  some 
otlier  county  officer,  but  is  with  him 
alone,  and  to  be  determined  by  his 
actions.  Nor  can  the  right  of  the 
county  to  require  of  him  that  he 
account  for  the  public  funds  be 
limited  or  controlled  by  the  fact  th»;t 
it  may  also  look  elsewhere  for  relief 
in  case  of  loss.  For  the  bad  conduct 
of  the  deputy  in  fraudulently  issuing 
the  certificates  the  county  may  have  a 
right  of  action  against  his  principal, 
the  clerk  of  the  court;  but  it  is  not  con- 
fined to  that  action;  it  is  not  obliged 
to  look  to  him  alone.  Unless  it  be 
upon  the  theory  that  as  these  certifi- 
cates were  issued  without  the  rendi- 
tion of  services,  and  fraudulently,  the 


payees  must  necessarily  have  been 
fictitious  and  nonexistent,  we  do  not 
quite  understand  the  assertion  of 
counsel  that  no  payees  were  named, 
and,  therefore,  the  instruments  were 
payable  to  bearer;  or  the  pertinency 
of  the  authorities  collated  by  counsel 
to  the  effect  that,  where  a  payee's  name 
is  left  blank  in  a  bill  or  note  when  the 
same  issued,  such  bill  or  note  is  in 
legal  effect  payable  to  bearer,  and 
until  the  payee  is  actually  named  the 
paper  will  circulate  as  though  made 
payable  to  bearer  in  terms.  We  have 
already  stated  that  from  the  averments 
of  the  complaint  the  presumption  is 
that  the  payees  named  were  not  ficti- 
tious or  nonexistent,  but  in  any  event 
the  weight  of  authority  is  that  the 
rule  cited  by  counsel  applies  only  to 
paper  put  into  circulation  by  a  maker 
with  knowledge  that  the  name  of  the 
payee  does  not  represent  a  real  person. 
Shipman  v.  Bank  of  New  York,  126 
N.  Y.  318;  8.  c,  27  N.  E.  Rep.  371. 
Tlie  rule  can  have  no  application  to 
the  issuance  of  county  orders  or  war- 
rants. There  is  absolutely  nothing  in 
the  appellant's  position  that  the 
county  is  estopped  from  saying  that 
the  payees  named  were  fictitious  and 
the  indorsements  forged.  The  wrong- 
ful acts  of  the  officers  of  a  municipal 
corporation  cannot  create  an  estoppel 
against  the  corporation,  the  taxpayers, 
or  the  people."  Citing  Mayor  v.  Ray, 
19  WaU.  468. 


236] 


PERSONAL  LIABILITY  OF  OFFICERS. 


379 


onces  is  just  as  legitimate  a  mode  of  settlement  as  by  action. 
Courts,  indeed,  are  disposed  to  encourage  settlements  by  arbitra- 
tion. Zook  V.  Spray,  38  Iowa,  273.  We  may  add  that  sucli 
settlements  seem  to  be  peculiarly  appropriate  where  arbitrators, 
possessing  more  or  less  of  an  expert  character,  can  be  called  into 
requisition.  We  presume  that  the  intervenor  could  not  deny 
that  private  corporations  may  submit  to  arbitration.  But,  in  our 
opinion,  the  power  may  properly  enough  be  exercised  by  public 
corporations  also.  It  was  held  in  Dix  v.  Town  of  Dummerston, 
19  Yt.  262,  that  selectmen,  having  power  to  audit  and  allow 
claims,  might  submit  to  a  reference.  As  having  some  bearing 
upon  the  same  question,  see,  also.  Inhabitants  of  Boston  v.  Brazer, 
11  Mass.  447;  Brady  v.  Mayor  of  Brooklyn,  1  Barb.  584."^ 

§  236.  Liability  under  special  provisions  of  charter  or 
statute. —  Where  the  charter  of  a  corporation  makes  every 
director  personally  liable  for  the  debts  of  the  corporation  during 
his  administration  to  an  amount  not  to  exceed  a  fixed  sum,  an 
action  in  equity  may  be  maintained  by  a  creditor  against  the 
directors  as  it  would  prevent  a  multiplicity  of  suits,  and  the 
liability  of  all  the  parties  interested  could  be  determined  in  the 
one  suit.  In  such  case  the  corporation  would  not  be  a  necessary 
party  defendant  when  the  suit  is  first  brought,  nor  would  it  be 
necessary  to  make  all   the    creditors  parties  plain tiif.^     And  it 


'District    Township  of  Walnut  v. 
Rankin,  (1886)  70  Iowa,  65,  66,  67. 

•Bauer  v.  Piatt,  (1893)  72  Hun,  326; 
8.  c,  25  N.  Y.  Supp.  426.  Parker, 
J.,  speaking  for  the  court  said  :  "  The 
purpose  of  the  provision  [of  the 
charter]  was  not  only  to  insure  vigil- 
ance on  the  part  of  the  directors,  but 
to  further  assure  to  the  creditors  of  the 
company  payment  of  their  claims. 
It  has  for  its  object  the  protection  of 
all  creditors,  not  a  portion  of  them. 
That  result  might  not  be  effectuated 
if  each  creditor  should  be  compelled 
to  resort  to  an  action  at  law.  The 
liability  of  each  director  does  not  ex- 
ceed five  thousand  dollars.  If  then, 
each  director  should  suffer  judgment 
to  go  against  him  by  default,  the 
creditors    first    suing   might   recover 


their  entire  claims,  while  others  less 
prompt  would  not  receive  anything. 
If  the  directors  should  find  that  the 
amount  of  their  statutory  liability 
would  not  equal  the  deficiency  of  the 
company  to  its  creditors  some  or  all 
of  them  might  armnge  for  a  pref- 
erence of  creditors  by  answering, 
or  demurring  in  some  cases,  while 
suffering  default  in  others.  By  such 
methods,  which  even  the  vigilant 
prosecutor  could  not  overcome,  some 
creditors  might  be  paid  in  full  while 
others  would  receive  little  or  nothing. 
As  the  statute  was  intended  for  the 
benefit  of  all  creditors,  and  all  of 
them,  as  well  as  some  of  them,  must 
be  presumed  to  have  trusted  in  part 
to  the  protection  assured  them  by  its 
provisions,  it  is    no   more  than  just 


! 


I 


>  I 


jHBIf 


.^^Bf 


380 


PERSONAL  UABILITY  OF  OFFICERS. 


[§236 


would  be  of  advantage  to  the  directors  to  bring  them  all  into 
court  on  the  equity  side,  as  they  cannot  be  decreed  to  pay  more 
individually  than  the  liability  named  in  the  charter  and  assured 
by  them  when  they  became  directors.  Besides,  such  a  suit  is 
adapted  for  their  protection  in  such  cases  from  the  possibility  of 
vexatious  litigation.  If  the  amount  due  creditors  equals  or 
exceeds  the  aggregate  of  the  statutory  liability  of  the  directors, 
the  judgment  decreeing  that  each  make  payment  of  the  sum  for 
which  he  is  liable  will  relieve  him  from  the  annoyance  and  expense 
of  further  litigation  ;  on  the  other  hand,  if  it  should  prove  to  be 
less,  the  judgment  will  provide  for  a  ratable  payment,  and,  in 
addition  to  the  other  litigation  which  would  otherwise  be 
threatened,  possibly  an  action  for  contribution  may  be  avoided.* 
The  trustees,  directors  or  managers  of  any  society  or  corporation 
organized  under  the  provisions  of  this  New  York  statute,'  by  a 
section  of  that  statute  are  made  "  jointly  and  severally  liable  for 
all  debts  due  from  said  society  or  corporation  contracted  while 
they  are  trustees,  provided  said  debts  are  payable  one  year  from 
the  time  they  shall  have  been  contracted,  and  provided  a  suit  for 
the  collection  of  the  same  shall  be  brought  within  one  year  after 
the  debt  shall  become  due  and  payable."  In  an  action  brought 
against  a  trustee  of  a  club  which  was  organized  under  this  statute 
for  the  recovery  of  the  amount  of  a  promissory  note  of  the  club 
payable  at  four  months  from  date,  it  was  held  by  the  Court  of 
Common  Pleas  of  the  city  of  New  York,  in  General  Term,  that 
a  judgment  against  the  corporation  was  not  requisite  ;  also  that  a 
judgment  against  one  trustee  upon  his  several  liability  would  not 
discharge  or  affect  the  liability  of  another  trustee.*  The  Supreme 
Court  of  New  York,  in  General  Term,  has  sustained  the  con- 
stitutionality of  this  statute.  And  they  have  also  heW  that  the 
creditor  under  it  seeking  to  charge  the  trustees  need  not  exhaust 
his  remedy  against  the  corporation  before  suing  the  trustees,  and 


that  each  creditor  should  share  ratably 
in  the  fund  which  an  enforcement  of 
the  liability  of  the  directors  will  pro- 
duce." The  court  referred  to  Board 
of  Supervisors  v.  Deyoe,  77  N.  Y.  219; 
Weeks  r.  Love,  50  N.  Y.  568,  which 
followed  Bank  of  Poughkeepsie  v. 
Ibbotson,  24  Wend.  473;  and  Garrison 
r.  Howe,  17  N.  Y.  458;  also  to  Pfohl 


p.  Simpson,  74  N.  Y.  137,  as  directly 
applicable  and  controlling  in  this  case. 

•Parker,  J.,  in  Bauer  v.  Piatt, 
(1893)  72  Hun,  326;  s.  c,  25  N.  Y. 
Supp.  426. 

«N.  Y.  Laws,  1875,  chap.  267. 

•Strauss  v.  Trotter,  (1893)  6  Misc. 
Rep.  77;  8.  c,  26  N.  Y.  Supp.  20. 


PERSONAL  LIABILITY  OF  OFFICERS. 


381 


§236] 

the  action  may  be  maintained  against  any  or  all  of  the  trustees.^ 
They  also  held  that,  to  create  a  liability  on  the  part  of  the  trustees 
of  this  club  (the  action  being  upon  promissory  notes  of  the  club), 
they  must  have  been  directors  of  the  corporation  at  the  time  of 
the  creation  of  the  indebtedness,  and  that  the  fact  that  they  were 
trustees  of  the  club  at  the  time  of  the  giving  of  the  notes,  if  they 
were  given  for  a  past  indebtedness,  was  not  sufficient  to  charge 
them  with  liability.'     A  prior  recovery  of  a  judgment  against  a 
corporation  is  not  essential  to  the  maintenance  of  an  action  to 
enforce   the  personal  liability  of  a  director  where,  under  the 
charter  of  the  corporation,  every  director  is  made  personally  liable 
in  an  action  at  law  for  the  corporate  debts.     And  other  creditors 
and  directors  need  not  be  joined  as  parties  in  such  actions.'*     The 
Supreme  Court  of  New  York,  in  General  Term,  has  held  that  the 
obtaining  of  a  judgment  against  a  corporation  by  a  creditor,  who 
at  the  same  time  was  a  stockholder  and  trustee,  with  the  coop- 
eration of  the  board  of  the  associate   trustees,  the   corporation 
being  insolvent,  was  a  violation  of  the  statute  of  New  York  which 
prohibits  the  assigning  or  disposing  of  its  property  by  any  cor- 
poration's officers,  for  the  payment  of  a  debt,  or  from  making 
any  transfer  in  contemplation  of  insolvency ;  also  that  a  sale  of 
the  property  under  such  a  judgment  was  void  as  to  other  judg- 
ment  creditors.*     But   should   there   not   appear  an  intent  to 
defraud  creditors,  except  as  derived  from  the  statute,  and  this 
judgment  creditor  purchase  the  property  at  the  sale  under  his 
judgment,  and    afterwards   satisfy  a  given   mortgage   upon  it, 
besides  other  outstanding  indebtedness  of  the  corporation,  the 
Uen  of  the  other  judgment  creditors  would  be  subject  to  such  mort- 
gage and  indebtedness.^     A  provision  in  a  charter  of  a  corpora- 
tion that,  "  If  the  indebtedness  of  said  company  shall  at  any  time 
exceed  the  capital  stock  paid  in  the  directors  assenting  thereto 
shall  be  individually  liable  to  the  creditors  for  said  excess,"  has 
been  held  by  the  Tennessee  Supreme  Court  to  impose  an  individ- 
ual liability  upon  them  for  such  specific  debts  only  as  were  con- 

» Metzger   v.  Carr,    (1894)  79  Hun,  Goodrich,  (Ct.  Com.  PI.  1893)  2  Misc. 

258;  8.  c,  29  N.  Y.  Supp.  410.  Rep.  578;  21  N.  Y.  Supp.  949. 

«Ibid.  *King  V.  Union  Iron  Co.,  (1891)  58 

•State  Bank  v.  Andrews,  (Ct.  Com.  Hun,  601;  s.  c,  11  N.  Y.  Supp.  603. 

PI.  N.  Y.   1893)  2  Misc.  Rep.  394;  s.  ''Ibid. 

C,  21  N.   Y.  Supp.   948;    Merritt  v. 


i  ! 


.     I 


■     -.^ 


''^*r1f 


^ 


382 


PERSONAL  LIABILITY  OF  OFFICERS. 


[§237 


tracted  with  their  assent  in  excess  of  the  paid-up  capital  and 
remain  unpaid  after  the  corporate  assets  are  exhausted.* 

§  237.  Liability  under  provisions  of  charter  —  Pennsyl- 
vania.— The  charter  of  a  Pennsylvania  corporation  provided  that 
if  the  directors  failed  to  make  an  annual  statement  of  the  nature 
and  character  of  the  property  of  the  association,  or  if  they  made 
a  false  statement,  they  should  be  liable  for  the  debts  of  the  cor- 
poration. The  directors  made  no  statement  for  three  years. 
They  then  published  a  statement,  in  lumping  items  only,  on  the 
face  of  which  the  company  was  solvent.  As  a  matter  of  fact  the 
company  was  insolvent  at  the  time,  and  two  days  afterwards  a 
receiver  was  appointed.  In  an  action  against  the  directors,  they 
filed  an  affidavit  of  defense  in  which  they  averred  that  they  had 
made  the  statement  with  ordinary  care  and  prudence,  and  in  the 
belief  that  the  association  was  solvent.  This  affidavit  of  defense 
was  held  by  the  Supreme  Court  of  Pennsylvania  to  be  insufficient 
to  prevent  judgment,  as  the  delay  in  making  the  statement  and 
its  defective  character  brought  the  directors  within  the  personal 
liability  clause  of  the  charter.' 


» Allison  r.  Coal  Company,  (1888)  3 
PicKie,  (Tenn.)  60;  s.  c.  9  S.  W. 
Rep.  226.  A  case  illustrating  the  cir- 
cumstances under  which  a  by-law  of  a 
corporation  making  the  director  liable 
for  creating  an  indebtedness  exceed- 
ing the  amount  of  the  subscribed 
capital  stock  would  be  held  to  have 
been  waived :  Underbill  r.  Santa 
Barbara  Land,  Building  &  Imp.  Co., 
(1891)  93  Cal.  300;  8.  c,  28  Pac.  Rep. 
1049. 

»  Githers  r.  Clarke,  (1893)  1.-8  Pii.  St. 
616;  8.  c,  28  Atl.  Rep.  232;  33  W.  N. 
C.  462.  The  court  said:  "  It  is  quite 
clear  that  their  belief  that  the  corpora- 
tion was  solvent  was  no  excuse  for 
their  failure  to  make  an  earlier  state- 
ment, and  that  '  ordinary  care  and  pru- 
dence' in  making  it  when  they  did 
cannot  relieve  them  from  the  liabiUty 
incurred  by  their  delay.  They  were 
chargeable  with  knowledge  of  the  con- 
dition of  the  association,  and  they 
ought  to  have  made  a  true  and  intelli- 


gible statement  of  it  in  conformity 
with  the  act  of  assembly.  It  was  a 
duty  the  association  owed  to  the  pub- 
lic, and  the  default  of  their  predeces- 
sors should  have  hastened  their  per- 
formance of  it.  But  they  neglected  to 
make  any  statement  for  three  months, 
and  until  the  association  was  about  to 
pass  into  the  hands  of  a  receiver,  and 
when  they  did  make  one  it  was  defec- 
tive. It  did  not  set  forth  with  reason- 
able inirticularity  the  '  nature  and 
chu meter  of  the  property  of  the  cor- 
poration.' It  represented  the  associa- 
tion as  solvent,  when  in  fact  it  was  not 
able  to  pay  more  than  ten  per  cent  of 
its  liabilities.  It  may  be  true  that  the 
directors  believed  the  corporation  was 
solvent,  and  that  the  assets  were  as 
valuable  as  represented,  but  it  is  very 
evident  that  their  belief  was  not  war- 
ranted by  the  facts  nor  consistent  with 
the  knowledge  of  its  affairs  which  the 
law  imputes  to  them." 


PERSONAL  LIABILITY  OF  OFFICERS. 


383 


§238] 

§  238.  Statutory  liability  —  California  statutes.— To  make 
directors  of  a  corporation  personally  liable  under  the  provision  of 
the  Civil  Code  of  California  that  "  the  directors  of  corporations 
must  not     *     *     *     create  debts  beyond  the  subscribed  capital 
stock     *     *     *,''  and  then  affixes  a  liability  upon  them  for  its 
violation  to  the  full  amount  of  the  debt  contracted,  it  must  appear 
that  the  corporation  must  have  been  indebted  at  the  same  time  in 
an  aggregate  amount  exceeding  the  amount  of  the  capital  stock. 
This  statute  has  been  held  a  penal  one  and  subject  to  a  strict  con- 
struction against  the  liability.     Under  that  construction  the  pro- 
hibited debts  have  been  held  to  be  ordinary  subsisting  debts  in 
excess  of  the  capital  stock,  and  not  the  aggregate  of  the  debts  of 
the  company  created  during  its  entire  corporate  existence.     The 
prohibition  applies  tu  debts  in  excess  of  all  the  subscribed  capital 
stock,  whether  it  has  all   been   i)aid  in  or  only  part  of  it,  and 
regardless  of  the  disposition  which  may  have  been  made  of  it.    A 
purchase  of  mines  for  the  full  amount  of  the  capital  stock,  to  be 
paid  for  in  the  stock  of  the  corporation,  a  portion  of  which  only 
is  paid  in,  does  not  make  all  debts  thereafter  created  in  excess  of 
the  subscribed  capital  stock.     The  subscribed  capital  stock  of  a 
corporation  is  the  fund  upon  which  the  transactions  of  the  corpo- 
ration are  to  be  made,  and  is  a  guaranty  to  creditors  that  all  obli- 
gations to  that  amount  will  be  met ;  but  it  cannot  be  considered 
as  a  debt  of  the  corporation,  whether  paid  in  or  not,  in  estimating 
the  amount  of  indebtedness  beyond  which  the  directors  of  the 
corporation  may  make  themselves  personally  liable.     Debts  to  be 
thus  considered  are  only  those  created  by  voluntary  act  of  the 
directors.^     The  directors  of  a  mining  corporation  are  not  ren- 
dered liable  for  the  penalty  imposed  by  the  statute  of  California 
requiring  the  directors  of  such  corporations,  on  the  first  Monday 
of  each  and  every  month,  to  post  in  the  office  of  the  corporation 
a  verilied  balance  sheet  for  the  previous  month,  and  providing 
that  upon  their  failure  so  to  do  they  shall  be  liable  in  an  action 
by  any  stockholder  in  the  penal  sum  of  $1,000  for  each  failure  to 
comply  with  its  requirements.     It  would  seem  that  under  the 
provisions  of  the  statute  the  stockholder  or  stockholders  might, 
at  their  election,  proceed  against  the  directors  for  a  single  delin- 
quency, or  might  forbear  to  do  so  until  more  than  one  dereliction 
of  duty  on  the  part  of  their  trustees  had  occurred,  but  in  neither 

»  Moore  v.  Lent,  (1889)  81  Cal.  502;  s.  c,  22  Pac.  Rep.  875. 


1* 


H 


n 


f 


Wf 


I 


384 


PEKSONAL  LIABILITY  OF  OFFICEBS. 


[§239 


event  could  more  than  one  penalty  be  recovered.^  The  statute 
of  California  requiring  the  directors  and  officers  of  mining  cor- 
porations to  make  and  post  an  account  or  balance  sheet  on  the 
first  Monday  of  each  month  has  been  held  to  be  mandatory,  and 
the  officers  and  directors  of  such  corporations  must  be  presumed 
to  know  at  all  times  the  condition  of  the  business  and  property 
under  their  control,  and  in  the  absence  of  a  showing  of  impossi- 
bility to  have  made  and  posted  the  account  as  required,  they  can- 
not avail  themselves  of  any  presumption  that  their  duty  has  been 
performed.  Nor  can  they  relieve  themselves  from  liability  to  a 
stockholder  for  liquidated  damages  under  the  statute  by  showing 
that  the  account  was  posted  after  the  time  required  by  law  and 
the  day  before  the  commencement  of  the  action.^ 

§  239.  Statutory  liability  —  Colorado  statutes.—  The  direct- 
ors of  a  corporation,  coming  into  office  after  an  indebtedness  has 
been  created  against  it,  and  after  the  previous  board's  default  in 
failing  to  file,  as  required  by  the  statutes  of  Colorado,  a  report 
showing  the  amount  of  the  corporate  indebtedness,  will  not  be 
held  liable  under  the  general  statute  which  provides  "  that  all  the 
directors  or  trustees  of  the  company  shall  be  jointly  and  severally 
liable  for  all  the  debts  of  the  company  that  shall  be  contracted 
during  the  year  next  preceding  the  time  when  such  report  should 
*  *  *  have  been  made  and  filed,  and  until  such  report  shall 
be  made."  *  A  complaint  against  directors  of  a  corporation  to 
enforce  their  liability  under  the  statutes  of  Colorado  which  makes 
directors  and  trustees  of  corporations  "  liable  for  all  the  debts  of 
the  company  that  shall  be  contracted  during  the  year  next  pre- 
ceding the  time  when  such  report  should  by  this  section  have 
been  made  and  filed  and  until  such  report  shall  be  made,"  refer- 
ring to  the  annual  report  of  the  amount  of  its  capital  and  the 
proportion  actually  paid  in,  etc.,  must  aver  the  contract  of  indebt- 
edness, the  default  of  the  corporation  and  the  directorship  of  the 
defendants,  and  as  of  such  dates  to  show  the  liability  of  the 
defendants  under  the  statute.* 


>  Loveland  v.  Gamer,  (1887)  71  Cal. 
541;  8.  c,  12Pac.  Rep.  616. 

*  Schenck  v.  Bandmann,  (1889)  81 
CW.  231;  8,  c,  22  Pac.  Rep.  654. 

»  Austin  V.  Berlin,  (1889)  13  Colo.  198; 


ton  V.  Otis.  21  N.  Y.  261;  Quarry  CJo. 
V.  Bliss.  27  N.  Y.  299. 

*  Anfenger  v.  Anzeiger  Pub.  Co., 
(1866)  9  Colo.  377;  s.  c,  12  Pac.  Rep. 
400.     As  to  construction  of  the  Colo- 


fl.  c,  22  Pac.  Rep.  433 ;  citing  Bough-   rado  statutes  imposing  liability  upon 


§240] 


PERSONAL  LIABILITY  OF  OFFICERS. 


385 


§  240.  Statutory  liability  —  Iowa  statutes.—  It  must  appear, 
in  order  to  render  officers  of  a  corporation  liable  under  the  stat- 
utes of  Iowa  for  diversion  of  funds  or  paying  dividends  so  as  to 
leave  insufficient  funds  to  meet  liabilities,  that  the  entire  property 
of  the  corporation  is  not  sufficient  to  pay  its  indebtedness.^     The 
word  "  liability  "  in  this  statute  means  existing  indebtedness,  the 
payment  of  which  can  be  enforced.     It  does  not  include  corpo- 
rate liability  for  payments  of  capital  stock,  the  liability  being 
remote  and  contingent.^     There  being  sufficient  assets  in  the  pos- 
session of  a  corporation  to  pay  all  its  debts  at  the  time  a  dividend 
is  declared,  the  payment  of  a  dividend  will  not  be  held  illegal  on 
a  diversion  of  funds  to  objects  other  than  those  authorized.^     The 
statutory  provision  in  Iowa  that  intentional  fraud  in  failing  to 
comply  substantially  with  the  articles  of  incorporation,   or   in 
deceiving  the  public,  that  any  person  who  has  sustained  injury  from 
such  fraud  may  recover  damages  against  those  guilty  of  partici- 
pating in  the  fraudulent  act,  only  applies  to  officers  or  others 
guilty  of  intentional  fraud.     Hence,  in  an  action  to  recover  from 
individual  officers  of  a  corporation  the  amount  of  a  judgment 
against  the  corporation  on  the  ground  that  such  officers,  have  ren- 
dered themselves  liable  by  fraud,  they  will  be  relieved  from  liability 
by  a  proof  of  the  absence  of  intentional  fraud  and  diversion  of  assets 
to  their  own  use.*     In  an  action  for  damages  under  this  statute, 
the  particular  respect  in  which  there  was  a  failure  to  comply  with 
the  articles  of  incorporation  resulting  in  damages  to  the  complain- 
ant, or  the  particular  act  of  deception,  must  be  specified.^     Under 
the  statute  of  Iowa  making  the  directors  of  a  railroad  company 
receiving  taxes  in  aid  thereof  liable  to  any  of  its  stockholders  in 
double  the  amount  of  the  par  value  of  his  stock  in  the  event  of 
their  voting  to  bond  or  mortgage  the  road  to  exceed  certain  fixed 
amounts  per  mile,  the  Supreme  Court  of  Iowa  held  that  no  lia- 
bility on  the  part  of  the  directors  arose  where  such  an  incum- 
brance was  voted  prior  to  the  voting  of  the  tax,  and  the  mortgage 
was  executed  and  recorded  before  the  tax  in  aid  of  the  railroad 
was  collected  and  paid  to  the  company .<^ 

officers  of  corporations  for  failure  to 
make  certain  annual  reports,  and  for 
signing  a  false  report  knowing  it  to  be 
false,  see  Matthews  p.  Patterson,  (1891) 
16  Colo.  215;  8.  c,  26  Pac.  Rep.  812. 
*  Miller  v.  Bradish,  69  Iowa,  278. 
49 


'  Ibid. 
« Ibid. 

*  Hoffman  v.  Dickey,  54  Iowa,  135. 
»  White  V.  Hosford,  37  Iowa,  566. 
•Walker    v.     Birchard,    (1891)    82 
Iowa,  388. 


» 


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O 


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.386 


PERSONAL  LIABILITY  OF  OFFICERS. 


[§241 


§  241.    Statutory   liability — Massachusetts    statutes. — 

The  statute  of  Massachusetts  makes  the  officers  of  a  corporation 
jointly  and  severally  liable  for  the  debts  of  the  corporation  in 
case  there  are  false  statements  in  the  certificate  of  the  condition 
of  the  corporation  which  they  are  required  by  law  to  make  at 
certain  stated  times.^  A  tax  is  a  debt  within  the  meaning  of 
that  statute.'  The  directors  and  officers  signing  a  certificate  of 
the  condition  of  the  corporation,  knowing  it  to  be  false,  are  liable 
for  the  debts  of  the  corporation  then  existing,  as  well  as  for 
debts  incurred  thereafter.^  But  under  this  Massachusetts  statute 
directors  cannot  be  made  liable  for  the  debts  of  a  corporation,  unless 
the  certificate  required  by  law  l)e  willfully  false.*  Debts  due 
from  a  corporation  to  one  of  the  directors  are  debts  within  the 
meaning  of  the  Massachusetts  statute  making  the  president  and 
directors  of  a  corporation  liable  to  the  extent  of  the  excess  of  its 
debts  over  its  capital.^  On  a  bill  brought  to  enforce  this  liability 
by  a  judgment  creditor,  the  plaintiffs  may  prove,  not  only  their 
judgment  debt,  but  a  further  sum  due  them  on  simple  contract.® 
Where  the  del)ts  of  the  corporation  exceed  the  capital  a  director 
of  the  corporation,  who  is  also  a  creditor,  cannot  share  with  other 
creditors,  who  are  not  directors,  in  the  amount  which  he,  or  he 


'Pub.  St.  Mass.  chap.  106,  §5^54, 
60. 

3  Felker  v.  Standard  Yarn  Co.,  (1889) 
148  Mass.  226;  s.  c,  19  N.  E.  Rep. 
220. 

3  Ibid.     It  was  said  by  the  court : 
"  And  no  doubt  one  important  reason, 
perhaps  the  principal  reason,  for  the 
statutory  provisions  is  to  enable  per- 
sons who  may  have  occasion  to  deal 
with  corporations  to    ascertain   their 
condition,  and  their  title  to  credit,  so 
that    a    person    whose   debt   already 
exists  at  the  time  of  the  filing  of  the 
certificate  certainly  has  not,  by  any 
false    statements    contained    therein, 
been  misled  into  giving  credit  to  the 
corporation,  and  may  not  in  any  way 
be  injured  thereby.      But  in  imposing 
the  penalty  of  liability  for  its  debts 
and    contracts,    the    statute    is    not 
limited  to  such  debts  and  contmcts  as 
were  created  in  favor  of  persons  who 


had  examined  and  been  misled  by  the 
false  certificate,  as  it  should  be  if  the 
idea  of  the  defendant  were  followed 
out.  It  is  not  even  limited  to  debts 
and  contracts  which  come  into  exist- 
ance  after  tlie  filing  of  the  certificate, 
but  is  genenil  in  its  terms,  and  pro- 
vides that  the  officers  who  knowingly 
make  the  false  certificate  '  shall  be 
jointly  and  severally  liable  for  its  debts 
and  contrjicts.'  Pub.  St.  Mass.,  chap, 
106,  §  60.  The  construction  of  this 
language  includes  existing  debts  and 
contracts,  and  we  find  nothing  else- 
where sufficient  to  show  that  the 
legislature  meant  otherwise." 

4  Felker  r.  Standard  Yarn  Co..  (1889) 
150  3Iass.  264;  s.  c,  22  N.  E.  Rep. 
896. 

^  Thacher  r.  King,  (1892)  156  Mass. 
490;  8.  c,  31  N.  E.  Rep.  648. 

•Ibid. 


§242] 


PERSONAL  LIABILITY  OF  OFFICERS. 


387 


til 


and  other  directors,  may  be  compelled  to  pay  towards  the  debts 
of  the  corporation  in  consequence  of  such  excess  under  this 
statute.^  The  statute  of  Massachusetts  making  officers  of  cor- 
porations jointly  and  severally  liable  for  the  debts  thereof,  when 
they  exceed  the  capital,  "  to  the  extent  of  such  excess  existing  at 
the  time  of  the  commencement  of  the  suit  against  the  corporation 
upon  the  judgment  in  which  the  suit  in  equity  to  enforce  such 
liability  is  brought,"  has  had  the  consideration  of  the  federal 
court  for  the  district  of  Vermont,  and  the  court  construed  the 
statute  and  held  the  liability  under  it,  before  suit  brought  to  fix  it, 
not  to  be  a  debt,  nor  any  fixed  obligation  to  pay,  but  only  that 
from  which,  by  the  prescribed  course,  an  obligation  to  pay  might 
be  raised.^ 

§  242.  Statutory  liability  —  Minnesota  statutes.—  There  is 
a  statute  in  Minnesota  to  this  effect:  "If  any  corporation 
organized  and  established  under  the  authority  of  this  act  shall 
violate  any  of  its  provisions,  and  shall  thereby  become  insolvent, 
the  directors  ordering  or  assenting  to  such  violation,  shall  be 
jointly  and  severally  liable  in  an  action  founded  on  this  statute 
for  all  debts  contracted  after  such  violation  as  aforesaid."^  The 
Supreme  Court  of  Minnesota  held  that  the  ultra  vires  acts  of  the 
directors  of  the  corporation  in  the  case  before  them  in  executing 
accommodation  paper  in  the  name  of  the  corporation,  and  in 
lending   the   funds  of  the  corporation  to  others,  constituted  a 


*  Ibid. ;  citing  Potter  v.  Stevens 
Machine  Co.,  127  Mass.  592;  Thayer 
V.  Union  Tool  Co.,  4  Gray,  75,  79; 
Merchants'  Bank  v,  Stevenson,  10 
Gray,  232;  Cambridge  Water  Works 
V.  Somerville Dyeing  «& Bleaching  Co., 
4  Allen,  239;  Merchants'  Bank  v. 
Stevenson,  5  Allen,  398,  401,  402,  and 
7  Allen,  489;  First  National  Bank  v. 
Hingham  Manufg.  Co.,  127  Mass.  563. 

'Knower  v.  Haines,  (1887)  31  Fed. 
Rep.  513.  Wheeler,  J.,  said  :  "No 
liability  of  oflScers  or  stockholders  of  a 
corporation  exists  at  common  law,  but 
only  by  statutes  of  the  sovereignty 
creating  it.  When  so  created,  it  exists 
only  as  created,  and  can  be  enforced 
only  as  provided  by  such  statutes 
when  they  make  provision  for  that 


purpose.  Pollard  v.  Bailey,  20  Wall. 
520;  Fourth  National  Bank  v.  Franck- 
lyn,  120  U.  S.  747;  s.  c,  7  Sup.  Ct. 
Rep.  757.  Such  a  liability  under  a 
statute  like  this,  before  suit  brought 
to  fix  it,  is  not  a  debt,  nor  any  fixed 
obligation  to  pay,  but  is  only  that 
from  which,  by  the  prescribed  course, 
an  obligation  to  pay  may  be  raised. 
Ripley  v.  Sampson,  10  Pick.  371; 
Bangs  D.  Lincoln,  10  Gray,  600.  This 
is  different  from  cases  where  the  law 
raises  the  liability  from  the  acts  of  the 
oflScers  or  stockholders  and  leaves  it 
to  be  enforced  by  the  appropriate 
remedy.  Windham  Provident  Inst. 
V.  Sprague,  43  Vt.  502." 

3  Laws  Minn.  1873,  chap.   11,  §  23 
(Gen.  Sts.  Minn.  1878,  chap.  34,  §  142.) 


I   '.        I 


I 


li 


■I 

ll 


388 


PERSONAL  UABILITY  OF  OFFICERS. 


[§24a 


^I'l 


Tiolatioii  of  the  statute  "by  the  corporation  "  within  its  meaning. 
As  to  the  "assent"  required  to  make  a  director  liable,  they 
held  that  to  constitute  "  assent "  there  must  be  something  more 
than  mere  negligence  on  the  part  of  a  director  in  not  knowing  what, 
in  the  exercise  of  proper  care,  he  ought  to  have  known.     There 
must  be  some  willful  or  intentional  violation  of  duty  —  assenting 
to  it,  knowing  that  the  act  is  being  or  about  to  be  done.     But  if, 
with  such  knowledge,  he  neither  objects  to  nor  opposes  it  when 
his  duty  requires,  and  when  he  has  the  opportunity  of  doing  so, 
this  would  be  "  assent."     Further,  if  a  series  of  acts  or  a  con- 
tinuous course  of  conduct  on  the  part  of  the  directors,  in  viola- 
tion of  the  statute,  finally  producing  the  insolvency  of  the  corpo- 
ration, is  begun  before  the  debt  of  a  creditor  is  contracted,  the 
debt  is  one  contracted  "  after  such  violation,"  although  the  series 
of  acts  or  course  of  conduct  is  not  completed  or  the  insolvency  of 
the  corporation  consummated  until  afterwards.^     These  rules  were 
declared  as  to  actions  to  enforce  this  liability  under  the  statute, 
to  wit :  A  creditor  of  the  corporation  may  sue  one  or  more  of 
the  directors  to  enforce  the  liability  without  joining  all  the  creditors 
to  whom  they  are  liable,  or  all  the  directors  subject  to  the  liability. 
His  right  of  action  is  neither  taken  away  nor  suspended  by  the 
fact  that  the  affairs  of  the  corporation  may  have  been  placed  in 
the  hands  of  a  receiver.     Nor  is  it  necessary  that  the  creditor  sue 
the  corporation  and  obtain  judgment  against  it  before  suing  the 
directors.      The   corporation,   if    necessary,  may   be    joined   as 
co-defendant  with  the  directors,  and  the  creditor  may  establish 
his  claim  against  the  corporation  in  the  same  action.^ 

§  243.    Statutory      liability  —  Missouri     statutes.— The 

Supreme  Court  of  Missouri  has  held  that  under  the  statute  of 
that  state  making  directors  of  corporations,  where  they  have 
allowed  the  debts  of  the  corporation  to  exceed  the  amount  of 
capital  stock  paid  in,  jointly  and  severally  liable  to  the  extent  of 
such  excess  for  all  debts  of  the  corporation  then  existing,  and  for 


» Patterson  v.  Stewart,  (1889)  41 
Minn.  S4;  s.  c,  42  N.  W.  Rep.  926. 

'  Ibid.  The  court  commented  upon 
the  following  cases  which  are  of  differ- 
ent kinds  to  enforce  liability  of  stock- 
holders and  officers :  Dodge  v.  Min- 
nesota Plastic  Slate  Roofing  Co.,  16 
Minn.  368;  Merchants'  National  Bank 


V.  Bailey  Manufacturing  Cor.,  34  Minn. 
323;  8.  c,  25  N.  W .  Rep.  639;  Allen  v. 
Walsh,  25  Minn  543;  Johnson  v. 
Fischer,  30  Minn.  173;  s.  c.  14  N.  W. 
Rep.  799 ;  Bassett  v.  St.  Albans  Hotel 
Co.,  47  Vt.  313;  Homor  v.  Henning, 
93  U.  S.  228. 


4       • 


§244] 


PERSONAL  LIABILITY  OF  OFFICERS. 


389 


all  that  should  be  contracted  so  long  as  they  continued  in  office, 
etc.,  were  liable  in  an  action  to  recover  a  debt  contracted  under 
such  circumstances,  notwithstanding  one  of  the  firm  owning  the 
debt  was  a  stockholder  in  the  jsorporation.^  The  debts  for  which 
directors  of  a  corporation  will  be  held  liable  under  this  Missouri 
statute  are  the  debts  voluntarily  incurred  by  the  directors.^  A 
judgment  against  a  corporation  for  damages  for  a  loss  of  a  steam- 
boat, for  instance,  through  the  negligence  of  the  agents  and  serv- 
ants of  the  corporation  would  not  be  one  of  the  debts  contem- 
plated by  the  statute.^ 

§  244.  Statute  01  New  York  —  liability  for  failure  to  file 
annual  report. —  Under  the  statutes  of  New  York,  making  the 
directors  of  certain  corporations  liable  for  the  debts  of  the 
corporation  in  case  they  fail  to  file  with  the  secretary  of  state  the 


*  Anderson  r.  Blattau,  43  Mo.  42. 
The  court  distinguished  Kritzer  r. 
Woodson,  19  Mo.  327,  in  these  words: 
*'  That  was  a  case  where  a  stock- 
holder in  a  corporate  company  sued 
the  directors  to  recover  back  an  amount 
which  he  had  been  compelled  to  pay 
to  the  creditors  of  the  company.  The 
law  made  him  liable  to  the  extent  of 
double  the  amount  of  stock  in  the 
company.  Its  entire  assets  having 
been  exhausted,  he  was  compelled  to 
pay  the  creditor  of  the  company  the 
amount  which  he  sought  to  recover  in 
that  suit  upon  the  ground  that  the 
debts  of  the  corporation  had  been 
suffered  to  accumulate  to  an  amount 
in  excess  of  the  capital  stock  actually 
paid  in.  But  the  court  said  this 
statute  was  given  for  the  protection  of 
creditors  and  not  the  individual  mem- 
bers of  the  company.  It  is  true  that 
for  any  improper  management  of  the 
affairs  of  the  company,  by  which  a 
liability  might  be  incurred  on  the  part 
of  the  directors  to  the  individual  mem- 
bers, an  action  could  be  maintained 
against  them.  Such  liability,  how- 
ever, exists  independent  of  this  statute. 
It  is  clear  that  the  point  decided  in 
that  case  was  that  the  statute  was  in- 


tended for  the  protection  of  such  par- 
ties as  really  held  debts  against  the 
company.  The  stockholder,  by  dis- 
charging an  obligation  which  the  law 
imposed  upon  him,  could  not  make 
himself  the  creditor  of  the  corpora- 
tion. His  claim  was  in  no  sense  a 
debt  due  by  the  company,  and  hence 
it  w^as  not  covered  by  the  provisions  of 
a  statute  made  for  a  different  purpose 
altogether.  This  [claim  in  suit  here] 
seems  to  have  been  a  debt  contracted 
by  the  company  in  the  prosecution  of 
its  business,  and  the  liability  of  the 
defendants  cannot  be  affected  by  the 
fact  that  one  of  the  plaintiffs  was  a 
stockholder.  Certainly  the  interests  of 
his  copartner  ought  not  to  suffer  on 
account  of  his  relation  to  the  corpora- 
tion. The  objection  differs  in  no 
essential  particular  from  any  other 
incurred  by  the  company;  and  if  it 
was  due  and  owing  to  the  stockholder 
alone,  we  can  see  no  good  reason  for 
depriving  him  of  the  protection  in- 
tended to  be  given  to  all  creditors 
alike." 

2  Cable  V.  Gaty,  34  Mo.  573,  affirm- 
ing Cable  V.  McCune,  26  Mo.  371. 

» Cable  V.  Gaty,  34  Mo,  573,  affirm- 
ing Cable  V.  McCune,  26  Mo.  371. 


I    I 


-rrrt 


I 
1 


T^n 


390 


PERSONAL  LIABILITY  OF  OFFICERS. 


[§244 


annual  report  required  as  to  the  amount  of  its  capital  stock  and 
the  proportion  actually  paid  in,  the  amount,  and,  in  general 
tenns,  the  nature  of  its  existing  assets  and  debts,  and  the  names 
of  its  then  stockholders,  and  the  dividends,  if  any,  declared  since 
the  last  report,^  the  directors  become  liable  for  all  the  debts  of 
the  corporation  during  the  term  of  directorship  if  they  fail  to 
make  and  file  the  report.  So  long  as  the  default  lasts,  the  other 
essentials  existing,  there  is  no  distinction  between  directors  in 
office  at  the  time  of  default  and  those  subsequently  elected.  An 
incoming  director,  having  the-  power  to  protect  himself  from  lia- 
bility by  tiling  a  report,  his  failure  to  do  so  imposes  a  liability  for 
debts  contracted  during  his  term.^  Where  there  is  proof  in  such 
a  case  that  there  was  a  corporation  which  assumed  to  act  and  carry 
on  business,  having  a  general  manager,  directors  and  by-laws,  the 
directors  against  whom  the  action  is  brought  cannot  defend  on 
the  ground  that  there  was  no  legally  organized  corporation.* 
Ol^erating  as  a  penalty,  a  recovery  cannot  be  had  of  the  trustees 
for  failure  to  tile  a  report  under  such  statutes,  in  case  the  statute 
be  repealed,  expressly  or  by  implication,  l)efore  the  trial  of  the 
case.*  Creditors  residing  in  other  states  than  New  York  have 
the  same  rights  as  resident  creditors  to  enforce  the  liability  of  the 
trustees  for  failing  to  make  the  required  annual  report  under  this 
statute.*  In  a  case  where  the  number  of  trustees  of  a  manufac- 
turing corporation  organized  under  the  laws  of  New  York  had 
been  practically  reduced  to  nine  from  twelve,  and  the  annual 
report  required  to  be  tiled  had  been  signed  by  six  of  the  trustees, 
it  was  claimed  that  the  trustees  had  become  liable  for  the  debts  of 
the  corporation  as  a  penalty  for  not  tiling  the  report,  inasmuch  as 
the  report  filed  had  not  been  signed  by  a  majority  of  twelve  trus- 
tees.    The  New  York  Court  of  Appeals  held  that  the  law  had 


»  Laws  N.  Y.  1875,  chap.  611,  §  18. 

'  Buck  T.  Barker,  (Buffalo  Super. 
Ct.  Spl.  Term,  1887)  5  N.  Y.  St.  Repr. 
826;  citing  Jones  r.  Barlow,  63  N.  Y. 
202;  Cameron  v.  Seaman,  69  N.  Y.  396, 
402;  Boughton  r.  Otis,  21  N.  Y.  261; 
Garrison  v.  Howe,  17  N.  Y.  464,  465; 
Quarry  Co.  v.  Bliss,  27  N.  Y.  297-300; 
Chandler  r.  Hoag,  2  Hun.  613;  affirmed 
in  63  N.  Y.  624. 

•Buck  V.  Barker,  (Buffalo  Super. 
Ct.  Spl.  Term,  1887)  5  N.  Y.  St.  Repr. 


826;  citing  Buffalo  &  Allegany  Rail- 
road V.  Cary,  26  N.  Y.  75;  Aspinwall 
p.  Sacchi,  57  N.  Y.  331-338;  Meriden 
Tool  Co.  V.  Morgan,  1  Abb.  N.  C.  125, 
note. 

*  Victory  Webb  Printing  Co.  v. 
Beecher,  (1881)  26  Hun,  48«  affirmed 
in  97  N.  Y.  651;  followed  in  Carr  v. 
Risher,  (1888)  50  Hun,  147. 

'Sears  v.  Waters,  (1887)  44  Hun, 
101. 


§244] 


PERSONAL  LIABILITY  OF  OFFICERS. 


391 


been  complied  with  in  tiling  this  report ;  that  the  i^roceedings  of 
the  board,  in  the  matter  of  reducing  the  number  of  members, 
concurred  in  by  all  having  an  interest  in  the  corporation,  effected 
a  practical  reduction,  and  constituted  the  nine  thereafter  elected 
a  dejicre  as  well  a;s  sl  de  facto  board.  Further,  that  it  seemed 
that  the  question  of  the  legality  of  the  change  in  the  constituency 
of  the  board  could  only  be  raised  in  a  direct  proceeding  by  one 
whose  interests  were  affected.  And  the  trustees  as  constituted 
having  complied  with  the  letter  and  spirit  of  the  law,  in  tiling  the 
report,  it  was  not  competent  in  this  action  against  them  to  enforce 
a  liability  for  non-compliance  with  the  statute  for  plaintiff  to  show 
that  some  of  the  acting  tnistees  were  not  elected  or  for  some  rea- 
son were  disqualitied  from  acting,  or  to  claim  that,  l)y  reason  of  a 
non-performance  or  an  irregularity  in  the  performance  of  some 
prior  duty  enjoined  upon  the  stockholders,  the  board  as  con- 
stituted had  no  authority  to  perform  the  general  duties  required 
of  them  as  agents  of  the  corporation.^  In  a  case  before  the  New 
York  Court  of  Appeals  it  appeared  that  an  annual  report  was 
properly  made  out  and  signed  by  the  trustees  of  the  corporation 
in  the  time  required  by  the  statute,  but  by  inadvertence  or  mis- 
take of  the  secretary  was  not  tiled  in  time.  AVithin  a  month 
afterwards  there  was  an  application  made  to  the  Supreme  Court 
for  leave  to  tile  it  and  an  order  of  the  court  that  it  be  tiled  ?iuno 
j)ro  tunc.  The  Court  of  Appeals  held  that  this  order  of  the 
court  did  not  of  itself  relieve  the  trustees  sued  from  liability  ; 
that  the  duty  to  tile  the  report  was  imposed  by  statute  upon  the 
corporation,  and  over  it  the  court  had  no  jurisdiction.  The  appli- 
cation was  an  act  by  the  trustees  in  supposed  furtherance  of  their 
duty  and  was  an  indication  of  good  faith  in  respect  to  the  proper 
disposition  of  the  report,  being  an  effort  to  do  that  which  the  cor- 
poration had  not  done.^  Under  the  construction  of  this  section 
of  the  statute,  in  Cameron  v.  Seaman,^  where  it  was  held  that  the 
limitation  of  twenty  days  applied  only  to  the  act  of  making,  and 
did  not  apply  to  the  act  of  tiling  or  publishing ;  that,  as  to  those 
acts,  the  section  was  directory,  but  as  the  object  of  the  act  was  to 
insure  a  speedy  and  public  disclosure  of  the  contents  of  the 
report,  it  was  said  that  the  law,  in  the  absence  of  an  express  pro- 

>  Wallace  &  Sons  r.  Walsh,  (1890)       « Butler  r.  Smalley,  (1886)  101  N.  Y. 
125  N.  Y.  26;  s.  c,   25  N.  E.   Rep.    71. 
1076.  *«69N.  Y.  396. 


M 


4* 


t     • 

if 


I 


iii' 


302 


PERSONAL  LIABILITY  OF  OFFICERS. 


i*i^ 


[§244 

vision  on  the  subject,  implies  that  both  filing  and  publication 
should  1)0  witlun  a  reasonable  time  after  the  twenty  days,  and  that 
this  requirement  exacted  prompt  performance  and  diligent  action 
on  the  part  of  the  trustees,  the  Court  of  Appeals  held  that  in  this 
,  case  the  referee  erred  in  refusing  to  find  that  whether  the  filing  of 
the  report  was  within  a  reasonable  tiine  after  the  expiration  of  the 
twenty  days  would  depend  uj)on  the  circumstances ;  also,  that  he 
erred  in  finding  that  there  was  neither  prompt  performance  nor 
diligent  action  on  the  part  of  the  company  with  respect  to  the 
filing  of  the  report.^  Where  the  certificate  of  incorporation  was 
signed  by  seven  trustees  and  acknowledged  by  nine,  the  provis- 
ion of  the  statute  which  requires  an  annual  report  to  absolve  the 
trustees  from  personal  liability  for  the  debts  of  the  corporation  to 
be  signed  by  a  majority  of  the  trustees  would  not  be  satisfied  by 
an  annual  report  signed  by  two  trustees,  where  it  is  not  shown  by 
an  official  record  that  neither  one  of  the  trustees  had  resigned.^ 
A  manufacturing  corporation  which  has  never  commenced  busi- 
ness, and  where,  before  the  time  i)rescribed  far  making  the  report 
required  under  the  statute  has  elapsed,  the  object  for  which  the 
corporation  was  formed  becomes  impossible  of  accomplishment 
by  it,  and  it  is  neither  able  nor  intends  at  any  time  to  prosecute 


w 


'  Butler  T.  Smalley,  (1886),  101  N. 
Y.  71,  revg.  49  N.  Y.  Super.  Ct.  492. 
Danfortii,  J.,  said:  "To  prepare  a 
report  for  tiling  and  publication,  to 
place  it  in  good  faith  in  the  hands  of 
the  secretary  for  deposit  in  the  clerk's 
office  and  in  the  office  of  a  newspaper, 
is  at  least  equal  in  signiticance  to  a 
delivery  of  a  report  to  a  mail  agent 
for  transmission  to  those  places.  In 
the  one  case  as  in  the  other  the  com- 
pany avails  itself  of  the  usual  methods 
of  performing  its  duty,  and  in  the  ab- 
sence of  anything  to  show  the  want  of 
good  faith  and  active  diligence  in  re- 
spect thereto  on  its  part,  a  trustee,  when 
no  time  is  fixed  by  statute  within  which 
an  act  shall  be  performed,  should  not 
be  subjected  to  a  penalty,  provided  the 
thing  required  is  actually  done  at  a 
reasonable  time,  having  regard  to  the 
nature  and  circumstances  of  the  per- 
formance." 


MVesterfield  r.  Radde,  (1884)  67 
How.  Pr.  204.  In  Whitney  r.  Cam- 
mann,  (1892)  60  N.  Y.  Super.  Ct.  391; 
8.  c,  18  N.  Y.  Supp.  200;  affirmed 
in  Whitney  v.  Cammann,  (1893)  137  N. 
Y.  342;  8.  c,  33  N.  E.  Rep.  305,  the 
court  referred  to  Cameron  v.  Seaman, 
69  N.  Y.  396.  and  Butler  r.  Smalley, 
101  N.  Y.  72;  s.  c,  4  N.  E.  Kep.  104, 
and  held  that  while  these  cases  held 
that  substantial  instead  of  literal  com- 
pliance with  the  requirement  as  to  the 
filing  of  the  annual  report,  as  where 
the  report  was  filed  within  a  few  days 
after  the  prescribed  time,  yet  the  fail- 
ure to  comply  with  the  statute  for  a 
year  clearly  brought  the  trustees  in 
this  case  within  the  mischief  of  the 
statute  and  subjected  them  person- 
ally to  the  liability  imposed  by  the 
statute. 


i 


-r, 


PERSONAL  LIABILITY  OF  OFFICERS. 


393 


§  245] 

its  business,  is  not  required  to  make  such  a  report,  and  no  liability 
under  the  statute  attaches  to  the  trustees  for  failure  to  make  it.* 
The  statutes  of  New  York  making  the  trustees  of  manufacturing 
corporations  liable  for  the  debt  of  the  corporation  for  failure  to 
iile  an  annual  report,  it  has  been  held  that  the  liability  does  not 
depend  upon  the  fact  that  defendant  was  a  trustee  when  the  debt 
was  incurred,  but  upon  his  having  been  a  trustee  when  the  default 
in  filing  the  report  occurred.  So  where  one  may  have  resigned 
after  the  incurring  of  the  debt,  but  before  the  default  com- 
plained of,  he  would  not  be  held  liable.^  A  report  made  by  the 
trustees  of  a  manufacturing  corporation,  as  required  by  the  stat- 
ute, stating  the  amount  of  the  capital,  and  that  all  of  it  had 
*'  been  paid  in  in  cash,  patent  rights,  merchandise,  machinery 
accounts,  etc.,  necessary  to  the  business  and  for  which  stock  to 
the  amount  of  the  value  thereof  has  been  issued  by  the  company," 
has  been  held  by  the  Court  of  Appeals  to  be  a  sufficient  compli- 
ance with  the  requirement  of  the  act ;  further,  that  it  is  not  neces- 
sary, in  the  annual  report  required  to  be  tiled  by  the  trustees 
under  this  statute,  to  specify  therein  how  much  of  the  capital 
stock  was  paid  in  in  cash  and  what  amount  in  property.^ 

§  245.  Actions  to  enforce  this  liability. —  Under  this  statute 
the  action  may  be  brought  against  such  of  the  trustees  as  the 
])laintiif  may  select ;  and  if  there  are  three  or  more  such  trustees, 
for  instance,  and  the  action  be  brought  against  two,  the  non- 
joinder of  the  others  would  not  constitute  a  defense.*  In  case  a 
defendant  in  such  an  action  be  a  trustee  wdiose  election  is  not 
legally  valid,  wdiere,  as  matter  of  fact,  he  was  in  form  elected  a 
trustee  by  those  who  had  the  right  to  elect  one,  if  there  was 
a  vacancy  to  be  filled,  and  thereafter  acted  as  trustee,  and  while 
acting  as  such  there  was  a  failure  to  make  and  tile  the  report 
required  by  the  statute,  the  court  held  him  liable  on  any  such 
default  between  the  time  of  his  election  and  his  resignation ;  also 


>  Kirkland  v.  Kille,  (1885)  99  N.  Y. 
390. 

'  Bruce  r.  Piatt,  (1880)  80  N.  Y. 
379.  As  to  this  statute  being  a  penal 
statute,  see  Merchants'  Bank  r.  Bliss,  35 
N.  Y.  412;  Garrison  r.  Howe,  17  N.  Y. 
458;  Adams  r.  Mills,  60  N.  Y.  536, 
553;  McHarg  v.  Eastman,  35  How.  Pr. 
205;  8.  c,  7  Robt.  137. 
50 


» Whitaker  r.  Masterton,  (1887)  106 
N.  Y.  277,  holding  the  action  against 
the  trustees  not  maintainable.  Citing 
Bonnell  ».  Griswold,  80  N.  Y.  128, 
135;  Brackett  v.  Griswold,  103  N.  Y. 
425. 

*  Halstead  r.  Dotigc,  ^1884)  51  N.  Y. 
Super.  Ct.  169;  s.  c,  1  How.  Pr.  (N.S.) 
170;  citing  Strong  v.  Sproul,  4  Daly, 


I 


ill 


)i 


■ 


Hi 


0 


-Trrtf 


394 


PERSONAL  LIABILITY  OF  OFFICERS. 


[§245 


PERSONAL  LIABILITY  OF  OFFICERS. 


395 


'•  '•i 


•i 


that  he  was  not  exempted  from  liability  by  reason  of  his  not 
being  a  stockholder.*  In  an  action  under  this  statute  brought 
against  several  trustees  to  enforce  their  liability  for  failure  to 
make  the  annual  report  as  required  for  a  debt  of  the  corporation, 
where  there  is  a  failure  to  serve  one  or  more  of  the  defendants 
tlie  case  may  proceed  against  those  served,  as  the  action  is  u})oii 
a  joint  and  several  liability  and  for  a  penalty,  and  not  upon  the 
contract.^  This  statute  is  penal,  and  not  to  be  extended  by  con- 
struction. In  an  action  to  enforce  a  liability  created  by  it, 
nothing  can  be  presumed  against  the  trustees  sought  to  be 
charged,  but  every  fact  necessary  to  establish  their  liability  must 
be  affirmatively  proved.^  The  failure  to  tile  a  report  making  the 
trustees  jointly  and  severally  liable  for  all  the  debts  of  the  corpo- 
ration, the  fact  that  the  corporation  may  be  indebted  to  a  trustee 
would  not  be  a  defense  to  the  action.*  In  an  action  against  the 
trustees  of  a  corporation  to  charge  them  with  an  indebtedness  of 
the  corporation,  and  on  the  trial  there  be  proved  the  original 
indebtedness,  and  that  it  had  been  reduced  to  judgment,  and  the 
execution  upon  the  judgment  returned  unsatisfied,  the  trustees 
would  not  be  concluded  in  any  respect  by  the  judgment  agahist 
the  corporation,  they  being  neither  parties  nor  privies  to  the 
action,  and  should  be  allowed  to  prove  any  defense  arising  subse- 
quent to  the  accruing  of  the  debt.* 


326;  Quigley  v.  Walter,  3  Sweeny, 
175. 

>  Ibid. 

'  Geisenheimer  v.  Dodge,  (1884)  1 
How.  Pr.  (N.  S.)  264. 

'Bruce  r.  Piatt,  (1880)  80  N.  Y.  381; 
followed  in  Tovey  v.  Culver,  (1887)  54 
N.  Y.  Super.  Ct.  404.  See.  also,  Mil- 
ler V.  White,  50  N.  Y.  137:  Whitney 
Arms  Co.  v.  Barlow,  63  N.  Y.  62.  As 
to  not  being  necessary  to  obtain  a 
judgment  against  the  corporation  be- 
fore action  against  trustee,  see  Green  r. 
Easton,  (1893)  74  Hun,  329;  s.  c,  26 
N.  Y.  Supp.  553.  As  to  pleading  in 
actions  against  trustees  for  failing  to 
file  annual  report  under  the  New  York 
statute,  see  Wilson  Manufacturing  Co. 
Schwind,  (N.  Y.  Sup.  Ct.  Spl.  Term, 
1893)  5  Misc.  Rep.  205;  Straus  r.  Sage, 


(N.  Y.  Com.  PI.  Spl.  Tenn,  1893)  5 
Misc.  Hep.  255;  Smith  r.  Sage,  (N.  Y. 
Super.  Ct.  Spl.  Term,  1893)  5  Misc. 
Rep.  257. 

*Morey  v.  Ford,  (1884)  32  Hun,  446. 

» Kraft  r.  Coykendall,  (1884)34  Hun, 
285;  citing  Miller  r.  White,  50  N.  Y. 
137;  Stephens  v.  Fox,  83  N.  Y.  317; 
Horke  v.  Thomas,  56  N.  Y.  565;  Jones 
r.  liarlow,  62  N.  Y.  202-205.  Dissent- 
ing opinion  of  Daniels,  J.,  in  Tyng 
P.Clarke,  9  Hun,  274;  Esmond  r.  Bul- 
lard,  16  Hun,  67;  affirmed  in  79  N.  Y. 
404;  Whitney  Arms  Co.  v.  Barlow,  63 
N.  Y.  62.  As  to  judgment  against 
corporation  prior  to  suit  to  enforce 
personal  liability  of  directors  not  being 
necessary,  see  Strauss  r.  Trotter,  (Cora. 
PI.  N.  Y.,  1894)  6  Misc.  Rep.  77;  s.  c, 
26  N.  Y.  Supp.  20. 


§  246.  What  are  and  what  are  not  "  debts  **  for  which 
liability  under  this  statute  may  arise. —  An  unliquidated 
claim,  arising  out  of  a  breach  of  contract  of  employment  at  the 
time  of  the  failure  of  a  manufacturing  corporation  to  file  the 
annual  report  required  by  the  New  York  statute,  is  a  debt  within 
the  meaning  of  the  statute  imposing  a  personal  liability  upon  the 
trustees  for  all  "  debts  "  of  a  corporation  which  fails  to  file  an 
annual  report.^  And  in  such  an  action,  upon  such  a  claim,  the 
recovery  of  the  holder  of  the  claim  will  be  limited  to  the  amount 
of  damages  he  may  have  recovered  from  the  corporation.^  The 
holder  of  bonds  issued  by  a  manufacturing  corporation,  having 
knowledge  that  such  bonds  were  diverted  from  the  purpose  for 
which  they  were  intended  and  authorized,  cannot  enforce  the 
liability  of  trustees  for  the  amount  of  his  bonds  as  a  "  debt " 
within  the  meaning  of  this  statute.^  A  judgment  for  costs,  recov- 
ered against  the  corporation  in  an  action  for  trespass  brought  by 
it,  is  such  a  "  debt "  within  the  meaning  of  the  statute  as  the 
trustees  of  the  corporation  will  be  liable  for  in  case  they  fail  to 
file  the  required  report.*  It  seems,  however,  that  in  such  a  case  it 
would  be  open  to  the  trustees  sued  to  show  that  the  recovery  of 


» Green  v.  Easton,  (1893)  74  Hun,  329; 
8.  c,  26  N.  Y.  Supp.  553;  citing  New 
Jersey  Ins.  Co.  v.  Meeker,  37  N.  J. 
Law,  300,  301;  Fmzer  r.  Tunis,  1  Bin. 
254-262;  Mill  Dam  Foundry  v.  Hovey, 
21  Pick.  417,  454,  455. 

« Green  i'.  Easton,  (1893)  74  Hun,  329; 
8.  c,  26  N.  Y.  Supp.  553. 

8  Kirkland  v.  Kille,  (1885)  99  N.  Y. 
390. 

*  Allen??.  Clark,  (1888)  108  N.  Y.  269, 
revg,  43  Hun,  377.  Earl,  J.,  said  : 
"This  judgment  clearly  was  one  of 
the  debts  which  the  company  was 
bound  to  include  among  its  '  existing 
debts '  in  the  report  which  it  was  re- 
quired to  make,  file  and  publish  within 
twenty  days  after  the  1st  day  of  Janu- 
ary, 1886.  The  section  requires  the 
report  to  state  the  amount  of  all  of  its 
existing  debts  of  every  nature,  and  it 
is  the  clear  meaning  of  the  section  that 
if  such  report  be  not  made  the  trustees 
shall  be  personally  liable  for  all  debts 
which  the  company  was  thus  bound 


to  report.  It  may  be  inferred  that  it 
was  the  purpose  of  the  lawmakers  to 
require  this  report  to  be  made,  pub- 
lished and  filed  for  the  information, 
benefit  and  protection  of  existing 
creditors  of  the  company  not  only,  but 
of  all  persons  who  might  thereafter  en- 
ter into  contract  relations  with  it.  It 
may  also  have  been  the  purpose  of  the 
lawmakers  to  require  the  report  from 
every  manufacturing  corporation  as  a 
check  upon  extravagance  and  misman- 
agement of  its  affairs  by  its  trustees, 
by  constantly  keeping  before  them  the 
reminder  that  at  least  once  a  year  the 
affairs  of  the  company  are  to  be  ex- 
posed to  the  public  view.  It  may  also 
be  supposed  that  the  reports  were  re- 
quired so  tluit  information  might  be 
readily  obtained  by  assessors  for  the 
purpose  of  taxation,  and  by  other  pub- 
lic officials  who  might  have  occasion  to 
supervise  the  conduct  of  the  corponi- 
tion,  or  to  proceed  against  it  for  any 
purpose  whatever;  and,  therefore,  to 


I 


300 


PERSO>'AL  LIABILITY  OF  OFFICERS. 


[§  240 


I 


Nl 


i 


"f 


the  costs  in  the  action  was  either  collusive  or  fraudulent.  The 
debt  created  bj  the  judgment  would  be  proven  by  the  production 
of  the  judgment,  which  would  be  at  least  prima  fcicie  evidence 
of  its  existence.*  There  was  a  contention  in  this  case  before  the 
New  York  Court  of  Appeals  that  the  words  in  the  clause  of  the 
statute,  "  and  for  all  that  shall  be  contracted  for  before  such  report 
shall  be  made,"  limited  the  meaning  of  the  words,  "  debts  of  the 
company  then  existing,"  in  the  clause  preceding  it,  to  such  debts 
of  a  corporation  as  are  voluntarily  contracted.  The  court  held 
adversely  to  this  contention,  and  said :  "  The  word  *  contracted  ' 
here  means  the  same  as  *  incurred,'  and  includes  every  debt  for 
which  the  corporation  becomes  bound.  There  is  no  apparent 
reason  for  any  discrimination  as  to  the  kind  of  debts,  and  we  do 
not  think  any  was  intended."^  Causes  of  action  for  breaches  of 
contract,  and  causes  incidentally  arising  or  resulting  from  such 
breaches  on  the  part  of  the  corporation,  are  not  "debts"  within 
the  meaning  of  those  statutes  making  trustees  liable  for  debts  of 
corporations  for  not  tiling  the  required  annual  report.'  Where  a 
trustee  of  a  corporation  owes  a  debt  against  it,  and  assigns  it  to 
another  absolutely  for  value,  the  assignee  of  such  debt,  on  a 
default  in  making  and  tiling  a  report  under  the  New  York  stat- 
ute, subsequently  occurring,  may  proceed  against  the  trustees  to 
recover  the  debt  on  their  statutory  personal  liability,  notwithstand- 
ing the  assignor  of  the  debt  to  him  may  have  continued  to  be  a 
trustee  up  to  the  time  of  the  default.*  Where  the  existence  of  a 
corporation,  by  the  terms  of  its  certificate,  ends,  and  there  is  not 
at  that  time  a  debt  in  favor  of  another  against  it,  there  can  be  no 
liability  of  directors  for  not  tiling  an  annual  report,  as  required, 


make  sure  of  the  accomplishment  of 
these  important  purposes,  the  trustees 
are  made  personally  liable  for  all  the 
debts  of  the  company,  in  case  of  the 
failure  of  the  company  within  the  time 
specified  to  make  the  report." 

'  Allen  r.  Clark,  (1888)  108  N.  Y. 
269.  The  court  distinguished  Miller 
T.  White,  50  N.  Y.  137,  where  the  judg- 
ment was  upon  a  debt  antecedently  ex- 
isting, in  which  case  it  was  held  that 
the  judgment  was  neither  conclusive 
nor  prima  facie  evidence  of  the  debt, 
and  that  it  was  the  duty  of  the  plain- 
tiff to  prove  and  establish  his  debt  in- 


dependently of  the  judgment,  by  say- 
ing :  • '  The  reason  upon  which  that 
decision  is  based  can  have  no  applica- 
tion to  a  case  like  this,  where  there  was 
no  liability  on  the  part  of  the  company 
to  pay  the  costs  antecedently  or  inde- 
pendently of  the  judgment." 

« Allen  v.  Clark,  (1888)  108  N.  Y. 
269,  275. 

'Victory  Webb  Printing  Co.  t. 
Beecher,  (1881)  26  Hun,  48;  citing  Ovi- 
att  V.  Hughes,  41  Barb.  541;  Whitney 
Arms  Co.  v.  Barlow,  68  N.  Y.  34. 

*  Cornell  v.  Roach,  (1886)  101  N.  Y. 
373. 


§247] 


PERSONAL  LIABILITY  OF  OFFICERS. 


397 


for  what  may,  at  a  later  date,  by  the  terms  of  the  contract  with 
the  corporation,  become  a  debt  under  that  contract.*     Under  the 
provision  of  the  statute  of  New  York  that,  for  failure  to  file  the 
annual  report  of  the  capital  and  indebtedness  of  any  corporation, 
as  therein  prescribed,  the  trustees  snail  be  liable  for  all  debts  of 
the  corporation  then  existing,  or  contracted  before  such  report 
be  filed,  the  trustees  cannot  be  subjected  for  an  alleged  liability 
of  the  corporation  accruing  on  an  accommodation  indorsement, 
which  the  corporation,  under  its  charter,  had  no  authority  to  make 
and  was  not  bound  by.^     Trustees  of  a  corporation,  organized  for 
manufacturing  purposes  under  the  statutes  of  New  York,  cannot 
be  subjected  to  an  alleged  liability  of  the  corporation  accruing  on 
an  accommodation  indorsement  which,  under  its  charter,  it  had  no 
authority  to  make,  and  which,  consequently,  did  not  bind  it.^ 
Where  the  annual  report  required  to  be  filed  under  the  New 
York  statute  before  January  twentieth  has  been  filed  before  the 
maturing  of  a  note  which  has  been  indorsed  by  a  corporation  for 
the  accommodation  of  the  maker,  there  will  be  no  liability  of  the 
trustees  growing  out  of  the  accommodation  indorsement  for  the 
failure  to  file  the  report.     This  being  a  conditional  liability,  it  was 
never  incurred,  and  created  no  liability  before  it  matured.*      A 
contract  obligation  to  pay  a  singer  employed  for  a  specified  time 
by  the  corporation  at  a  specified  salary,  is  a  "  debt  "  of  the  corpo- 
ration from  the  time  the  contract  goes  into  effect,  within  the  mean- 
ing of  this  statute,  for  which  a  director  may  become  liable.^ 

§  247.  A  United  States  Supreme  Court  decision  on  this 
subject. —  There  was  an  a|tempt  in  an  action  which  came  before 
the  Supreme  Court  of  the  United  States  to  recover  of  the  trustees 
of  a  corporation  the  amount  of  a  judgment  against  the  corpora- 
tion under  the  provisions  of  the  statute  of  the  state  of  New  York, 

»  Glold  V.  Clyne,  (1890)  58  Hun,  419;  « National   Park  Bank  v.  Remsen, 

8.  c,  12  N.  Y.  Supp.  531;  affirmed  in  (1890)  43  Fed.  Rep.  226. 

Gold  V.  Clyne,  (1892)  134  N.  Y.  262;  s.  "  Ibid. 

c,  31  N.  E.  Rep.  980.    For  another  il-  *Witherow   r).   Slay  back,  (1895)  11 

lustration  of  circumstances  as  to  the  Msc.  Rep.  526;  s.  c,  32  N.  Y.  Supp. 

debt  under  which  the  trustees  could  746. 

not  be  held  liable,  see  Sherman  v.  Slay-  ^  Brandt  v.    Godwin,  (1889)  3  N.  Y. 

back,  (1890)  58  Hun,  25.^^;  s.  c,  12  N.  Supp.  807. 
Y.  Supp.  291.   Also,  Chapman  v.  Com- 
stock,  (1890)  58  Hun,  325;  s.  c,  UN. 
Y.  Supp.  920. 


L 


1  • 


fll 


398 


PERSONAL  LIABILITY  OF  OFFICEBS. 


!>'■ 


U  : 


Ju:\ 


[§24T 

whereby  trustees  of  corporations  formed  for  manufacturing, 
mining,  mechanical  or  chemical  purposes  are  made  liable  for 
debts  of  the  corporation  on  failure  to  file  the  reports  of  capital  and 
of  debts  required  by  that  section  of  the  statute.  The  Supreme 
Court  held  that  the  provision  of  the  statute  under  which  the  lia- 
bility of  the  trustees,  it  was  claimed,  existed  on  account  of  a 
failure  to  file  such  a  report,  was  penal  in  its  character,  and  that 
it  must  be  construed  with  strictness  as  against  those  sought  to  be 
subjected  to  its  liabilities  ;  and,  upon  this  rule  of  construction,  the 
judgment  roll  was  not  competent  evidence  to  establish  a  debt  due 
from  the  corporation  to  the  plaintiff ;  further,  it  was  held  that 
a  claim  in  tort  against  a  corporation  found  under  that  statute,  as 
amended,  was  not  a  debt  of  the  corporation  for  which  the  trus- 
tees might  become  liable  under  the  provisions  of  the  statute 
above  stated.^ 


'  C^hase  r.  Curtis,  (1885)  113  U.  S.  452; 
8.  c,  5  Sup.  Ct.  Rep.  554.     Mr.  Jus- 
tice Matthews,  in  the  opinion,  speak- 
ing for  the  court,   said:    "It  is  the 
well-settled    rule    of  decision,  estab- 
lished by  the  Court  of  Appeals  of  New 
York  in  numerous  cases,  that  this  sec- 
tion of  the  statute,  to  enforce  which 
the  present  action  was  brought,  is  penal 
in  its  character  and  must  be  construed 
with  strictness  as  against  those  sought 
to  be  subjected  to  its  liabilities."    Mer- 
chants'  Bank  v.  Bliss.  35  N.  Y.  412; 
Wiles  V.  Suydam,  64  N.  Y.  173;  Eiist- 
erly  t.  Barber,  65  N.  Y.  252;  Knox  r. 
Baldwin,  80  N.  Y.  610;  Veeder  r.  Ba- 
ker, 83  N.  Y.  156;  Pier  v.  George,  86 
N.  Y.  613;  Stokes  r.  Stickney,  96  N. 
Y.  323.     In  the  case  last  cited  the  ac- 
tion authorized  by  it  was  held  to  be 
ex  delicto,  and  that  it  did  not  survive 
as  against  the  personal  representative 
of  a  trustee  sought  to  be  charged.     In 
Bruce  v.  Plutt,  80  N.  Y.  379.  it  was 
said:  "  It  is  settled  by  repeated  decis- 
ions applicable  to  this  case  that  the 
statute  in  question  (Laws  N.  Y.  1848, 
chap.  40.  §  12)  is  penal  and  not  to  be 
extended  by  construction;  that  in  an 
action  to  enforce  a  liability  thereby 
created,    nothing   can    be   presumed 


against  the  defendants,  but  that  every 
fact  necessary   to  establish  their  lia- 
bility must  be  affirmatively  proved." 
Citing  Garrison  r.  Howe.  17  N.  Y.  458; 
Miller  v.  White,  50  N.  Y.  137;  Whit- 
ney Arms  Co.  v.  Barlow,  63  N.  Y.  62. 
This  rule  of  construction  in  reference 
to  this  and  similar  statutory  provisions 
has  been  heretofore  adopted  and  ap- 
plied  by  this  court.     Steam  Engine 
Co.  r.  Hubbard,  101  U.  S.  188;  Flash 
r.  Conn,   100  U.  S.  371.     In  the  case 
last  mentioned,  this  court,  following 
the  Court  of  Appeals  of  New  York  in 
the  cr«^  of  Wiles  r.  Suydam,  64  N.  Y. 
173,  showed  the  distinction  between  the 
liability  of  stockholders  for  the  debts 
of  the  corporation,  under  a  section  of 
the  same  act.  making  them  severally 
individually  liable  for  the  debts  and 
contracts  of  the  company  to  an  amount 
equal  to  the  amount  of  stock  held  by 
them    respectively,   until    the   whole 
amount  of  the  capital  stock  fixed  and 
limited  by  the  company  had  been  paid 
in,  and  the  liability  imposed  upon  the 
trustees  by  the  section  now  under  dis- 
cussion.   It  was  held  that  the  former 
was  a  liability  ex  contractu,  enforceable 
beyond  the  jurisdiction  of  the  state, 
and  that  the  statute  should  be  con- 


PERSONAL  LIABILITY  OF  OFFICERS. 


399 


§248] 

§  248.  Statute  of  New  York  —  liability  for  creation  of 
debts  in  excess  of  capital  stock. —  Under  tlie  New  York 
statute  making  the  trustees  of  niannfacturing  corporations  who 
assent  to  the  creation  of  an  indebtedness  exceeding  the  amount 
of  the  capital  stock  personally  liable  for  the  excess/  the  liability 


strued  liberally  in  furtherance  of  the 
remedy;  that  the  latter  was  for  the 
enforcement  of  a  penalty,  and  subject 
to  all  rules  applicable  to  actions  upon 
statutes  of  that  description.  The 
distinction  is  illustrated  and  enforced 
in  Hastings  v.  Drew,  76  N.  Y.  9,  and 
Stephens  r.  Fox,  83  N.  Y.  318.  The 
present  question  involved  here  was 
decided  by  the  Court  of  Appeals  of 
New  York  in  the  case  of  Miller  r. 
White,  50  N.  Y.  i:J7.  In  that  cas^e  the 
<'oin plaint  set  forth  the  recovery  of  a 
judgment  against  the  company,  but  not 
tlie  original  cause  of  action  against  it 
on  which  the  judgment  was  founded. 
The  defendant  moved  for  a  dismissal 
on  this  ground,  which  was  refused, 
and  judgment  was  rendered  in  favor 
of  the  plaintiff  on  the  production  in 
evidence  of  the  judgment  roll.  This 
was  held  to  be  erroneous  on  the  ground 
that  the  judgment  was  not  competent 
as  evidence  of  any  debt  due  from  the 
corporation,  and  that  no  action  could 
be  maintained  thereon  against  the  trus- 
tees under  this  section  of  the. act. 
Judge  Peckham,  delivering  the 
unanimous  opinion  of  the  court,  said: 
*'It  will  be  perceived  that  this  is  a 
highly  penal  act,  extremely  rigorous  in 
its  provisions.  It  is  absolute  that  the 
trustees  shall  be  liable  for  all  the  debts 
of  the  company,  if  the  report  be  not 
made,  no  matter  by  whose  default. 
If  one  of  the  trustees  did  all  in  his 
power  to  have  it  made,  yet  if  the  presi- 
dent, or  a  sufficient  number  of  his  co- 
trustees to  constitute  a  majority 
declined  to  sign  it,  or  if  the  president 
and  secretary  declined  to  verify  it  by 
oath,  the  faithful  trustee  seems  to  be 
absolutely  liable  as  well  as  those  who 


refuse  to  do  their  duty."  It  was  ac- 
cordingly held  "  that,  as  against  these 
defendants,  the  judgment  did  not 
legally  exist,  as  they  were  neither  par- 
ties nor  privies  to  it.  *  *  *  *  It  is 
not  a  judgment  as  to  those  defendants; 
no  action  could  be  maintained  thereon 
against  them,  *  *  *  nor  is  the 
judgment  prima  facie  evidence  of  the 
debt  as  against  the  defendants.' " 
This  doctrine  was  repeated  and  reaf- 
tirnu'd  by  the  same  court  in  Whitney 
Anns  (V).  r.  Bariow,  63  N.  Y.  62-72. 
In  Ihsit  case  the  court  said:  "The  debt 
must  be  proved  by  evidence  competent 
against  the  defendants.  The  facts 
upon  which  the  debt  is  founded  must 
be  proved.  The  naked  admissions  of 
the  corporation  or  judgment  against 
the  corporation  are  not  evidence 
against  the  trustees.  They  are  re9 
inter  alios  acta;  but,  when  facts  are 
proved  which  establish  the  existence 
of  a  debt  against  the  corporation,  the 
liability  of  the  trustees  for  the  debt 
follows  upon  the  proof  of  the  other 
facts  upon  which  the  liability  is  made 
by  statute  to  depend."  The  case  of 
Miller  v.  White,  50  N.  Y.  137,  has 
never  been  overruled  nor  questioned 
by  the  New  York  Court  of  Appeals. 
On  the  contrary,  it  has  been  repeatedly 
and  expressly  cited  and  approved,  and 
either  followed  or  distinguished  from 
the  case  under  decision  in  the  follow- 
ing cases:  Rorke  r.  Thomas,  56  N.  Y, 
559-565;  Hastings  v.  Drew,  76  N.  Y. 
9-15;  Stephens  v.  Fox,  83  N.  Y.  313- 
317;  Knox  v.  Baldwin,  80  N.  Y.  610- 
613;  Bruce  v.  Piatt,  80  N.  Y.  379- 
381. 
'  Laws  N.  Y.  1848,  chap.  40,  §  23. 


400 


PERSONAL  LIABILITY  OF  OFFICERS. 


[§  248 


t 

1 


pi 


IS  one  of  contract  and  not  of  penal  liability.'  And  the  trustees 
assentnig  to  the  creation  of  indel)tednes8  exceeding?  the  capif d 
stock  will  be  personally  arid  individually  liable  for  such  excess  lo 
the  creditors  of  the  corporation  to  whom  such  excess  may  be 
•    9wiiig.      In  a  case  before  the  Supreme  Court  of  New  York  the 

lIurTw  ''   ^'""tT'   ^1!^'^    ''   venture  for  gain  by  making  the  assent- 

•  «.ud        The  assenting  trustee,  know-    pany  in  the  risk  of  loss.  or.  more  ac- 
H).?  that  the  indebtedness  of  the  com-   ciirately.  in  liability  to  such  creditor 
pany  has  reached  at  least  an  amount    And.    if    this   view    be    correct     the 
equal  to   the    capital    stock.  concu,-s   creditor  for  the  excess  cannot  be  de- 
tTier  ir^lohH^'"^  m  con t meting  fur-    prived  of  his  recourse  to  the  assenting 
tlHr  indebtedness.     He  knows  that  the   trustee  by  any  decrease  in  the  aggre^ 
s  atute   m  case  he  assents,  makes  him    gate  indebtedness  of  the  company  or 
aJso  liable.     He  givc«  his  consent  and    otherwise  than  by  his  own  consent.'  or 
thereby,    under   the    statute.   pUnlges   by  payment  to  him  " 
his  liability.     The  statute  says  to  the       « Ibid. ;  affirming.'and  reaffirming  on 
assenting  trustee,  'you  n,ay  contract   a   rehearing,   Patterson    ..   Robinfon 
as  many  debts  as  you  choose  to  be-   (1885)  36  Hun.   622.     The  court  dis'- 
come  liable  for. ■     It  was  insisted  that   guishe.i  Hornor  r.  Henning.  93  U  S 
the  language  o   section  13  of  the  act   228;  Merchants' Bank  of  Newbury  port 
was  similar  to  that  of  section  23.  and.    r.  Stevenson.  10  Gray   232-    Anderson 
as  the  liability  under  the  former  was.    .  Spee«,  21  Hun.  5^      „  l"t  1 
by  settled  law.  a  penal  one.  the  same    ..  Robinson.  (1885)  36  Htm    62!>   ^ 
must  be  true  under  the  latter."   Refer-   court  reasoned  well  to  this  c;ndu'sion 
nngo  section  13,  which  makes  trus-    and  cited  as  in   harmony  Z^Zr 
tees  liable  for  declaring  dividends,  the    views  Wiles  v.  Suydam   L  NY   iS 
payment  of  which  would    make  the    Corning    r.   3IcCullo.rh'    1    n"  Y     4-' 
corporation   insolvent,    it    was    said  :    Story  ..  Furman.  25  N    Y    203  and 
The    section    seeks    to   deter    the   Veeder  v.  Mudgett,  95  N  Y  295*    In 
rustee  from  despoiling  the  company   Patterson  ..  Robinson.  (l'885)  37  Hun 
he    ru^  of    tl       «^^^^^^^r  ^  '^   ^^.  they  said  of  their  ;rgument  if^e 
the    rum    of    the    creditors.     Such  a   case  *.;>ra;  '•  We  saw  that  this  excess 

t^t^iL  o^trTrHV'-''^'^^^"   ^'  -^^^t«d-ss  was  due  by  the  con 
tractmg  of  the  debt,  but  imperils  its   tract  of  the  company,  and  without  re- 
payment and  the  liability  affixed  upon   gard  to  the  statutc'^^nde^  whoHy  [n- 
the  offending    trustee    may  well    be   dependent    of    th^    statute     to    the 
^11.1  a  penalty.     There  is  no   such   creditors  to  whom  the  contr^'ct  of    h 
flagitiousnessm  the  act  of  assenting  to   company  made  it  due.     We  feel  that 
an    excess  of   indebtedness  over  the   no  statute  could  deprive  such  crUto 
amount  of  he  capital  stock.     It  may   of  his  contract  en^gement  with  the 
be  wiseand  nght;  at  any  rate  the  in-   company.     Such  being  the    contact 
tent    maybe    honest.      Why    affix  a   relation    between   the    company  Tnd 
penalty  upon  performance  of  a  good   such  creditor,  we  thought  tVat  when 

t^^*  bnt3lTr      r^^^^^^P^^^l--    the  contract  liability  of  the  company 

r'J^tT       i      ;'°''''^'^''''°^   ^^^^"^^  «^^^««   «f  indebtedness  the 
the  statute   prudently    tempers    the    personal  and  individual  liability  of  the 


!n 


§248] 


PERSONAL  LIABILITY  OF  0FFICEK8. 


401 


question  was  whether  or  not  a  director  of  a  corporation  organized 
under  the  statute^  wa^  liable  for  a  debt  of  the  corporation.    Section 
18  of  that  statute  requires  the  filing  of  an  annual  report  stating 
the  amount  of  capital,  the  proportion  actually  paid  in,  etc.,  and 
provides  that  the  report  shall  be  signed  "  by  the  president  and  a 
majority  of  the  directors,  and  shall  be  verified  by  oath  of  the 
president  or  secretary  of  such  corporation  and  filed  in  the  oflSce 
of  the  secretary  of  state ;  and,  if  such  corporation  shall  fail  so  to 
do,  all  the  directors  thereof  shall  be  jointly  and  severally  liable 
for  all  the  debts  of  the  corporation  then  existing,  and  for  all  that 
shall  be  contracted  before  such  report  shall  be  made."     Section 
21  declares  that  "  if  any  certificate  or  report  made,  or  public 
notice  given,  by  an  officer  of  any  such  corporation  shall  be  false 
in  any  material  representation,  all  the  ofiicers  who  have  signed 
the  same  shall  be  jointly  and  severally  liable  for  all  the  debts  of 
the  corporation  contracted  while  they  are  officers  thereof."     A 
majority  of  the  court  held  that  a  director  was  an  "  officer  "  within 
the  meaning  of  this  last  section,  and  would  be  liable  under  it 
where  he  had  signed  a  report   which  was  false  in  a  material 
representation.^    A  trustee  not  assenting  to  the  creation  of  an 
indebtedness  in  excess  of  the  capital  stock  of  a  corporation,  his 
subsequent  failure  to  dissent,  when  informed  of  the  fact,  would 
not  be  equivalent  to  the  assent  required  by  this  statute.^     In  a 
case  before  the  Supreme  Court  of  New  York,  where  it  was  not 
shown  that  either  of  two  of  the  trustees  of  the  corporation  dur- 
ing the  time  in  which  there  was  incurred  an  indebtedness  in 
excess  of  the  capital  stock  of  the  corporation,  ever  attended  any 
of  the  meetings  of  the  trustees,  or  were  consulted  with  reference 

trustees  assenting  thereto,  it  added  it   confidence   in    this    construction,  be- 
to  the  habihty  of  the  company  where   cause  of  our  opinion  that  section  23 
trtat  liability  was  placed,  namely,  to   unlike  some  other  sections  of  the  act' 
the  creditors  to  whom  the  company   did  not  impose  this  personal  liability 
was  liable  for  it.    We  saw  no  language   as  a  penalty  for  wrong  done  or  duty 
lu  the  statute  at  variance  with  such  a   omitted,  but  as  the  terms  upon  which 
construction,    certainly    none    which   such  excess   of  indebtedness  mi-ht 
seemed  to  imply  that  the  liability  of   with  safety  to  the  creditors,  be  ;er' 
ine  assenting  tnistees  for  such  excess   mitted  to  the  company  " 
^f   indebtedness    should  be    diverted       •  Laws  N.  Y.  1875,  chap  611 
iromthe  creditors  to  whom  the  com-       «Torbett  v.  Eaton.  (1888)  49  Hun 
pany  owed  such  excess,  and  be  devoted   209;  s.  c,  1  N.  Y.  Supp.  614 
to,  or  conferred  upon,  or  shared  among       ^patterson    v.    Robinson,  (1885)  36 
tne  creditors  to   whom  the  company   Hun,  623. 
did  not  owe  it.    And  we  had  the  more 

51 


402 


PERSONAL  LIABILITY  OF  OFFICERS. 


[§249 


to  the  management  of  its  business,  or  participated  in  its  affairs, 
except  to  sign  its  annual  reports,  and  then  only  upon  their  faith 
in  the  assertions  of  a  co-trustee  that  tliey  were  correct,  the  court 
held  that  no  such  assent  on  their  part  was  shown  as  was  required 
to  make  them  liable  under  the  statute.*  All  the  directors  who 
are  liable  must  be  made  parties  to  an  action  brought  by  a  creditor 
of  a  corporation  to  enforce  the  individual  liability  imposed  by  the 
statute  of  New  York  upon  the  directors  of  a  corporation  by 
whom  an  indebtedness  exceeding  the  amount  of  its  capital  stock 
is  created,  such  liability  beinsr  loint  and  not  several.^  In  deter- 
mining  the  amount  of  the  liabilities  of  a  corporation,  to  ascertain 
whether  or  not  they  exceed  the  amount  of  the  capital  stock,  a 
judgment  recovered  against  the  corporation  by  one  of  its  directors 
for  money  advanced  by  him  to  it,  which  judgment  may  have 
been  subsequently  assigned  by  him  to  a  third  person,  cannot  be 
treated  as  one  of  such  liabilities.^ 

§  249.  Liability  for  incurring  indebtedness  in  excess  oi 
capital  stock  —  Illinois  statute.  In  an  action  against  directors 
of  a  corporation  by  the  holder  of  notes  of  the  corporation  which 
had  been  issued  under  their  directorate,  based  upon  their  liability 
foi*  incurring  such  indebtedness  in  excess  of  the  limit,  as  con- 
tended, imposed  by  the  following  section  of  the  statute  of  Illinois, 
to  wit :  "  If  the  indebtedness  of  any  stock  corporation  shall 
exceed  the  amount  of  its  capital  stock,  the  directors  and  officers 
of  such  corporation  assenting  thereto  shall  be  personally  and 
individually  liable  for  such  excess  to  the  creditors  of  such  cor- 
poration," upon  the  question  whether  the  facts  stated  in  the  bill 
brouficht  the  cause  of  action  within  the  bar  of  the  Statute  of 
Limitations,  the  contention  of  the  directors  was  that  their  liability, 
if  any  existed,  was  for  a  statutory  penalty.  The  Supreme  Court 
of  Illinois  held  that  the  liability  was  not  for  a  statutory  penalty, 
and  that  the  Statute  of  Limitations  was  not  a  bar  to  a  recovery 


»Ibid.  As  to  what  is  a  properly 
stated  cause  of  action  against  directors 
under  the  statute  of  New  York  (Laws 
N.  Y.  1875,  chap.  611.  §  22),  which 
imposes  a  personal  liability  for  an 
excess  of  indebtedness,  in  case  the  in- 
debtedness of  the  corporation  shall  at 
any  time  exceed  the  amount  of  its 
capital  stock,  see  Loveland  r.  Doran 


&  Wright  Co.,  (1891)61  Hun,  619;  s. 
c.  15  N.  Y.  Supp.  278. 

« McClave  v.  Thompson,  (1885)  36 
Hun,  365. 

'Ibid.;  citing  following:  Robinson 
r.  Thompson,  20  N.  Y.  Wkly.  Dig. 
557;  Easterly  v.  Barber,  65  N.  Y.  255; 
Knox  r.  Baldwin,  80  N.  Y.  610. 


in 


§249] 


PERSONAL  LIABILITY  OF  OFFICERS. 


403 


by  the  creditors  of  these  directors.^  The  same  court,  in  a  com- 
paratively recent  case  have  construed  this  statute,  and  said  :  "  The 
HabiHty  is  created  only  where  the  indebtedness  of  the  corporation 
exceeds  the  amount  of  the  capital  stock,  and  is  imposed  only  upon 
the  directors  and  officers  assenting  to  such  excess  of  indebtedness. 
This  plainly  means  assenting  to  its  creation.  Manifestly,  a  recog- 
nition of  the  indebtedness  by  the  directors  after  it  has  been  so 
contracted  as  to  become  binding  upon  the  corporation,  should  not 


»Woolverton  v.  Taylor,   (1890)  132 
111.197.     Arguendo,  it  w&s  8B.id:     "In 
the  absence  of  statutory  prohibition  it 
is  not   unlawful  for  the  officers  of  a 
corporation  to  contract  debts  in  excess 
of  its  capital  stock.     Unless  restricted 
by  statute,   corporations,  as   individ- 
uals, may  contract  debts  to  the  full 
extent  of  their  credit,  without  refer- 
ence to  the  amount  of   their  capital 
stock.     Neither  is  it,  under  all  circum- 
stances, bad  management  in  a  corpo- 
ration to  contract  debts  in  excess  of  the 
amount  of  its  capital  stock.     Its  assets 
may  be  of  such  value  as  to  give  it 
credit,  and  warrant  the  incurring  of 
liabilities    far    beyond   that   amount. 
While  statutes  in  some  states,  by  dif- 
ferent forms  of  language,   limit  the 
right  of  such  officers  to  contract  in- 
debtedness beyond  prescribed  limits, 
in  others  no  restriction  whatever  has 
been  enacted,  and  in  many  of  those  in 
which  a  limit  is  prescribed  the  indebt- 
edness which  may  be  contracted  is  not 
limited  by  the  amount  of  capital  stock, 
but  may  equal  twice  or  three  times 
that  amount.     If,  therefore,  such  en- 
actments are  to  be  understood  as  indi- 
cating that  it  is  deemed  unwise  to  allow 
corporations  to  incur  liabilities  beyond 
a  prescribed  limit,  it  must  be  admitted 
that  the  sentiment  is  by  no  means  har- 
monious as  to  where  the  limit  should  be 
placed.     These  statutes  do  not,  there- 
fore, indicate,  as  contended  by  counsel 
for  appellees,  that  legislatures  have 
considered  it  bad  management  in  the 
affairs    of   a  corporation  to  contract 


debts  beyond  the  amount  of  its  capital 
stock.     [The  quoted  section]  of  our 
statute  does  not  prohibit  the  contract- 
ing of  indebtedness  in  excess  of  capital 
stock;  neither  does  it  in  terms  inffict  a 
penalty  for    so    doing.     Therefore,  a 
prohibition  cannot  be  implied,  and  to 
say,  as  counsel  insist  should  be  done, 
that  the  assenting  is  made  unlawful  by 
the  inffiction  of  a  penalty,  is  to  assume 
the  very  question  controverted.  While 
it  is  true  that  statutes  of  other  states* 
making  officers  of  corporations  indi- 
vidually liable  for  contracting  debts 
beyond  a  prescribed  limit  have  been 
held  to  be  penal,  the  language  of  those 
statutes  will  be  found  materially  dif- 
ferent from  ours,  and  so  far  as  we  have 
been  able  to  ascertain  expressly  pro- 
hibit the  incurring  of  liabilities  beyond 
certain  limits  fixed.     In  Hornor  et  al. 
V.  Henning  etal.,  93  U.  8.  228,  the  Su- 
preme Court  of  the  United  States,  in 
passing  upon  an  act  of  congress  regu- 
lating corporations  in  the  District  of 
Columbia,  the  language  of  which  is 
almost  identical  with  that  of  our  stat- 
ute, it  was  held  that  the  act  was  not 
penal,  for  reasons  which  we  think  un- 
answerable.    We  followed  that  decis- 
ion in  Low  V.  Buchanan,  94  111.  76,  in 
holding  that  the  liability  created  by 
[our  statute]  could  only  be  enforced  in 
chancery,  and  this  is,  in  effect,  decid- 
ing that  the  action  is  not  for  the  recov- 
ery of  a  penalty.     '  It  is  a  universal 
rule  in  equity  never  to  enforce  either  a 
penalty  or  a  forfeiture. '    2  Story's  Eq. 
Jur.  §  1319;  Queenan  v.  Pahner,  117 


*i 


I 


'  I 


r  . 


)■ 

'1 


II. 


404 


PERSONAL  LIABILITY  OF  OFFICERS. 


[§249 


'  ,:l 


Mii 


<*' 


have  the  effect  of  charging  them  with  this  statutory  habihty. 
After  the  indebtedness  has  been  created  by  such  agents  and  in 
such  manner  as  to  constitute  it  a  vahd  obUgation  of  the  corpora- 
tion, it  becomes  the  duty  of  the  directors  to  recognize  its  vahdity, 
and,  so  far  as  in  their  power,  provide  for  its  payment.  *  *  * 
Such  assent  of  [directors]  could  only  be  given  by  some  affirmative 
voluntary  act  on  their  part,  or  at  least  some  active  participation 
or  co-operation  in  the  particular  transaction  out  of  which  that 
indebtedness  arose."^     In  a  case  where  it  was  sought  to  enforce 


111.  619.     In  Morawetz  on  Corporations 
(Vol.  2,  §  908)  it  is  said:     *  It  is  not 
always   quite  clear  what  the  courts 
mean  to  express  by  saying  that  stat- 
utes of  this  character  are  penal,  and 
that  they  impose  upon  the  directors  a 
penal  liability.    The  liability  of  direct- 
ors under  such  a  statute  is  undoubtedly 
not  the  result  of  a  contract  between 
the  directors  and  the  creditors  of  the 
•corporation;  but  that  is  evidently  not 
what  the  courts  mean  to  express.     The 
liability  of  directors  to  creditors  for  a 
tort,  or  a  misapplication  of  corporate 
funds,  or  a  breach  of  trust,  does  not 
arise  out  of  contract;  yet  the  courts 
would  certainly  not  call  this  a  penal 
liability,  or  refuse  to  enforce  it  because 
it  arose  under  the  laws  of  a  foreign 
state.     Nor  is  the  liability  of  the  direct- 
ors under  these  statutes  penal,  in  the 
sense  in  which  the  word  penal  is  used 
in  common  law.     It  is  not  a  penalty  or 
fine  imposed  by  the  state  for  the  in- 
fraction of  public  law.     The  liability 
of  the  directors  is,  both  in  form  and 
substance,  a  ^vate  obligation,  simi- 
lar in  many  respects  to  that  of  sure- 
ties.   It  is  imposed  by  the  legislature 
partly  for  the  purpose  of  inducing  the 
directors  to  do  their  prescribed  duties, 
and  partly  for  the  purpose  of  securing 
the    company's  creditors   from  losses 
caused  by  those  who  have  control  over 
the    company's    funds.     The  statutes 
imposing  this  liability  establish  a  new 
rule  of  private  right,  a  rule  which,  al- 
though unknown  to  the  common  law, 


may  be  founded  on  sound  principles  of 
justice  and  expediency.'  In  Neal  v, 
Briggs,  12  Ga.  104,  it  is  directly  held 
that  a  provision  in  the  charter  of  a 
corporation  prohibiting  the  contracting 
of  debts  in  excess  of  three  times  the 
amount  of  the  capital  stock  paid  in  is 
not  penal  within  the  statute  of  that 
state  limiting  the  bringing  of  penal 
actions  to  a  period  of  six  months." 

*  Lewis  V.  Montgomery,  (1893)  145 
111.  30;  8.  c,  33  N.  E.  Rep.  880.  The 
court,  in  its  opinion,  recites  the  facts 
as  to  meetings  of  the  board,  the  incur- 
ring of  certain  debts,  etc.,  summing 
up  with  a  statement  that  they  found 
no  evidence  except  that  furnished  by 
the  record  of  the  proceedings  of  the 
board,  which  tended  "to  charge  the 
directors,  with  the  exception  of  [one 
who  managed  the  business],  with  any 
direct  or  personal  agency  in  the  incur- 
ring or  contracting  of  the  corporate  in- 
debtedness. Except  so  far  as  they  acted 
officially  at  the  meetings  of  the  board 
they  are  not  shown  to  have  personally 
taken  any  part  in  the  corporate  busi- 
ness. It  is  not  shown  that  they  per- 
sonally entered  into  any  contracts, 
made  any  purchases,  transacted  any 
business  or  in  any  way  interfered  with 
the  corporate  dealings.  The  evidence 
is  clear  that  [this  managing  director], 
during  all  the  time  the  corporation  was 
doing  business,  was  in  fact  its  general 
financial  manager,  and  had  complete 
and  unquestioned  control  of  its  busi- 
ness affairs.    Purchases  and  sales  were 


PERSONAL  LIABILITY  OF  OFFICERS. 


405 


§249] 

the  statutory  liability  of  directors  and  officers  of  a  manufacturing 
corporation  for  the  excess  of  indebtedness  incurred  beyond  the 
capital  stock  of  the  corporation,  it  was  held  by  the  Supreme 
Court  of  Illinois  that  advances  by  a  factor  to  a  manufacturing 
corporation  of  a  part  of  the  invoice  price  of  goods,  under  a  con- 
tract that  the  former  is  to  reimburse  himself  from  the  proceeds 
of  the  goods  when  sold,  did  not  create  any  substantial  liability  or 


made  and  indebtedness  incurred  by 
him  at  his  discretion.  The  directors, 
having  full  confidence  in  him,  and 
recognizing  the  preponderating  influ- 
ence to  which  the  ownership  of  three- 
fourths  of  the  stock  of  the  corporation 
seemed  to  entitle  him,  allowed  him  to 
manage  the  business  substantially  as 
he  pleased,  and  failed  to  keep  them- 
selves informed  as  to  the  financial  situ- 
ation. That  in  all  this  they  were 
grossly  recreant  to  their  legal  duties  as 
directors  and  officers  of  the  corpora- 
tion goes  without  saying.  But  whether 
■  they  thereby  incurred  the  statutory 
liability  for  the  debts  of  the  corpora- 
tion in  excess  of  the  amount  of  the 
capital  stock  presents  quite  another 
question.  The  provisions  of  the  stat- 
ute are  as  follows:  'If  the  indebted- 
ness of  any  stock  corporation  shall 
exceed  the  amount  of  its  capital  stock 
the  directors  and  officers  of  such  cor- 
poration assenting  thereto  shall  be  per- 
sonally and  individually  liable  for  such 
excess  to  the  creditors  of  such  corpo- 
ration. '  It  should  be  observed  that  the 
statutory  liability  is  not  predicated 
upon  the  negligence  of  the  directors  or 
officers  in  the  discharge  of  their  official 
duties,  but  upon  the  fact  of  their  hav- 
ing '  assented '  to  the  indebtedness 
which  constitutes  the  excess  over  the 
amount  of  the  capital  stock.  The  con- 
tention of  the  complainants  seems  to 
be  that  as  the  board  of  directors  is  the 
governing  body  of  the  corporation, 
their  constituting  [one  of  their  num- 
ber] its  general  financial  agent,  either 
^y  appointment  or  by  sufferance,  made 
him  their  agent  so  as  to  warrant  an 


application  to  them  of  the  maxim 
respondeat  superior,  and  to  make  his 
acts  and  assent  the  acts  and  assent  of 
the  directors.  This  position  is  clearly 
untenable.  The  directors,  though  the 
governing  body  of  the  corporation,  are 
only  its  officers  and  agents,  and  any 
subordinate  agent  appointed  by  them 
or  acting  by  virtue  of  their  sufferance 
or  recognition,  does  not  thereby  be- 
come their  agent  but  the  agent  of  the 
corporation.  His  acts  are  the  acts  of 
the  corporation  so  as  to  make  it  liable 
for  debts  or  obligations  incurred  by 
him  on  its  behalf,  but  they  are  not  the 
acts  of  the  directors  unless  commanded 
or  authorized  by  them.  The  fact  that 
the  directors  might  have  interfered  to 
prevent  [this  manager]  from  running 
the  corporation  in  debt  beyond  the 
amount  of  its  capital  stock,  or  that 
they  failed  in  other  respects  to  perform 
their  appropriate  functions,  may  be 
charged  against  them  as  negligence, 
but  it  fails  to  establish  their  assent  to 
the  indebtedness  thus  contracted.  In 
Woolverton  «>.  Taylor,  132  111.  197,  the 
statute  sought  to  be  invoked  here  was 
under  consideration,  and  we  there  held 
that  while  the  liability  imposed  is  not 
penal  but  contractual,  it  is  like  that  of 
a  surety,  and,  therefore,  stricti  juris. 
This  being  the  case,  the  statute  should 
receive  a  construction  in  consonance 
with  the  nature  of  the  obligation  im- 
posed. The  words  employed  should 
be  interpreted  according  to  their  plain 
and  obvious  meaning,  and  should  not 
be  extended  by  construction  so  as  to 
embrace  cases  not  clearly  within  the 
terms  of  the  statute.    The  liability  is 


Mil 


in 


406 


PERSONAL  LIABIUTY  OF  OFFICERS.' 


[§250 


indebtedness  against  the  corporation  while  the  goods  are  in  the 
hands  of  the  factor  and  before  their  order,  within  the  meaning  of 
the  statute  of  IlHnois  relating  to  such  liability  of  directors  and 
officers  of  corporations ;  also,  that  the  fixing  of  the  salary  of  the 
superintendent  of  the  corporation  and  that  of  the  secretary,  in 
the  absence  of  other  proof,  was  not  sufficient  to  show  that  any 
corporate  debt  was  thereby  incurred,  as  it  would  be  presumed  that 
such  salaries  were  paid  as  they  accrued.  Further,  it  was  held  that 
to  show  the  incurring  of  an  indebtedness  of  a  corporation  in  excess 
of  its  capital  stock,  it  was  not  sufficient  to  show  that  various 
expenditures  were  ordered  or  authorized  by  the  board  of  directors, 
when,  so  far  as  it  appeared,  such  expenditures  may  have  been 
met  at  the  time  by  cash  payments.  It  must  be  shown  that  such 
expenditures  resulted  in  indebtedness,  or  formed  part  of  the 
indebtedness  in  excess  of  the  capital  stock.* 

§  250.  United  States  Supreme  Court  decision  on  a  similar 
statute  —  the  proper  action  in  such  a  case.—  An  action  at 
law  was  brought  by  a  creditor  of  a  savings  bank  in  the  District 
of  Columbia  against  the  trustees  of  the  l)ank  upon  a  liability  as 
alleged  incurred  by  a  violation  of  the  following  section  of  the  act 
of  congress  under  which  it  was  organized,  to  wit:  "If  the 
indebtedness  of  any  company  organized  under  this  act  shall  at 
any  time  exceed  the  amount  of  its  capital  stock,  the  trustees  of 
such  company  assenting  thereto  shall  be  personally  and  individu- 
ally liable  for  such  excess  to  the  creditors  of  the  company."  The 
Supreme  Court  of  the  United  States  affirmed  the  sustaining  of  a 
demurrer  by  the  lower  court  to  this  action,  holding  that  an  action 
at  law  could  not  be  sustained  by  one  creditor  among  many  for 
the  liability  thus  created,  or  for  any  part  of  it,  but  that  the 
remedy  is  in  equity .^ 

created  onlywhere  the  indebtedness  of  the  indebtedness  has  been  created  by 
the  corporation  exceeds  the  amount  of  such  agents,  and  in  such  manner  as  to 
tlie  capital  stock,  and  is  imposed  only  constitute  it  a  valid  obligation  of  the 
upon  the  directors  and  officers  assent-  corporation,  it  becomes  theduty  of  the 
ing  to  such  excess  of  indebtedness,  directors  to  recognize  its  validity  and 
TOs  plainly  means  assenting  to  its  ere-  so  far  as  is  in  their  power,  provide  for 
ation.     Manifestly,  a  recognition  of  the   its  payment." 

indebtedness  by  the  directors  after  it       '  Lewis  r.  Montgomery,  (1893)  145 
has  been  so  contracted  as  to  become   111.  30. 

binding  upon  the  corporation,  should       *  Ilornor  v.  Henning.  (1876)  93  U  S 
not  have  the  effect  of  charging  them   228.     Mr.   Justice  Millkk    speaking^ 
with    this  statutory  liability.    After  for  the  court,  said:  "  Weareof  opinioa 


§251] 


PERSONAL  LIABILITY  OF  OFFICERS. 


407 


§251.  New  York  Statute  —  liability  for  false  statements 
in  certificates,  etc.,  filed. —  It  is  entirely  immaterial  whether 
the  creditor  of  the  corporation  relies  upon  the  certificate  filed  by 
the  oflicers  or  not.  As  long  as  the  trustee  knows  the  certificate 
to  be  false,  and  the  debt  is  thereafter  contracted  while  he  is  an 
officer  of  the  company,  it  comes  within  the  provisions  of  the  stat- 
ute making  the  trustees  liable  on  account  of  the  false  statement 
in  the  certificate.*  The  plaintiff  in  such  actions  must  establish  that 
the  certificate  filed  was  in  point  of  fact  false,  and  that  the  trus- 
tees signed  it  with  knowledge  of  its  falsity.'^  Henewal  notes 
given  after  the  filing  by  the  officers  of  a  corporation  of  a  false 
certificate  that  all  of  its  capital  stock  had  been  paid  in  for  a  debt 
contracted  by  the  corporation  before  the  filing  of  the  certificate 
is  a  "  debt "  within  the  meaning  of  the  statute  making  directors 
and  officers  liable  for  the  debts  of  the  corporation.^  A  director 
cannot  defend  an  action  to  make  him  liable  for  signing  an  annual 
report  false  in  any  material  particular  upon  the  ground  that  he 
was  also  a  creditor  of  the  corporation.*     The  constitutionality  of 


that  the  fair  and  reasonable  construc- 
tion of  the  act  is  tliat  the  trustees  who 
assent  to  an  increase  of  the  indebted- 
ness of  the  corporation  beyond  its 
capital  stock  are  to  be  held  guilty  of  a 
violation  of  their  trust;  that  congress 
intended  that  so  far  as  this  excess  of 
indebtedness  over  capital  stock  was 
necessary,  thgy  should  make  good  the 
debts  of  the  creditors  who  had  been 
the  sufferers  by  their  breach  of  trust; 
that  this  liability  constitutes  a  fund 
for  the  benefit  of  all  the  creditors  who 
are  entitled  to  share  in  it,  in  propor- 
tion to  the  amount  of  their  debts,  so 
far  as  it  may  be  necessary  to  pay  their 
debts.  The  remedy  for  this  violation 
of  duty  as  trustees  is  in  its  nature 
appropriate  to  a  court  of  chancery. 
The  powers  and  instrumentalities  of 
that  court  enable  it  to  ascertain  the 
excess  of  the  indebtedness  over  the 
capital  stock,  the  amount  of  this 
which  each  trustee  may  have  assented 
to,  and  the  extent  to  which  the  funds 
of  the  corporation  may  be  resorted  to 
for  the  payment  of  the  debts;  also  the 


number  and  names  of  the  creditors, 
fhe  amount  of  their  several  debts,  to 
determine  the  sum  to  be  recovered  of 
the  trustees  and  apportioned  among 
the  creditors  in  a  manner  which  the 
trial  by  jury  and  the  rigid  rules  of 
common-law  proceedings  render  im- 
possible. This  course  avoids  the  in- 
justice of  many  suits  against  defend- 
ants for  the  same  liability,  and  the 
greater  injustice  of  permitting  one 
creditor  to  absorb  all  or  a  very  un- 
equal portion  of  the  sum  for  which 
the  trustees  are  liable,  and  it  adjusts 
the  rights  of  all  concerned  on  the 
equitable  principles  which  lie  at  the 
foundation  of  the  statute.'* 

»  Ferguson  v.  Gill,  (1892)  64  Hun, 
284;  8.  c,  19  N.  Y.  Supp.  149. 

'Ibid. 

» Ibid. 

*  Richards  r.  Crocker,  (N.  Y.  City 
Court,  Spl.  T.  1887)  19  Abb.  N.  C. 
73.  Judge  Rapallo  in  Pier  v.  Han- 
more,  86  N.  Y.  101,  says  of  the  pur- 
pose of  this  statute:  "The  purpose 
for  which  the  annual  reports  are  re- 


If 


: 


ll 


rl  ; 


:>■»■ 


■I 


■I   ♦ 


il 


HI 


li  ,1 


• 


'  II 


408 


PERSONAL  LIABILITY  OF  OFFICERS. 


[§251 


the  New  York  statute  Las  been  sustained  by  the  Court  of 
Appeals.*  In  actions  tigainst  directors  under  this  statute  it  is  not 
necessary  to  show  knowledge  on  the  part  of  the  officer  at  the  time 
of  signing ;  proof  that  the  writing  is  untrue  "  in  any  material 
representation ''  would  be  sufficient.^  The  rule  governing  the 
action  of  a  jury  in  such  a  ciise  is  that  they  are  not  required  to 
give  the  defendants  the  benclit  of  any  reasonab\e  doubt  in  the 


quired  to  be  published  is  that  the  pub- 
lic may  be  correctly  informed  of  the 
tloancial  condition  and  resources  of 
their  companies  in  order  that  they  may 
judge  of  the  credit  to  which  they  are 
entitled."  In  Walton  r.  Godwin,  58 
Ilun,  91,  Mr.  Justice  Daniels  used 
this  language:  "Tlie  report  has  evi- 
dently been  required  as  information  to 
the  public  concerning  the  financial 
condition  and  responsibility  of  the 
corporation.  This  information  is  in- 
tended as  a  security  to  persons  dealing 
with  the  company.  And  whatever 
would  matenally  affect  their  judg- 
ment in  their  dealings  should  be  re- 
garded as  a  material  representation  in 
the  report  itself.  But  if  a  r-eport 
proves  to  be  untruthful  in  representa- 
tions which  would  have  no  effect 
whatever  upon  the  judgment  or  con- 
duct of  persons  dealing  with  the  cor- 
poration, such  representations  could 
not  be  consistently  helJ  to  be  material. 
And  it  must  be  by  this  criterion  that 
the  question  of  the  liability  of  the  per- 
sons signing  the  report  should  be  de- 
termined, for  if  it  contains  untruthful 
statements  and  those  statements  ap- 
pear to  be  so  entirely  unimportant 
that  they  would  not  affect,  in  the  least 
degree,  the  credit  of  the  company  or 
the  conduct  of  persons  dealing  with  it, 
then  they  cannot  legally  be  held  to  be 
material  misrepresentations."  After 
quoting  the  above  in  Torbett  v.  God- 
win, (1891)  62  Hun,  407,  411;  s.  c,  17 
N.  Y.  Supp.  46;  27  Abb.  N.  C.  444, 
Barrett,  J.,  as  to  the  construction  to 
be  given  to  the  section  im[)osing  lia- 


bility upon  officers  for  certificates,  etc., 
"  false  in  any  material  representntion," 
has  said:  '*  The  construction  *  *  * 
should,  if  possible,  be  in  harmony 
with  its  object  and  purpose  as  thus 
defined.  That  will  be  accomplished 
by  confining  the  liability  to  cases 
where  credit  may  possibly  have  been 
given  to  the  corporation  upon  the  faith 
of  the  report.  In  other-words,  to  debts 
contracted  after  it  is  filed.  This  gives 
force  also  to  the  word  '  representa- 
tions'  as  used  in  the  section.  That 
section  does  not  read  false  in  any 
material  '  statement '  or  material '  fact/ 
but  false»in  any  material  '  representa- 
tion.' Representation  implies  an  ob- 
ject addressed.  Representations  to 
whom,  then  ?  Plainly  to  any  one  who 
contemplates  trusting  the  company 
thereafter.  And  this  view  is  rein- 
forced by  the  fact  that  the  false  rep- 
resentation which  creates  liability  is 
not  limited  by  the  section  to  a  certifi- 
cate or  report,  but  may  be  embodied  in 
&ny  miblic  notice  given  by  the  officers 
of  thetcompany.  Shall  it  be  said  then 
that  for  any  negligent  or  inadvertent 
publication  the  officers  of  the  com- 
pany are  to  be  mulcted,  not  only  for 
the  possible  consequences  of  such 
publication,  but  for  debts  contracted 
before  it  was  thought  of? "  The  re- 
versal of  the  judgment  against  the 
directors  on  this  case  negatives  this 
query. 

'  Huntington  v.  Attrill,  (1890)  118 
N.  Y.  365;  8.  c,  23  N.  E.  Rep.  544. 

•  Ibid. 


m 


i 


I' 


§  251] 


PERSONAL  LIABILITY  OF  OFFICERS. 


409 


sense  appUcable  to  criminals.  They  may  be  governed  in  reach- 
ing a  satisfactory  result  by  the  fair  preponderance  of  evidence.* 
The  false  representation  alleged  in  this  case  was  that  the  direct- 
ors had  represented  in  their  report  that  the  whole  capital  stock, 
$700,000,  had  been  paid  in.  The  whole  stock  was  issued  to  one 
individual,  one  of  the  defendants  here,  for  a  tract  of  land  upon 
the  seashore.  It  became  necessary,  therefore,  in  the  progress  of 
the  case  for  the  jury  to  consider  what  was  the  "  fair  value  "  of 
this  property  when  considered  in  connection  with  the  provision 
of  the  statute  which  prohibits  the  issuing  of  stock  of  a  corpora- 
tion organized  under  it  except  for  "  property  actually  received 
for  the  use  and  legitimate  purpose  of  said  corporation  at  its  fair 
value."  "  Fair  value  "  in  this  connection  the  Court  of  Appeals 
of  New  York  held  to  be  that  which  the  property  had  at  the  time 
of  sale ;  that  it  was  not  dependent  upon  the  subsequent  success 
or  failure  of  the  investment,  further  than  that  result  may  have  been 
legitimately  within  evidential  contemplation  at  the  time  of  the  sale 
in  view  of  the  uses  for  which  it  may  have  had  available  advantages 
within  itself.^  As  bearing  upon  the  real  value  of  this  property 
for  which  the  stock  was  issued  to  so  large  an  amount  it  was  held 
not  to  have  been  error  to  allow  the  plaintiff  to  prove  on  the  ques- 
tion of  value  that  the  land  purchased,  with  extensive  improve- 
ments thereon,  was  afterwards  sold  at  judicial  sale  for  $175,000.^ 
In  an  action  of  another  creditor  against  these  same  defendants 
upon  their  liability  under  the  statute  for  having  made  a  false 
statement  in  their  certificate  which  they  had  filed,  the  Court  of 
Appeals  sustained  the  action  of  the  trial  judge  in  refusing  to 
accept  a  verdict  of  the  jury  for  an  amount  less  than  the  whole 
amount  of  his  debt  and  directing  a  verdict  for  the  latter  amount 
on  the  ground  that  having  found  that  the  plaintiff  was  entitled  to 
a  recovery,  that  being  a  matter  of  fact  for  the  jury,  the  measure 
of  damages  was  the  amount  of  the  debt  and  this  he  was  entitled 
to  recover.*  Where  the  liability  of  a  trustee  or  director  under 
the  statute  for  making  a  false  certificate  has  reference  to  an  over- 
valuation of  property  taken  by  the  corporation  from  its  stock- 
holders, the  statute  would  not  be  violated  in  respect  to  the  issuing 
of  stock  in  payment  for  property  unless  such  persons  in  bad  faith 


» Ibid. 
« Ibid. 
*  Ibid. 


*  Hatch  r.  Attrill,  (1890)  118  N.  Y. 
383;  s.  c,  23  N.  E.  Rep.  549. 


52 


I 


hn 


u 


r 

m 


m 


I  ' 


410 


PERSONAL  LIABILITY  OF  OFFICERS. 


[§!>5ii 


put  a  fictitious  value  upon  their  property  for  the  purpose  of  evad- 
ing the  statute  and  defrauding  others.  If  done,  and  the  trustee 
knew  of  it,  he  would  be  liable.*  The  rule  that  to  sustain  an 
action  for  fraud  founded  upon  re})resentations  made  by  one 
charged  with  fraud,  it  nnist  be  made  to  appear  that  he  believed, 
or  had  reason  to  believe,  at  the  time  he  made  them,  that  the  rep- 
resentations were  false,  or  that,  without  knowledge,  he  assumed 
or  intended  to  convey  the  impression  that  he  had  actual  knowl- 
edge of  their  truth,  and  that  the  injured  party  rehed  upon  them 
to  his  injury,  is  applicable  to  the  case  of  representations  made 
by  a  director  of  a  corporation,  in  the  form  of  published  state- 
ments and  reports,  as  to  its  financial  condition.  Knowledge  of 
all  the  affairs  of  tlie  corporation  cannot  be  imputed  to  liim  for 
the  purpose  of  charging  him  with  fraud.^  In  a  case  brought  by 
one  who  alleged  that  he  had  been  led  to  loan  a  large  sum  of 
money  to  a  corporation  by  the  false  and  fraudulent  representa- 
tions of  its  trustees  as  to  its  capital  stock  having  been  paid  in, 
etc.,  in  a  report,  there  was  a  judgment  against  all  the  trustees. 
On  the  appeal  it  was  held  by  the  court  that  the  facts  that  the 
name  of  one  of  these  defendants  was  published  as  a  trustee  of 
the  corporation  and  that  a  certificate  of  stock  was  issued  to  him 
were  not  sufficient  to  authorize  a  verdict  against  him  for  the  fraud 
perpetrated  by  other  trustees  and  agents  of  the  corporation. ** 
The  mere  fact  of  being  a  director  and  stockholder  is  not  sufficient 
per  se  to  hold  one  so  situated  liable  for  the  frauds  and  misrepre- 
sentations of  the  active  managers  of  a  corporation.  They  are 
the  agents  of  the  corporation,  not  of  the  directors,  as  individuals, 
and  have  no  power  to  bind  the  latter  by  their  statements.  Some 
knowledge  and  participation  in  the  act  claimed  to  be  fraudulent 
must  be  brought  home  to  the  person  charged.  It  is  only  where 
a  director  lends  his  name  and  influence  to  promote  a  fraud  upon 
the  community,  or  is  guilty  of  some  violation  of  law  or  other 
mismanagement  that  he  is  personally  liable.* 

§  252.  Illustrations. —  A  statement  in  such  a  report  that  cer- 
tain persons  are  stockholders  in  the  corporation,  and  that  the 

»  Van  Vleet  v.  Jones,  (1894)  75  Hun.       »  Arthur  v.  Griswold,  (1874)  55  N. 
340;  8.  c,  26  N.  Y.  Supp.  1086.  Y.  400. 

»  Wakeman  r.  Dalley,  (1872)  51  N.       *  Ibid. 
Y.  27;  8.  c,  10  Am.  Rep.  551,  affirm- 
ing 44  Barb.  498. 


§252J 


PERSONAL  LIABILITY  OF  OFFICERS. 


411 


amount  of  their  stock  has  been  already  paid,  when  in  fact  such 
persons  are  not  stockholders  at  all,  wouid  be  "  false  in  a  material 
representation."*  That  defendant  signed  such  report  in  good 
faith  under  the  advice  of  counsel,  and  that  he  believed  the  state- 
ment made  in  it  to  be  true  would  be  no  defense  against  his  statu- 
tory liability  under  this  statute.^  It  appeared  in  a  New  York 
case  that  one  who  was  named  in  the  animal  report  mado  by  the 
corporation  under  the  requirements  of  the  statute  as  one  of  the 
stockholders  was  not  and  never  had  been  the  owner  of  stock  in 
the  corporation ;  that  a  certiiicate  for  ten  shares  of  stock,  amount- 
ing to  the  sum  of  $1,000.  had  been  sent  to  him,  which  he  had 
refused  to  accept  and  had  returned,  and  that  this  amount,  as  well 
as  an  additional  sum  of  $1,000,  for  which  there  was  no  founda- 
tion whatever,  was  included  in  the  amount  of  the  capital  stock  of 
the  corporation  stated  in  the  report  to  have  been  paid  in.  The 
other  stock  paid  in  was  stated  at  $148,600.  The  Supreme  Court 
in  General  Term  held  that,  in  view  of  the  fact  that  the  jury  might 
have  found  that  $146,600  of  the  capital  stock  of  the  corporation 
had  been  paid  in,  this  error  to  the  extent  only  of  $2,000  did  not 
make  the  report  "  false  in  any  material  representation."  ^  In  a 
case  before  the  Kew  York  Court  of  Appeals,  brought  by  a 
creditor  against  a  trustee  of  a  corporation  to  enforce  the  liability 
of  the  latter  under  the  New  York  statutes  for  making  a  state- 
ment in  the  annual  report  that  the  capital  stock  of  $2,000,000 
had  been  paid  up  in  full,  on  the  ground  that  the  statement  was 
false  to  the  knowledge  of  the  signers,  it  appeared  that  the  stock 
of  the  corporation  was  issued  to  one,  in  payment  for  certain  iron 
raining  property,  tlien  undeveloped,  which  property  he  had  pur- 
chased of  a  corporation  of  which  the  trustee  sued  was  a  stock- 
holder, and  the  latter  received  from  him  $10,000  of  the  stock  of 
the  new  corporation  to  enable  him  to  act  as  trustee.  The  vendor 
of  the  property  sold  to  the  corporation  surrendered  to  the  new 
corporation  1,000  shares  of  the  stock,  which  was  pledged,  with 

*  Brandt  v.  Gkxiwin,  (C!ity  Court  N.  upon  the  transactions  or  dealings  of 
Y.,  Spl.  Tenn,  1889)  3  N.  Y.  Supp.  creditors  with  the  corporation  And 
807.  for  that  reason  these  statements  could 

*  Ibid,  not  be  assumed  to  be,  as  they  appear 
'  Walton  V.  Godwin,  (1890)  58  Hun,    to  have  been  in  the  charge  of  the  court, 

87;  8.  c,  12  N.  Y.  Supp.  436.    Dan-  materially  false  statements  rendering 

lELs,  J,,  said:    "This  slight  discrep-  the  officers   who   signed    the   report 

ancy    or    difference  in    so   large   an  liable  for  its  debts." 
amount  would  have  no  effect  whatever 


« 


1*1 


412 


PERSONAL  LIABILITY  OF  OFFICERS. 


[§  252 


\\ 


^ 


'1 


K  ' 


$70,000  of  the  bonds  of  the  corporation,  to  secure  a  loan  of 
$85,000,  and  gave  500  sliares  of  the  stock  as  a  commission  to  the 
officer  who  negotiated  the  loan.  The  property  which  was  sold 
by  this  vendor  to  the  new  corporation  for  $1,000,000  of  the  stock 
of  the  new  corporation  and  $200,000  of  its  bonds,  and  the  con- 
sideration for  which  was  expressed  in  his  deed  to  the  new  corpo- 
tion  as  $600,000,  proved  to  be  worth  not  over  $60,000.  The 
trustee  sued  had  knowledge,  it  was  shown,  of  all  these  facts.  The 
Court  of  Appeals  held  that  the  facts  justified  a  finding  that  this 
trustee  signed  tlie  report  in  bad  faith,  knowing  it  to  be  false.*  In 
an  action  against  trustees  of  a  manufacturing  corporation  to 
enforce  the  liability  imposed  by  the  statutes  of  Kew  York  *  for 
making  a  false  report,  where  the  falsity  alleged  was  solely  in  the 
statement  that  the  capital  stock  had  been  paid  in  full,  without 
stating  that  all  or  a  portion  of  it  was  paid  for  in  property  as 
required  by  a  later  statute,^  the  New  York  Court  of  Appeals 
declared  this  rule  to  be  applicable,  to  wit :  To  charge  the  officer 
with  the  severe  penalty  imposed  for  signing  a  false  report,  know- 
ing it  to  be  false,  some  fact  or  circumstance  must  be  shown  indi- 
cating that  it  was  made  in  bad  faith,  willfully,  or  for  some  fraudu- 
lent purpose,  and  not  ignorantly  or  inadvertently,  and  this  is  a 
(|uestion  of  fact  which  must  be  passed  upon  before  the  liability 
can  be  adjudged.*  Finch,  J.,  further  said  :  "  But  the  necessity 
of  such  proof  of  a  willful  and  fraudulent  purpose  we  confined  to 
a  case  where  the  sole  falsity  of  the  report  originated  in  our  con- 
struction of  its  import,  as  meaning  a  payment  in  cash,  although 
not  so  stated  in  express  terms,  and  where,  as  a  consequence,  it 
was  possible  for  the  officer  to  have  signed  what  we  construe  to  be 
a  falsehood,  but  what,  as  he  understood  it,  might  have  been  a 
truth.  In  such  case  it  is  just  to  require  that  some  evidence  of 
bad  faith,  something  indicating  a  consciousness  of  falsehood 
instead  of  belief  of  truth  should  be  given.  In  other  words,  the 
penalty  follows  an  actual  and  not  a  constructive  falsehood ;  one 
known  and  understood  to  be  such  and  possibly  believed  to  be 
otherwise."^    The    trustees    of    a    manufacturing    corporation 

'  Blake  v.  Griswold,  (1886)  103  N.  Y.  *Bonnell  v.  Oris  wold,  (1882)  89  N. 

429.     The  court  distinguished   Lake  Y.  122;  rule  declared  in  Pier  v.  Han 

Superior  Iron  Co.  v.  Drexel,  (1892)  90  more,  80  N.  Y.  128. 

N.  Y.  87.  » Ibid.,  in  which  it  was  held  that 

*  N.  Y.  Laws  1848,  chap.  40,  §  15.  where  the   stock  of  the  corporation 

'  N.  Y.  Laws  1853,  chap.  333.  was  actually  paid  in  in  cash,  the  mere 


: ! 


^ 


PERSONAL  LIABILITY  OF  OFFICEBS. 


413 


§252] 

would  not  incur  the  liability  imposed  upon  them  by  the  stat- 
utes  of   New   York^   for  signing  an   annual   report   "false  in 
any    material    representation,"   simply    by   omitting  from   the 
aggregate    indebtedness    of    the    corporation    certain   liabilities 
of  the  corporation,  although  they  may  have  known  of  it  at  the 
time  the  report  was  made.^     The  habiHty  of  a  director  of  a  cor- 
poration formed  under   the  New  York  statute «    by  reason  of 
making  a  false  report  abates  on  the  death  of  the  original  creditor 
of  the  corporation,  and  cannot  be  revived  in  favor  of  or  prose- 
cuted by  his  personal  representatives.'*     The  Maryland  Court  of 
Appeals,  two  justices,  however,  dissenting,  has  held  that  the  lia 
bility  imposed  upon  directors  or  officers  by  the  New  York  statute 
on  account  of  false  statements  in  reports,  etc.,  required  of  them 
as  to  any  material  representation  was  a  penalty  and  not  enforceable 
in  the  state  of  Maryland;    and  that  if  a  judgment  had  been 
obtained  in  New  York  under  the  statute,  no  action  could  be 
maintained  on  the  judgment  in  the  state  of  Maryland.^     The 
officers  of  a  corporation  organized  in  pursuance  of  a  plan  of  a 
syndicate  for  whom  property  had  been  purchased  for  $150,000, 
with  a  view  to  sell  the  same  to  this  corporation,  certified  that 
stock  of  the  value  of  $1,500,000  had  been  issued  to  the  amount  of 
the  value  of  the  property  purchased  of  the  syndicate  for  the  pur- 
pose of  the  corporation.     These  officers  were  held  liable  to  per- 
sons who  had  advanced  money   to  the  corporation  under  the 
statute  of  New  York,  which  provides  that  "  if  any  certificate  or 
report  made,  or  public  notice  given,  by  the  officers  of  any  such 
company,  in  pursuance  of  the  provisions  of  this  act,  shall  be  false 
in  any  material  representation,  all  the  officers  who  shall  have 
signed  the  same,  knowing  it  to  be  false,  shall  be  jointly  and 
severally  liable  for  all  the  debts  of  the  company  contracted  while 
they  are  stockholders  or  officers  thereof."     The  statement  in  the 


fact  that  the  corporation  bou^rht  out 
assets  of  an  old  company  at  their  fair 
value  did  not  call  for  or  authorize  a 
statement  in  the  report  that  the  stock 
had  been  paid  for  in  property.  See, 
also,  Wickens  v.  Foster,  (1885)  23  N. 
Y.  Wkly.  Dig.  426. 

» N.  Y.  Laws  1848,  chap.  40,  §  15. 

'Butler  V.  Smalley.  (1885)  101  N.  Y. 
7t 


3  Laws  N.  Y.  1875,  chap.  611. 

*  Boyle  V.  Thurber,  (1888)  50  Hun, 
259 ;  following  Brackett  v.  Griswold, 
103  N.  Y.  425. 

^Attrill  V.  Huntington,  (1889)  70 
Md.  191;  8.  c,  16  Atl.  Rep.  651;  citing, 
in  support  of  the  holding.  Flash  r. 
Conn,  109  U.  8.  376;  Wisconsin  v. 
Pelican  Insurance  Co.,  127  U.  S.  290. 


* 


"'* 


414 


PERSONAL  LIABILITT  OF  OFFICERS. 


[§§  253,  254 


: 


f|| 


1  ♦! 


certificate  as  to  the  stock  was  held  to  be  a  false  one  within  the 
letter  and  the  spirit  of  the  statute.* 

§  253.  Statutory  liability  —  Rhode  Island  statutes.—  The 

statutes  of  Khode  Island  providing  that  if  certain  certificates 
are  not  filed,  certain  officers  of  corporations  shall  be  liable  for 
"  all  debts  of  the  company  contracted,"  has  been  construed  by  the 
Supreme  Court  of  that  state,  and  they  have  held  that  the  words 
*'  debts  contracted  "  did  not  include  torts  of  the  corporation,  nor 
judgments  against  the  corporation  founded  on  such  torts.^  So,  all 
the  other  statutes  which  provide  that,  if  the  debts  of  a  corpora- 
tion exceed  its  paid-in  capital,  the  directors  under  whom  the  excess 
occurs  shall  be  liable  jointly  and  severally  to  the  extent  of  the 
excess,  "  for  all  the  debts  of  the  company  then  existing,  and  for 
all  that  shall  be  contracted  as  long  as  they  shall  respectively  con- 
tinue in  office,"  and  until  the  excess  shall  disappear,  have  also 
been  construed,  and  the  directors  held  not  to  be  liable  for  torts  of 
the  corporation  committed  pending  the  excess,  nor  for  judgments 
against  the  corporation  founded  on  such  torts.^ 

§  254.  Statutory  liability  —  various  states.—  The  statutes 
of  Indiana  provided,  as  to  such  corporations  as  the  one  involved 


'  Chittenden  r.  Thannhauser,  (1891) 
47  Fed.  Rep.  410. 

« Pub.  St.  R.  I.  1882,  chap.  155,  §§  2, 
3,  4. 

''Pub.  St.  R.  I.  1383,  chap.  155.  §  15; 
Leighton  r.  Campbell,  (1890)  17  R.  I. 
51;  s.  (\,  20  Atl.  Rep.  14.  The  court 
said:  "The  plaintiff  cites  in  support 
of  thi.s  contention  Mill  Dam  Foundery 
«.  Hovey,  21  Pick.  417, 455,  and  Carver 
f».  Braintree  Manufacturing  Company, 
2  Story,  432.  These  cases  relate  to 
the  liabilities  of  corporations  under  a 
Massachusetts  statute  subjecting  them 
to  individual  liability  for  the  'debts 
and  contracts '  of  the  corporation,  or 
for  the  'debts  contracted'  by  it, 
and  not  to  the  liability  of  officers  of 
corporations  under  other  provisions. 
In  the  first  case  it  was  held  that  the 
phrase  covered  a  claim  for  unliqui- 
dated damages  arising  ex  contractu.   In 


the  second  it  was  held  that  the  phrase 
'  debts  contracted,'  being  broadly  con- 
strued, covered  a  liability  incurred  by 
the  infringement  of  a  patent,  or,  in 
other  words,  a  liability  for  tort.   Judge 
Story,  in  giving  this  construction,  re- 
lied somewhat  on  the  authority  of  Mill 
DamPoundery  v.  Hovey,  but  still  more 
on  his  view  that  the  provision  impos- 
ing the  liability  was  to  be  regarded  as 
remedial,   and  was,   therefore,   to  be 
liberally  construed,  in  fact  virtually 
conceding  that,  in  any  other  view,  the 
construction  would  be  too  broad.     In 
Child  V.   Boston  &   Fairhaven    Iron 
Works,  137  Mass.  516.  the  court  say, 
in  criticism  of   Carver  r.    Braintree 
Manufacturing  Company:  'There  are 
no  cases  decided  by  the  courts  of  the 
commonwealth  in  which  a  stockholder 
has  been  held  liable  for  a  tort  of  the 
corporation,  and  other  decisions  of  Mr. 


It 


PEE80NAL  LIABILITY  OF  OFFICERS. 


415 


§254] 

in  a  case  before  the  Supreme  Court  of  that  state,  as  follows: 
*'  The  capital  stock,  as  fixed  by  such  company,  shall  be  paid  into 
the  treasury  thereof  within  eighteen  months  from  the  incorpora- 
tion of  the  same."  "  If  any  company  organized  and  established 
under  the  authority  of  this  act,  and  of  tlie  act  to  which  this  is 
supplementary,  shall  violate  any  of  the  provisions  thereof,  and 
shall  thereby  become  insolvent,  the  directors  ordering  or  assent- 
ing to  such  violation  shall  jointly  and  severally  be  liable  in  an 
action  founded  on  said  acts,  for  all  debts  contracted  after  such 
violation  as  aforesaid.''  It  was  ruled  in  die  case  that  if  the 
directors,  or  any  number  of  them,  refused  to  enforce,  on  behalf 
of  the  company,  the  duty  of  the  company  to  collect  the  stock, 
8uch  refusal  was  an  assent  on  tlieir  part  to  a  violation  of  the  com- 
pany's duty,  and  it  was  immaterial  whether  the  plaintiff  sued  all 
or  a  majority  of  the  directors.^  A  protest,  not  in  writing,  by  a 
director  of  a  gravel  road  company,  before  the  board  against  the 
contracting  of  debts  in  excess  of  its  solvent  stock,  will  absolve 


Justice  Story  stand  unsupported  by 
any  direct  authority,  either  before  or 
since.'  There  are  cases  of  other  states 
in  which  it  has  been  held  that  the 
words  •  debts  contracted '  do  not  sub- 
ject the  corporators  to  liability  for  the 
torts  of  the  corporation.  Heacock  r. 
Sherman,  14  Wend.  58;  Bohn  v.  Brown. 
33  Mich.  257;  Cable  v.  McCune,  26 
Mo.  371.  In  the  case  at  bar,  however, 
the  question  relates  not  to  the  cor- 
porators, but  to  officers,  under  pro- 
visions relating  to  them  exclusively  as 
such,  imposing  duties  on  them,  and 
making  them  liable  in  case  the}*^  reject 
or  refuse  to  perform  them.  These  pro- 
visions, as  contradistinguished  from 
the  provisions  in  regard  to  corpora- 
tions, are  deemed  to  be  penal,  and  for 
that  reason  to  be  strictly  construed. 
Chase  T.  Curtis,  113  U.  S.  452.  We  do 
not  think  that  any  court  would  hold 
that  the  words  '  debts  contracted,'  if 
strictly  construed,  would  cover  un- 
liquidated claims  for  damages  arising 
ex  delicto.  Child  v.  Boston  &  Fair- 
haven  Iron  Works,  [137  Mass.  516]." 
As  to  the  contention  that  the  claim  had 


been  reduced  to  judgment,  and  thus 
become  a  debt  of  the  corporation,  it 
was  said:  ' *  The  New  York  cases,  under 
statutory  provisions  similar  to  ours, 
hold  that,  in  that  state,  the  trustees  of 
corporations  are  liable,  if  at  all,  only 
on  the  original  claim,  and  that  a  judg- 
ment against  the  corporation  thereon 
has  no  effect  as  against  them.  Miller 
r.  White,  50  N.  Y.  137;  Whitney 
Arms  Co.  v.  Barlow.  63  N.  Y.  62;  Es- 
mond V.  Bullard,  16  Hun,  65.  It  has 
been  held  in  other  states  that  the  re- 
duction of  a  claim  for  damages  against 
a  corporation  arising  ex  delicto  to  a 
judgment  does  not  change  its  char- 
acter as  against  the  delinquent  officers, 
so  as  to  charge  them  thereon  as  for  a 
debt  contracted  by  the  corporation. 
Cable  V.  Gaty,  34  Mo.  573;  Bohn  v. 
Brown,  33  Mich.  257;  so,  also,  by  the 
Supreme  Court  of  the  United  States, 
Chase  v.  Curtis,  113  U.  S.  452; "  citing, 
also,  Whitaker  v.  Masterton,  106  N. 
Y.  277,  280,  upon  some  points. 

1  Clow  r.  Brown,  (1892)  134  Ind.  287; 
8.  c.,33N.  E.  Rep.  1126. 


*^t 


^i 


:ir 


416 


PERSONAL  LIABILITY  OF  OFFICERS. 


I  S 


I       * 


^i 


in 


[§254 


him  from  liability  on  account  of  such  contracting  of  debt.^     In 
an  action  to  enforce  such  a  liability  of  directors,  it  must  be 
averred  and  proved  that  the  directors  against  whom  the  action  is 
brought  contracted  the  debt,  and  that  the  debt,  when  contracted 
exceeded  the  solvent  stock  of  the  company.^    The  failure  of  a 
majority  of  the  directors  of  a  corporation  to  iile  the  reports  as 
required  by  the  law  of  Michigan,  will  be  presumed  intentional 
and  will  render  each  director  liable  for  the  debts  of  the  corpora- 
tion under  the  statute  which  renders  the  directors  of  corporations 
liable  if  they  "  intentionally  neglect  or  refuse  to  comply  "  with  its 
provisions.^     The  Montana  Supreme  Court  has  held  that  the  stat- 
ute of  that  state  imposing  an  individual  liability  upon  the  trustees 
of  a  corporation  for  not  tiling  the  annual  report  of  the  corpora- 
tion's condition  required  by  the  statute  could  not  be  construed  so 
as  to  excuse  the  trustees  from  liability  for  debts  contracted  prior 
to  a  default  in  the  matter  of  filing  the  report.     Therefore,  they 
held  that  the  facts  stated  in  defense  to  an  a<>tion  to  enforce  such 
statutory  liability  that  before  the  time  for  filing  such  annual 
report  the  corporation  was  insolvent  and  had  entirely  abandoned 
Its  business ;  that  all  the  property  of  the  corporation  belonged  to 
one  of  its  trustees,  having  been  delivered  to  him  in  satisfaction 
of  an  indebtedness,  and  that  for  a  period  of  two  months  no  oflicer 
or  trustee  had  exercised  any  corporate  act  or  function,  and  that 
there  was  no  intention  to  resume  the  business  of  the  corporation, 
did  not  dissolve  the  corporation  and  constituted  no  defense  to  the 
action.*     Oflicers  of  a  corporation   certifying   that   the   capital 
»Schofield-  V.  Henderson,  (1879)  67   future  period;  something  which  might 

.*.  TT    ..  be  the  subject  of  a  suit  as  a  debt,  and 

Aimenr.  Hardm,  (1877)60Ind.  119.  not  something  to  which  the  party  may 

» Van  Etten  ..  Eaton,  19  Mich.  187.  be  entitled  as  damages  in  consequenci 

As  to  the  construction  of  the  statute  of  a  failure  to  perform  a  duty  or  keep 

^SrJ'f  l^'^^^^S^eit^'^g  ^-  Lindauer,  an  engagement.     A  right  to  a  divi 

37Mich.21..     Astowhatare-debts"  dend  from  the  profits  of  a  corporation 

withm  the  meamng  of  this  statute,  the  is  no  debt  until  the  dividend  is  de- 

Supreme  Court  of  Michigan  has  said,  clared.     Until  that  time,  the  dividend 

7«    7^     '?-'kT'''  ^^*^°''  ^^  ^''^-  ''  "'  something  that  may  possibly  come 

76    78:       Liabilities    of   a    company  into  existence,  but  the  obligation  on 

which  may  give  cause  of  action  against  the  part  of  the  corporation  to  declare 

It  and  result  in  judgments  are  not  it  cannot  be  treated  as  the  dividend 

withm  the  statute  unless  they  consti-  itself." 

tute   present  debts.     A  debt  is  that  *  Gans  v.  Switzer,  (1890)  9  Mont  408- 

which  one  person  is  bound  to  pay  s.  c,  24  Pac.  Rep.  18. 
another,  either  presently  or  at  some 


% 


§264] 


PEESONAL  LIABILITY  OF  OFFIOEES. 


417 


stock  of  the  company  is  paid  in,  when  in  fact  it  is  paid  in  prop- 
erty of  an  uncertain  value,  will  be  liable  under  the  New  Jersey 
statute  making  them  liable  for  the  debts  of  the  corporation  in 
case  they  falsely  certify  that  the  capital  stock  has  been  paid  in.* 
The  statute  of  Yermont  making  the  directors  of  a  private  corpora- 
tion liable  for  all  "  debts  contracted  "  before  the  publication  of  its 
articles  of  association,  has  been  held  not  to  embrace  all  contracts 
entered  into  by  the  corporation  before  such  publication,  but  only 
"  debts "  so  contracted ;  it  would  not  embrace  damages  for  the 
non-performance   of  a  special  contract.^    The  assenting  by  a 
director  of  a  corporation  to  the  execution  of  new  notes  for  former 
notes  held  by  the  corporation,  where  the  original  indebtedness 
was  not  increased  thereby,  it  being  only  the  substitution  of  one 
set  of  notes  for  the  other,  it  has  been  held  did  not  fall  within  the 
statute  of  Vermont  which  prohibited  the  contracting  of  debts  to 
an  amount  greater  than  three-fourths  of  the  capital  stock  paid  in, 
and  making  any  director  assenting  thereto  liable  for  the  excess  to 
the  creditors  of  the  corporation.^    A  statute  of  Vermont  (R.  L. 
Vt.  §  3279)  provides  that  in  case  debts  are  contracted  by  a  cor- 
poration for  voluntary  association  before  compliance  with  the 
provisions  of  the  preceding  section  (3278).  the  president  and 
directors  shall  be  personally  liable  for  such  debts.     The  Supreme 
Court  of  that  state  said  :  "  It  is  clear  that  the  conditions  prece- 
dent to  the  creation  of  a  liability  under  that  section  are,  first,  the 
existence  of  a  corporation,  recognized  as  such  by  the  laws  of  this 
state ;  second,  the  contracting  of  a  debt  by  such  corporation,  and, 
third,  a  failure  to  comply  with  the  provisions  of  section  3278 
before  the  contraction  of  such  debt."     They  held  that  where 
articles  of  association,  under  chapter  153,  Revised  Laws  of  Ver- 
mont, are  signed  upon  the  understanding  that  they  shall  not  take 
effect  until  the  happening  of  a  certain  contingency,  they  do  not 
become  effective,  and  no  corporation  exists  until  that  contingency 
happens ;  in  such  case  a  director,  who  is  guilty  of  no  act  or  omis- 
sion by  which  the  party  extending  the  credit  is  misled,  would  not 
be  liable ;  but  where  the  defendant  represented  to  the  plaintiff 
that  such  corporation  had  been  legally  organized,  and  that  he  was 
a  director,  he  was  held  to  be  estopped  from  making  this  defense 


'Waters  v.  Quimby,  3  Dutch. 
J.)  198;  affirmed  in  4  Dutch.  633. 

53 


(N.       « Cady  v.  Sanford,  53  Vt.  632. 

»  National  Bank  v.  Paige,  53  Vt.  452. 


I 


ma 

'i 


\mn 


>^\i 


^ 


418 


PEfiSONAL  LIABILITY  OF  0FFICEE8. 


[§255 


and  to  be  liable  under  tlie  statute.*  "Debts  contracted"  for 
wliicli  negligent  officers  of  corporations,  under  Connecticut  stat- 
utes, may  be  held  liable,  must  be  debts  of  the  corporation  in  favor 
of  some  one  who  gave  it  credit.^  The  Code  of  Virginia  makes 
those  of  the  directors  of  a  corporation,  who  declare  a  dividend  of 
net  profits,  when  the  corporation  is  insolvent,  who  concur  in  the 
act  in  their  individual  capacity,  jointly  and  severally  liable  to  the 
creditors  of  the  corporation  for  the  amount  of  the  capital  stock 
so  divided.  In  an  action  to  enforce  the  personal  liability  under 
this  statute,  the  question  of  the  insolvency  of  the  corporation 
when  the  dividend  may  have  been  declared  is  a  question  of  fact, 
and  the  insolvency  of  the  corporation  must  be  established  by 
proof  to  justify  a  recovery  from  the  directors  individually.^ 
The  United  States  Supreme  Court  has  held  that  the  remedy  in 
the  courts  of  the  United  States  to  enforce  the  personal  liability 
of  directors  for  permitting  the  corporation  to  contract  debts  in 
excess  of  the  capital  stock,  under  the  statutes  of  a  state,  is  by  bill 
in  equity.* 

§  255.  Liability  of  directors  or  officers  under  an  English 
statute. —  An  English  statute  provided  that  if  it  appears,  in  the 


» Corey  r.  Morrill.  (1889)  61  Vt.  598; 
8.  c,  17  Atl.  Rep.  840. 

2  Armstrong  r.  Cowles,  44  Conn.  48; 
Gen.  St.  (^onn.  314,  §  3. 

'Slaymaker's  Admr.  r,  Jaffray  & 
Co..  (1*886)  82  Va.  346. 

<  Stone  V.  Chisolm,  (1885)  113  U.  S. 
302;  s.  c,  5  Sup.  Ct.  Rep.  497,  a  case 
brought  under  the  statute  of  South 
Carolina.  It  was  said  by  the  court: 
"The  conditions  of  the  personal  lia- 
bility of  the  directors  of  the  corpora- 
tion, expressed  in  the  statute,  are  that 
there  shall  be  debts  of  the  corporation 
in  excess  of  the  capital  stock  actually 
paid  in,  to  which  the  directors  sought 
to  be  charged  shall  have  assented,  and 
this  liability  is  for  the  entire  excess 
both  to  the  creditors  and  to  the  corpo- 
ration. To  ascertain  the  existence  of 
the  liability  in  a  given  case  requires  an 
account  to  be  taken  of  the  amount  of 
the  corporate  indebtedness,  and  of  the 


amount  of  the  capital  stock  actually 
paid  in;  facts  which  the  directors,  upon 
whom  the  liability  is  imposed,  have  a 
right  to  have  determined,  once  for  all, 
ill  a  proceeding  which  shall  conclude 
all  who  have  an  adverse  interest,  and 
a  right  to  participate  in  the  benefit  to 
result  from  enforcing  the  liability. 
Otherwise,  the  facts  which  constitute 
the  basis  of  liability  might  be  deter- 
mined differently  by  juries  in  several 
actions,  bj'  which  some  creditors  might 
obtain  s^itisfaction  and  others  be  de- 
feated. The  evident  intention  of  the 
provision  is  that  the  liability  shall  be 
for  the  common  benefit  of  all  entitled 
to  enforce  it  according  to  their  interest 
or  apportionment,  which,  in  case  there 
cannot  be  a  satisfaction  for  all,  can 
only  be  made  in  a  single  proceeding  to 
which  all  interested  can  be  made  par- 
ties." Adhering  to  and  reaffirming 
Hornor  v.  Henning,  93  U.  S.  228. 


§255] 


PERSONAL  LIABILITY  OF  OFFICERS. 


419 


m 


course  of  winding  up  any  company,  "that  any  past  director, 
manager,  official  or  other  liquidator,  or  any  officer  of  such  com- 
pany, has  misapplied  or  retained  in  his  own  hands,  or  become  lia- 
ble or  accountable  for  any  moneys  of  the  company,  or  been  guilty 
of  any  misfeasance  or  breach  of  trust  in  relation  to  the  company, 
the  court  may  *  *  *  examine  into  the  conduct  of  such  director, 
manager  or  other  officer,  and  compel  him  to  repay  any  moneys  so 
misapplied  or  retained,  or  for  which  he  has  become  liable  or  account- 
able, together  with  interest,  after  such  rate  as  the  court  thinks  just, 
or  to  contribute  such  sums  of  money  to  the  assets  of  the  company 
by  way  of  compensation  in  respect  of  such  misapplication, 
retainer,  misfeasance  or  breach  of  trust  as  the  court  thinks  just." 
This  statute  has  been  construed  by  the  Court  of  Appeal  with 
this  result :  The  remedy  afforded  by  this  statute  is  only  for  the 
recovery  of  damages  for  losses  incurred.  The  misfeasance  to 
which  it  is  directed  is  not  restricted  to  acts  of  commission,  but 
extends  to  all  breaches  of  trust  in  relation  to  a  company,  through 
which  loss  is  incurred.  Misfeasance  is  not  to  be  imputed  to  a 
director  unless  he  has  dishonestly  acted  or  abstained  from  acting 
in  conflict  with  his  plain  duty,  and  the  burden  of  proof  lies  on 
the  party  making  the  charge,  but  in  considering  the  question  of 
the  director's  liability,  there  must  be  imputed  to  him  a  special 
knowledge  of  the  business  which  he  has  undertaken.  The  Court 
of  Appeal  held  that  directors  were  liable  for  losses  occasioned 
through  acts  done  by  them  as  directors  in  matters  which  are 
ultra  vires  the  company,  and  that  their  liability  was  not  depend- 
ent upon  any  question  of  honesty  of  intention.^  In  a  very  recent 
case  involving  the  liability  of  directors  of  a  company  under  this 
statute  or  a  later  one  replacing  it,  the  directors  were  held  liable 
to  repay  an  amount  of  money  which  they  had  invested,  of  the 
company's,  in  shares  of  a  building  securities  company,  which 
investment  was  ultra  vires  on  the  part  of  the  company  they  rep- 
resented. It  appeared,  also,  in  this  case  that  two  of  the  directors 
were  not  present  at  the  meeting  when  the  investment  was  ordered, 
but  they  were  present  at  the  next  meeting  at  which  the  minutes 
of  the  previous  meeting  were  read  and  confirmed.  One  of  them 
was  in  the  chair  and  signed  the  minutes.  He  was,  also,  in  the 
chair  at  the  next  general  meeting  of  the  company,  and  then 

'  In  re  The  Liverpool  Household  Stores  Association  (Limited),  (1890)  59  L. 
J.  R.  (N.  S.)  Ch.  Div.  616. 


i 


i 


i> 


il 


1 


ilii 


•.  ^ 


420 


PERSONAL  LIABILITY  OF  OFFICERS. 


[§255 


referred  to  this  investment,  and,   speaking  in   behalf   of  the 
directors,  said :  "  We  carefully  considered  the  matter  and  deemed 
it  advisable  to  exercise  our  right  of  subscription,  and  have  no 
reason  to  regret  our  decision."     The  Court  of  Appeal  held  that 
although  the  presence  of  these  two  directors  at  the  meeting  at 
which  the  minutes  of  the  previous  meeting  were  confirmed  was 
not  suflacient,  in  itself,  to  make  either  of  them  liable  for  the  ultra 
vires  investment,  yet  the  one  presiding  had,  by  his  action  as  chair- 
man at  that  meeting,  and  by  Ids  statement  at  the  general  meeting 
of  the  company,  shown  that  he  took  an  active  part  in  the  invest- 
ment and  would  be  held  responsible  for  it.*     It  was  lield  that  as 
to  one  ultra  vires  investment  these  directoi-s,  being  considered  in 
these  matters  of  liability.^  by  the  courts,  in  the  light  of  trustees, 
were  entitled  to  the  benefit  of  the  English  Statute  of  Limitations 
with  reference  to  trustees.^     A  director  in  this  English  case  held 
shares  of  a  company  not  fully  paid  up,  and  his  directors'  fees 
were  unpaid.      On  a  day  when  the  company's  balance  at  its 
bankers  was  two  pounds,  eleven  pence,  he  gave  to  the  company 
a  cheque  for  seventy  pounds,  the  amount  remaining  unpaid  on 
his  shares,  and  received  at  the  same  time  from  the  company  a 
cheque  for  a  like  amount,  on  account  of  his  fees,  signed  by  him- 
self and  another  director.     Within  three  months  there  were  pro- 
ceedings for  winding  up  the  company.     The  Court  of  Appeal 
held  that  the  payment  to  the  director  was  a  preference  which,  by 
the  terms  of  the  statute,  should  be  deemed  to  be  fraudulent,  and 
that  all  the  directors  who  concurred  in  making  the  payments 
were  guilty  of  a  misfeasance,  and  that  they  should  be  ordered, 
jointly  and  severally,  to  repay  the  amounts.^     In  another  case  of 
a  winding  up  of  an  Englisli  company,  it  appeared  that  two  per- 
sons who  were  working  a  quarry  in  partnership,  one  of  them 
owning  an  adjoining  quarry  and  having  an  option  of  a  lease  of  a 
third,  wishing  to  form  a  company  for  working  them,  called  in 
two  other  persons  for  the  purpose,  and  the  four  entered  into  an 
agreement  with  a  trustee  for  the  intended  company  to  sell  to  the 
company  the  quarries,  to  be  paid  partly  in  cash  and  partly  in 
paid-up  shares,  the  two  who  were  called  in  to  receive  120  shares 
each.     The  company  was  formed.     One  of  the  latter  two  persons 

•In  re  Lands  Allotment  Co..  Law       » In  re  Washington  Diamond  Mining 
Rep.  (1894),  1  Ch.  616.  Co.,  Law  Rep.  (1893),  3  Ch.  95. 

•Ibid. 


i 


PERSONAL  LIABILITY  OF  OFFICERS. 


421 


§  255] 

was  one  of  the  first  directors.  The  agreement  between  the  four 
and  the  trustee  of  the  company  was  confirmed  and  these  two 
received  their  paid-up  shares.  It  developed,  upon  the  winding 
up  of  the  company,  that  these  parties  called  in  had  no  interest  in 
the  property  sold  to  the  company,  except  their  interest  as  lessees 
of  the  third  quarry,  which  lease  was  of  even  date  with  the  agree- 
ment to  sell  to  this  company,  and  the  director  of  the  company 
admitted  that  he  had  no  interest  in  this  latter,  until  that  day,  and 
had  nothing  to  do  with  fixing  the  price.  The  articles  of  the 
company  provided  that  the  agreement  for  sale  should  not  be 
impeached  on  the  ground  of  the  directors,  or  any  of  them,  being 
vendors  or  promoters  of  the  company,  nor  should  they  be  account- 
able for  benefits  secured  to  them.  The  trial  justice  held  that  this 
director  was  liable  to  contribute  to  the  assets  of  the  company  a 
fiura  equal  to  the  nominal  amount  of  the  shares  issued  to  him  and 
to  the  other  party,  on  the  ground  of  his  misfeasance  as  a  director 
in  accepting  the  shares  allotted  to  himself,  and  in  allowing  the 
shares  of  the  other  party  to  be  issued  to  him.  The  Court  of 
Appeal  held,  affirming  the  decision  of  the  trial  justice,  that, 
although  if  these  parties  had  been  honafide  owners  of  shares  in 
the  leased  quarry,  and  had  agreed  to  sell  their  interests  for  shares 
in  the  company,  the  transaction  could  not  liave  been  impeached, 
the  insertion  of  their  names  as  vendors,  when  they  had  no  real 
interest  in  the  property  sold,  was  a  device  for  enabling  them  to 
get  fully  paid-up  shares  for  their  services  in  the  promotion  of  the 
company,  and  that  the  issuing  of  those  shares  was  a  misfeasance 
on  the  part  of  the  directors,  and  that,  as  it  was  not  known  to  the 
company  that  these  parties  were  not  really  vendors,  the  clause  in 
the  articles  was  no  protection  to  the  director.^  In  another  Eng- 
lish case  it  appeared  that  the  directors  of  a  company  having  power 
to  lend  money  and  to  promote  other  companies,  passed  a  resolu- 
tion that  a  cheque  for  £250  should  be  drawn  in  favor  of  a  third 
party,  for  a  loan  to  him  of  that  amount,  on  certain  security.  The 
cheque  was  drawn  and  handed  to  the  solicitor  of  the  company, 
who  gave  it  to  the  payee  without  receiving  the  security.  The 
directors  passed  a  second  resolution  that  a  cheque  for  £1,000 
should  be  drawn  in  favor  of  the  same  party  for  a  loan  to  him  of 
that  amount  on  security  of  (inter  alia),  a  contract,  the  date  of 
which  and  the  names  of  the  parties  to  which,  were  left  in  blank 

'  In  re  Westmoreland  Green  &  Blue  Slate  Co.,  Law  Rep.  (1893),  2  Ch.  612. 


.   1 


«i, 


•  I 


I- 


I 


(•fM 


422 


PERSONAL  LIABILITY  OF  OFFICERS. 


[§255 


PERSONAL  LIABILITY  OF  OFFICERS. 


423 


;    ft 


I        k 


in  the  resolution.     This  cheque  was,  also,  drawn  and  handed  to 
the  solicitor  of  the  company,  who  gave  it  to  the  payee  without 
obtaining  the  security.     The  directors  knew  the  nature  of  the 
contract,  and  that  it  related  to  a  company  which  the  payee  of  the 
cheque  was  bringing  out,  and  the  existence  of  which  the  directors 
believed  to  be  for  the  benefit  of  their  own  company,  and  they 
advanced  the  £1,000  to  assist  him  in  bringing  out  the  new  com- 
pany.    The  company  afterwards  sued  this  party  for  the  amount 
of  the  loans,  recovered  judgment  against  him,  but  never  realized 
anything  on  the  judgment.     In  the  winding  up  proceedings  of 
the  company,  it  becoming  insolvent,  the  liquidator,  under  the 
English  statutes,  sought  to  charge  the  directors  with  the  sums 
loaned.     Yaughan  Williams,  Justice,  held  that  the  directors, 
having  exercised  judgment  and  discretion,  were  not  liable  for 
misfeasance  or  breach  of  trust  in  relation  to  the  company.^     One 
who  was  requested  by  the  promoter  of  a  projected  company  to 
become  a  director,  agreed  to  do  so  upon  the  terms  that,  if  he 
should  at  any  time  desire  to  part  with  the  shares  which  he  was  to 
take  in  order  to  qualify  him  as  director,  the  promoter  should  pur- 
chase them  from  him  at  the  price  he  should  pay  for  them.     The 
•  company  was  subsequently  formed  and  he  became  a  director, 
took  the  qualilication  shares,  and  paid  for  them  at  par  out  of  his 
own  money,  and  from  time  to  time  acted  as  director,  but  he 
never  disclosed  to  his  co-directors  or  to  the  company,  the  exist- 
ence  of    his    agreement   with   the   promoter.      He   afterwards 
resigned  his  office  as  director,  and  subsequently  to  his  resignation, 
the  promoter,  at  his  request,  paid  to  him  the  sum  which  he  paid 
for  the  shares,  and  accepted  a  transfer  of  them.     At  this  time 
the  shares  were  valueless  in  tlie  market.     The  English  Court  of 


*  In  re  New  Mashonaland  Explora- 
tion Co..  Law  Rep.  (1892),  3  Ch.  577. 
Referring  to  the  statute,  section  10 
(Winding  Up)  Act,  1890,  the  justice 
said:  "It  has  been  said  that  you  can- 
not bring  directors  within  the  section, 
unless  they  have  been  guilty  of  a  mis- 
feasance in  the  nature  of  a  breach  of 
trust;  but,  be  that  as  it  may,  it  is  plain 
that  if  directors  are  guilty  of  such  neg- 
ligence that  it  cannot  be  said  that  in  do- 
ing what  they  did  they  attempted  to 
perform  their  duty  as  directors,  then 


such  directors  are  guilty  of  misfeasance 
To  use  [counsel's]  words,  if  the  direct- 
ors did  not  bona  fide  exercise  their  dis- 
cretion and  judgment  as  agents  of  the 
company,  that  is  misfeasance  within 
the  meaning  of  the  section.  I  shall 
adopt  that  construction  with  the  ex- 
ception of  the  words  bona  fide,  and 
hold  that,  in  order  to  make  the  directors 
liable,  you  must  be  able  to  deny  that 
they  did  really  exercise  their  judg- 
ment and  discretion  in  this  way." 


§255] 

Appeal,  in  a  proceeding  under  the  Winding  D  p  Act,  to  charge 
him  as  director,  held  that,  having  regard  to  his  position  as  director 
of,  and,  therefore,  agent  for,  the  company,  whatever  benefits  or 
profits  accrued  to  him  under  the  indemnity  constituted  by  his 
secret  agreement  with  the  promoter  belonged  to  the  company, 
and  that  the  retention  by  him  of  the  proceeds  of  the  indemnity 
occasioned  a  loss  to  the  company  for  which  he  was  accountable, 
with  interest.^ 


*In  re  North  Australian  Territory 
Co.,  Archer's  Case,  Law  Rep.  (1892), 
1  Ch.  322.  LiNDLEY,  Lord  Justice, 
in  his  opinion  quotes  from  Hel- 
lish, Lord  Justice,  in  Hay's  Case, 
Law  Rep.,  10  Ch.  593,  601,  these 
words:  "There  is  no  doubt  about  the 
rule  of  this  court,  that  an  agent  can- 
not, without  the  knowledge  and  con- 
sent of  his  principal,  be  allowed  to 
make  any  profit  out  of  the  matter  of 
his  agency,  beyond  his  proper  remu- 
neration as  agent.  It  is  perfectly-set- 
tled law  that  that  rule  applies,  with 
peculiar  stringency,  to  the  directors  of 
joint-stock  companies,  who  are  the 
agents  of  the  company  for  effecting 
the  sales  or  the  purchases  made  by  the 
company."  Fry,  L.  J.,  in  his  opinion, 
said:  "In  Hay's  Case  [Law  Rep.,  10 
Ch.  593],  the  company  agreed  to  pay 
a  sum  of  money  to  the  vendors  of  the 
property.  On  one  day  they  were  pay- 
ing a  sum  of  £58,000,  in  part  payment 
of  that  purchase  money;  cheques 
were  drawn  in  favor  of  the  agent  of 
the  vendors,  and  one  of  these  cheques 
was  indorsed  over  to  Sir  John  Hay, 
and  cashed  by  him.  The  company, 
therefore,  were  making  a  payment 
which  they  were  bound  to  make,  and 
they  lost  nothing,  in  one  sense,  by  Sir 
John  Hay  receiving  that  money.  The 
only  loss  they  sustained  was  by  Sir 
John  Hay  not  accounting  for  it  when 
he  got  it.  It  appears  to  me  there  was, 
therefore,  exactly  the  same  loss  in 
that  case  as  there  is  in  the  present 
case.  Again,  in  Pearson's  Ca.se  [5  Ch. 
Wv.  336],  the  same  observation  can 
be  made.    The  company  there  issued 


to  its  promoters,  under  an  agreement, 
fully  paid-up  shares.  Some  of  these 
shares  were  given  by  one  of  the  pro- 
moters to  Sir  Edwin  Pearson,  one  of 
the  directors,  on  his  qualification. 
The  company,  therefore,  got  all  they 
stipulated  for,  all  the  shares  that  they 
issued  and  which  were  in  Sir  Edwin 
Pearson's  hands,  having  been,  by 
agreement,  issued  as  fully  paid  up, 
and  yet,  because  he  ought  not  to  have 
taken  those  fully  paid-up  shares,  but 
ought  to  have  paid  the  amount  which 
was  not  payable  by  reason  of  the  bar- 
gain between  the  company  and  the 
promoters,  he  was  held  liable  to  make 
good,  and  treat  the  shares  as  if  they 
had  not  been  paid  up  at  all.  It  might 
be  said  in  both  these  cases  (in  Hay's 
case  the  payment  was  by  the  vendors, 
and  in  Pearson's  case  the  payment 
was  by  a  promoter),  that  the  company 
lost  nothing  by  the  money  in  the  one 
case,  and  the  shares  in  the  other, 
reaching  the  hands  of  the  director, 
but  the  court  said  in  each  case  that, 
because  the  director  was  accountable, 
the  company  were  losers  to  that  ex- 
tent. *  *  *  On  principle,  I  think 
the  two  cases  to  which  I  have  referred 
are  not  distinguisliable  from  the  pres- 
ent." As  to  the  liability,  under  this 
English  statute,  of  a  trustee  or  man- 
ager of  a  savings  bank,  to  pay  an 
adequate  sum  towards  the  assets  of 
the  bank  by  way  of  compensation  for 
any  loss  occasioned  to  the  bank  by  his 
neglect  or  omission,  see  In  re  Cardiff 
Savings  Bank,  Davies'  Case,  (1890)  45 
Ch.  Div.  537. 


;    t 


■f^I 


§257] 


ULTKA  VIBES  —  PUBLIC  COEPOEATIONS. 


425 


V 

>  ' 


IIHM 

il 


0    I 

i 


11 


>' 


CHAPTEK  VIL 

ULTRA  VIRES  — PUBLIC  CORPORATIONS. 


§  256.  Issue  of  negotiable  securities. 

257.  Borrowing    money    by  school 

districts. 

258.  Incurring  liability  in  excess  of 

funds  in  the  treasury  and 
amount  of  tax  allowed  for 
one  year. 

259.  Incurring  a  debt  without  pro- 

vision by  taxation  for  inter- 
est and  sinking  fund. 

260.  Employment  of   an  agent  to 

negotiate  bonds. 

261.  Investment  of  sinking  funds. 


§  262.  Contract  with  corporation  at- 
torney for  legal  services. 

263.  Discount  of  its  warrants  by  a 

corporation. 

264.  Illustrations    of     ultra    vires 

contracts. 

265.  Estoppel  of  a  public  corpora- 

tion to  deny  its  liability  on 
an  ultra  vires  contract. 

266.  Estoppel  of  a  contractor  with 

a  public  corporation  to  en- 
force an  ultra  vires  contract. 

267.  Injunction  of  public  officials  — 

rules. 


§  256.  Issue  of  negotiable  securities. — The  officers  or  offi- 
cial agents  of  counties,  as  well  as  other  municipal  corporations, 
without  express  legislation,  have  no  power  to  issue  commercial 
paper  and  thereby  impose  upon  the  corporation  the  duties  and 
liabilities  incident  to  such  paper. ^  In  a  case  before  the  federal 
court  a  city  had  entered  into  a  contract  with  a  firm  by  which  the 
latter  agreed  to  vest  title  in  the  city  to  certain  strips  of  land,  to  do 
certain  other  things  with  reference  to  widening  a  street,  and  to 
secure  certain  sewer  privileges  and  the  relocation  of  certain  tracks 
of  railroads,  and  the  city  agreed  to  pay  them  for  such  real  estate 
and  their  services.  In  payment  of  the  same  the  city  issued  to  this 
firm  certain  "  certificates  of  indebtedness  "  and  delivered  them  to 
the  bank  to  which  the  firm  had  contracted  to  sell  them.  It  was 
held  in  the  United  States  Circuit  Court  that,  in  the  absence  of 
any  special  statutory  authority,  a  city  had  no  right  to  issue  such 
certificates  in  negotiable  form,  even  in  payment  for  property 
which  it  had  authority  to  buy.' 


*  People  ex  rel.  v.  Johnson,  100  111. 
587;  People  ex  rel.  r.  Kingsbury,  100 
111.  509;  People  ex  rel.  r.  La  Salle 
County,  100  111.  495. 

•Bangor  Savings  Bank  r.  City  of 
Stillwater,  (1891),  46  Fed.  Rep.  899. 
The  provisions  of  the  charter  of  the 


city  were  discussed  by  the  courts,  and 
the  powers  thereunder  given  were  de- 
clared in  the  opinion.  Thayeb,  J., 
said:  •'  [The  city]  had  [the]  right  [to 
contract  with  this  firm  for  the  acqui- 
sition of  land  and  privileges],  we  think, 
under    power    conferred    upon   the 


§  257.  Borrowing  money  by  school  districts. — As  a  gen- 
eral rule  a  corporation,  either  public  or  private,  has  an  implied 
power  to  borrow  money  for  objects  expressly  authorized  by  the 
statute  by  which  it  was  created  and  endowed  with  corporate 
powers  and  privileges,  but  if  such  power  is  expressly  or  by 


city  council    *    *    *     'to    open,  es- 
tablish,  vacate  and  widen  streets,  to 
construct,  maintain  and  extend  sew- 
ers, and  to  condemn  and  purchase  the 
lands  necessary  to  be  used  for  street 
and  sewer  purposes.'     *    *    *   These 
powers  were  sufficient  to  authorize  the 
city  council  to  contract  with  [the  firm] 
to  purchase  the  lands  in  question,  and 
to  render  the  services  which  they  un- 
dertook to  render  for  and  in  behalf  of 
the  city.     But  it  is  a  different  ques- 
tion whether  the  city  nad  authority  to 
pay  for  such  services  in  the  manner 
proposed;  that  is  to  say,  by  the  issue 
of   certificates  of   indebtedness,  pay- 
able to  order  and   running  one,  two 
and  three  years.     Plaintiff's  attorneys 
strenuously    insist,   and    in    that  we 
agree    with  them,  that  the  so-called 
'certificates    of   indebtedness'  are  in 
reality    negotiable    bonds    or    notes, 
which,  under  the  law -merchant,  may 
be  transferred   by  indorsement  from 
hand  to  hand,  so  as  to  cut  off  equities 
of  defense.     In  a  recent  case,  which 
contains  an  elaborate  review  of  previ- 
ous decisions  on  the  same  subject,  the 
doctrine  was  restated  that  municipal 
corporations  have  no  power  to  utter 
commercial    paper,   unless   it  is   ex- 
pressly conferred  upon  them  by  law 
or  is  clearly  implied  from  some  other 
power     expressly     given.      It     was 
further  held  that  no  implication  arises 
that  a  municipality  may  make  com- 
mercial paper  and  put  the  same  on  the 
market  from  the  fact  that  it  is  ex- 
pressly authorized  to  borrow  money. 
'  To   borrow  money,'  say  the  court, 
'and    to    give  a  bond  or  obligation 
therefor  which  may  circulate  in  the 
market  as  a  negotiable  security,  freed 

54: 


from  any  equities  which  may  be  set 
up  by  the  maker  of  it,  are,  in  their 
nature  and  in  their  legal  effect,  essen- 
tially different  transactions.  Merrill 
V.  Town  of  Monticello,  138  U.  S.  673; 
s.  c,  11  Sup.  Ct.  Rep.  441,  448.  See, 
also,  Claiborne  Co. «.  Brooks,  111  U.  S. 
400,  486;  s.  c,  4  Sup.  Ct.  Rep.  489; 
Police  Jury  v.  Britton,  15  Wall.  566; 
Young  T.  Clarendon  Township,  132 
U.  S.  340;  8.  c,  10  Sup.  Ct.  Rep.  107. 
In  the  present  instance  it  appears  that 
the  so-called  '  certificate '  or  '  bond ' 
remains  in  the  hands  of  the  original 
payee,  the  Bangor  Savings  Bank;  it 
has  not  been  negotiated,  and  it  con- 
tains on  its  face  a  recital  that  it  was 
issued  in  consideration  of  the  per- 
formance by  [this  firm]  of  a  certain 
contract  *  *  *  dated  December 
21,  1887,'  which  is  notice  to  the  holder 
of  the  provisions  of  that  contract. 
No  question  of  estoppel  or  touching 
the  superior  rights  of  a  transferee  for 
value  can  arise  in  this  case.  The 
point  to  be  determined  is  simply 
whether  the  city  of  Still  water  had  any 
authority,  under  its  charter,  to  issue 
negotiable  bonds  to  [this  firm]  for  the 
land  to  be  procured  and  the  services 
to  be  rendered,  and  this  question  we 
think  must  be  answered  in  the  nega- 
tive. By  [a  certain]  section  *  *  * 
of  its  charter  'the  committee  on 
finances  of  the  city  council,  *  *  *  * 
upon  order  of  the  council,  may,  from 
time  to  time,  borrow  for  and  in  behalf 
of  said  city  such  sums  of  money  as 
may  be  necessary  for  temporary  pur- 
poses, and  to  anticipate  the  current 
revenue  only.'  It  is  obvious,  we 
think,  that  the  issue  of  bonds  to  [this 
firm],  under  the  circumstances  and  for 


■i  ^ 


■■(if 


426 


ULTRA  VIRES TUBLIC  CORPORATIONS. 


[§257 


implication  denied  by  such  statute,  tlien  no  such  power  exists. 
The  trustee  of  a  school  townshij),  for  instance,  in  Indiana, 
under  the  provisions  of  the  school  hvw  which,  by  implication, 
deny  the  existence  of  such  a  power,  cannot  negotiate  a  loan 
for  money  and  execute  a  note  for  its  payment.^     But  where 


the  purpose  explained,  cannot  be  sup- 
ported under  this  clause.     Short,  tem- 
porary loans,  in  anticipation  of,  and  to 
be  pnid  out  of  the  current  revenue  for 
the  year,  is  all  that  this  section  con- 
templates.   Again,  by  [other]  sections 
*    *    *    the  city  was  authorized   to 
issue  and  sell  bonds  and  put  the  avails 
thereof  in  the  city  treasury  to  create 
what  is  termed  a  '  permanent  improve- 
ment fund.'     Whether  the  city  had 
already  issued  all  the  bonds  authorizetl 
to  create  the  permanent  improvement 
fund  does  not  appear,  but  that  is  im- 
material, as,  in  our  view,  it  could  not 
issue  the  so-called   'certificates'    un- 
(ier  the  sections  of  the  charter  last 
referred  to,  its  duty  having  been  in 
our  judgment  to  pay   [the  firm]  in 
money    out  of   the   *  permanent  im- 
provement fund,'  as  the  charter  seems 
to  contemplate,  instead  of  issuing  to 
them    negotiable    bonds.      The    only 
other  authority  to  be  found  in  the  city 
charter  to  issue  negotiable   paper  is 
contained  in   [a  section  authorizing] 
an  issue  of  bonds  to  meet  other  ma- 
turing bonds  of  the  city  when  there 
was     a    deficiency    in    the    *  sinking 
fund; '  but  it  also  contains  the  follow- 
ing important  prohibition  in  the  con- 
cluding   paragraph   of     the    section, 
to  wit:  '  But  neither  said  city  council 
nor  any  ofl^cer  or  oflicers  of  said  city 
'  shall  otherwise,  without  special  author- 
ity of  law,  have  authority  to  issue  any 
bonds  or  create  any  debt  or  liability 
against    said   city   in  excess  of    the 
amount  of  revenue  actually  levied  and 
applicable  to  the  payment  of   such 
liability.' " 

^  Wallis  V.  Johnson  School  Town- 
ship, (1881)  75  Ind.  368.    The  court 


said:  "Section?  [of  the  school  law] 
provides,  inter  alia,  that  the  trustee 
shall  receive  and  pay  out  the  special 
school  revenue  and  also  the  revenue 
for  tuition  appropriated  to  his  town- 
ship,  and  shall  pay  out  the  same  for 
the  purposes  for  which  such  revenues 
were  collected  and  apportioned.     Sec- 
tion 10  in  express  words  places  the 
trustee  in  charge  of   all  the  educa- 
tional affairs  of  the  township  antl  cm- 
powers  him  to  employ  teachers  and 
to  build  and  furnish  schoo>  houses. 
These  provisions  do  undoubtedly  con- 
fer broad  and  comprehensive  powers 
upon    township    trustees,    and    were 
there    no    restrictive    provisions    we 
should    be    compelled    to  hold   that, 
with  this  broad  grant  of  express  pow- 
ers, there  was  coupled  the  incidental 
one  of  borrowing  money.     We  think, 
however,   that    there    are    restrictive 
provisions    which,    fairly    construed, 
must  be  held  to  deny  the  authority  to 
negotiate  bonds.     In  section  6  it  is 
provided  that  the  county  auditor,  in 
fixing    the    penalty    of   the  bond  of 
trustees, '  shall  see  to  their  sufficiency 
to  secure  the  school  revenues  which 
may  come  into  their  hands.'     There  is 
here  a  clear  implication  that  the  only 
money  which  a  trustee  can  officially 
receive  is  that  yielded  by  the  school 
revenues.     Money  obtained    by  bor- 
rowing cannot  be  said  to  be  school 
revenue.      If   an  action  were  brought 
upon  the  trustee's  bond,  and  the  only 
breach  shown  should   be  the  misap- 
propriation   of    money    obtained    by 
borrowing  it,  it  is  clear  that  the  action 
would  fail,    for  the  reason  that  the 
penalty  of  the  bond  extends  only  to 
money  received  from  the  school  reve- 


^ 


§257] 


ULTRA  VIRES PUBLIC  CORPORATIONS. 


427 


money  is  thus  borrowed  for  a  school  township  district  by  its  trus- 
tee, and  actually  and  rightfully  expended  for  the  benefit  of  the 
school  corporation  it  will  be  liable  for  the  amount.^  In  a  later 
case  the  Indiana  Supreme  Court  adhered  to  the  ruling  tliat  the 
trustee  of  a  school  corporation  has  no  authority  to  borrow  money 
and  execute  promissory  notes  therefor  in  the  name  of  the 
corporation.^ 

§  258.  Incurring  liability  in  excess  of  funds  in  the  treasury 
and  amount  of  tax  allowed  for  one  year. —  The  Minnesota 


nues.  The  sources  from  which  school 
revenues  are  derived  are  created  and 
defined  by  law,  and  it  is  from  these 
sources  only  that  the  trustee  has  a 
right  to  secure  money  for  school 
purposes." 

'Wallis  V.  Johnson  School  Town- 
ship, (1881)  75  Ind.  368.  See,  also, 
Bicknell  'v.  Widner  School  Township, 
73  Ind.  501.  Where  the  money  bor- 
rowed was  actually  used  in  paying  for 
a  school  house,  the  township  was  held 
liable  as  "  for  money  had  and  received, 
which  was  applied  to  the  lawful  use 
of  the  township." 

'Union  School  Township  r.  First 
National  Bank  of  Crawfordsville,(1885) 
102  Ind.  464;  citing  in  addition  to 
the  two  cases  last  cited.  First  National 
Bank  v.  Union  School  Township,  75 
Ind.  361;  Pine  Civil  Township  r. 
Huber  Manufacturing  Co.,  83  Ind. 
121;  Reeve  School  Township  v.  Dod- 
son.  98  Ind.  497.  Upon  this  point  it 
is  said  by  the  court  in  Union  School 
Township  v.  First  National  Bank  of 
Crawfordsville,  (1885)  102  Ind.  464, 
475:  "  It  is  true  that  we  have  held 
that  where  the  money  received  on 
notes  executed  in  the  name  of  the 
school  corporation  goes  to  pay  for 
property  received  by  it,  the  person 
advancing  the  money  will  be  subro- 
gated to  the  claim  of  the  person  who 
actually  furnished  the  property,  but 
we  have  steadily  held  that  it  is  only  in 
cases  where  the    school    corporation 


actually    received  the  property  pur- 
chased,   that    subrogation    can    take 
place.     It  is  well  known  that  subroffa- 
tion  arises,  not  by  contract,  but  by 
force  of  equitable  principles,  and  only 
in    cases   where  good  conscience  re- 
quires that  it  should  take  place  in 
order  to  prevent  in  j  ustice. "     Upon  the 
subject  of  estoppel,  it  was  said:  **  It 
is  a  fundamental  principle  that  a  gov- 
ernmental corporation  is  not  estopped 
by  the  act  of  an  officer  in  cases  where 
the  act  is  beyond  the  scope  of  his  au- 
thority.    Public  corporations  stand  on 
an  essentially  different  ground  from 
private  ones,  and  other  rules  which 
apply  to  ^he  one  class  do  not  apply  to 
the  other  in  cases  where  the  doctrine 
of  ultra  vires  is  invoked.     Driftwood 
Valley  Turnpike  Co.  v.  Board,  etc.,  72 
Ind.  226;  Cummins  v.  City  of  Seymour, 
79  Ind.  491,  497;  B.  c.  41  Am.  Rep. 
618.     But  the  power  of  a  school  cor- 
poration is  much   more  limited  than 
ordinary  public  corporations,  for  there 
is  no  general  power  to  incur  debts  or 
execute    evidences    of    indebtedness, 
and,  certainly,  no  such  power  exists 
where  the  school  trustee  is  provided 
with  money  from  the  school  revenues. 
The   school   corporation  is,  in  truth, 
one  of  unusually  limited  powers,  for 
the  only  source  from   which  it    can 
derive  money   is  the  school   fund  or 
school  revenues,   and,  strictly  speak- 
ing, its  only  power  is  to  receive  and 
disburse  the  funds  allotted  to  it." 


mi 


liii 


V     > 


428 


ULTBA  VIEES  —  PUBLIC  COETOBATIONS. 


[§258 


statutes  as  to  counties  and  tlieir  financial  management  Lave  been 
construed  by  the  Supreme  Court  of  that  state,  and  they  have 
held  that  the  board  of  county  commissioners  has  no  power  to 
incur  liability  for  the  county,  which,  with  the  ordinary  current 
yearly  expenses  and  other  liabilities  payable  within  a  year,  will 
exceed  both  the  amount  of  funds  in  the  county  treasury  and  the 
maximum  amount  which  can  be  assessed  as  one  year's  taxes  for 
county  purposes  according  to  the  tax  lists  on  file  when  the  con- 
tract is  made  under  which  the  liability  will  be  incurred.  Nor 
can  the  board,  in  addition  to  anticipating  the  above  resources,  in 
incurring  liability  also  anticipate  uncollected  taxes.  It  has  no 
power  to  anticipate  in  a  year  more  than  a  year's  uncollected  taxes 
assessed  at  the  maximum  rate.  They  held  further  that,  under 
the  general  laws  of  that  state,  a  board  of  county  commissioners 
has  no  power  to  issue  bonds  for  the  erection  of  a  court  house.* 
The  same  court  in  a  recent  case  held  that  a  contract  made  by  the 
city  council  of  a  leading  city  of  that  state  for  lighting  its  streets 
for  a  term  of  five  years  was,  under  its  charter,  void,  unless  the 
funds  on  hand  and  the  taxes  actually  levied  when  the  contract 
was  made  were  sufiicient  to  cover  all  the  liability  incurred  by  the 
contract  and  payable  during  the  five  years,  and  also  to  cover  the 
current  expenses  and  other  existing  liabilities  of  the  fiscal  year 
for  which  such  taxes  were  levied  ;  further,  the  conditions  required 
to  make  the  contract  valid  were  so  exceptional  that  its  validity 
would  not  be  presumed.^    The  United  States  Circuit  Court  for 


*  Rogers  «.  Board  of  Comrs.  of 
Le  Sueur  County,  (Minn.  1894)  59  N. 
W.  Rep.  488.  See,  also,  Johnston  v. 
County  of  Becker,  27  l^linn.  64;  s.  c, 
6  N.  W.  Rep.  411. 

'Kiiclili  p.  City  of  Minneapolis, 
(Minn.  1894)  59  N.  W.  Rep.  1088. 
The  court,  after  reciting  the  various 
sections  of  the  charter  regulating  the 
financial  conduct  of  the  city's  affaijs, 
said  :  "It  is  urged  that  making  a  con- 
tract this  year,  to  be  performed  in 
part  this  year,  in  part  next  year,  and 
in  part  the  year  after,  and  paid  for 
only  as  performed,  is  not  incurring 
liability  at  the  time  the  contract  is 
made,  as  the  tax  will  be  levied  before 
the  debt  is  created ;  that  is,  before  the 


liability  matures.  To  this  it  may  be 
answered  that  a  liability  is  incurred 
when  the  contract  is  made.  The  point 
here  involved  is  disposed  of  in  the 
cases  of  Johnston  v.  County  of  Becker, 
27  Minn.  64;  s.  c,  6  N.  W.  Rep.  411, 
and  Rogers  r.  Board  of  Comrs., 
(Miun.  1894)  59  X.  W.  Rep.  488,  where 
the  court  held  that  a  liability  was 
incurred  when  the  contract  was  made, 
though  not  to  be  performed,  or  the 
performance  paid  for,  until  after  the 
taxes  of  subsequent  years  would  be 
available  to  pay  it.  There  the  county 
commissioners  were  limited  in  incur- 
ring liability  to  the  maximum  amount 
which  could  be  levied  in  one  year 
according  to  the  tax  lists  then  on  file. 


ULTRA  VIRES  —  PUBLIC  CORPORATIONa, 


429 


§259] 

the  western  district  of  Missouri  has  held  that  the  charter  pro- 
vision forbidding  the  council  of  a  city  to  appropriate  any  money 
in  excess  of  the  revenue  for  the  fiscal  year  actually  collected  or 
to  bind  the  city  by  any  contract  or  act  in  any  liability  until  a 
definite  sum  shall  first  be  appropriated  for  the  liquidation  of  all 
liability  flowing  therefrom,  did  not  apply  so  as  to  prevent  the 
council  accepting  a  devise  of  lands  for  a  public  park,  subject  to 
an  annuity  to  the  widow  of  the  devisor  during  her  life,  which 
annuity  was  paid  by  annual  appropriation  from  the  general  fund, 
as  the  council  was  vested  by  other  provisions  of  the  charter  with 
ample  powers  to  acquire  land  for  this  purpose,  either  by  devise, 
or  by  actual  purchase,  to  be  paid  for  out  of  the  general  funds  in 
annual  installments.^ 

§  259.  Incurring  a  debt  ^  ithout  provision  by  taxation  for 
interest  and  sinking  fund. —  A  city  in  Texas  contracted  for  the 
building  of  a  bridge,  agreeing  to  pay  a  certain  sum  therefor,  one- 
half  on  delivery  of  the  material  and  the  remainder  on  comple- 
tion and  acceptance  of  the  bridge.  This  contract  was  held  in  the 
United  States  Circuit  Court  to  create  a  debt  within  the  constitu- 
tional provision  that  no  city  shall  create  any  debt  unless  at  the 
same  time  provision  be  made  by  taxation  for  payment  of  interest 
and  creation  of  a  sinking  fund.  The  contract  was,  therefore,  in 
case  no  such  provision  was  made  for  interest  and  sinking  fund, 
held  invalid,  notwithstanding  payment  of  the  contract  price  was 
secured  by  the  proceeds,  paid  into  the  city  treasury,  of  bonds 
issued  for  that  purpose  in  accordance  with  the  provisions  of  the 
charter  of  the  city  requiring  creation  of  a  fund  for  payment  of 
interest  and  as  a  sinking  fund  by  special  tax ;  also,  it  was  held 
that  a  debt  created  by  such  contract  could  not  be  regarded  as  a 
current  expense  of  the  city  payable  out  of  current  revenues. 
And  there  could  be  no  recovery  upon  a  contract  void  as  in  con- 
travention of  the  constitutional  provisions  of  the  value  of  the 
bridge  as  upon  an  implied  contract.^ 

Here  the  limitation  is  more  stringent.  *  Berlin  Iron  Bridge  Co.  v.  City  of 

It  limits  the  city  council,  in  incurrmg  San  Antonio,  (1894)  63  Fed.  Rep.  882.  ^ 

liability,   to  the  amount  of  the  tax  See  City  of  Corpus  Christi  v.  Woess- 

*  actually    levied'  at    the    time    the  ner,  58  Tex.  462;  Biddle  v.  aty  of 

liability  is  incurred."  Terrell,  82  Tex.  335;  s.  c,  18  S.  W. 

»Budd  V.  Budd,  (1894)  59  Fed.  Rep.  Rep.  691;  City  of  Terrell  v.  Dessaint, 

785.  71  Tex.  773;  s.  c,  9  S.  W.  Rep.  593; 


I 


l/l 


4 


430 


ULTRA  VIRES  —  PUBLIC  CORPORATIONS. 


[§260 

§  260.  Employment  of  an  agent  to  negotiate  bonds.—  In 

a  late  California  case  the  action  was  against  a  county  by  one  upon 
a  contract  with  the  county  board  to  secure  bids  for  county  bonds. 
The  Supreme  Court  held  the  employment  of  this  person  by  the 
county  board  for  this  puri)ose  to  be  a  void  act,  and  that  Ids  acts 
in  j)ursuance  of  such  emj)loyment,  however  benelicial  they  may 
Lave  been  to  the  county,  created  no  liability  against  it.^ 


Bc?ll  r.  Live  Stock  Co.,  (Tex.)  11  S.  W. 
Rep.  344;  City  of  Bryuu  v.  Page,  51 
Tex.  533. 

'  Smith  r.  County  of  Los  Angeles, 
(1893)  99  C:il.  638;  8.  c,  34  Pac.  Kep. 
439.  Upon  the  power  of  the  county 
boanl  to  make  this  contract,  the  court 
in  discussing  the  point  states  the  follow- 
ing provision  of  the  "  County  Govern- 
ment Act "  of  that  state:  Section  25 
of  the  act  provides  that  "the  board  of 
supervisors  in  their  respective  counties 
have  jurisdiction  and  power,  under 
such  limitations  and  restrictions  as  are 
prescribed  by  law,'  to  create  a  bonded 
indebtedness  and  to  issue  bonds  of  the 
county,  as  provided  by  section  37  of 
said  act.  and  subdivision  14  of  section  25 
provides  that  *'  whenever  bonds  issued 
under  this  chapter  shall  be  duly  exe- 
cuted *  *  *  they  shall  be  de- 
livered to  the  county  treasurer,  and 
his  receipt  taken  therefor,  and  he  shall 
stand  charged  on  his  official  bond 
with  all  bonds  delivered  to  him  and 
the  proceeds  thereof,  and  he  shall  sell 
the  same  or  exchange  them  under  the 
direction  of  the  board  of  supervisors. 

*  *  *  He  shall  also  keep  a  record 
of  bonds  sold  or  exchanged  by  him, 

*  *  *  and  shall  also  report,  under 
oath  to  the  board,  at  each  regular  ses- 
sion, a  statement  of  all  bonds  sold  or 
exchanged  by  him  since  the  preceding 
report,  and  the  date  of  such  sale  or 
exchange  *  *  *  and  the  amount 
of  accrued  interest  received  by  him 
on  such  sale  or  exchange,  ♦  »  * 
but  such  bonds  shall  not  be  sold  or  ex- 
changed for  any  indebtedness  of  the 
county,  except  by  the  approval  of  the 


board  of  supervisors  of  said  county. 
No  sale  shall  be   made  of  any   such 
bonds  except  to  the  highest  bidder, 
after  advertising  bids  for  the  purchase 
of  the   same"    in    the    manner    pre- 
scribed.    And  subdivision  85  of  the 
sjime  section  empowers  the  board  "to 
do  and   perform  all    other  acts    and 
things  required  by  law  not  in  this  act 
enumerated,  or  which  may  be  neces- 
sary to  the  full  discharge  of  the  duties 
of   the    legislative    authority  of   the 
county    government."    Section    6   of 
the  same  act  provides  that   "  all  con- 
tracts, authorizations,  allowances,  pay- 
ments and  liabilities  to  pay,   made  or 
attempted  to  be  made  in  violation  of 
this  act,  shall  be  absolutely  void,  and 
shall  never  be  the  foundation  or  basis 
of  a  claim  against  the  treasury  of  such 
county.     *    *    *"     And    section    36 
thereof  provides  that  "the  board  must 
not  for  any  purpose  contract  debts  or 
liabilities  except  in  pursuance  of  law." 
The  court  then  said:  "  It  is  clear  that 
these  provisions  of  the  statute  confer 
no  express  power  upon  the  board  of 
supervisors    to   make    such    a    con- 
tract as  the  one  sought  to  be  recovered 
on  in  this  action;  and  unless  it  can  be 
implied  from  subdivision  35  referred 
to,  then  it  follows  that  no  such  power 
exists,  and  the  contract  sued  on  is, 
therefore,  void,  because  not  made  in 
pursuance  of  law.     As  the   [County 
Government  Act]  distinctly  enumer- 
ates the  acts  which  the  board  is  re- 
quired to  perform  with  reference  to 
the  issuance  and  disposal   of  county 
bonds;  and,  as  the  employment  of  a 
procurer  of  bids  for  bonds  delivered 


^201] 


ULTRA  VIRES PUBLIC  CORPORATIONS. 


431 


§  261.  Investment  of  sinking  funds.—  The  Supreme  Court 
of  Illinois  refused  a  writ  of  mandamus  to  compel  the  treasurer  of 
a  county  to  invest  funds  of  the  county,  held  as  a  sinking  fund,  to 
pay  legally  issued  bonds  of  the  county,  in  certain  other  securities 
of  the  county,  as  directed  by  a  resolution  of  the  board  of  county 
commissioners.  In  the  opinion  they  state  that  the  contention  of 
the  petitioner  was,  that  there  was  an  implied  power  in  the  board  to 
order  such  investment,  embraced  in  the  provision  conferring  upon 
county  boards  power  "  to  manage  the  county  funds  and  county 
business,  except  as  otherwise  specially  provided."  Of  this  con- 
tention, the  court  said :  "  This  cannot  be  understood  to  give  to 
county  boards  the  absolute  and  unlimited  power  of  management 
of  county  funds,  where  there  is  the  absence  of  any  specific  pro- 
vision of  law  to  the  contrary.  It  hardly  means  more,  we  think, 
than  a  power  to  manage  the  county  funds  and  county  business 
according  to  law.  See  Rothrock  v.  Carr,  55  Ind.  334.  We  cer- 
tainly cannot  allow  to  it  any  sucli  scoi>e  as  giving  a  general  power 
to  county  boards  to  invest  surplus  funds  in  the  county  treasury 
in  such  manner  as  they  shall  see  fit.  So  far  from  there  being 
any  provision  of  law  which,  in  express  words,  or  by  necessary 
implication,  authorizes  the  action  taken  by  the  county  board  in 
this  case,  section  39,  Hhat  whenever  a  tax  is  levied  for  the 
payment  of  a  specific  debt,  the  amount  of  such  tax  collected 
shall  be  kept  as  a  separate  fund  in  the  county  treasury,  and 
expended  only  in  the  liquidation  of  such  indebtedness,'  would 
seem  to  prohibit  the  doing  of  what  has  been  here  attempted. 
We  would  not  be  understood,  however,  as  applying  this  provis- 
ion with  such  strictness  as  to  deny  all  power  of  investment  what- 


to  the  treasurer  for  sale  or  exchange 
under  the  law  was  not  in  any  way 
necessary  to  the  full  discharge  of  the 
legislative  authority  of  the  county 
government,  no  such  implied  authority 
to  make  such  a  contract  was  conferred 
upon  the  board  as  contended  for.  The 
board  of  supervisors  cannot  sell  or 
negotiate  the  sale  of  its  county  bonds. 
That  power  is  expressly  conferred  by 
statute  on  the  county  treasurer,  and  is 
to  be  exercised  by  him  under  the  direc- 
tion of  the  board,  and  the  sale  or  ex- 
change of  bonds  by  him  is  made  sub- 
ject to  the  approval  of  the  board;  in 


other  words,  the  bid  for  the  bonds  is 
solicited  and  obtained  upon  the  ad- 
vertisement by  the  treasurer  for  such 
bid,  and  the  law  recognizes  no  other 
mode  of  procurement.  The  treasurer 
alone  procures  the  bid,  the  mode  and 
manner  of  such  procurement  being 
specifically  pointed  out  by  statute. 
The  making  of  the  contract  in  ques- 
tion by  the  board  of  supervisors  was 
an  unwarranted,  if  not  a  pragmatical, 
interference  with  the  power  and  duties 
of  the  county  treasurer  as  expressly 
conferred  and  defined  by  law." 


a 


n 


M 


432 


ULTRA  VIBES  —  PUBLIC  CX)EP0BATI0N8. 


[§26I 


ever  of  the  moneys  of  a  sinking  fund,  and  compel  them  to  remain 
in  specie  in  the  county  treasury,  and  lie  idle  and  unproductive 
until  required  to  he  applied  to  the  purpose  for  which  they  were 
raised.    In  Union  Pacific  Kailroad  Co.  v.  The  United  States,  99  U. 
S.  700,  the  court  remark  :  *  The  duty  of  the  manager  of  every 
sinking  fund  is  to  seek  some  safe  investment  for  the  moneys  as 
they  accumulate  in  his  hands,  so  that  when  required  they  may  be 
promptly  available.' "     The  Illinois  court  then  continued  ;  "  An 
investment,  for  instance,  in  the  pubhc  funds  of  the  United  States 
is,  all  know,  so  readily  convertible  into  money,  that  it  would  be, 
essentially,  the  equivalent  of  money.     Such  an  investment,  we 
are  not  prepared  to  say,  would  be  incompatible  with  the  require- 
ment that  the  money  represented  by  such  investment  should  be 
kept  as  a  separate  fund  in  the  county  treasury,  and  expended 
only  in  hquidation  of  the  indebtedness  it  was  raised  to  pay.     But 
the  same  cannot  be  affirmed  of  county  securities,  as  to  their  being 
the  representative  of  money.    Constant  experience  shows  that  the 
promises  to  pay  of  a  county  are  quite  different  from  being  the 
equivalent  of  money  in  hand."  *     A  Texas  city,  having  determined 
by  its  council,  to  invest  certain  sinking  funds,  in  the  hands  of  its 
treasurer,  in  bonds  of  the  city  of  another  series,  gave  certain 
warrants  for  the  amount  to  the  parties  through  which  it  proposed 
to  make  the  investment  against  those  sinking  funds.     The  treas- 
urer declined  to  honor  them.     The  city  then  brought  its  writ  to 
compel  him,  by  mandamus  to  pay,  as  directed,  these  warrants. 
He  resisted  upon  various  contentions.     Among  others,  was  this 
contention  :  That,  if  the  city  could  invest  these  funds  otherwise 
than  in  paying  off  and  canceling  the  bonds  themselves,  it  could 
not  invest  them  in  the  purchase  of  its  own  outstanding  bonds  of 
another  series,  because  a  purchase  by  a  debtor  of  a  debt  against 
himself  ipso  facto  works  a  cancellation  thereof.     Over  this  con- 
tention the  Court  of  Appeals  of  that  state  held  that  the  power  to 
invest  in  its  own  bonds  of  another  series  existed  in  the  city.^ 

>  Cook  County  t.  McCrea,  (1879)  93  by  the  debtor  in  the  same  capacity  in 

El.  236,  239,  240.  which  he  owes  the  debt,  but  even  in 

» Elser  «.  City  of  Fort  Worth,  (Tex.  such  cases,  it  is  very  easy  to  keep  the 
Civ.  App.  1894)  27  S.  W.  Rep.  739.  security  alive  by  having  the  creditor 
^T^yw^jTufo,  the  court  said:  "It  must  be  make  a  transfer  to  a  third  party.  1 
conceded  that  [the  statement  of  the  Jones'  Mortg.  943-946.  Also,  see 
contention]  is  a  correct  statement  of  Jones'  Corp.  Bonds  &  Mortg.  325, 
the  law  in  its  application  to  ordinary  where  it  is  said:  'A  company  may  pur- 
cases  in  which  the  purchase  is  made  chase  its  own  bonds  as  an  investment. 


^\ 


§262] 


ULTRA  VIRES  — PUBLIC  CORPORATIONS. 


433 


§  262.  Contract  with  corporation  attorney  for  legal 
services.— The  question  of  whetlier  the  commissioners  of  a 
county  in  Pennsylvania  were  authorized  to  make  a  contract  with 
the  county  solicitor  to  take  proceedings  to  obtain  credit  for  the 
county  in  its  accounts  with  the  commonwealth  for  all  unpaid 
taxes  on  personal  property,  for  which  he  was  to  have  as  compen- 
sation twenty-live  per  centum  upon  the  amount  or  amounts  which 
might  be  credited,  received  the  full  consideration  of  the  Supreme 
Court  of  that  state,  and  they  held  that  such  contract  was  ultra 
vires}    The  Supreme  Court  of  Kansas  has  held  a  contract  made 

and  reissue  them.     If  the  facts  sliow   funds,  held  by  the  state;  in  its  own 
that  there  was  no  intention  of  paying   bonds,  and  by  the  different  counties 
the  bonds,   but  they  were  regarded   in  their  own  obligations     We  believe 
and  reputed  by  the  company  as  still   that  it  has  never  been  contended  that 
outstanding,   they  are    valid   in    the   a  purchase  of  this  kind  cancels  the 
hands  of  a  subsequent  purchaser,  and    bonds  thus  acquired.     We  do  not  re 
are  secured  by  the  lien  of  the  mort-    gard  the  opinions  in  the  cases  of  Bank 
gage.      But,  be  this  as  it  may,  it  will   v.  Grace,  102  N   Y  313-  s  c    7  N  E 
hardly  be  contended  that  if  the  pur-    Rep.  162,  and  Wilds  iv' Iliiilroad  Vo 
chase  be  made  in  a  different  capacity    102  K   Y.  410-  s"  c     7  N    E    Rep' 
than  that  in  which  the  debt  is  owed    290,   as  conflicting  herewith      Those 
(for  mstance,  if  A.,  as  trustee,  should,    decisions  were  controlled  entirely  by 
with  the  trust  fund,  purchase  a  debt   the  statutes  and    ordinances    therein 
which  he  owes  as  an  individual),  the   construed,  which  were  quite  dissimi- 
riile  would  apply,  and  we  are  of  opin-    lar  to  the  provisions  contained  in  the 
ion  that  as  to  those  funds  set  apart   charter  of  this  city  " 
for  special  purposes,  both  by  the  law       '  County    of    Lancaster    ..    Fulton 
and  by  the  ordinances  passed  by  the   (1889)    128    Pa.    St.   48.     The    court' 
ay  council,  as  in  this  case,  the  city   speaking  through  Sterrett,  J.,  said- 
must  be  regarded  as  a  trustee  pur-    "In  substance,  the  defense  interposed 
chasing  with  the  trust  fund  a  debt   by  the  county  was,  that  at  the  time  the 
tlath    /i?'  ^'  ^^  individual,  and    resolution  [referring  to  the  contract] 
that  the  debt  so  purchased  is  not  can-   was  adopted  plaintiff  below  '  was  the 

Tnt;       A  'I      "^    ""^^^  ^^'  '"  P"'-   ^"^y  ^^^^^^^^  ^°d  qualified  solicitor '  of 

^^Z      ^^f ''•f -"^«  «P^«i-J  *"°d  February  18,  1870,  at  a  salary  of  five 

fromllf     u  if""^    ^""^   "^^'^  hundred  dollars,  fixed  by  that  act;  and, 

tZlt  J^   '^"!^'^^  ^^'  '^^^  ^^'  tb^t  reason,  neither  he   nor  the 

ntv  nf  l?'""""       '^'  ''^  '^'  ""'"  °^  "^"°^y  commissioners  had  any  power 

42     «  p    iT«' w  V'^""''  ^^  ^'^-  ""'  ""*^°"^y  '^  ^°^^^  ^^^  the  contmct, 

com.  .k"  •   ^'P-  ^^'  ^^  ^"-  "°^^^  ^^^^^  the  services  were  ren- 

Cthint  .r^'.''^  ""^  '"'^  ^  ^"°^-  ^'''^    ^^^   °"    ^^i^l^    the    claim    is 

illn.f^r         '  ^'""^  '"'"''^'^  '*^"^^°^  ^^^°^^^-     It  is  conceded  that  when 

ustmtions  in  numerous    provisions  the  contract  was  made  and  for  a  con- 

i/in?!i."'°  ^"^  ^^''''''  *"^^^"-  side^ble  time  thereafter  plaintiff  be- 
luolf  n  ^"^".'^"'^^"^  «^  «P^^i^^  f»"ds,  low  was  the  duly  elected  and  quali- 
such  as  the  university  and  public  schoo.   fied    solicitor   of    the    county       The 


So 


434 


ULTBA  VIBES PUBLIC  CORPORATIONS. 


[§  203 


m 


by  the  board  of  county  commissioners  for  the  county  witli  attor- 
neys at  law,  for  their  services  as  such,  which  services  the  law 
requires  the  county  attorney  to  perform,  ultra  vires  and  voidJ 

§  263.  Discount  of  its   warrants    by  a  corporation. —  A 

county  in  Nortn  Dakota  created  from  portions  of  two  other 


4th  section  of  the  act  under  which  he 
wtis  elected  declares:  *  The  salary  of 
the  officer  elected  as  hereinbefore  pro- 
vided shall  be  five  hundred  dollars  per 
annum,    payable  quarterly;    and   the 
officer  so  elected  shall   be   the  legal 
adviser  of  the  board  of  commissioners 
of  I^ncastcr  county,  and  shall  repre- 
sent the  said  board  in  all  proceedings 
in   law   or    eciuity    wherein   the   said 
county  is  a  party  or  has  any  interest.' 
He  was  undoubtedly  a  public  officer 
within  the  meaning  of  the  Constitu- 
tion, article  III.  ii  18,  and  article  XIV, 
^§  1  and  5,  the  first  of  which  declares: 
'  No  law  shall  extend  the  term  of  any 
public  officer  or  increase  or  diminish 
his    salary   or  emoluments  after  his 
election  or  appointment.'  The  services 
for  which   the  contract    in  question 
undertakes     to    provide    are    clearly 
within  the  sphere  of  the  duties  of  the 
*  solicitor    of    Lancaster    county '    as 
defined   by  the  act   of  February   18, 
1870.     He  '  shall  be  the  legal  adviser 
of    the    board    of    commissioners    of 
Lancaster  county  and  shall  represent 
the   said  board  in  all  proceedings  in 
law  or  equity  wherein  said  county  is 
a  party  or  has  any  interest.'    What 
authority  then  had  either  the  plaintiff 
below  or  the  county  commissioners  to 
enter  into  a  contract  to  compensate  the 
former  for  services  within  the  sphere 
of  his  duties  as  solicitor  of  the  county? 
"We  are  of  opinion  that  they  had  none; 
that  the  act  of  the  commissioners  in 
undertaking  to  bind  the  county  to  pay 
the  compensation  provided  for  in  the 
contract  was  ultra  vires.     Doubtless 
the  very  object  of  the  act  in  creating 


the  office  of  county  solicitor,  provid- 
ing  for  Ills  election    and    fi.viug  his 
salary,  etc..  was  to  take  the  power  out 
of  the  hands  of  the  county  commis- 
sioners   and    place    it    beyond     their 
reach.     But,   be  that  as  it   may,   wo 
think  the  contract  was  iilfnt  rires  and 
void.    *    *  * "    Further  on,  referring 
to  the  trial  judge's  charge,  it  is  said: 
"In  saying,  as  he  correctly  did,  that 
if  the  services  of  plaintiff  below  '  had 
been  rendered    while  he  was   county 
solicitor,    then    there     could     be    no 
recovery.'   the  learned  jtidge  rightly 
assumed  that  the  contract  in  question 
was    unauthorized    and    illegal.     All 
such  contracts,  whether  intended  to  be 
so  or  not.  are  in  effect  evasive  and 
subversive  of  law.  contrary  to  public 
policy,    and.    therefore,    void.     They 
are    no  more  capable  of    ratification 
than  was  the  contract  in   Hunter  r. 
Nolf,  71  Pa.  St.  283.     Speaking  of  the 
illegal  contract  under  consideration  in 
that  case,  Mr.  Justice  Sharswood  said: 
'  It  is  undisputed  law  that  such  a  con- 
tract is  illegal  as  against  public  policy 
and    cannot    be    enforced.      Even  if 
there  had  been  an  express  contract  on 
entirely    different    terms    than  thoso 
agreed  upon    before,  it  ought  to  bn 
viewed  with  a  considerable  degree  of 
suspicion  as  an  attempt  to  evade  a 
sound    and    salutary   rule    of    public 
policy.'    A  case  more  nearly  parallel 
with  this  in  some  of  its  features  is 
Chester  County  r.  Barber,  97  Pa.   St. 
455.    Barber,    one    of    the    plaintiffs 
below,  was  attorney  for  the  county  of 
Chester,  but  it  did  not  appear  whether 
he  waawerving  under  an^nnual  salary 


» Waters  r.  Trovillo,  (1891)  47  Kans.  197. 


ill> 


§  263] 


ULTRA  VIRES PUBLIC  CORPORATIONS. 


435 


counties,  though  its  board  of  commissioners,  made  a  contract  with 
one  to  make  a  transcript  of  the  records  of  those  two  counties  so 
far  as  they  affected  the  territory  embraced  in  the  new  county  at  an 
agreed  price  for  whicli  he  was  to  be  paid  in  a  county  warrant  for 
such  a  sum  as,  at  the  prevaihng  discount  of  such  warrants,  would 
raise  the  amount  which  was  to  be  paid  him.  The  validity  of 
these  warrants  issued  by  the  county  was  contested  in  the  courts.* 
The  Supreme  Court  held  the  warrant  to  be  wholly  illegal  and 
void  from  its  inception,  for  the  reason  that  the  county  commis- 
sioners, in  the  absence  of  legislative  authority,  either  general  or 
special,  to  do  so,  were  without  power  to  enter  into  such  an 
arrangement.^     One  of  the  warrants  sued  on  in  this  case  repre- 


f    . 


fixed  by  act  of  assembly  or  under  a 
special  agreement  with  the  commis- 
sioners. The  county  commissioners, 
however,  made  a  contract  with  him 
and  two  other  attorneys  to  pay  them 
fifty  per  centum  of  the  amount  they 
recovered  from  the  state  for  taxes 
improvidently  paid  into  the  state 
treasury.  Speaking  for  the  court,  the 
present  chief  j ustice  said:  'The com- 
missioners had  no  power  to  bind  the 
county  by  such  a  contract.  *  *  * 
It  was  against  public  policy,  and, 
therefore,  null  and  void.  *  *  * 
These  commissioners  were  acting  in  a 
fiduciary  character.  They  were  but 
trustees  of  the  money  when  received- 
for  the  use  of  the  county.  When, 
therefore,  they  contracted  to  give  one- 
half  of  it  to  the  plaintiffs  for  their 
services  they  exceeded  their  power. 
They  were  giving  what  did  not  belong 
to  them.  As  well  might  a  trustee 
contract  to  give  away  one-half  of  the 
trust  estate  as  compensation  to  counsel 
for  services  in  connection  therewith. 
And,  if  he  may  give  away  one-half, 
why  not  three-fourths,  or  even  a 
greater  proportion  ?  Can  it  be  doubted 
that  a  court  of  equity  would  strike 
down  such  a  contract  as  improvident 
and  a  legal  fraud?  *  *  ♦  Whether 
the  plaintiff  Barber  can  recover  any- 
thing will  depend  upon  the  terms  of 


his  previous  engagement  as  solicitor  to 
the  commissioners.'  If  it  had  ap- 
peared in  that  case  that  Barber  was 
acting  under  a  salary,  fixed  by  act  of 
assembly  (as  was  Mr.  Fulton  in  this 
case),  and  that  his  defined  duty  was 
to  act  as  a  legal  adviser  of  the  com- 
missioners and  represent  them  in  all 
proceedings  at  law  or  in  equity 
wherein  the  county  had  any  interest, 
it  is  not  likely  that  any  doubt  as  to  his 
legal  status  would  have  been  sug- 
gested. According  to  the  reasoning 
of  the  opinion  the  contract  as  to  him 
would  have  been  declared  illegal,  con- 
trary to  public  policy,  and  absolutely 
void.  We  are,  therefore,  of  opinion 
that  the  learned  judge  erred  in  hold- 
ing that  plaintiff  below  might  recover 
if  the  commissioners  recognized  his 
services  after  the  expiration  of  his 
term  of  ofllce  as  county  solicitor; 
that  such  recognition  would  be  a  rati- 
fication of  the  oiiginal  illegal  agree- 
ment, etc." 

•Erskine  v.  Steele  County,  (K  D. 
1894)  60  N.  W.  Rep.  1050.  The  holders 
of  the  warrant  cited  specially  in  sup- 
port of  their  position  the  case  of 
Kilvington  v.  City  of  Superior,  83  Wis. 
222;  8.  c,  53  N.  W.  Rep.  487.  The 
Supreme  Court  of  North  Dakota 
referred  to  that  case  in  these  words : 
"  In  [that  case]  the  court  held  that 


m 


436 


ULTRA  VIRES PUBLIC  CORPORATIONS. 


[§  263 


( 


sented  entirely  the  discount  of  the  warrant  which  was  issued  ta 
the  contractor  for  transcribing  the  certain  records  of  the  two  coun- 
ties from  which  this  county  was  created.  This  warrant  tlie 
Supreme  Court  of  North  Dakota  held  also  to  be  wholly  illegal 
and  void  for  the  reason  that  the  county  commissioners  were  with- 
out power  to  enter  into  an  agreement  for  such  discount.^ 

the  general    power    conferred    upon   been  frequently  presented   to   courts 
village  trustees   to  'appoint  a  board   in  other  jurisdictions,    and    the    au- 
of  health    to  prevent  the  deposit  of   thorities,  so  far  as  we  have  examined 
unwholesome  substances,  and  prevent  them,  are  unanimous  in  condemning 
or   abate   nuisances,  is    sufficient   to   such    discoimt    transactions.      Judge 
authorize  a  contract  for  the  erection    Dillon,  in  his  learned  treatise  upon 
of  a  crematory  for  the  consumption  of   Municipal   Corporations  (Vol.  1   [4th 
any  matter   calculated  to  affect  the   ed.],  §  503),  says:   'Without  express 
health  or  comfort  of  the  community.'    authority     from     the     legislature,    a 
The  reason  of  this  holding  is  plain,    municipality  cannot  discount  its  war- 
While  the  authority  to  erect  a  crema-    rants  for  more  than  the  sum  actually 
tory  was  not  expressly  conferred  by    due  the  claimant,  and  as  to  the  excess 
the  legislature  upon  the  trustees,  such    they  are  void,  and  the  holder  will  be 
authority  was  implied  if  necessiiry  in    treated  only  as  the  equitable  assignee 
carrying    out    the     power    to   abate    of  the  valid,  legal  claim  of  the  payee.' 
nuisances,    etc.,    which     power    was    In  Foster  v.  Coleman,   10  Cal.  278,  a 
given  in  clear  terms.     But  we  see  no   claim  for  services   to  the  amount  of 
analogy  in  the  case  cited  to  the  case    $1,650  was  allowed  by  the  board  of 
at  bar.     The  right  to  enter  into  such    supervisors.     County  warrants  of  the 
a  contract,  as  that  concluded  with  the   county  were  then  at  a  discount,  and 
[one  who  did  the  transcribing]  was  not   worth  only  forty  cents  on  the  dollar, 
expressly  conferred  upon    the   com-    The     board    ordered    a    warrant    to 
missioners,   nor  was    such  authority   issue  for  a  sum  which,  at  this  prevail- 
necessary  or  at  all  appropriate  to  the   ing  discount,  would  sell  for  $1,650, 
execution  of  any  power  vested  in  the    the  amount  due  the  claimant.     Upon 
commissioners    by    any    law    of    the    such  order    the  warrant  issued.      A 
territory  then  existing.     In  the  absence   taxpayer  of  the  county  brought  suit 
of  legislative  authority  authorizing  it   and  the  county  treasurer  was  enjoined 
any  such  contract  was,  in  our  opinion,    from     paying     the     warmnt.      The 
clearly  ultra  tires  in  character.     We,    Supreme  Court,  in  the  course  of  its 
therefore,  hold  that  the  warrant  was   opinion,  referring  to  the  order  of  the 
wholly  void   from   its  inception.     It   board  directing  the  warrant  to  issue, 
was  issued  without  authority  of  law    said  :  '  The  effect  of  the  order  was  to 
and    upon     no   legal    consideration,    create  a  debt  or  liability  on  the  part 
Rasmusson  r.  County  of  Clay,  41  Minn,    of  the  county,   and    this  the  super- 
283;  8.  c,  43  N.   W.   Rep.   3;  Pugh   visors  were  not  empowered  to  do  for 
V.  Good,  19  Or.  85;  s.  c,  23  Pac.  Rep.    any  purpose   except  as  provided  by 
827."  law.    Their  action  was  entirely  with- 

'Erskine  v.  Steele  County,  (N.  D.  out  authority,  and  altogether  inde- 
1894,^  60  N.  W.  Rep.  1050.  Upon  this  fensible.'  The  settlement  and  allow- 
brancL  of  the  case,  the  court  said  :  ance  of  an  illegal  claim  against  the 
''Essentially   the  same  question  has   county    when    made    by    a   county 


§264] 


ITLTRA  VIRES  —  PUBLIC  CORPORATIONS. 


437 


§  264.  Illustrations  of  ultra  vires  acts. —  Furnishing  aid  to 
a  gravel  road  or  turnpike  company  in  building  or  repairing  its 
road  at  the  expense  of  a  county,  or  entering  into  contracts  with 
them  for  the  future  repairs  of  a  bridge  or  the  approaches  of  a 
bridge,  being  beyond  the  powers  of  a  county,  a  board  of  com- 
missioners of  a  county  liave  no  authority  to  make  contracts  for 
such  purposes.^  Without  enabhng  authority  a  municipal  corpo- 
ration cannot  purchase  lands  and  lots  at  a  tax  sale.  Such  a  power 
is  not  included  in  a  general  authority  to  buy  and  hold  real  estate 
for  the  convenience  of  the  corporation.^     But  where  a  municipal 


board,  has  no  more  conclusive  effect 
than  such  an  adjustment  would  have 
if   made    by    private    persons.      See 
Commissioners  v.  Keller,  6  Kans.  511. 
In  a  recent  case  clearly  in  point,  the 
Supreme  Court  of  the  state  of  Wash- 
ington, in    referring  to  the  act  of  a 
municipality  in  discounting  its  own 
warrants,  uses  the  following  language  : 
'Such  a  proceeding  is  manifestly  be- 
yond the    scope    of    legitimate    cor- 
porate power,  and  a  practice  of  that 
character     might      lead    to    various 
results.      City  warrants  are  evidence 
of  indebtedness,  or  promises  to  pay, 
and  are    payable    with    interest  pre- 
scribed by  law  ;   and  the  corporation 
cannot  cast  upon  the  taxpayers  any 
further    burden    in    respect    thereto, 
and  the  courts  have  uniformly,  as  far 
as  we  are  advised,  disapproved  of  any 
effort  to  do  so.'     Amott  v.   City  of 
Spokane,  6  Wash.  St.  442;  s.  c,  33  Pac. 
Rep.   1063.     See,  also,  Clark  v.  Des- 
Moines,  19  Iowa,  199;  Bauer  v.  Frank- 
lin County,  51  Mo.  205;  Shirk  v.  Pu- 
laski County,  4  Dill.  209:  s.  c,  Fed. 
Cas.  No.  12,794."    See  Pugh  v.  City 
of  Little  Rock,  35  Ark.  75. 

'  Driftwood  Valley  Turnpike  Co.  t. 
Board  of  Comrs.  of  Bartholomew 
County,  (1880)  72  Ind.  226.  The  court 
said;  "In  the  case  of  Harney  v. 
Indianapolis,  etc.,  R.  R.  Co.,  32  Ind. 
244.  it  was  held  that  a  county  had  no 
power,  without  afBrmative  legislation, 
to  make  an  appropriation  from  its 
treasury  by  way  of  donation  to  a  rail- 


road company  to  aid  in  the  construc- 
tion of  its  road.     The  court,   among 
other  things,  said:  '  The  counties  are 
corporations  created  for  the  purfKwe 
of  convenient  local  municipal  govern- 
ment, and  possess  only  such  powers  as 
are    conferred    upon    them    by    law. 
They  act  by  a  board  of  commissioners 
whose  authority  is  defined  by  statute. 
One  of  the  powers  conferred  is  to  col- 
lect taxes  levied  upon  the  people  and 
property  within  the  county.     In  the 
disposition  of  the    money    thus    col- 
lected into  the  general  treasury   the 
board  has  not  unlimited  discretionary 
choice  as  to  the  objects  upon  which  it 
shall  be  expended.     It  can  only  be  ap- 
plied to  certain  specified  objects,  and 
the  building  of  railroads  is  not  one  of 
these  objects,  or  necessary  to  carry 
into  effect   any  of  the  purposes  for 
which  such  corporations  were  created.' 
In  Burnett  v.  Abbott,  51  Ind.  254,  the 
county  board  made  a  contract  con- 
ditionally to  pay  certain  expenses  of 
boring  wells  for  oil  and  digging  for 
minerals.    The  contract  was  held  void 
for  want  of  authority  to  enter  into  it. 
Nor  can  the   board  appropriate  the 
funds  of  the  county  to  the  payment 
of  the  debts  of  a  county  agricultural 
joint-stock  company  or  to  the  build- 
ing of  school  houses.     Warren  County 
Agricultural  Joint-Stock  Co.  v.   Barr, 
55  Ind.  30;  Rothrock  v.  Carr,  55  Ind. 
334." 

'  City  of    Champaign   t.   Harmon, 
(1881)  98  111.  491.    It  was  said  by  the 


M*<| 


■fc 


f; 


i> 


488 


ULTRA  VIRES  —  PUBLIC  CORPORATIONS. 


[§  2(U 


corporation  is  vested  witli  general  authority  to  purchase  real 
estate  for  any  purpose,  a  vendor  of  land  to  a  municipal  corpora- 
tion will  not  be  allowed  to  avoid  his  contract  by  insisting  that  his 
deed  is  void,  because  the  corporation  may  have  exceeded  its 
powers  in  making  such  purchase.^  In  a  case  before  the  Supreme 
Court  of  Alabama,  an  action  to  enforce  a  penal  bond  given  by  a 


I  ■ 


/• 


court:  "Mimicipal  corporations  are 
creatures  of  the  statutes,  and  can  only 
exercise  such  powers  as  are  expressly 
conferred,  or  such  as  arise,  by  impli- 
cation, from  general  powers  granted. 
In  this  case  the  plaintiff  corporation  is 
empowered  by  its  charter  to  buy  and 
hold  real  property,  but  that  must  be 
understood  to  be  purchases  made  in 
the  onlinary  way,  and  only  for  corpo- 
rate purposes,  and  a  grant  to  purchase 
real  property  for  particular  purposes 
would  seem  to  be  a  limitation  on  the 
powers  of  such  corporations,  and 
would  exclude,  by  necessary  implica- 
tion, all  purchases  for  mere  specula- 
tion or  profit.  Power  to  purchase  real 
estate  for  speculative  purposes  is  not 
among  the  usual  powers  bestowed 
on  municipal  corporations,  nor  does 
such  power  arise,  by  implication,  from 
any  of  the  ordinary  powers  conferred 
on  such  corporations.  Authority  to 
buy  and  hold  real  estate  is  only  given 
to  them  to  that  extent  that  may  be 
necessary  to  carry  into  effect  corporate 
powers  granted.  Under  a  general 
grant  of  power  to  buy  and  hold  real 
property,  it  is  understood  municipal 
corporations  may  buy  and  hold  such 
property,  within  the  corporate  limits, 
as  may  be  necessary  for  corporate  pur- 
poses, and  may  even  buy  and  hold 
real  estate  beyond  the  corporate  limits, 
for  the  location  of  cemeteries,  pest 
houses  and  other  purposes  connected 
with  the  sanitary  condition  of  the 
municipality." 

'  City  of  Champaign  v.  Harmon, 
(1881)  98  111.  491.  In  Halstead  v. 
Mayor,  etc.,  of  New  York,  (1850)  3  N. 
Y.    430,    the    Court   of   Appeals   of 


New  York  held  that  it  was  beyond 
the  power  of  the  corporation  to  as- 
sume the  defense  of  suits  brought 
against  the  county  supervisors  indi- 
vidually for  the  penalty  incurred  by 
them  for  neglecting  the  duty  of  audit- 
ing the  salaries  of  certain  judges  ap- 
pointed under  a  statute  which  they  as- 
sumed to  be  unconstitutional,  and  was 
afterwards  held  to  be  unconstitutional, 
or  to  pay  the  j  udgments  and  costs  re- 
covered against  those  supervisors,  upon 
the  principle  that  such  corporations  are 
creatures  of  limited  powers,  especially 
upon  the  subject  of  the  appropriation 
of  the  funds  of  the  people,  as  settled 
in  Hodges  f.  City  of  Buffalo,  3  Den. 

110.  f/'/^m  n>c«  contracts  of  munici- 
palities:   Bourdeaux    r.    Coquard,   47 

111.  App  254;  Sang  r.  City  of  Duluth, 
(Minn.)  59  N.  W.  Rep.  878;  City  of 
Aberdeen  r.  Honey,  8  Wash.  251;  s. 
c,  35  Pac.  Rep.  1097;  Penley  v.  City 
of  Auburn,  85  Me.  278;  s.  c,  27  Atl. 
Rep.  158;  East  St.  Louis  Gas  Light  & 
Coke  Co.  r.  City  of  East  St.  Louis,  47 
111.  App.  411;  Hay  ward  v.  Board  of 
Trustees  of  Town  of  Red  Cliff,  (Colo.) 
36  Pac.  Rep.  795;  Town  of  Newport 
V.  Batesville  &  B.  Ry.  Co.,  58  Ark. 
270;  8.  c,  24  8.  W.  Rep.  427;  Lamar 
Water  &  Electric  Light  Co.  v.  City  of 
Lamar,  (Mo.)  26  S.  W.  Rep.  1025; 
Griswold  v.  City  of  East  St.  Louis,  47 
111.  App.  480;  Hamilton  v.  City  of 
Shelby  ville,  6  Ind.  App.  538;  City  of 
Nashville  v.  Sutherland,  92  Tenn.  335; 
State  V.  City  of  Bayonne,  55  N.  J. 
Law,  268;  Hintrager  v.  Richter,  85 
Iowa,  222;  Bateman  v.  City  of  Coving- 
ton, 90  Ky.  390. 


§265] 


ULTRA  VIKES  —  PUBLIC  CORPORATIONS. 


439 


private  corporation  to  a  municipal  corporation  for  the  faithful 
application  by  the  private  corporation  of  bonds  of  the  municipal 
corporation  lof^iied  by  it,  without  authority  under  its  charter,  to 
aid  in  the  construction  of  the  works  of  the  private  corporation, 
the  bond  was  held  to  be  invalid  and  not  enforceable  by  suit ; 
further,  that  its  validity  was  not  affected  by  the  subsequent  sale 
or  transfer  of  the  municipal  bonds  by  the  private  corporation, 
and  that  the  private  corporation  contracting  with  the  nmnicipal 
corporation  for  the  construction  of  works  which  tlie  latter  had  no 
authority  to  construct  and  had  received  the  benefit  of  the  con- 
t  ract,  was  not  estopped  when  sued  by  the  municipality  from  set- 
ting up  its  want  of  authority  to  make  the  contract.* 

§  265.  Estoppel  of  a  public  corporation  to  deny  its  liabil- 
ity on  an  ultra  vires  contract. —  A  manufacturing  corporation 
which  furnished  school  furniture  to  a  school  district  of  Kansas 
brought  its  action  against  the  district  to  recover  the  value  of  the 
goods  sold  and  delivered  to  it.  It  appeared  in  the  pleadings  and 
record  before  the  Supreme  Court,  that  the  court  below  took  the 
view  that  the  written  order  set  up  in  the  petition,  and,  also,  the 
written  contract  made  by  the  board  of  directors  with  the  agent 
of  the  plaintiff  for  tlie  furniture,  were  void  because  unauthor- 
ized. The  Supreme  Court,  having  referred  to  the  findings  of 
the  court  below  that  the  furniture  had  been  in  use  by  the  school 
district  for  a  period  of  nearly  five  and  a  half  years,  said  :  "  It  may 
be  conceded,  for  the  purpose  of  this  case,  that  both  these  written 
instruments  were  void,  and  tliat  no  action  could  be  maintained 
on  either  or  both  of  th^m,  yet  the  defendant  district,  having 
received  and  retained  the  property,  which  the  court  finds  to 
have  been  fairly  worth  the  price  stated  in  the  written  contract,  is 


'  City  Council  of  Montgomery  v. 
Wetumpka  Plank  Road  Co.,  (1857)  31 
Ala.  76.  The  court  said:  If  the  [doc- 
trine contra  the  text]  be  established, 
these  corporations,  no  matter  how 
limited  their  powers,  may  make  them- 
selves omnipotent.  They  have  only 
to  induce  persons  to  contract  with 
them  beyond  the  scope  of  their  powers 
and  their  very  usurpations  have  the 
effect  of  conferrins^  powers  on  them 
which  the  legislature  have  withheld. 
A  proposition  so  erroneous  can  scarcely 


need  argument  to  overturn  it.  See  on 
this  point  Pennsylvania,  Delaware  & 
Maryland  Steam  Nav.  Co.  v.  Dan- 
dridge,  8  Gill  &  J.  248,  319,  3*20,  and 
authorities  cited;  Albert  v.  Savings 
Bank  of  Baltimore,  1  Md.  Ch.  Dec. 
407-413;  Smith  r.  Ala.  Life  Ins.  & 
Trust  Co.,  4  Ala.  558;  Hodges  r.  City 
of  Buffalo,  2  Denio,  110;  Life  &  Fire 
Ins.  Co.  r.  Mechanic  Fire  Ins.  Co.,  7 
Wend.  31;  New  York  Firemen  Ins. 
Co.  i\  Ely,  5  Conn.  560. 


f  ' 


f 


440 


ULTRA  VIRES  —  PUBLIC  CORPORATIONS. 


[§265 


bound,  in  comnion  lionesty,  to  pay  for  it.  During  all  the  time 
this  furniture  has  been  in  the  possession  of  the  defendant  dis- 
trict, it  is  fair  to  presume  that  the  school  house  which  was  fur- 
nished with  the  seats  and  desks  purchased  from  tlie  plaintiff,  was 
used  in  the  same  manner  as  school  houses  are  ordinarily  used. 
It  is  fair  to  presume  that  school  district  meetings  were  therein 
held  annually  at  the  time  appointed  by  law.  It  is  fair  to  presume 
that  the  school  district  board  met  there  and  caused  the  seats  to 
placed  in  the  building  and  to  be  used  by  the  district.  The  board 
and  the  residents  of  the  school  district  must  all  have  known  of 
the  use  of  this  property,  and  their  continued  retention  and  use  of 
it  shows  a  perfect  and  complete  ratification  of  the  purchase  made 
by  the  district  officers."  In  the  case  of  Sullivan  v.  Sclioul  Dis- 
trict, 39  Kans.  347,  it  was  held  that  a  contract  for  the  construc- 
tion of  a  school  house,  made  by  one  member  of  the  school  district 
board  alone,  on  behalf  of  the  district,  might  be  ratified  and  made 
binding  on  the  whole  school  district.  This  case  came  again 
before  this  court,  and  is  reported  in  48  Kans.  G24,  and  the  court 
then  held  that :  "  A  contract  for  building  a  school  house,  void 
because  made  only  by  one  member  of  the  school  board,  may  be 
ratified  and  made  binding  by  the  action  of  the  school  district  in 
completing  the  building  left  unfinished  by  an  absconding  con- 
tractor, by  furnishing  the  same  with  seats,  desks  and  other  neces- 
sary scliool  house  furniture,  by  occupying  the  same  for  school 
house  purposes,  and  by  insuiing  the  same."  ^  A  bill  was  filed  by 
a  taxpayer  in  Iowa  against  the  vendor  of  land  sold  to  a  county 
for  a  poor  house  farm,  the  county  treasurer  and  supervisors,  to 
which  the  county  was  not  made  a  party,  to  have  the  contract  set 
aside  as  being  ultni  vires,  and  the  treasurer  enjoined  from  pay- 
ing certain  warrants  issued  for  the  residue  of  the  purchase  money 
(the  county  having  paid  a  part  of  the  purchase  money  and  been 
placed  in  possession).  The  Supreme  Court  held  that  the  bill 
was  not  maintainable  in  a  court  of  equity,  because  such  a  decree 
would  be  inequitable  while  the  county  was  allowed  to  retain  the 
land,  and  its  title  could  not  be  disturbed  in  an  action  to  which  it 
was  not  a  party.'    A  corporation  which  has  enjoyed  the  provis- 

'  Union  School  Furniture  Company  court  said:  "It  appears  to  us  to  be 

T.   School    District    No.    60,    in    Elk  well  settled  as  a  rule,  with  one  excep- 

County.  (1893)  50  Kans.  727,  7;}0,  731.  tion,   that,    where    the    consideration 

*  Turner  r.  Cruzen,  (1886)  70  Iowa,  received   by  a  corporation  under  an 

202;  s.  c,  30  N.  W.  Rep.  483.    The  ultra  vinif  contract  can  be  restored,  a 


(T 


§265] 


ULTRA  VIRES  —  PUBLIC  CORPORATIONS. 


441 


ions  of  a  lease  from  a  city,  cannot,  in  an  action  for  rent,  claim 
that  neither  it  nor  the  city  had  power  to  execute  the  lease.*  It 
was  insisted  in  an  Indiana  case  that  as  a  county  had  received  the 
full  benefit  of  a  contract  which  it  was  beyond  its  power  to  make, 
it  was  estopped  to  set  up  that  it  was  ultra  vires,  and  to  sus- 
tain this  position  counsel  relied  upon  State  Board  of  Agriculture 
V.  Citizens'  Street  Railway  Company,  47  Ind.  407.  The  Supreme 
Court  said  :  "  That,  however,  was  the  case  of  a  private  corpora- 
tion, the  street  railway  company,  that  sought  to  avoid  its  obliga- 
tion on  the  ground  of  want  of  power  to  make  the  contract. 
There  is  a  broad  difference  between  a  private  corporation  organ- 
ized for  a  private  purpose,  though  subserving  a  public  interest, 
and  a  public  corporation,  like  a  county  or  city,  organized  for 
public  purposes  only,  and  whose  obligations  must  be  paid  from 
public  funds  raised  for  public  purposes  only.  The  latter  class  of 
corporations  may  always  defend,  on  the  ground  that  the  supposed 
contract  was  outside  of  the  authority  conferred  on  it  by  law.     In 


court  of  equity  will  not  relieve  the 
corporation,  as  against  the  contract, 
without  providing  for  a  restoration  of 
the  consideration.  Pratt  r.  Short,  53 
How.  Pr.  506;  Leonard  r.  City  of 
(yanton,  35  Miss.  189;  Argcnti  v.  San 
Francisco.  16  Cal.  255,  282;  Moore  r. 
Mayor,  etc..  of  New  York.  73  N.  Y. 
238;  ^ucas  County  r.  Hunt,  5  Ohio 
St.  488."  Afterwards  it  was  said: 
' '  We  are  aware  that  there  is  a  class  of 
cases  where  courts  of  equity  declare  a 
contract  ultra  mreft,  and  grant  relief  in 
favor  of  a  corporation,  without  any 
decree  for  the  restoration  of  the  con- 
sideration received  by  the  corporation. 
This  is  so  where  municipal  bonds 
have  been  issued  in  excess  of  the  con- 
stitutional limit  of  indebtedness,  and 
the  money  obtained  thereon  has  been 
expended.  C'ourts  of  equity  decree 
the  cancellation  of  such  bonds,  or  en- 
.loin  payment,  without  decreeing  re- 
payment to  the  bondholders  of  the 
money  received  by  the  corporation 
on  the  bonds.  But  this  results  from 
the  necessity  of  the  case.  If  the 
courts  should  decree  repayment,  the 
56 


very  object  of  the  constitutional  pro- 
vision would  be  defeated." 

'  City  of  Corpus  Christi  r.  Central 
Wharf  «fc  Warehouse  Co.,  (Tex.  Civ. 
App.  1894)  27  S.  W.  Rep.  803.  The 
court  said:  "There  was  nothing  [in 
this  lease  contract]  immoral  or  illegal, 
in  the  sense  of  an  infraction  of  a  posi- 
tive prohibition  of  law,  in  the  action 
of  either  party.  At  most,  their  action 
was  in  excess  of  the  powers  conferred. 
The  restrictions  upon  the  powers  of 
the  city  government  are  imposed  by 
law  for  the  protection  of  the  inhabit- 
ants of  the  city  and  the  general  public. 
By  proper  proceedings,  taken  by  the 
right  parties  in  due  time,  all  such 
transgressions  of  power  may  be 
promptly  remedied.  But,  when  such 
contracts  have  been  allowed  to  stand 
until  fully  carried  out,  it  does  not  lie 
in  the  mouth  of  the  party  who  re- 
ceived their  benefits  to  urge  the  de- 
fense of  ultra  virea."  See  Bigelow 
Estop.  465;  7  Am.  &  Eng.  Encycl. 
Law,  29;  Beach  Priv.  Corp.  §§  421- 
426,  432,  433.  As  to  a  taxpayer  hav- 
ing no  right  to  complain  of  an  illegal 


W 


il 


442 


ULTRA  VIKES  —  PUBLIC  CORPORATIONS. 


[§  t-^6G 


'V)l 


.  »f 


I 


,4 


1  Dillon  Mimic.  Corp.  §  381,  the  author,  after  stating  the  gen- 
eral doctrine,  that  the  officer  of  a  municipal  corporation  cannot 
bind  the  corporation  by  any  contract  which  is  beyond  the  scope 
of  its  powers,  or  entirely  foreign  to  the  purposes  of  the  corpora- 
tion, says :  *  It  results  from  this  doctrine  that  unauthorized  con- 
tracts  are  void,  and  in  actions  thereon,  the  corporation  may 
successfully  interpose  the  plea  of  ultra  vires,  setting  up  as  a 
defense  its  own  want  of  power  under  its  charter,  or  constitueut 
statute,  to  enter  into  the  contract.' ''  *  A  county  i^  not  estopped 
as  against  a  warrant  issued  by  one  of  its  officers,  from  setting  up 
the  defense  of  ultra  vires}  The  Kansas  Supreme  Court  has 
said,  upon  this  matter  of  estoppel  of  a  corporation  :  "  The  ten- 
dency of  the  courts  and  others,  at  the  present  time,  is  to  treat 
corporations,  including  municipal  corporations,  witli  respect  U> 
their  business  transactions,  about  the  same  as  the  courts  and  others 
treat  individuals,  and  where  a  corporation,  municipal  or  other- 
wise,'has  received  benefits  from  others,  upon  contracts  n/f/ur 
vires  or  void  because  of  some  irregularity  or  want  of  i>o\ver  in 
their  creation,  but  not  void  because  made  in  violation  of  exju-ess 
law,  or  good  morals,  or  public  policy,  and  where  the  corporation 
retains  such  benefits,  it  must  pay  for  them."  ^  Where  the  acts 
of  a  municipal  corporation  are  such  as  the  corporation  is  pro 
hibited  from  performing,  they  will  be  ultra  vires  and  void,  and 
the  corporation  and  its  taxpayers  will  not  be  estopped  from 
insisting  upon  such  invalidity  even  as  against  parties  accjuirin- 
rights  without  knowledge  of  the  fact.* 

§  266.  Estoppel  of  contractor  with  a  public  corporation  to 
enforce  an  ultra  vires  contract.— In  an  action  by  citizens  and 
taxpayers  of  a  town  to  restrain  a  contractor  from  enforciiiir  a  jud"- 


contract  on  the  part  of  a  city,  such 
contract  being  voidable  only  at  the 
option  of  the  city,  see  Waco  Water  & 
Light  Co.  V.  City  of  Waco.  (Tex.  Civ. 
App.  1894)  27  S.  W.  Rep.  675. 

*  Driftwood  Turnpike  Co.  r.  Board 
of  Comi-8.  of  Bartholomew  Co.,  (1880) 
73  Ind.  226. 

'Webster  County  v.  Taylor,  19 
Iowa,  117.  In  Woodruff  r.  Commis- 
sioners of  Noble  County,  (Ind.  App. 
1894)  37  N.  E.  Rep.  732,  it  was  held 
that  a  county    physician   could   not 


contend  that  a  contract  by  the  board 
with  the  county  medical  society,  for 
medical  treatment  of  the  poor  of  thv 
county,  was  ultra  rires  the  society 
and  did  not  bind  its  members. 

^  Board  of  Comrs.  of  Hamilton 
County  r.  Webb,  (1891)  47  Kans.  104. 
lOo,  1()6;  citing  City  of  Ellsworth  r. 
Rossiter,  (1891)  46  Kans.  237,  242; 
Comrs.  of  Leavenworth  Co.  r.  Brewer, 
9  Kans.  307;  Huffman  t.  Comrs.  of 
Greenwood  County.  23  Kans.  281. 

*  Mcpherson  v.  Foster,  43  Iowa,  48. 


.imJmnM 


§266] 


ULTKA  VIRES  —  PUBLIC  CORPOKATIONS. 


443 


ment  against  tLe  town  obtained  by  default  and  to  restrain  the  town 
and  its  officers  from  paying  tliis  contractor  anything  upon  his 
alleged  contract  upon  which  the  judgment  was  rendered,  it  being 
alleged  in  the  complaint  that  the  judgment  was  obtained  through 
the  connivance  of  the  officers  of  the  town,  it  appeared  that  the 
town  was  empowered  by  its  charter  to  levy  special  assessments  for 
opening  and  grading  streets  upon  the  real  estate  in  front  of,  or 
adjacent  to,  which  such  improvements  should  be  made.     A  later 
act  provided  for  the  assessing  of  the  costs  of  such  improvements 
in  the  first  instance  upon  the  property  deemed  to  be  benefited 
thereby  ;  and,  further,  it  was  provided  in  this  later  act  that  the 
town  council  should  *'  order  said  improvements  to  be  made  by  the 
owners  of  real  estate,  or  occupants  of  such  real  estate,  in  front  of 
or  adjacent  to  where  said  improvements  are  so  ordered."     There 
was  a  further  provision  that  such  owners  or  occupants  "  shall 
make  or  cause  to  be  made  said  improvements  at  their  own  cost 
and  charges,"  and  that  in  case  of  their  default  the  council  may 
cause  the  improvements  to  be  made  and  assess  the  expense  upon 
the  property.     It  was  not  controverted  that  the  statute  required 
that  an  order  should  have  been  made  for  the  adjacent  proprietors 
to  make  the  improvement  and  opportunity  given  them  to  do  so 
before  the  council  could  rightfully  let  a  contract  for  doing  it,  and 
it  was  admitted  that  this  was  not  done.     Whether  this  contract 
was  ultra  vires,  and  whether  the  municipality  should  be  heard  to 
interpose  that  defense  to  an  action  by  the  other  party  to  recover 
upon  the  contract  after  it  had  been  performed,  were  the  points 
considered  by  the  Minnesota  Supreme  Court.     The  court  held 
that  the  contract  was  unauthorized,  and  that,  not  having  been 
misled  by  any  fact,  the  contractor  was  not  entitled  to  recover  on 
such  contract.^     The  court,  after  stating  the  powers  of  the  cor- 
poration, and  restrictions  upon  the  same,  said  :  "  Not  only  was  the 
party  entering  into  this  contract  legally  chargeable  with  notice 
that  by  the  public  charter  the  authority  of  the  council  was  thus 
restricted  (McDonald  v.  Mayor,  68  N.  Y.  23 ;  Schumm  v.  Sey- 
mour, 24  N.  J.  Eq.  143),  but  the  allegation  in  the  complaint  that 
the  plaintiff  warned  the  defendant  that  the  contract  was  void 
before  he  commenced  to  perform  it,  is  admitted  by  the  answer. 
The  doctrine  of  ultra  vires  has  with  good  reason  been  applied 

•  Newbery  v.  Fox,  (1887)  37  Minn,    ing  the  sustaining  of  a  demurrer  to 
141:    8.  c,  33  N.  W.  Rep.  333,  affirm-   the  answer  of  defendant. 


hi 


t 


^ 


444 


ULTRA  VIRES  —  PUBLIC  CORPORATIONS. 


[§266 


with  greater  stnetness  to  municipal  bodies  than  to  private  cor- 
porations, and  in  general  a  municipality  is  not  estopped  from 
denying  the  validity  of  a  contract  made  by  its  officers  when  there 
has  been  no  authority  for  making  such  a  contract.*  A  different 
rule  of  law  would,  in  effect,  vastly  enlarge  the  power  of  public 
agents  to  bind  a  municipality  by  contract,  not  only  unauthorized 
but  prohibited  by  the  law.  It  would  tend  to  nulHfy  the  limita- 
tions and  restrictions  imposed  with  respect  to  the  powers  of  such 
agents,  and  to  a  dangerous  extent  expose  the  public  to  the  very 
evils  and  abuses  which  such  limitations  are  designed  to  prevent. 
In  the  case  here  presented  it  is  not  to  be  denied  that  the  town 
council  had  no  authority  to  make  this  contract ;  that  the  charter 
set  forth  the  conditions  which  would  authorize  such  a  contract  to 
be  made ;  that  those  prescribed  conditions  had  not  been  fulfilled, 
nor  did  the  defendant  believe  that  they  had  been.  The  most 
that  appears  in  his  favor  is  that,  without  being  misled  or  mis- 
taken as  to  the  fact,  but  being  warned  that  the  contract  was  void, 
he  nevertheless  judged  that  it  was  legally  valid ;  and,  being  also 
advised  by  the  members  of  the  council,  he  took  the  risk  of  per- 
forming it.  The  contract  being  thus  unauthorized  was  not 
effectual  as  a  contract,  and  the  defendant  does  not  appear  in  a 
position  entitling  him  to  invoke  the  doctrine  of  estoppel  to  aid 
him  in  enforcing  the  claim  as  though  the  contract  was  obligatory 
upon  the  town."  The  Supreme  Court  of  Colorado  has  held  that 
the  provision  of  the  charter  of  the  city  involved  declaring  that 
neither  the  city  council  nor  any  officer  of  the  city  shall  make  any 
contract  or  do  any  thing  binding  or  imposing  upon  the  city  any 
liability  to  pay  money  as  upon  contract  until  a  definite  appropria- 
tion shall  be  made  to  meet  the  requirements  or  consequences  of 
such  contract,  was  mandatory,  and  the  ditch  company  furnishing 
the  water  for  the  necessary  uses  of  the  city  could  not  recover 
against  the  city  the  reasonable  price  for  the  use  of  the  water  in 
the  absence  of  such  a  definite  appropriation.' 


»  Citing  Mayor  v.  Ray,  19  Wall.  468; 
Brady  v.  31ayor  of  New  York,  20  N. 
Y.  312;  Hague  v.  CMty  of  Philadel- 
phia, 48  Pa.  St.  527;  1  Dill.  Mun. 
Corp.  457;  Nash  v.  City  of  St.  Paul, 
8  Minn.  (172). 

«  Smith  Canal  or  Ditch  Co.  r.  City  of 
Denver,  (Colo.  1894)  36  Pac.  Rep.  844. 


The  court  referred  to  the  cases  of 
Argenti  r.  City  of  San  Francisco,  16 
Cal.  255;  Nelson  v.  Mayor,  63  N.  Y. 
535,  quoting  from  the  opinion  of 
FoLGER,  J.,  in  the  latter,  and  cited 
further,  McDonald  v.  Mayor,  68  N.  Y. 
28;  Smith  r.  City  of  Newburgh,  77  N. 
Y.  130;  McCoy  r.  Briaut,  53  Cal.  247; 


267] 


ULTRA  VIRES PUBLIC  CORPORATIONS. 


445 


§  267.  Injunction  of  public  officials  —  rules. —  The  Supreme 
Court  of  Washington  has  lield  in  a  taxpayer's  action  against  the 
commissioners  of  a  county,  that  the  taxpayer  was  entitled  to  an 
injunction  to  restrain  them  from  issuing  certain  bonds  as  the  debt 
proposed  to  be  increased  was  beyond  the  Hmitation  of  indebted- 
ness which  the  corporation  was  allowed  to  incur  and  had  not 
been  properly  ratified  or  validated,  and,  further,  the  arrangement 
with  a  trust  company  for  the  sale  of  the  bonds,  by  which  the  lat- 
ter was  to  be  allowed  commissions,  etc.,  of  a  large  amount,  vio- 
lated the  requirement  of  law  that  they  should  not  sell  the  bonds 
below  par.^ 


People  V.  May,  9  Colo.  80;  s.  c,  10 
Pac.  Rep.  641.  When  one  benefited 
by  a  contract  with  a  municipality  can- 
not object  that  it  was  ult7'a  vires  the 
municipality,  see  City  of  Buffalo  v. 
Balcom,  (1892)  134  N.  Y.  532;  s.  c,  32 
N.  E.  Rep.  7. 

*  Hunt ».  Fawcettet  al, County  Com- 
missioners, (Wash.  1894)  36  Pac.  Rep. 
318.  In  Avery  v.  Job,  (Ore.  1894)  36 
Pac.  Rep.  293,  the  Supreme  Court  af- 
firmed the  granting  of  an  injunction 
in  a  taxpayer's  suit,  restraining  the 
mayor,  etc.,  of  the  city  from  purchas- 
ing a  plant  of  a  waterworks  company 
for  $28,000,  worth  only  $10,000,  and 
inadequate  and  unsuited  to  the  pur- 
pose, though  the  purchase  or  erection 
of  waterworks  was  a  matter  within  the 
discretion  of  the  city  council.  In  In- 
tendant  &  Town  Council  of  Living- 
ston V.  Pippin,  (1858)  31  Ala.  542,  an 
action  against  the  municipality  to  re- 
cover the  price  agreed  to  be  paid  for 
the  boring  of  an  artesian  well,  it  was 
held  that  the  municipal  corporation 
could  not  set  up  the  defense  that 
though  its  corporate  authorities  had 
power  to  contract  for  the  procuring  of 
a  supply  of  water  on  the  public  square 
of  the  town,  they  ought  to  have 
adopted  some  less  expensive  means  of 
procuring  it.  The  court  said:  "The 
corporate  authorities,  having  the  power 
to  procure  the  supply  of  water,  were 
themselves  the  judges  of  the  mode  and 


manner  best  calculated  to  accomplish 
that  object.  Lawless  v.  Reese,  4  Bibb, 
309.  The  propriety  of  their  election 
and  the  binding  efficiency  of  their  con- 
tract cannot  be  questioned  collaterally. 
If  their  proposed  expenditure  was  an 
abuse  of  their  powers,  any  of  the  cor- 
porators have  an  ample  remedy  by  in- 
junction. See  Christopher  v.  Mayor 
of  New  York,  13  Barb.  567,  and  au- 
thorities cited."  For  a  full  discussion 
of  the  subject  of  injunctions  against 
public  boards  of  commissioners,  etc., 
see  Stevens  v.  St.  Mary's  Training 
School,  (1893)  144  111.  336.  That  per- 
sons dealing  with  a  municipal  corpo- 
ration through  its  officers  must  know 
and  are  charged  with  a  knowledge  of 
their  powers  in  contracting,  see  Mc- 
Donald V.  Mayor,  etc.,  of  New  York, 
68  N.  Y.  23;  Cornell  v.  Guilford,  1 
Den.  510;  Sutro  v.  Pettit,  74  Cal.  332; 
Hodges  V.  Buffalo,  2  Den.  110;  Lowell 
Savings  Bank  v.  Winchester,  8  Allen, 
109;  Merchants'  Bank  v.  Bergen 
County,  115  U.  S.  384;  Wallace  v. 
Mayor,  etc.,  of  San  Jose,  29  Cal.  181; 
Dorsey  County  ®.  Whitehead.  47  Ark. 
205;  Barton  v.  Swepston,  44  Ark.  437; 
Schumm  v.  Seymour,  24  N.  J.  Eq. 
143;  Alton  v.  Mulledy,  21  111.  76; 
Cleveland  v.  State  Bank  of  Ohio,  16 
Ohio  St.  236;  Chicago  t.  Shober,  etc., 
Co.,  6Bradw.  (III.)  560;  Craycraft  v. 
Selvage,  10  Bush  (Ky.),  708;  Perkin- 
son  V.   St.   Louis,   4  Mo.   App.   322; 


( ' . 


446 


ITLTRA  VIRES PFBLIC  CORPORATIONS. 


[§267 


V.M| 


Clark  r.  Polk  County,  19  Iowa,  248; 
Carpenter   v.   Union,    58    Iowa,   335; 
Estep  15.   Keokuk    County,   18  Iowa, 
199;  Whiteside  c.  United  States,  93  U. 
S.  247;  Harshman  v.  Bates  County,  92 
U.  S.  569;  Maupin  v.  Franklin  County, 
67  Mo.  327.     As  to  when  a  municipal 
corporation  is  not  estopped  to  set  up  a 
plea  of  ultra  tires  in  actions  brought 
upon  contracts  entered  into  by  its  offi- 
cers,   see    Sioux   City    v.   Weare,  59 
Iowa,  95;  Stidger  v.  Redoak,  64  Iowa, 
465;  State  v.  Haskell,  20  Iowa,  276; 
East  Oakland  t.  Skinner,  94  U.  8.  255; 
Post  V.  Kendall  County,  105  U.  S.  667; 
McClure  r.  Oxford  Township,  94  U. 
8.  429;  Bates  County  r.  Winter8,97  U. 
S.  83;  South  Ottawa  v.  Perkins,  94  U. 
S.  260;  Daviess  County  r.  Dickinson, 
117  U.   8.   657;   Burrill   r.  Boston,  2 
Cliff.  590;  Fox  V.  New  Orleans,  12  La. 
Ann.  154;  Seibrecht  r.  New  Orleans, 
12  La.  Ann.  496;  Cheeney  «).  Brook- 
field,  60  Mo.  53;  McCaslin  v.  State,  99 
Ind.  428;  State  v.  Bevers,  86  N.  C.  588; 
Dill  V.  Wareham,  7  Met.  438;  Yancey 
f>.  Hopkins,  1  Munf.  (Va.)  419 ;  Nalle 
f>.  Fenwick,  4  Rand.  (Va.)  585;  Ship- 


man  V,  State,  43  Wis.  381;  Perry  v. 
Superior  City,  26  Wis.  64;  State  v. 
Hastings,  12  Wis.  596;  Nash  v.  St. 
Paul,  8  Minn.  172;  Donovan  v.  Mayor, 
etc.,  of  New  York,  33  N.  Y.  291;  Ap- 
pleby V.  Mayor,  etc.,  15  How.  Pr.  428; 
Martin  v.  Mayor,  etc.,  of  Brooklyn,  1 
Hill,  545;  Albany  v.  Cunliff,  2  N.  Y. 
165;  Overseers  of  Norwich  v.  Over- 
seers of  New  Berlin,  18  Johns,  382; 
Cowen  T.  West  Troy,  43  Barb.  48; 
Trustees  of  Paris  Township  v.  Cherrj', 
8  Ohio  St.  564;  Western  College  of 
Medicine  v.  Cleveland,  12  Ohio  St. 
375;  Mitchell  v.  Rockland,  41  Me.  363; 
Fluty  r.  School  District.  49  Ark.  94; 
Ilalbut  p.  Forrest  City,  34  Ark.  246; 
Mitchell  V.  Rockland,  45  Me.  496; 
People  V.  Baraga  Township,  39  Mich. 
554;  Taft  v.  Pittsford,  28  Vt.  286; 
Haynes  r.  Covington,  13  8m.  «fc  Marsh 
(Miss.),  408;  Treadway  t.  Schnauber, 
1  Dak.  236;  Neely  v.  Yorkville,  10  8. 
C.  141;  Bryan  v.  Page,  51  Tex.  532; 
Trustees  of  Belleview  v.  Hohn,  82  Ky. 
1;  8.  c,  4  Am.  &Eng.  Corp.  Cas.  524; 
Murphy  v.  Louisville,  9  Bush  (Ky.), 
189. 


'•«, 


hH 


ill 

i  j 


\  i 


CHAPTER  Yin. 

ULTRA  VIRES  — PRIVATE  CORPORATIONS. 


§  268.  The  doctrine  of  ultra  vires  as 
explained  by  English  courts. 
369.  These  rules  applied  by  English 
courts  to  special  acts  of  cor- 
porations. 

270.  The  doctrine  of  ultra  vires  as  ex- 

plained by  United  States  courts 

271.  Illustrations  of  acts  not  ultra 

vires  the  corpcration. 

272.  Illustmtions  of  acts  ultra  vires 

the  corporation. 

273.  Leasing  corporation's  property 

and  franchises  for  a  term  of 
years. 

274.  Loaning  funds  of  a  corporation. 

275.  Investing  funds  of  corporation 

in  stock  of  others. 

276.  Directors  of  an  insurance  com- 

pany    raising     a     guaranty 
capit&L 


§  277.  Converting  common  into  pre* 
ferred  stock. 

278.  The  effect  of  laches  on  the  part 

of  complaining  stockholders 
in  such  cases. 

279.  Rules  declared  by  courts  as  to 

estoppel  of  corporations  to 
plead  ultra  vires. 

280.  When    the    doctrine    of    ultra 

vires  is  not  applicable. 

281.  Rules  declared  by  courts  as  tc 

estoppel  of  parties  to  con- 
tracts with  corporations  tc 
plead  ultra  vires. 

282.  Financial    arrangements    con- 

trary to  public  policy  —  rules 
governing  proceedings  on 
the  part  of  the  state,  etc. 


§  268.  The  doctrine  of  ultra  vires  as  explained  by  Eng- 
lish courts. —  Where  a  corporation  is  created  by  an  act  of  parlia- 
ment for  particular  purposes,  with  special  powers,  "  their  deed, 
under  their  corporate  seal,  and  that  regularly  affixed,  does  not 
bind  them,  if  it  appear  by  the  express  provisions  of  the  statute 
creating  the  corporation,  or  by  necessary  or  reasonable  inference 
from  its  enactments,  that  the  deed  was  ultra  vires  —  that  is,  that 
the  legislature  meant  fhat  such  a  deed  should  not  be  made,"  was 
stated  to  be  the  rule  by  Baron  Parke.*  Lord  Chancellor  Cban- 
woRTH  has  observed  in  a  case  that  he  thought  the  statement  of 
the  rule  by  Baron  Pakkk  ''the  more  correct  way  of  enumerating 
the  doctrine,  though  practically  it  makes  very  little  difference 
whether  we  say  that  the  railway  company  has  no  authority  given 
to  it  by  its  incorporation  to  enter  into  contracts  as  to  matters  not 
connected  with  its  corporate  duties,  or  that  it  is  impliedly  pro- 

'  South  Yorkshire  Railway  i\  Great   way  v.  Stewart,  3  Macq.  382,  415,  by 
Northern    Railway,   9  Exch.  55,   84.    Lord  Wensleydalb. 
See,  also,  Scottish  Northeastern  Rail- 


*. 


448 


TLTRA  VIRES PRIVATE  CORPORATIONS. 


[§  209 


hibited  from  so  doing,  because  by  necessary  inference  the  legisla- 
ture must  be  considered  to  have  intended  tliat  no  such  contracts 
should  be  entered  into."^  Lord  St.  Leonard  has  distinctly  recog- 
nized that  "  directors  cannot  act  in  opposition  to  the  purpose  for 
which  their  company  was  incorporated,  nor  bind  their  companies 
by  contracts  foreign  to  the  purposes  for  which  they  were  estab- 
lished.''^  Lord  Chancellor  Cranworth  has  said  that  the  English 
authorities  had  "  established  the  proposition  that  a  railway  com- 
pany cannot  devote  any  part  of  its  funds  to  an  object  not  within 
the  scope  of  its  orighial  constitution,  how  beneiicial  soever  that 
object  might  seem  likely  to  prove ; "  and,  after  a  review  of  the 
cases  reported,  "  it  must,  therefore,  be  now  considered  as  a  well- 
settled  doctrine  that  a  company  incorporated  by  act  of  parliament 
for  a  special  purpose  cannot  devote  any  part  of  its  funds  to  objects 
unauthorized  by  the  terms  of  its  incorporation,  however  desirable 
such  an  application  ma^  appear  to  be."' 

§  269.  These  rules  applied  by  English  courts  to  special 
acts  of  corporations.— In  an  English  case  the  objects  of  the 
company  registered  under  the  English  Joint-Stock  Companies 
Act  of  1862  was  created  were  stated  in  its  memorandum  of  asso- 
ciation to  be  "  to  make  and  sell  or  lend  or  hire  railway  carriages 
and  wagons  and  all  kinds  of  railway  plant  littings,  machinery 
and  rolling  stock  ;  to  carry  on  the  business  of  mechanical  engi- 
neers and  general  contractors ;  to  purchase,  lease,  work  and  sell 
mines,  minerals,  land  and  buildings  ;  to  purchase  and  sell  as  mer- 
chants, timber,  coal,  metals  or  other  materials,  and  to  buy  and  sell 
any  such  materials  on  commission  or  as  agents."  The  directors 
agreed  to  purchase  a  concession  for  making  a  railway  in  a  foreign 
country,  and  afterward  (on  account  of  difficulties  existing  by  the 
law  of  that  country)  agreed  to  assign  the  concession  to  an  asso- 
ciation formed  there,  which  was  to  supply  the  materials  for  the 
construction  of  the  railway  and  receive  periodical  payments  from 
the  English  company.  In  an  action  at  law  brought  by  the 
foreign  associates  against  the  English  company  upon  this  agree- 
ment, it  was  held  in  the  lower  courts,  as  well  as  in  the  House  of 
Lords,  to  be  ultra  vires.  The  House  of  Lords  unanimously  held 
the  contract  not  to  be  within  the  scope  of  the  memorandum  of 

» Shrewsbury  &  Birmingham  Rail-       » Eastern     Counties      Railway     v. 
way  V.  Northwestern  Railway,  6  H.  L.    Hawkes,  5  H.  L.  Cas.  331. 
Cas.  113,  135-137.  »Ibid. 


§  269] 


ULTRA  VIRES  — PRIVATE  CORPORATIONS. 


449 


a^ociation  and,  therefore,  void  and  incapable  of  being  ratified 
and  that  the  action  could  not  be  maintained.^  In  an  English  case 
It  was  held  that  no  action  could  be  maintained  by  one''  railway 
company  against  another  upon  an  agreement  made  by  the  latter 
to  take  a  lease  of  the  railway  of  the  first  companv  and  to  pay  the 
expenses  mcurred  by  that  company  in  the  soliciting  and  promot- 
mg  of  bills  in  parliament  for  the  extension  and  improvement  of 
that  railway,  even  if  the  object  and  effect  of  the  agreement 
were  to  increase  the  profits  of  the  defendants'  railway  2     In  a 


'  Ashbury  Railway  Carriage  &  Iron 
Co.  V.  Richc,  L.  R.,  7  H.  L.  653;  in  the 
lower    courts,    L.    R.,   9  Exch.    224. 
Lord    Selborne    of   the    House    of 
Lords  said:  "The  action  in  this  case 
is  brought  upon  a  contract  not  directly 
or  indirectly  to  execute  any  works, 
but  to  find  capital  for  a  foreign  railway 
company  in  exchange  for  shares  and 
bonds  of  that  company.     Such  a  con- 
tract, in  my  opinion,  was  not  author- 
ized   by   the  memorandum    of    asso- 
ciation of  the  Ashbury  Company.     All 
your  lordships  and  all  the  judges  in 
the  courts  below  appear  to  be  so  far 
agreed.     But  this,  in  my  judgment,  is 
really    decisive  of    the    whole    case. 
*    *    *    I    think  that  contracts    for 
objects  and  purposes  foreign  to  or  in- 
consistent with  the  memorandum  of 
association  are  ultra  vires  of  the  cor- 
poration itself.     And  it  seems  to  me 
tar   more    accurate  to    say   that    the 
inability   of   such  companies  to  make 
such  contracts    rests  on    an  original 
limitation     and     circumscription     of 
their  powers  by  the  law,  and  for  the 
purposes  of  their  incorporation,  than 
that  it  depends  upon  some  express  or 
implied  prohibition,  making  acts  un- 
lawful  which    otherwise  they  would 
fiave  had  a  legal  capacity  to  do.     This 
^eiug  so,  it  necessarily  follows    *  *  * 
that  where  there  could  be  no  mandate 
fhere  cannot  be  any  ratification;  and 
that  the  assent  of  all  the  shareholders 
-an    make    no    difference     when     a 
stranger  to  the  corporation  is  suing  the 
67 


company  in  its  corporate  name  upon  a 
contract  under  the  common  seal.  No 
agreement  of  shareholders  can  make 
that  a  contract  of  the  corporation 
which  the  law  says  cannot  and  shall 
not  be  so," 

'East  Anglian  Railways  v.  Eastern 
Counties  Railway,   11  C.  B.   775.     It 
was  said  by  Chief  Justice  Jervis.  in 
delivering   the   judgment  of   himself 
and  Justices  Maule,  Williams  and 
Talfourd:  ♦'  This  act  is  a  public  act 
accessible  to  all  and  supposed  to  be 
known  to  all,  and  the  plaintiffs  must, 
therefore,  be  presumed  to  have  dealt 
with     the    defendants    with     a    full 
knowledge  of  their  respective   rights 
whatever  those  rights  may  be.     It  is 
clear  that  the  defendants  have  a  lim- 
ited authority  only  and  are  a  corpora- 
tion only  for  the  purpose  of  making 
and  maintaining  the  railway  sanctioned 
by  the  act;  and  that  their  funds  can 
only    be   applied    for   the    purposes 
directed  and  provided  for  by  the  stat- 
ute.    Indeed,  it  is  not  contended  that 
a  company  so  constituted  can  engage 
in  new  trades  not  contemplated   by 
their  act;  but  it  is  said  that  they  may 
embark  in   other   undertakings,  how- 
ever various,  provided  the  object  of 
the  directors  be  to  increase  the  profits 
of  their  own  railway.     This,  in  truth, 
is  the    same    proposition  in  another 
form,  for  if  the  company  cannot  carry 
on  a  trade  merely  because  it  was  not 
contemplated  by  the  act,  they  cannot 
embark   in    other   undertakings   not 


t*     ifl 


i] 


450 


ULTRA  VIRES  —  PRIVATE  CORPORATIONS. 


[§2T0 


case  where  a  railway  company,  authorized  by  act  of  parliament 
to  purchase  a  branch  line  and  to  raise  a  sum  of  money  for  the 
purpose  of  constructing  that  line,  apphed  part  of  the  sum  so 
raised  to  the  construction  of  its  main  line,  Yice-Chancellor  Wkj- 
RAM  and  Lord  Chancellor  CcyrrENiiAM,  on  appeal,  sustained  the 
bill  of  a  shareholder,  not  only  to  restrain  such  application  of  the 
rest  of  the  sum,  but  also  for  an  account  of  the  part  already 
illegally  expended.* 

§  270.  The  doctrine  of  ultra  vires  as  explained  by 
United  States  courts.— The  Supreme  Court  of  the  United 
States  has  approved  the  rules  established  in  the  English  cases, 
and  held  that  the  purchase  of  a  steamboat  to  run  in  connection 
with  a  railroad  corporation's  road  and  the  giving  of  a  note  for 
the  same,  was  a  departure  from  the  business  of  the  corporation, 
and  that  the  officers  in  the  purchase  and  the  execution  of  the 
note  for  the  purchase  money  exceeded  their  authority .^     Speak- 


sanctioDed  by  the  act  merely  because 
they  hope  the  speculation  niay  ulti- 
mately   increase    the    profits    of    the 
shareholders.     They  cannot  engage  in 
a  new  trade  because  they  are  a  cor- 
poration only  for  the  purpose  of  raak- 
and  maintaining  the  Eastern  Counties 
Railway.     What  additional  power  do 
they  acquire  from  the  fact  that  the 
undertaking  may  in  some  way  benefit 
their  line?    Whatever  may  be  their 
object   or  the    prospect  of    success, 
they  are  still  but  a  corporation  for  the 
purpose  only  of   making  and  main- 
taining the  Eastern  Counties  Railway; 
and  if   they  cannot  embark  in    new 
trades  because  they  have  only  a  lim- 
ited authority,    for  the  same    reason 
they  can  do  nothing  not  authorized  by 
their  act  and  not  within  the  scope  of 
their    authority.     Every    proprietor, 
when  he  takes  shares,  has  a  right  to 
expect  that  the  conditions  upon  which 
the  act  was    obtained   will    be    per- 
formetl;  and  it  is  no  sufficient  answer 
to  a  shareholder  expecting  his  divi- 
dend that  the  money  has   been  ex- 
pended upon  undertakings  which  at 


some  remote  period  may  be  highly 
beneficial  to  the  line.  The  public  also 
has  an  interest  in  the  proper  adminis- 
tration of  the  powers  confcired  by  the 
act.  The  comfort  and  safety  of  the 
line  may  be  seriously  impaired  if  the 
money  supposed  to  be  necessary  and 
destined  by  parliament  for  the  main- 
tenance of  the  railway  be  expended  in 
other  undertakings  not  contemplated 
when  the  act  was  obttiined  and  not 
expressly  sanctioned  by  the  legisla- 
ture." See,  also,  Macgregor  v.  Dover 
&  Deal  Railway,  18  Q.  B.  618. 

'  Bagshaw  v.  Eastern  Union  Rail- 
way, 7  Hare,  114;  8.  c,  2  Macn.  & 
Gord.  389;  3  Hall  &  T wells,  201.  In 
Caledonian  &  Dumbartonshire  Rail- 
way r.  Magistrates  of  Helensburgh,  2 
Macq.  391,  the  House  of  Lords  held 
that  no  action  would  lie  against  a  rail- 
way company  on  an  agreement  of  its' 
projectors  to  advance  money  to  con 
struct  a  pier  and  harbor  at  the  end  of 
a  proposed  branch  of  the  railway. 

«  Pearce  v.  Madison  &  Indianapolia 
Railroad,  21  How.  441. 


ULTRA  TIEES  —  PRIVATE  CORPORATIONS. 


461 


§270] 

iiig  of  the  decision  in  Ashbury  Kailway  Carriage  Sz;  Iron  Co.  v, 
Kiche,  7  II.  L.  653,  as  establishing  "  the   broad  doctrine  that  a 
contract  not  within  the  scope  of  the  powers  conferred  on  the 
corporation  cannot  be  made  valid  by  the  assent  of  every  one  of 
the  sliareholders,  nor  can  it  by  any  partial  performance  become 
the  foundation  of  a  right  of  action,"  Mr.  Justice  Miller,  of  the 
Supreme  Court  of  the  United  States,  expressed  the  opinion  that 
that  decision  "  represents  the  decided  preponderance  of  authority 
both  in  this  country  and  in  England,  and  is  based  upon  sound 
principles."  *     This  may  be  generally  stated  as  settled  law  with 
reference  to  corporations.     A  corporation  has  power  to  do  such 
business  only  as  it  is  authorized  to  do,  and  no  other.     It  is  not 
held  out  by  the  government  nor  by  the  stockholders  as  authorized 
to  make  contracts  which  are  beyond  the  purposes  and  scope  of  its 
charter.     It  is  not  vested  with  all  the  capacities  of  a  natural  per- 
son, or  of  an  ordinary  partnership,  but  with  such  only  as  its  char- 
ter confers.     If  it  exceeds  its  chartered  powers,  not  only  may  the 
government  take  away  its  charter,  but  those  who  have  subscribed 
to  its  stock  may  avoid  any  contract  made  by  the  corporation  in 
clear  excess  of  its  powers.     If  it  makes  a  contract  manifestly 
beyond  the  powers  conferred  by  its  charter,  and,  therefore,  unlaw- 
ful, a  court  of  chancery,  on  the  application  of  a  stockholder, 
will  restrain  the  corporation  from  carrying  out  the  contract,  and 
a  court  of  common  law  will  sustain  no  action  on  the  contract 
against  the  corporation.^    The  Court  of  Appeals  of  Maryland 

*  Thomas  0.   Railroad  Co.,  101   U. 
a  71. 

«  Davi8  V.  Old  Colony  R.  R.  Co., 
(1881)  131  Mass.  258.  This  reference 
is  made  to  a  leading  English  case: 
"In  the  leading  case  of  Colman  v. 
Eastern  Counties  Railway,  10  Beav.  1, 
the  directors  of  a  railway  company 
were  restrained  by  injunction  from 
carrying  out  an  agreement  by  which, 
for  the  purpose  of  increasing  its  traffic, 
they  proposed  to  guarantee  certain 
profits  to,  and  to  secure  the  capital  of,  a 
steam  packet  company,  to  ply  between 
a  port  near  one  end  of  the  railway  in 
England  and  certain  foreign  ports,  and 
Lord  Lanqdale,  M.  R.,  said:  'To 
look  upon  a  railway  company  in  the 


light  of  a  common  partnership  and  as 
subject  to  no  greater  vigilance  than 
common  partnerships  are,  would,  I 
think,  be  greatly  to  mistake  the  func- 
tions which  they  perform  and  the 
powers  which  they  exercise  of  inter- 
ference, not  only  with  the  public  but 
with  the  private  rights  of  all  individu- 
als in  this  realm.  We  are  to  look 
upon  those  powers  as  given  to  them 
in  consideration  of  a  benefit  which, 
notwithstanding  all  other  sacrifices,  it 
is  to  be  presumed  and  hoped,  on  the 
whole,  will  be  obtained  by  the  public. 
But  it  being  the  interest  of  the  public 
to  protect  the  private  rights  of  all  in- 
dividuals, and  to  defend  them  from  all 
liabilities  beyond  those  necessarily  00- 


i 


•■  t  i 


II 


452 


ULTRA  VIEE8 PEIVATE  COKPOKATI0N8. 


[§270 


§  271] 


ULTRA  VIRES  —  PRIVATE  CORPORATIONS. 


453 


have  decided  that  corporations  are  not  only  incapable  of  making 
contracts  which  are  forbidden  by  their  charter,  but  in  general 
they  can  make  none  which  are  not  necessary,  either  directly  or 
indirectly,  to  effect  the  objects  of  their  creation,  and  that  the  cor. 
poration  itself  may,  in  an  action  brought  against  it  upon  such 
contract,  deny  its  power  to  enter  into  it.^  In  a  New  York 
case,  involving  the  issue  of  preferred  stock  by  a  corporation  to 
certain  of  its  stockholders  who  advanced  money  for  tlie  purposes 
of  the  corporation,  Folger,  J.,  of  the  Commission  of  Appeals, 
very  fully  explained  this  doctrine  in  words  whicli  have  been  gen- 
erally approved  and  accepted  as  correct  bv  tlie  courts  of  this 
country.  He  said  :  "  In  the  application  of  the  doctrine  of  ultra 
vires,  it  is  to  be  borne  in  mind  that  it  has  two  phases,  one 
where  the  public  is  concerned ;  one  where  the  question  is  between 
the  corporate  body  and  the  stockholders  in  it,  or  l)etween  it  and 
its  stockholders  and  third  parties  dealing  with  it  and  through  it 

casioned  by  the  powers  given  by  the  and  thereby  to  increase  the  profit  to 
several  acts,  those  powers  must  always   the  shareholders.     There  is,  however 
be    carefully    looked    to,    and    I  am   noauthority  for  anything  of  that  kind' 
clearly  of   opinion    that  the  powers   It  has  been  stated  that  these  thin-s  to 
which  are  given  by  an  act  of  parlia-   a  small  extent,  have  frequently^'becn 
menthke  that  nowin  question,  extend   done  since  the  establishment  of  rail- 
no  further  than  is  expressly  stated  in   ways,  but  unless  the  acts  so  done  can 
the  act,  or  is  necessarily  and  properly    be  proved  to  be  in  conformity  with  the 
reqmred  for  carrying  into  effect  the    powers  given  by  the  special   acts  of 
undertaking  and  works  which  the  act   parliament,  under  which  those  acts  are 
has   expressly  sanctioned.     *     *     *  done,  they  furnish  no  authority  what- 
Ample  powers  are  given  for  the  pur-   ever.'    And  after  full  consideration  of 
pose  of  constructing  and  maintaining   the  case  he  summed  up  his  opinion 
the  railway,  and  for  doing  all  those   thus:    '  To  pledge  the  funds  of  this 
thmgs  required  for  its  proper  use  when   company  for  the  purpose  of  support- 
made,  but  I  apprehend  that  it  has  no-   ing    another    company    engaged   in  a 
where  been  stated  that  a  railway  com-   hazardous    speculation,     is    a    thing 
pany,  as  such,  has  power  to  enter  into   which,  according  to  the  terms  of  this 
all  sorts  of   other  transactions.      In-   act  of  parliament  they    have   not   a 
deed,  it  has  been  very  properly  admit-   right  to  do.'    They  have  the  power  to 
ted  that  railway  companies  have  no   do  all  such  things  as  are  necessary  and 
right  to  enter  into  new  tnides  or  busi-    proper  for  the  purpose  of  carrying  out 
nesses  not  pointed  out  by  their  acts;    the  intention  of  the  act  of  parliament 
but  It  has  not   been  contended   that   and  they  have  no  power  of  doin"-  any- 
they  have  a  right  to  pledge  without   thing  beyond  it."  See,  also.  Salomons 
limit  the  funds  of  the  company  for  the   v.  Laing,  12  Bcav.  339,  352  353 
encouragement  of  other  transactions,       '  Pennsylvania.  Delaware   &  Mary- 
however  various  and  extensive,  pro-   land  Steam  Navigation  Co    v    Dan- 
yided  the  object  of  their  liability  is  to   dridge,  8  Gill  &  Johns.  (Md.)  248. 
increase  the  traffic  upon  the  railway 


with  them.    Wlien  the  public  is  concerned,  to  restrain  the  corpora- 
tion within  tlie  limits  of  the  power  given  to  it  by  its  charter,  an 
assent  by  the  stockholders  to  tlie  use  of  unauthorized  power  by  the 
corporate  body  will  be  of  no  avail.     When  it  is  a  question  of  the 
right  of  a  stockholder  to  restrain  the  corporate  body  within  its 
express  or  incidental  powers,  the  right  of  the  stockholder  may,  in 
many  cases,  be  denied  on  the  ground  of  his  express  assent  or  his 
intelligent  though  tacit  consent  to  the  corporate  action.     If  there 
be  a  departure  from  statutory  direction,  which  is  to  be  considered 
merely  a  breach  of  trust  to  be  restrained  by  a  stockholder,  it  is 
pertinent  to  consider  what  has  been  his  conduct  in  regard  thereto. 
A  corporation  may  do  acts  whicli  affect  the  public  to  its  harm, 
inasmuch  as  they  are  per  se  illegal  or  are  malum  prohibitum. 
Then  no  assent  of  stockholders  can  validate  them.     It  may  do 
acts  not  thus  illegal,  though  there  is  want  of  power  to  do  them, 
which  affect  only  the  interest  of  the  stockholders.     They  may  be 
made  good  by  the  assent  of  the  stockholders,  so  that  strangers  to 
the  stockholders  dealing  in  good  faith  with  the  corporation  will 
be  protected  in  a  reliance  upon  those  acts.     The  instance  put  in 
Bissell  V.  Mich.  So.,  etc.,  E.  E.  Co.,  22  N.  Y.  269,  is  illustrative. 
A  bank  has  no  authority  from  the  state  to  engage  in  benevolent 
enterprises,    and  a  subscription,  though   formally   made,   for   a 
charitable  object,  would  be  out  of  its  powers,  but  it  would  not 
be  otherwise  an  illegal  act,  yet,  if  every  stockholder  did  expressly 
assent  to  such  an  application  of  the  copporate  funds,  though  it 
would  still  be  in  one  sense  ultra  vires,  no  wrong  would  be  done, 
no  public  interest  harmed,  and  no  stockholder  could  object  or 
claim   that  there  was  an  infringement  of  his  rights  and   have 
redress  or  protection.     Such  an  act,  though  beyond   the   power 
given  by  the  charter,  unless  expressly  prohibited,  if  confirmed  by 
the  stockholders,  could  not  be  avoided  by  any  of  them  to  the 
harm  of  third  persons.     This  arises  from  the  principle  that  the 
trust  for  stockholders  is  not  of  a  public  nature."  ^ 

§  271.  Illustrations  of  acts  not  ultra  vires  the  corporation. — 

In  furtherance  of  its  legitimate  objects  and  in  the  due  prosecution 
of  its  business,  a  corporation  may  loan  money  and  take  mortgage 
security .2     If  the  term  for  which  a  corporation  is  authorized  to 

'  Kent  r.  Quicksilver  Mining  Co.,       'Madison,  etc.,  Plank  Road  Co.  v, 
(1879)  78  N,  Y.  159.  185,  186.  WatertownPlankRoadCo.,5  Wis.  173. 


^Iii 


{ 


454 


FLTRA  VIBES PRIVATE  CORPORATIONS. 


[§2rt 


loan  money  on  mortgage  be  limited  to  one  year,  it  may  still 
enforce  securities  given  for  a  loan  of  two  years,  if  there  is  no  pen- 
alty attached  to  taking  such  securities ;  and  it  may  ratify  a  loan 
made  without  the  required  vote  of  its  directors.*  A  building  and 
loan  association  having  conferred  upon  it  by  the  statutes  of  a  state 
expressly  the  power  to  loan  money  to  its  shareholders,  on  mort- 
gages of  real  estate,  on  such  terms  and  conditions  as  may  be  pre- 
scribed by  the  by-laws,  a  loan  to  one  of  its  shareholders,  though 
not  strictly  in  conformity  to  one  of  its  by-laws,  or  even  contra- 
vening it,  would  not  be  ultra  vires?  Corporations  formed  under 
the  general  law  of  California,  it  has  been  held,  have  the  power  to 
purchase  and  hold  an  exclusive  franchise  or  privilege  granted  by 
tlie  legislature  to  an  individual  and  his  assigns.^     It  does  not  fol- 


'Gerraantown  F.  M.  Ins.  Co.  v. 
Dhein,  43  Wis.  420. 

'  Kelly  T.  Mobile  Building  &  Loan 
Association,  (1879)  64  Ala.  501.  In 
Cooper  p.  Frederick,  (1846)9  Ala.  738,  it 
was  held  that  a  resolution  by  the  direct- 
ors of  a  railroad  corporation,  that  the 
stockholders  might  relinquish  one-half 
of  their  stock  and  the  payments  pre- 
viously made  accounted  for  as  if  made 
on  the  stock  retained,  provided  the 
stockholders  paid  all  the  calls  subse- 
quently made  by  the  directory,  was  in 
the  nature  of  a  contract,  catered  into 
between  the  corporation  and  its  mem- 
bers, and  was  not  on  its  face  illegal 
and  improper. 

•California  State  Telegraph  Co.  r. 
Alta  Telegraph  Co.,  (1863),  22  Cal. 
398.  A  purchase  by  a  corporation  in 
the  face  of  a  positive  prohibition 
would  be  void;  but  that  is  not  this 
case.  There  was  no  provision  of  law 
forbidding  the  purchase;  and,  admit- 
ting that  the  corporation  had  no 
power  to  make  it,  the  want  of  power, 
in  the  absence  of  an  express  prohibi- 
tion, is  not  sufficient  to  avoid  it  as  to 
third  persons.  The  rule  in  such  cases 
was  laid  down  by  this  court  in  Na- 
toma  Water  &  Mining  Co.  v.  Clarkin, 
14  Cal.  544.  In  that  case  the  corpo- 
ration   was  empowered   to  purchase 


such  property  as  the  purposes  of  the 
corporation  should  require,  and  it 
was  objected  that  the  property  in 
controversy  was  not  of  that  de- 
scription, and  that  the  corporation 
had  no  power  to  purchase  it.  The 
court  overruled  the  objection,  saying: 
"  Whether  or  not  the  premises  in  con- 
troversy are  necessary  for  those  pur- 
poses, it  is  not  material  to  inquire; 
that  is  a  matter  between  the  govern- 
ment and  the  corporation,  and  is  no 
concern  of  the  defendant."  The  rea- 
son of  the  rule  is  obvious.  As  be- 
tween the  parties  the  purchase  is  valid 
and  it  must  be  so  as  to  third  persons, 
until,  by  a  proper  proceeding,  a  for- 
feiture has  been  declared.  It  is  well 
settled  that  a  cause  of  forfeiture  can- 
not be  inquired  into  collaterally." 
In  his  concurring  opinion  Cope, 
Ch.  J, ,  said :  "  As  to  the  capacity 
of  the  corporation  to  purchase,  the 
defendant  is  not  the  party  to  ob- 
ject. If  the  corporation,  in  making 
the  purchase,  has  acquired  property 
which,  under  the  law  of  its  incorpora- 
tion, it  had  no  right  to  acquire,  all 
that  can  be  said  is  that  it  has  exceeded 
its  powers,  and  may  be  deprived  of 
the  property  by  a  judgment  of  for- 
feiture. The  question  is  one  which 
the  state  alone  can  raise." 


ULTRA  VIRES  —  PRIVATE  CORPORATIONS. 


455 


§271] 

low  from  the  prohibition  in  a  charter  of  a  corporation  of  dealing 
in  commercial  paper  that  the  corporation  may  not  receive  and 
sell  notes  given  for  the  sale  of  its  lands.^  A  corporation  sncceed- 
ing  to  the  business  of  an  individual  in  its  line  of  manufactures, 
lor  instance,  may  accept  from  the  individual  whom  it  succeeded 
an  order  accepted  by  him  upon  particular  terms.^  Though  the 
articles  of  an  incorporated  college  may  not  expressly*  give  it  power 
to  raise  and  control  funds  by  taking  endowment  notes,  it  may 
accept  and  enforce  payment  of  such  notes.*  A  contract  entered 
into  by  a  railroad  corporation  before  the  completion  of  its  line  of 
road,  for  the  transportation  of  freight  after  the  completion  of  its 
line,  is  not  ultra  vires,  but  is  binding  and  enforceable.*  And 
such  a  corporation,  while  retaining  the  benefit  of  such  a  contract 
which  has  been  fully  executed,  cannot  assert  that  it  had  no  power 
to  make  the  contract  the  consideration  for  which  it  had  received.^ 
A  railroad  corporation,  under  the  statutes  of  Indiana,  may  pay  in 
advance  for  the  use  of  another  railroad  thus  aiding  in  its  con- 
struction.**  It  is  not  beyond  the  power  of  a  corporation  author- 
ized by  its  charter  to  purchase  "  any  real  estate  or  other  prop- 
erty," etc.,  to  purchase  its  own  stock.*^  In  an  early  Massachusetts 
case  it  was  held  that  where  a  statute  of  the  state  prohibited  the 
receiving  or  negotiating  in  any  way  of  bills  or  notes  of  banks  not 
incorporated  in  that  state,  the  taking  of  a  note  payable  in  such  bills 
was  an  act  ultra  vires  a  Massachusetts  banking  institution  and  the 


1  Buckley  v.  Briggs,  (1860)  30  Mo. 
452.  In  Western  Organ  Co.  v.  Red- 
dish, 51  Iowa,  55,  it  was  held  that  the 
corporation,  though  organized  for  the 
manufacture  and  sale  of  musical  instru- 
ments, with  no  power  to  engage  in  the 
business  of  loaning  money,  might  still 
take  from  its  agent  in  payment  of  in- 
debtedness by  him  to  the  corporation 
the  note  of  a  third  party  belonging  to 
him. 

^  Cook  Manufacturing  Co.  v.  Ran- 
dall, 63  Iowa  244. 

'Simpson  Centenary  College  v. 
Bryan,  50  Iowa,  293. 

*  Louisville.  New  Albany  &  Chicago 
Ry.  Co.  V.  Flanagan,  (1887)  113  Ind. 
.498. 

» Ibid. 


*  Aurora  &  Cincinnati  R.  Co.  v. 
City  of  Lawrenceburgh,  (1877)  56  Ind. 
80.  As  to  the  right  of  a  corporation 
to  purchase  its  own  stock  and  reissue 
it,  see  City  Bank  v.  Bruce,  17  N.  Y. 
507;  C,  P.  &  S.  W.  R.  R.  Co.  v.  Mar- 
seilles, 84  111.  145.  643;  L.  S.  I.  Co.  v. 
Drexel,  90  N.  Y.  93;  State  Bank  v. 
Fox,  3  Blatchf.  434;  Otter  v.  Brevoort 
P.  Co.,  50  Barb.  256.  As  to  the  power 
of  a  corporation  to  purchase  shares  of 
its  own  stock  in  good  faith,  and  not  in 
fraud  of  its  creditors,  see  Chicago, 
Pekin  &  So.  Western  R.  R.  Co.  v.  Presi- 
dent, etc.,  Town  of  3Iarseilles,  (1876) 
84  111.  145;  on  rehearing,  84  111.  643; 
Clapp  r.  Peterson,  (1882),  104111.  26. 

'Iowa  Lumber  Co.  v.  Foster,  49 
Iowa,  25. 


I 

li 

■J 


*  % 


45G 


ULTRA  VIRES  —  PRIVATE  CORPORATIONS. 


[§2ri 


lit 


It*' 


note  was  void.^      A  manufacturing  corporation  may  take  shares 
of  another  corporation  in  payment  of   a  debt.^     An  academy 
being  incorporated  for  tlie  purpose  of  liolding  funds  to  be  applied 
to  the  eaucation  and  moral  and  religious  improvement  of  youth, 
its  trustees  are  capable  of  holding  funds  in  trust  for  an  associa- 
tion the  objects  of  which  are  similar  and  to  any  extent  auxiliarv 
to  those  for  yylnch  they  may  have  been  incorporated.'      A  corpo- 
ration vested  with  power  to  take  and  dispose  of  the  securities  of 
another  corporation  may  guarantee  the  payment  of  those  securities 
if  it  disposes  of  them  to  another  party  in  payment  of  its  own 
debt.     So,  too,  if  it  buys  property  subject  to  a  mortgage  security 
bond,  it  may  guarantee  the  payment  of  such  bonds  if  the  guar- 
anty be  taken  as  ps.ymcnt  pro  tanto  of  its  debt.*     A  corporation 
created  for  the  purpose  of  constructing  a  road,  empowered  by 
statute  to  borrow  money  to  be  used  in  the  construction  of  its  road 
or  in  paying  for  materials  purchased  for  its  construction  and  to 
mortgage  its  road  to  secure  the  payment  of  the  money  so  bor- 
rowed, may  mortgage  its  road  to  secure  the  payment  of  money 
due  a  contractor  for  constructing  the  same  ;  and  it  may  mortgage 
any  portion  of  its  road  as  well  as  the  whole  of  it.'      Such  a  corpo- 
ration, the  charter  of  which  authorizes  it  to  borrow  money  "  on 
such  terms  as  might  be  agreed  upon  between  the  parties,"  may 
borrow  money  at  a  rate  of  interest  beyond  that  established  by  the 
general  law.*     An  insurance  corporation  authorized  to  invest  its 
capital,  profits  and  surplus  funds  in  such  securities,  and  in  such 
manner  as  it  may  elect,  and  required  to  invest  its  reinsurance 
fund  among  other  securities,  in  "  bonds  and  mortgages  on  unin- 


*  President,  Directors,  etc.,  of 
Springfield  Bank  v.  Merrick,  (1817)  14 
Mass.  323. 

»  Howe  tJ.  Boston  Carpet  Co  .  (1860) 
16  Gray,  493;  citing  Hodges  v.  New 
England  Screw  Co.,  1  R.  I.  312,  and 
3  R.  I.  9;  Treadwell  r.  Salisbury  Mfg. 
Co..  7  Gray,  393. 

•Phillips  Academy  v.  King  (1815), 
12  Mass.  546. 

*Ellennan  t.  Chicago  Junction 
Railway  &  Union  Stock  Yards  Com- 
pany. (1891),  49  N.  J.  Eq.  217.  In 
Willoughby  v.  Chicago  Junction  Rail- 
ways&  Union  Stock  Yards  Company, 


(1892)  50  N.  J.  Eq.  656,  the  defendant 
corpomtion  being  authorized  by  char- 
ter to  issue  bonds  for  proper  corporate 
purposes,  and  the  validity  of  the  con- 
tract being  established,  the  Court  of 
Chancery  declined  to  interfere  to  regu- 
late the  character  of  the  payments,  or 
of  the  instruments  to  be  issued  there 
for,  as  long  as  the  same  were  not  ex- 
pressly unauthorized. 

*  Greensburgh,  Milford  &  Hope 
Turnpike  Co.  v.  McCormick,  (1873)  45 
Ind.  239. 

'Morrison  r.  Eaton  &  Hamilton  R. 
R.  Co.  (1860)14  lad.  110. 


§271] 


ULTRA  VIRES  —  PRIVATE  CORPORATIONS. 


457 


II 


cumbered  real  estate,"  will  not  commit  an  act  ultra  vires  by 
making  a  loan  of  money  to  one,  accepting  /lis  notes  and  mortgage 
to  secure  tliem.^  The  charter  of  a  Massachusetts  corporation 
authorized  it  to  purchase  and  liold  "  in  fee  simple  or  otherwise  " 
real  and  personal  estate  to  the  amount  of  $50,000,  which  was 
increased  by  subsequent  statutes  to  $600,000.  The  corporation 
was  also  by  its  charter  authorized  to  appropriate  its  funds  to 
charitable  purposes,  and  to  employ  its  annual  income,  among 
other  purposes,  "  to  promote  inventions  and  improvements  in  the 
mechanic  arts,  by  granting  premiums  for  said  inventions  and 
improvements."  There  was  no  direction  in  the  charter  or  subse- 
quent statutes  as  to  the  manner  in  which  the  provisions  for  grant- 
ing these  premiums  should  be  carried  out.  It  was  held  by  the 
Supreme  Court  of  Judicature  that  the  corporation  might  pur- 
chase land  and  erect  a  permanent  building  thereon  in  which 
to    hold    exhibitions   and   the    meetings    of    the   corporation.^ 


'*Daly  f.   National  Life  Insurance 
Co.,  (1878)  64  Ind.  1. 

'•  Richardson  ??.  Massachusetts  Chari- 
table Mechanic  Association,  (1881)  131 
Mass.  174,  It  was  said  by  the  court: 
"  For  many  years  the  association  has 
been  in  the  liabit  of  holding  such  ex- 
hibitions in  buildings  hired  or  tempo- 
rarily erected  for  that  purpose.  The 
money  received  from  such  exhibitions, 
over  and  above  the  expenses,  has  been 
invested  in  real  and  personal  estate, 
and  the  income  therefrom  devoted  to 
the  use  of  the  association  as  directed 
by  the  charter.  We  cannot  say  that 
the  method  thus  adopted  for  carrying 
into  execution  this  particular  provis- 
ion of  the  charter  is  beyond  the  power 
of  the  corporation.  The  charter  fail- 
ing to  indicate  in  what  manner  this 
power  shall  be  exercised,  a  wide  dis- 
cretion is  given  to  the  association;  for 
there  are  many  ways  in  which  it  might 
be  executed.  An  exhibition  open  to 
the  public  at  a  proper  charge,  at 
which  mechanics  may  display  their 
inventions  and  improvements,  and 
compete  for  premiums  and  gratuities, 
would  seem  to  be  a  reasonable  method 
58 


for     carrying     out     this     provision, 
not  inconsistent  with  any  other  pro- 
vision of  the  charter;  and  any  profit 
arising    therefrom     might     properly 
be  held   by  the  association  and   the 
income  thereof  devoted  to  the  pur- 
poses   for    which    it    was    incorpo- 
rated.    In  order  to  do   this,   a  place 
must  be  provided  for  the  exhibition, 
either  by  hiring  buildings,  or  by  erect- 
ing temporary  or  permanent  buildings 
for  the  purpose,  for  the  association  has 
full  power  to  acquire  title  to  real  es- 
tate in  fee  simple  or  otherwise,  and  it 
can  undoubtedly  hold  such  real  estate 
as  is  necessary  for  its  use  in  the  exer- 
cise of  the  powers  conferred  upon  it." 
In  Seymour  ».  Spring  Forest  Cemetery 
Association,  (1892)  64  Hun,  632;  s.  c', 
19  N.  Y.  Supp.  94,  the  bonds  given  by 
the  association    for   lands   purchased 
under  the  powers  granted  such  associa- 
tions by  statute  to  ' '  purchase  such  real 
estate  as  the  purposes  of  the  associa- 
tion may  require"  were  held  not  to  be 
void  as  ultra  vires.     See  Fuld  v.  Burr 
Brewing  Co.,  (Ct.  Com.  PI.  N.  Y.  City, 
1892)  18    K    Y.    Supp.   456,    for  an 
illustration    of    what    guamuty    was 


1 


458 


ULTRA  VIRES  —  PRIVATE  CORPORATIONS. 


K  -'Tl 


!  r 


<> 


■,( 


*> 


Where  a  railroad  cor])oi-ation  agreed  to  load  steamers  chartered  hy 
a  cotton  compress  company  with  cotton  on  terms  named  in  their 
contract  for  shipment,  and  the  compress  company  had,  by  the 
delay  of  the  railroad  corporation  in  delivering  the  cotton  for 
shipment,  to  pay  a  large  sum  for  denmrrage  and  brought  its 
action  against  the  railroad  corporation  for  its  recoveiy,  the  Court 
of  Appeals  of  Virginia  held  that  the  contract  on  the  part  of  the 
railroad  corporation  was  not  ultra  inre^}  A  loan  of  money 
upon  mortgage  security  by  a  corporation  organized  for  the  pur- 
pose of  constructing  ditches  for  the  conveyance  and  sale  of  water, 
the  California  Supreme  Court  has  held,  was  not  necessarily  an  act 
exceeding  its  corporate  powers ;  further,  such  a  contract,  if  neces- 
sary to  attain  its  general  objects  and  made  as  an  incident  to  the 
exercise  of  its  granted  powers,  was  valid,  and  in  the  absence  of 
proof  it  would  be  presumed.'     A  corporation,  organized  under 


not  ultra  vires  this  corporation,  and, 
if  so,  the  plea  of  ultra  vires  was 
not  available,  in  which  case  Schiirr 
u.  Investment  Co.,  (Ct.  Com.  PI. 
K  Y.  City.  1892)  18  N.  Y.  Supp. 
454,  was  distinguished.  Illustnition 
of  a  contract  not  ultra  vires  the  corpo- 
ration, see  United  Lines  Telegraph 
Co.  v.  Safe  Deposit  &  Trust  Co.,  (1893) 
147  U.  8.  431;  8.  c.  13  Sup.  Ct.  licp. 
396.  What  class  of  contract  by  a  rail- 
road corporation  is  not  ultra  vires,  see 
Union  Pacitic  Ry.  Co.  v.  Chicago,  R. 
I.  &P.  Ry.  Co.,  (1892)  51  Fed.  Rep. 
309;  8.  c,  2  C.  C.  A.  174;  10  U.  S. 
App.  98. 

'  Norfolk  &  Western  R.  R.  Co.  r. 
Shippers'  Compress  Co.,  (1887)  83  Va. 
272;  8.  c,  2  S.  E.  Rep.  139.  The  court 
said:  "The  contract  was  incident  to 
and  for  the  benefit  of  their  business  as 
common  carriers,  and  it  was  but  a 
part  of  a  long-established  and  system- 
atic policy  of  these  railroads  compos- 
ing the  air  lines  to  induce  and  control 
the  transportation  of  cotton  for  the 
interior  west  and  southwest  over  tlieir 
line  for  shipment  to  England  from  the 
port  of  New  York.  It  was  not  a  con- 
tract to  buy  or  sell  cotton,  but  simply 


to  deliver  a  certain  number  of  bales  of 
cotton,  at  a  specified  time,  at  Norfolk, 
for  shipment  to  Liverpiml  by  char- 
tered steamers  for  that  pun>ose.  It 
was  not  contrary  to  or  forbidden  by 
their  charter,  and  it  was  for  the  intrr- 
ests  of  commerce  and  in  the  line  of 
their  business,"  Citing  additionally, 
as  authority,  1  Wood  Ry.  Law,  ij  170, 
pp.  474,  479,  480.  523;  §§  179.  18-'; 
Pierce  on  Railroads,  499-501,  508-510. 
•  Union  Water  Co.  v.  Murphy's  Fbit 
Flaming  Co. ,  (1863)  22  Cal.  621 .  "  For 
instance,"  said  the  court,  "it  might  be 
necessary  for  such  a  corporation  to 
make  advances,  in  the  nature  of  a  loan, 
to  enable  a  contractor  to  construct 
their  works,  or  it  might  be  very  nec- 
essary for  such  a  corporation  to  pro- 
cure an  additional  supply  of  water, 
and  a  loan  of  money  to  another  wattr 
company  who  may  be  engaged  in  con- 
structing ditches  which  will  bring  such 
additional  suppl}\  may  be  the  direct 
and  necesstiry  means  to  attain  that 
object.  So,  too,  it  might  become  nccv 
essary  for  a  corporation  engaged  in  a 
large  enterprise,  such  as  the  construc- 
tion of  large  canals,  railroads,  turn- 
pike roads,   and  the  like,  to  borrow 


.j""^ 


§271] 


ULTRA  VIRES  —  PRIVATE  CORPORATIONS. 


459 


the  laws  of  Illinois,  through  its  stockholders  and  officers  entered 
into  an  agreement  with  other  persons  owning  patents,  etc., 
adapted  to  its  business,  by  which  a  new  corporation  was  organ- 
ized, the  former  as  a  part  of  its  agreement  transferring  to  the 
new  one  10,000  of  its  shares  of  stock,  which  had   been   prop- 


money  on  favorable  terms  and  at  a  low 
rate  of  interest;  it  might  be  necessar}^ 
to  borrow  it  upon  long  time,  providing 
a  sinking  fund   for  its  payment,  by 
setting  apart  a  certain  portion  of  the 
corporate  revenues,  to  be  loaned  out 
on  interest,  suffering  the  principal  and 
interest  to  accumulate  to  an  amount 
suflicient  to  repay  the  borrowed  money 
when  due.     Such  is  the  usual  mode  of 
conducting  the  business   of  corpora- 
tions of  that  character,  and  there  can 
be  no  objection  to  it  so  long  as  the 
legitimate  business  of  the  corporation 
ia  not  changed  into  that  of  a  loan  com- 
pany.   So  long  as  the  loans  are  a  mere 
incident  to  the  exercise  of  its  legiti- 
mate powers    they   are  rightful  and 
valid.     So  numerous  other  cases  of  a 
like    character    might    be    suggested 
where  loans  by  a  corporation  might  be 
very    proper    and    necessary  in   con- 
ducting its  business  operations;  and  if 
all  corporations  are  to  be  considered  as 
absolutely  prohibited, or  not  permitted, 
to  make  any  loan  of  money  except  in 
the  few  classes  of  cases  of  corporations 
where  it  is  expressly  allowed  by  the 
statute,  and  all  such  contracts  are  to 
be  held  void,  a  result  would  be  pro- 
duced which  certainly  never  was  in- 
tended  by  the   legislature,   nor  is  it 
sustained  by  the  rules  of  law.     A  cor- 
poration had  power  to  insure  lives  and 
grant  annuities,  and  it  was  held  that, 
as  it  must   have  funds  to  apply  to 
those    purposes,    it    might    loan    its 
money,  and  the  loan  by  it  would  be 
presumed  to  have  been  made  in  the 
ordinary  course  of  its  business,  and, 
therefore,   valid,  although  it  had  no 
express  power  to  loan  money.     The 
authority  to  loan  money  was  upheld 


as  an  incident  to  the  other  powers  con- 
ferred by  the  charter.     Farmers'  L.  & 
T.  Co.   V.   Clowes,   4  Edw.    Ch.   575; 
8.  c,  3  Comst.  470;  Farmers'  L.  &  T. 
Co.  V.  Perry,  3  Sandf.   Ch.   339.     So, 
too,  an  insurance  company  was  incor- 
porated without  any  special  provision 
in  relation  to  the  mode  of  investinir  its 
capital,  and  it  was  held  that  it  had  the 
power  to  invest  the  whole  or  any  part 
of  its  capital  by  way  of  loans  on  bond 
and  mortgage  and  to  reinvest  it  in  the 
same  way  whenever  it  should  become 
necessary  or    convenient    to    do    so. 
Mann    v.    Eckford,    15    Wend.     512. 
Where  a  bank  was  authorized  to  take 
mortgages  in  security  for  debts  pre- 
viously contracted,  it  was  held  that  if 
the  loan  and  mortgage  were  concur- 
rent acts  it  was  not  a  violation  of  the 
restraining    clause    of    the     statute. 
Silver  Lake  Bank  v.  North,  4  Johns. 
Ch.  370;  Baird  v.  Bank  of  Washing- 
ton, 11  Serg.  &  R.  411.     A  plankroad 
company  was  not  authorized  to  loan 
money,  but  if  necessary  it  can  legally 
loan  a  sum  of  money  to  one  of  its  con- 
tractors   to    enable   him    to   build    a 
portion  of  its  road.      Madison,   etc., 
Plank  Road   Co.  v.  Watertown  Plank 
Road  Co.,  5  Wis.  173.     A  corporation 
was  prohibited  from  dealing  in  goods, 
wares  and  merchandise.    Held,  that  a 
loan  made,  secured  by  a  quantity  of 
cotton,  which  was  to  be  shipped  and 
sold  and  the  proceeds  credited  to  the 
debtor  on  the  loan,  was  not  a  violation 
of  the  charter.     Bates  v.  State  Bjmk, 
2  Ala.  465.     So,  too,  a  sale  by  a  bank 
of  a  quantity  of  butter  which  it  had 
taken   in    settlement  of    a  debt   was 
deemed    no    violation    of     a    similar 
clause  in  its  charter.    Sacketts  Harbor 


I! 


ill 


'  ( 


M 


4r>o 


ULTRA  VIRES  —  PRIVATE  CORPORATIONS. 


[§271 


erly  set  apart  for  sale  for  making  capital,  to  be  used  by  the  new 
•  corporation  in  the  same  manner.  In  an  action  against  one  who 
had  purchased  500  shares  of  tliis  stock,  upon  his  notes  given  for 
tlie  same,  his  plea  was  that  it  was  an  overissue  of  the  stock  of 
the  corporation.  This  point  was  ruled  against  the  defendant  by 
the  Appellate  Court  of  Missouri,  and  at  the  same  time  the  court 
considered  the  question  whether  such  an  agreement,  when  ratified 
by  the  stockholders  of  the  old  company  and  carried  out  by 
delivery  of  the  stock  to  the  new  company,  was  repugnant  to  the 
laws  of  the  state  of  Illinois.  The  court  said  :  "  Our  examination 
of  the  Illinois  decisions  has  led  us  to  tne  opinion  that  this  con- 
tract or  arrangement  was  not  ultra  vires  under  the  law  of  that 
state.  There  are  numerous  cases  of  the  Supreme  Court  of  that 
state  which  hold  that  a  corporation  may  purchase  its  own  stock 
and  violate  no  duty  to  its  own  stockholders.  Chetlain  v.  Ins. 
Co.,  m  111.  220 ;  Chicago,  etc.,  Kailroad  Co.  v.  President,  84  111. 
145.  In  the  Chetlain  case  the  court  held  that  if  A  subscribed 
for  ten  shares  of  the  capital  stock  of  a  corporation,  and,  having  paid 
two  hundred  dollars,  was  willing  to  receive  a  certificate  for  two 
shares  of  one  hundred  dollars  each  and  cancel  his  subscription  for 
the  ten  shares,  this,  could  be  done,  and  that  the  other  eight  shares 
would  belong  to  the  company,  and  that  it  had  a  right  to  sell  them 
to  whom  it  pleased.  The  doctrine  of  this  case  would  indicate 
that  the  agreement  to  donate  the  ten  thousand  shares  was  invalid, 
and  when  ratified  by  the  stockholders  of  the  old  company  it 
vested  in  the  new  corporation  the  title  to  the  stock  and  the  com- 
pany had  the  right  to  sell  it  to  whom  they  pleased.  *  *  * 
There  is  no  principle  of  law  known  to  us  which  would  release 
the  defendant  from  his  liability  to  pay  these  notes.  No  question 
of  fraud  or  misrepresentation  is  urged ;  in  fact,  the  record  shows 
that  the  plan  of  incorporation,  and  especially  the  plan  adopted  for 
the  sale  of  the  stock,  was  devised  by  the  defendant  himself.  He 
was  an  ofiicer  and  director  of  the  corporation  and  took  an  active 
part  in  the  management  of  its  business,  and  lie  is,  therefore,  in  no 
]X)sition  to  claim  that  he  was  overreached  or  in  any  way  deceived 

Bank  v.  Lewis  County  Bank,  11  Barb,  prohibit  a  supply  of  goods  to  those 

213.     A  glass  company,  not  author-  employed    in    the    manufactory,   and 

ized  to  sell  goods  generally,  sold  goods  that  the  corporation  might  recover  for 

to  one  in  their  service,  and  it  was  held  them.    Chester  Glass  Co.  v.  Dewey, 

that  the  legislature  did  not  intend  to  16  Mass.  102." 


ULTRA  VIRES  —  PRIVATE  CORPORATIONS. 


401 


§  271] 

in  the  purchase  of  the  stock  or  in  the  execution  of  the  notes."^  In 
a  Kansas  case  the  Supreme  Court  held  that  a  contract  entered 
into  by  a  town  company  incorporated  "  for  the  purchase  of  land, 
the  surveying  and  platting  ot  town  sites  and  selling  town  lots  and 
other  lands,"  in  which  it  was  agreed  that  if  a  certain  party  would 
remove  a  bank,  a  barn  and  a  restaurant  located  elsewhere  to  the 
town  site,  the  town  company  would  convey  to  him  certain  lots  in 
the  town  and  pay  him  the  sum  of  $1,000,  tended  directly  to 
enhance  the  value  of  the  remaining  property  of  the  corporation, 
and  was  not  necessarily  ultra  vires?  A  contractor  for  construc- 
tion of  a  railroad  in  Wisconsin  was  stopped  from  his  work  with 


'  Eggmann  v,  Blanke,  (1890)  40  Mo. 
App.  318. 

'Sherman  Center  Town  Company 
D.  Russell,  (1891)46  Kans.  383;  s.  c, 
26  Pac.  Rep.  715.  Arguendo,  the  court 
said,  upon  the  insistment  that  the  con- 
tract was  tiltra  vires:  "The  corpora- 
tion may  exercise  not  only  the  powers 
expressly  enumerated  in  its  charter,  if 
they  are  authorized  by  law,  but  '  may 
enter  into  any  obligation  or  contract 
essential  to  the  exercise  of  the  powers 
expressly  enumerated.'  Gen.  Stat,  of 
1889, 1  1167.  The  company  is  not  re- 
stricted to  the  mere  purchase  and  sale  of 
lots,  but  may  doubtless  enter  into  con- 
tracts which  would  directly  tend  to 
promote  the  prosperity  of  the  town, 
and  enhance  the  value  of  the  lots  re- 
maining unsold.  To  this  end  it  may 
expend  money  for  the  advertising  of 
the  property,  the  making  of  improve- 
ments on  a  part  of  the  same,  may  con- 
tract for  the  erection  of  school  build- 
ings and  other  improvements,  the  di- 
rect and  proximate  tendency  of  which 
will  be  to  attract  people  to  the  town 
and  make  the  property  of  the  company 
more  desirable  and  salable.  The  lo- 
cation of  [this  party]  with  his  bank, 
his  barn  and  restaurant  at  the  town  of 
Sherman  Center  no  doubt  tended  di- 
rectly and  proximately  to  build  up  the 
town  and  give  it  prestige  in  that  com- 
munity, thus  enhancing  the  value  of 


the  remaining  lots  and  promoting  the 
legitimate  objects  of  the  corporation. 
In  Whetstone  v.  Ottawa  University, 
13  Kans.  320,  the  question  arose 
whether  the  Ottawa  Town  Company 
could  donate  the  property  of  the  cor- 
poration to  tfie  Ottawa  University  for 
the  purpose  of  erecting  a  school  build- 
ing outside  of  the  limits  of  the  town 
of  Ottawa,  and  more  than  one-fourth 
of  a  mile  outside  of  the  limits  of  the 
property  and  the  land  owned  by  the 
town  company.  Mr.  Justice  Brewer, 
who  pronounced  the  judgment  of  the 
court,  remarked  t}»at  '  Town-site  com- 
panies are  neither  novel  nor  rare  in 
Kansas.  Every  county  has  been  the 
home  of  several,  and  the  manner  of 
their  working,  and  the  means  em- 
ployed to  accomplish  their  purposes, 
are  familiar  to  us  all.  Nor  is  Kansas 
peculiar  in  this  respect.  Every  west- 
ern state  is  full  of  them.  They  are 
private  corporations,  organized  for 
the  purposes  of  gain.  They  take  real 
estate,  lay  it  off  in  lots  and  blocks, 
streets  and  alleys,  induce  people  to 
settle  and  purchase,  and  by  the  sale  of 
lots  make  their  profits.  *  *  *  If 
by  the  donation  of  one  lot  they  can 
double  the  value  of  the  remainder,  is 
not  the  one  lot  used  directly  to  accom- 
plish the  legitimate  object  of  the  cor- 
poration ?  If  by  donating  one  hun- 
dred lots  to  the  county  they  can  secure 


H 


462 


tl 


i'.,'* 
1 


ii 


ULTRA  VIRES  —  PRIVATE  CORPORATIONS. 


[§  271 


the  company  largely  in  debt  to  liiin.     He  brought  action  and 
obtained  judgment.     Execution  had  been  returned  ?iulla  bona. 
This  company  had  had  a  benefit  of  a  grant  of  land.     Another 
company  had,  through  its  sole  ownership  of  the  stock  and  by 
nnproper  practices,  managed  to  have  the  whole  of  the  property  of 
the  indebted  company  transferred  to  itself.     The  United  States 
Supreme  Court  upheld  tlie  suit  of  representatives  of  the  judg- 
ment  creditors   against    this    other    comi)any    to   enforce   the 
payment  against  the  transferred  property,  holding  tliat  a  sole 
stockholder   in  a  corporation   could  not  secure  the  transfer   to 
itself  of  all  the  property  of  the  corporation  so  as  to  deprive  a 
creditor  of  the  corporation  of   the  payment  of  his  debt.^      It 
appeared  in  a  Massachusetts  case  that  a  mutual  benefit  order 
deposited  money  with  a  trust  company,  which  trust  company 
became  thereafter  unable  to  repay  it.    The  benefit  order  assigned 
the  fund  to  another  in  tenns  to  secure  a  promissory  note  given 
for  a  loan,  the  monej^-  obtained  by  the  loan  being  disbursed  in 
the  usual  course  of  its  business.     The  Supreme  Judicial  Court  of 
that  state  held  that,  as  the  effect  of  the  assignment  of  the  fund  was 
to  secure  the  debt,  it  was  nut  ultra  vires  even  if  conceded  that  the 
benefit  order  could  not  legally  make  a  promissory  note.    Further, 
the  loan,  to  secure  which  the  assignment  of  the  fund  was  given, 
having  been  authorized  at  a  meeting  of  the  order  and  the  money 
obtained  used  for  its  benefit,  equity  would  not,  at  the  instance  of 
the    receiver  of   the   insolvent   trust   company,   the  depositary 
of  the  fund,  forbid  its  payment  to  the  assignee  out  of  money  in 
his  hands  on  the  ground  that  the  officers  executing  the  assign- 
ment had  no  authority  to  do  so.* 


the  county  seat  and  the  erection  of 
county  buildings,  are  they  net  further- 
ing the  very  purpose  of  building  up  a 
town  ?  ♦  »  *  The  purpose  of  se- 
curing improvements  on  the  town  site 
is  not  simply  that  the  improvements 
be  there,  but  that  thereby  the  property 
the  corporation  has  to  sell  may  be  en- 
hanced in  value.  And  if  the  lots  were 
donated  to  secure  the  erection  of  a 
hospital  or  school  at  a  remote  place,  as 
suggested  by  counsel,  there  would  be 
no  resultant  benefit  to  the  corporation 
of  enhanced  value  of  its  unsold  lots. 


It  seems  to  us  that  this  must  be  the 
test:  If  the  direct  and  proximate  ten- 
dency of  the  improvements  sought  to 
be  obtained  by  the  donation  is  the 
building  up  of  the  town  and  the  en- 
hanced value  of  the  remaining  prop- 
erty of  the  corporation,  the  donation  is 
not  ultra  vires.' " 

» Angle  V.  Chicago,  St.  Paul.  Minne- 
apolis &  Omaha  Ry.  Co.,  a894)  151 
U.  8.  1. 

•Commonwealth  v.  Suffolk  Trust 
Co.,  (Mass.  18d4)  37  N.  E.  Rep.  757. 


ULTRA  VIRES  —  PRIVATE  CORPORATIONS. 


463 


§  272.  Illustrations  of  acts  ultra  vires  the  corporation. —  A 

<'orporation  confined  by  its  charter  to  one  business  cannot  law- 
fully engage  in  enterprises  foreign  to  that  business.  For  instance, 
a  railroad  corporation,  the  purposes  of  which  are  strictly  confined 
to  the  completion  and  maintaining  of  a  railroad,  cannot  lawfully 
engage  in  banking.'  Neither  can  a  corporation  engaged  in  insur- 
ing property.'^  While  a  railroad  corporation  may  adopt  any  con- 
venient means,  proper  in  themselves,  tending  directly  to  the  exe- 
cution of  the  powers  conferred  upon  it  by  its  charter,  and  not 
amounting  to  the  transaction  of  any  distinct  unauthorized  busi- 
ness,^ it  cannot  engage  in  such  business  as  banking,  manufactur- 
ing, speculating  in  land,  or  the  like,  as  a  means  of  raising  funds 
to  build  or  operate  its  road."*  A  provision  in  the  charter  of  an 
insurance  corporation  autliurizing  it  to  receive  money  on  deposit, 
*'  and  to  give  acknowledgments  for  deposits  in  such  manner  and 
form  as  they  mav  deem  convenient  and  necessarv  to  transact  such 
Imsiness,"  has  been  held  not  to  autliorize  the  corporation  to  issue 
certificates  of  deposit  to  circulate  as  money,  and  with  the  intent 
that  they  shall  so  circulate.'"'  A  railroad  corporation,  chartered 
for  the  specific  purpose  of  constructing  a  railroad  from  one  point 
within  the  state  to  the  state  line,  and  then  to  connect  with  a  rail- 
road corporation  of  that  other  state,  with  no  express  power  to 
execute  bills  and  notes,  is  limited  to  executing  such  bills  or  notes 
to  such  as  may  be  necessary  or  proper  in  carrying  through  that 
undertaking.  It  cannot  execute  accommodation  paper,  or  paper 
to  aid  any  undertaking  not  contemplated  by  its  charter ;  and  such 


'  People  V.  River  Raisin  &  Lake 
Erie  R.  R.  Co.,  (1864)  12  Mich.  389. 

*  Blair  r.  Perpetual  Insurance  Co., 
(1847)  10  Mo.  559. 

»  Clark  r.  Farrington,  11  Wis.   306. 

*  Waldo  r.  Chicago,  St.  Paul  &  Fond 
du  Lac  R.  R.  Co.,  14  Wis.  575. 

*  Bliss  r.  Anderson,  (1858)  31  Ala. 
612.  The  court  said:  "The  corpora- 
tion may  issue  its  certificates  of  de- 
posit in  any  manner  and  form  which 
will  accomplish  its  business  of  a  de- 
l)ository,  but  not  in  such  manner  and 
form  as  will  accomplish  that  and 
another  business.  If  it  can  so  fashion 
its  certificates  of  deposit  as  to  procure 
for  them  a  circulation  as  money,  it  can 


add  to  its  granted  powers  by  an  in- 
genious device,  and  obtain  by  subter- 
fuge an  a\ithority  which  legislative 
caution  withheld  from  it."  In  Phila- 
delphia Loan  Co.  v.  Towner,  (1839)  13 
Conn.  249,  a  provision  of  the  charter  of 
the  corporation  that  "nothing  therein 
contained  should  be  construed  to  au- 
thorize the  company  to  discount  notes 
or  exercise  any  banking  privileges," 
was  held  to  prohibit  the  taking  of  a 
note  for  the  sum  loaned,  and  the  se- 
curing of  the  interest  on  that  sum  in 
advance,  for  the  period  of  the  loan, 
and  that  there  could  be  no  recovery  oa 
a  note  thus  discounted. 


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riTRA  VIRES PRIVATE  CORPORATIONS. 


[§272 


paper,  if  executed,  wonid  be  void  in  the  liands  of  an  assignee.^ 
Neither  a  railroad  corporation  organized  under  tlie  laws  of,  or 
chartered  in  Massachusetts,  nor  a  corporation  organized  under' the 
statutes  of  that  state  for  the  manufacture  and  sale  of  musical 
instnnnents,  has  power  to  guarantee  the  payment  of  expenses  of  a 
musical  festival ;  and  no  action  can  be  niaintained  upon  such  a 
contract  of  guanmt.v,  though  it  may  be  made  with  the  reasonable 
belief  that  the  holding  of  such  a  festival  would  be  of  great  benefit 
to  the  corporations  by  increasing  their  i)roper  business.^  Though 
corporations  created  for  the  purpose  of  carrying  on  a  manufactur- 
ing business  have  implied  power  to  make  negotiable  paper  for  use 
within  the  scope  of  their  business,  they  have  no  power  to  become 
parties  to  bills  or  notes  for  the  accommodation  of  others.^  It  is 
not  within  the  powers  of  a  manufacturing  corporation,  limited  by 
its  charter  in  the  use  of  mercantile  paper  to  that  necessary  for  the 
convenient  prosecution  of  its  business,  to  accept  paper  drawn  by 
third  parties  for  accommodation.*  A  contract  by  which  a  rail- 
road corporation  undertook  to  grant  the  exclusive  right  to  con- 
struct and  maintain  a  telegraph  line  along  its  road  to  a  single  tel- 
egraph company,  has  been  held  in  the  United  States  Circuit 
Court  for  the  district  of  Washington  to  be  ultra  vlrea  and  void.* 


'  Smead  v.  Indianapolis,  Pittsburgh 
&  Cleveland  R.  R.  Co.,  (185ii)  11  Ind. 
104.     In  Abbott  v.  Baltimore  &,  Rap- 
pahannock Steam  Packet  Co.,  (1850)  1 
Md.  Ch.  543,  the  object  of  the  corpora- 
tion, as  stated  in  its  charter,  was  "  for 
the  purpose  of  establishing  and  con- 
ducting a  line  of  steamboats  and  stages 
or  carriages  between  Baltimore  and 
Fredericksburg,  and  the  several  ports 
and  places  on  the  Rappahannock,  and 
on   the    rivers    and    waters    of    the 
Chesapeake  bay,   for  the  conveyance 
of  passengers  and    transportation  of 
merchandise  and  other  articles."    The 
High    Court  of   Chancery  of   Mary- 
land   held    that  it    was    beyond    the 
power  of  this  corporation  to  enter  into 
an  obligation  to  aid  in  an  improvement, 
the  purpose  of  which  was  to  open  the 
Rappahannock   river,   and    render   it 
navigable   to   the    basin   in    or   near 
Fredericksburg. 


«  Davis  p.  Old  Colony  R.  R.  Co., 
(1881)  131  Mass.  258;  Davis  v.  Ameri- 
can urgan  Co.,  (1881)  131  Mass.   258. 

»  National  Bank  of  Republic  of  New 
York  V.  Young,  Receiver  of  Joseph 
Dixon  Crucible  Co.,  (1886)  41  N.  J. 
Eq.  531:  s.  c,  7  Atl.  Rep.  488;  citing 
1  Dan.  Neg.  Inst.  §§  382,  386;  Green's 
Brice's  Ultra  Vires,  255,  272. 

*  Webster  v.  Howe  Machine  Co., 
(1886)  54  Conn.  394;  s.  c,  8  Atl.  Rep. 
482. 

5  Pacific  Postal  Telegraph  Cable 
Co.  T.  Western  Union  Telegraph  Co., 
(1892)  50  Fed.  Rep.  493.  Hanford, 
D.  J.,  gave  as  a  reason  for  this  ruling 
"that  the  laws  of  the  territory  of 
Washington  in  force  when  [the  con- 
tract] was  made,  did  not  authorize  a 
railway  corporation  to  transfer  land 
acquired  for  railroad  purposes  by 
lease,  so  as  to  divest  itself  of  its  duties 
and  obligations  to  the  public  as  to  the 


§272] 


ULTRA  VIRES  —  PRIVATE  CORPORATIONS. 


465 


The  New  York  Court  of  Appeals  lias  held  that  while  a  corpora- 
tion organized  under  the  Manufacturing  Act  of  that  state  has  the 
general  power  to  bind  itself  by  promissory  notes  and  contracts  of 
indorsement  made  in  the  nsnal  course  of  business,  it  has  no  power 
to  indorse  notes  for  the  accommodation  of  the  maker  for  a  con- 
sideration paid.^  The  court,  in  its  opinion,  said :  "  It  is  well 
settled  that  such  a  power  is  not  incidental  to  the  powers  expressly 
conferred  on  corporations  organized  under  statutes  authorizing 
the  formation  of  corporations  for  banking,  insuring,  manufactur- 
ing and  like  business  corporations."  ^    A  contract  by  which  a  street 


use  of  such.     By  the  plaintiff's  own 
showing  it  appears  that  [the  railway 
company]    was  incorporated  to  do  a 
general  transportation  business  by  rail, 
and  to  be  a  competitor  for  interstate 
and  international  commerce.     Its  fran- 
chise from  the  state,  therefore,  made 
it  to  a  certain  extent  a  public  agent 
endowed  with   part  of  the  sovereign 
power  of  the  commonwealth,  and  a 
railroad  constructed  in  this  state  by  a 
corporation  organized  under  the  laws 
of  the  state  or  its  predecessor,  the  ter- 
ritory, must  necessarily  be  a  highway 
for  public  use,   in  and  to  which  the 
public  have  rights  limited  and  regu- 
lated by   law.     There  is    no    statute 
authorizing  such  a  transfer  of  prop- 
erty in  the  right  of  way  and  control 
thereof   as  the  plaintiff   now  claims 
was  made  to  it  by  such  contract,  and, 
without   express   authority  conferred 
by  a  statute,  no  transfer  of  such  prop- 
erty or  of  the  right  to  control  the 
same,   could  be    made  whereby    the 
rights  of  the  public,  or  a  third  party, 
e.  g.,  the  Western  Union  Telegraph 
Company,    could   be  in  any   manner 
abridged."  Citing  Lakin  «>.  Willamette 
Valley,  etc.,  R.  R.  Co.,  13  Or.   436;  s. 
c,  11  Pac.  Rep.  68;  Braslin  c.  Somer- 
ville  Horse  R.   R.  Co.,  145  Mass.  64; 
8   C,   13  N.   E.    Rep.    65;  Palmer  «. 
Railway   Co.,   (Idaho)  16    Pac.    Rep. 
553;  Railroad  Co.  v.  Brown,  17  Wall. 
445;  Railroad  Co.  v.  Crane,  113  U.   S. 
433.  434;  s.  c,  5  Sup.   Ct.   Rep.   578; 

59 


Oregon  Railroad  &  Navigation  Co.  v. 
Oregonian  Co.,  130  U.  S.  1;  s.  c,  9 
Sup.  Ct.  Rep.  409;  Van  Dresser  v.  Navi- 
gation Co.,  48  Fed.  Rep.  202;  U.  8.  v. 
Western  Union  Tel.  Co.,  50  Fed.  Rep. 
28.  That  contracts  beyond  the  power 
of  a  corporation  to  make  cannot  be 
made  binding  by  a  ratification,  see 
Brady  v.  IVIayor,  etc.,  of  New  York, 
(1859)  20  N.  Y.  312.  Case  holding  a  con- 
tract of  sale  of  the  property  of  a  corpo- 
ration to  a  foreign  corporation,  organ- 
ized through  its  procurement,  for  the 
purpose  of  taking  its  place  and  its  as- 
sets and  carrying  on  its  business  ultra 
mres :  People  v.  Ballard,  (1892)  134  N. 
Y.  269;  s.  c,  32  N.  E.  Rep.  54,  re- 
versing People  V.  Ballard,  56  Hun, 
125. 

'  National  Park  Bank  of  New  York 
v.  German-American  Mutual  Ware- 
housing &  Security  Co.,  (1889)  116 
N  Y.  281,  reversing  Same  v.  Same,  21 
J.  &  S.  367. 

*  Citing  Central  Bank  r.  Empire 
Stone  Dressing  Co.,  26  Barb.  23; 
Bridgeport  City  Bank  i\  Empire  Stone 
Dressing  Co.,  30  Barb.  421;  Farmers 
&  Mechanics'  Bank  r.  Empire  Stone 
Dressing  Co.,  5  Bosw.  275;  Morford  v. 
Farmers'  Bank  of  Saratoga,  26  Barb. 
568;  Bank  of  Grcnesee  ti.  Patchiu  Bank, 
13  N.  Y.  309;  ^tna  National  Bank  v. 
Charter  Oak  Life  Ins.  Co.,  50  Conn. 
167;  Monument  National  Bank  r. 
Globe  Works,  101  Mass.  57;  Davis  i\ 
Old  Colony  R.  R.  Co.,  131  Mass.  258; 


4GG 


ULTRA  VIRES PRIVATE  CORPORATIONS. 


[§2T2 


railway  corporation  transferred  the  entire  control  of  its  road  with 
all  its  franchises,  receiving  in  return  only  a  fixed  rent  paid  in  the 
form  of  a  dividend  to  its  stockholders,  has  been  held  to  be  ultra 
vires  and  void.^  A  firm  of  commission  merchants  and  members 
of  the  Cotton  Exchange  of  Kew  York  received  from  the  cashier 
of  a  Texas  savings  bank  and  trust  corporation,  orders  to  pur- 
chase cotton  —  dealing  in  futures  as  it  is  known  —  on  account  of 
customers  of  the  bank.  They  made  such  purchases,  and  there 
being  a  loss  in  the  end,  brought  their  action  against  the  Texas 
corporation  for  the  amount.  The  New  York  Court  of  Appeals 
held  the  transaction  to  be  tdtra  vires  the  corporation.^     There 


Culver  V.  Reno  Real  Estate  Co. ,  91  Pa. 
St.  367;  Hall  r.  Auburn  Turnpike  Co., 
27  Gal.  255.  As  to  a  manufacturing 
corporation  discounting  a  note,  see 
Lawrenceville  Cement  Co.  v.  Parker, 
(1890)  10  N.  Y.  Supp.  831. 

'  Middlesex  R.  R.  Co.  r.  Boston  & 
Chelsea  R.  R.  Co.,  (1874)  115  Mass. 
347;  citing  Richardson  v.  Sibley,  11 
Allen,  65. 

^  Jemison  r.  Citizens'  Savings  Bank 
of  Jefferson.  Texas,  (1890)  123  N.  Y. 
135.  In  the  opinion  it  was  said: 
*•  Corporations  are  artificial  creations 
existing  bv  virtue  of  some  statute  and 
organized  for  the  purposes  defined  in 
their  charters.  A  person  dealing  with 
a  corporation  is  chargeable  with  notice 
of  its  powers  and  the  purposes  for 
which  it  is  formed,  and  when  dealing 
with  its  agents  or  ofl3cers  is  bound  to 
know  the  extent  of  their  power  and 
authority.  A  corporation  necessarily 
carries  its  charter  wherever  it  goes,  for 
that  is  the  law  of  its  existence.  It 
follows  that  the  plaintiffs  must  have 
known  or  are  chargeable  with  knowl- 
edge ot  the  corporate  powers  of  the 
defendant  and  of  the  extent  to  which 
its  cashier  could  bind  the  corporation. 
Alexander  v.  Cauldwell,  83  N.  Y.  480; 
Hoyt  V.  Thompson,  19  N.  Y.  207-222; 
Relfe  T.  Rundle,  103  U.  S.  22^-226; 
Davis  r.  Old  Colony  R.  R.  Co.,  131 
Mass.  258-260;  Leonard  r.  A.  Ins.  Co., 


97  Ind.  299.  Savings  banks  are  de- 
signed to  encourage  economy  and  fru- 
gality among  persons  of  small  means 
and  are  organized  with  restrictions  and 
provisions  intended  to  secure  depos- 
itors against  loss.  Speculative  con- 
tracts entered  into  for  the  sale  or  pur- 
chase of  stock  by  a  savings  bank  at 
the  stock  board  or  elsewhere,  sub- 
ject to  the  hazard  and  contingency  of 
gain  or  loss,  are  ultra  vires,  and  a  per- 
version of  tne  powers  conferred  by  its 
charter.  People,  etc.,  v.  M.  «&  T.  S. 
Inst.,  92  N.  Y.  7-9;  Sistare  v.  Best,  88 
N.  Y.  527-531.  Contracts  of  corpo- 
rations are  ultra  vires  when  they  in- 
volve adventures  or  undertakings  out- 
side and  not  within  the  scope  or  power 
given  by  their  charters.  The  acts 
under  which  they  are  organized  were 
framed  in  view  of  the  rights  of  the 
public  and  the  interest  of  the  stock- 
holders. As  artificial  creations  they 
possess  only  the  powers  with  which 
they  were  endowed.  An  act  may  be 
nudum  in  se  or  malum  prohibitum,  or 
an  act  may  not  be  immoral  or  pro- 
hibited by  any  statute,  and  still  it  may 
be  in  excess  of  the  powers  vested  in 
the  officers  of  a  corporation,  unau- 
thorized and  prejudicial  to  the  stock- 
holders. In  either  case  the  plea  of  vltra 
vires  should  prevail  unless  it  would  de- 
feat justice  or  accomplish  a  legal 
wrong."    The  court  then  applied  the 


ai 


§272] 


ULTRA  VIRES PRIVATE  CORPORATIONS. 


467 


was  a  contention  in  this  case  that  the  contract  had  been  exe- 
cuted on  the  part  of  the  plaintiffs,  and  that  the  corporation 
was  estopped  from  setting  up  the  defense  of  ultra  vires.  The 
Court  of  Appeals  held,  however,  that,  under  the  circumstances 
of  this  case,  the  defense  was  still  available  to  the  corporation.^ 


principles  to  the  case  at  bar:  "As  we 
have  seen,  the  defendant  was  chartered 
for  the  purpose  of  receiving  on  deposit 
or  in  trust  such  £ums  of  money  as  may 
from  time  to  time  be  offered  by  trades- 
men, merchants,  clerks,  laborers,  serv- 
ants and   others.     It  was  authorized 
to  loan  these  moneys  according  to  the 
Constitution  and  laws  of  the  state  and 
to  discount  in  accordance  with  bank 
usages,  taking  such  security  therefor, 
either  real  or  personal,  as  the  directors 
may    deem     suflScient.     In     addition 
thereto  the  defendant  was  given  power 
to  borrow  money,  buy  and   sell  ex- 
change, bulUon,  bank  notes,  govern- 
ment stocks  and  other  securities.     The 
authority  here  given  to  buy  and  sell 
exchange,   bullion,    bank  notes,   gov- 
ernment stocks  and  other    securities 
does  not  embrace  or  include  specula- 
tive contracts  in  cotton  futures  any 
more  than  it  does  hay,  oats,  provisions 
or  dry  goods.     The  exchange,  bullion, 
bank  notes,   securities,  etc.,   author- 
ized are  those  of  fixed  value,  current 
in  the  market  and  not  subject  to  the 
control  of   speculators.    Whilst    the 
buying  and  selling  of  cotton   to  be 
delivered  in  the  future  may  not  ordi- 
narily be  immoral  or  prohibited  by 
any  statute,  it  is  not  included  in  the 
powers  given  to  the  defendant  by  its 
charter.     The  transaction  in  question 
was    prejudicial  to   its    stockholders 
and  tended  to  endanger  and  destroy 
the    safeguards  provided  for  the  de- 
positors.    The  stockholders  and    de- 
positors  had  the  right  to  have  their 
funds  invested  in  accordance  with  the 
provisions  of  the  charter  and  the  Con- 
stitution and  laws  of  the  state,  and  in 
so  far  as  this  right  was  violated  by  the 


transaction  in  question  it  was  a  misap- 
propriation of  the  funds  and  immoral." 
'Jemison  v.  Citizens'  Savings  Bank 
of  Jefferson,  Texas,  (1890)  122  N.  Y. 
135.     The  court  reviewed  leading  cases 
pertinent    to    this    question,    saying: 
"In  the  case  of  Whitney  Arms  Co.  v. 
Barlow,  63  N.  Y.  62,  the  plaintiff  was 
a  corporation  organized  for  the  pur- 
pose of  manufacturing  every  variety 
of  firearms  and  other  implements  of 
war,    and    all    kinds    of    machinery 
adapted  to  the  construction  thereof. 
It  entered  into  a  contract  with  the 
American    Seal    Lock    Company    to 
manufacture  and  deliver  ten  thousand 
locks.     The    locks    having    been    de- 
livered, it  was  held  that  the  contract  was 
fully  executed,  and  the  plea  of  ultra 
vires  would  not  prevail  as  a  defense  to  an 
action  brought  to  recover  the  contract 
price."    Citing  Huntington  v.  Savings 
Bank,    96  U.    S.  388;  Thomas  v.   R. 
R.  Co.,  101  U.  S.  71;  Nassau  Bank  v. 
Jones,  95  N.  Y.  115;  Leshe  v.  Lorillard, 
110  N.  Y.  519.     The  court  said  further: 
"  We  do  not  question  the    rule  thus 
invoked.     It  has  been  repeatedly  de- 
clared in  other  cases,  as,  for  instance, 
in  Parish  v.  Wheeler,  22  N.  Y.  494,  in 
which  it  was  held  that  a  railroad  com- 
pany having  purchased  and  received  a 
steamboat,  could  be  compelled  to  pay 
for  it,  although  the  power  to  purchase 
such  boat  was  not  included  in  its  char- 
ter.   But  this  doctrine  has  no  applica- 
tion to  executory  contracts  which  are 
sought  to  be  made  the  foundation  of 
an  action,  or  to  contracts  that  are  pro- 
hibited as  against  public  policy  or  im- 
moral.    Nassau  Bank  v.  Jones,  supra  ; 
P.  C.  &  S.  L.  R.  Co.  V.  K.  &  H.  B. 
Co.,  181  U.  S.  371-389.    In  the  case  at 


I 


I 


468 


ULTBA  VIRES  —  PRIVATE  CORPORATIONS. 


[§272 


§273] 


ULTRA  VIRES  —  PRIVATE  CORPORATIONS. 


469 


m 


i 


.  It 


In  an  Iowa  case  it  was  held  that  it  was  ultra  vires  a  corpora- 
tion organized  nnder  articles  of  incorporation  which  defined  its 
business  to  be  "  the  general  freight  and  transfer  business,  and 
such  other  business  as  may  not  be  inconsistent  therewith,"  to 
become  surety  on  a  bond  given  to  another  corporation.^  The 
court  also  held  that  the  contract  of  suretyship  being  utterly  void 
there  was  no  estoppel  of  the  corporation  to  plead  ultra  vires  as  to 
the  undertaking.^ 


bar,  the  transaction,  as  we  have  seen, 
was  not  only  immoral  and  in  violation 
of  the  rights  of  the  stockholders  and 
depositors,  but  the  defendant  had  re- 
ceived nothing  by  virtue  of  it.  The 
cotton  had  been  purchased  by  the 
plaintiffs  in  their  own  name,  they  tak- 
ing title  thereto  and  holding  it  upon 
the  defendant's  account.  It  was  pur- 
chased under  the  rules  of  the  Cotton 
Exchange  of  the  city  of  New  York,  in 
which  the  members  doing  business 
therein,  with  other  members,  act  as 
principals  and  are  liable  as  such.  The 
most  that  can  be  claimed  is  that  they 
held  the  cotton,  or  the  contracts  there- 
for, subject  to  the  call  or  order  of  the 
defendant.  There  had  been  no  deliv- 
ery of  any  cotton  or  property  of  any 
kind,  or  transfer  of  any  title  to  such 
property  to  the  defendant.  If  the 
steamboat  had  never  been  delivered  to 
the  railroad  company  so  as  to  transfer 
the  title  thereto,  or  if  the  ten  thousand 
locks  had  never  been  delivered  to  the 
American  Seal  Lock  Company,  very 
different  questions  would  have  been 
presented  in  the  cases  to  which  we 
have  called  attention.  We,  conse- 
quently, are  of  the  opinion  that  under 
the  circumstances  of  this  case,  the  de- 
fense of  ultra  vires  is  still  available  to 
the  defendant." 

^  Lucas  V.  White  Line  Transfer  Co., 
(1886)  70  Iowa,  541;  s.  c,  30  N.  W. 
Rep.  771.  The  court,  through  Roxn- 
KOCK,  J.,  said:  "The  simple  act  of 
giving  security  for  another  is  out  of 
the  line  of  the  prosecution  of  any  busi- 


ness. It  is  a  mere  accommodation, 
and  it  cannot  be  assumed  that  the 
articles  gave  the  officers  of  defendant 
any  power  to  jeopardize  its  capital  in 
any  such  venture,"  and  quotes  as  fol- 
lows: "It  is  no  part  of  the  ordinary 
business  of  commercial  corporations, 
and  a  fortiori  still  less,  of  non-com- 
mercial corpomtions,  to  become  surety 
for  others.  Under  ordinary  circum- 
stances, without  positive  authority  in 
this  behalf  in  the  grant  of  corporate 
power,  all  engagements  of  this  descrip- 
tion are  \dtra  vircH,  whether  in  the  in- 
direct form  of  going  on  accommodation 
bills  or  otherwise  becoming  liable  for 
the  debts  of  others.  Green's  Bricc 
Ultra  Vires,  252;  Madison,  etc.,  Plank 
Road  Co.  r.  Waterman,  etc.,  Plank 
Road  Co.,  5  Wis.  59." 

'  Lucas  V.  White  Line  Transfer  Co., 
(1886)  70  Iowa,  541;  s.  c,  30  N.  W. 
Rep.  771.  This  holding  was  reached 
by  the  application  of  the  following 
rules,  as  stated  by  Rothrock,  J.,  to 
the  case:  "(1)  Every  person  dealing 
with  a  corporation  is  charged  with 
knowledge  of  its  powers,  as  set  out  in 
its  recorded  articles  of  incorporation. 
(2)  Where  a  corporation  exercises 
powers  not  given  by  its  charter,  it 
violates  the  law  of  its  organization, 
and  may  be  proceeded  against  by  the 
state,  through  its  attorney -general,  as 
provided  by  the  statute,  and  the  unani- 
mous consent  of  all  the  stockholders 
cannot  make  illegal  acts  valid.  The 
state  has  the  right  to  interfere  in  such 
case.    (3)  Where  a  third  party  makes 


§  273.  Leasing  corporation's  property  and  franchises  for 
a  term  of  years. —  The  Indiana  Supreme  Court  has  held  that  a 
lease  of  its  road  hy  a  railway  corporation  of  that  state  for  a  long 
terra  of  years,  with  the  privilege  of  renewal  of  the  same,  to 
another  corporation  of  the  same  kind  in  consideration  of  the  latter 


with  the  officers  of  a  corporation  an 
illegal  contract  beyond  the  powers  of 
the  corporation,  as  shown  by  its  char- 
ter, such  third  party  cannot  recover, 
because  he  acts  with  knowledge  that 
the  officers  have  exceeded  their  power, 
and  between  him  and  another  corpora- 
tion, or  its  stockholders,  no  amount  of 
ratification    by    those    authorized    to 
make  the  contract  will  make  it  valid. 
(4)  Where  the  officers  of  a  corporation 
make  a  contract  with  third  parties  in 
regard  to  matters  apparently  within 
their  corporate    powers,   but    which, 
upon  the  proof  of  extrinsic  facts  (of 
which  such  parties  had  no  notice),  lie 
beyond  their  powers,  the  corporation 
must  be  held,  unless  it  may  avoid  lia- 
bility by  taking  timely  steps  to  pre- 
vent loss  or  damage  to  such  third  party; 
for  in  such  cases  the  third  party  is  inno- 
cent, and  the  corporation  stockholders 
less  innocent,  for  having  selected  offi- 
cers not  worthy  of  the  trust  reposed  in 
them.     (5)  This  class  of  cases  may  be 
illustrated  by  that  where  the  officers 
of  a  corporation  empowered  to  build 
and  operate  a  certiiin  line  of  railroad, 
purchased  iron  to  be  used  for  another 
line  without  the   knowledge  of   the 
vendee.     So,  in  case  of  Humphrey  v. 
Patron's  Mercantile  Assn.,  50  Iowa, 
607,    the    debts    of    the    corporation 
were,     by     its     articles,     limited    to 
a    certain    amount;    but    the    officers 
of  the  association,    in    deahng    with 
Humphrey,    exceeded    that    amount 
without  his  knowledge  or  means  of 
knowledge,  and  the  corporation  was 
held.      Thompson     r.     Lambert,     44 
Iowa,  239,  belongs  to  the  same  class  of 
cases,  with  the  addition  that  in  the 
last   case  the  stockholders  who   ob- 


jected to  what  they  termed  an  ultra 
vires  contract  were  charged  with  knowl- 
edge of  and  participation  in  the  act 
they  claimed  to  be  illegal  and  were  in 
no  condition  to  complain.     A  corpora- 
tion   cannot    retain    benefits    derived 
from  an  ultra  vires  contract;  and  at  the 
same  time  treat  the  contract  as  entirely 
void,  unless,  perhaps,  in  cases  where 
the  other  party  has  assisted  willfully 
in  putting  it  beyond  the  power  of  the 
corporation  to  return  what  is  received 
on  such  contract.     (6)  Where  the  cor- 
poration has  permitted  its  officers  to 
engage  in  ultra  vires  transactions,  the 
officers  commit  a  wrong  or  tortious  act 
without  the  fault  of  the  injured  party, 
the  corporation  is  estopped  from  tak- 
ing advantage  of  the  vltra  vires  char- 
acter of    the  original    undertaking." 
As  to  the  doctrine  that  charters  not 
expressly  or  by  implication  authoriz- 
ing an  act  prohibit  it  and  render  such 
act   void,  see  Safford  v.   Wyckoff,  1 
Hill,  11;  Leavitt  v.  Palmer,  3  Comst. 
19;    Talmage    v.   Pell,    3    Seld.    328; 
Tracy  v.  Talmage,  14  N.  Y.  162,  179; 
Bissell  V.  Michigan  So.,  etc.,  R.  R.  Co., 

22  N.  Y.  258,  289;  Whitney  Arms  Co. 
V.  Barlow,  63  N.  Y.  62,  68;  Alexander 
V.  Cauldwell,  83  N.  Y.  480,  485;  Nas- 
sau Bank  v.  Jones,  95  N.  Y.  115,  122; 
New  York  Firemen  Ins.  Co.  v.  Ely, 
5  Conn.  560,  572;  Hood  v.  New  York 
«fc  New  Haven  R.  R.  Co.,  22  Conn. 
502;  Elmore  v.  Naugatuck  R.  R.  Co., 

23  Conn.  457;  Mutual  Savings  Bank 
V.  Meriden  Agency  Co.,  24  Conn.  159; 
Naugatuck  R.  R.  Co.  v.  Waterbury 
Button  Co.,  24  Conn.  468.  Contrtxcts 
held  2dtra  vires  and  void:  Twiss  v. 
Guaranty  Life  Assn.  of  Iowa,  (1893) 
87  Iowa.  733;  s.  c,  55  N.  W.  Rep.  8, 


470 


ULTRA  VIRES  —  PRIVATE  CORPORATIONS. 


[§  273 


paying  the  taxes  thereon,  performing  certain  contracts  tlieretoforo 
made  hy  the  former  company  and  the  payment  to  the  former 
company,  or  to  its  use,  certain  sums  of  money,  was  ultra  vires, 
leased  u|x>n  the  doctrine  that  a  cliarter  granted  to  a  railway  cor- 
poration for  the  purpose  of  constructing,  owning  and  maintaining 
a  railroad,  confers  a  trust  special  to  the  corporation  in  relation  to 
the  purposes  of  its  creation,  and  hence  such  a  corporation  has  no 
power  to  enter  into  contracts  foreign  to  those  for  which  it  was 
created,  or  to  delegate  its  franchises,  or  to  incapacitate  itself  to 
discharge  its  duties  to  the  public  by  a  lease  or  sale  of  its  road. 
Agreements  of  that  character,  unauthorized  by  its  charter,  are 
inconsistent  with  the  obligations  of  the  corporation  to  the  public, 
ultra  inres  and  void.^     The  court  held  that  the  contract  for  lease 


following  Lucas  r.  Transfer  Co.,  70 
Iowa,  542;  8.  c,  30  N.  W.  Rep.  771. 
See  on  ultra  vires  Wardner,  Bushncll  & 
Glessner  Co.  t).  Jack,  82  Iowa.  435; 
Carson  City  Sav.  Bank  r.  Elevator  Co., 
90  Mich.  550;  Seymour  t.  Association, 
<J4  Hun.  682;  Richelieu  Hotel  Co.  r. 
Encampment  Co.,  140  111.  248;  s.  c, 
29  K  E.  Rep.  1044,  affirming  41  111. 
App.  268;  Dewey  r.  Railway  Co.,  91 
Mich.  351;  Heims  Brewing  Co.  r. 
Flanneiy ,  137  111.  309;  Buckeye  Marble 
&  Freestone  C^o.  v.  Harvey,  (1892) 
92  Tenn.  115;  s.  c,  20  S  W.  Rep.  427; 
As  to  a  corporation  with  the  usual 
powers,  when  not  prohibited  by  its 
articles  of  incorporation,  contracting 
for  the  surrender  of  its  stock,  see 
Rollins  r.  Shaver  Wagon  &  Carriage 
Co.,  (1890)  80  Iowa,  380;  s.  c.  45  N. 
W.  Rep.  1037.  When  a  plea  of  ultra 
fiires  will  be  held  sufficient.  Gillespie 
"P.  Davidge  Fertilizer  Co.,  66  Hun. 
627;  s.  c.  20  N.  Y.  Supp.  833.  When 
a  contract  will  not  be  declared  ultra 
tires.  Nashua  &  Lowell  Railroad 
Corp.  r.  Boston  &  Lowell  R.  Corp., 
(1892)  157  Mass.  268;  s.  c,  31  N.  E. 
Rep.  1060;  Odd  Fellows  Hall  Asso- 
ciation of  Portland  c.  Hegele,  (1893) 
24  Ore.  16;  s.  c,  32  Pac.  Rep.  679; 
Welsh  r.  Ferd  Heim  Brewing  Co. ,  47 
Mo.   App.   608;    Glass  c.   Ferd  Heim 


Brewing  Co.,  47  Mo.  App.  639; 
United  Lines  Telegraph  Co.  r.  Boston 
Safe  Deposit  &  Trust  Co.,  147  U.  8. 
431 ;  s.  c. ,  13  Sup.  Ct  Rep.  396.  For  il- 
lustrations of  contracts  which  have 
been  held  not  to  be  ultra  tires,  see 
Wolf  V.  Arminus  Copper  Mine  Co.,  6 
Misc.  Rep.  662;  s.  c,  27  N.  Y.  Supp. 
642,  in  which  Abbot  r.  Rubber  Co., 
33  Barb.  578,  was  distinguished; 
Ashenbroedcl  Club  i\  PMnlay,  53  Mo. 
App.  256.  As  to  M/<ranr<'j*  generally, 
see  Oelbermann  r .  New  York  &  N.  Ry. 
Co.,  77  Hun,  332;  s.  c,  29  N.  Y. 
Supp.  545;  Pauly  r.  Coronado  Beach 
Co.,  56  Fed.  Rep.  428;  Denny  Hotel 
Co.  t).  Schram.  6  Wash.  134.  Es- 
topped to  plead  ultra  rires.  Kennedy 
V.  California  Sav.  Bank,  (1894)  101 
Cal.  495;  s.  c,  35  Pac.  Rep.  1039 
Kadish  v.  Garden  City  Equitable 
Loan  &  Bldg.  Assn.,  47  III.  App.  602 
Smith  V.  White  (Tex.  Civ.  App.)  25  S 
W.  Rep.  809;  Head  v.  Cleburne  Bldg 
«&  Loan  Assn.,  (Tex.  Civ.  App.)  25  S 
W.  Rep.  810;  Cameron  v.  First  Nat 
Bank.  4  Tex.  Civ.  App.  309;  s.  c,  23 
S.  W.  Rep.  334;  Butte  Hardware  Co. 
r.  Schwab,  (Mont.)  34  Pac.  Rep.  24; 
Magee  t.  Pacific  Improvement  Co.,  98 
Cal.  678;  s.  c,  33  Pac.  Rep.  772. 

'  Board  of  Commissioners  of  Tippe- 
canoe Co.    V.  La  Fayette,  Muncie  & 


§  273] 


TLTRA  VIRES  —  PRIVATE  CORPORATIONS. 


471 


of  this  road  was  made  without  antliority  of  law ;  that  the  board 
of  directors  and  agents  of  the  corporation  had  no  power  to  make 
it ;  and  that  it  was  in  violation  of  the  rights  of  the  stockholders 
and  in  contravention  of  pnbhc  policy.*  The  court  said,  how- 
ever :  "  We  do  not  decide  that  railroad  companies  cannot  become 
lessors  or  lessees  of  other  railroad  companies,  or  make  other  con- 
tracts with  other  railroad  companies,  for  tlie  purpose  of  running 
their  lines  in  conjunction,  facilitating  commerce,  travel  and  trans- 
portation, or  for  any  of  the  legitimate  purposes  for  which  railroad 
companies  are  organized.  There  is  much  in  the  legislation  of  the 
state  favoring  this  view,  and  many  decisions  of  this  court  sus- 
taining the  advancing  enterprise  of  the  country,  but  all  such  con- 
tracts must  come  within  the  powers  of  the  agency  that  makes 
them,  and  must  not  violate  the  rights  of  stockholders  or  contravene 
public  policy.^  It  was  contended  in  this  case  that  the  Indiana 
statute  of  February  23,  1853,  entitled  an  "act  to  authorize  rail- 
road companies  to  consolidate,  etc.,"  had  removed  this  disability 
which  these  principles  of  law  imposed  upon  such  corporations. 
The    Supreme    Court    held    adversely  to  the  contention.'      It 


Rloomington    R.    R.    Co.,    (1875)  50 
Ind.  85. 

'  Ibid. ;  citing  in  support  of  these 
conclusions:  1  Redf.  on  Railways,  226, 
594,  616,  641,  644,  650;  Boston,  etc., 
R.  R.  Corp.  V.  Salem,  etc.,  R.  R.  Co., 
2  Gray,  1;  Black  r.  Delaware,  etc.. 
Canal  Co.,  7  C.  E.  Green  (N.  J.),  130; 
Bissell  V.  Michigan  Southern,  etc.,  R. 
R.  Co.,  22  N.  Y.  258;  Fall  River  Iron 
Works  Co.  V.  Old  Colony,  etc.,  R.  R. 
Co.,  5  Allen,  221;  Great  Luxembourg 
Ry.  Co.  V.  Magnay,  25  Beav.  586; 
Beman  v.  Rufford,  1  Sim.  (N.  S.)550; 
Bagshaw  v.  Eastern  Union  Ry.  Co. ,  2 
Macn.  &  G.  389;  Bank  of  Middlebury 
f).  Edgerton,  30  Vt.  182;  Marsh  r.  Ful- 
ton Co.,  10  Wall.  676;  Colman  r.  East- 
ern Counties  Ry.  Co.,  10  Beav.  1; 
Township  of  Pino  Grove  r.  Talcott, 
19  Wall.  666;  East  Anglian  Ry.  Co.  r. 
Eastern  Counties  Ry.  Co.,  11  C.  B. 
775;  Richardson  r.  Sibley,  11  Allen, 
65;  Eidman  v.  Bowman,  58  III.  444; 
Stewart's    Appeal,    56   Pa.    St.    413; 


Madison,  etc.,  Plank  Road  Co.  p.  Wa- 
tertown,  etc.,  Plank  Road  Co.,  7  Wis. 
59;  Eld  ridge  v.  Smith,  34  Vt.  484;  Per- 
rine  r.  Chesapeake,  etc.,  Co.,  9  How. 
172;  Bedford  R.  R.  Co.  v.  Bowser,  48 
Pa.  St.  29;  Pearcer.  Madison,  etc.,  R. 
R.  Co.,  21  How.  441;  European,  etc., 
Ry.  Co.  V.  Poor,  59  Me.  277;  Wright  v. 
Bundy,  11  Ind.  398;  Eaton  &  Hamilton 
R.  R.  Co.  V.  Hunt,  20  Ind.  457;  Board  of 
Comrs.,  etc.,  r.  Reynolds,  44  Ind.  509; 
Sparrow  r.  Evansville,  etc.,  R.  R.  Co., 
7  Ind.  369;  Fisher  v.  Evansville,  etc., 
R.  R.  Co.,  7  Ind.  407;  Booe  v.  Junction 
R.  R.  Co.,  10  Ind.  93;  McCray  «. 
Junction  R.  R.  Co.,  9  Ind.  358;  Shel- 
by villj,  etc..  Turnpike  Co.  v.  Barnes, 
42  Ind.  498. 

2  Board  of  Commissioners  of  Tippe- 
canoe Co.  V,  La  Fayette,  Muncie  & 
Bloomington  R.  R.  Co.,  (1875)  50  Ind. 
85,  115. 

»Ibid.  The  court  said:  "That  act 
is  'to  authorize  railroad  companies  to 
consolidate  their  stock  with  the  stock 


f  . 


IHI 


m 


>*'! 


4:72  ULTRA  VIRES PRIVATE  CORPORATIONS.  [§  273 

appeared  in  a  case  before  the  United  States  Supreme  Court  that 
a  corporation  organized  under  the  laws  of  Pennsylvania  as  a 
manufacturing  corporation  with  a  certain  capital  stock,  for  twenty 
years,  for  "Uhe  transportation  of  passengers  in  railroad  cars  con- 
structed and  owned  by  the  said  company  "  under  certain  patents, 
carried  on  the  business  of  manufacturing  sleeping  cars  under  its 
patents,  and  of  hiring  or  letting  the  cars  to  railroad  companies  by 
written  contracts,  receiving  a  revenue  from  the  sale  of  berths  and 
acconnnodations  to  passengers.  Seven  years  afterwards,  by 
special  statute,  the  charter  was  extended  for  ninety-nine  years,  and 
the  corporation  was  empowered  to  double  its  capital  stock,  and 
"  to  enter  into  contracts  with  corporations  in  this  or  any  other 
state  for  the  leasing  or  hiring  and  transfer  to  them,  or  any  of  them, 
of  its  railway  cai*s  and  other  personal  property."  Upon  the 
passage  of  this  statute  this  corporation  entered  into  a  contract 
with  a  corporation  of  another  state  organized  for  similar  pur- 
l)oscs,  by  whicli  it  leased  and  transferred  to  the  latter  all  its  cars, 
railroad  contracts,  patent  rights  and  othei-  personal  property, 
moneys,  credits  and  rights  of  action,  for  the  term  of  ninety-nine 
years,  except  so  far  as  the  contracts  and  patents  shall  expire 
sooner;  and  covenanted  not  to  *' engage  in  the  business  of  manu- 
facturing, using  or  hiring  sleeping  cai-s  "  while  the  contract  should 
remain  in  force  ;  the  lessee  engaged  to  pay  all  the  existing  debts 


of  railroad  companies  in  this  or  in  an 
adjoining  state,  and  to  connect  their 
roads  with  the  roads  of  Siiid  com- 
panies,' etc.  The  title  nowhere  men- 
tions a  lease  or  a  sale.  Indeed,  the 
words  '  to  connect  their  roads  with  the 
roads  of  said  companies '  would  seem 
to  exclude  such  a  conclusion.  To  con- 
nect one  road  with  another  does  not 
fairly  mean  to  lease  it  or  sell  it  to 
another.  Much  less  can  it  mean  to 
authorize  the  corporation  to  sever  the 
trunk  of  its  road,  transfer  the  western 
division,  for  an  unlimited  time,  to  the 
corporation  of  another  state,  and  sub- 
ordinate its  eastern  division  to  the 
western  and  to  a  foreign  corporation. 
The  third  section  of  the  act  is  not 
strongly  relied  upon.  It  enacts  that 
a  railroad  company  *  shall  have  power 
to  make  such  contracts  and  agreements 


with  any  such  road  constructed  in  an 
adjoining  state,  for  the  transportation 
of  freight  and  passengers,  or  for  the  use 
of  its  said  road,  as  to  the  board  of  di- 
rectors may  seem  proper.'  Even  if 
this  section  could  be  held  to  authorize 
the  transfer  of  the  use  of  one  road  to 
another,  the  words  cannot  fairly  mean 
the  transfer  of  one  division  of  a  road 
to  the  injury  of  another  division  of 
the  same  road,  thus  putting  the  two 
divisions  in  direct  antagonism,  both 
in  their  interest  and  connection.  Al- 
though the  words,  '  as  to  such  board  of 
directors  may  seem  proper,'  express  a 
general  power,  they  must  be  construed 
in  reference  to  the  subject-matter  to 
which  they  are  applied,  and  limited 
within  the  powers  of  the  corporatioo 
and  the  rights  of  the  stockholders." 


1 


§  27;5] 


ULTRA  VIRES  —  PRIVATE  CORPORATIONS. 


473 


of  the  lessor  corporation  and  to  pay  a  fixed  sum  annually,  during 
the  term  of  ninety-nine  years,  unless  the  contract  was  sooner 
terminated  as  provided  in  its  terms.  The  lessor  corporation 
brouglit  this  action  to  recover  of  the  lessee  corporation  a  large 
sum  of  money  claimed  to  be  due  from  it  on  this  contract.  The 
Supreme  Court  held  the  contract  to  be  unlawful  and  void,  because 
it  was  ultra  vires  the  corporate  powers  of  the  lessor  corporation 
and  involved  an  abandonment  of  its  duty  to  the  public ;  also,  that 
the  suit  was  not  maintainable  nor  could  there  be  a  recovery  by 
the  lessor  corporation  upon  the  contract  even  though  the  lessee 
had  enjoyed  the  benefits  of  the  contract.^     In  the  United  States 


'  Central  Transportation  Co.  v.  Pull- 
man's Palace  Car  Co.,  (1891)  139  U.  8. 
24;  8.  c,  11  Sup  Ct.  Hep.   478.     Mr. 
Justice  Gray  in  the  opinion  which  he 
delivered  for  the  court  quoted   from 
jind    reviewed    the    following   cases: 
York  &  Maryland  lijiilroad  r.  Winans, 
IT  How.  30:  Pearce  v.  [Madison  &  In- 
dianapolis   Railroad,     21    How.    441; 
Zabriskie  r.  Cleveland,  etc.,  Railroad, 
23  How.  381;  Thomas  r.  Railroad  Co., 
101  U.  S.  71;  Branch  r.  Jesup.  106  U.  S. 
4iJ8;  Pennsylvania  Railroad  /?.  St. Louis, 
etc.,  Riiilroad,  118  U.  S.  290;  Salt  Lake 
('ity  V.  Hollister,  118  U.  S.  256;  Willa- 
mette,   etc..  Co.  r.   Bank  of    British 
Columbia,  119  U.  S.  191;  Green  Bay  & 
Minnesotji    Railrojid  r.  Union  Steam- 
boat Co.,    107  U.   S.   98;  Pittsburgh, 
ftc,  Railway  v.  Keokuk  &  Hamilton 
Bridge,    131  U.  8.  371;  Oregon  Rail- 
way r.  Oregonian  Railway,  130  U.  8. 
1.     Upon  a  contention  that  the  lessor 
corporation  was  on  a  different  footing 
from  railroad    corporations    and    the 
like,  it  was  said:  "The  plaintiff  *   *  * 
was  not  an  ordinary   manufacturing 
corporation,  such  as  might,  like  a  part- 
nership or  an  individual   engaged  in 
manufactures,  sell  or  lease  all  its  prop- 
erty to  another  corporation.     Ardesco 
Oil  Co.  V.  North  American  Oil  Com- 
pany,   66  Pa.    St.    375;    Treadwell  v. 
Salisbury    Mauuf.  Co.,  7  Gray,    393. 
But  the  purpose  of  its  corporation,  as 
60 


defined  in  its  charter,  and  recognized 
and  confinned  by  the  legislature,  being 
the  transportation  of  passengers,  the 
plaintiff  exercised  a   public   employ- 
ment, and  was  charged  with  the  duty 
of  accommo(iating  the   public  in  the 
line  of  that  employment,  exactly  cor- 
responding to  the  duty  which  a  rail- 
road corporation  or  a  steamboat  com- 
pany as  a  carrier  of  passengers  owes 
to  the  public  independently  of  possess- 
ing any   rights    of   eminent   domain. 
The  public  nature  of  that  duty  was 
not  affected  by  the  fact  that  it  was  to 
be  performed  by  means  of  cars  con- 
structed and  of  patent  rights  owned 
by   the  corporation,   and   over  roads 
owned  by  others.     The  plaintiff  was 
not  a  strictly  private,  but  a  quasi  pub- 
lic corporation;    and   it    must   be  so 
treated  as  regards  the  validity  of  any 
attempt  on  its  part  to  absolve  itself 
from  the   performance  of  those  duties 
to    the    public,    the    performance  of 
which  by  the  corporation   itself  was 
the  remuneration  that  it  was  required 
by  law  to  make  to  the  public  in  re- 
turn for  the  grant  of    its   franchise. 
Pickard  ^.  Pullman  Southern  Car  Co., 
117  U.  8.  34;  York  &  Maryland  Rail- 
road r.  Winans,   17  How.  30,  39;  Rail- 
road Co.  r.  Lockwood,  17  Wall.  357; 
Liverpool  &  Great  Western  Steam  Co. 
r.  Phoenix  Ins.   Co..   129  U.  S.  397." 
After  referring  to   the  express    pow- 


i 


4T4 


ULTRA  VIRES  —  PRIVATE  CORPORATIONS. 


§  273] 


ULTRA  VIRES  —  PRIVATE  CORPORATIONS. 


4<a 


.^ 


Circuit  Court  for  the  northern  district  of  Washington  it  has  been 
held  that  a  milroad  company  organized  under  the  laws  of  that 
state  has  no  autfiority  to  transfer  its  franchises,  except  by  sale 
and  conveyance  or  lease  made  in  accordance  with  the  statutes 
relating  to  the  transfer  of  titles  to  such  ])roperty  ;  and  where  by 
a  so-called  "  traffic  agreement,"  the  trustees,  without  the  consent 
of  the  minority  stockholders,  in  effect,  transferred  to  another 
railroad  company  the  entire  control  and  management  of  the 
property,  for  practically  the  legal  lifetime  of  the  corporation,  such 
contract  was  illegal   and  void.^      The  Supreme  Court  of  New 


ers  conferred  upon  the  corporation,  it 
was  said:  "  Considering  the  long  term 
of  the  indenture,  the  perishable  nature 
of  the  property  transferred,  the  large 
sums  to  be  paid  quarterly  by  the  de- 
fendant by  way  of  compeustition.  its 
assumption  of  the  plaintiff's  debts  and 
the  frank  avowal,  in  the  indenture  it- 
self, of  the  intention  of  the  two  cor- 
porations to  prevent  competition  and 
to  create  a  monopoly,  there  can  ho  no 
doubt  that  the  chief  consideration  for 
tlie  sums  to  be  paid  by  the  defendant 
was  the  plaintilTs  covenant  not  to  en- 
gage in  the  business  of  manufacturing, 
using  or  hiring  sleeping  cars;  and  that 
the  real  purpose  of  the  transjiction 
was,  under  the  guise  of  a  lease  of  per- 
sonal property,  to  transfer  to  the  de- 
fendant nearly  the  whole  corporate 
franchise  of  the  plaintiff,  and  to  con- 
tinue the  plaintiff's  existence  for  llie 
single  purpose  of  receiving  compensa- 
tion for  not  performing  its  duties." 
This  case  has  been  followed  in  Hamil- 
ton V.  Savannah,  F.  &,  W.  Ry.  Co., 
(1892)  49  Fed.  Rep.  412. 

>Earle  r.  Seattle,  Lake  Shore  & 
Eastern  Ry.  Co.,  (1893)56  Fed.  Rep. 
909.  The  only  authority  found  in  the 
charter  of  the  company  which  had 
thus  leased  the  control  of  the  Wash- 
ington corporation,  was  where  the  con- 
gress of  the  United  States  had  author- 
ized  it  "'to  accept  to  its  own  use  any 
grant,  donation,  loan,  power,  f  mnchise, 
aid  or  assistance  which  may  be  granted 


to,  or  conferred  upon   said   company 
by  the  congress  of  the  United  States, 
by  the  legislature  of  any  stitte,  or  by 
any  corporation,    person  or  persons  ; 
and  said  corporation  is  authorized  to 
hold  and  enjoy  such  grant,  donation, 
l.Kiu,  power,   franchise,  aid  or  assist- 
ance to  its  own  use  for  the  purpose 
aforesaid."     In  the  opinion    rendered 
in  this  case  it  is  said:  *' The  .statute 
refcrretl   to  does    not     [)rescribe    the 
manner  whereby   purchases  or  leases 
of   railways    may   be    consummated, 
otherwise  than    by   the   general    pro- 
visions of  the  several  statutes  relating 
to    corporations   and  to  conveyances 
of  property.     A  railroad  corporation 
cannot  lawfully  transfer  its  franchise 
without  authority  emanating  from  the 
power    which    granted  it.      And    an 
unauthorized   transfer,    made  in  dis- 
guise, as  by  a   traftic    contract,    will 
not,   in    a    judicial     proceeding,     be 
treated  with  greater  favor  than  if  the 
contract  expressed   plainly  the  real  in- 
tention of  the  parties.     On  the  subject 
of  traffic  contracts  the  text  of  Green's 
Brice's  Ultra  Vires    (i)age  427),  con- 
cisely and  clearly   states  the  law,  as 
follows  :  '  Corporations  may  make  all 
necessary  arrangements    for    cheaply 
and      expeditiously      developing     or 
carrying  on  their  particular  business; 
but  it  is  another  thing,  going  beyond 
this,   to  enter  into  contracts,  for  in- 
stance, by  which  the  exclusive  control 
or  the  exclusive  right  of  working  the 


York,  in  General  Term,  affirmed  the  denial  of  a  motion  to  con- 
tinue an  injunction  restraining  the  directors  of  a  corporation 
from  transferring  its  property,  assets  and  business  to  another 
corporation,  where  it  appeared  from  affidavits  of  the  directors 
that  they  did  not  contemplate  such  action,  but  merely  the  leasing 
of  important  rights  and  functions  to  the  other  corporation.* 
This  was  a  case  where  a  stockholder  of  a  Minnesota  corporation 
had  made  complaint,  in  which  he  alleged  that  eight  of  the  nine 
directors  of  the  company  owned  or  controlled  a  majority  of  the 
shares  of  stock,  and  were  disposed  to  lease  and  transfer  the  prop- 
erty and  effects  of  the  company  for  the  term  of  twenty-five  years 
to  a  corporation  created  under  the  laws  of  the  state  of  New 
Jersey,  and,  in  effect,  to  transfer  its  business  to  that  company, 
for  one-half  the  net  profits  yielded  by  it ;  and  that  this  was  in 
contravention   of  its   charter,   and    the    laws   of    the   state  of 


line  is  handed  over  to  other  parties. 
All    such     arrangements,     whatever 
their  form,  however    disguised,    are 
ultra    tirea   and    void.      This  applies 
with    peculiar    force   in  the  case  of 
those  bodies  which  have  been  created 
for  what  may  be  conveniently   styled 
'  public  purposes.' '  "    The  court  con- 
tinued :     "Now,   assuming    that  the 
section  of  the  charter  above   quoted 
does  authorize  the  Northern   Pacific 
Railroad  Company  to  take  the  benefit 
of  rights  and  privileges,  and  exercise 
new  powers,  granted  and  conferred  by 
the  state  of  Washington,  the  question 
whether  the  contracts  and  proceedings 
by  which  it  has  gained  control  of  the 
Seattle,  Lake  Shore  and  Eastern  Com- 
pany's   franchise    and    business    are 
ultra    mre8   or    not    depends     upon 
whether  the  requirements  of  the  state 
laws  in  this  regard  have   been  met. 
There  has  been  no  sale  and  convey- 
ance, nor  lease,  of  the  railroad  prop- 
erty, in  accordance  with  the  laws  of 
this  state   relating  to   the  manner  of 
transferring    titles  to  such    property. 
As  the  parties  have  not  done  what  the 
statute    authorizes  to  be  done,    I  do 
not  think  that  the  deal  between  them 


has  any  governmental  sanction  what- 
ever.     No    consolidation     has    been 
attempted,  and  yet  the  transaction  is 
of  such  resemblance  to  a  consolidation 
that  the  legal  principles  by  which  the 
validity    of    proceedings   to  effect  a 
consolidation  of  corporations  may  be 
applied.     This  idea  leads  to  considera- 
tion of  the  contract  rights  of  individ- 
ual stockholders,  and  the  rule  is  that 
a  corporation  cannot  be  consolidated 
with  another  if  the  right  to  do  so  was 
not  by  the  law,  or  the    constitutins: 
instruments,  given  at  the  time  of  its 
creation,  without  the  unanimous  con- 
sent of  its  stockholders.     The  law  on 
this  subject  is  thus  stated  in  2  Mor. 
Priv.  Corp.   §   951  :      'A  corporation 
cannot  consohdate  with  another  com- 
pany,   even    pursuant  to   legislative 
authority,  except  with  the  consent  of 
all  its  shareholders.     An  unauthorized 
consolidation  may   be    prevented   by 
any  dissenting  shareholder,  or  may  be 
treated  as  ground  for  severing  bis  con- 
nection   with     the     company,     by  a 
rescission  of  his  subscription." 

'  Small     T>.     Minneapolis      Electro- 
Matrix  Co.,  (1890)  10  N.  Y.  Supp.  456. 


4T<; 


ULTKA  VIKES IMIIVATK  CORPORATIONS. 


[§274 


i 


iHI'l 


Minnesota,  under  wliicli  it  was  incorporated.     Daniels,  J.,  for 
tlie  court,  said  :  *"  If  the  facts  were  satisfactorily  established,  a 
case  for  an  injunction  would  be  j^resented ;  for  the  directors  or 
trustees  do  not  apjxjar  to  have  been  invested  with  that  power, 
either  by  its  charter  or  the  laws  of  the  state  in  which  it  exists ; 
and,  in  the  absence  of  explicit  authority  to  transfer  its  property, 
etTects  and  business  to  another  company,  it  cannot  be  presumed 
to  possess  that  power.     At  least,  the  directors  or  trustees,  having 
only  the  power  to  nuinage  and   conduct  its   affairs   under  the 
charter,  could  legally   make  no  such  disposition  of  its  property 
and  affairs ;  for,  instead  of  managing  and  conducting  its  business, 
that  would  be  a  destruction  of  its  business,  and  an  abdication  of 
their  own  powei*s  and  authority,  which  could  not  take  place  with- 
out violating  the  law  and  their  own  official  obligations ;  and  that, 
even  a  majority  owner  of  the  shares  of  the  company  would  be 
entitled  by  action  to  restrain  and  prevent.''*     Referring  to  the 
admission  in  the  answer  of  the  directors,  that  a  resolution  was 
adopted  by  the  majority  of  the  board,  subject  to  the  approval  of 
the  shareholders,  to  execute  a  lease  to  the  New  Jersey  corpora- 
tion of  certain  important  rights  and  functions  of  the  Minnesota 
c(^rporation,  and    the  stated  intention  to  extend  the  leasehold 
interests  or  rights  no  further  than  was  permitted  by  the  laws  of 
Minnesota,  it  was  said  :  **  And  it  certainly  goes  no  further  in  its 
language  or  fair  implication  to  this  extent,  which  does  not  trans- 
cend, but  limits  itself  within  the  bounds  of  the  law;  for  the 
exercise  of  lawful  authority  for  the  promotion  of  the  interests 
and  prosperity  of  the  company  is  intrusted  to  the  use  and  employ- 
ment of  its  board  of  directors  or  trustees ;  and  when  they  may, 
in  good  faith,  be  exercised,  a  case  will  not  be  presented  for  the 
interposition  of  a  court  of  equity  by  injunction."' 

§  274.  Loaning  funds  of  corporation. —  The  power  in  a  cor- 
poration to  loan  its  funds  cannot  be  implied  from  the  power 
expressly  given  it  to  borrow  money,  or  any  implied  power  it  has 
to  borrow ;  and  if  it  has  no  express  power  given  it  to  loan  its 
funds,  it  cannot  be  implied  from  the  declared  purposes  and 
objects  for  which  its  charter  was  granted  where  it  is  not  created 
for  banking  purposes,  or  to  conduct  some  business  usual  in  bank- 

'  Citing  Abbot  p.  Rubber  Co.,  33  'Citing  Beveridge  ».  Railroad  Co., 
Barb.  578,  591.  112  N.  Y.  1;  s.  c.  19  N.  E,  Rep.  489. 


1 


§274] 


ULTKA  VIKES PRIVATE  CORPORATIONS. 


477 


ing ;  and  in  case  the  corporation  is  not  created,  as  may  ajjpear 
from  its  articles  of  incorporation,  for  pecuniary  profit,  this  decla- 
ration would  exclude  the  power  of  loaning  its  funds.^  And 
where  a  corporation  has  no  power  to  loan  its  funds,  a  promis- 
sory note  and  mortgage  given  as  security  to  the  corporation 
will  be  void  and  not  enforceable  in  equity.'*  An  Alabama 
corporation  was  incorporated  with  a  capital  of  $1,000,000, 
to  be  paid  in  in  cash  and  such  other  money  as  it  might  receive 
in  trust,  one-half  of  which  capital  it  was  required  to  invest  in 
bonds  or  notes  secured  by  mortgage  on  land  within  the  state  of 
Alabama,  and  the  remaining  half  of  the  capital  stock,  together 
with  the  premiums  and  profits  received  by  it,  and  the  moneys 
received  in  trust,,  may  be  invested  in  stocks,  loaned  to  any  city, 
county  or  company,  or  be  invested  in  such  real  or  personal  securi- 
ties as  it  might  deem  proper.  The  Supreme  Court  of  Alabama 
held  that  the  corporation  had  no  power  to  lend  its  credit  by 
making  bonds  to  fall  due  in  future,  and  exchanging  such  bonds 
for  the  bonds  of  an  individual  for  the  same  amount.^  A  corpora- 
tion organized  under  the  laws  of  California  for  the  purpose  of 
acquiring  a  certain  tract  of  land,  laying  it  out  as  a  town  and  sell- 
ing it  in  lots,  blocks,  etc.,  and  acquiring  "  street  railroad  or  other 
rights  and  franchises,  telegraph,  telephone  or  other  similar  fran- 
chises, and  gas  and  electric  light  franchises,  over  the  said  prop- 
erty, or  any  part  thereof,"  subscribed  for  shares  of  stock  in  a 
manufacturing  corporation.  Such  subscription  was  held  to  be 
ultra  vires  and  void.* 


» Chambers  v.  Falkner,  (1880)  65  Ala. 
448. 

» Ibid. 

'  Smith  V.  Alabama  Life  Insurance 
«&  Trust  Co.,  (1843)  4  Ala.  558.  This 
same  corporation  was  held,  under  its 
articles  of  incorporation,  to  have  the 
power  to  purchase  a  bill  of  exchange, 
in  Gee  v.  Alabama  Life  Ins.  &  Trust 
Co.,  (1848)  13  Ala.  579. 

*Pauly  V.  Coronado  Beach  Co., 
(1893)  56  Fed.  Rep.  428.  The  court 
placed  its  ruling  upon  the  doctrine  on 
this  subject  as  summed  up  by  the  Su- 
preme Court  of  the  United  States,  in 
Central  Transportation  Co.  v.  Pull- 
mans Palace  Car  Co.,  139  U.  S.  48; 


8.  c,  11  Sup.  Ct.  Rep.  484,  in  these 
words:  "  The  charter  of  a  corporation 
read  in  the  light  of  any  general  laws 
which  are  applicable,  is  the  measure 
of  its  powers,  and  the  enumeration  of 
those  powers  implies  the  exclusion  of 
all  others  not  fairly  incidental.  All 
contracts  made  by  a  corporation  be- 
yond the  scope  of  those  powers  are 
vmlawful  and  void,  and  no  action  can 
be  maintained  upon  them  in  the  courts; 
and  this,  upon  three  distinct  grounds: 
The  obligation  of  every  one  contract- 
ing with  a  corporation  to  take  notice 
of  the  legal  limits  of  its  powers;  the 
interest  of  the  stockholders  not  to  be 
subjected  to  risks  which   they  have 


ff 


V  \ 


\ 


-i 


4TS 


ULTRA  VIRES PRIVATE  CORPORATIONS. 


[§275 


g  275.  Investing  funds  of  corporation  in  stock  of  others. — 

In  a  Maine  case  it  appeared  that  a  savings  institution  subscribed 
for  $50,000  of  the  capital  stock  of  a  manufacturing  corporation. 
Having  no  money  to  pay  for  it,  another  corporation  paid  the 
money  to  the  manufacturing  corporation,  took  the  notes  of  the 
savings  institution  for  the  amount,  and  had  a  certificate  of  stock 
issued  in  its  name  as  collateral  security  for  the  payment  of  the 
notes.  The  Supreme  Court  of  Judicature  of  that  state  held  that 
upon  principle,  as  well  as  authority,  it  was  not  within  the  authority 
of  the  trustees  of  a  savings  institution  to  invest  its  funds  in  the 
stock  of  a  manufacturing  corporation,  unless  expressly  authorized 
so  to  do  by  its  charter,  or  the  public  laws  of  the  state.  They 
placed  their  decision  against  the  power  of  the  savings  bank  to 
enter  into  this  contract  upon  the  broader  ground  that  it  was  not 
competent  for  the  trustees  of  the  savings  bank  to  purchase  on 
credit  property  of  any  kind,  not  needed  for  immediate  use  or  the 
investment  of  existing  funds ;  that  such  power  was  not  expressly 
conferred  upon  it,  nor  could  it  be  sustained  as  an  incidental  power.* 

never  undertaken;  and,  above  all,  the 
interest  of  the  pubhc,  that  the  corpo- 
ration shall  not  transcend  the  powers 
conferred  upon  it  by  law."  In  Riche- 
lieu Hotel  Company  r.  International 
Military  Encampment  Co.,  (1892)  140 
ni.  248;  8.  c,  29  N.  E.  Rep.  1044,  a 
subscription  by  this  incorporated 
hotel  company  to  V.,  a  contemplaied 
corporation  for  the  purpose  of  estab- 
lishing this  encampment  to  draw  vis- 
itors to  the  city,  etc.,  was  held  foreign 
to  the  purposes  of  the  hotel  company, 
and  the  doctrine  of  ultra  vires  must  be 
applied  to  it. 

'  Franklin  Company  v.  Lewiston  In- 
stitution for  Savings,  (1877)  68  Me.  43. 
The  ruling  as  to  the  first  point  was 
based  upon  what  the  court  considered 
the  result  of  the  rules  declared  in  the 
following  cases  bearing  upon  the 
powers  of  corporations,  to  wit :  Beaty  r. 
Lessee  of  Knowler,  4  Pet.  152;  s.  c,  1 
McLean,  41 ;  Perrine  v.  Chesapeake  & 
Delaware  Canal  Co.,  9  How.  172; 
Famum  v.  Blackstone  Canal  Co.,  1 
Sumner,    46;    Bank    of   Augusta  t. 


Earle,  13  Pet.  519;  Tombigbee  R.  R. 
Co.  V.  Kneeland,  4  How.  16;  Runyan 
V,  Coster's  Lessee,  14  Pet.  122;  Dart- 
mouth College  f.  Woodward,  4  Wheat. 
518,  636;  Hood  v.  New  York  &  N.  H. 
Railroad,  22  Conn.  1  and  502;  Berry, 
Receiver,    v.    Yates,   24    Barb.    199  ; 
Mutual    Savings    Bank    v.     Meriden 
Agency  Co.,  24  Conn.  159;  Sumner  v. 
Marcy,  3  Woodb.  &  Min.  105;  Pearce 
V.  Railroad,  21  How.  441.     It  was  sug- 
gested in  Franklin  Company  v.  Lewis- 
ton    Institution    for  Savings,   supra, 
that  it  might  be  convenient  in  this  way 
to  provide  in  advance  for  the  invest- 
ment of  funds  that  might  afterwards 
come  into  the  possession  of  a  bank.    To 
this  the   court  said :  ' '  We  think  the 
creation  of  debts  by  corporations  or 
individuals  for  no  other  purpose  than 
to  provide  a  ready  way  to  dispose  of 
future   acquisitions  a   proceeding  of 
very  questionable  convenience  ;  that 
in  the  great  majority  of  cases  it  would 
be  likely  to  prove,  as  it  did  in  this  case, 
very  inconvenient.     But   it  is   suffi- 
cient answer  to  say  that  the  law  im- 


§375] 


ULTRA  VIRES  —  PRIVATE  CORPORATIONS. 


479 


It  was  fuitlier  lield  in  tins  case  that  the  lender  of  the  money,  the 
coi*])oratic»n  plaintiff,  havmg  participated  in  the  illegal  transac- 
tion, could  not  claim  the  privileges  of  a  bona  fide  holder  of  com- 
mercial papcj";  and  that  the  savings  institution,  having  received 
no  l)t'nefit  from  the  transaction,  was  not  estopped  to  set  up  the 
deft'nse  of  ultra  mrea}     In  an  action  hronglit  hy  one  Ohio  cor- 
poration, an  iron  comj)anj,  against  another,  a  railway  company, 
for  goods  sold  and  delivered  to  the  latter,  the  defense  made  was 
that  there  had  heen  a  contract  between  the  two  corporations,  by 
the  terms  of  which  the  iron  company  was  to  sell  to  the  railway 
company  goods  to  a  certain  amount,  and  to  receive  in  payment 
thereof  so  many  sliares  of  stock  in  the  latter.     This  involved  the 
question  of  the  authority  ot  the  iron  company  to  take  stock  in 
the  railway  company.     Upon  this  subject  tlie  Supreme  Court  of 
Ohio  stated  the  law  in  tliat  state  to  be  as  follows  :  "  We  think  it 
well    settled    as    a    result  of    the    decisions   in   this    state,   as 
well  as  elsewhere,  that  an  incorporated  company  cannot,  unless 
authorized  by  statute,  make  a  valid  subscription  to  the  capital 
stock  of  another ;  tliat  such  subscription  is  ultra  vires^  and  void. 
Mr.  Morawetz,  in  stating  this  to  be  the  law,  observes:  '  The  right 
of  forming  a  corporation  is  conferred  hy  the  incorporation  laws 
only  upon  persons  acting  nidi vidually, and  not  upon  associations; 
moreover,  it  would,  under  ordinary  circumstances,  be  a  violation 
of  the  charter  of  an  existing  company  to  subscribe  for  shares  in 
a  new  company  and  assume  the  resulting  liabilities.'    Priv.  Corp. 
g  433.     There  has  been  no  direct  decision  upon  the  question  by 
this  court,  but  such  has  been  the  universal  holding  elsewhere.* 
These  cases  all  proceed  upon  the  principle  that  the  powers  of 
corporations  organized  under  legislative  statutes  are  such  and  such 
only,  as  those  statutes  confer,  or  that  may  be  fairly  implied  there- 
from.    This  doctrine  was  clearly  announced  and  applied  in  Straus 
u  Eagle  Ins.  Co.,  5  Ohio  St.   .59,  and  has  been  tirmly  adhered 


poses  no  duty  upon  the  trustees  of 
livings  Imnks  to  provide  for  the  in 
vestment  of  future  funds  or  future 
deposits.  The  whole  duty  is  per- 
formed when  they  have  provided  safe 
investments  for  the  funds  already  com- 
mitted to  their  care.  To  hold  that  they 
nwy  create  debts  binding  upon  exist- 
ing depositors  whose  money,  after  all, 


may  never  be  committed  to  their  care, 
would  be  a  doctrine  as  startling  as  it 
would  be  unprecedented." 

'  Franklin  Co.  v.  Lewiston  Institu- 
tion for  Savings,  (1887)  68  Me.  43. 

*  Citing  Railroad  Co.  v.  Railroad 
Co..  31  N.  J.  Eq.  475;  Franklin  Co.  r. 
Lewiston  Savings  Inst..  68  Me.  48; 
Railroad  Co.  r.  Collins.  40  Ga.  582. 


480 


ULTKA  VIRES  —  PRIVATE  CORPORATIONS. 


,  1 


4 


m 


[§  270 

to  in  tliis  court.  Railroad  Co.  v.  Hinsdale,  45  Ohio  St.  556,  57:^. 
No  claim  is  made  by  the  defendant  that  the  iron  company  luul 
any  express  statutory  authority  to  use  its  capital  or  assets  in  aid 
of  the  construction  of  a  railroad  l)y  subscrfption  to  its  capital 
stock  or  otherwise.  The  only  averment  as  to  this,  is  that  it,  tho 
iron  company,  conceived  that  it  would  be  benefited  by  the  reduc- 
tion of  the  price  of  coal  at  Cleveland,  its  place  of  business,  and 
the  market  which  the  construction  of  the  road  would  afford  for 
its  manufactures,  and  by  tliese  considerations  was  induced  to  make 
the  subscription.  But  all  this  can  be  of  no  avail  in  the  face,  at 
least,  of  the  prohibition  contained  in  section  3206  of  the  Revised 
Statutes,  that,  'No  corporation  shall  employ  its  stock,  means, 
assets  or  other  property,  directly  or  indirectly,  for  any  other  pur- 
pose whatever,  than  to  accomplish  the  legitimate  objects  of  its 
creation.'  There  was  then,  as  we  think,  no  authority  whatever 
in  the  iron  company  to  make  a  valid  subscription  to  the  capital 
stock  of  the  railway  company     * 


•}f     * 


JU 


§  276.  Directors  of  an  insurance  company  raising  a  guar- 
anty capital.—  The  directors  of  a  nmtual  life  and  fire  insurance 
company,  a  New  Jersey  corporation,  after  conducting  its  busi- 
ness for  a  while,  by  resolution  determined  upon  and  formulated 
a  plan  to  raise  a  guaranty  capital  to  the  amount  of  $150,000,  to 
be  used  for  the  payment  of  losses  when  other  means  were 
exhausted.  This  was  done  by  obligations  for  money  secured  by 
mortgage  from  its  members.  Here  we  have  an  action  on  a  bill 
tiled  to  recover  on  the  defendant's  mortgage  what  had  been 
assessed  against  him.  The  answer  of  defendants  set  up  the  facts 
and  circumstances  under  which  the  mortgage  was  given,  and 
insisted  that  the  action  and  all  the  proceedings  of  the  directors 
in  raising  the  guaranty  capital  were  illegal,  in  violation  of  the 
charter  of  the  company  and  against  public  policy,  and,  therefore, 
the  company  could  not  enforce  the  contract  made  with  any  of 
the  contributors  to  the  fund.  After  expressing  that  his  disposi- 
tion was  to  enforce  this  contract  on  the  part  of  the  contributors, 
upon  the  question  directly  raised.  Chancellor  Williamson  said : 
"  I  cannot  see  how  the  contract  with  the  contributors  to  this 
guaranty  fund  can  be  enforced  in  a  court  of  law  or  equity,  with- 
out repudiating  altogether  the  principle  of  the  common  law, 

>  Railway  Co.  v.  Iron  Co.,  (1888)  46  Ohio  St.  44,  49.  50. 


§276] 


ULTRA  VIRES PRIVATE  CORPORATIONS. 


481 


which  has  been  but  re-enunciated  by  our  statute  (Nixon,  138, 
§  3),  that  no  corporation  shall  possess  or  exercise  any  corporate 
powers,  except  such  as  shall  be  expressly  given  in  its  charter,  or 
which  shall  be  necessary  to  the  exercise  of  the  powers  so  enumer- 
ated and  given.     AVas  it  within  the  scope  of  the  powers  of  this 
corporation  to  provide  any  other  capital  or  fund  as  the  basis  of 
the  basis  which  it  was  empowered  to  pursue,  than  are  provided 
by  the  charter  itself  ?     If  it  was  illegal  for  them  to  create  such  a 
capital,  then  a  contract  which  they  may  have  made  for  its  pay- 
ment cannot  be  enforced.     This  corporation  was  incorporated 
for  the  purpose  of  insuring  lives  and  loss  by  fire.     The  charter 
provides  the  fund  out  of  which  losses  are  to  be  paid,  and  it  is 
this  feature  in  the  charter  which  stamps  the  character  of  this  cor- 
poration, and  which  makes  it  what  its  name  imports,  and  what  the 
legislature  intended  it  should  be,  a  mutual  company.     The  cor- 
porators are  mutual  insurers,  and  it  is  the  fund  which  is  made  up 
from  the  premiums  which  they  contribute,  and  one  per  cent  on 
the  amount  for  which  each  one  is  insured,  out  of  which  they  are 
to  be  indemnified  for  any  losses.     They  have  no  right  or  author- 
ity, by  their  charter,  to  create  any  other  fund  for  the  purpose. 
If  they  do,  it  is  in  violation  of  the  principle  which  is  to  govern 
their    mode    of    doing    the    business    for    which     they    were 
incorporated."  ^ 


'  Trenton  Mutual  Life  &  Fire  Insur- 
ance Co.  V.  McKelway,  (1858)  12  N.  J. 
Eq.    133,    135,    136.      Arguendo,    the 
chancellor  further  said:  "  It  was  ad- 
mitted, on  the  argument,  that  it  was 
not  within  the  scope  of  the  powers  of 
this  corporation  to  create  any  capital 
other  than  that  for  which  the  charter 
provides.     It  was  attempted  to  escape 
the  consequences  of  such  an  act  by 
the  argument  that  this  was  nothing 
more   than  a  contract   for  a  loan  of 
money,  out  of  which  the  corporation 
might  be  enabled  to  meet  the  losses 
that  might  be  incurred.     It  cannot  be 
denied  but  that  the  corporation  might 
borrow   money   under  some    circum- 
stances, and  that  a  contract  bona  fide 
made  for  such  loan  would  be  illegal 
[legal  ?],  and  not  in  contravention  of 
tt»e  charter.    For  instance,  should  the 

61 


corporation  incur  a  loss,  and  not  have 
the    available    means    promptly     to 
meet  it,   it  would  not  be  illegal  for 
them  to  make  a  loan    to    meet  the 
exigency.      But  they   cannot,    under 
pretense  of  borrowing  money,  provide 
a  fund   for    the    purpose    of    giving 
credit  to  the  company.     The  question 
is  as  to  the  bona  fides  of  the  transac- 
tion.    It  matters  not  what  you  call  it, 
the  name  does  not  affect  its  real  char- 
acter.    Was   this  a  bona  fide  loan  of 
money,  or  a  contract  for  a  loan,  made 
in  the  ordinary   course   of  business, 
and  to  meet  an  exigency  which  would 
bring  such  a  contract  within  the  com- 
pass of  the  legitimate  powers  of  the 
company?    Or  was  it  a  contract   to 
provide  a  capital  or  fund  for  the  pur- 
pose of  giving  a  credit  and  character 
to  the  company  which  is  entirely  for- 


li 


m 


V 


4 


1 


m 


482 


ULTRA  VIRES PRIVATE  CORPORATIONS. 


[§2TT 


§  277.  Converting  "  common  **  into  "  preferred  *'  stock. — 

In  a  leading  New  York  case,  wliile  the  Court  of  Appeals  admit- 
ted the  right  of  corporations  to  chissify  their  stock  at  the  outset 
by  issuing  some  "  common  "  and  some  "  preferred  "  stock,  it  was 
held  that  it  was  nut,  under  the  circumstances  disclosed,  in  the 
power  of  the  corporation  involved  in  this  case  to  convert  some  of 
its  shares  into  preferred  with  a  view  of  raising  money  from  its 
stockholders,  as  it  was  not  a  **  borrowing"  of  money  in  its  i)roper 
sense,  but  an  interference  with  the  vested  rights  of  the  stock- 
holders as  originally  constituted.'     A  manufacturing  corporation 

eign  to  its  charttT?  Ciin  this  be  called  ing  a  credit  upon  which  to  transact 
a  legitimate  contract  for  a  loan  in  tlio  business?  In  my  judgment,  they 
ordinary  course  of  business?"  The  could  not,  and  any  contract  entered 
chancellor  then  stated  the  terms  of  into  for  such  a  purpose  is  unlawful, 
the  contract,  and,  as  to  the  acts  of  the  and  cannot  be  enforced." 
directors  in  the  matter,  said:  "They  'Kent  i\  Quicksilver  Mining  Co., 
dill  not  make  the  contract  under  a  (1879)  78  N.  Y.  159.  The  court,  how- 
mistake,  intemling  to  make  a  mere  ever,  would  not  declare  that  a  cor- 
loan.  and  supposing  that  they  were  poration  could  never,  rightfully, 
legitimately  exercising  a  power  to  do  against  th(^  dissent  of  a  portion  of  its 
so.  That  was  not  their  ]>urposc.  stockholders,  make  some  of  its  stock 
They  had  a  diflferent  object  in  view,  "preferred."  Folgeu,  J.,  speaking 
It  is  expressed  in  their  bill  of  com-  for  the  court,  said:  "The  transaction 
plaint,  and  reconlid  several  times  is  not  to  be  looked  upon  as  other  than 
upon  their  minutes.  The  bill  of  com-  a  preference  of  one  class  of  stockhold- 
plaiut  alleges  that  the  directors  con-  ers  to  another;  as  giving  to  the  first 
eluded  to  enter  into  this  negotiation  class  a  perpetual,  inextingui.shable 
beciuise,  in  their  opinion,  it  would  prior  right  to  a  portion  of  the  earnings 
prove  advantageous  to  the  corporators  of  the  company  before  the  other  class 
to  provide  a  guaranty  capital  as  an  might  have  anything  therefrom.  It 
additional  security  for  the  i>ayment  of  was  none  other  than  the  creation  of  a 
losses.  Here,  then,  is  the  admission  '  preferred  stock.'  Then  there  arises 
of  the  c(mipany  upon  the  record,  that  the  query  whether  there  was  at  that 
this  contnict  was  made  for  an  illegal  time  power  in  the  corporation  to  dis- 
purpose.  The  minutes  of  the  corpo-  tinguish  between  the  stockholder  in 
ration  show  more;  they  show  that  this  it,  to  form  them  into  two  classes,  and 
was  a  device  for  the  purpose  of  com-  to  give  to  one  class  rights  in  the  cor- 
plying  with  the  laws  of  the  state  of  porate  property,  business  and  earnings 
New  York,  which  provides  that  no  from  which  the  other  was  shut  out. 
insurance  company  shall  transact  bus-  We  are  not  prepared  to  say  that,  at  the 
iness  in  that  state  unless  such  company  first,  the  corporation  might  not  have 
is  possessed  of  an  actual  capital  of  lawfully  divided  the  interest  in  its 
$150,000.  The  simple  question  then  capital  stock  into  shares  arranged  in 
is  presented,  could  this  corporation  classes,  preferring  one  class  to  another 
lawfully  adopt  any  scheme  or  device  in  the  right  it  should  have  in  the 
by  which  they  could  creat(>  a  capital  profits  of  the  business.  The  charter 
of  $150,000,  for  the  purpose  of  acquir-  gave  power  to  make  such  by-laws  as 


§277] 


ULTRA  VIRES PRIVATE  CORPORATIONS. 


483 


organized  under  the  laws  of  Kew  York  was  organized  with  a 
capital  stock  of  7,500  shares.  At  a  certain  time  it  owed 
$300,000,  and  for  the  purpose  of  paying  it,  stockholders  repre- 
senting all  the  stock,  except  that  mentioned  hereafter,  and  the 
corporation  executed  under  their  hands  and  seals  a  contract  by 
which  the  shareholders  agreed  to  surrender  to  the  corporation 
without   consideration   forty   per    cent    of    their    stock,   which 

it  might  deem  proper  consistent  with   New  York,  5  Cow.  538.     So  it  is  said 
the  Constitution  and  law;  and  to  issue   in  Grant  on  Corporations,  page  80,  in 
certificates  of  stock  representing  the   a  qualified  way.     Thereby,  and  by  the 
value  of  the  property.     We  know  of   certificate,  as  between    it*  and  every 
nothing  in  the  Constitution  or  the  law   stockholder,  the  capital  stock  of  the 
that  inhibits  a  corporation  from  begin-   company  was  fixed  in  amount  in  the 
Ding  its  corporate  action  by  classify-    number  of  shares  into   which  it  was 
ing  the  shares  in  its  capital  stock  with   divisible,  and  in  the  pecuUar  and  rela- 
peculiar  privileges  to  one  share  over   tive  value  of  each  share.     The  by-law 
another,  and    then  ofTering   its  stock    entered  into  the  compact  between  the 
to  the  public  for  subscriptions  thereto,    corporation  and  every  taker  of  a  share- 
No  rights  are  got  until  a  subscription    it  was  in  the  nature  of  a  contract  be- 
ismade.    Each  subscriber  would  know    tween  them.     The  holding  and  own- 
forwhat  class  of  stock  he  put  down   ing  of  a  share  gave  a  right  which  could 
his  name,  and  what  rights  he  got  when   not  be  divested  without  the  assent  of 
he  thus  became  a  stockholder.     There   the  holder  and  owner;  or  unless  the 
need  be  no  deception  or  mistake;  there    power  so  to  do  had  been  reserved  in 
would  be  no  trenching   upon  rights   some  way.    Mech.  Bank  v    N    Y  & 
previously  acquired;  no  contract,  ex-    N.  H.  R.   K.   Co..  13  N    Y    599-627 
press  or  implied,  would  be  broken  or   Shares  of  stock  are  in  the  nature  of 
impaired.     This  corporation  did  other-   choaes  in  action,  and  give  the  holder  a 
wise.     A  by -law  was  duly  made  which   fixed    right    in    the   division    of  the 
declared  the  whole  value  of  its  prop-    profits  or  earnings  of  a  company  so 
erty  and  the  whole  amount  of  its  capi-    long  as  it  exists,  and  of  its  effects  when 
tal  stock  and  divided  the  whole  of  it   it  is  dissolved.     That  right  is  as  in- 
into     shares    equal    in    amount    and    violable  as  is  any  right  in  propertiv 
directed  the  issuing  of  ceriiificates  of  and  can  no  more  be   taken  away  or 
stock  therefor.     It  is  not  to  be  said    lessened  against  the  will  of  the  owner 
that  this  by-law  authorized  anything   than  can  any  other  right  unless  power 
but  shares  equal  in  value  and  in  right;   is  reserved  in  the  first  instance  when  it 
or  that  the  taker  of  one  did  not  own  as   enters  into  the  constitution  of  the  right- 
large  an  interest  in  the  corporation,  its    or  is  property  derived  afterwards  from 
capital,  affairs  and  profits  to  come,  as   a  superior  law  given.     The  certificate 
any  other  holder  of  a  share.     Certifi-   of  stock  is  the  muniment  of  the  share- 
catesof  stock  were  issued  under  this   holder's  title  and  evidence  of  his  right, 
by-law  that  gave  no  expression  of  any-   It  expresses  the  contract  between  the 
thing  different  from  that.     When  that   corporation    and    his  co-stockholders 
by-law  was  adopted  it  was  as  much   and  himself;  and  that  contract  cannot 
the    law  of  the  corporation   as  if  its   he  being  unwilling,  be  taken  away 
provisions  had  been  a  part  of  the  char-   from  him  or  changed  as  to  him  with- 
er.   Presbyterian  Church  v.  City  of  out  his  prior  dereliction  or  under  the 


I 


H 


I ! 


484 


ULTRA  VIRES PRIVATE  CORPORATIONS. 


[§2T7 


amounted  to  the  sum  of  the  indebtedness,  and  authorized  the  cor- 
poration to  pay  upon  shares  to  be  issued  and  sold  in  tlie  place  of 
those  surrendered  ten  per  cent  per  annum  on  the  face  value  of 
the  shares  for  five  years  or  such  portion  thereof  as  could  be  paid 
out  of  the  annual  net  profits  of  the  corporation.  The  following 
statement  was  indorsed  upon  the  certificates  for  the  3,000  shares 
to  be  issued  in  lieu  of  those  surrendered,  to  wit :  "  Issued  subject 
to  agreement  with  stockholders,  dated  May  22,  1885,  on  file  in 


conditions  above  stated.  Now  it  is 
manifest  that  any  action  of  a  corpora- 
tion which  takes  hold  of  the  shares  of 
its  capital  stock  already  sold  and  in 
the  hands  of  lawful  owners  and  divides 
them  into  two  classes,  one  of  which  is 
thereby  given  prior  right  to  a  receipt 
of  a  fixed  sura  from  the  earnings  be- 
fore the  other  may  have  any  receipt 
therefrom  and  is  given  an  equal  share 
afterwards  with  the  other  in  what 
earnings  may  remain  —  destroys  the 
equality  of  the  shares,  takes  away  a 
right  which  originally  existed  in  it 
and  materially  varies  the  eflfcct  of  the 
certificate  of  stock.  It  is  said  that 
when  a  corpyoration  can  lawfully  buy 
property  or  get  money  on  loan,  any 
known  assurance  may  be  exacted  and 
given  which  does  not  fall  within  the 
prohibition,  express  or  implied,  of 
some  statute  (Curtis  v.  Leavitt,  15  N. 
Y.  9,  66,  67);  and  that  is  sought  to  be 
applied  here.  But  the  prohibition  to 
such  action  as  this  is  found,  not  in- 
deed in  a  statute  commonly  so  called, 
but  in  the  constitutional  provision 
which  forbids  the  impairment  of 
vested  rights  save  for  public  purposes 
and  on  due  compensation.  The  right 
which  a  stockholder  gets  on  the  pur- 
chase of  his  share  and  the  issue  to  him 
of  the  certificate  therefor  is  such  a 
vested  right.  It  is  contended  that  the 
power  so  to  do  is  an  incidental  and 
implied  power  necessary  to  the  use  of 
the  other  powers  of  the  corporation, 
and  is  a  legitimate  means  of  investing 
money  and  securing  the  agreed  con- 


sideration therefor.  We  have  already 
conceded  that  it  is  legitimate  to  bor- 
row money  and  to  secure  the  repay- 
ment of  it  with  a  compensation  for  the 
use  of  it.  But  that  is  when  it  is  done 
in  such  way  as  to  put  the  burthen 
upon  every  share  of  stock  alike,  and 
to  enable  every  share  of  stock  to  be 
relieved  therefrom  alike,  in  such  way 
as  to  preserve  the  equality  of  right 
and  privilege  and  value  of  the  shares, 
and  maintain  intact  the  contract 
thereto  with  the  stockholder."  The 
court  then  called  attention  to  the  dis- 
tinguishing points  in  the  cases  relied 
upon  to  support  the  views  contra  to 
those  of  the  court  as  follows:  ' '  Cita- 
tions are  made  to  us  for  the  converse 
of  this;  but  they  do  not  come  up  — 
sometimes  in  their  facts,  sometimes  in 
their  declarations  —  to  the  necessity  of 
the  proposition.  Either  it  is  where 
the  capital  is  not  limited  and  it  is  new 
shares  that  may  be  issued  with  a 
preference,  and  where  there  is  express 
power  to  borrow  on  bond  and  mort- 
gage (2  Redf.  on  Rways.  chap,  33, 
sect.  4;  Harrison  v.  Mex.  Rw,,  12 
Eng.  Rep.  793j ;  or  the  amount  of 
the  capital  has  not  been  reached  and 
such  stock  is  issued  therefrom  (Hazel- 
hurst  V.  Savannah  R.  R.,  43  Ga.  53: 
Totten  f.  Tison,  54  Ga.  139);  or  there 
was  legislative  authority  (Davis  v. 
Proprietors,  8  Met.  321;  Rutland  R. 
R.  Co.  V.  Thrall,  35  Vt.  545);  or  a  re- 
striction to  authorized  capital  and 
there  was  unanimous  consent  of  the 
stockholders  (Prouty  v.  M.  S.  &  N.  I. 


§278] 


in.TRA  VIRES  —  PRIVATE  CORPORATIONS. 


485 


the  treasurer's  office,  entitled  to  first  lien  on  net  profits  to  the 
amount  in  such  agreement  provided.  [Signed.]  Edw.  L.  Wood, 
Treasurer.^'  The  shares  so  issued  were  sold  at  par  and  the  debt 
paid.  On  the  back  of  the  shares  surrendered  was  printed, 
"Profits  assigned."  The  certificates  representing  the  shares 
which  were  not  represented  in  the  signature  to  the  agreement 
above  mentioned  were  at  that  time,  with  properly  executed  power 
of  attorney  for  assignment  and  transfer,  in  the  hands  of  a  creditor 
of  the  owner  of  the  shares  as  collateral  security  for  a  loan  ;  the 
loan  not  being  paid  at  maturity  the  shares  were  sold  regularly  to 
a  purchaser,  who  brought  this  action  against  the  company  to  have 
issued  to  him  a  certificate  of  shares  to  the  amount  named  in  the 
certificate  so  purchased,  behaving  refused  what  was  tendered  him 
by  the  company,  a  certificate  of  shares  with  the  words  indorsed 
thereon  of  "  Profits  assigned."  The  New  York  Court  of  Appeals 
held  that  the  purchaser  was  entitled  to  an  unconditional  certificate 
for  these  100  shares  upon  the  same  principle  as  in  the  last  case 
cited,  that  the  action  of  the  corporation  here  was  an  interference 
with  the  vested  rights  of  the  non-assenting  stockholders.^ 

§  278.  The  effect  of  laches  on  the  part  of  complaining 
stockholders  in  such  cases.—  In  the  leading  :N^ew  York  case, 
where  the  conversion  of  common  stock  into  preferred  was  held 
to  have  been  7iltra  vires  the  corporation,  the  findings  of  the  court 
on  the  trial  showed  that  the  by-laws  empowering  the  creation 


R.  R.,  1  Hun,  663;  43  Ga.   53,  supra); 
or  there  was  power  to  redeem,  which 
was  a  transaction  in  the  nature  of  a 
debt  (Westchester,  etc..  R.  R.  Co.  v. 
Jackson,  77  Pa.  St.  321);  or  the  opinion 
was  obtter  (Bates  r.  Androscoggin  R. 
R.  Co. ,  49  Me.  491);  or  it  was  the  case 
of  a  subscription  for  stock  with  a  con- 
dition for  interest  until  the  corpora- 
tion was  in  operation  (Richardson  v. 
Vt.  &  Mass.  R.  R.  Co.,  44  Vt.  613);  or 
it  was  an  action  on    a    subscription 
more  favorable  to  aefendant  than  to 
other  subscribers,  and  it  was  held  that 
defendant  could  not  set  up  the  lack  of 
equality    (Evansville    R.    R.    Co.    v, 
Evansville,  15  Ind.  395);  or  a  solemn 
determination  of  this  question  was  not 


necessary  for  the  disposal  of  the  case 
(Williston  V.  M.  S.  &  N.  I.  R.  R.  Co., 
13  Allen,  400);  or  the  issue  was  author- 
ized by  the  articles  of  association  (In 
re  A'D.  St.  Nav.  &  Col.  Co.,  20  L.  R. 
[Eq.]  339)  or  there  was  full  knowl- 
edge on  the  part  of  all  concerned 
(Lockhart  v.  Van  Alstyne,  31  Mich. 
81);  or  the  power  in  the  corporate 
body  was  conceded,  and  it  was  denied 
that  it  existed  in  the  directors.  Mc- 
Laughlin v.D.  &  W.  R  R.,  8  Mich. 
100." 

'  Campbell  v.  American  Zylonite  Co., 
(1890)  122  N.  Y.  455.  Follett,  Ch. 
J.,  very  fully  discusses  the  rights  of 
stockholders  in  the  opinion  rendered 
in  this  case  by  him  for  the  court. 


m\ 


mmw 


486 


ULTRA  VIRES  —  PRIVATE  CORPORATIONS. 


[§  278 


and  issue  of  tlie  preferred  stock  were  authorized  at  a  stockliolders' 
meeting  regularly  called  and  held  and  conducted  ;  that  the  stock 
was  at  once  offered  for  subscription   to  all  of  the  stockholder's  ; 
that  a  circular  informing  them  thereof  was  issued  by  authority  and 
distributed  to  the  stockholders ;  that  though  all  of  them  did  not 
avail  themselves  of  the  chance  to  take  it,  it  was  not  because  tho 
chance  was  not  known.     A  large  number  of  them  did  subscribe, 
and  paid  money  for  the  privilege  to  the  corporation,  and  that 
money  went  into  the  assets  and  business  of  the  company ;  certifi- 
cates for  the  preferred  stock  were  thereupon  issued,  and  it,  as 
well  as  the  common  stock,  was  dealt  in  by  the  public  ;  saies  were 
made  of  the  two  kinds  openly  at  the  Stock  Exchange  at  prices 
for  the   one  larger  than  for  the  other,  and  quoted  in  the  daily 
public  prints ;  and  from  year  to  year  for  four  years  the  annual 
reports  of  the  directors  to  the  stockholders  spoke  of  the  two 
kinds  of  stock.     There  was  ample  knowledge,  or  means  of  knowl- 
edge, on  the  part  of  all  stockholders  of  the  action  of  the  corpora- 
tion in  the  creation  of  the  two  kinds  of  stock ;  of  the  issue  of 
certificates  for  the  preferred  stock ;  of  the  entry  of  that  stock 
into  the  channels  of  trade ;  of  the  public  dealings  in  it  at  the 
especial  marts  for  the  sale  of  such  property,  and  of  the  continued 
recognition  of  its  existence  and  validity  by  the  company  and  the 
public.     FoLGER,  J.,  for  the  Court  of  Appeals,  said  :  "  It  is  not  to 
he  conceived  that  the  owners  of  the  connnon  stock  of  this  corpora- 
tion did  not  have  actual  knowledge  that  there  had  been  created  a 
stock  having  ostensibly  greater  rigiit  and  value  than  their  own, 
and  that  it  had  gone  into  the  market  and  was  dealt  in  by  the 
public  interested  in  the  validity  of  it.     For  the  lapse  of  four 
years,  however,  there  was  no  action  of  the  company,  or  of  an 
individual  stockholder,  to  have  a  judicial   declaration  that  the 
company  had  exceeded  its  powers  in  the  creation  of  the  stock, 
and  that  it  was  invalid.     We  think  that  these  facts,  most  of  which 
are  set  forth  in  the  findings  in  two  ol  the  cases,  warrant  the  con- 
clusion of  law  therein,  that  the  stockholders,  by  acquiescmg  in 
the  action  of  the  corporation  in  making  the  preferred  stock,  have 
ratified  and  assented  thereto,  and  that  the  same  is  binding  on 
them  by  reason  of  such  assent  and  ratification,"* 

»Kent  r.  Quicksilver  Mining  Co.,  a  lease  of  the  franchises,  etc.,  of  a 
(1879)  78  N.  Y.  159, 184, 185.  As  to  the  railroad  corporation  to  another,  see  St. 
eflfect  of  laches  in  seeking  to  invalidate   Louis,  Vandalia  &  Terre  Haute  R  R 


S-  279] 


ULTRA  VIKES PRIVATE  CORPORATIONS. 


487 


§  279.  Rules  declared  by  courts  as  to  estoppel  ol  corpo- 
rations to  plead  ultra  vires. —  If  a  contract  by  a  corporation  be 
not  in  violation  of  some  public  law,  or  contrary  to  public  policy, 
it^seema  that  only  the  immediate  parties  to  it,  as  the  corporation 
itself,  or  the  stockholders,  who  are  parties  by  representation,  hold 
such  a  legal  position  in  relation  to  the  contract  as  to  entitle  them 
to  raise  the  question  of  its  validity  on  account  of  the  alleged 
want  of  capacity  to  make ;  but  if  the  contract  be  in  violation  of 
some  public  law  or  against  pul)lic  policy,  in  such  sense  as  to  make 
it  void  and  of  no  effect  to  any  intent,  any  person  standing  in  a 
relation  of  interest  to  the  subject-matter  of  the  contract,  and  to 
be  affected  by  its  operation,  might  undoubtedly  set  up  and  insist 
on  such  fatal  vice  in  it,  for  the  purpose  of  clearing  himself  from 
the  consequences  of  its  being  carried  into  effect.*     In  a  fully  con- 
sidered case  upon  how  far  a  corporation  is  estopped  to  set  up  the 
invalidity  of  an  ultra  vires  contract,  where  fully  performed  on 
the  part  of  the  plaintiff,  and  the  benetits  of  it  received  by  the 
defendant  as  a  defense  to  an  action,  the  view  of  the  United  States 
Supreme  Court  thereon  has  been  stated  to  bo  as  follows :  "  A 
contract  of  a  corporation  which  is  ultra  vires^  in  the  proper  sense, 
that  is  to  say,  outside  the  object  of  its  creation  as  defined  in  the 
law  of  its   organization,  and,  therefore,  beyond  the  powers  con- 
ferred upon  it  by  the  legislature,  is  not  voidable  only,  but  w^holly 
void,  and  of  no  legal  effect.     The  objection  to  the  contract  is  not 
merely  that  the  corporation  ought  not  to  have  made  it,  but  that 
it  could  not  make  it.     The  contract  cannot  be  ratified  by  either 
party,  because  it  could  not  have  been  authorized  by  either.     No 
performance  on  either  side  can  give  the  unlawful  contract  any 
validity,  or  be  the  foundation  of  any  right  of  action  upon  it. 
When  a  corporation  is  acting  within  the  general  scope  of  the 
powers  conferred  upon  it  by  the  legislature  the  corporation,  as 
well  as  persons  contracting  with  it,  may  be  estopped  to  deny  that 
it  has  complied  with  the  legal  formalities  which  are  prerequisites 
to  its  existence  or  to  its  action,  because  such  requisites  might  in 


Co.  V.  Terre  Haute  &  Indianapolis  R. 
R  Co.,  (1892)  145  U.  S.  393;  s.  c,  12 
Sup.  Ct.  Rep.  953. 

*  Vermont  &  Canada  R.  R.  Co.  ». 
Vermont  Central  R.  R.  Co.,  34  Vt.  2. 
As  to  estoppel  to  plead  ultra  Tires,  see 
Chicago  Building  Society  v.  Crowell, 


65  111.  453;  City  of  East  St.  Louis  v. 
East  St.  Louis  Gas  Light  &  Coke  Co., 
98  111.  415;  Peoria  &  S.  R.  R.  Co.  v. 
Thompson,  103  111.  187;  Millard  v.  St. 
Francis  Xavier  Academy,  8  Bradw. 
341;  Thomas  v.  Citizens'  Horse  Ry. 
Co..  104111.  462. 


^    .1 

Id 


H|| 


« 


^i     3 


488 


ULTRA  VIRES PRIVATE  CORPORATIONS. 


[§279 

fact  have  been  complied  with.  But  when  the  contract  is  beyond 
tlie  powers  conferred  upon  it  by  existing  laws,  neither  the  cor- 
poration, nor  the  other  party  to  the  contract,  can  be  estopped,  by 
assenting  to  it,  or  by  acting  upon  it,  to  show  that  it  was  pro- 
hibited by  those  laws.  *  *  *  A  contract  ultra  vires  being 
unlawful  and  void,  not  because  It  is  in  itself  immoral,  but  because 
the  corporation,  by  the  law  of  its  creation  is  incapable  of  making 
it,  the  courts,  while  refusing  to  maintain  any  action  upon  the 
unlawful  contract,  iiave  always  striven  to  do  justice  between  the 
parties,  so  far  as  could  be  done  consistently  with  adherence  to 
law,  by  permitting  proj>erty  or  money,  parted  with  on  the  faith 
of  the  unlawful  contract,  to  be  recovered  back,  or  compensation  to 
be  made  for  it.  In  such  case,  however,  the  action  is  not  main- 
tained upon  the  unlawful  contract,  nor  according  to  its  terms ; 
but  on  an  implied  contract  of  the  defendant  to  return,  or,  failing 
to  do  that,  to  make  compensation  for,  property  or  money  which 
it  has  no  right  to  retain.  To  maintain  such  an  action  is  not  to 
affirm,  but  to  disaffirm,  the  unlawful  contract.  The  fraud  and 
the  limits  of  the  rule  concerning  the  remedy,  in  the  case  of  a 
contract  ultra  virf\s,  which  has  been  partly  performed,  and  under 
which  property  has  passed,  can  hardly  be  summed  up  better  than 
they  were  by  Mr.  Justice  Miller,  in  a  passage  already  quoted, 
where  he  said  that  the  rule  'stands  upon  the  broad  ground  that 
the  contract  itself  is  void,  and  that  nothing  which  has  been  done 
under  it,  nor  the  action  of  the  court,  can  infuse  any  vitality  into 
it,'  and  that  '  w^here  the  parties  have  so  far  acted  under  such  a 
contract  that  they  cannot  be  restored  to  their  original  condition 
the  court  inquires  if  relief  can  l)e  given  independently  of  the  con- 
tract, or  whether  it  will  refuse  to  interfere  as  the  matter  stands.' "  ^ 
The  doctrine  seems  to  be  settled  by  the  weight  of  modern  authority 
that  a  private  corporation  cannot  avail  itself  of  the  defense  of  ultra 

» Central  Transportation  Co.  r.  Pull-  be  secured  by  reason  of  its  having  had 
man's  Palace  Car  Co.,  (1891)  139  U.  8.  the  full  benefit  of  the  contract,  see 
24,  59,  60,  61;  s.  v.,  11  Sup.  Ct.  Rep.  Ward  r.  Johnson.  (1880)  95  111.  215; 
478.  These  remarks  of  Justice  Miller  citing  West  v.  Menard  County  Agri- 
are  in  Pennsylvania  Railroad  r.  St.  cultural  Board,  82  111.  206;  Maher  v. 
Loui8,etc.,Railroad,  IIHU.  8.  317.  As  Chicago,  38  111.  266;  Railway  Co.  r. 
to  a  bank  being  estopped  to  interpose  McCarthy,  96  U.  S.  267;  San  Antonio 
the  defense  of  M«m  n/v«  to  defeat  the  v.  Mehaffy,  96  U.  S.  315;  Monis  R. 
execution  of  a  trust  in  favor  of  its  de-  R.  Co.  v.  Railroad  Co.,20N.  J.  Eq! 
positors  in  and  lenders  to  its  investment  542. 
department,   by  which  they  were  to 


§279] 


ULTRA  VIRES  —  PRIVATE  CORPORATIONS. 


489 


vires  where  the  contract  has  been,  in  good  faith,  fully  performed 
by  the  other  party,  and  the  corporation  has  had  the  benefit  of  the 
contract  and  the  performance.'     Though  a  contract  of  a  corpora- 
tion may  bo  strictly  ultra  vires,  yet,  if  not  interfered  with  by  tlie 
stockholders  or  the  state,  and  it  be  not  of  a  class  of  contracts 
expressly  prohibited,  and  there  be  reasonable  ground  to  suppose 
that  the  agents   of  the   corporation   have  acted  in  good  faitli, 
objections  raised  by  the  corporation  itself  or  by  one  having  no 
interest  in  the  question,  except  for  purposes  of  unjust  advantage, 
w411  not  be  listened  to  by  the  courts.^     If  a  contract  made  bv 
officers  of  a  corporation  with  third  parties  apparently  within  their 
powers,  upon  proof  of  extrinsic  facts  of  which  the  third  party 
liad  no  notice,  was  beyond  them,  the  corporation  will  be  held 
liable  unless  it  take  timely  steps  to  prevent  loss  or  damage  to  the 
third  parties.^     A  corporation  will  be  estopped  to  take  advantage 
of  the  ultra  mres  character  of  an  original  undertaking  where  its 
officers  have  been  permitted  by  it  to  engage  in  such  transactions, 
and  in  prosecution  of  them  the  officers  commit  a  wrong  or  torti- 
ous act  without  the  fault  of  the   injured  party."*     The  benefits, 
derived  from  an  ultra  vires  contract  cannot  be  retained  by  the 
corporation  and  the  contract  treated  as  entirely  void,  unless,  per- 
haps, in  cases  where  the  other  party  to  the  contract  has  assisted 
willfully  in  putting  it  beyond  the  power  of  the  corporation  to 


»Darst  «:.  Gale,  (1876)  83  111.  136; 
citing  Ex  parte  Chippendale,4  DeGex, 
M.  i&  G.  19;  Whitney  Arms  Co.  v.  Bar- 
low, 63  N.  Y.  62;  Bradley  v.  Ballard, 
55  111.  413. 

*  Noyes  v.  Rutland  A  Burlington  R. 
R.  Co.,  27  Vt.  110;  Rutland*  Burling- 
ton R.  R.  Co.  V.  Proctor,  29  Vt.  93; 
Sturges  V.  Knapp,  31  Vt.  62.  As  to 
who  may  or  may  not  set  up  the  de- 
fense of  ultra  vires,  see  Western  Organ 
Co.  V.  Reddish,  51  Iowa,  55.  As  to  es- 
toppel of  a  stockholder  to  complain  of 
an  act  ultra  vires  on  the  part  of  the  cor- 
poration or  its  officers,  see  Des  Moines 
Gas  Co.  T.  West,  50  Iowa,  16,  involv- 
ing a  fraudulent  issue  of  bonds.  Under 
what  circumstances  a  stockholder  can- 
not object  to  a  plan  of  reorganization 
of  a  corporation  as  ultra  vires,  see  Hol- 
lins  V.  St.  Paul,  M.  &M.  R.  Co.,  (1889)9 
62 


N.  Y.  Supp.  909.  When  an  allegation 
in  an  answer  that  the  contracts  are  ul- 
tra  vires  the  corporation  is  a  sufficient 
defense,  see  Gillespie  v.  Davidge  Fertil- 
izer Co.,  (1892)  66  Hun,  627;  8.  c,  20 
N.  Y.  Supp.  833.  When  estoppel  to  de- 
fend on  the  ground  that  act  was  ultra 
vires,  see  Homestead  Banic  v.  Wood, 
(Ct.  Cm.  PI.  N.  Y.  City.  1892)  20  N.  Y. 
Supp.  640;  s.  c,  1  Misc.  Rep.  145.  Es- 
toppel of  corporatioQB  to  plead  ultra 
vires.  Carson  City  Savings  Bank  v. 
Carson  City  Elevator  Co.,  (1892)  90 
Mich.  550;  8.  c,  51  N.  W.  Rep.  641; 
citing  Day  v.  Buggy  Co.,  57  Mich. 
151;  Steel  Works  v.  Bresnahan,  60 
Mich.  337. 

» Lucas  V.  White  Line  Transfer  Co., 
70  Iowa,  541;  s.c,  30  N.  W.  Rep.  771. 

*  Ibid. 


4 


4l 


h ' 


490 


ULTRA  VIKKS —  PRIVATK  COIIPaRATIONff. 


r§  ^^To 


n 


1 


return  what  it  received  on  the  contract.*  Ilie  Court  of  Civil 
Appeals  of  Texas  has  held  that  where  the  directors  of  a  corpora- 
tion, authorizes!  hy  charter  to  estahlish  and  maintain  a  hotel,  pur- 
chased competing  hotel  property  and  received  the  henefit  of  tho 
transaction  for  two  years  they  would  not  he  heard  to  allege  that 
the  transaction  was  ultra  v'r<\s}  A  corporation  cannot  K-t  up 
the  limit  of  indehtedness  fixed  in  its  ciiarter  as  a  defense,  wlipru* 
the  consideKation  of  the  indel;tedness  has  l)een  received  ]»y  it.^ 
In  lilvc  manner  it  w^ould  he  estopped  from  settiuij:  up  want  of 
autliority  as  a  defense  as  against  money  advanced  to  ]>ay  indihted- 
ness  in  excess  of  tho  limit  (»f  indehtedness  fixed  in  its  cliartei-.* 
It  is  not  heyond  the  powers  of  a  corporation  organized  for  tlio 
purpose  of  owning  ditches  for  tho  conveyance  and  sale  of  water 


'  Ibid. 

•Steger  v.   Davis.   (Tex.   Ct.   App. 
1894)  27  8.  W.  Rep.  1068.     Tbo  court 
concluded  its  opinion  m  these  words: 
*'  In  the  rase  of  Publishing  Co.  r.  Hit- 
son,  80  Tex.  218;  s.  c,  14  S.  W.  Rop. 
843,  and  16  S.  W.  Rep   551.  the  court 
says:  'It  is  a  reasonable  and  *  volun- 
tary rule '  in  its  application  to  agen- 
cies, that  where   the    principal,  with 
knowledge  of  the  facts,  acquiesces  in 
the  acts  done  under  an  assumed  agency 
he  should  not  be  heard  subsequently 
to  impeach  them  upon  the  grouwi  that 
thvj.  were    done   witliout    authority. 
Kelsey  v.  Bank,  69  Pa.  St.  430.     This 
rule  applies  to  corporations  as  well  as 
to  individuals.     An  express  assent,  it 
is  said,  is  not  essential  on  tho  part  of 
the    stockholders    to    operate    as    an 
equitable  estoppel  upon  them.     It  may 
be     inferred    from    the    failure    to 
promptly  condemn  the   unauthorized 
although  not  illegal  act,  and  to  seek  ju- 
dicial retlress.     Sheldon,  etc.,   Co.   r. 
Eickemeyer     Hut  Blocking  Machine 
Co..  90  N.  Y.  607.  614.'"     See,   also, 
Bond    V.  Manufacturing  Co.,  82  Tex. 
309;  8.  c,  18  S.  W.  Rep.  691;  Russell 
«.  Railway  Co.,  68  Tex.  646;  s.  c,  5  S. 
W.  Rep.  686;  Stafford  v.  Harris.  82 Tex. 
.178;  8.  c,  17  S.  W.  Rep.  530.     As  to  pri- 
vate corporations,  having  received  the 


benefits  of   a  contract  beyond    their 
power  to  make,  being  estopped  to  set 
up  that  excess  of  authority  to  excuse 
them  from  discharging  their  part  of  the 
contract,  see   De    Groff   r.    American 
Linen  Thread  Co.,  (1860)  21  N.  V.  124, 
Sherman   Center  Town   (Company    /\ 
Fletcher,  46  Kans.  524;  Town  Co.   i\ 
Morris,  43   Kans.  282;  s.  c,   23  Pac. 
Kep.    569;    Town  Co.    i\   Swigart,  43 
Kans.   292;  8.   c,    23  Pac.    Rep.  569; 
Tootle  r.  First  National  Bank  of  Port 
Angeles.  (1893)  6  Wash.  St.  181;  s.  c, 
83    Pac.    Rep.    345;    Heims   Brewing 
Co.   V.   Flannery,   (1891)  137   111.  309; 
Watts-Campbell    Co.    v.    Yuengling, 
51  Hun,  302;  s.    c,   3  N.   Y.    Supp. 
869.     The    right    to   object  to  such 
contracts,   or    nuse    the   question   of 
ultra  vires:  Baker  v.  North  Western 
Guaranty    Loan    Co.,   36  Minn.   185; 
8.   c,   30   N.   W.    Rep.    464;    Starin 
«?.   Edson,   112  N.   Y.  206;   s.    c.    19 
N.  E.  Rep.  670.     In  Main  r.  Casseriy. 
(1S85)  67  Cal.  127,  a  (M)rponvtion  which 
had  received  antl  retained  the  consid- 
eration of  a  promissory  note  executed 
by  it  was  held  liable,  although  the  note 
was  executed  in  pursuance  of  a  con- 
tract ultra  vires. 

*  Humphrey  v.  Patrons,  etc..  Associ- 
ation, 50  Iowa,  607. 

*  Ibid. 


§279] 


ULTRA  VIRES PRIVATE  CORPORATIONS. 


491 


to  sell  and  convey  all  its  corporate  property,  provided  the  sale  be 
made  for  corporate  or  lawful  purposes,  and  strangers  taking  a 
conveyance  of  such  property  have  a  right  to  assnme,  as  against 
the  corporation,  tliat  the  sale  was  for  a  lawful  purpose.  And  if 
the  validity  of  such  a  sale  he  contested  hy  the  corporation  on  the 
ground  that  it  was  made  for  an  unlawful  purpose  it  would 
devolve  upon  the  corporation  to  show  that  the  party  making  the 
purchase  knew  of  such  unlawful  purpose.*  Even  if  unlawful 
for  a  corporation  to  make  a  sale  of  all  its  property  to  another 
corporation,  and  receive  in  ])ayment  therefor  the  stock  of  the 
grantee  to  be  distributed  among  its  own  stockholders,  if  such  sale 
is  made,  and  the  contract  fully  executed,  the  corporation  itself 
cannot  receive  back  the  property  sold  or  set  aside  the  contract 
on  account  of  its  illegality.* 


'  Miners'  Ditch  Company  v.  Zeller- 
bach,  (1869)  37  Cal.  543. 

nbid.    Sawyer,  Ch.  J.,  said:  "The 
term  ultra  vires,  whether  with  strict 
propriety  or  not,  is  also  used  in  differ- 
ent senses.     An  act  is  said  to  be  ultra 
vires  when  it  is  not  within  the  scope  of 
the  powers  of  the  corporation  to  per- 
form it  under  any  circumstances  or  for 
any  purpose.     An  act  is  also  sometimes 
said  to  be  ultra  vires  with  reference  to 
the  rights  of  certain  parties,  when  the 
corporation  is  not  authorized  to  per- 
form it  without  their  consent;  or,  with 
reference    to    some    specific  purpose, 
when  it  is  not  authorized  to  perform  it 
for  that  purpose,  although  fully  within 
the  scope  of  the  general  powers  of  the 
corporation,  with  the  consent  of  the 
parties  interested,  or  for  some  other 
purpose.     And  the  rights  of  strangers 
dealing   with  corporations  may  vary 
according  as  the  act  is  ultra  vires  in 
one  or  the  other  of  these  senses.     All 
these  distinctions  must  be  constantly 
borne  in  mind  in  considering  a  ques- 
tion arising  out  of  dealings  with  a  cor- 
poration.    When  an  act  is  ultra  vires 
in  the  first  sense  mentioned  it  is  gen- 
erally, if  not  always,  void  in  toto,  and 
the  corporation  may  avail  itself  of  the 
plea.     But  when  it  is  ultra  vires  in  the 


second  sense,  the  right  of  the  corpora- 
tion to  avail  itself  of  the  plea  will  de- 
pend upon  the  circumstances  of  the 
case.     The  opinions  in  the  cases  below 
are  extracted  from  freely  to  show  the 
class  of  circumstances  under  which  the 
plea  of  ultra  vires  would  not  be  avail- 
able to  the  corporation,  to  wit:  Bissell 
V.  Michigan  Southern  &  Northern  In- 
diana R.  R.  Cos.,  22  N.  Y.  262;  Mayor 
of  Norwich  v.  Norfolk  Railway  Com- 
pany, 30  Eng.  L.  &  Eq.  128;  McGregor 
V.  Dover  &  Deal  Railway  Co.,  17  Jur. 
21;  8.  c,  16  Eng.  L.  &  Eq.  180;  Simp- 
son V.  Denison,  10  Hare,  51 ;  Simpson 
V.    Denison,    13  Eng.  L.  &  Eq.  359; 
Eastern    Counties    Railway     Co.     v. 
Hawkes,  35  Eng.  L.  &  Eq.  9;  Edwards 
V.  Grand  Junction  Railway  Co..  1  Myl. 
&  Cr.    674;    Treadwell    v.   Salisbury 
Manufacturing  Co.,  7  Gray,  393.     Es- 
toppel to  plead  ultra  vires :     Pauly  v. 
Pauiy,  (Cal.   1895)  40  Pac.    Rep.    29; 
Farmers'  Loan  &  Trust  Co.  v.  Toledo, 
A.  A.  &  N.  M.  Ry.  Co.,  (1895)  67  Fed. 
Rep.  49;  Roy  &  Co.  v.  Scott,  Hartley 
«&  Co.,  (Wash.  1895)  39  Pac.  Rep.  679 
(stockholders  estopped);  Central  Build- 
ing &  Loan  Association  v.    Lampson, 
(Minn.   1895)  62  N.  W.  Rep.  544  (one 
receiving    the  benefit   of  a    loan  es- 
topped); Bensiek  v.  Thomas,  (1895)  66 


\* 


\  \ 


|H' 


I       .1 


I 


493 


ULTRA  VIRES  —  PRIVATE  CORPORATIONS.     [§§  280,  281 


mil 


§  280.  When  the  doctrine  of  ultta  vires  is  not  applicable. 

—  In  an  action  against  a  corporation  to  recover  money  lost  upon 
wagering  contmcts  wliicli  the  plaintiff  had  entered  into  through 
and  with  an  agent  of  the  corporation,  the  latter  objected  to  a 
recovery  against  it  on  the  ground  that  it  was  a  cor])oration  author- 
ized to  do  a  legitimate  business,  and  that,  as  it  could  not  lawfully 
authorize  its  agents  to  do  an  illegitimate  business,  it  could  not  be 
bound  by  his  acts  in  the  prosecution  of  it ;  that  the  attempt  to 
confer  such  authority  would  be  xdtra  vires,  and  the  attempted 
ratification  of  the  agent's  acts  equally  so.     The  Supreme  Court 
of  New  York,  in  General  Term,  through  Landon,  J.,  to  this  con- 
tention, said :  "  The  position  is  untenable.     A  person,  equally 
with  a  eoqwration,  has  no  lawful  power  to  do  wrong ;  but  both 
have  the  caj)acity  to  act,  and  the  capacity  to  act  amiss  inheres  in 
the  capacity  to  act  at  all.     Given  the  power  and  capacity  to  do 
right,  the  actor  may  nevertheless  do  wrong.     Unless  the  actor  is 
wholly  irresponsible,  he  must  answer  for  his  wrong  action,  partly 
in  justice  to  those  injured  thereby,  and  partly  as  a  deterrent  to  its 
like  repetition  by  himself  and  others.     If  the  agents  of  a  railroad 
corporation  take  my  timber  or  iron  against  my  consent,  and  con- 
vert it  into  a  bridge,  to  the  use  of  the  corporation,  the  corpora- 
tion must  either  restore  my  property  or  pay  me  for  it.     Here  the 
defendant  corporation  has  obtained  the  plaintiff's  money.     It  was 
obtained  by  means  of  wager  contracts.    Confessing  that  it  has  the 
money,  the  defendant  practically  argues  that,  because  it  could  not 
thus  obtain  it  within  its  lawful  powers,  it  does  not  really  have  it. 
Pretending  to  disclaim  the  transactions  by  which  it  obtained  the 
money,  it  practically  argues  that  its  pretended  disclaimer  gives  it 
title  to  keep  the  money.     But,  in  truth,  it  cannot  perfect  its  dis- 
claimer of  the  transaction  without  surrendering  its  fruits  ;  it  can- 
not retain  the  money  without  adopting  its  agent's  method  of 
obtaining  it ;  it  cannot  insist  upon  a  defense  so  long  as  it  refuses 
to  qualify  itself  to  interpose  it.     The  doctrine  of  ultra  vires  is  no 
wise  applicable  to  the  case."  * 

§  281.  Rules  declared  by  courts  as  to  estoppel  of  parties 
to  contracts  with  corporations  to  plead  ultra  vires. — One 

Fed.  Rep.  104  (corporation  estopped);       '  Peck  v.  Doran  Wright  Co.   (Lim- 
Miller  r.  Washington    Southern  Ry.    ited),  (1890)  10  N.  Y.  Supp.  401. 
Co..  (Wash.    1895)  39  Pac.   Rep.  673 
(corporation  estopped). 


§281] 


ULTRA  VIRES  —  PRIVATE  CORPORATIONS. 


493 


who  has  received  from  a  corporation  the  full  consideration  of  his 
agreement  to  pay  money  cannot  avail  himself  of  the  objection 
that  the  contract  is  ultra  vires}  As  corporations  are  created  hy 
public  acts  of  the  legislature,  and  all  their  powers,  duties  and  obli- 
gations are  declared  and  clearly  defined  by  public  law,  parties 
dealing  with  them  must  take  notice  of  those  powers  and  the  limi- 
tations upon  them  at  their  peril,  and  will  not  be  allowed  to  plead 
ignorance  of  those  powers  and  limitations  in  avoidance  of  the 
defense  of  ultra  vires?  The  defense  that  a  corporation  had  no 
power  under  its  charter  to  discount  notes  is  not  open  in  an  action 
by  the  corporation  against  the  maker  upon  a  note  discounted  by 
the  corporation  for  him  at  his  instance.^  Where  a  corporation 
indorses  notes  for  another,  and  is  compelled  to  pay  them,  in  the 
absence  of  an  express  prohibition  against  such  indorsements  by  the 
corporation,  he  for  whose  benefit  the  indorsement  was  made  can- 
not invoke  the  plea  of  ultra  vires  as  a  defense  against  the  enforce- 
ment of  a  chattel  mortgage  to  secure  the  corporation  against  its 
liability  upon  the  notes.*     The  defense  cannot  be  made,  in  an 


>  Chicago  &  Atlantic  Ry.  Co.  v. 
Derkes,  (1885)  103  Ind.  520. 

'Franklin  Company  d.  Lewiston 
Institution  for  Savings,  (1877)  68  Me. 
43;  citing  Pearce  v.  Madison  &  Ind. 
Railroad,  21  How.  441;  Andrews  v. 
Insurance  Co.,  37  Me.  256.  Parties 
receiving  benefit  of  contract  cannot  in- 
sist that  contract  was  ultra  nires.  Shelby 
t),  Chicago  &  Eastern  Illinois  R.  R. 
Co.,  (1892)  143  111.  385;  s.  c,  32  N.  E 
Rep.  438,  affirming  42  111.  App.  339. 

'  St.  Joseph  Fire  &  Marine  Insurance 
Co.  v.  Hauck,  (1880)  71  Mo,  465. 

*St.  Louis  Drug  Co.  t.  Robinson, 
(1881)  10  Mo.  App.  587 ;  affirmed  in 
St.  Louis  Drug  Co.  t).  Robinson,  (1883) 
81  Mo.  18,  in  which  case  the  Supreme 
Court  said  :  "  Conceding  that  [the  cor- 
poration had  no  authority  to  indorse 
notes  for  the  accommodation  of  others] 
it  is  sufficient  on  this  point  to  say  that 
in  a  line  of  decisions  of  this  court  un- 
broken, except  in  the  case  of  Matthews 
V.  Skinker,  62  Mo.  329,  it  has  been 
held  that  the  question  of  ultra  vires 
can  only  be  raised  in  a  direct  proceed- 


ing by  the  state  against  the  corporation, 
and  not  in  a  collateral  proceeding  by 
another,  except  when  the  charter  of 
the  corporation  not  only  specifies,  and, 
therefore,  limits  it  to  the  business  in 
which  it  may  engage,  but,  by  express 
terms,  or  by  a  fair  implication  from  its 
terms,  invalidates  transactions  outside 
of  its  legitimate  corporate  business. 
Mclndoe  v.  St.  Louis,  10  Mo.  577; 
Chambers  v.  St.  Louis,  29  Mo.  543; 
Pacific  R.  R.  Co.  v.  Seely,  45  Mo.  212; 
Land  ».  Coffman,  50  Mo.  243.  Since 
Matthews  v.  Skinker,  supra,  was  de- 
cided announcing  a  different  doctrine, 
in  the  following  cases  this  court  re- 
turned to  the  doctrine  of  the  earlier 
cases  :  A.  &  P.  R.  R.  Co.  v.  St.  Louis, 
66  Mo.  228;  St.  Jos.  Fire  &  M.  Ins. 
Co.  V.  Hauck,  71  Mo.  465;  Thornton 
v.  National  Ex.  Bank,  71  Mo.  221; 
Union  Nat.  Bank  v.  Hunt.  76  Mo.  439. 
The  judgment  of  this  court  in  Mat- 
thews V.  Skinker,  supra,  was  on  ap- 
peal reversed  by  the  Supreme  Court 
of  the  United  States,  and  the  doctrine 
then  announced   by  that  court  is  in 


\ 


'fi 


494 


ULTRA  VIKES PRIVATE  CORPORATIONS. 


[§281 


ft 


4 


action  by  a  corporation  upon  a  contract  made  by  it  with  the 
defendant,  that  the  corporation,  in  making  the  contract,  has 
exceeded  tlie  power  conferred  by  its  charter  or  the  hvw  under 
which  it  is  formed.^  The  vendor  to  a  corporation  liaving  power 
to  purchase  real  estate,  but  prohibited  by  its  charter  from  making 
purchases  for  other  than  a  prescribed  purpose,  having  made  a 
deed  to  the  corporation,  cannot  liave  the  conveyance  set  aside 
and  his  contract  rescinded  on  tlie  ground  that  the  corporation,  in 
taking  the  conveyance,  did  so  for  a  purpose  other  than  that  pre- 
scribed in  its  charter,  and  had  exceeded  its  power.^  The  question 
w^hether,  in  such  a  case  as  this,  the  corporation  has  exceeded  its 
powers,  is  one  between  the  state  and  the  corporation,  with  which 
a  vendor,  as  a  grantor  simply  of  land  to  the  corporation,  has  no 
concern.^  An  assignee  of  railroad  stock,  who  had  neither  regis- 
tered his  stock  nor  obtained  recognition  as  a  stockholder,  it  has 
been  held  in  a  federal  court,  cannot  bring  suit  in  behalf  of  him- 


harmony  with  that  which  before  had 
been  uniformly ,  and  has  since  been 
repeatedly,  declared  by  this  court." 
See,  also,  Franklin  Ave.  Ger.  Sav. 
Inst.  r.  Board  of  Education,  (1882)  75 
Mo.  408;  First  National  Bank  r.  Gil- 
lilan.  (1880)  73  Mo.  77.  It  has  been 
held  in  Brown  r.  Donnell,  (I860)  49 
Me.  421,  an  action  against  the  maker 
by  the  indorsee  of  a  note  given  to  an 
insurance  company  and  by  the  cor- 
poration transferred  in  payment  of 
bank  stock  purchased  by  it,  the  maker 
of  the  note  could  not  controvert  the 
rights  of  the  corporation  to  purchase 
the  stock. 

'  Union  Water  Co.  t.  Murphy's  Flat 
Fluming  Co.,  (1863)  23  Cal.  631.  It 
was  said  by  the  court :  "  In  numerous 
cases  it  has  been  held  that  a  contract 
made  by  a  corporation  which  is  not 
authorized  by  its  charter  is  not  to  be 
held  void,  and  that  a  defendant  sued 
thereon  cannot  refuse  payment;  but 
the  legislature  may  inquire  into  any 
violation  of  the  charter,  or  the  govern- 
ment may  institute  suit  for  that  pur- 
pose. The  investigation  must  be  in 
a  direct  proceeding  instituted  by  the 


government  for  that  purpose,  and  it 
cannot  be  had  in  a  collateral  way  by 
individuals.  Grand  Gulf  Bank  t>. 
Archer,  8  Smedes  &  M.  151,  173; 
Wade  V.  American  Colonization  So- 
ciety, 7  Smedes  &  M.  663;  Nevitt  v. 
Bank  of  Port  Gibson,  6  Smedes  &  M. 
513:  Chester  Glass  Co.  v.  Dewey,  16 
Mass.  102;  Moss  ??.  Rossie  L.  M.  Co.,  5 
Hill,  140;  The  Banks  v.  Poitiaux,  3 
Rand.  142, 146;  Vidal  v.  Girard's  Exrs. , 
2  How.  191;  Fleckner  i\  U.  S.  Bank,  8 
Wheat.  355;  Natoma  W.  &  M.  Co.  v. 
Clarkin,  14  Cal.  552. 

« Hough  V.   Cook  Land  Co.,  (1874) 
73  III.  23. 

•  Ibid.;  citing  Banks  v.  Poitiaux,  3 
Rand.   141;    Barrow  v.    N.   &  C.  T. 
Co.,  9  Humph.  304;  Chambers  v.  St. 
Louis,  29  Mo.  576;  Attorney-General 
V.  Tudor  Ice  Co.,  104  Mass.  239;  Whit- 
man Mining  Co.  v.  Baker,  3  Nev.  391; 
Hayward  v.  Davidson^  41   Ind.  212. 
That  the  state  alone  can  raise  objec- 
tion to  an  ultra  vires  act,  see  Alexander 
V.  Tolleston  Club  of   Chicago,  (1884) 
110  111.  65;    Barnes  v.  Suddard,   117 
111.   237;    People's  Gas,   etc.,   Co.   v. 
Chicago  Gas,  etc.,  Co.,  20  Bradw.  473. 


§281] 


ULTRA  VIRES  —  PRIVATE  CORPORATIONS. 


495 


self  and  other  stockholders  to  restrain  the  action  of  the  officers  of 
the  corporation  from  acts  alleged  to  be  ultra  vires  and  illegal.* 
AVhere  one  buys  land  without  knowledge  of  an  outstanding  equity, 
and  his  note,  given  for  a  portion  of  the  price,  secured  by  vendor's 
lien,  is  taken  by  a  corporation  to  secure  a  loan,  the  owner  of  this 
outstanding  equity  cannot,  in  an  action  to  enforce  it,  set  up  that 
the  act  of  the  corporation  in  taking  the  note  was  ultra  vires?    A 
homestead  loan  association  made  a  loan  of  money  to  two  of  its 
members  for  the  use  of  a  brewing  company,  the  latter  giving  its 
deed  of  trust  to  the  association  to  secure  the  loan.     There  was  no 
fraud  in  the  loan  and  nothing  to  mislead  the  parties  in  whose 
names  the  loan  was  made.     The  Illinois  Supreme  Court  held  that 
as  the  brewing  company  could  not  avoid  its  deed  of  trust  under 
the  plea  of  ultra  vires^  the  jmi-ties  to  whom  the  loan  was  made 
were  also  estopped  from  avaiUng  of  the  defense,  and  that  the  deed 
of  trust  might  be  foreclosed  as  against  them  and  other  creditors 
of  the  brewing  company  having  notice  of  the  rights  of  the  loan 
association.^     It  is  no  defense  to  a  note  given  by  one  not  a  mem- 


'  Brown  v.  Duluth,  M.  &  N.  Ry. 
Co.,  (1893)  53  Fed.  Rep.  889.  See 
Heath  V.  Railway  Co.,  8  Blatchf.  347, 
392,  410;  Ramsey  v.  Erie  Ry.  Co.,  7 
Abb.  Pr.  (N.  S.)  156;  Hersey  v. 
Veazie,  24  Me.  9. 

5  Taylor  v.  Callaway,  (Tex.  Civ. 
App.  1894)  27  S.  W.  Rep.  934.  See, 
upon  the  question  of  estoppel  to  deny 
the  power  of  a  corporation  to  do  an 
act.  Bond  r.  Manufacturing  Co.,  82 
Tex.  309;  s.  c,  18  S.  W.  Rep.  691, 
and  authorities  there  cited,  Bank  r. 
Matthews,  98  U.  S.  621;  Smith  v. 
White,  (Tex.  Civ.  App.)  25  S.W.  Rep. 
809;  Keys  v.  Association,  (Tex.  Civ. 
App.)  25  S.  W.  Rep.  809. 

3  Kadish  r.  Garden  City  Equitable 
Loan  &  Building  Association,  (1894) 
151111.531.  The  court  said:  "There 
is  *  *  *  no  prohibition  in  the  stat- 
ute against  corporations  becoming 
members  of  homestead  loan  associa- 
tions for  the  purpose  of  borrowing 
money;  neither  is  there  any  prohibi- 
tion therein  against  loaning  money  for 
other    than    building    purposes.      In 


other  words,  the  tmusactions  were  at 
most  ultra  vires,  in  the  commonly  un- 
derstood sense  of  these  words,   and 
nothing   more.      As  said  in  Whitney 
Arms  Co.  r.  Barlow,  63  N.  Y.  62,  cited 
with  approval  by  this  court  in  Darst?'. 
Gale,  83  III.   141,    'the  acts  were  not 
immoral  in  themselves  or  forbidden  by 
any  statute,  neither  mala  in  se  or  mala 
prohibita,  so  as  to  make  the  contract 
illegal    and    incapable   of    being   the 
foundation  of  an  action.     Such  a  con- 
tract as  the  law  will  not  recognize  or 
enforce,   but  applying  the  maxim  eo 
facto  illicito  nmi  oritur  actio,  leaves  the 
parties  as  it  found  them.'    It  is  also 
said  in  that  case:     '  When  acts  of  cor- 
porations are  spoken  of  as  nltra  vires 
it  is  not  intended  that  they  are  unlaw- 
ful or  even  such  as  the  corporation 
cannot    perform,    but    merely    those 
which  are  not  within   the  power  con- 
ferred upon  the  corporation  by  the  act 
of  its  creation,  and  are  in  violation  of 
the    trust    reposed  in  the   managing 
board  by  the  stockholders,  that   the 
affairs  shall  be  managed  and  the  funds 


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ULTRA  VIRES  —  PRIVATE  CORPORATIONS. 


[§281 


ber  of  a  building  association  for  money  loaned  him  that  the  cor- 
poration exceeded  its  powers  in  loaning  the  money  for  which  the 
note  was  given.^  In  a  Michigan  case,  a  mannfacturing  corpora- 
tion, outside  of  the  purposes  for  which  it  was  incorporated,  con- 
tracted with  a  party  for  a  stated  quantity  of  a  manufactured 
article  at  a  certain  price,  and  then  made  a  contract  with  another  to 
manufacture  the  same  and  deliver  it  to  him  at  such  a  price  as  left 
a  profit  to  the  corpomtion.  This  contract  was  deemed  an  ultra 
mres  contract,  as  being  a  contract  purely  for  a  speculative  pur- 
}X)se,  and  the  manufacturer  l)ringing  an  action  against  the  corpo- 
ration on  a  quantum  inendt  for  goods  delivered  under  the  con- 
tract, the  corporation  sought  to  recou])  for  damages  by  reason  of 
non-performance  of  the  contract.  The  Supreme  Court  held  that 
the  plaintiff  was  not  estopjyed  from  claiming  that  the  contract 
was  ultra  vires?    The  court  further  held  that  there  being  noth- 


applied  solely  for  carrying  out  the  ob- 
ject for  which  the  corporation  was 
created.  *  *  *  It  is  now  very  well 
settled  that  a  corporation  cannot  avail 
itself  of  the  defense  of  ultrn  ri/rs 
when  the  contract  has  been  in  good 
faith  performed  by  the  other  party, 
and  the  corporation  has  had  the  full 
benetit  of  the  performance  of  the  con- 
tract. *  *  *  The  same  rule  holds 
e  emiverm.  If  the  other  party  has 
had  the  benefit  of  the  contract  fully 
performed  by  the  corporation  he  will 
not  be  heartl  to  object  that  the  contract 
and  performance  were  not  within  the 
legitimate  powers  of  the  corporation.' " 
See  Benefit  Association  i\  Blue,  120  111. 
128;  Bradley  v.  Ballard,  55  III.  415;  2 
Beach  on  Priv.  Corp.  §  425  et  geq., 
for  a  full  discussion  of  the  subject; 
Carson  City  Sav.  Bank  r.  Elevator  Co., 
90  Mich.  550;  Holmes  &  Griggs  Co.  t. 
Metal  Co.,  127  N.  Y.  252;  s.  c,  24  Am. 
St.  Rep.  448. 

'  Poock  V.  Lafayette  Building  Asso- 
ciation, (1880)  71  Ind.  357. 

»  Day  V.  Spiral  Springs  Buggy  Co. . 
(1885)  57  Mich.  146.     Cooley,  Ch.  J., 
said:     **  [The  parties  to  this  contract] 
roust,  therefore,  be  supposed  to  have 
understood  that  the  contract  in  its  in- 


ception was  ultra  vire^.  And  the 
power  on  the  part  of  such  a  corpora- 
tion to  enter  into  contracts  of  specula- 
tion being  withheld  on  reasons  of  pub- 
lic policy  for  the  protection  of  share- 
holders and  the  general  good  of  the 
community,  the  act  neither  of  one 
party  nor  of  both  in  entering  into  it 
can  work  an  estoppel  against  setting 
up  the  invalidity.  A  rule  of  law  es- 
tablished for  the  ])ublic  good  cannot 
be  thus  defeate<l.  A  corporation  can- 
not, by  the  mere  act  of  individuals,  be 
given  a  power  which  the  state,  for 
general  reasons,  has  withheld  from  it. 
Pennsylvania,  etc.,  Nav,  Co.  tJ.  Dan- 
dridge,  8  Gill  &  J.  (Md.)  248,  319. 
Parties  may  also  be  estopped  in  some 
cases  from  disputing  the  validity  of  a 
corporate  contract  when  it  has  been 
fully  performed  on  one  side,  and  when 
nothing  short  of  enforcement  will  do 
justice.  To  quote  the  language  of 
CoMSTOCK,  Ch.  J. ,  in  Parish  v.  Wheeler, 
22  N.  Y.  494,  508,  '  the  executed  deal- 
ings of  corporations  must  be  allowed 
to  stand  for  and  against  both  the  par- 
ties when  the  plainest  rules  of  good 
faith  so  require.'  But  this  is  not  such 
a  case.  The  contract  has  only  been 
performed   in    part.    The   defendant 


§282] 


ULTRA  VIRES PRIVATE  CORPORATIONS. 


497 


mg  of  an  unmoral  nature  in  this  contract,  the  plaintif  was  entitled 
to  recover  the  value  of  her  goods  delivered  on  the  contract  to  the 
corporation  upon  a  quantmn  meruit.'  If  a  corporation  had  no 
power  to  purchase  a  note  and  mortgage  upon  which  it  brings 
suit  that  fact  should  be  pleaded  as  a  defense.^  Where  one  has 
made  a  contract  with  a  corporation  which  is  ultra  vires,  and  has 
received  the  benefit  of  it,  neither  he  nor  those  claiming  under 
him  are  estopped  from  setting  up  the  invalidity  of  the  contract  in 
defense  of  a  suit  to  enforce  it.^ 

§  282.  Financial  arrangfements  contrary  to  public  policy  — 
rules  governing  proceedings  on  the  part  of  the  state,  etc. 

—In  proceedings  on  the  part  of  the  state  to  dissolve  a  corpora- 
tion  on  account  of  its  illegal  or  unwarranted  acts,  the  state,  as 
prosecutor,  must  show  on  the  part  of  the  corporation  accused 
some  sm  against  the  law  of  its  being  which  has  produced  or  tends 
to  produce  injury  to  the  public.  The  transgression  must  not  be 
merely  formal  or  incidental,  but  material  and  serious,  and  such  as 
to  harm  and  menace  the  public  welfare.  When  the  transgression 
threatens   the   welfare   of    the  people,  they    may   summon  the 

has  received  a  portion  of  the  property   Thomas  v.  Railroad  Co  ,  101  U  S  71- 
bargamed  for.  and  we  may  justly  as-    In  re  Cork  &  Y.  Ry   Co    L  R    4  Ch' 
sume  that  what  has  been  received  has   App.  748;  In  re  National, 'etc. ,  Society' 
passed  mto  the  hands  of  [the  vendee   L.  R.,  5  Ch.  App  309 
of  the  corporation]  and  been  paid  for,       ^  Thomson  v.    Madison  Building  & 
so  that  the  defendant  will  lose  nothing   Aid  Association,  (1885)  103  Ind   279 
but  the  anticipated  profits  on  the  re-       ^  Chambers    v.    Falkncr    (1880)    65 
mamder  if  the  contract  is  not  enforced   Ala.  448.     In  Marion  Savings  Bank  v 
in  Its  favor.     Those  profits  it  had  no   Dunkin,    54  Ala.  471,  Justice  Stone 
right  at  any  time  to  count  upon,  and   of  the  Alabama  Supreme  Court   has 
10  contemplation  of  law  there  can  be   said:     "A  party  dealing  with  a  cor- 
no  mjustice  in  depriving  it  of  profits   poration,  in  a  matter  not  within  the 
which  the  law  would  not  permit  it  to   purview  of  its  delegated  powers  does 
bargam  for.     No  valid  ground  for  es-   not  estop  himself  from  settino-  up  in 
toppel  is,^  therefore,  found  to  exist  in   defense  the  want  of  authority  in  the 
the  case. "  corporation  to  make  the  contract  *  *  * 

/1Q0  ^^  "■  ^^'^^  Springs  Buggy  Co.,  In  such  case  the  doctrine  of  estoppel 
(1880)57  Mich.  146.  The  ruling  the  cannot  be  held  to  applv  without  cloth- 
court  considered  sustained  by  Pnitt  v.  ing  corporations  with  the  ability  to  in- 
fcjhort,  79  N.  Y.  437;  Northwestern  crease  their  powers  indefinitely  by 
Union  Packet  Co.  v,  Shaw.  37  Wis.  sheer  usurpation.  Such  contracts  on 
^05,  and  Harriman  v.  Baptist  Church,  the  pari;  of  a  corporation  are  ultra  vires 
0'5  Q^.  186,  and  cited  as  cases  consider-  and  void,  and  no  right  of  action  caa 
JDg  the  principle  involved,  Whitney  spring  out  of  them." 
Arms  Co.  v.    Bariow,  63  N.   Y.  62; 

63 


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ULTRA  VIRES  —  PRIVATE  CORPORATIONS. 


« 


[§282 


offender  to  answer  for  the  abuse  of  its  franchise  or  the  violation 
of  its  corporate   duty.     These  are   the   rules   declared   by    the 
Court  of  Appeals  of  New  York  when  considering  the  people's 
case  against  a  corporation  organized  under  the  statutes  of  that 
state  for  the  formation  of  manufacturing  corporations  which  had 
surrendered  its  stock  under  an  agreement  with  other  similar  cor- 
porations for  the  puri)06e  of  forming  a  "  trust."*     By  the  agree- 
ment entered  into  by  tlie  corporation  innncdiately  involved  in  the 
case  with  the  others  concerned,  a  "  board,"  as  it  was  called,  was 
formed.     The  signers  agreed  to  transfer  all  their  shares  of  stock 
"to  tlio  names  of  the  board  as  trustees,  to  l)e  lield  by  them  and 
their   successors   as    members  of    the   board    strictly  as  private 
tenants/'     This  ]>oard,  it  was  declared,  "  shall  hold  the  stock  trans- 
ferred to  it  with  all  the  rights  an<l  powers  incident  to  stockhold- 
ei*s  in  the  several  corporations.''     It  was  also  authorized  to  trans- 
fer '*to  such  persons  as  it  may  l)e  desired  to  constitute  trustees  or 
directors  or  other  officers  of  corporations  so  many  of  the  shares 
as  may  be  necessary  for  that  purpose.''     The  agreement  provided 
that  eertiiicates  should  be  issued  by  the  "  board"  to  the  contract- 
ing parties  in  specitied  proi>ortions  in  lieu  of  the  capital  stock  ; 
that  each  of  the  i>arties  should  maintain  a  separate  organization 
and  carry  on  and  conduct  its  own  business,  paying  over  the  proiits 
to  the  board,  '"  the  aggregate  or  such  amount  as  shall  be  desig- 
nated  for  dividends."  to  be    prooortionally  distributed  by  the 
board  to  the  holders  of  the  certificates.     The  board  was  prohib- 
ited from  taking  any  action  ''  which  shall  create  liability  by  it  or 
l)y  its  members,"  but  there  was  a  provision  that  the  funds  neces- 
sary to  enable  the  board  to  make  payments  as  specified  "  may  be 
raised  by  mortgage  to  be  made  by  the  corporations,  or  any,  either 
or  all  of  them,  upon  their  property."     The  number  and  amount 
of  shares  to  be  issued  by  the  board  was  fixed  with  a  proviso  that 
thev  "mavfrom  time  to  time  be  increased  or  diminished  by 
deeds  executed  by  a  majority  hi  value  of  the  certificate  holders." 
Defendant's  stock  was  transferred  and  certificates  issued  to  its 
stockholders   as  provided  for.     The  board  elected  officers  and 
board  of  trustees  of  defendant,  having  transferred  to  each  of 
them  a  share  of  the  stock  to  enable  him  to  hold  the  office.     The 
effect  of  this  transaction,  as  far  as  concerned  defendant,  was 
stated  by  the  court  to  be  '*  to  divest  it  of  the  essential  and   vital 

^  People  r.  North  River  Sugar  Refining  Company,  (1890)  121  N.  Y.  582. 


§282] 


ULTRA  VIRES  —  PRIVATE  CORPORATIONS. 


499 


elements  of  its  franchise  by  placing  them  in  trust ;  to  accept 
from^  the  state  tlie  gift  of  corporate  life  only  to  disregard  the 
conditions  upon  which  it  was  given ;  to  receive  its  powers  and 
privileges  merely  to  put  them  in  pawn,  and  to  give  away  to  an 
irresponsible    board    its   entire   independence   and   self-control. 
V^ien  it  had  passed  into  the  hands  of  tlie  trust  only  a  shell  of  a 
corporation  was  left  standing,  as  a  seeming  obedience  to  the  law, 
but  with  its  internal  structure  destroyed  or  removed.     Its  stock- 
holders, retaining  their  beneficial  interest,  have  separated  from  it 
their  voting  power  and  so  parted  with  the  contract  which  the 
charter  gave  them  and  the  state  required  them  to  exercise.     It 
has  a  board   of  directors  nominally  and  formally  in  office,  but 
qualified  by  shares  which  they  do  not  own,  and  owing  their  offi- 
cial life  to  the  board  which  can  end  their  power  at  any  moment 
of  disobedience.     It  can  make  no  dividends,  whatever  may  be  its 
net  earnings,  and  must  incumber  its  property  at  the  command  of 
its  master  and  for  purposes  wholly  foreign  to  its  own  corporate 
interests  and  duties."     "  In  all  these  respects,"  said  the  court,  "  it 
has  wasted  and  perverted  the  privileges  conferred  by  the  charter, 
abused    its   powers  and  proved  unfaithful   to   its   duties.     But 
graver  still  is  the  illegal  action  substituted  for  the  conduct  which 
the  state  had  a  right  to  expect  and  require.     It  has  helped  to 
create   an  anomalous  trust,  which  is,  in  substance  and  effect,  a 
partnership  of  twenty  separate  corporations.     The   state  permits 
in  many  ways  an  aggregation  of  capital,  but,  mindful  of  the  pos- 
sible  dangers    to  the  people  overbalancing  the  benefits,  keeps 
upon  it   a   restraining  hand,  and  maintains  over  it   a   prudent 
supervision  where  such  aggregation  depends  upon  its  permission 
and  grows  out  of  its  corporate  grants.     It  is  a  violation  of  law 
for  corporations  to  enter  into  a  partnership."^     Eeferring  later  in 
their  opinion  to  this  trust  formed  by  the  several  corporations, 
having  a  capital  stock  double  the  value  of  the  fair  aggregate 
value  of  the  rights  and  franchises  of  the  companies  absorbed  at 
the  outset  and  capable  of  an  elastic  and  irresponsible  increase,  the 
court  said :  "And  here,  I  think,  we  gain  a  definite  view  of  the 
injurious  tendencies  developed  by  its  organization  and  operation 
and  of  the  public  interests  which  are  menaced  by  its  action.     As 
corporate  grants  are  always  assumed  to  have  been  made  for  the 

'Ibid.;   citing  N.  Y.  &  8.  C.  Co.  I).    Meredith,    1    Wall.    29;    Whittenton 
F.  Bank,  7  Wend.  412;   Clearwater  v.    Mills  v.  Upton,  10  Gray,  596. 


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ULTRA  VIRES PRIVATE  CORPORATIONS. 


[§282 


public  benefit,  and  conduct  which  destroys  their  normal  func- 
tions and  maims  and  cripples  their  sej)arate  activity  and  takes 
away  their  free  and  independent  action,  must  so  far  disappoint 
the  purpose  of  their  creation  as  to  affect  unfavorably  the  public 
interest,  and  that  to  a  much  greater  extent  when  beyond  their 
own  several  aggregations  of  capital  they  compact  them  all  into 
one  combination,  which  stands  outside  of  the  hand  of  the  state, 
which  dominates  the  range  of  an  entire  industry  and  puts  upon 
the  market  a  capital  stock,  proudly  defiant  of  actual  values,  and 
capable  of  an  unHmited  expansion."  *  If  the  business  of  a  cor- 
poration is  threatened  with  competition,  it  is  not  illegal  or 
immoral  if  it  can  persuade  its  comj)etitor  to  abandon  an  enter- 
prise in  which  both  cannot  succeed  upon  the  basis  of  some  proper 
consideration  therefor.^  In  an  Ohio  case  the  Supreme  Court 
said :  "  Where  all  or  a  majority  of  the  stockholders  comprising 
a  corporation  do  an  act  which  is  designed  to  affect  the  property 
and  business  of  the  company,  and  which,  through  the  control 
their  immbers  give  them  over  the  selection  and  conduct  of  the 
corporate  agencies,  does  affect  the  property  and  business  of  the 
company  in  the  same  manner  as  if  it  had  been  a  formal  resolution 


*  People  p.  North  River  Sugar  Re- 
fining Co.,  (1890),  121  N.  Y.  582, 
holding  that  the  corporation  had  vio- 
lated its  charter  and  failed  in  the  per- 
formance of  itj  corporate  duties, 
and  in  respects  so  material  and  im- 
portant as  to  justify  a  judgment  of 
dissolution.  In  Leslie  v.  Lorillard, 
(1888)  110  N.  Y.  519,  533,  the  New 
York  Court  of  Appeals  said:  "  Corpo- 
rations are  great  engines  for  the  pro- 
motion of  the  public  convenience  and 
for  the  development  of  public  wealth, 
and  so  long  as  they  are  conducted  for 
the  purposes  for  which  organized, 
they  are  a  public  benefit;  but  if  all 
were  to  engage  without  supervision  in 
subjects  of  enterprise  foreign  to  their 
charters,  or  if  permitted  unrestrainedly 
to  control  and  monopolize  the  avenues 
tc  that  industry  in  whicrh  they  are 
engaged,  they  become  a  public  menace, 
against  which  public  policy  and  stat- 
utes design  protection.    When,  there- 


fore, the  provisions  of  agreements  in 
restraint  of  competition  tend  beyond 
measures  for  self-protection  and 
threaten  the  public  gofjd  in  a  dis- 
tinctly appreciable  manner,  they 
should  not  be  sustained.  The  appre- 
hension of  danger  to  the  public  inter- 
ests, however,  should  rest  on  evident 
grounds,  and  courts  should  refrain 
from  the  exercise  of  their  equitable 
powers  in  interfering  with  and  re- 
straining the  conduct  of  the  affairs  of 
individuals  or  of  corporations,  unless 
their  conduct,  in  some  tangible  form, 
threatens  the  welfare  of  the  public." 
See  on  this  subject  Shepaug  Voting 
Trust  Cases,  (1890)  60  Conn.  553;  s.  c.» 
24  Atl.  Rep.  32. 

*  Oakcs  r.  Cattaraugus  Water  Com- 
pany, (1894)  143  N.  Y.  430;  8.  c,  38 
N.  E.  Rep.  461;  62  N.  Y.  St.  Repr. 
445.  See,  also,  Leslie  v.  Lorillard^ 
(1888)  no  N.  Y.  519. 


§282] 


ULTRA  VIEE8  —  PEIVATE  COKPOKATIONS. 


501 


of  its  board  of  directors ;  and  the  act  so  done  is  ultra  vires  of 
the  corjioration  and  agahist  public  policy,  and  was  done  by  them 
in  their  individual  capacity  for  the  purpose  of  concealing  their 
real  purpose  and  object,  the  act  should  be  regarded  as  the  act  of 
the  corporation,  and,  to  prevent  the  abuse  of  corporate  power, 
may  be  challenged  as  sucli  by  the  state  in  a  proceeding  in  qtbo 
warranto:'  *  Thayer,  J.,  in  the  United  States  Circuit  Court  for 
the  eastern  district  of  Missouri,  refused  an  injunction  to  restrain 
a  Missouri  corporation  from  violating  an  agreement  it  had  entered 
into  not  to  engage  in  the  business  for  which  it  was  organized  for 
a  period  of  twenty-live  years  upon  the  ground  that  the  agree- 
ment was  void.  He  referred  to  the  trust  agreement  which  had 
been  signed  by  this  and  other  corporations  in  the  same  line  of 
business,  its  various  provisions,  and  held  that  this  corporation 
exceeded  its  powers  in  signing  and  becoming  a  party  to  the  trust 
agreement.2  These  are  rules  declared  by  the  New  Jersey  Court 
of  Chancery  :  The  corporate  acts  of  directors,  if  they  are  within 
the  powers  of  the  corporation,  and  in  furtherance  of  its  purposes 
are  not  unlawful  or  against  good  morals  and  are  done  in  good 
faith  and  in  the  exercise  of  an  honest  judgment,  cannot  be 
questioned  by  individual  stockholders  in  judicial  proceed- 
ings. Contracts  made  by  corporations,  which  appear  to  be 
designed  to  promote  tlieir  legitimate  and  profitable  operation, 
will  be  presumed  by  the  courts,  as  a  general  rule,  to  be  within 


*  State  ex  rel.  v.  Standard  Oil  Com- 
pan5%  (1892)  49  Ohio  St.  137. 

'In  American  Preservers'  Trust  v. 
Taylor  Manufg.  Co.,  (1891)  46  Fed. 
Rep.  15ii.  it  was  said  by  the  court: 
"By  [signing  and  becoming  a  party 
to  this  agreement  defendant]  united, 
with  the  other  corporations  and  indi- 
viduals who  signed  the  agreement,  in 
creating  a  partnership  or  joint-stock 
concern,  and  in  furtherance  of  that 
enterprise  it  undertook  to  appoint 
agents  to  manage  the  concern  in  its 
behalf,  and  to  vest  such  agents  with 
authority  to  buy  and  lease  property  in 
all  parts  of  the  United  States,  to 
obtain  and  exercise  control  over 
other  corporations  by  acquiring  their 
stock,    and  with   power    likewise    to 


issue  negotiable  securities  without 
limit,  and  to  declare  dividends  thereon. 
In  all  these  respects,  I  must  conclude 
that  the  defendant  corporation,  by 
executing  the  trust  agreement,  under- 
took to  exercise  powers  to  which  it 
could  lay  no  reasonable  claim  by 
virtue  of  the  law  under  which  it  is 
organized,  and  from  which  all  of  its 
powers  are  derived."  Citing  People «?. 
North  River  Sugar  Refining  Co. ,  (1890) 
121  N.  Y.  582;  s.  c,  24  N.  E.  Rep. 
834;  Mallory  v.  Hanaur  Oil  Works, 
(1888)  86  Tenn.  598;  e.  c,  8  S.  W.  Rep. 
396;  State  v.  Nebraska  Distilling  Co., 
(1890)  29  Neb.  700;  s.  c,  46  N.  W. 
Rep.  155;  Whittenton  Mills  v.  Upton, 
10  Gray,  596. 


11 


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502 


ULTRA  VIEES  —  PBIVATE  CORPORATIONS. 


[§282 


I'  ' 


II 


the  limits  of  their  power,  and  if  the  validity  of  the  conti-acts  be 
assailed,  the  assailant  will  be  required  to  assume  the  burden  of 
demonstrating  their  invalidity.  Corporations  organized  under  the 
general  law  of  New  Jersey  are  vested  with  the  powers  conferred 
by  the  general  act,  and  those  contemplated  by  the  certificate,  and 
such  incidental  powers,  with  respect  of  the  general  and  special 
l)owers,  as  are  necessary  in  the  sense  of  convenient,  reasonable 
and  proper.  While  the  general  act  permits  incorporation  for 
"  any  lawful  business  or  purpose  whatsoever,"  and  the  law  gives 
all  necessary  powers  thereto,  it  does  not  recognize  as  embraced 
therein  powers  to  do  those  things  which  would  deprive  the  cor- 
poration of  its  ability  to  carry  out  the  objects  for  which  it  was 
-formed,  or  discharge  any  duties  which  it  might  under  its  charter 
owe  to  the  public,  or  which  are  contrary  to  the  policy  of  the  law.* 
The  doctrine  of  ultra  vires  ought  to  be  reasonably,  and  not 
unreasonably,  understood  and  upheld,  and  whatever  may  be  fairly 
regarded  as  incidental  to  and  consequential  upon  those  things 
which  are  authorized  by  the  charter  of  a  corporation  ought  not, 
unless  expressly  prohibited,  to  be  held  by  judicial  construction  to 
be  ultra  vires?  Contracts  by  a  corporation  which  impose  an 
unreasonable  restraint  upon  the  exercise  of  its  business  are  void, 
but  contracts  in  reasonable  restraint  of  its  business  are  valid.  The 
test  to  be  applied  in  determining  the  reasonableness  of  the  restraint 
imposed  by  the  contract  is  to  consider  whether  it  is  only  such  as 
is  necessary  to  afford  a  fair  protection  to  the  interest  of  the  cor- 
poration in  favor  of  which  it  is  given,  and  not  so  large  as  to 
interfere  with  the  interest  of  the  public.^  The  Illinois  Supreme 
Court,  in  the  Chicago  Gas  Trust  case,  declared  these  rules  as  to 
corporations :  Corporations  can  only  exercise  such  powers,  as  may 
be  conferred  by  the  legislative  body  creating  them,  either  in 
express  terms  or  by  necessary  implication,  and  the  implied  powers 
are  presumed  to  exist  to  enable  such  bodies  to  carry  out  the 
express  powers  granted,  and  to  accomplish  the  purposes  of  their 


'  Ellerman  v.  Chicago  Junction  Rail 
ways  &  Union  Stock  Yards  Company, 
(1891)  49  N.  J.  Eq.  ^17. 

•Ibid. 

'  Ibid. ;  in  which  case,  under  the  test 
stated  in  the  text,  the  chancellor  held 
that  a  covenant  by  parties  selling  the 
plant  and  business  of  stock  yards,  not 
to  engage  iu  the  business  for  a  certain 


number  of  years,  nor  in  the  place 
where  they  were  located  or  within  200 
miles  thereof,  was  not  unreasonable, 
and  not  an  illegal  restraint  of  trade. 
For  illustration  of  contract  between 
corporations  not  contrary  to  public 
policy,  see  Live  Stock  Assn.  of  New 
York  V.  Levy,  (1886)  54  N.  Y.  Super. 
Ct.  32. 


§282] 


ULTRA  VIRES PRIVATE  CORPORATIONS. 


503 


creation.^      An  incidental  power  ir,  one  that  is  directly  and 
immediately  appropriate  to  the  execution  of  the  specific  powers 
granted,  and  not  one  that  has  a  slight  or  remote  relation  to  it.' 
The  court  held  that  the  Chicago  Gas  Trust  Company,  being  a 
corporation  formed  under  the  General  Incorporation  Law  of  that 
state  for  the  purpose  of  erecting  and  operating  gas  works  and  the 
manufacture  and  sale  of  gas,  had  no  power  to  purchase  and  hold 
or  sell  shares  of  stock  in  other  gas  companies  as  incident  to  the 
purpose  for  which  it  was  formed,  even  thougii  such  power  was 
specified  in  its  articles  of  incorporation.     This  corporation  was 
incorporated  under  the  general  law  for  two  purjioses.     These 
were   expressed  in  its  articles   of   association   in   these   words : 
First,  for  the  purpose  of  erecting  and  operating  gas  works  for 
the  manufacture  and  sale  of  gas  in  Chicago  and  other  places  in 
this  state ;  and,  second^  "  to  purchase  and  hold  or  sell  the  capital 
stock,  or  purchase  or  lease,  or  operate  the  property,  plant,  good 
will,  rights  and  franchises  of  any  gas  works  or  gas  company  or 
companies,  or  any  electric  company  or  companies,  in  Chicago  or 
elsewhere,  etc."     It  sought  to  exercise  the  powers  claimed  under 
the  second  clause  only,  and  for  that  purpose  bought  a  majority  of 
the  shares  of  all  the  gas  companies  in  Chicago,  being  four  in 
number,  whereby  it  might  have  the  control  of  all  the  gas  com- 
panies in  the  city  and  thus  destroy  competition  and  monopolize 
the  gas  business.     The  Supreme  Court  held  that  the  corporation 
so  formed  was  not  for  a  lawful  purpose  and  that  all  acts  done  by 
it  toward  the  accomplishment  of  such  object  were  illegal  and 
void.^     A  stockholder,  in  a  suit  which  he  is  only  permitted  to 
prosecute  in  behalf  of  the  corporation  and  for  its  benefit,  cannot 
raise  the  question  whether  or  not  the  defendant  corporation  in 
the    suit   could   acquire   and   lawfully   exercise   all   the   powers 
declared  in  its  certificate   of  incorporation,  especially  whether  it 
could  lawfully  own  the  stock  of  another  corporation.     Such  a 
question  can  only  be  presented  for  judicial  determination  by  the 
attornev-general  on  behalf  of  the  state.* 


'  Citing  C.  P.  &  S.  W.  R.  R  Co.  v. 
Marseilles,  84  III.  643;  Chicago  CJas 
Light  Co.  V.  People's  Gas  Light  Co., 
131  111.  530. 

-'  People  ex  rel.  Peabody  r.  Chicjigo 
Gas  Trust  Co.,  (1889)  130  III.  268;  s.  c, 
22  N.  E.  Rep.  798;  citing  on  the  last 
poiat  Hood  o.  N.  Y.  &  N.  H.  li  R. 


Co.,  22  Conn.  1;  Franklin  Co.  r.  Lewis- 
ton  Savings  Institution,  68  Me.  43. 

'  People  ex  rel.  Peal)o;ly  t.  Chicago 
Gas  Trust  Co.,  (1889)  130  III.  268;  6.  c, 
22  N.  E.  Rep.  798. 

■*  AVilloughby  r.  Chicago  Junction 
Rjiilways  &  Union  Stock  Yards  Co., 
(1892)  50  N.  J.  Eq.  656. 


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1M 


CHAPTER  IX. 

BANKS  AND  BANKING. 


§  283. 
284. 

285. 
286. 

^7. 
288. 

289. 
290. 
291. 
292. 


Powers  of  banks  generally 

The  guaranty  of  commercial 
paper  by  a  bank. 

Acts  ultra  vires  a  bank. 

Taking  mortgage  on  and  pur- 
chase of  real  estate. 

Purchasing  notes. 

Purchasing  stock  of  corpora- 
tions. 

Increase  of  capital  stock. 

Loans. 

Dividends  on  bank  shares. 

Lien  of  a  bank  on  moneys  and 
securities  of  its  customers. 


§293 


Lien  of  a  bank  on  shares  of 
stockholders  for  their  debts 
to  the  bank. 

294.  Interest  received  by  banks. 

295.  A  bank's  duty  as  to  securities 
deposited  with  it. 

The  rights  of  a  bank  as  to  se- 
curities pledged  to  it. 

Personal  guaranty  of  a  bank  by 
stockholders  and  directors. 
298.  Misrepresentations  by  a  bank 
as  to  solvency  of  a  customer. 


296. 


297. 


§  283.  Powers  of  banks  generally.—  A  bank,  upon  whicli 
general  banking  powers  bave  been  conferred,  may  borrow  money 
witbont  any  more  specific  autbority.^  A  national  banK  lia.s 
power  to  borrow  money  on  negotiable  paper,  made  and  indorsed 
for  its  accommodation.2     As  incident  to  its  power  to  loan  money, 


» Ringling  r.  Kohn,  (1878)  6  Mo.  App. 
333;  Donnell  r.  Lewis  Co.  Savings 
Bank,  80  Mo.  165. 

«Bank  r.  Sullivan.  11 W.  N.  C.  (Pa.) 
•J83.  In  a  leading  New  York  case 
((Jurtis  V.  Leavitt,  (1857)  15  N.  Y.  9, 
355,  256),  Seldea',  J.,  states  the  con- 
tention of  the  receiver's  counsel  as 
follows:  "[They]  take  the  broad 
ground  that  banking  corporations  can- 
not borrow  money,  or,  at  least,  that 
they  cannot  borrow  to  supply  the 
place  of  capital.  They  contend  that 
it  is  the  business  of  banks  to  lend 
money,  not  to  borrow;  that  borrowing 
does  not  come  within  the  scope  of 
legitimate  banking,  and  is  in  its  na- 
ture a  power  which  corporations  cre- 
ated for  banking  purposes  cannot 
properly  exercise."  He  then  said: 
"This  position  is  not  supported  by 


any  direct  authority,  and  a  careful 
consideration  of  the  nature  of  bank- 
ing, together  with  an  examination  of 
its  history,  has  satisfied  me  that  it  can- 
not be  sustained.  It  is  not  in  harmony 
with  the  present  practice  or  the  past 
history  of  banks.  Blinking  for  profit 
is  based  primarily  upon  the  idea  of 
borrowing,  without  interest,  the 
various  sums  which  the  individuals  of 
a  commercial  community  must  neces- 
sarily keep  on  hand  unemployed,  to 
meet  any  sudden  emergency,  and  re- 
loaning  the  money,  or  the  greater  part 
of  it,  upon  interest.  It  may  be  said 
that  banks  may  borrow,  that  is,  receive 
deposits  without  interest,  but  cannot 
borrow  upon  interest.  This,  too,  is 
untenable.  One  of  the  soundest  bank- 
ing systems  known  to  the  age,  viz., 
the  Scotch,  is  sustained  to  a  great  ex- 


2S3] 


BANKS  AND  BANKING. 


505 


a  bank  may  take  as  security  a  crop  of  cotton,  and  sbip  tbe  same 
to  a  factor,  to  be  sold  to  reimburse  tbe  loan.^  A  bank,  autbor- 
ized  by  its  charter  to  deal  in  bills  of  exchange  and  discount  notes, 
made  negotiable  and  payable  at  tbe  bank,  with  two  or  more  good 
and  sufficient  sureties,  may,  under  this  power,  undertake  to  col- 
lect bills  of  exchange  in  other  places.^  Under  tbe  National 
Banking  Association  Act,  the  powers  which  national  banks  may 
exercise  are  limited  to  those  expressly  granted  and  those  neces- 
sarily incidental.^  They  would  have  no  absolute  right  to  retain 
bonds  coming  into  their  possession  by  purchase,  under  contracts 
whicb  they  were  without  legal  authority  to  make.*  ^tional 
l)anks  may  exercise  all  sucb  incidental  powers  as  may  be  neces- 
sary for  discounting  and  negotiating  promissory  notes,  drafts, 
bills  of  exchange,  etc.,  which  they  are  authorized  to  do.^  It  is 
not  beyond  the  powers  of  a  national  bank  to  purchase  a  draft 


tent  by  sums  borrowed  at  a  rate  of  in- 
terest below  that  charged  by  the  banks. 
Edin.  Ency.  224,  tit.  Banks;  Lawson's 
Hist,  of  Banking,  419.     The  commit- 
tee appointed  by  the  House  of  Lords 
in  England,  in  1826,  to  inquire  into  the 
Irish  and  Scotch  systems  of  banking, 
reported  that  it  was  'proved  by  evi- 
dence and  by  the  documents  that  the 
banks  of  Scotland,  whether  chartered 
joint-stock  companies  or  private  estab- 
lishments, have,  for  more  than  a  cen- 
tury, exhibited  a  stability  which  the 
committee  believe  unexampled  in  the 
history  of  banking.'     Lawson's  Hist, 
of  Banking,  434.     The  country  bank- 
ers of  England  also  allow  interest  on 
the  balances  of  money  in  their  hands. 
McCulloch's  Notes  to  Smith's  Wealth 
of  Nations,   489,   title.  Money,  Edin. 
ed.;  Lawson's  Hist,  of  Banking,  273. 
Another  writer,  speaking  of  the  prac- 
tice of  borrowing  by  the  Scotch  banks, 
says:    'This  is  in  fact  a  part  of  the 
proper  business  of  a  bank.     A  banker 
is  a  dealer  in  capital,  an  intermediate 
party  between  the  borrower  and  the 
lender;  he  borrows  of  one  party  and 
lends  to  another,  and  the  difference 
between  the  terms  at  which  he  bor- 

64 


rows  and  those  at  which  he  lends  is 
the  source  of  his  profit.'     Gilbert  on 
Banking,  52.     It  can  scarcely  be  said, 
in  view  of  these  precedents  and  authori- 
ties, that  borrowing  money,  even  to  be 
used  as  capital,  is  not  within  the  range 
of    the    business    of    banking.     The 
position,  therefore,  that  the  acts  of  the 
banking  company  in  issuing  the  paper 
in  question  were  ultra  vires  cannot  be 
sustained  on  the  ground  that  borrow- 
ing is  no  part  of  legitimate  banking, 
but  must  rest  on  that  branch  of  the 
argument  which  is  drawn   from  the 
terms  of  the  General   Banking   Law 
itself.     It  is  a  question,  not  of  appro- 
priate   banking,     but    of     corporate 
power." 
'  Deloach  r.  Jones,  18  La.  447. 

*  Branch  Bank  at  Montgomery  n. 
Knox,  (1840)  1  Ala.  148.  As  to  the 
power  of  banks  to  issue  post  notes, 
see  Campbell  v.  Mississippi  Union 
Bank,  6  How.  (Miss.)  625. 

'Logan  Bank  v.  Townsend,  139  U. 
S.  67. 

*  Ibid. 

*  Shinkle  r.  First  National  Bank  of 
Ripley,  (1872)  22  Ohio  SL  516. 


I 


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ii 


506 


BANKS  AND  BANKING. 


I' 


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11 

i 


[g2S3 


with  a  bill  of  lading  attached.*  The  discount  of  notes  by  a  cor- 
poration autliorized  by  statute  to  invest  its  capital  in  notes  and 
to  purchase  and  liold  securities  in  payment  of  the  debts  due  to  it 
is  not  ultra  vires?  A  banking  institution,  having  power  to  lend 
deposits  on  the  public  stock  of  the  state  or  the  United  States  on 
bond  and  mortgages,  or  "  upon  any  other  securities  which  should 
be  deemed,  by  tlie  board  of  directors,  ample,"  has  been  held  not 
to  be  limited  to  the  securities  mentioned,  and  empowered  to  dis- 
count commercial  paper.*  A  national  bank,  having  coin  in 
pledge,  may  sell  and  assign  its  special  property  therein.*  A  bank, 
to  save  itself  from  loss,  under  its  general  powers,  may  take  an 
assignment  of  an  account  due  its  debtor.*  A  national  bank  is 
authorized  to  bny  the  checks  of  individuals  or  other  banks,  when 
payable  to  bearer  or  to  order.^  A  bank  may  transfer  a  good 
title  to  checks  received,  as  cash,  from  a  depositor,  and  so  credited 
to  his  account,  in  payment  of  a  debt,  and  the  transferee  may 
recover  upon  them  against  the  drawers.'  A  bank,  with  which 
an  owner  of  a  bond  and  mortgage  had  agreed  to  convert  it  into 
money  for  the  benefit  of  the  bank,  and  upon  its  assignment  for 
that  purpose,  had  guaranteed  its  collection,  was  held  bound  l)y 
the  guaranty,  although  the  bond  was  not  assigned  to  the  bank, 
and  reassigned  by  it.^  A  national  bank  may  take,  hold  and 
enforce  a  chattel  mortgage  for  a  previously  contracted  debt.^  It 
is  within  the  powers  conferred  by  congress  upon  national  bank- 
ing associations  to  receive  from  its  customers  United  States  bonds 
of  one  class  to  be  converted  into  bonds  of  another  class.*^  A 
bank,  without  an  express  undertaking  on  its  part,  will  not  be 
bound,  by  law,  to  protect  from  forfeiture,  stock  deposited  with  it 
as  security  for  a  debt,  by  payment  of  installments  in  arrear." 
The  Minnesota  Supreme  Court  has  held  that  there  is  no  reason 


*  Union  National  Bank  v.  Itowau,  23 
8.  C.  342. 

'Bright  D.  Banking  Co.,  3  Penny- 
packer  (Pa.),  478. 

'  Detroit  Savings  Bank  r.  Tniesdiiil, 
38  Mich.  430. 

*  Merchants*  Bank  v.  State  Bank,  10 
Wall.  604. 

'Bank  of  North  America  r.  Tam- 
blyn,  (1879)  7  Mo.  App.  571. 

« Rochester  Bank  v^  Harris,  (1871) 
108  Mass.  514. 


'Metropolitan  National  Bank  r. 
Loyd,   (1881)  2.J  Hun,  101. 

"Talman  v.  Rochester  City  Bank, 
(1854)  18  Barb.  123. 

'Spafford  v.  First  National  Bank 
of  Tama  aty,  37  Iowa,  181. 

*»  Leach  t.  Hale,  (1870)  31  Iowa, 
69. 

"  Railroad  Bank  t.  Douglas,  2  Speer 
(8.  C),  329. 


§284] 


BANKS  AND  BANKING. 


507 


why  a  national  bank  may  not,  for  convenience  and  a  proper  pur- 
pose, hold  and  own  notes  and  mortgages  through  the  medium  of 
a  trustee.* 

§  284.  The  guaranty  of  commercial  paper  by  a  bank.— 
The  Supreme  Court  of  Nebraska  has  lately  held  that  while  a 
national  bank  may  not  lend   its  credit  for  the  accommodation  of 
others,  still  it  may  guarantee  the  payment  of  commercial  paper  as 
mcidental  to  the  exercise  of  its  power  to  buy  and  sell  the  same.^ 
The  Nebraska  court  accepted  as  the  proper  statement  of  tlie 
law  upon  this  subject  the  following  declaration  by  Mr.  Justice 
SwAYNE,  speaking  for  the  United  States  Supreme  Court,  in  a 
leading  case  before  that  court :  "  The  National  Bank  Act,^    gives 
eveiy  bank  created  under  it  the  right  to  exercise  by  its  board  of 
directors,  or  duly  authorized  agents,  all  such  incidental  powers  as 
shall  be  necessary  to  carry  on  the  business  of  banking,  ly  dis- 
counting and  negotiating   promissory  notes,   drafts,   Ulls  of 
exchange  and  other  evidences  of  debt,  by  receiving  deposits,  etc. 
Nothing  in  the  act  explains  or  qualifies  the  terms  italicized. '  To 
hand  over  with  an  indorsement  and  guaranty  is  one  of  the  com- 
monest modes  of  transferring  the  securities  named.     Undoubt- 
edly a  bank  might  indorse  '  waiving  demand  and  notice,^  and 
would  be  bound  accordingly.     A  guaranty  is  a  less  onerous  and 
stringent  contract   than  that  created  by  such  an  indorsement. 
We  see  no  reason  to  doubt  that,  under  the  circumstances  of  this 
case,  it  was  competent  for  the  defendant  to  give  the  guaranty 
here  in  question.     It  is  to  be  presumed  the  vice-president  had 
rightfully  the  power  he  assumed  to  exercise,  and  the  defendant 
is  estopped  to  deny  it.     Where  one  of  two  innocent  parties  must 
suffer  by  the  wrongful  act  of  a  third,  he  who  gave  the  power  to 
do  the  wrong  must  bear  the  burden  of  the  consequence.     The 
doctrine  of  ultra  vires  has   no  application  in  cases  like   this. 
Merchants'  Bank  v.  State  Bank,  10  Wall.  604.     All  the  parties 
engaged  in  the  transaction,  and  the  privies,  were  agents  of  the 
defendant.     If  there  were  any  defects  of  authority  on  their  part, 
the  retention  and  enjoyment  of  the  proceeds  of  the  transaction 
by  their  principal    constituted  an   acquiescence  as  effectual  as 

'First  National  Bank  of  Memphis    Hastings,  (1894)40  Neb   501-  s  c    58 
V.  Kidd,  20  Minn.  234.  N.  W.  Rep.  943.  '    '    " 

*  Thomas  v.  aty  National  Bank  of       <»  Rev.  St.  U.  S.  g  5136. 


f> 


'H  \ 


■I 


508 


BANKS  AND  BANKING. 


[§285 


I 


ii 


i 


I 


would  Lave  been  tlie  most  formal  words.  These  facts  conclude 
the  defendant  from  resisting  the  demand  of  the  plaintiff. 
*  *  *  A  different  result  would  bo  a  reproach  to  oui 
jurisprudence."* 

§  285.  Acts  ultra  vires  a  bank.—  A  bank  discounting  a  note, 
knowing  the  intention  of  the  party  offering  it  to  be  that  the  pro- 
ceeds of  the  discounting  should  be  applied  to  the  discharge  of  a 
particular  note  held  by  the  bank,  cannot  apply  the  proceeds  to 
the  discliarge  of  any  other  note.*  A  bank  cannot  bind  itself  by 
an  accommodation  indorsement.'  National  banks  have  no  legal 
power  to  guarantee  a  contract  between  other  persons  for  the 
delivery  of  building  materials.*  The  power  of  a  national  bank 
to  give  a  guaranty  against  liability  or  loss  to  sureties  on  paper 
discounted  by  it,  when  the  effect  of  such  guaranty  would  be  to 
make  the  paper  that  ot  one  party  only,  secured  by  mortgages  on 
real  estate,  has  been  questioned  in  a  Michigan  case.^  A  national 
bank  cannot  act  as  broker  for  the  sale  of  state  bonds  on  commis- 
sion.* A  national  bank  has.  no  power  to  sell  railroad  bonds  for 
a  customer  on  commission.'^  A  bank  has  no  authority  to  become 
surety  on  the  bond  of  a  public  officer.®  A  bank  will  not  be  jus- 
tified in  refusing  to  reassign  collateral  which  it  holds  for  the 
payment  of  certain  notes  because  the  pledgee  may  be  indebted 
to  it  upon  an  entirely  distinct  cause  of  action.*  A  bank  cannot 
apply  the  proceeds  of  a  note  tendered  to  it  for  discount  to  the 


'People's  Bank  v.  Manufacturers' 
National  Bank,  101  U.  S.  181,  in 
which  case  the  facts  were  that  one 
Pickett  made  his  notes  for  $50,000, 
payable  to  his  own  order,  indorsed 
them,  and  delivered  them  to  the 
national  bank  to  be  negotiated  to  the 
plaintiff.  The  vice-president  of  the 
national  bank,  with  the  knowledge 
and  consent  of  the  president  and 
cashier,  but  without  any  authority 
from  the  board  of  directors,  or  from 
a  majority  of  them  as  individuals, 
transmitted  the  notes  to  the  plaintiff, 
with  a  written  guaranty  signed  by 
himself.  The  plaintiff's  account  was 
debited  with  $50,000  on  account  of 
the  notes.    At  the  same  time  Pickett's 


paper  held  by  the  defendant  was  can- 
celed to  the  same  amount. 

•  Bank  of  Alexandria  v.  Saunders,  % 
Cranch  Cir.  Ct.  183. 

•  Bank  of  Genesee  v.  Patchin  Bank, 
13  N.  Y.  309. 

*  Norton  v.  Derry  National  Bank,  61 
N.  H.  589. 

*  First  National  Bank  v.  Bennett,  33 
Mich.  520. 

«  Smith  V.  Bank,  1  Walk.  (Pa.)  318. 

'  Weckler  t.  First  National  Bank  of 
Hagerstown,  42  Md.  581. 

8  Miners*  Bank  Estate,  13  W.  N.  C. 
(Pa.)  370. 

'Mclntirev.  Blakeley,  (Pa.)  12  Atl. 
Rep.  325. 


t 


2SG] 


BANKS  AND  BANKING. 


50& 


payment  of  the  maker's  indorsement  on  another  note  without  his 
consent.*  In  an  action  of  the  owner  of  a  lot  which  had  been 
assessed  by  a  city  for  benefits  and  afterwards  sold  upon  a  judg- 
ment, and  a  certificate  of  sale  given  to  the  city,  which  it  assigned 
to  another  party,  who  in  turn  assigned  it  to  a  national  bank, 
against  the  city  and  bank  to  determine  their  adverse  claims,  the 
plaintiff  made  the  point  that  the  bank,  being  a  national  bank,  had 
no  authority  to  purchase  the  certificate.  The  Supreme  Court  of 
Minnesota  considered  it  well  settled  that  no  one  but  the  govern- 
ment could  raise  that  question.^  The  United  States  Circuit 
Court  for  the  eastern  district  of  Washington,  in  an  action  upon  a 
note  against  a  national  bank  as  guarantor,  has  held  that  United 
States  Revised  Statutes,  section  5202,  providing  that  national  banks 
shall  not  contract  liabilities  in  excess  of  their  paid-up  capital  stock, 
except  upon  notes  of  circulation,  accounts  for  deposits,  etc.,  did  not 
intend  that  such  items  of  liability  should  be  excluded  in  determin- 
ing whether  the  indebtedness  of  a  bank  exceeded  its  paid-up  capital 
stock  at  the  time  it  incurred  a  liability  as  guarantor.  And  that  in 
an  action  against  the  bank  and  its  receiver  on  such  a  note  as  here 
sued  on,  the  defendants  might  avail  themselves  of  the  defense 
that  the  note  was  executed  in  violation  of  the  section  of  tlie 
Revised  Statutes  above  mentioned,  as  the  note  being  void  as  to 
the  bank,  it  was  not  estopped  to  set  up  the  defense  in  question.^ 

§  286.  Taking  mortgag^e  on  and  purchase  of  real  estate. 

■ —  A  national  bank  cannot  take  a  mortgage  upon  real  estate  as  a 
security  for  a  debt  concurrently  created,  or  for  future  advances.* 
It  is  competent  for  a  national  bank  to  purchase  a  note  in  favor  of 
a  third  party,  and  thereby  acquire  incidentally  a  mortgage  on 


»  Parry  v.  Highley,  8  Pa.  Co.  Ct. 
Rep.  584. 

«  Hennessy??.  City  of  St.  Paul,  (1893) 
54  Minn.  219;  s.  c,  55  N.  W.  Rep. 
1123;  citing  Merchants'  National  Bank 
V.  Hanson,  33  Minn.  40;  s.  c,  21  N. 
W.  Rep.  849;  National  Bank  v.  Mat- 
thews, 98  U.  S.  621;  National  Bank  v. 
Whitney,  103  U.  S.  99;  Fortier  v.  New 
Orleans  Bank,  112  U.  S.  451;  s.  c,  5 
Sup.  Ct.  Rep.  234. 

^  Weber  v.  Spokane  Nat.  Bank, 
(1892)  50  Fed.  Rep.  735. 


*  Kansas  Valley  National  Bank  v. 
Rowell,  (1873)  2  Dill.  371.  As  to  the 
lack  of  power  of  a  national  bank  to 
loan  its  money  on  real  estate  security, 
see  Matthews  v.  Skinker,  (1876)  62  Mo. 
329;  Warner  v.  DeWitt  County 
National  Bank,  4  Bradw.  (111.)  305; 
Winton  v.  Little,  94  Pa.  St.  64,  over- 
ruling Fowler  c.  Scully,  72  Pa.  St. 
456,  and  Woods  v.  People's  Bank,  83 
Pa.  St.  57;  National  Bank  v.  ]yLitthews, 
98  U.  S.  621;  National  Bank  /•. 
Whitney,  103  U.  S.  99;  Fortier  v.  New 


>  » 


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610 


BANKS  AND  BANKING. 


[§286 


», 


#!f 


land  whicli  may  have  been  given  to  secure  it.^    Wliere  several  debts 
due  a  national  bank  are  consolidated  into  one,  and  a  new  note 
given,  the  bank  would  not  be  acting  ultra  vires  in  taking  a  mort- 
gage on  real  estate  to  secure  the  consolidated  note.^     A  national 
bank  extended  the  time  of  payment  of  indebtedness  secured  by  a 
mortgage  on  real  estate  at  a  usurious  rate  of  interest,  and  took 
for  it  notes  and  a  mortgage,  made  by  the  debtor  to  a  third  per- 
son, the  notes  being  indorsed  by  the  latter.     The  Supreme  Court 
of  Oliio  held  that  the  usury  only  avoided  the  interest,  and  that 
to  the  extent  the  debt  was  valid,  the  mortgage  was  on  ho7ia  fide 
security,  and  that  the  bank,  by  becoming  the  owner  of  the  notes, 
acquired  the  equity  in  the  mortgage.'     A  mortgage  upon  real 
estate  given  to  an  officer  of  a  national  bank,  at  the  time  of  a  loan 
by  the  bank,  to  secure  its  payment,  being,  in  effect,  the  same  as 
if  made  to  the  bank,  has  been  held  to  be  void  and  not  enforceable 
by  the  courts  under  the  prohibition  in  the  National  Banking  Law, 
of  loans  of  money  on  real  estate  security.''     Tlie  prohibition  in 
the  law  against  national  banks  taking  security  for  loans  on  real 
estate,  does  not,  however,  extend  to  mortgages  made  in  good 
faith   by  way  of  security  for  debts  previously  contracted,  and 
baidvs  may  take  the  assignment  of  notes,  secured  by  trust  deed 
on  real  estate,  as  collateral  security  for  pre-existing  debts  due  the 
banks.'^     A  national   banking  association  may  avail  itself  of  a 
security  on  real  estate  given  to  one  personally  liable  on  a  loan 
made  by  the  association.*     The  Minnesota  Supreme  Court  has 


Orleans  National  Bank,  113  U.  S.  439. 
For  an  illustration  of  a  note  and  mort- 
gage on  real  property  which  it  was  in 
the  power  of  a  national  banking 
association  to  take,  see  Omn  v. 
Merchants'  National  Bank,  (1876)  16 
Eans.  341. 

'  Oldham  v.  Bank,  85  N.  C.  240. 

5  Ibid. 

'Allen  V.  First  National  Bank 
Xenia,  (1872)  23  Ohio  St.  97. 

*Fridley  t.  Bowen,  (1877)  87  111. 
151.  The  court  said  :  "The  provision 
[of  the  National  Banking  Law]  declar- 
ing upon  what  security  such  associa- 
tions may  make  current  loans,  viz.  : 
Upon  'personal  security,'  and  the 
subsequent   inhibition   that  no  mort- 


gage shall  be  taken  on  real  estate  ex- 
cept by  way  of  security  for  debts 
previously  contracted,  must  be  under- 
stood to  forbid  absolutely  such 
associations  making  loans  upon 
security  afforded  by  mortgages  on  real 
estate."  The  court  cited  as  sanction- 
ing its  views:  Fowler  v.  Scully,  73 
Pa.  St.  456;  First  National  Bank  v. 
National  Bank,  92  U.  S.  122;  Matthews 
P.  Skinker,  62  Mo.  329. 

*  Worcester  National  Bank  v. 
Cheeney,  (1878)  87  111.  602;  Gaar  v. 
First  National  Bank  of  Centralia,  20 
Bradw.  (111.)  611. 

•First  National  Bank  v.  Haire,  36 
Iowa,  443.  As  to  a  national  bank's 
right  to  take  title  to  real  estate  in  dis- 


T 


?  -SO] 


BANKS  AND  BANKING. 


511 


lield  that,  in  the  absence  of  affirmative  evidence  of  some  contra- 
vention of  the  National  Banking  Association  Act,  a  national 
bank  might  lawfully  purchase,  hold  and  convey  real  estate.*  The 
New  Jersey  Supreme  Court  has  held  that  a  national  bank 
empowered  by  its  charter  "  to  provide  tlie  real  estate  "  necessary 
for  its  immediate  accommodation  in  the  transaction  of  its  busi- 
ness, cannot  intei-pose  the  defense  of  ^dtra  vires  to  a  contract 
made  by  it  to  secure  free  entrance  of  light  and  air  into  its  bank- 
ing house.^  Where  a  national  bank  discounts  a  note  secured  by 
a  deed  of  trust  on  real  estate,  the  security  passes  to  the  bank  and 
may  be  enforced  by  it.^  Speculation  in  real  estate,  by  national 
banks,  under  the  pretense  of  obtaining  satisfaction  of  a  previous 
debt,  is  forbidden  by  law.  Such  a  bank,  however,  may  acquire 
title  to  real  estate,  even  though  incumbered,  if  it  is  honestly 
done,  for  the  purpose  of  securing  a  debt  due  to  it.  This  may  be 
done  by  taking  a  conveyance  directly  or  by  sale  under  process  of 
law.^  Thus,  where  a  firm  of  merchants  were  indebted  to  a  bank 
ui)on  drafts  drawn  upon  them  and  accepted,  discounted  by  the 
bank,  in  its  regular  course  of  business,  to  a  certain  amount,  and 
secured  by  the  transfer  of  a  note  of  a  third  party  for  a  larger 
sum,  this  note  secured  by  a  deed  of  trust  upon  real  estate  sub- 
ject to  other  liens,  and  the  third  i)arty  made  a  deed  of  the  prop- 
erty to  the  bank  in  payment  of  the  sum  due  from  hhn,  the  bank 
agreeing  to  discharge  the  other  liens  upon  the  same,  the  transac- 
tion was  held  not  to  be  forbidden  by  the  law  regulating  such 
banks.^  xi  mortgage  upon  real  i)roperty  taken  l)y  a  national 
banking  association  as  security  will  not  be  void.  A  judgment  of 
ouster  and  dissolution  in  a  proper  proceeding  is  the  punishment 
for  taking  sucli  a  mortgage.  Private  persons  cannot  question 
the  validity  of  the  act."      A  national  bank  may  purchase  real 


charge  of  indebtedness  previously 
contracted  to  it,  see  Turner  r.  First 
National  Bank,  (1881)  78  Ind.  19.  As 
to  a  mortgage  given  to  a  national 
Imnk  and  assigned  to  a  third  party 
being  good,  see  Lacey  t.  Central 
National  Bank,  4  Neb.  179.  As  to 
foreclosure  of  a  mortgage  by  a 
national  bank,  seC'  Scofield  o.  State 
National  Bank,  9  Neb.  323. 

'  First   National  Bank  of  Memphis 
r.  Kidd,  20  Minn.  234. 


» Trustees  of  First  Presbyterian 
Church  in  Newark  x).  National  State 
Bank  of  Newark,  (N.  J.  1894)  29  Atl. 
Rep.  320. 

3  Thornton  v.  National  Exchange 
Bank,  (1879)  71  Mo.  221. 

*Mapes  r.   Scott,  (1878)  88  111.  352. 

5  Ibid. 

*  First  National  Bank  v.  Elmore,  52 
Iowa,  541;  Streeter  v.  First  National 
Bank,  53  Iowa,  177.  As  to  the  power 
of  a  national  bank  to  purchase  real 


i  ;y 


Vi 


u 


512 


BANKS  AND  BANKING. 


[§28' 


i* 


m 


■1 


estate  at  a  judicial  sale  to  satisfy  a  judgment  and  decree  rendered 
in  a  proceeding  to  foreclose  a  mortgage  on  land  on  which  the 
Imnk  held  a  second  mortgage  lien,  and  to  which  foreclosure  pro- 
ceeding it  was  made  a  party.^  These  hanks  have  authority  to 
hold  and  convey  such  real  estate  as  they  may  purchase  at  sales 
under  judgments,  decrees  or  mortgages  held  hy  them  to  secure 
debts  due  them.^  The  title  of  a  national  bank  to  land  which 
was  mortgaged  to  it,  and  purchased  at  judgment  sale,  would  not 
be  invalidated  as  to  the  mortgaged  property,  by  the  fact  that  at 
the  sale  it  purchased  other  property  which  it  may  not  have  been 
authorized  to  acquire.^ 

§  287.  Purchasing  notes.— The  Court  of  Appeals  of  Mary- 
land has  held  that  under  the  National  Banking  Association  Act 
a  bank  formed  under  it  has  no  authority  to  use  its  funds  in  pur- 
chasing notes  and  can  acquire  no  title  to  notes  by  the  purchase  of 
them.*  The  ruling  of  the  Minnesota  Supreme  Court  on  this 
subject  has  been  that  the  purchase  of  promissory  notes  by  a  bank 
authorized  simply  to  discount  notes  was  nltra  vires  and  that  the 
purchase  would  confer  no  title.'  In  a  later  case  this  same  court 
held  that  national  banks  have  no  power  to  deal  in  promissory 
notes,  as  choses  in  action,  for  the  purpose  of  private  gain  and 
profit  alone,  and  Hmited  their  power  to  acquire  title  to  such  notes 

estate  necessary  to  secure  a  debt  to  it.  »  Farmers    &    Mechanics'    Bank    v. 

although   in   excess  of  the  debt,  see  Baldwin,   23  Minn.    198.     The  court 

Upton  V.  South  Reading  Bank,  (1876)  sjud:  "The   power    to  carry   on    the 

120  Mass.  153.  business  of  banking   by   discounting 

» Heath  d.    Second  National  Bank,  notes,   bills  and  other   evidences    of 

(1880)  70  Ind.  106.  debt,   is  only   an  authority    to    loan 

«  Wherry  v.  Hale,  (1882)  77  Mo.  20.  money  thereon,  with  the  right  to  de- 
As  to  a  national  bank  purchasing  real  duct  the  legal  rate  of  interest  In  ad- 
estate  in  satisfaction  of  a  debt  due  it,  vance.  This  right  can  be  fully 
see  Libby  c.  Union  National  Bank,  99  enjoyed  without  the  possession  of  the 
^^^-  ^2^-  unrestricted    power   of    buying   and 

3  Reynolds  v.  Crawfordsville  Bank,  dealing  in  such  securities  as  choses  in 

112U.  S.  405.     As  to  a  national  bank,  action       and       personal       property, 

lawfully  holding  a  mortgage  on  real  Though,  as  argued  by  plaintiff,  the 

estate,   purchasing  a  prior  mortgage  bank  acquires  a  title  to  discount  paper, 

on  the  same  land  to  protect  its  inter-  and,  hence,  may.  in  a  certain  sense  be 

est.  see  Holmes  v.  Boyd,  (1883)90  Ind.  said  to  have  purchased  it,  yet  it  is  a 

^^-  purchase   by   discount,   which  is  per- 

*Lazear  v.  National  Union  Bank  of  mitted,  and  does  not  involve  the  exer- 

Maryland,  at  Baltimore,  (1879)  02  Md.  cise  of  a  power  of  purchase  in  any 

^  other  way  than  by  discount." 


§287] 


BANKS  AND  BANKING. 


513 


to  discounting  them.^  In  an  Ohio  case  it  was  held  that  the 
power  given  to  the  corporation  bj  a  statute  of  the  state  of  New 
York  ''  to  carry  on  the  business  of  banking  by  discounting  bills, 
notes^  and  other  evidences  of  debt,"  was  not  a  power  to  buy 
promissory  notes  but  to  loan  money  upon  the  paper  described, 
and  that  a  transaction  of  that  character  was  within  the  usury  laws 
of  that  state.2  Under  the  power  given  savings  institutions  to  dis- 
count negotiable  notes  in  Kansas,  they  have  been  held  to  have 
the  power  of  purchasing  such  notes.^    In  a  comparatively  late 


First  National  Bank  of  Rochester  payees,  and  that  it  had  no  authority 

V.  Pierson,  24  Minn.  140.  to  make  such  purchase.     Upon  this 

«Bankc.  Ba^er,  ISOhioSt.  68.     In  question,   the  court    says:    "It  does 
Fleckner  v. 


Bank,   8  Wheat.  338,  it   not  state  that  the  purchase  was  made 
appeared  that  the  plaintiff  purchased   at  a  usurious  mtc  of  discount,  but  it 
from  another  bank  a  note  which  had   avers  that  under  the  act  of  congress 
been    passed    to    it    through   several    to  provide  a  national  currency   under 
parties  from  the  original  holder.     The   which  the  bank  was  incorporated  it 
bank  was  forbidden  to  deal  in  any   had  no  authority  to  purchase  the  bill 
thing,  except  bills  of  exchange,  gold    It  seems  to  be  the  idea  of  counsel  mak- 
or  silver,  or  take  more  than  six  per   ing    the     objection     that    negotiable 
cent  upon  its  loans  or  discounts.     It   paper,    perfect  and  available  in    the 
was  claimed  by  defendant    that  the   hands  of  the  holder,  is  not  the  subject 
purchase  of  the  note  was  ultra  vires,    of  purchase  by  a  national  bank  at  any 
but  the  court  held  that  it  was  not,  and   rate  of  discount.     This  view  we  think 
that  such  purchase    was  but  a  dis-   entirely  erroneous.      We  see  nothing 
count.     Story,  J.,  speaking  for  the   in  the  act  of  congress,  nor  in  reason 
court,  says:  "  But  in  what  manner  is    why  a  borrower  may  not  obtain  the 
the  bank  to  loan?    What  is  it  to  dis-    discount,  by  a  bank,  of  one  of  the  ex- 
count?    Has  it  not  a  right  to  take  an   isting  notes  and  bills  of  others    of 
evidence  of  debt   which  arises  from   which  he  is  the  holder,  as  well  as  of 
the  loan?    If  it  is  to  discount,   must   his  own  paper,  made  directly  to  the 
there  not  be  some  chose  in  action,  ct   bank.     It  is  true  that  as  between  nat- 
wntten  evidence  of  a  debt,  payable  at   ural    persons,  the   purchase  of  such 
a  future  time,  which  is  to  be  the  sub-    paper,  when  made  in  good  faith   and 
ject  of  the  discount?    Nothing  can  be   not  as  a  disguise  for  a  loan,  is  not'sub- 
clearer  than  that  by  the  language  of   ject  to  the  usury  laws,  but  it  is  other- 
the  commercial  world,  and  the  settled   wise  as  to  a  bank.     In  the  business  of 
practice  of  banks,   a  discount  by  a   banking,  the  purchasing  and  discount- 
bank  means  ex  vi  termini,  a  deduction   ing  of  paper  is  only  'a  mode  of  loan- 
or  drawback  made  upon  its  advances   ing  money.'" 

or  loans  of  money  upon  negotiable  ^  p^pe  ^.  Capitol  Bank  of  Topeka 
paper  or  other  evidence  of  debt,  pay-  (1378)  20  Kans.  440.  Brewer,  J.,' 
able  at  a  future  day,  which  are  trans-  speaking  for  the  court,  said:  "The 
ferred  to  the  bank."  In  the  case  of  power  granted  is  the  naked  power  of 
Smith  V.  Bank.  26  Ohio  St.  141,  the  discounting,  and  the  term  'discount- 
defense  was  that  the  bank  (a  national  ing 'includes  purchase  as  well  as  loan, 
bank)  purchased  the  paper  of  the  '  To  discount '  signifies  the  act  of  buy- 
65 


I 


\t    ^ 


III 


514 


BAI^S  AND  BANKING. 


[§  287 


♦  . 


•I* 


i  5 


hf 


case  an  action  by  a  bank  organized  under  the  laws  of  New  Hamp- 
shire, engaged  in  doing  a  general  banking  business,  upon  a  note, 
the  Supreme  Court  of  Missouri  sustained  the  power  of  the  bank 
under  its  charter,  nothing  appearing  to  the  contrary  therefrom,  to 
buy  outright  the  notes  sued  on  ;  at  the  same  time  they  held  that 
it  had  no  right  to  purchase  them  at  a  greater  rate  of  discount 
than  the  rate  of  interest  it  might  lawfully  cliarge  for  the  loan  of 
that  money.*  In  a  recent  Massachusetts  case,  an  action  by  a 
national  bank  against  the  indorser  of  a  promissory  note,  to  whose 
order  the  note  was  p<ayable,  its  right  to  recover  was  denied  on  the 
ground  that  it  had  no  title  to  the  note.  It  was  argued  that  under 
the  statutes  of  the  United  States  national  banks  could  not  buy  or 
sell  promissory  notes,  and  that,  inasnuich  as  the  bank  obtained 
the  note  by  purchase,  it  had  no  right  to  hold  or  collect  it. 
Knowlton,  J.,  speaking  for  the  Supreme  Court  of  Judicature, 
declared  the  law,  as  they  considered  it  upon  these  contentions,  as 
follows :  *'  On  the  question  whether  a  national  bank  can  buy 
promissory  notes  in  the  market  as  a  natural  person  can,  there  is  a 
conflict  of  authority.  Its  power  to  do  so,  if  it  has  any,  is  con- 
ferred by  the  United  States  Revised  Statutes,  section  1536  (13 


ing  a  bill  of  exchange  or  promissory 
note  for  a  less  sum  than  that  which, 
upon  its  face,  is  payable.  It  is,  also, 
undeniably  clear  that  the  term  'dis- 
count,' when  used  in  a  general  sense, 
is  equally  applicable  to  either  business 
or  accommotiation  pjiper,  and  inappro- 
priately applied,  either  to  loans  or 
sales  by  way  of  discount,  when  a  sum 
is  counted  ofT  or  taken  from  the  face 
or  amount  of  the  paper  at  the  time 
the  money  is  advanced  upon  it, 
whether  that  sum  is  taken  for  interest 
upon  a  loan,  or  as  the  price  agreed 
upon  a  sale."  See,  also.  Tracy  r.  Tal- 
mage,  18  Barb.  462;  Bank  r.  Sher- 
burne, U  111.  App.  566. 

'  Salmon  Falls  Bank  r.  Leyser,  (Mo. 
1893)  22  S.  W.-  Rep.  504.  The  court 
distinguisheii  Bank  r.  Simpson,  1  Mo. 
184,  in  these  words:  "  It  is  true  that  it 
is  held  by  this  court  in  [that  case]  that 
tlie  plaintiff,  a  corporation  created  un- 
der the  laws  of  the  state  of  Illinois, 


could  not  under  its  charter  so  deal  in 
promissory  notes  as  to  become  the 
purchaser  thereof.  But  its  charter, 
the  court  says,  'restrains  the  bank 
generally  from  dealing  or  trading 
except  in  bills  of  exchange,  gold  or 
silver,  or  in  the  sale  of  goods  pledged 
for  money  lent  or  which  shall  be  the 
proceed  of  land.'  It  will  be  observed 
that  the  decision  in  this  case  is  based 
altogether  upon  the  restrictions  in 
plaintiff's  charter,  which  was  be- 
fore the  court,  and  incorporated  in 
the  bill  of  exceptions.  No  such  re- 
strictions are  shown  to  have  been 
placed  upon  plaintiff's  powers  as  a 
banking  institution."  That  a  national 
bank  cannot  rescind  a  contract  of  pur- 
chase of  a  note  on  the  ground  that  it 
had  no  power  to  purchase  and  recover 
back  the  money  paid  for  it,  see  Attle- 
borough  Bank  v.  Rogers,  (1878)  135 
Mass.  339. 


287] 


BANKS  AND  BANKING. 


515 


U.  S.  Sts.  at  Large,  101),  which  authorizes  national  banks  to  dis- 
eount  and  negotiate    ^  promissory  notes,  drafts,  bills  of  exchange 
and  other  evidences  of  debt,'  etc.     It  has  sometimes  been  held 
that   the  riglit  to  discount   and  negotiate  notes,  etc.,  goes  no 
further  than  to  authorize  the  taking  of  them  in  return  for  a  loan 
of  money  made  on  the  strength  of  the  promises  contained  in 
them.*     By  other  courts  it  has  been  held  that  the  right  to    'dis- 
count and  negotiate '  includes  the  right  to  buy.^    If  we  assume, 
m  favor  of  the  defendant,  that  national  banks  are  not  authorized 
under  the  law  to  go  into  the  market  and  buy  promissory  notes 
from  those  who  are  selling  them  only  as  a  commodity,  there  are 
several  reasons  why  this  defense  cannot  prevail.     In  the   first 
place,  if  such  a  purchase  is  ultra  vires,  it  is  an  ordinarv  contract ; 
it  is  not  made  penal  nor  expressly  forbidden,  and  the"  maker  or 
mdorser  cannot  defend  on  the  ground  that  the  bank  has  obtained 
no  title.     The  violation  of  law  can  be  availed  of  onlv  in  proceed- 
ings against  a  national  bank  in  the  interest  of   the  public  to 
deprive  it  of  its  charter.     This  has  been  decided  by  the  Supreme 
Court  of  the  United  States.^     Secondly,  the  evidence  in  this  case 
would  well  warrant,  if  not  require,  a  finding  by  the  court  that 
the  transaction  was  a  discounting  of  a  note  for  the  defendant 
within  the  meaning  of  the  statute.     The  note  was  in  the  hands 
of  the  indorser's  agent,  who  consulted  the  indorser  about  the  rate 
of  interest  to  be  allowed  before  giving  the  note  to  the  plaintiff. 
The  plaintiff's  money  was  paid  to  indorser,  less  the  agent's  com- 
mission.    The  transaction  would  have  been  no  different  in  sub- 
stance if  the  defendant,  who  held  the  note  as  indorser,  had  carried 
It  to  the  plaintiff's  [plaintiff  ?]  bank  and  had  there  made  in  per- 
son the  contract  which  he  made  through  the  agent.     If  he  had 
done  that  the  transaction  clearly  would  have  been  a  negotiation 
of  a  loan  and  a  discounting  of  a  promissory  note.*     Thirdly,  it 

'  Lazear  v.  National  Union  Bank,  53  Porter.  125  Mass.  333;  Atlas  National 

Md.  78,    124;  Farmers  &  Mechanics'  Bank  v.  Savery,  127  Mass  75  77 

Bank  ^.Baldwin,  23  Minn.  198;  First  3  citing  National  Bank  ..  Matthews 

National   Bank  v.  Pierson.  24  Minn.  98  U.  S.  621.  and  cases  cited;  National 

140;  Niagara  County  Bank  v.  Baker,  Bank  v.  Whitney,  103  U  S  99-  Mer- 

\f^l^  ^t  ^\      ^  '^^^°^''  National  Bank  v.  Hanson.  33 

ny.    T^^T^  ''•  ^^^^^°S«  B^°k'  26  Minn.  40;  Slater  Woolen  Co.  v  Lamb, 

Uhio  St.  141;  Pape.€.  Capitol  Bank  of  143  Mass  420 

Topeka  20  Kans.  440.  See,  also.  First  ^Citing  Lazear  v.  National  Union 
National  Bank  ..  Harris,  108  Mass.  Bank,  52  Md.  124;  Farmers  &  Me- 
t>i4,  516;  National  Pemberton  Bank  v.    chanics'  Bank  v.  Baldwin    23  Minn. 


i  I 


516 


BANKS  AND  BANKING. 


[§28S 


ti 


has  been  held  in  tliis  commonwealth,  in  analogy  with  the  above- 
cited  decisions  of  the  Supreme  Court  of  the  United  States,  but 
on  somewhat  different  grounds,  that,  even  if  a  national  bank  does 
not  get  the  legal  title  to  a  promissory  note  bought  in  the  market, 
it  may  maintain  a  suit  as  the  holder,  and  the  maker  and  indorsers 
cannot  be  relieved  from  their  contracts  to  pay  the  amount 
promised  in  the  writing."  * 

§  288.  Purchasing  stock  of  corporations. —  A  national  bank, 
by  way  of  compromising  a  claim  alleged  to  be  due,  and  for  the 
purpose  of  averting  an  appreliended  loss  on  account  of  such 
claim,  has  tlie  right  to  acquire  stock  to  be  again  turned  into 
money,  but  has  no  right  to  purchase  or  acquire  such  stock  either 
for  speculation  or  investment.^  Such  a  bank  not  being  expressly 
prohibited  from  becoming  a  stockholder  in  another  corporation, 
may  take  shares  in  another  corporation  as  collateral  sewirity  for 
a  loan  made  by  it,  or  in  satisfaction  for  a  loan  for  which  the  stock 
may  have  been  pledged  to  it  as  security.^  The  United  States 
Supreme  Court  has  also  held  that  stocks  of  other  corporations 
may  be  taken  by  a  national  bank  with  a  view  to  sell  them  at  a 
profit  in  adjusting  and  compromising  claims  growing  out  of  legit- 
imate banking  transactions.*  The  Nebraska  Supreme  Court,  in  a 
recent  case  involving  the  power  of  a  bank  to  purchase  the  stock 
of  an  insurance  corporation  through  its  cashier,  has,  after  a 
review  of  leading  cases  bearing  upon  the  subject  of  corporations 
purchasing  or  acquiring  stock  in  others,  summed  up  the  law  as 
follows :  "  It  is  doubtless  true  that  the  bank  could  legally  take 
the  stock  of  another  corporation  as  security  for  a  debt  previously 
contracted.  Possibly  it  might  make  a  loan  on  the  strength  of  the 
stock  as  security  at  the  time.  On  this  point  the  authorities  are 
not  in  harmony,  and  as  it  is  not  material  here  we  do  not  decide 
it.  An  emergency  might  arise  when  a  bank's  board  of  directors 
would  be  justified  in  taking  stock  of  another  corporation  in  settle- 
ment, or  adjustment,  or  compromise  of  a  doubtful  claim  or  debt, 


198;  First  National  Bank  v.  Pierson, 
24  Minn.  140. 

^Prescott  National  Bank  v.  Butler, 
(1893)  157  Mass.  548,  549,  550;  citing 
Atlas  National  Bank  v.  Savery,  127 
Mass.  75,  77 ;  National  Pcmberton 
Bank  t.  Porter,  125  Mass.  333. 


'  First  National  Bank  of  Charlotte 
V.  National  Exchange  Bank  of  Balti- 
more. 39  Md.  600. 

8  Kennedy  v.  California  Savings 
Bank.  (1894)  101  Cal.  495. 

*  First  National  Bank  v.  National 
Exchange  Bank,  92  U.  8.  122. 


§288] 


BANKS  AND  BANKING. 


517 


acting  in  the  honest  belief  that  only  by  so  doing  could  a  serious 
loss  to  the  bank  be  averted.  None  of  these  reasons,  however, 
existed  in  the  case  at  bar,  or  if  they  did  the  record  before  us  does 
not  disclose  them.  The  cashier  had  no  authority  to  bind  the 
bank  by  buying  the  insurance  company's  stock.  The  board  of 
directors  had  no  authority  to  authorize  him  to  do  so ;  and  if  the 
cashier  bought  such  stock  in  belialf  of  the  bank  the  directors  had 
no  authority  to  ratify  the  purchase  and  thus  bind  the  bank. 
*  *  *  We  conclude,  then,  that  the  powers  of  a  directory  of  a 
bank  in  deaUng  with  and  in  investing  the  funds  of  the  stockhold- 
ers are  limited  to  the  purposes  for  which  the  bank  was  incor- 
porated and  the  purposes  necessarily  incidental  thereto  in  the  suc- 
cessful conduct  of  its  legitimate  business."^  Unless  necessary  to 
prevent  loss  on  a  debt  previously  contracted  in  good  faith,  a 
national  bank  can  make  no  valid  loan  or  discount  in  security  of 
its  own  stock.2  And  the  placing  by  one  bank  of  its  funds  on 
permanent  deposit  with  another  would  be  a  loan  within  that  pro- 
vision of  the  National  Banking  Association  Act  which  prohibits 
such  loans.^  A  national  bank,  purchasing  its  own  stock  to  pro- 
tect itself  against  loss  upon  a  debt,  being  bound  to  sell  the  stock 
within  six  months,  may  sell  on  credit  and  take  the  purchaser's 
note,  with  the  stock  sold  as  collateral,  to  secure  it,  provided  it  be 
done  in  good  faith.'*  Where  money  has  been  borrowed  of  a  bank, 
and  the  borrower  has  given  as  security  certificates  of  his  shares  of 
the  bank's  stock,  he  would  not  be  entitled  to  recover,  when,  on 
non-payment  of  this  loan,  the  bank  had  sold  the  stock  and  appUed 
the  proceeds  to  his  credit.^  The  opinion  of  the  court,  a  brief  one, 
rendered  by  Mr.  Justice  Field,  stated  the  law  in  such  case  to  be 


*  Bank  of  Commerce  v.  Hart,  (1893) 
37  Neb.  197,  205,  206.  The  cases 
referred  to  by  the  Nebraska  court  were 
Mechanics  &  Workingmen's  Mutual 
Savings  Bank  &  Building  Association 
«.  Meriden  Agency  Company,  24 
Conn.  159;  Franklin  Co.  v.  Lewiston 
Institution  for  Savings,  68  Me.  43; 
Nassau  Bank  r.  Jones,  95  N.  Y.  115. 
As  to  the  lack  of  power  in  one  corpora- 
tion to  buy  stock  of  another,  see  Mil- 
bank  v.  New  York,  L.  E.  &  W.  R.  R. 
Co.,  64  How.  Pr.  20-29;  Franklin  Bank 
«.  Commercial  Bank,  36  Ohio  St.  355; 


Central  R.  R.  Co.  v.  Pennsylvania  R. 
R.  Co.,  31  N.  J.  Eq.  475;  Sumner «. 
Marcy,  3  Woodb.  &  M.  105;  Central 
R.  R.  Co.  V.  Collins,  40  Ga.  582;  Hazel- 
hurst  V.  Savannah,  G.  &  N.  A.  R.  R. 
Co.,  43  Ga.  13 ;  People  v.  Chicago  Gas 
Trust  Co.,  130  111.  268. 

«  Bank  v.  Lanier,  11  Wall.  369. 

» Ibid. 

*  Union  National  Bank  v.  Hunt, 
(1882)  76  Mo.  439. 

'  National  Bank  of  Xenia  v.  Stewart, 
107  U.  S.  676. 


( 1 


!  t 


\y\ 


S- 


518 


BANKS  AND  BANKING. 


[§2SS 


as  follows :  "  Section  5201  of  the  Kevised  Statutes  declares  that 
'  no  association  shall  make  any  loan  or  discount  on  the  security  of 
the  shares  of  its  own  capital  stock,  nor  be  the  purchaser  or  holder 
of  any  such  shares,  unless  such  security  or  purchase  shall  be  neces- 
sary to  prevent  loss  upon  a  debt  previously  contracted  in  good 
faith ;  and  stock  so  purchased  or  acquired  shall,  within  six  months 
from  the  time  of  its  purchase,  be  sold  or  disposed  of  at  public  or 
private  sale ;  or,  in  default  thereof,  a  receiver  may  be  appointed 
to  close  up  the  business  of  the  association.'     While  this  section, 
in  terms,  prohibits  a  banking  association  from  making  a  loan  upon 
the  security  of  shares  of  its  own  stock,  it  imposes  no  penalty 
either  upon  the  bank  or  borrower,  if  a  loan  upon  such  security  be 
made.     If,  therefore,  the  prohibition  can  be  urged  against  the 
validity  of  the  transaction  by  any  one  except  the  government,  it 
can  only  be  done  before  the   contract  is  executed,    while   the 
security  is  still  subsisting  in  the  hands  of  the  bank.     It  can  then, 
if  at  all,  l)e  invoked  to  restrain  or  defeat  the  enforcement  of  the 
security.     When  the  contract  has  been  executed,  the  security  sold, 
and  the  proceeds  applied  to  the  payment  of  the  debt,  the  courts 
will  not  interfere  with  the  matter.     Both  bank  and  borrower  are 
in  sucli  case  equally  the  subjects  of  legal  censure,  and  they  will  be 
left  by  the  courts  where  they  have  placed  themselves.     There  is 
another  view  of  tliis  case.     The  deceased  authorized  the  bank,  in 
a  certain  contingency,  to  sell  the  shares.     Supposing  it  was  unlaw- 
ful for  the  bank  to  take  those  shares  as  security  for  a  loan,  it  was 
not  unlawful  to  authorize  the  bank  to  sell  them  wlien  the  contin- 
gency occurred.     The  shares  being  sold  pursuant  to  the  authority, 
the  proceeds  would  be  in  the  bank  as  his  property.     The  admin- 
istrators, indeed,  affirm  the  validity  of  that  sale  by  suing  for  the 
proceeds.     As  against  the  deceased,  however,  the  money  loaned 
was  an  offset  to  the  proceeding.     In  either  view  the  administra- 
tors cannot  recover."  ^     The  Illinois  Supreme  Court  has  held,  in  a 
late  case,  that  it  was  no  defense  in  an  action  to  recover  a  loan 
from  a  national  bank  that  the  bank  had  purchased  shares  of  its 
stock  which  were  pledged  for  the  loan  in  violation  of  the  law 
relating  to  national  banking  associations,  where  the  purchase  of 
the  stock  was  consummated  before  the  loan  was  obtained,  and  the 
lender  had  no  knowledge  of  how  the  stock  was  acquired  by  the 

»Ibid. 


§§  289,  290] 


BANKS  AND  BANKING. 


519 


bank.^  A  national  bank  which  had  received  the  stock  of  a 
savings  bank,  and  still  retained  it,  and  had  received  dividends  on 
the  stock,  has  been  held  to  be  estopped  from  denying  its  liability 
for  its  proportion  of  the  indebtedness  of  the  savings  bank  con- 
tracted during  the  time  of  its  ownership  of  stock  therein.^ 

§  289.  Increase  of  capital  stock.  —  The  comptroller  of  cur- 
rency is  clothed  with  power  to  assent  to  an  increase  of  the  capital 
stock  of  a  national  bank  less  than  that  originally  voted  by  its 
directors  but  equal  to  the  amount  actually  subscribed  and  paid  for 
by  the  stockholders  under  the  original  vote.^  The  capital  of  a 
national  banking  association  having  become  impaired  by  reason  of 
past  due  and  suspended  claims,  should  its  stockholders,  to  avoid  a 
threatened  assessment  by  the  comptroller  of  currency  upon  the 
stock  to  make  good  the  deficiency,  lawfully  reduce  the  capital 
stock  in  an  amount  equal  to  the  deficiency,  a  stockholder  cannot, 
in  case  the  suspended  claims  be  subsequently  realized  upon  and 
carried  into  the  account  as  assets,  compel  the  bank  to  distribute  a 
share  of  the  money  so  realized  in  proportion  to  the  amount  of  stock 
surrendered  by  him.*  The  validity  of  the  proceedings  for  an 
increase  of  the  stock  of  a  national  bank  cannot  be  questioned  by 
a  stockholder  who,  with  the  knowledge  of  its  insolvent  condition 
and  of  all  material  facts,  may  have  subscribed  for  increased  stock 
to  same  amount  as  his  original  stock,  and  amount  of  proposed 
increase  was  afterwards  reduced,  in  an  action  to  annul  his  sub- 
scription and  payment.^ 

§  290.  Loans. —  Wliere  a  state  bank  has  been  organized  into  a 
national  bank  under  the  national  law,  and  the  national  bank  had 
taken  from  the  state  bank,  among  the  discounted  notes,  one  for  a 
larger  amount  than  the  national  bank  was  authorized  to  loan  to  a 
single  borrower,  the  Supreme  Court  of  Ohio  held  that  such  note 
or  any  note  subsequently  given  in  renewal  of  it  was  not  to  be 
regarded  within  the  meaning  of  the  national  act  as  given  for 

'  Chemical  Nat.  Bank  of  Chicago  r.  •*  McCann  /\    First    National  Bank, 

City  Bank  of  Portage,  (111.  1895)  40  N.  (1887)  112  Ind.  354. 

E.  Rep.  328.  'Delano  r.  Butler,   118  U.   S.   634; 

'  Kennedy    r.    California     Savings  Pacific  National  Bank   r.   Eaton,  141 

Bank,  (1894)  101  Cal.  495.  U.  S.  227  ;  Thayer  f.  Butler,  141  U.  S. 

»  Aspinwall  v.    Butler,    133   U.   S.  234;  Butler  v.  Eaton,  141  U.  S.  240. 
595. 


i 


f* 


ri 


i^'V     ' 


<  'I 


I 


ti 


520 


BANES  AND  BANKING. 


I 


il 


[§290 

monev  borrowed  of  tlie  national  banlc.^  In  an  action  by  a 
national  bank  for  money  loaned,  the  defendant  cannot  set  up  as  a 
bar  that  the  loans  exceeded  in  amount  one-tenth  part  of  the  capi- 
tal stock  of  the  bank.'*  The  security  taken  by  a  national  bank  for 
loans  will  not  be  invalidated  by  the  fact  that  the  loans  may  be  in 
violation  of  the  act  of  congress  which  prohibits  the  lending  of 
more  than  one-tenth  of  its  paid-up  capital  to  one  person.^  Should 
a  bank  accept  a  renewal  note  from  the  agent  of  the  principal  for 
an  amount  greater  than  is  actually  due,  with  fraudulent  intent,  it 
will  vitiate  the  whole,  and  the  bank  cannot  recover  upon  it.  If 
it  be  a  mistake,  the  bank  may  recover  the  amount  actually  due.* 
Should  the  maker  of  a  note  conspire  with  the  president  or  other 
officer  of  a  bank  to  defraud  it,  and  on  the  faith  of  the  note  the 
bank  parts  with   its  money,  the  bank  can  recover  it  from  the 


'  Allen  r.  First  National  Bank,  Xe- 
nia,  (1872)  23  Ohio  St.  97. 

*  Gold  Mining  Co.  v.  National  Bank, 
(1877)    96    U.    S.    640.      Mr.    Justice 
Hunt,   speaking   for  the  court,  Siud: 
"  After    obtaining    and    holding    to 
its    own   use    the    money,    can    the 
mining  company  be  allowed  to  inter- 
pose the  plea   that  the  bank   had  no 
right  to  lotin  the  money  ?    In  Harris  v. 
Runnels,  12  How.  79.  where  the  de- 
fendant sued  upon  a  note  set  up  the 
illegality  of  its  consideration,  it  was 
held  that  the   whole  statute  then  in 
question  must  b(M  xurnined  to  discover 
whether  it  intended  to  prevent  courts 
of  justice  from  enforcing  contracts  in 
relation  to  the  act  prohibited;  and  that 
when  a  statute  prohibited  an  act  or 
annexes  a  penalty  for  its  commission, 
it  does  not  follow  that  the  unlawful- 
ness of  the  act  was  meant  to  avoid  a 
contract  made  in  contravention  of  it. 
A  statute  provided  that  slaves  should 
not  be  brought  into  the  state  without 
a  previous  certificate  signed   by  two 
freeholders.     Slaves  were  brought  in 
without  such  certificate  and  sold,  and 
the  purchaser  was  held  liable  for  tlie 
purchase  money.     Mr.  Justice  Wayne 
said  that  the  rule  was  allowed  not  for 


the  benefit  of  either  party  to  the  illegal 
contract,  but  altogether  upon  grounds 
of  public  policy.     In  O'Hare  v.   The 
Second  National  Bank  of  Titusville,  77 
Pa.    St.    96,  the  question    was  made 
upon  the  statute  we  are  considering, 
and  it  was  objected  that    the  bank 
could  not  recover  the  amount  of  the 
loan  in  excess  of  the  i^roportion  spec- 
ified.    The  court  held  that  the  section 
of  the  statute  referred  to  was  intended 
as  a  rule  for  the  government  of  the 
bank,  and  that  the  loan  was  not  void. 
See,   also,   Pangborn  v.  Westlake,  36 
Iowa,  546;  Vining  et  al.  v.  Bricker.  14 
Ohio  St.  331.     We  do  not  think  that 
public  policy  requires,  or  that  congress 
intended,  that  an  excess  of  loans  be- 
yond the  proportion  specified,  should 
enable  the  borrower  to  avoid  the  pay- 
ment of  the  money  actually  received 
by  him.     This  would  be  to  injure  the 
interest  of  creditors,  stockholders,  and 
all  who  have  an  interest  in  the  safety 
and   prosperity  of  the  bank."      See, 
also,  Farmers'  Bank  v.  Burchard.  33 
Vt.  346. 

» Stephens  v.  Bank,  88  Pa.  St.  157. 

*  Bates  V.  Short,  3  Pennypacker  (Pa), 
495. 


H 


S  291] 


BANES  AND  BANKING. 


521 


maker.*  Where  money  is  paid  on  forged  paper  by  discounting  or 
cashing  it  by  a  bank,  it  can  be  recovered  back  provided  the  bank 
has  not  materially  contributed  to  the  mistake  itself,  and  has  given 
a  sufficiently  early  notice  of  the  mistake  to  the  other  party  after 
discovering  it.^  In  a  Vermont  case,  it  appeared  that  the  defend- 
ant signed  a  writing  addressed  to  the  person  who  was  the  cashier 
of  the  bank  by  name  only,  saying :  "  I  wish  you  to  discount  a 
note,"  etc.,  and  guaranteeing  its  goodness  and  payment.  On  the 
credit  of  this  guaranty  the  bank  discounted  the  note.  The 
Supreme  Court  lield  that  an  action  on  the  guaranty  lay  in  the 
name  of  the  bank  counting  upon  a  promise  to  the  bank.^ 

§  291.  Dividends  on  bank  shares.—  The  board  of  directors 
of  a  bank  have  discretionary  power  to  declare  dividends  and  the 
amount  of  same,  and  a  very  strong  case  must  be  presented  to 
induce  a  court  to  interfere.'*  Where  the  articles  of  association  of  a 
bank  provided  that  there  should  be  a  semi-annual  dividend,  and 
vested  all  the  powers  and  privileges  of  the  members  of  the  asso- 
ciation in  a  board  of  directors,  the  Court  of  Chancery  of  New 
York  held  that  it  was  competent  for  the  board  to  determine  in 
any  year  not  to  declare  a  dividend,  and  that  a  shareholder  could 
not  maintain  a  bill  to  restrain  the  collection  of  the  securities  he 
had  given  the  association  in  consideration  of  his  shares,  because 
they  had  determined  to  forego  a  dividend  in  that  year.^  A  divi- 
dend declared  and  paid,  and  credited  on  a  call  for  payment  of  the 
stock  subscriptions  by  a  banking  association,  having  nearly  a  third 
of  its  capital  locked  up  in  a  suspended  and  uncertain  debt,  though 
it  was  believed  there  would  be  no  ultimate  loss,  has  been  held  to 
be  illegal  as  against  the  creditors  of  the  association.^  It  has  been 
held  that  a  dividend  declared  by  a  bank  could  not  be  made  pay- 
able in  bills  of  county  banks,  solvent,  but  quoted  below  par  in 
the  city  of  New  York."^  A  stockholder  in  a  bank  is  not  entitled 
to  interest  from  the  bank,  either  on  ordinary  dividends  declared 

'  Tagg  T.  Tennessee  National  Bank,  «  Ely    v.    Sprague,    (1840)    Clarke, 

(1872)  9  Heisk.  (Tenn.)  479.  351. 

«  Third     National    Bank    v.    Allen,  «  Sagory  v.  Dubois,  (1846)  3  Sandf. 

(1875)  59  Mo.  310.  Ch.  466. 

»  Woodstock  Bank  v.    Downer,   27  '  Ehle  v.  Chittenango  Bank,  (1862) 

Vt.  482.  24  N.  Y.  548. 

*  State  V.  Bank  of  Louisiana,  6  La. 
746. 

66 


M 


,:|-'t 


622 


BANKS  AND  BANKING. 


[§  201 


i< 


1. 


If 


/ 

w 


on  Ins  shares  or  on  money  due  him  from  a  reduction  by  the  bank 
of  Its  capital  stock,  for  a  period  during  whicli  tlie  bank  may  be 
prevented  from  paying  him  tlie  same  by  attacliments  of  his  stock 
in  suits  pending  in  court  between  ]nm  and  otlier  i)artie8,  althougli 
the  money  tlius  belonging  to  hini  may  be  during   such    time 
mingled  by  the  bank  with  its  general  assets,  the  bank  being  ready 
and  willing  to  pay  over  the  same  but  for  the  attachments,  and 
having  on  hand  all  the  time  a  balance  of  money  sufficient  for  the 
purpose.!    A  national  bank  in  Texas  having  declared  a  dividend 
providing  m  its  resolution  that  the  cashier  should  not  pay  such 
dividend  to  the  stockholders  until  the  respective  indebtedness  of 
each  stockholder  should  first  be  paid  out  of  his  portion  of  such 
dividend,  and  one  of  its  stockholders  being  indebted  as  c^uaran- 
tor  and  otherwise  of  certain  notes  held  by  the  bank,  his  dividend 
was  applied  to  the  payment  of  the  same.     He  brought  his  action 
against  the  bank  for  his  dividend.     The  court  specially  held  tliat 
the  bank  could  not  set  off  against  such  dividend  the  amount  of 
notes  guaranteed  by  such  stockholder,  wliere  the  original  makers 
had  not  been  exhausted,  and  no  effort  had  been  made  bv  the 


'  Mustard  v.  Union  Nat.  Bank,  (Me. 
1893)  29  Atl.  Rep.  977.     Peters,  Ch. 
J.,  said:  "The  [stockholder]  contends 
that  the  bank,  as  to  these  funds,  did 
not  stand  in  the  condition  of  an  ordi- 
nary debtor,  but  became  a  stockhokler 
or  trustee  for  the  owner  of  thera;  and 
that,  having  received  the  profits  and 
benefits  of  the  funds,  it  is  liable  for  in- 
terest on  the  same.     We  do  not  feel 
satisfied  to  apply  the  rule  invoked  by 
the  plaintiff.     There  was  no  promise 
of  interest  in  any  way,  and  no  disposi- 
tion to  withhold  the  funds,  except  for 
self-protection.       There     was     more 
money  at  all  times  on  hand  and  unem- 
ployed than  the  sum  due  the  plaintiff 
in  readiness  for  appropriation  on  the 
debt.     It   would    be    an    unheard  of 
claim  to  charge  a  bank  with  a  liability 
to  pay  interest  on  deposits  or  declared 
dividends  when  there  is  no  promise  to 
do  so  nor  any  fault  on  the  part  of  the 
bank.     And    the    funds   in    question 
were  in  no  more  favorable  condition 


for  the  owner  of  them  than  ordinary 
deposits  or  dividends.     All  uncalled- 
for  deposits  and  dividends  held  by  any 
bank,  or  at  any  rate  the  bulk  of  them, 
become  mingled  in  the  moneys  and  in- 
vestments of  the  bank,  and  that  is  one 
source  of  its  legitimate  business  profits. 
*    *    *    The  cases  in  Massachusetts, 
where  this  same  question  has  repeat- 
edly arisen,  are  adverse  to  the  plaintiff's 
claim.      Oriental    Bank    r.    Tremont 
Ins.   Co.,  4  Met.  1;  Huntress  r.  Bur- 
bank,   111  Mass.  213;  Smith  p.  Flan- 
ders. 129  Mass.  322.     And  we  do  not 
perceive  that  our  own  cases  favor  the 
claim.     In  Norris  r.  Hall.  18  Me.  332, 
the  debt  in  the  trustees'  hands  was  on 
its  face  running  upon  interest.     Blod- 
gett  P.  Gardiner.   45  Me.   542,   was  a 
similar  case.    And  in  Abbott  r.  Stinch- 
field,  71  Me.  213,  the  trustee,  an  attor- 
ney at  law,  had  collected  funds  for  his 
client,  and  deposited  thera  in  a  savings 
bank  upon    interest    for    his    client'* 
benefit." 


§292] 


BANKS  AND  BANKING. 


52.^ 


bank  to  collect  the  notes  from  them,  and  they  were  not  shown  to 
be  insolvent  or  beyond  the  jurisdiction  of  the  court ;  and  in  case 
the  maker  of  a  note  was  insolvent  and  in  the  penitentiary  or  non- 
resident, protest  and  notice  or  suit  at  the  first  term  were  not 
necessary  to  hold  the  indorser,  but  the  debts  became  an  original 
liability  of  the  indorser.* 

§  292.  Lien  of  banks  on  moneys  and  securities  of  its 
customers. —  A  bank  has  a  lien  on  all  moneys  and  securities  of 
a  customer  coming  into  its  possession  in  the  regular  course  of 
business  for  any  balance  due  it  on  general  account.^  A  banker's 
lien  does  not  extend  to  all  securities  happening  to  be  in  his  hands  for 
any  purpose.^  A  bank  has  no  general  lien  on  securities  deposited 
with  it  by  a  customer  as  collateral  for  a  particular  debt.*  The  lien 
of  a  bank  resting  upon  the  presumption  of  credit  extended  on  faith 
of  securities  in  possession  or  expectancy,  will  not  arise  in  reference 
to  securities  in  possession  of  the  bank  under  circumstances,  or 
where  there  is  a  particular  mode  of  dealing,  inconsistent  with 
such  lien.^  By  the  law  merchant  a  banker  has  a  general  lien  on 
all  securities  deposited  with  him  by  a  customer  for  his  general 


•  First  Nat,  Bank  of  Texarkana  v. 
De  Morse,  (Tex.  1894)  26  S.  W.  Rep. 
417.  The  Texas  Civil  Court  of  Ap- 
peals, upon  the  general  principles  of 
law  involved  in  the  case,  said:  "A 
bank,  in  its  dealings  with  its  custom- 
ers, has  a  right  to  pay  a  debt  due  to  it 
out  of  money  in  the  possession  of  such 
bank  to  the  general  credit  of  such  cus- 
tomers, whether  derived  from  divi- 
dends or  any  other  source.  Traders' 
Nat.  Bank  of  San  Antonio  r.  Cresson, 
75  Tex.  298;  s.  c,  12  S.  W.  Rep.  819, 
and  authorities  there  cited;  Nashville 
Trust  Co.  V.  Fourth  Nat.  Bank, 
(Tenn.)  18  S.  W.  Rep.  822;  Hagar  v. 
Bank,  63  Me.  509;  Morse  on  Banks, 
34;  Newmark  on  Bank  Dep.  §  22; 
Id.  §  117.  There  is  a  general  rule, 
subject  to  some  exceptions,  that  a 
bank  has  a  lien  on  all  moneys  and 
funds  of  a  depositor  in  its  possession 
to  secure  any  balance  due  the  bank  by 
such  depositor.     Bank  v.  Wecras,  69 


Tex.  489;  s.  c,  6  S.  W.  Rep.  802;  1 
Morse  on  Banks,  §  324;  Id.  t^  327;  New- 
mark  on  Bank  Dep.  §§  22, 117;  Bank  v. 
Hughes,  17  Wend.  94;  Fegley  r. 
McDonald,  89  Pa.  St.  128;  Bank  v. 
Henninger,  105  Pa.  St.  496;  Bank 
V.  Peck,  127  Mass.  300.  Mr.  Morse^ 
in  his  excellent  work  on  Banks  and 
Banking  (Vol.  2,  §  699e),  says:  'But 
the  bank  has  a  lien  upon  dividends; 
or,  more  properly,  it  may  set  off  divi- 
dends accruing  upon  the  shares  of  a 
stockholder  against  indebtedness  of  a 
stockholder  to  the  bank,  for  the  divi- 
dend is  a  simple  debt  owing  from  the 
corporation  to  the  stockholder.  Hagar 
V.  Bank,  63  Me.  509.' " 

'  In  re  Tallassee Manufacturing  Co., 
64  Ala.  567. 

'  Petrie  r.  Myers,  (Sup.  Ct.  N.  Y. 
Spl.  Term,  1877)  54  How.  Pr.  513. 

*  Grant  v.  Taylor,  35  N.  Y.  Super. 
Ct.  338. 

*  Reynes  r.  Dumont,  130  U.  8.  354. 


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BANKS  AND  BANKING. 


[§292 


balance,  unless  there  be  an  express  contract,  or  circumstances  that 
show  an  implied  contract  inconsistent  with  such  lien,  and  of  this 
courts  will  take  judicial  notice.*     The  doctrine  of  bankers'  liens  is 
not  the  law  of  Pennsylvania.*    A  banker's  lien  does  not  extend 
to  trust  funds  which  his  debtor,  acting  as  an  agent,  has  deposited 
in  the  name  of  a  third  person.^     A  banker  has,  upon  a  security 
pledged  for  a  specific  sum,  a  lien  for  that  amount  only,  and  he 
cannot,  by  reason  of  a  banker's  general  lien  on  securities  in  his 
hands,  extend  it  to  cover  other  advances,  unless  by  special  agree- 
ment.*   If  there  have  been  for  a  long  time  mutual  dealings  and 
an  account  current  between  two  banks,  in  which  they  have  mutu- 
ally credited  each  other  with  proceeds  of  all  paper  remitted  for 
collection  when  received,  and  charged  all  costs  of  protests,  post- 
age, etc.,  and  transmitted  their  respective  accounts  regularly  from 
one  to  the  other,  and  settled  them  as  tlie  accounts  of  the  respective 
banks;  and  upon  the  face  of  the  paper  transmitted  it  has  always 
appeared  to  be  the  property  of  the  banks  respectively  remitted  on 
their  own  account,  and  balances  have  been  generallv  allowed  to 
remain  until  reduced  by  proceeds  of  such  bills  so^  transmitted 
from  one  to  the  other,  in  usual  course  of  business,  either  of  the 
banks  would  have  a  lien  upon  paper  thus  transmitted  for  a  general 
balance  of  account,  no  matter  who  might  be  the  real  owner  of 
thepaper.*    Where  a  bank  paid  an  insolvent  depositor's  note, 
which  it  had  indorsed,  and  whicli  had  been  duly  protested  for  non- 
payment, and  was  afterwards  garnished  for  deposits  in  its  hands 
belonging  to  such  depositor,  the  Texas  Civil  Court  of  Appeals 
held  that  the  bank  had  the  right  to  retain  out  of  the  deposit  due 
the  maker  sufficient  to  secure  it  against  loss,  and  was  responsible 
only  for  the  balance  remaining  in  its  hands  after  the  payment  by 
it  of  the  depositor's  note  for  which  it  had  obligated  itself  by  its 
indorsement."    It  was  held  in  a  case  in  a  federal  court  that  the 
United  States  Revised  Statutes,  section  5242,  which  invalidates 


»  Wyman  v.  Colorado  National  Bank, 
(1879)  5  Colo.  30;  citing  Brandao  v. 
Barnett,  3  Man.,  G.  &  S.  530.  As  to 
banker's  lien  upon  securities  belong- 
ing to  his  customers  for  balances  due 
from  them,  see  Comwell  v.  Kinney,  1 
Handy  (Ohio),  496. 

•Spring  &  Axle  Co.'s  Appeal.  Ill 
Pa.  St.  291. 


•Falkland  v.  St.  Nicholas  National 
Bank  of  New  York,  (1881)  84  N.  Y. 
145. 

♦Duncan  r.  Brennan,  (1881)  83  N.  Y 
487. 

» Rathbone  v.  Sanders,  (1857)  9  Ind. 
217. 

•Rosenberg  ».  First  Nat.  Bank  of 
Texaikana.  (Tex.   Civ.  App.  1894)  27 


BANKS  AND  BANKING. 


o2i> 


§293] 

all  transfers  of  the  notes,  bonds  or  bills  of  exchange  of  a  national 
bank,  after  the  commission  of  an  act  of  insolvency,  with  a  view  to 
the  preference  of  one  creditor  over  another,  does  not  prohibit  a 
bank  which  has  in  good  faith  accepted  the  draft  of  a  national  bank 
the  day  before  the  latter's  insolvency,  and  afterwards  paid  the  same, 
from  applying  the  proceeds  of  collections  made  by  it  on  paper  in 
its  hands  belonging  to  the  insolvent  bank  to  the  payment  of  the 
draft  since  its  lien  on  such  collections  runs  from  the  date  of  accept- 
ance.^ The  United  States  Circuit  Court  for  the  southern  district 
of  New  York  has  held  that  the  same  statute  did  not  prevent  the 
retention  of  a  balance  standing  to  the  credit  of  an  insolvent 
national  bank  with  a  correspondent  bank  on  the  day  of  its  failure, 
which  balance  had  been  pledged  for  the  purpose  of  securing 
loans  made  to  the  insolvent  bank  by  the  correspondent  bank.^ 

§  293.  Lien  of  a  bank  on  shares  of  stockholders  for  their 
debts  to  the  bank. —  The  Delaware  court  has  sustained  the 
validity  of  a  by-law  made  by  the  directors  of  a  bank  that  no 
stockholder  should  have  the  right  to  transfer  his  stock  while 
indebted  to  the  bank,  and  such  by-law  held  to  give  the  bank  a 
lien  on  the  stock  for  the  debts  of  the  holder  thereof.^  Where  a 
bank  issues  stock  transferable  on  its  face  there  is  no  lien  upon  it 


8.  W.  Rep.  897;  citing  Burrow  v. 
Zapp,  69  Tex.  474;  s.  c,  6  S.  W. 
Rep.  783;  Traders'  Nat.  Bank  of  Sjin 
Antonio  v.  Cresson,  75  Tex.  298;  s.  c, 
12  S.  W.  Rep.  819. 
»In   re  Armstrong,  (1890)  41  Fed. 

Rep.  381. 

'  Bell  V.  Hanover  National  Bank, 
(1893)  57  Fed.  Rep.  821;  citing  Bank  v. 
Colby,  21  Wall.  613.  Lacombe, 
Circuit  Judge,  said  further :  "  Neither 
the  subsequent  insolvency  of  the  bank 
nor  the  appointment  of  the  receiver 
destroyed  the  lien  of  defendant, 
nor  its  right  to  dispose  of  the  pledge 
to  satisfy  the  debt  thus  secured." 
Scott  V.  Armstrong,  146  U.  S.  499;  s. 
c,  13  Sup.  Ct.  Rep.  148 

»  McDowell  V.  Bank  of  W.  &  B.,  1 
Harr.  (Del.)  27.  As  to  lien  on  stock 
for  debt  of  the  stockholder,  see  Bank 
of  Holly  Springs  v.  Pinson,  58  Miss. 421; 


Conant  v.  Seneca  County  Bank,  1  Ohio 
St.  298.  As  to  whether  a  by-law  of  a 
bank  can  create  a  general  lien  on  the 
shares  of  a  stockholder  for  any  debt  due 
the  bank  from  the  stockholder,  so  as  to 
affect  the  creditors  of  the  stockholder, 
see  Nesmith  v.  Washington  Bank, 
(1828)  6  Rck.  (Mass.)  324.  As  to  u 
bank  having  a  lien  upon  the  stock  of  a 
stockholder  who  may  have  died  leav- 
ing notes  due  and  to  become  due,  pay- 
able to  the  bank,  for  the  amount  of  the 
indebtedness,  see  Downer  v.  Zanesville 
Bank,  (1833)  Wright  (Ohio),  477.  As 
to  the  lien,  given  by  its  charter,  to  a 
bank  on  the  stock  held  by  the  debtor, 
having  a  priority  over  a  claim  of  the 
United  States,  see  Brent  v.  Bank  of 
Washington,  10  Pet.  596.  As  to  the 
effect  of  a  charter  or  by-laws  of  a  bank 
prohibiting  the  transfer  of  shares  of  its 
stock  until  all  the  debts  of  the  stock- 


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BANKS  AND  BANKING. 


[§29 


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for  any  debt  the  stockholders  owe  the  bank.^     A  ban^c  may  hold 
a  ca8].  dividend  a^  pledged  for  the  debt  of  its  shareholders  to  the 
bauk.2    A  bank  has  been  held  not  to  have  a  8|^ciiic  lien  upon 
tlie  dividends  of  one  of  its  stockholders  in  consequence  of  its  right 
to  prevent  the  transfer  of  his  stock  until  his  debt  to  the  bank 
should  be  paid.«     A  bank  has  no  lien  on  the  stock  of  one  indebted 
to  It  m  preference  to  otlier  creditors.     A  Us  pendens  would  give 
preference  to  such  creditors.*     A  bank  may  waive  the  privilege 
given  it  by  its  charter  of  proventing  the  transfer  of  its  stock  by 
any  stockholder  whose  debt  to  the  bank  is  actually  due,  until  pay- 
ment  of  the  debt.«     The  provision  in  such  articles  of  incorpora- 
tion  that  "  no  shares  shall  be  transferable  unless  the  shareholder 
previously  discharge  all  debts  due  him  by  the  association,"  has 
been  held  to  include  not  only  matured  debts  but  also  liabilities 
unmatured.*     This  lien  attaches  when  the  bank  is  a^ked  to  trans- 
fer the  legal  title.     Where  one  becomes  the  owner  of  stock  sub- 
ject to  thi«  provision  in  the  articles  of  which  he  has  knowledge 
and  has  omitted  to  give  the  bank  notice  of  his  ownership    thus 
enabling  it  to  have  credit  on  the  faith  of  the  assignor  of  the'stock 
bemg  a  stockholder,  he  will  have  no  superior  equity  to  that  of  the 
bank.'     A  provision  in  the  articles  of  association  of  a  bank  that 
no  shareholder  should  transfer  his  shares,  or  receive  a  dividend 
thereon,  who  should  owe  the  bank  a  debt  then  due,  unless  by  con- 
sent, etc. ;  and  another  giving  authority  whenever  such  a  debt 
should  be  past  due  to  sell  the  stock  and  apply  the  proceeds  to  pay 
the  debt,  have  been  held  to  create  a  lien  upon  the  stock  in  favor 
of  the  bank  for  the  debts  of  the  stockholder.     The  court  also 
held  that  the  debts  of  a  partnership  of  which  the  stockholder  was 
a  member,  were  his  debts  within  the  rule."     In   case  a  bank 
release  for  a  time  its  lien  given  it  by  its  charter,  upon  the  stock 
of  a  shareholder  for  debts  due  by  the   latter  to  the  bank,  and 

holder  to  the  bank  are  paid,  see  Union  *  Dana    r.    Brown     (1829)  1   J     J 

Bank  v.  Laird,  2  Wheat.  890.     That  a  Marsh.  (Ky.)  304       ' 

bank  may  waive  its  right,  under  the  »  Hodges  r.  Planters'  Bank    7  G   & 

last  provision,  see  National  Bank  v.  J.  (Md.)  306 

Wa^ntown  Bank,  105  U.  8.  217.  •  Leggett    ..    Bank    of   Sing   Sing. 

Fitzhugh  V.   Bank  of  Shepherds-  (1862)  24  N  Y  283 

ville.  (1825)  3  Mon.  (Ky.)  128.  '  Ibid. 

«  Hagar  r.  Union  NaUonal  Bank,  63  «  Arnold  r.  Suffolk  Bank,  (1857)  27 

Me.  509.  Barb    434. 

=•  Brent  t.  Bank  of  Washington,   2 
Cranch  Cir.  Ct.  517. 


)i  294] 


BANKS  AND  BANKING. 


527 


during  that  interval  of  time  the  stock  be  pledged  by  its  owner  for 
<lebt  to  a  third  ]>arty,  the  rights  of  the  bank  will  be  subordinate 
to  the  rights  of  the  pledgee  until  his  debt  is  paid  or  the  stock 
released  by  the  pledger.^  The  lien  that  a  bank  has  upon  the 
.•^tock  of  its  debtor  will  not  be  affected  by  the  fact  that  the  debt  is 
barred  by  the  Statute  of  Limitations.'* 

§  294.  Interest  reserved  by  banks. —  Legal  interest,  on 
sums  discounted  by  banks,  is  that  established  by  their  chartesr.* 
They  can,  in  no  case,  take  more  interest  than  that  iixed  by  their 
charters.*  Banking  laws  limit  the  right  of  a  bank  to  take  inter- 
est. Reserving  or  taking  interest  in  excess  of  that  limit,  makes 
the  transaction  usurious,  and  the  general  usury  law  applies  to  it.^ 
The  taking  of  interest  in  advance  upon  loans  made  by  a  bank  is 
within  the  well-established  rules  of  l)aMking.  But  after  a  note 
given  to  it  has  become  payable,  and  in  no  manner  taken  up  and 
renewed,  a  bank  cannot  lawfully  take  upon  it  a  rate  of  interest 
exceeding  the  rate  allowed  bv  law.^  Where  a  bank  discounts  a 
note  payable  directly  to  itself,  it  will  not  be  usury  to  take  the  inter- 
est in  advance  for  the  time  the  note  has  to  run,  this  being  the 
usage  of  banks."^  Discount  means,  ex  vi  termini.^  a  deduction 
or  drawback  made  upon  advances  or  loans  of  money  upon  negoti- 
able paper  or  other  evidences  of  debt  payable  at  a  future  time, 
which  are  transferred  to  a  baiik.^     The    rate  of  interest  on  loans 


*  Bank  of  America  i\  McNeil,  (187T) 
10  Bush  (Ky.),  56. 

"^  Farmers'  Bank  nf  Maryland  t. 
Iglehart,  6  Gill  (Md.),  55.  That  a  na- 
tional bank  cannot  create  or  hold,  by 
its  articles  of  association  or  b^'-laws,  a 
lien  on  its  stock  to  secure  the  indebt- 
edness of  sto(;kholders  to  it,  see  Sec- 
ond National  Bank  of  Louisville  v. 
National  State  Bank  of  New  Jersey, 
(1874)  10  Bush  (Ky.),  375. 

'  Bank  of  Louisiana  v.  Sterling,  2 
La.  62;  Clinton  County  v.  Kernan,  10 
Rob.  (La.)  174. 

*  Bank  of  Louisiana  r.  Stansbury,  8 
La.   261. 

"  Rock  River  Bank  v.  Sherwood,  10 
Wis.  230;  Durkee  v.  City  Bank,  13 
Wis.  216;  Brower  v.  Haight,  18  Wis. 
102. 


«  Ticonic  Bank  r.  Johnson,  31  Me. 
414. 

'  Union  Bank  r.  Corcoran,  5  Cranch 
Cir.  Ct.  513. 

^  First  National  Bank  r.  Sherburne, 

14  Bradw.  (III.)  566.  As  to  what  is  a 
discount,  see  Fleckner  r.  Bank,  8 
Wheat.  338;  Bank  r.  Johnson,  104  U. 
S.  271;  Tracy  v.  Talmage,  18  Barb. 
456;  Niagara  County  Bank  r.  Baker, 

15  Ohio  St.  68;  Pape  r.  Bank,  20  Kans. 
440;  Bank  v.  Sherburne,  14  III.  App. 
566;  First  Nat.  Bank  r.  National  Ex- 
change Bank,  92  U.  S.  122.  As  to  in- 
terest, see  Guthrie  v.  Reid.  107  Pa.  St. 
251;  Bamet  v.  Bank,  98  U.  S.  555;  Nash 
t\  Bank,  68  N.  Y.  396;  Bank  r.  Carpen- 
ter, 52  N.  J.  Law.  165;  s.  c.  19  Atl. 
Rep.  181;  Bank  r.  Stauffer,  1  Fed. 
Rep.  187;  Bank  v.  Childs,  133  Mas& 


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BANKS  AND  BANKING. 


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[§  294 

or  discounts  being  limited  in  the  charter  of  a  bank,  it  cannot 
stipulate  for  a  higher  rate  in  consideration  of  its  forbearance  to 
sue.'     It  is  not  usurious  in  a  bank  to  receive  interest  in  advance 
on  notes  discounted  by  it.'     Requiring  and  taking  exchange  in 
New  York  by  a  bank  upon  a  note  intended  to  be,  and  actually 
paid,  in  Wisconsin,  in  addition   to    ten  per    cent  interest,  has 
been  lield  to  be  usury .«     The  taking  of  exchange,  in  addition  to 
ten  per  cent  in  discounting  a  draft,  was,  however,  held  to  be  law- 
ful, if  not  intended  to  evade  the  usury  laws.*     A  national  bank 
may  take  the  rate  of  interest  allowed  to  natural  persons  generally 
by  the  law  of  the  state  where  it  is  located,  and  a  higher  rate 
where  state  banks  of  issue  can  take  it.*    National  banks  are  sub- 
ject to  the  penalty  against  usury  imposed  by  the  federal  law  and  not 
to  that  im[)osed  by  state  law.«     Usurious  interest  paid  a  national 
bank  on  renewing  a  series  of  notes  cannot,  in  an  action  by  the 
bank  on  the  last  of  the  notes,  be  pleaded  as  a  satisfaction  of  the 
debt.'    The  rule  in  Vermont  is  to  treat  the  receiving  by  a  bank 
of  interest  upon  loans  or  discounts  exceeding  the  rate  prescribed 
by  the  laws  of  that  state,  as  having  the  effect  only  to  render  the 
contracts  void  as  to  tiie  excess  of  interest  taken.^     Interest  alleged 
to  be  usurious,  having  been  paid  to  a  national  bank,  the  usurious 
interest  cannot  afterwards  be  pleaded  as  a  payment  in  an  action 

348;  Alves  v.   Bank,  3  Browne  Nat.  being  a  violation  of  its  charter,  see 

Bank  Cas.  452;  c.  f.,  Smith  v.  Bank,  State  ®.  Boatmen's  Savings  Institution 

26  Ohio  St.  141;  Bank  v.  Littell,  47  N.  (1871)  48  Mo.  189. 

J.  Law,  233.     In  N.  Y.  State  Loan  &  »  Duncan  v,  Maryland  Savings  Insti- 

Trust  Co.  V.  Helmer,  77  N.  Y.  64,  68,  tution,  10  G.  ifc  J.  (Md.)  299. 

buying  notes   or    advancing   money  «  Durkee  v.  City  Bank,  13  Wis.  216. 

on  notes  is  distinguished  from  "dis-  *  Central  Bank  v.  St.  John,  17  Wis. 

counting."    Lester   v.    Bank  of    Mo-  157. 

bile,    7    Ala.    490;   Branch    Bank   at  »  Tiffany  r.  National  Bank  of  Mis- 
Mobile  «j.  Strother,  15  Ala.  51;  Kitchen  souri,   18  Wall.   409.    See,  also,  Na- 
f>.  Branch  Bank  at  3Iobile,  14  Ala.  233;  tional  Bank  t>.  Johnson,  104  U.  8.  271. 
Branch  Bank  at  Montgomery  v.  Har-  •  Barker     v.     Rochester     National 
rison,  1  Ala.  9.     As  to  interest  and  Bank,  59  N.  H.  310. 
usury  on  the  part  of  a  bank,  and  the  '  Driesbach  r.  National  Bank,   104 
effect  of  penalties,  see  Atlantic  State  U.  S.  52;  Barnet  v.  National  Bank,  98 
Bank  of  Brooklyn  v.  Savery,  (1880)  82  U.  S.  655.     See,  also,  as  to  the  rem- 
N.  Y.  291;  Nash  v.  White's  Bank  of  edy  under  the  national  law  being  ex- 
Buffalo,  (1877)  68  N.  Y.  396.  elusive,     Stephens     v.     Monongahela 
- '  Exchange  Co.  v.   Boyce,   3  Rob.  Bank,  111  U.  S.  197. 
(La.)  307.     As  to  the  reservation  of  in-  »  Bank  of  Middlebury  v.  Bingham, 
terest  in  the  way  of  discounts  exceed-  33  Vt.  621. 
ing  the  rate  of  interest  allowed  a  bank 


§294] 


BANKS  AND  BANKING. 


529 


by  the  assignee  of  the  bank.'      The  demand  and  receipt  by  a 
national  bank  of  usurious  interest  from  indorsers  upon  notes  dis- 
counted by  it,  the  payments  of  which  notes  may  l)e  guaranteed 
to  the  bank  by  a  third  party  in  a  written  guaranty,  will  not  avoid 
the  contract  of  guaranty  between  such  third  party  and  the  bank.^ 
In  Pennsylvania  a  national  bank  cannot  take  more  than  six  per 
cent  upon  the  discount  of  a  note,  without  showing  that  the  state 
banks  of  issue  are  allowed  to  do  so.^     Where  a  charter  of  a  bank 
provided  "  that  said  corporation  shall  not  take  more  than  at  the 
rate  of  six  per  centum  on  its  loans  or  discounts,"  a  note  on  which 
in  discounting  the  bank  had  reserved  a  rate  of  interest  greater 
than  six  per  cent,  was  held  to  be  void  for  want  of  power  in 
the  bank  to  make  such  a  contract.*    National  banks  are  subject 
oniy  to  the  penalties  prescribed  by  the  United  States  Banking 
Association  Act  for  taking  usury .^      Where  usurious  interest  has 
been  previously  received  by  a  national  bank  in  the  course  of 
renewals  of  a  series  of  notes,  terminating  in  a  note  on  which  an 
action  may  be  brought,  the  usurious  interest  cannot  be  pleaded 
by  way  of  set-off  or  payment.     The  only  remedy  open  to  the 
party  aggrieved  is  that  prescribed   by  the  act  of  congress  —  a 
separate  action  for  double  the  interest  paid  by  him.*     A  national 
bank  located  in  Kansas,  charging  and  receiving  interest  at  the  rate 
of  eighteen   per   cent   per   annum,   was   held    liable   under  the 
National    Banking    Act    to    pay    back   twice  the    amount    of 
interest  thus  received.'^     The  person  paying  such  interest  having 

»  CTiilds  T.  Alexander,  22  8.  C.  '  Lazear  v.  National  Union  Bank  of 
185.  That  the  laws  of  the  state  impos-  Maryland,at  Baltimore, (1879)  52  Md.78. 
ing  penalties  for  taking  usury  do  not  » Bank  v.  Gruber,  91  Pa.  St.  377; 
apply  to  national  banks,  see  Central  Bank  ?i.  Bletz,  2  Penny  packer  (Pa.),  170. 
Bank  v.  Pratt,  (1874)  115  Mass.  539;  *  Bank  of  Chillicothe  v.  Swayne, 
Davis  V.  Randall,  (1874)  115  Mass.  (1838)  8  Ohio,  257. 
547.  As  to  the  provisions  of  the  Na-  '  Merchants  &  Farmers'  National 
tional  Banking  Act  with  reference  to  Bank  of  Charlotte  v.  Myers,  74  N.  C. 
forfeiture  for  taking  usurious  interest,  514.  As  to  a  state  court  not  having 
see  Central  Bank  v.  Pratt,  (1874)  115  jurisdiction  of  a  bill  to  recover  usury 
Mass.  539;  Davis  v.  Randall,  (1874)  paid  to  a  national  bank,  see  Hambright 
115  Mass.  547.  As  to  the  power  to  v.  Cleveland  National  Bank,  (1891)  3 
(leduct  interest  from  the  amount  of  Lea  (Tenn.),  40;  Farmers  «&  Mechanics' 
the  loan  and  in  advance,  see  Maine  Bank  r.  Dearing,  91  U.  S.  29. 
Bank  v.  Butts,  (1812)9  Mass.  49;  Agri-  «  Oldham  v.  Bank,  85  N.  C.  240. 
cultural  Bank  v.  Bissell,  (1832)  12  '  Crocker  v.  National  Bank  of  Che- 
Pick.  (Mass.)  586.  topa,  (1876)  4  Dill.  358. 

67 


530 


BANKS  AND  BANKING. 


[§294 


§294] 


BANKS  AND  BANKING. 


631 


Li    r  ' 

I'    ''' 


r^ 


gone  into  bankruptcy,  tlie  court  held  tluit  the  right  of  action  for 
recovery  of  the  i>eiialty  imposed  by  the  act  of  congress  passed  to 
his  assignee  in  bankruptcy.'  The  amount  of  tlie  recovery  was 
twice  the  full  amount  of  interest  paid,  and  was  not  limited  to 
twice  the  excess  of  interest  paid  over  the  legal  rate.'  The 
Indiana  Supreme  Court  has  held  that  a  note  given  to  a  national 
bank  was  not  void,  either  as  to  the  maker  or  surety,  from  the  fact 
that  the  bank  knowingly  reserved  and  received  usurious  interest.'** 
They  also  held  that  where  an  illegal  rate  of  interest  had  been  paid 
in  advance,  in  an  action  on  the  debt  bv  a  national  bank,  the  illeiral 
interest  could  not  be  recouped.*  In  Indiana  a  national  bank  is 
entitled  to  charge  and  receive  interest  at  the  rate  of  ten  per  cent, 
to  which  may  l)e  added  current  rate  of  exchange  for  sight  drafts, 
when  bona  fide  made.  In  an  action  ])v  a  national  bank  on  an 
evidence  of  debt,  payable  to  it  or  its  use,  where  it  has  unlawfully 
received  illegal  interest^  the  entire  interest  that  the  debt  carries 
with  it,  or  which  has  been  agreed  to  be  j)aid,  will  be  forfeited, 
and  no  recovery  can  l)e  had  for  interest  unpaid.*"'  The  one  who 
has  paid  the  illegal  interest  may  recover  back  double  the  illegal 
amount  of  interest  he  may  have  paid  in  an  action  for  deljt."  Where 
tlie  assignment  of  error  is  the  admission  of  certain  evidence 
touching  the  consideration  of  a  note  discounted  by  a  l)ank,  the 
question  whether  the  bank  exceeded  its  powers  by  taking  more 
than  legal  interest  cannot  be  raised  on  error.^  The  Supreme 
Court  of  Colorado,  in  a  very  recent  case,  have  accepted  the  con- 


» Ibid. 
« Ibid. 

» Wiley  r.  Starbuck,  (1873)  44  Ind. 
298. 

*  Ibid. 
» Ibid. 

•  Ibid. 

'Ibid.  In  La  Dow  v.  First  Nat. 
Bank  of  New  London,  51  Ohio  St. 
234,  it  was  held  that  a  national  bank 
located  in  that  state  might,  since  the 
repeal  of  the  statutes  fixing  the  rate 
of  interest  for  bunks  of  issue,  reserve 
and  charge  interest  at  the  rate  of 
eight  per  cent.  Shunk  r.  Bank,  22 
Ohio  St.  508,  distinguished.  As  to 
interest  and  usury  taken  by  banks,  see 
Commercial    Bank  of    Manchester  c. 


Nolan,  7  How.  (Miss.)  508;  Grand 
Gulf  r.  Archer,  8  Smedes  &,  Marsh. 
(Miss.)  151;  Chambliss  r.  Robertson, 
1  Cushman  (Miss.),  302;  Planters' 
Bank  v.  Snodgrass,  4  How.  (Miss.) 
573;  Forniqui't  r.  West  Feliciana  R. 
R.  Co..  6  How.  (Miss.)  116;  Killings- 
worth  p.  Commercial  Bank  of  Rodney, 
9  Smedes  &  Marsh.  (Miss.)  628;  Kno.v 
i\  Bank  of  United  States,  4  Cushman 
(Miss.),  655;  State  r.  Commercial  Bank 
of  Manchester,  4  George  (Miss.),  474; 
Bailey  r.  Murphy,  Walker  (Mich.). 
424 ;  Farmers  &  Traders'  Bank  r. 
Harrison,  57  Mo.  503;  Lyon  v.  State 
Bank,  1  Stew.  (Ala.)  442. 

*  Murmh  /'.  Branch  Bank  at  Deca* 
tur,  20  Ala.  392. 


elusions  of  the  courts  of  certain  states  that  national  banks  may 
charge  as  high  a  rate  of  interest  as  is  allowed  to  either  individuals 
or  banks  of  issue  in  the  various  states  of  their  organization ;  that 
in  all  states  where  there  is  a  statute  fixing  a  rate  of  interest,  the 
only  limitation  upon  this  right  must  be  found  in  the  statute  itself. 
The  restriction  contained  in  the  National  Banking  Act,  which  for- 
bade national  banks  to  charge  more  than  seven  per  cent  interest 
only,  became  operative  in  the  absence  of  state  legislation  on  the 
subject.  Wherever  the  state  legislature  has  acted,  the  general  grant 
of  power  to  banks  to  charge  whatever  rate  might  be  reserved  by 
either  citizens  or  banks  of  issue  became  operative.  Under  this 
construction  thay  said ;  "  Banks  in  Colorado  are  placed  on  pre- 
cisely the  same  footing  as  individuals.  The  legislative  act  on  the 
subject  fixed  a  rate,  to  wit,  eight  per  cent,  and  further  provided 
another  rate  of  interest,  which  is  determined  by  the  agreement  of 
the  parties.  That  the  legislature  has  failed  to  say  the  rate  shall 
not  exceed  twelve  per  cent  per  annum,  or  five  per  cent  per 
month,  does  not  destroy  the  legal  eifect  of  the  enactment,  nor 
restrict  its  operations  to  other  banks  or  citizens  generally,  nor 
make  the  case  one  where  no  rate  of  interest  is  named,  whereby 
the  federal  limitation  becomes  operative.  In  common  with  these 
other  courts,  which  have  reached  a  similar  conclusion,  we  hold  that 
national  banks  in  Colorado  stand  on  the  same  footing  in  the 
matter  of  interest  that  other  banks  and   individuals  occupy."* 

'  Rockwell  V.  Farmers'  Nat.  Bank 
of  Longmont,  (Colo.  1894)  36  Pac. 
Rep.  905.  The  argument  and  reason- 
ing of  the  court,  speaking  through 
BisspLL,  P.  J.,  so  fully  explains  the 
leading  decisions  of  the  courts,  fed- 
eral and  state,  and  is  so  exhaustive  of 
the  whole  subject  that  it  is  deemed 
worthy  of  a  place  in  these  notes. 
It  was  said :  "In  reality  the  only  ques- 
tion involved  is  as  to  the  right  of  a 
national  bank  in  Colorado  to  reserve 
and  receive,  whether  by  way  of  loan 
or  discount,  a  greater  rate  of  interest 
than  seven  per  cent.  In  no  event 
could  the  sums  paid  by  way  of  inter- 
est, even  though  illegal,  be  applied  to 
the  reduction  of  the  principal  sum 
due  on  the  note.  Though  some  states, 
in  the  litigations  arising  on  the  Na- 


tional Banking  Act,  adjudged  this 
admissible  where  a  counterclaim  was 
a  proper  method  of  defense,  the  ques- 
tion was  settled  adversely  to  the  claim 
by  the  Supreme  Court  of  the  United 
States.  That  court  decided  that,  in 
suits  upon  notes  where  illegal  interest 
was  reserved,  a  defense  based  upon 
the  reservation  of  the  illegal  interest 
would  simply  limit  the  recovery  to  the 
principal  sum  due.  Barnet  v.  Bank,  98 
U.  S.  555;  Driesbach  v.  Bank,  104  U. 
S.  52.  The  sole  remaining  inquiry 
concerns  the  recovery  of  the  thirty- 
one  dollars  included  in  the  judgment 
by  way  of  interest,  according  to  the 
tenor  of  the  note.  The  statutes  in 
Colorado  concerning  interest  have  been 
in  force  ever  since  it  was  a  state.  The 
act  has  always  provided  a  specific  rate 


; '  • 


t*\ 


532 


BANKS  AND  BANKING. 


[§294 


The  United  States  Circuit  Court  of  Appeals  for  the  third  circuit 
has  lield  that  tlie  purcliase  of  accepted  drafts  by  a  national  bank 
from  the  holder  without  his  indorsement  at  a  irreater  reduction 
than  lawful  interest  on  their  face  value,  was  a  discounting  of 
those  drafts,  within  the   meaning  of   Kevised   Statutes  United 


of  interest,  which  is  now  eight  per 
cent,  but  tlu'  act  regulating  the  mat- 
ter has  likewise  coutiuued  a  section 
permitting  parties  to  stipulate  for  any 
rate  of  interest  and  authorizing  the 
recovery  of  the  stipulated  interest. 
The  National  Banking  Act,  as  amended 
in  1864  (§§  5197,  5198,  U.  8.  Stats.), 
in  general  provides  that  such  bank- 
ing associations  may  reserve  and 
receive  any  rate  of  interest  allowed  by 
the  law  of  the  state  wherein  the  bank 
is  organized.  TIuto  was  some  con- 
trariety of  opinion  among  the  state 
courts  as  to  the  extent  of  the  power 
conferred  by  these  two  sections  and 
concerning  the  proper  construction  of 
the  clause  granting  the  banks  the  right 
to  charge  interest  in  those  states  where 
one  rate  was  prescribed  for  banks  of 
issue  and  another  for  persons  gen- 
erally. This  matter  has  likewise  been 
settled  by  the  Supreme  Court  of  the 
United  States,  which  has  held  that  the 
banks  may  charge  either  rate  at  their 
pleasure,  selecting,  if  they  choose,  the 
maximum.  Tiffany  v.  Bank,  18  Wall. 
400.  None  of  these  Supreme  Court 
decisions,  however,  touch  the  matter 
in  issue,  which  is,  are  national  banks 
in  states  having  a  statute  upon  the 
subject  of  interest  which  fixes  a  rate, 
but  likewise  contains  a  provision  au- 
thorizing parties  to  stipulate  as  they 
may  choose  respecting  this  matter, 
authorized  to  contract  like  other  citi- 
zens living  within  the  sovereignty? 
This  question  has  not  been  settled. 
The  statute  respecting  national  banks 
has  been  in  force  for  upwards  of 
thirty  years,  and  considerable  litiga- 
tion has  arisen  on  this  particular  ques- 
tion.   The  suits  have  taken  various 


forms,  and  the  query  has  been  pre- 
sented by  way  of  defense  to  prevent 
the  recovery  of  the  stipulated  interest, 
and  likewise  in  actions  brought  to 
recover  the  penalty  of  twice  the  inter- 
est where  the  rate  has  been  manifestly 
illegal.  Nevertheless,  it  remains  true 
that  the  question  as  here  presented 
has  never  reached  the  Supreme  Court 
of  the  United  States.  The  case  relied 
on  by  the  appellant,  and  which  at  first 
blush  would  seem  to  sustain  his  con- 
tention, is  Bank  v.  Johnson,  104  U.  S. 
271.  This  case  went  up  on  writ  of 
error  to  the  Court  of  Appeals  of  the 
state  of  New  York,  and  the  federal 
tribunal  took  jurisdiction  because  of 
the  question  involved.  In  support  of 
our  position  that  this  case  is  not  decis- 
ive of  the  present  controversy,  and  in 
reality  does  not  touch  the  principles 
under  discussion,  it  is  needful  to  state 
what  that  case  is,  the  point  at  issue, 
and  other  questions  determined.  This 
was  a  penal  action  against  the  bank, 
brought  originally  by  Johnson  in  the 
Supreme  Court  of  New  York  to  re- 
cover twice  the  interest  alleged  to 
have  been  reserved  and  received  by 
the  corporation  in  the  business  done 
by  the  parties.  Johnson  insisted  that 
the  bank  was  subject  to  the  penalties 
and  liable  to  the  provisions  of  the  stat- 
ute respecting  usury  and  interest  in 
the  state  of  New  York,  which,  in  gen- 
eral, provided  that  all  usurious  loans 
should  be  absolutely  void  and  the 
lender  could  recover  neither  principal 
nor  interest.  On  the  other  hand,  the 
bank  insistetl  that,  according  to  the 
terms  of  the  transaction,  it  was  one 
entirely  analogous  to  the  discount  of 
paper  by  the  bank  where  the  note  was 


294] 


BANKS  AND  BANKING. 


533 


States,  section  5197,  which  prohibits  national  banks  from  taking 
interest  on  any  loan  or  discount  made  by  them  at  a  greater  rate 
tlian  is  allowed  by  the  laws  of  the  state  where  they  are  situated ; 
also,  that  the  acceptor  of  drafts  so  purchased  might  defend 
against  the    recovery  of    interest   thereon  by  the  bank,  under 


made  by  A.  to  the  order  of  B.,  who 
indorsed  and  sold  it  to  the  bank.  It 
must  be  remembered  that  these  two 
propositions  are  dependent  upon  two 
considerations.  That  respecting  usury 
is  dependent  upon  positive  statute; 
that  respecting  the  law  of  discount  is 
a  judicial  declaration  of  the  law,  and 
is  not  a  creature  of  legislative  enact- 
ment. For  more  than  half  a  century  it 
has  been  the  law  of  New  York  that,  in 
the  matter  of  discount,  banks  were  not 
amenable  to  the  usury  statute.  It  may 
8eem  like  a  judicial  evasion  of  the  law, 
but  in  that  mercantile  community  it 
has  never  been  changed,  the  courts 
holding  in  a  case  of  that  description 
there  are  two  contracts  resulting  from 
the  facts  —  the  first,  an  executed  con- 
tract concluded  by  the  indorsement 
and  delivery  of  the  paper,  whereby 
the  title  passes  to  the  holder;  the 
other,  an  executory  agreement  be- 
tween the  iudorser  and  the  indorsee, 
operative  on  the  default  of  the  maker. 
Of  course  the  two  contracts  are  some- 
what different  in  their  limitations, 
since  in  the  one  case  the  bank  recovers 
from  the  maker  the  amount  of  the  note 
and  the  interest,  and,  in  the  other,  the 
sum  loaned,  w^hich  is  treated  as  the 
consideration  of  the  executory  agree- 
ment. Both  these  questions  were 
resolved  by  the  Court  of  Appeals  in 
the  negative,  and  their  conclusion  was 
affirmed  by  the  Supreme  Court.  It 
was  decided  that  state  statutes  respect- 
ing usury  were  not  applicable  to  the 
national  banks,  excepting  in  so  far  as 
they  might  be  examined  to  ascertain 
what  rate  of  interest  the  national 
banks  were  entitled  to  reserve.  The 
scope  of  the  Banking  Act  and    the 


right  of  the  general  government  to 
establish  the  system,  delegate  the 
power  granted  and  impose  restrictions 
on  the  banks  organized  under  it  were 
fully  considered  in  the  case  of  Bank  v. 
Bearing,  91  U.  S.  29.  It  was  there 
decided  that  these  banks  were  part  of 
the  instruments  adopted  to  aid  in  the 
administration  of  the  government  in 
one  of  its  most  important  depart- 
ments. The  corollary  was  that  the 
states  could  exercise  no  control  over 
them,  nor  in  any  wise  affect  their  oper- 
ations, except  in  so  far  as  power 
might  be  granted  by  the  act  itself. 
This  principle  compelled  the  court  to 
conclude  that  the  usury  laws  in  New 
York,  save  in  the  particular  referred 
to,  neither  controlled  nor  in  any  wise 
affected  Johnson's  right  of  recovery. 
It  was  equally  plain  and  so  held  by 
the  court  that  the  law  declared  in 
New  York  respecting  the  discount  of 
paper  had  neither  force  nor  applica- 
tion to  the  question  at  issue.  In  the 
first  place  it  was  not  a  matter  of  posi- 
tive statute  respecting  the  subject  of 
interest,  but  was  simply  a  judicial 
determination  by  the  courts  of  New 
York  that  the  discount  of  paper  un- 
der the  circumstances  suggested  did 
not  come  within  the  purview  of  the 
usury  statute.  Since  the  statutes  of 
the  state  could  only  be  resorted 
to  for  the  purpose  of  ascertain- 
ing what  rate  of  interest  national 
banks  might  charge,  manifestly  the 
decisions  of  the  appellate  courts  of 
that  state  respecting  the  matter  of  dis- 
counts were  of  no  consequence,  and 
afforded  no  possible  solution  of  the 
query.  There  was  another  equally 
cogent  reason,  and  one  possibly  more 


! 


I.  • 

»  I 

'Iti 


't 


I' 


/ 


■ 


n' 


534 


BAJ^KS  AND  BANKING. 


[§294 


Revised  Statutes  United  States,  section  5198,  whicli  provides 
that  the  taking  of  an  unlawful  rate  of  interest  shall  bo  deemed  a 
forfeiture  of  the  entire  interest  which  the  "bill  or  other  evidence 
of  debt  carries  with  it,"  as  this  provision  destroys  the  interest- 
iKjaring  power  of  the  instrument.     Further,  where  the  acceptor 


conclusive  of  the  subject.     The  fed- 
eral stutute  itself,  in  section  5197,  iu- 
hibitetl  national  banks  from  reservinsr 
other  than    the   permissible  interest, 
whether  it  was  done  by  way  of  loan 
or  by  way  of  discount.     The  positive 
limitation  of  the  section  puts  loans  and 
discounts  on  the  same  identical  basis. 
This  of  itself  would  prevent  the  ap- 
plication of  the  New  York  doctrine, 
and  the  negative  answer  to  the  inquiry 
given  by  the  Court  of  Appeals  was  of 
necessity  affirmed  by  the  other  tribu- 
nal.   Tliese  were  the  only  questions  in 
that  litigation.     It  is  true  that,  in  the 
course  of   the  discussion  concerning 
this  matter,  the  court  suggested  that, 
when  no  rate  of  interest  was  fixed  by 
the  laws  of  the  state,   a  bank  could 
only  charge  seven  percent  per  annum. 
There  are  two  reasons  why  that  decla- 
ration by  the  court  could  not  be  taken 
as  decisive  of   the   present  inquiry. 
As  demonstrated,  the  case  under  con- 
sideration did  not  come  up  from  a  state 
where  there  was  no  statute  fixing  a 
rate,  nor  from  one  where  the  law  fixed 
the  rate,  but  permitted  any  rate  to  be 
charged  which  might  be  agreed  upon 
between  the  parties.     It  came  from 
a  state  having  one  fixed  rate  of  inter- 
est, which,  of  course,  under  the  fed- 
eral statute,  would  be  conclusive  upon 
the  rights  of  a  national  bank.     In  the 
next  place,  it  was  a  statement  argu- 
endo, and  could  only  be  held  to  refer 
to  a  case  where  the  laws  of  the  state 
were  silent. "    The  court  then  discussed 
the  state  cases  as  follows:  "  Three  of 
the  cases  presented  the  question  in  a 
somewhat  different  aspect  from  the 
one  at  bar,  but  one  very  illustrative 
of  this  theory  of  construction.     They 


were  actions  upon  notes  reserving  ten 
and  twelve  percent  interest,  where  the 
general  rate  was  six,  though  the  parties 
by  contract  were  authorized  to  charge 
at  the  rate  of  ten  and  twelve  per  cent 
per  annum.     It  was  conceded  that  six 
was  the  general    rate    fixed    by   the 
statute,  and  that  the  other  was  totally 
dependent    ui)on    agreement    of    the 
parties;  yet,  the  courts  held  that  the 
national  banks  might  reserve  and  re- 
ceive whatever  interest  was  allowed 
by  the  law  of  the  state  regulating  the 
matter.     Wiley  v.  Starbuck,  44   Ind. 
298;  Newell   v.    Bank,    13  Bush,    57; 
Crocker  r.  Bank,  1  Thorn  p.  Nat.  Bank 
Cas.   317  ;  8.  c,   Fed.  Cas.  No.  3,397. 
It  will  be  observed  that  in  these  cases 
the  rate  was  established  by  the  law  of 
the  state,  and  there  was  a  limit  put  by 
the  same  laws,  beyond  which  neither 
individuals    nor    banks      could     go. 
Within  the  limit,  interest  might  be  re- 
served.   The  courts,  in  reaching  their 
conclusion,   proceeded  upon    the   hy- 
pothesis that,  under  the  National  Bank- 
ing Act,  the  bank  might  charge  any 
interest     allowed     by     the    laws    of 
the  state  in  which  it  was  organized, 
even  though  the  rate  above  six  must  be 
the  subject  of  convention,  and,  unless 
the  limit  were  reached,  the  rate  as  a 
rate  would  not  be  stated.     This  was 
regarded  as  of  no  moment  in  the  inter- 
pretation of  the  statute.     It  is  very 
plain  that  if  the  bank  had  reserved 
nine  per  cent,    while  the    respective 
limits  were  six  and  ten.  an  amount 
would  have  been  charged  in  a  case 
where  there  was  no  definite  legislation 
directly  authorizing  either  the  indi- 
vidual or  the  bank  to  charge  nine  per 
cent,  other  than  that  flowing  from  the 


§294] 


BANKS  AND  BANKING. 


535 


of  such  drafts  makes  a  payment  to  the  bank  without  any  direction 
as  to  its  application,  the  payment  cannot  be  applied  to  the  for- 
feited interest,  but  must  be  credited  on  the  face  value  of 
the  drafts.^  The  limitation  of  two  years,  within  which  an 
iiction,  under  the  provisions  of  section  5198,  Revised  Statutes 
United  States,  may  be  connnenced  for  the  recovery  from  a  national 
bank  of  twice  the  amount  of  money  paid  to  it,  dates  from 
the  actual  payment  of  interest,  and  not  from  the  bank's 
reservation  of  it  from  the  original  loan  by  way  of  discount.^ 


legislation  which  made  the  matter  of 
interest  between  two  definite  limits  a 
subject  of  convention.  This  distinc- 
tion does  not  seem  of  very  much  con- 
sequence in  the  solution  of  the  in- 
(juiry."  "  If  it  be  true  that,  in  a  state 
where  interest  may  be  the  subject  of 
an  agreeement,  the  bank  may  reserve 
whatever  the  parties  agree  upon  up  to 
a  maximum,  then  all  statutes  reserv- 
ing the  right  of  agreement  of  parties, 
whether  they  name  a  maximum  or  not, 
must  be  equally  effectual  for  the  pur- 
poses of  a  grant  of  power.  The  defi- 
nite question  under  consideration  has 
been  expressly  settled  against  the  ap- 
pellant in  three  different  states.  Na- 
tional Bank  of  Jefferson  v.  Bruhn,  64 
Tex.  571;  Hinds  i\  Marmolcjo,  60  Cal. 
229;  Bank  v.  Stover,  60  Cal.  387;  Guild 
V.  Bank.  (S.  D.)  57  N.  W.  Rep.  499." 

*Danforth  v.   National  State  Bank 
of  Elizabeth,  (1891)  48  Fed.  Rep.  271. 

« Smith  V.  First  Nat.  Bank  of  Crete, 
(Neb.  1894)  60  N.  W.  Rep.  866,  fol- 
lowing Bank  v.  Smith,  36  Neb.  199; 
fl.  c,  54  N.  W.  Rep.  254;  followed  in 
Lanham  v.  First  Nat.  Bank  of  Crete, 
(Neb.  1894)  60  N.  W.  Rep.  1041.  The 
court  referred  to  the  few  cases  bearing 
upon  the  subject  in  these  words:  "In 
Duncan  v.  Bank,  1  Thorn  p.  Nat.  Bank 
Cases,  360;  s.  c,  Fed.  Cas.  No.  4,135, 
Ketcham,  J.,  instructed  the  jury  as 
follows:  "From  the  origin  of  the 
loan  —  from  the  retaining  of  the  first 
discount,  through  all  the  renewals,  up 
to  the  time  of  final  payment  of  the 


principal,  or  up  to  the  time  of  enter- 
ing judgments  —  there  is  a  locus  peni- 
tenticB  for  the  party  taking  the  excess- 
ive interest.  Any  time  till  then  he 
may  consider  the  excessive  interest 
paid  on  account  of  the  loan,  and  so 
apply  it,  and  lessen  the  principal.  Up 
to  that  time  he  may  make  this  election. 
When  payment  is  actually  made,  and 
if,  as  in  these  cases,  judgment  is  en- 
tered for  the  face  amount  of  the  notes 
or  full  amount  of  the  loan,  or  payment 
is  taken  in  full  without  any  reduction 
by  taking  out  the  excessive  interest, 
the  cause  of  action  is  complete.  The 
original  loans  in  these  cases  were  more 
than  two  years  before  these  actions 
were  brought,  but  the  payment  of  one 
of  the  Millinger  notes  was  made,  and 
the  judgments  on  all  the  Duncan 
&  Bros.'  notes  were  entered,  near  the 
time  of  bringing  the  suits,  less  than 
two  years  before.  The  payment  and 
the  judgment  concluded  the  transac- 
tion, and  determined  their  character  to 
be  usurious.  Till  that  time  it  was  un- 
determined, and  the  statute  did  not 
begin  to  run.'  "  In  the  case  of  Bank  v. 
Davis,  reported  in  Fed.  Cas.  No. 
10,038,  is  found  the  opinion  of 
Gresha!*!,  J.,  in  which  he  quoted  the 
section  of  the  National  Banking  Act 
with  which  we  have  to  deal.  *  *  * 
Having  quoted  this  language,  Judge 
Gresham  commented  on  it  as  follows: 
"  If  a  national  bank  discount  a  note  at 
a  usurious  rate  of  interest,  paying  the 
borrower  the  proceeds  less  the  inter- 


-1  i 


If 

I 
I 

i 

i 


I 


Kh 


536 


BAJJTKS  AND  BANKING. 


[§295 


§  295.  A  bank's  duty  as  to  securities  deposited  with  it  — 
The  findings  of  the  court  in  this  ease  were  that  the  owners  of  cer- 
tain bonds  first  placed  them  for  safe-keeping  witli  a  firm  of  bank 
ers.  Afterwards  tliey  repeatedly  asked  for  discounts  of  their 
notes  by  the  bankers,  offering  them  the  bonds  deposited  with 
them  as  collateral,  and  the  discounts  were  made.  Wlien  the  notes 
thus  secured  were  paid  the  bankers  called  upon  the  owners  of  the 
bonds  to  know  what  they  should  do  with  them ;  they  were 
mformed  that  they  were  to  hold  them  for  the  owners  as  pre- 
viously. The  owners  had  already  written  to  the  bankers  that 
they  desired  to  keep  the  bonds  for  an  emergency,  and  also  that 
they  wished  at  times  to  overdraw  their  accounts,  and  that  they 


est,  and  suit  be  brought  to  recover  the 
loan,    and    the    borrower    plead    the 
usury,  the  bank  will  recover  the  face 
of  the   note,  less  the  entire  interest 
taken  out,  received,  or  reserved,  and 
no    more.     It   will    thus    collect    the 
sum  of  money  it  actually  paid    out, 
being   punished  for    receiving    inter- 
est  in   excess   of  the    legal    rate    by 
forfeiting    all    interest.      But   if    the 
note  thus  discounted  be  renewed  for 
the  same  amount,  the  borrower  paying 
usurious  interest  out  of  his  pocket  in 
advance,  and  suit  be  brought  on  the 
renewed  note,  the  defendant  may  re- 
coup double  the  amount  of  the  entire 
interest  actually  paid  on  renewal,  or, 
in  an  independent  action  of  debt,  he 
may  recover  from  the  bunk  double  the 
amount    of    the    entire   interest   thus 
paid."     In   Higlcy   r.    First   National 
Bank  of  Beverly,  26  Ohio  St.  75,  Mc- 
Ilvaine,  J.,  on  page  79  et  mq.,  made 
use    of    the    following    language,    in 
reference  to  that  part  of  the  section 
above  referred  to:  "By  the  first  pro- 
vision in  that  part  of  the  section  above 
quoted,  if  the  contract  or  promise  to 
pay  usurious  interest  be  unexecuted, 
it  cannot  be  enforced,  and  in  such  case 
the  debtor  is  released  from  the  pay- 
ment, not  only  of  the  interest  in  ex- 
cciss  of  the  lawful  rate,  but  '  the  entire 
interest  which  the  note,  bill  or  other 


evidence  of  debt  carries  with  it,  or 
which  has  been  agreed   to    be    paid 
thereon,'  must  be  held  and  adjudged 
to  be  forfeited.     By   the   latter  pro- 
vision, if  usurious  interest  '  has  been 
paid,'  twice  the  amount  of  interest 
may  be  recovered  back  from  the  asso- 
ciation *  taking  or  receiving  '  it,  pro- 
vided the   action    therefor    be    com- 
menced  within   two  years   from   the 
time  the  usurious  transaction  occurred. 
And,  by  construing  the  whole  section 
together,  we  are  inclined  to  believe 
that,  in  ca.se  usurious  interest  has  been 
received  at  the  time  of  the  loan  or  dis- 
count, there  is  left  to  the  bank  a  locus 
penitentia.     In   such   CAse,   the   bank 
may,  upon  receiving  payment  of  the 
debt,  discharge  itself  from  all  liability 
to  the  debtor  by  giving  credit  for  the 
amount  of  interest  received ;  otherwise, 
the  debtor  may  insist  upon  a  reduc- 
tion of  his  indebtedness  to  the  amount 
actually  loaned  or  advanced,  or  he  may 
pay  the  whole  claim,  and  afterwards, 
within  two  years,  recover  back  twice 
the  amount  of  interest  paid."      See 
Shinkle  v.  First  National  Bank  of  Rip 
ley,  22  Ohio  St.  516,  which  supports 
the  above  views.    Other  cases  referred 
to  are  Hall  u.  Bank,  30  Neb.  103;  s.  c, 
46  N.  W.  Rep.  150;  Brown  v.  Bank' 
72  Pa.  St.  209. 


§295] 


BANES  AND  BANKING. 


537 


would  consider  the  bonds  as  security  for  such  overdrafts.  The 
court  was  of  opinion  from  these  facts  that  the  bonds  were  held 
by  the  bankers  as  collateral  security  to  meet  any  sums  which  the 
owners  of  the  bonds  might  overdraw,  and  the  accounts  showed 
that  they  did  subsequently  overdraw  in  numerous  instances. 
These  bonds  were  originally  sold  by  the  bankers  to  the  owners 
and  left  with  them  for  safe-keeping.  An  absconding  cashier  of 
the  bankers  had  stolen  the  bonds,  and  the  owners  brought  this 
action  to  recover  the  value  of  the  bonds  of  the  bankers.  The 
United  States  Supreme  Court  held  that  when  bonds,  originally 
deposited  with  the  bankers  for  safe-keeping,  were,  by  agreement 
of  the  bailors  and  bailees,  made  a  standing  security  for  the  pay- 
ment of  loans  to  be  made  by  the  bank  to  the  owners  of  the  bonds, 
the  bailees  became  bound  to  give  such  care  to  them  as  a  prudent 
owner  would  extend  to  his  own  property  of  a  similar  kind.^ 


'  Preston  v.  Prather,  (1891)  137  U.  S. 
604,  aflSrming  the  judgment  in  favor 
of  the  plaintiff  rendered  in  Prather  v. 
Kean,  29  Fed.  Rep.  498.  The  court 
referred  to  the  following  cases  in  sup- 
port of  their  judgment,   to  wit:  "In 

*  *    *    Third  National  Bank  r.  Boyd, 
44  Md.   47,   it  appeared  that  a  firm 

*  *  *  a  large  customer  of  [the 
bank]  [on  a  certain  date]  was  indebted 
to  it  in  about  five  thousand  dollars. 
Subsequently,  the  senior  member  of 
the  firm,  pursuant  to  an  agreement  be- 
tween him  and  the  president  of  the 
bank,  deposited  with  the  bank  certain 
bonds  and  stocks  as  collateral  securitj' 
for  the  payment  of  all  obligations  of 
himself  and  of  the  firm  then  existing 
or  that  might  be  incurred  thereafter, 
with  the  understanding  that  the  right 
to  sell  the  collaterals  in  satisfaction  of 
such  obligations  was  vested  in  the  of- 
ficers of  the  bank.  Some  of  the  bonds 
were  subsequently  withdrawn  and 
others  deposited  in  their  places.  While 
these  collaterals  were  with  the  bank 
the  firm  kept  a  deposit  account,  hav- 
ing an  average  of  about  four  thousand 
dollars,  and  from  time  to  time,  as  it 
needed,  obtained  on  the  security  of 
the  colhiberals  discounts  ranging  from 

68 


three  to  fifteen  thousand  dollars.    The 
firm  was  not  indebted  to  the  bank  sub- 
sequently to  July,  1872,  when  it  paid 
its  last  indebtedness;  the  bonds,  how- 
ever, were  not  then  withdrawn,  but 
left  in  the  bank   under  the  original 
agreement.    In  August,  1872,  the  bank 
was  entered  by  burgkrsand  certain  of 
the  bonds  were  stolen.    In  an  action  by 
the  senior  partner  against  the  bank  to 
recover  the  value  of  the  bonds  stolen 
it  was  held:  '  First,  that  the  contract 
entered  into  by  the  bank  w^as  not  a 
mere  gratuitous  bailment.     *     *     * 
Third,   that  the  original   contract  of 
bailment  being  valid  and  binding,  the 
obUgation  of  the  bank  for  the  safe  cus- 
tody of  the  deposit  did  not  cease  when 
the    plaintiffs  debt   had  been    paid. 
Fourth,  that  the  defendant  was  respon- 
sible if  the  bonds  were  stolen  in  con- 
sequence of  its  failure  to  exercise  such 
care  and  diligence  in  their  custody  and 
keeping  as  at  the  time  banks  of  com- 
mon prudence  in   like    situation  and 
business  usually  bestowed  in  the  cus- 
tody and  keeping  of  similar  property 
belonging  to  themselves;  that  the  care 
and  diligence  ought  to  have  been  such 
as  w^as  properly  adapted  to  the  preser- 
vation and  protection  of  the  property. 


i 


\'\ 


i 


St 


538 


BANKS  AND  BANKING. 


[§  2% 


§  296.  The  rights  of  a  bank  as  to  securities  pledged  to  it. 
—  In  tliis  case  it  appeared  that  an  agent,  in  pursnance  of  his  prin- 
cipaPs  instructions,  h)aned  money  on  pledges  of  personal  j)roperty 
for  which  property  lie  took  wareliousing  receipts  in  liis  name  as 
"agent."  lie  then  pledged  these  warehousing  receipts  to  a  hank 
to  secure  his  individual  dehts  to  the  hank,  the  latter  having 
knowledge  of  the  business  relations  between  this  agent  and  his 
principal  and  the  opemtions  in  which  they  were  engaged.  The 
bank  afterwards  sold  the  goods  represented  by  these  warehousing 
receipts  and  applied  the  money  to  tlie  payment  of  the  debts  of 
the  agpnt  who  had  pledged  them  to  it.  This  action  was  brought 
by  tlie  owner,  the  principal  of  the  pledgor,  for  the  recovery  of 
their  value  from  the  bank.  The  United  States  Circuit  Court 
for  the  district  of  Maryland  held  that  the  knowledge  above 
referred  to,  together  with  the  use  of  the  word  "  agent "  on  the 
receipts,  was  sufficient  to  put  the  bank  upon  inquiry,  and  it  was 
liable  to  the  principal  for  the  amount  realized  by  it  from  the  sale 
of  the  goods.*      The   bank   contended   that   the   asrent   havi 


and  should  have  been  proportioned  to 
the  consequences  likely  to  arise  from 
any  imprudence  on  the  part  of  the  de- 
fendant. Fifth,  that  the  proper  meas- 
ure of  damages  was  the  market  value 
of  the  bonds  at  the  time  they  were 
stolen.  Whether  due  care  and  dili- 
gence have  been  exercised  by  a  bank 
in  the  custody  of  bonds  deposited  with 
it  as  collateral  security,  is  a  question 
of  fact  exclusively  within  the  province 
of  the  jury  to  decide.'  In  *  *  * 
Cutting  V.  Marlor,  78  N.  Y.  454,  it  ai>- 
peared  that  the  defendant,  as  collateral 
security  for  a  loan  made  to  him  by  a 
bank,  delivereti  to  it  certain  securities, 
which  were  taken  and  converted  by 
the  president  to  his  own  use.  In  an 
action  by  the  receiver  of  the  bank  to 
recover  the  amount  loaned,  it  was 
found  that  the  trustees  of  the  bank 
left  the  entire  management  of  its  busi- 
ness with  the  president  and  assistant, 
styled  manager;  that  they  received  the 
statements  of  the  president  without 
question  or  examination ;  that  they  had 
no  meetings  pursuant  to  the  by-laws, 


and  made  no  examination  of  the  secu- 
rities, and  exercised  no  care  or  dili- 
gence in  regard  to  them;  also,  that  the 
president  had  been  in  the  habit  of  ab 
stracting  securities  and  using  them  in 
his  private  business,  most  of  them  be- 
ing returned  when  called  for;  and  that 
the  manager,  who  had  knowledge  of 
this  habit,  did  not  take  any  means  to 
prevent  it.  nor  did  he  notify  the  trus- 
tees. It  was  held  that  the  bank  was 
chargeable  with  negligence,  and  that 
the  defendant  was  entitled  to  counter- 
claim the  value  of  the  securities;  that 
the  bailment  was  for  the  material  bene- 
fit of  the  parties;  that  the  bailee  was? 
bound,  for  the  protection  of  the  prop- 
erty, to  exercise  ordinary  care,  and  wjis 
liable  for  negligence  affecting  the 
safety  of  the  collaterals,  distinguishing 
the  case  from  the  liability  of  a  gra- 
tuitious  bailee,  which  arises  only 
where  there  has  been  gross  negligence 
on  his  part." 

'  Thurber  p.  Cecil  National  Bank. 
(1892)  52  Fed.  Rep.  513.  See  as  au- 
thority for  this  rule  National  Bank  0. 


290] 


BANKS  AND  BANKING. 


539 


authority  to  sell  and  the  provisions  of  certain  statutes  of  Mary- 
land relieved  it  from  liability.  The  court  held  that  the  fact  that 
the  agent  had  authority  to  sell  did  not  affect  the  duty  of  the  bank 
to  make  inquiry,  as  authority  to  sell  did  not  include  authority  to 
])ledge,  nor  was  the  bank  excused  from  liability  by  the  Maryland 
Factors'  Act  (Code,  art.  2),  providing  that  any  person  intrusted 
with  storekeeper's  certificates  or  other  similar  documents  show- 
ing possession  may  pledge  the  goods  to  anybody  who  is  without 
notice  that  such  person  is  not  the  actual  owner,  the  word  "  agent " 
in  the  receipts  and  the  circumstances  charging  the  bank  with 
notice ;  nor  by  article  14  of  the  Maryland  Code,  declaring  storage 
receipts  to  be  negotiable  instruments  in  the  same  manner  as  bills 
of  lading  and  promissory  notes  ;  for  when  the  fiduciary  character 
of  the  holder  is  expressed  on  the  face  of  a  negotiable  instrument 
notice  is  thereby  given  to  the  indorser  that  the  holder  prima 
facie  has  no  riglit  to  pledge.*  In  this  case  the  plaintiffs  action 
was  for  certain  coupon  railroad  mortgage  bonds  which  it  was 
claimed  the  bank  became  wrongfully  and  illegally  possessed  of. 
Plaintiff,  the  owner  of  these  bonds,  had  placed  them  with  certain 
brokers  to  cover  margins  in  transactions  in  the  purchase  of  stocks 
by  them  on  his  account.  These  brokers,  keeping  a  regular 
account  with  the  bank  in  their  usual  course  of  business,  had 
placed  these  bonds  with  other  securities  as  collateral  with  the 
bank  under  an  agreement  to  this  effect :  "  We  hereby  agree  with 
the  St.  Nicholas  National  Bank  of  New  York,  in  the  city  of  New 
York,  that  in  case  we  shall  become  or  be  at  any  time  indebted  to 
said  bank  for  money  lent  or  paid  to  us  or  for  our  account  or  use, 
or  for  any  overdraft,  in  any  sum  or  amount  then  due  and  pay- 
able, the  said  bank  may,  in  its  discretion,  sell  at  the  brokers'  board 
or  at  public  auction  or  private  sale,  without  advertising  the  same, 
and  without  notice  to  us,  all,  any  and  every  collateral  securities, 
things  in  action  and  property  held  by  said  bank  for  securing  the 
payment  of  such  debt,  and  apply  the  proceeds  to  the  payment  of 
such  indebtedness,  the  interest  thereon,  and  the  expenses  of  sale, 

Insurance  Co.,  104  U,   S.  54;  Duncan       »Ibid.     In  support  of  these  rules  see 

«.  Jaudon,   15  Wall.   165;   Warner   i\  Allen  is.  St.  Louis  Bank,  (1887)  120  U. 

Martin,    11    How.    225;    Taliaferro   v.  S.  20,   32;    s.  c,  7  Sup.  Ct.   Rep.  460; 

Bank,  71  Md.  208;   s.  c,  17  Atl.  Rep.  Kinder  v.  Shaw,  2  Mass.  398;  Phillips 

1036;    Lowry    v.   Bank,   Taney,   310;  i?.  Huth,  6  Mees.  &  W.  572,  596;  Cole  r. 

Shaw  i\  Spencer,  100  Mass.  382;  Dil-  North  Western  Bank,  L.  R.,  10  C.  P. 

Ion  fj.  Insurance  Co.,  44  Md.  386.  354,  363. 


lafl 


M- 


1 


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I 


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i 


540  BANKS  AND  BANKING.  [§  296 

holding  ourselves  responsible  and  liable  for  the  payment  of  any 
deficiency  that  shall  remain  unpaid  after  such  application."  The 
bank  paid  and  advanced  for  these  brokers  on  the  faith  of  the  bonds 
and  other  securities  large  sums  of  money.  The  brokers  failed 
in  business,  and  owed  the  bank  a  large  sum  for  checks  certified 
by  it  and  outstanding,  and  for  money  paid  by  it  up  to  the  close 
of  the  business  a  few  days  before  their  failure.  There  was  no 
notice  or  claim  as  to  the  ownership  of  the  bonds  involved  by  the 
alleged  owner  until  two  weeks  after  the  failure  of  his  brokers. 
The  bank  in  good  faith  and  on  the  best  available  terms  made  sale 
of  the  bonds  and  other  securities  and  credited  its  depositors,  the 
brokers,  with  the  proceeds,  which  left  a  small  deficiency  which 
it  never  received.  This  case  was  tried  on  a  circuit  of  the 
Supreme  Court  of  the  State  of  New  York,  and  the  plaintiffs 
asked  the  court  to  direct  a  verdict  against  the  bank  and  in  their 
favor  on  the  ground  that  the  certification  of  the  checks  by  the 
bank  was  void,  because  it  was  unlawful,  being  a  certification  of 
checks  drawn  by  the  brokers  when  they  had  no  money  on  deposit 
to  their  credit  with  the  bank,  and  the  bank  could  not  hold  the 
bonds  as  against  such  unlawful  certification,  and  on  the  further 
ground  that  the  bank  did  not  take  the  bonds  in  the  ordinary 
course  of  business.  The  trial  court  refused  and  directed  a  ver- 
dict for  defendant.  Exceptions  to  this  judgment  came  before 
the  Supreme  Court  in  General  Term,  and  tlie  court  denied  a 
motion  of  plaintiffs  for  a  new  trial  with  an  order  that  the  defend- 
ant have  judgment  against  the  plaintiffs  upon  the  verdict  with 
costs.*     The  case  was  carried  to  the  United  States  Supreme  Court, 

would  defeat  the  very  policy  of  an  act 
intended  to  promote  the  security  and 
strength  of  the  national  banking  sys- 
tem, if  its  provisions  should  be  so  con- 
strued as  to  inflict  a  loss  upon  the 
banks  and  a  consequent  impairment  of 
their  financial  responsibility."  The 
court  then  cited  to  support  that  view 
National  Bank  v.  Matthews,  98  U.  S. 
621;  National  Bank  v.  Whitney,  lOJJ 
U.  S.  99,  and  National  Bank  of  Xenia 
V.  Stewart,  107  U.  8.  676.  It  was 
further  said  "  that  the  statute  in  ques- 
tion had  no  application  to  the  question 
involved  in  this  suit,  which  concerned 
only  the  relations  between  [the  brokers} 


*  Thompson  v.  St.  Nicholas  National 
Bank,  (1888)  47  Hun.  621;  affirmed  in 
Thompson  v.  St.  Nicholas  National 
Bank,  (1889)  113  N.  Y.  325,  in  which 
case  RuGEB,  Ch.  J.,  remarked:  "That 
the  statute  of  the  United  States  af- 
firmed the  validity  of  the  contract  of 
certification,  and  expressly  provided 
the  consequences  which  should  follow 
its  violation;  that  the  penalty  incurred 
was  impliedly  limited  to  a  forfeiture 
of  the  bank's  charter  and  the  winding 
up  of  its  affairs;  that  it  was  thus 
clearly  implied  that  no  other  conse- 
quences were  intended  to  follow  a 
yiolation  of  the  statute;   and  that  it 


BANKS  AND  BANKING. 


541 


§  296] 

on  a  writ  of  error,  there  being  a  federal  question  involved,  the 
construction  and  effect  upon  this  contract  of  the  United  States 
Kevised  Statutes,  section  5208,  providing :  "  It  shall  be  unlawful 
for  any  officer,  clerk  or  agent  of  any  national  bank  to  certify  any 
check  drawn  upon  said  bank,  unless  the  person  or  company 
drawing  said  check  shall  have  on  deposit  in  said  bank  at  the  time 
such  check  is  certified  an  amount  of  money  equal  to  the  amount 
specified  in  such  check ;  and  any  check  so  certified  by  duly 
authorized  officers  shall  be  a  good  and  valid  obligation  against  such 
bank  ;  and  any  officer,  clerk  or  agent  of  any  national  bank  vio- 
lating the  provisions  of  this  act  shall  subject  such  bank  to  the 
liabilities  and  proceedings  on  the  part  of  the  comptroller  as  pro- 
vided for  in  [the  section  of  an  act,  the  provisions  of  which  were 

brokers];  that  the  fact  that  the  [bank], 
in  connection  with  the  agreement  to 
pay  such  checks,  had  also  promised 
third  parties  to  pay  them,  could  not 
invalidate  the  liability  previously  in- 
curred, or  impair  the  security  which 
had  previously  been  given  to  the 
[bank]  upon  a  valid  consideration;  that 
the  fact  of  the  certification  was  entirely 
immaterial  in  respect  to  the  liability 
incurred  by  [the  brokers]  to  the  [bank]; 
that  there  was  no  evidence  impairing 
the  title  to  the  bonds  acquired  by  the 
[bank]  through  the  transfer  of  them 
to  it  by  [the  brokers];  that  the  purpose 
for  which  the  bonds  were  transferred 
by  [their  original  owner]  to  [the 
brokers]  contemplated  their  transfer 
and  sale  by  the  latter  to  third  persons; 
that  the  [bank]  acquired  a  valid  title 
to  them  by  their  transfer  to  it;  that 
the  transaction  between  [the  brokers] 
and  the  [bank]  was  in  the  ordinary 
course  of  business  pursued  by  the 
latter;  that  it  received  the  bonds  in 
good  faith  for  a  valuable  consideration, 
and  within  all  the  authorities  this  gave 
it  a  good  title  to  the  bonds;  that  it  was 
authorized  to  deal  with  them  for  the 
purpose  of  effecting  the  object  for 
which  they  were  transferred  to  it;  that 
its  right  to  hold  the  bonds  continued 
so  long  as  any  part  of  its  debt  against 


and  the  [bank];  that  by  the  deposit  of 
the  bonds  the  former  secured  the 
promise  of  the  [bank]  to  protect  their 
checks  of  a  certain  day  for  a  specified 
amount;  that  the  certification  of  the 
checks  was  entirely  aside  from^  the 
agreement  between  [the  brokers]  and 
the  [bank],  and  was  a  contract  be- 
tween the  [bank]  and  the  anticipated 
holders  of  the  checks;  that  [the 
brokers]  had  received  the  considera- 
tion of  their  pledge  when  the  [bank] 
agreed  with  them  to  honor  their  checks, 
and  that  would  have  been  equally 
effectual  between  the  parties  without 
any  certification;  that  the  certification 
was  simply  a  promise  to  such  persons 
as  might  receive  the  checks  that  they 
should  be  paid  on  presentation  to  the 
[bank],  in  accordance  with  its  previ- 
ous agreement  with  [the  brokers];  that 
the  legal  effect  of  the  agreentent  was 
that  the  [bank]  should  loan  a  certain 
amount  to  [the  brokers],  and  would 
pay  it  out  on  their  checks  to  the  per- 
sons holding  such  checks;  that  it  was 
entirely  legal  for  the  [bank]  to  con- 
tract to  pay  [the  brokers']  checks,  and 
it  did  not  affect  the  legality  of  that 
transaction  that  the  [bank]  also  repre- 
sented to  third  parties  that  it  had  made 
such  agreement,  nor  could  any  other 
party   standing  in  the  shoes  of  [the 


ti 


k 

i ' 


n 


A 


1.;"' 


542 


BANKS  AND  BANKING. 


[§  296 

tlitit  the  comptroller  of  the  currency  might  forthwith  appoint  a 
receiver  to  wind  up  the  affairs  of  the  banking  association]."  The 
Supreme  Court  affirmed  the  decision  of  tlie  New  York  Court  of 
Appeals.^  In  this  case  a  national  bank  in  a  failing  condition, 
while  being  pressed  by  its  customers,  remitted  securities  in  the 
form  of  bills  of  exchange,  notes,  etc.,  to  a  large  amount  to  its 
correspondent  bank  in  another  city,  on  which  it  asked  advances 
or  loans  for  its  relief  and  also  authorized  the  holding  of  these 
securities  as  collaterals  to  protect  against  its  overdrafts.  The 
failing  bank  iinally  succumbed  to  the  pressure,  and  was  placed  in 
the  hands  of  a  receiver.  The  receiver  brouglit  action  against  the 
bank  holding  these  securities,  claiming  a  right  to  their  possession 
in  himself  as  assets  of  the  bank.  The  contention  on  the  part 
of  the  receiver  was  that  the  United  States  Revised  Statutes,  sec- 


[the  brokers]  remained  unpaid;  that 
the  [original  owner]  could  at  any  time 
have  established  his  equitable  right  to 
a  return  of  the  bonds,  and  could  have 
procured  their  surrender  by  paying 
the  amount  for  which  they  were 
pledged,  but  he  refrained  from  doing 
so,  and  impliedly  denied  any  right  in 
the  [bank]  by  demanding  the  uncon- 
ditional surrender  of  the  bonds,  and 
that  he  never  became  entitled  to  such 
surrender,  and  of  course  was  not  au- 
thorized to  recover  possession  of 
them." 

•  Thompson  v.  St.  Nicholas  National 
Bank.  (1892)  146  U.  S.  240.  Mr. 
Justice  Blatchford,  for  the  court, 
approved  the  views  of  the  New  York 
Court  of  Appeals  as  sound  and  as 
covering  the  case.  He  then  said : 
"  The  agreement  [before  referred  to] 
between  [the  brokers]  and  the  [bank] 
did  not  call  for  any  act  violating  the 
statute.  There  was  nothing  illegal  in 
providing  that  the  securities  which 
the  bank  might  hold  to  secure  the 
debt  to  it  of  [the  brokers]  should  be 
available  to  make  good  such  debt. 
The  statute  does  not  declare  void 
a  contract  to  secure  a  debt  arising  on 
the  certificates  which  it  prohibits. 
In  addition  to  that,   the    statute  ex- 


pressly provides  that  a  check  certified 
by  a  duly  authorized  officer  of  the 
bank,  when  the  customer  has  not  on 
deposit  an  amount  of  money  equal  to 
the  amount  specified  in  the  check 
certified,  shall  nevertheless  be  a  good 
and  valid  obligation  against  the  bank; 
and  there  is  nothing  in  the  statute 
which,  expressly  or  by  implication, 
prohibits  the  bank  from  taking 
security  for  the  protection  of  its 
stockholders  against  the  debt  thus 
created.  There  is  no  prohibition 
against  a  contract  by  the  bank  for 
security  for  a  debt  which  the  statute 
contemplates  as  likely  to  come  into 
existence,  although  the  unlawful  act 
of  the  officer  of  the  bank  in  certifying 
may  aid  in  creating  the  debt.  In 
order  to  adjudge  a  contract  unlawful, 
as  prohibited  by  a  statute,  the  pro- 
hibition must  be  found  in  the  statute. 
The  subjection  of  the  bank  to  the 
penalty  prescribed  by  the  statute  for 
its  violation  cannot  operate  to  destroy 
the  security  for  the  debt  created  by 
the  forbidden  certification.  If  the 
[original  owner]  had  pledged  the 
bonds  to  the  [bank],  he  could  not,  after 
receiving  [the  bank's]  money,  have 
replevied  the  bonds;  and  after  pos- 
session of  the  bonds  had  been  given 


I. 


BANKS  AND  BANKING. 


543 


§296] 

tion  5242,  which  prohibits  all  transfers  by  any  national  banking 
association  after  the  commission  of  an  act  of  insolvency,  or  in  con- 
templation thereof,  with  a  view  to  the  preference  of  one  creditor  to 
another,  had  been  violated  by  the  insolvent  bank,  and  that  the  cor- 
respondent bank  had,  therefore,  no  title  in  or  lien  upon  the  secur- 
ities which  it  held.  AVallace,  J.,  of  the  United  States  Circuit 
Court  for  the  southern  district  of  New  York,  held  that  the  statute 
was  directed  to  preference,  not  to  the  giving  of  a  security  when  a 
debt  is  created ;  and  if  the  transaction  be  free  from  fraud  in 
fact,  and  is  intended  merely  to  adequately  protect  a  loan  made  at 
the  time,  the  creditor  can  retain  property  transferred  to  secure 
such  a  loan  until  the  debt  is  paid,  though  the  debtor  is  insolvent, 
and  the  creditor  lias  reason  at  tlie  time  to  believe  that  to  be  the 


by  him  to  [the  brokers],  .nnd  after  they 
had  been  subsequently  taken  by  the 
[bank]  in  gootl  faith,  neither  he,  nor 
his  executors  can  set  up  the  statute  to 
destroy  the  debt.  This  construction 
of  the  statute  in  question  is  strength- 
ened by  the  subsequent  enactment, 
making  it  a  criminal  offense  in  an 
officer,  clerk  or  agent  of  a  national 
bank  to  violate  the  prj visions  of  the 
act.  [Rev.  Stats.  U.  S.  §  5208,  to 
wit:  Act  July  12.  1882,  §  13,  c. 
288;  22  Stats,  at  Large,  166.]  This 
shows  that  congress  only  intended  to 
impose,  as  penalties  for  over  certifying 
checks,  a  forfeiture  of  the  franchises 
of  the  bank  and  a  punishment  of  the 
delinquent  officer  or  clerk,  and  did 
not  intend  to  invalidate  commercial 
transactions  connected  with  forbidden 
certifications.  As  the  [bank]  was 
bound  to  make  good  the  checks  to  the 
holders  of  them,  because  the  act 
[heretofore  referred  to]  declares  that 
the  checks  shall  be  good  and  valid 
obligations  against  the  [bank],  it  fol- 
lows that  [the  brokers]  were  bound  to 
make  good  the  amounts  to  the  [bank]. 
It  necessarily  results  that  the  [bank], 
in  paying  the  checks,  was  as  much 
entitled  to  resort  to  the  securities 
which  [the  brokers]  had  put  into  its 
bands,  as  it  would  have  been  to  apply 


money   which  they   might    have  de- 
posited to    meet    the  checks.      More- 
over, it  has  been  held  repeatedly  by 
this  court  that  where  the  provisions  of 
the  National  Banking  Act  prohibit  cer- 
tain  acts  by  banks  or  their  officers, 
without  imposing  any  penalty  or  for- 
feiture applicable  to  particular  trans- 
actions  which  have    been    executed, 
their  validity  can  be  questioned  only 
by    the    United    States,   and    not  by 
private    parties.      National    Bank    r. 
Matthews,   98    U.    S.    621;    National 
Bank    r.    Whitney,    103     U.    S.    99, 
National  Bank  of  Xenia  v.   Stewart, 
107  U.  S.  676.     The  bonds  in  question 
came  into  the  possession  of  the  [bank] 
before  it  certified  the  checks.     They 
were  not    pledged  to  it  under    any 
agreement  or  knowledge  on  its  part, 
or  in  fact  on  the  part  of  [the  brokers], 
that  subsequent  certificates  would  be 
made.      The    certificates  were    made 
after  the  pledge  and  created  a  debt  of 
[the  brokers],   which  arose  after  the 
pledge.     The  agreement  [at  the  time 
of  depositing  the  collaterals]  applied 
and  became  operative  simultaneously 
with  the  certifications,  but  independ- 
ently of  them,  as  a  legal  proposition. 
In  Logan  County  Bank  r.  Townsend, 
139  U.   S.   67,   77,  decided  in  March, 
1891,  after  the  present  case  was  de- 


'  t 


I 


A 


11.! 


ul 


\ 


544 


BANKS  AND  BANKING. 


[§  29G 


11 1 


'!'!■: 


fact*  In  tlie  same  case  the  correspondent  bank  insisted  tliat  it 
acquired  a  banker's  lien  upon  the  securities  for  the  amount  of 
any  balance  upon  its  general  account  with  the  insolvent  bank 
which  remained  unpaid.  But  the  court  held  that  a  banker's  lien 
for  the  amount  of  the  balance  of  its  general  account  does  not 
exist  when  the  securities  have  been  deposited  with  the  bank  for 
a  special  purpose  or  for  the  payment  of  a  particular  loan.^ 


cided  by  the  Court  of  Appeals  of  New 
York,  this  court  approved  the  decision 
in  National  Bank  r.  Whitney,  103  U. 
8.  09,  and  said  tliat  a  disregard  by  a 
national  bank  of  the  provisions  of  the 
act  of  congress  forbidding  it  to  take  a 
mortgage  to  secure  an  indebtedness 
then  existing,  as  well  as  future  ad- 
vances, could  not  be  taken  advantage 
of  by  the  debtor,  but  '  only  laid  the 
institution  open  to  proceedings  by  the 
government  for  exercising  powers  not 
conferred  by  law.' " 

'Armstrong    r.   Chemical   National 
Bank,  (1890)  41  Fed.  Rep.  234.     It  was 
said  by  the  court:  * '  The  naked  fact  that 
the  Fidelity  Bank  was  insolvent  at  the 
time  it  sent  the  securities  to  the  de- 
fendant does  not  imply  that  the  trans- 
fer of  the  securities  was  made  in  con- 
templation of  insolvency,   or  with  a 
view  of  a  preference  of  the  defendant 
over  its  other  creditors.     Although,  in 
the  light  of  subsequent  events,   the 
Fidelity  Bank  was  insolvent,  it  may 
be  that  its  insolvency  was  not  sus- 
pected by  its  officers.     So  far  as  ap- 
pears no  act  of  insolvency  had  been 
committed.     A  bank  is  not  in  con- 
templation   of   insolvency    until    the 
fact  becomes  reasonably  apparent  to 
its  officers  that  it  will  presently  be  un- 
able to  meet  its  obligations,  and  will 
be  obliged  to  suspend  its  ordinary  ob- 
ligations.    Roberts  v.   Hill,   24    Fed. 
liep.    571.      Until    this    condition   of 
Jiffairs  exists,  certainly  a  national  bank- 
ing association  does    not    violate  the 
statute  by  pledging  its  securities  to  a 
reasonable    amount    to    raise   money 
needed  to  meet  an  unexpected   run. 


The  best  managed  institutions  are 
liable  to  such  contingencies,  and  the 
right  to  use  their  assets  in  an  honest 
attempt  to  bridge  over  such  a  crisis  is 
indispensable  to  their  safety.  Obvi- 
ously the  exercise  of  this  right  would 
be  impracticable  if  the  pledge  becomes 
void  whenever  the  attempt  of  the 
bank  to  rescue  itself  from  failure  be- 
comes unsuccessful." 

'Armstrong   v.  Chemical    National 
Bank,  (1890)  41  Fed.  Rep.  234.     Wal- 
lace,  J.,  said:    "It  is   familiar  law 
that  a  banker  has  a  lien  upon  all  funds 
and  securities  in  his   possession,  de- 
posited with  him  in  the  usual  course 
of  business  by  a  customer  to  facilitate 
the  financial  transactions  contemplated 
between  them,  which  extends  to  the 
payment  of   any  balance  on   general 
account.     The  lien  arises  from  the  im- 
plied understanding  of  the  parties  that 
credit  is  to  be  given  in  the  course  of 
deahngs  between  them  by  the  banker 
to  the  customer  upon  the  faith  of  the 
securities.     It  is  equally  familiar  law 
that  the  lien  does  not  exist  when  the 
securities  have  been  deposited   for  a 
special  purpose,  or  for  the  payment  of 
a  particular  loan;  and  where  they  are 
delivered   specifically  to    protect   the 
banker  in  a  particular  transaction,  or 
series  of  transactions,  he  has  no  lien 
upon  them  for  any  other  purpose,  and 
cannot  assert  one  for  any  other  in- 
debtedness    whether     arising     upon 
general  account  or  otherwise.     This 
doctrine  has  recently  been  reiterated 
and  applied  by  the  Supreme  Court  in 
Reynes  v.  Dumont,  130  U.  S.  354;  s.  c, 
9  Sup.  Ct.  Rep.  486.    That  was  a  case 


II 

mini 


§§  297,  298] 


BANKS  AND  BANKING. 


545 


§  297.  Personal  guaranty  of  a  bank  by  stockholders  and 
directors.—  The  United  States  Circuit  Court  of  Appeals  for  the 
iifth  circuit  lias  held  that  a  personal  guaranty  given  by  stock- 
holders and  directors  of  a  bank  to  another  bank  in  consideration 
of  "loans,  discounts  or  other  advances  to  be  made,"  for  the 
repayment  of  any  indebtedness  thus  created,  imposed  a  liability 
on  the  guarantors  when  acted  on  by  the  guarantee,  though  no 
notice  of  acceptance  of  the  guaranty  was  given,  the  contract 
showing  a  personal  interest  of  the  guarantors  in  the  advances, 
constituting  a  consideration  moving  to  them.^ 

§  298.  Misrepresentations  by  a  bank  as  to  solvency  of  a 
customer.—  A  state  bank  having  loaned  large  sums  of  money 
to  a  manufacturing  corporation  upon  representations  made  to  it 
by  a  national  bank  through  its  cashier  as  to  the  good  standing, 
etc.,  of  the  corporation,  which  were  not  repaid  to  the  bank  by 
reason  of  the  insolvency  of  the  corporation,  brought  its  action 
against  the  national  bank  to  recover  damages  for  what  it  alleo-ed 


in  which  securities  consisting  of  two 
hundred    and    seventy-five    thousand 
dollars  of  municipal  bonds  had  been 
left  by  one  banking  firm  with  another 
for  a  period  of  two  years  and  a  half, 
during   which    large  transactions    on 
general  account  took  place   between 
them;  various  loans  were  made  to  the 
former  by  the  latter  upon  an  express 
pledge  of  the  bonds,  and  the  former,  at 
the  request  of  the  latter,  had  also  ob- 
tained various  loans  of  other  bankers 
by  pledging  so  many  of  the  bonds  as 
was  necessary  in  the  particular  trans- 
action.    The  court  found  as  a  fact  that 
the  bonds  were  left  with  the  banking 
firm  originally  as  collateral  for  a  par- 
ticular loan;  that  there  was  no  express 
understanding  between  the  two  bank- 
ing firms  that  they  were  to  stand  as  a 
security  for  general  transactions,  and 
that  the  loans  subsequently  made  upon 
them  were  specific  loans  accompanied 
by  an  express  pledge,  and  held  that 
these  circumstances  were  inconsistent 
with  the  existence  of  a  general  lien. 
If  the  sending  of  the  securities  [in  this 

69 


case]   had  resulted,   either  in    conse- 
quence of  a  subsequent  express  con- 
tract,  or  in   consequence  of  any  im- 
plication from  the  nature  of  the  trans- 
action, in  giving  the  defendant  a  lien 
for  the  antecedent  indebtedness  of  the 
[insolvent]     bank,    it    is     extremely 
doubtful  whether  the  transaction  could 
be    upheld.     The    cases    of  Bank    v. 
Colby,    21    Wall.   609,   and  Bank   v. 
Butler,  129  U.  S.  223;  s.  c,  9  Sup.  Ct. 
Rep.  281,  take  a  view  of  the  statute 
which  suggests  that  no  preference  can 
be  obtained  by  one  creditor  of  a  na- 
tional  bank   over  another,  after  the 
bank  has  become  insolvent,   whether 
obtained  with  the  consent  of  or  by 
adversary    proceedings     against    the 
bank  and  whether  the  creditor  has  or 
has  not  any   reason    to  suppose  the 
bank  to  be  insolvent  at  the  time." 

'Doud    V.  National  Park  Bank  of 
New  York,  (1893)  54  Fed.  liep.  846 
See  Davis  v.  Wells,  104  U.  S.  159,  for 
a  review  of   the  precedents   in  such 
case  and  a  statement  of  their  doctrine. 


K-  M 


»■  ■  J 


■^  !* 


I  t'l 


.. 


I ' 


•  il 


<i 


54C> 


BANKS  AND  BANKING. 


[§  298 


il;  1 

fj 

ii  'i 

i 


Ml 


Ml 
f 


were  fraudulent  misrepresentations  as  to  the  standing,  etc.,  of  the 
corporation.  Different  defenses  were  made  by  the  bank  to  this 
suit.  Among  others,  it  contended  that  neither  the  bank  itself 
nor  its  cashier  had  power  to  make  such  representations  as  were 
made  concerning  the  standing  or  credit  of  the  corporation.  The 
United  States  Circuit  Court  for  the  district  of  Oregon  held  that 
the  national  bank  was  liable  for  fraudulent  representations  made 
by  it  through  its  cashier  to  the  other  bank  as  to  tlie  financial 
responsibility  of  its  customer.^  There  was  a  contention  in  this 
case,  the  letter  containing  the  misrepresentations  as  to  the  credit 
of  the  corporation  seeking  loans  being  signed  simply  by  the 
cashier  of  the  national  bank  sued,  that  the  action  upon  the  repre- 
sentation was  barred  by  the  Statute  of  Frauds.  The  provision  in 
the  Code  of  Oregon,  in  substance  a  reproduction  of  Lord  Ten- 
terden's  act  (9  Geo.  lY,  chap.  1-4,  §  6),  was  as  follows  :  "  No 
evidence  is  admissible  to  charge  a  person  upon  representation  as 
to  the  credit,  skill  or  character  of  a  third  party  unless  such  repre- 
sentation or  a  memorandum  thereof  be  in  writing  and  either  sub- 
scribed by  or  in  the  handwriting  of  the  party  to  be  charged.'^ 
Under  this  contention  arose  the  question  whether  the  letter  as 
written  and  signed  by  the  cashier  of  the  national  bank  was  the 


'  Nevada  Bjiuk  of  San  Francisco  f>, 
Portlaud  Nat.  Bank,  (1893)  59  Fed. 
Rep.  338.  Gilbert,  Circuit  Judge, 
said:  "The  defendants  contend  that 
the  defendant  bank,  which  is  a  na- 
tional bank,  had  not  the  power  to  as- 
sume a  liability  for  its  own  error  or 
mistake  in  certifying  to  the  financial 
standing  of  a  customer  seeking  credit 
at  another  bank.  It  must  be  conceded 
that  it  had  not  the  power  to  assume 
such  liability  ex  contractu,  but  in  the 
case  of  a  tort  committed  by  the  bank 
or  its  officers  a  different  principle  is 
applied.  In  such  a  case  it  is  the  rule 
that  the  corporation  is  liable  for  the 
negligence  or  other  tort  of  its  agents 
and  .servants,  even  when  performing 
acts  that  are  ultra  rires.  In  the  case 
of  Merchants'  Bank  r.  State  Bank.  10 
Wall.  604,  the  court  said:  'Corpora- 
tions are  liable  for  every  wrong  of 
which  they  are  guilty,  and  in  such 


case  the  doctrine  of  ultra  tiren  has  no 
application.  Corporations  are  liable 
for  the  acts  of  their  servants  while  en- 
gaged in  the  business  of  their  employ- 
ment in  the  sjimc  manner  and  to  the 
same  extent  that  individuals  are  liable 
under  like  circumstances.'  In  Bank 
r.  Graham,  100  U.  S.  699,  702,  the 
court  said:  'An  action  may  be  main- 
tained against  a  corporation  for  its  ma- 
licious or  negligent  torts,  however 
foreign  they  may  be  to  the  object  of 
its  creation,  or  beyond  its  granted 
powers.  It  may  be  sued  for  assault 
and  battery,  for  fraud  and  deceit,  for 
false  imprisonment,  for  malicious 
prosecution,  for  nuisance  and  for 
libel.' "  The  same  doctrine  is  applied 
in  the  cases  of  Railroad  Co.  v.  Derby, 
14  How.  468;  Railroad  Co.  d.  Quigley, 
21  How.  202:  Etting  r.  Bank,  11  Wheat. 
59:  Bissell  r.  Railroad  Co.,  22  N.  Y. 
258. 


2D8] 


BANKS  AND  BANKING. 


547 


letter  of  the  bank  and  the  signature  the  signature  of  the  bank 
within  the  meaning  of  this  statute.     The  court  held  that  it  was.^ 


'  Nevada  Bank  of  San  Francisco  v. 
Portland   Nat.  Bank,  (1893)   59  Fed. 
Rep.  338.     Gilbert,   Circuit  Judge, 
arguendo,  said:  "It  is  argued  that  the 
signature  of  the  cashier  of  the  defend- 
ant bank,  attached  to  the  letters,  is  not 
the  signature  of  the  bank.     The  Eng- 
lish case  of  Swift  v.  Jewsbury,  L,  R, ,  9 
Q.  B.  301,decided  in  1874,  is  relied  upon 
as  giving  that  interpretation  to  the  stat- 
ute. In  that  case  a  letter  had  been  writ- 
ten to  the  manager  of  a  bank,  request- 
ing his  opinion  of  the  standing  of  one 
who  was  seeking  credit.     The  answer 
w^as  signed  M.  B.  Goddard,  Manager.' 
The  banking  company  had  no  knowl- 
edge that  such  letter  had  been  written, 
and  gave  the  manager  no  express  au- 
thority to  write  the  same.     The  com- 
pany was  not  a  corporation.     It  was  a 
copartnership,  with  certain  privileges 
conferred  by  statute.     It  could  sue  and 
be  sued  only  in  the  name  of  one  of  its 
public  officers,  and  its  members  could 
not  be  made  liable  in  respect  to  trans- 
actions with  the  company  until  a  judg- 
ment hiid  first  been  obtained  against 
the  company  through  one  of  its  public 
officers.     The  decision  of  the  Court  of 
Queen's  Bench  was  that  the  signature 
of  Goddard,  the  manager,  was  in  fact 
and  law  the  signature  of  the  banking 
company;   but    upon    appeal    to   the 
Court  of  Exchequer,  Lord  Coleridge 
was  of  the  opinion  that  the  signature 
to  the  document  upon  which  the  bank 
was  sought  to  be  held  liable  was  not 
signed  by  the  party  to  be  charged,  and 
did  not  come  within  the  terms  of  the 
statute.     Instead  of  basing  the  decis- 
ion upon  that  view  of  the  law,  how- 
ever, he  held  that  the  decision  of  the 
Queen's  Bench  should  be  reversed  upon 
the  ground  that  upon  the  language  of 
the  correspondence  there  was  no  inten- 
tion to  consult  the  bank,  but  rather 
the  manager  thereof;  and  that  the  rep- 
resentation was  made  by  Goddard  him- 


self of  matters  as  to  which  he  was 
pledging  his  personal  knowledge  only. 
Upon  this  ground  the    decision  was 
concurred  in  by  the  remainder  of  the 
court.     No   American  case  is  found 
which  covers  the  point  in  question,  but 
the  tendency  of  the  decisions  in  the 
states  in  which  Lord  Tenterden's  act 
has  been  adopted  has  been  to  modify 
the  protection  which  the  statute  affords 
to  fraud  by  enforcing  a  strict  construc- 
tion   of    its     provisions.       Bush    v. 
Sprague,  51  Mich.  41;  s.  c,  16  N.  W. 
Rep.  223;  Ilodgin  v.  Bryant,  114  Ind. 
401:  s.  c.,16N.  E.  Rep.  815.     *    *    « 
A  corporation  can  sign  instruments  in 
writing  only  by  an  officer  or  officers 
empowered  so  to  do.     In   the  usual 
course  of   the  corporation's   business 
the  act  of  signing  is  not  the  act  of  an 
agent  but  the  act  of  the  corporation 
itself.     While  formal  documents  are 
usually  signed  by  the   president  and 
secretary,   and  further  authenticated 
by  the   corporate   seal,    the   corpora- 
tion may,  nevertheless,  empower  any 
officer    to    execute    deeds    or    other 
instruments    in    writing.     In    bank- 
ing corporations,  most  instruments  in 
writing  issued  or  indorsed  by  the  bank 
are  signed  by  the  cashier.     The  letters 
of  the  bank,  in  its  usual  correspond- 
dence  about  business  are  often,  if  not 
generally,  signed  by  him.     In  Morse 
on    Banks    and    Banking    (§    162)    it 
is  said  that  it  is  the  special  duty  of  the 
cashier  to  conduct  the  correspondence 
of  the  bank.     The  name  of  the  defend- 
ant bank  stands  at  the  head  of  both 
letters  referred  to  in  the  complaint, 
and  both  are  signed  by  the  cashier,  and 
his  official  title  is  appended.  The  ques- 
tion is  not  free  from  doubt,  but  I  am 
inclined  to  the  view  that  in  a  document 
of  this  kind,  written  under  the  circum- 
stances detailed  in  the  complaint,  the 
signature  of  the  cashier  is  the  signa- 
ture of  the  bank.'* 


CHAPTEK  X. 


OFFICERS  OF  BANKS. 


^:. 


'  I 


■'nl 


III 

mil 


§  2W.    Directors— their  powers  and 

duty. 

800.    Jurisdiction  of  state  courts  in 

cases  of  directors  of  national 

banks  violating  their  duty. 

301.  Jurisdiction     of     courts     of 

equity  in  such  cases. 

302.  Statutory  liability  of   direct- 

ors   of    national    banks  — 
actions  to  enforce  it  —  rules. 

303.  President  —  his     power     and 

duty. 

304.  President's  acts   binding    on 

bank  —  illustrations. 

805.  President's  acts   not  binding 

on  bank  —  illustrations. 

806.  When  a  bank  is  not  charge- 

able     with      constructive 
notice  and  knowledge  of  its 
president. 
307.    Cashier —  his  power  and  duty. 


§308. 
309. 


310. 


311. 


313. 


313. 


314. 


Cashier's  liability  for  his  acts. 

Knowledge  of  its  cashier  not 
imputable  to  bank— illus- 
trations. 

Rules  as  to  ratification  of  a 
cashier's  act  by  the  bank. 

Act  of  cashier  binding  on 
bank. 

Promise  by  cashier  to  pay 
draft  of  a  customer  to  be 
drawn  at  a  future  day  — 
not  binding  on  the  bank. 

Estoppel  of  a  bank  to  deny 
the  validity  of  an  act  of  its 
cashier  in  drawing  drafts 
on  its  correspondent  and 
fraudulently  indorsing 
them. 

Teller  and  bookkeeper  —  their 
powers  and  duties. 


§  299.  Directors  —  their  powers  and  duty.—  Directors  of  a 
bank  may  authorize  one  of  their  number  to  assign  any  securities 
belonging  to  the  corporation.^  The  directors  of  a  bank  have 
authority  to  settle  with  its  cashier,  where  his  accounts  exhibit  a 
deficiency  in  the  funds ;  and,  if  the  directors  be  guilty  of  fraudu- 
lent conduct  in  the  settlement  made  with  him,  the  settlement 
would  still  be  vaHd,  where  the  cashier  is  not  shown  also  to  be 
guilty  of  fraud.2  But  if  the  casliier  be  guilty  of  fraud  in  con- 
nection with  the  settlement,  the  bank  will  not  be  concluded  by 
it.^  Directors  of  a  bank  have  no  authority  to  allow  overdrafts.* 
The  giving  of  compensation  to  a  director  by  the  board  of  direct- 


V. 


*  Northampton    Bank 
(1874)  11  Mass.  288. 

» Frankfort   Bank   ». 
Me.  490. 
»  Ibid. 

*  Market    Street 
(1876)  2  Mo.  App.  545.    As  to  powers 


Pepoon,    of  the  directors  of  a  bank,  see  Harper 
t.  Calhoun.  7  How.  (Miss.)  203;  State 
Johnson,    24    v.   Commercial  Bank   of   Manchester, 
6  Smedes  &  Marsh.  (Miss.)  218;  Com- 
mercial Bank  of  Manchester  v.  Bonner, 
Bank  d.   Stumpe,    13  Smedes  &  Marsh.  (Miss.)  649. 


J99] 


OFFICERS  OF  BANKS. 


549 


ors  of  a  bank  for  extra  services,  though  unlawful,  will  not  expose 
the  directors  to  liability  if  done  in  good  faith  and  with  the  purest 
intention  to  benefit  the  bank.*     A  director  of  a  bank  receiving 
his  compensation  provided  by  law  as  a  director  cannot  contract 
with  the  board  of  directors  while  he  continues  a  member  for  com- 
pensation for  extra  services.^     But  a  board  of  directors  of  a  bank 
may  compensate  a  member  of  the  board  for  services  rendered  to 
the  bank  prior  to  his  membership.^    AVliere  a  director  of  a  bank 
has  received  money  by  order  of  its  board  of  directors,  which  is 
unauthorized   by  law,  it  may  be  recovered  by  the  bank  as  so 
much  received  to  its  use.*    A  bank  will  be  affected  with  the 
knowledge  of  one  of  its  directors,  who  acts  for  it  in  discounting  a 
note,  that  the  note  was  procured  by  fraud.^     Where  the  director 
liaving   knowledge  of    the  character   of    negotiable   paper   dis- 
counted by  a  bank  simply  recommends  its  discount,  the  bank  will 
not  be  charged  with  his  knowledge  if  the  director  does  not  con- 
trol its  discretion  or  discount  the  paper  himself  as  an  officer  or 
agent  of  the  bank.«    The  directors  of  banks  are  bound  to  con- 
stant activity  and  thorough  acquaintance  with  the  daily  course  of 
affairs  and  dealings  of  the  institution.     They  are  bound,  in  the 
absence,  illness  or  negligence  of  the  cashier,  to  perform  any  duty 
which  belongs  to  him,  and  it  is  their  duty  to  see  that  the  duty  is 
performed.     They  are  bound  in  law  to  know  the  securities  of  the 
bank,  its  bills  payable  and  bills  receivable,  maturity  of  its  paper 


nil'i  i\ 


'  Godbold  T.  Branch  Bank  at  Mobile, 
11  Ala.  191. 

'  Branch  Bank  at  Mobile  d.  Collins, 
(1845)  7  Ala.  95;  Branch  Bank  at  Mo- 
bile V.  Scott,  (1845)  7  Ala.  107.  An  or- 
der of  a  board  of  directors  allowing 
a  compensation  of  $1,000  cash  to  the 
members  of  the  board  constituting  the 
real  estate  committee,  has  been  held  to 
be  illegal  and  void  in  Branch  Bank 
at  Mobile  v.  Collins,  (1845)  7  Ala. 
95;  Branch  Bank  at  Mobile  v.  Scott, 
(1845)  7  Ala.  107. 

^  Branch  Bank  at  Mobile  v.  Collins, 
(1845)  7  Ala.  95;  Branch  Bank  at  Mo- 
bile V.  Scott.  (1845)  7  Ala.  107. 

*  Branch  Bank  at  Mobile  t.  Collins. 
(1845)  7  Ala.  95;  Branch  Bank  at  Mo- 
bile?'. Scott,  (1845)  7  Ala.  107. 


«  Security  Bank  v.  Cushman,  (1877) 
121  Mass.  490.  Under  what  circum- 
stances a  bank  would  not  be  affected 
by  the  knowledge  of  one  of  its  direct- 
ors in  discounting  a  note,  see  Wash- 
ington Bank  v.  Lewis,  (1839)  22  Pick. 
(Mass.)  24.  When  notice  to  a  director 
of  facts  affecting  paper  offered  for  dis- 
count is  notice  to  the  bank,  see  Clerks' 
Savings  Bank  v.  Thomas,  (1876)  2  Mo. 
App.  367.  As  to  a  notice  to  a  bank 
director,  or  knowledge  obtained  by 
him  while  not  engaged  either  officially 
or  as  an  agent  or  attorney  in  the  busi- 
ness of  the  bank,  being  inoperative  as 
a  notice  to  the  bank,  see  Fairfield  Sav- 
ings Bank  v.  Chase,  72  Me.  226. 

«  Shaw  V.  Clark,  49  Mich.  384. 


II 


I   I 

It 


■'■' 


lii< 


i 


550 


OFFICERS  OF  BANES. 


[§290 


and  who  are  tlie  parties.     And,  in  the  absence  of  the  cashier, 
tliey  are  bound  to  due  diligence  in  perfecting  the  liability  of  all 
indorsers  upon  the  paper  of  the  bank.'     The  doctrine,  that  the 
directors  of  a  bank  are  conclusively  presumed  to  know  the  finan- 
cial condition  of  the  bank,  its  general  business  and  its  receipts 
and  expenditures  as  shown  by  its  regular  books,  is  for  the  protec- 
tion  of  third   parties  dealing  with  the   bank  and  of  the  bank 
against   the   prejudicial  action   of   any  director,  and  cannot  be 
invoked  to  uphold  a  wrong  appropriation  of  moneys  by  the  cashier 
or  other   officer,   which  appropriation  may  be    made  and  also 
entered  upon  the  books  of  the  bank  without  the  actual  knowl- 
edge of  the  directors.2     The  sacrifice  of  the  corporate  property 
by  officers  of  a  bank  for  the  purpose  of  passing  a  crisis  in  its 
affairs,  can  only  be  justified  when  the  object  is  to  protect  the 
rights  of  the  creditors  and  do  equal  justice  to  all  the  stockholders 
of  the  corporation.     The  act  must  not  be  for  the  exclusive  bene- 
fit of  a  particular  individual,  especially  if  it  be  one  to  whom  the 
management   of   the   funds   of   the   bank   has   been  intrusted.' 
Where  the  obligations  for  loans  held  by  a  bank  against  its  direct- 
ors  exceeded  the  limit  prescribed  hy   law,  and  the  cashier  to 
reduce   them   procured  notes  to  be  made  and  indorsed  for  his 
accommodation,    and     had    them    substituted    and    absolutely 
exchanged  for  notes  indorsed  by  a  director  and  discounted  by  the 
bank  for  his  accommodation,  the  Supreme  Court  of  New  York 
held  that  the  transaction,  being  in  good  faith  and  not  a  mere  shift 
to  present  a  temporary  appearance  of  soundness,  was  legal  and  the 
new  notes  valid.*     Directors  of  a  bank  under  the  Maine  statutes 
are  liable  to  a  creditor  of  the  bank  suffering  certain  losses  grow- 
ing out  of  the  official  mismanagement  of  the  directors.     These 
directors  are  personally  responsible  for  the  official  mismanage- 
ment only  which  may  have  occurred  during  the  year  for   which 
they  were  to  have  been  chosen  and  during  which  they  have  acted. 


» Lane  v.  Bank  of  West  Tennessee, 
9  Heisk.  (Tenn.)  419;  Moses  v.  Ocoee 
Bank,  1  Lea  (Tenn.),  398. 

•First  National  Bank  v.  Drake, 
(1883)  29  Kans.  311.  As  to  the  dili- 
gence required  of  directors  of  a  bank 
in  acquiring  knowledge  of  its  business, 
and  what  negligence  would  render 
them  liable  for  special  deposits  lost  by 


the  bank,  see  United  Society  of  Shak- 
ers V.  Underwood,  (1873)  9  Bush  (Ky.), 
616. 

3  Gillet   V.  Moody,  3  N.  Y.  479. 

^Seneca    County    Bank    v.    Neass, 
(1848)  5  Dcnio,  329.     As  to  loans  of 
bank    funds    to   directors,   see    Bank 
Commissioners  v.    Bank    of    Buffalo 
(1837)  6  Paige  Ch.  497. 


11 1 


m 


§299] 


OFFICERS  OF  BANKS. 


551 


They  are  personally  answerable  for  ordinary  neglect  in  their  offi- 
cial business.     But  one  board  of  directors  cannot  be  made  to 
answer  for  renewals  of  worthless  paper  discounted  by  a  previous 
board.*     In  a  rather  recent  case,  an  action  by  bill  of  the  receiver 
of  a  national  bank  against  its  former  directors  and  the  represent- 
atives of  such  as  were  deceased,  framed  upon  the  theory  of  a 
breach  by  the  defendants  as  directors  "of   their  common-law 
duties  as  trustees  of  a  financial  corporation  and  of  breaches  of 
special  restrictions  and  obligations  of  the  National  Banking  Act," 
the  questions  of  the  management  of  the  business  of  such  institu- 
tion and  the  liability  of  its  directors  have  been  fully  considered 
in  the  main  opinion  by  the  majority  of  the  Supreme  Court  of  the 
United  States,  and  the  dissenting  opinion   of  the  minority.     It 
appeared  that  the  provisions  of  the  by-laws  were  not  observed, 
and  that  the  management  of  the  bank  was  left  almost  entirely  to 
the  officers.     No  exchange  committee  nor  examination  committee 
was  appointed,  and  the  meetings  of  the  board  were  infrequent 
and  perfunctory.     For  years  prior  to  the  failure,  fourteen  at  least, 
the  business  of  the  bank  had  been  conducted  by  the  president. 
Fuller,  Ch.  J.,  speaking  for  the  majority,  said :  "  It  is  not  con- 
tended that  the  defendants  knowingly  violated,  or  permitted  the 
violation  of,  any  of  the  provisions  of  the  Banking  Act,  or  that 
they  were  guilty  of  any  dishonesty  in  administering  the  affairs  of 
the  bank,  but  it  is  charged  that  they  did   not  diligently  perform 
duties  devolved  upon  them  by  the  act.     Our  attention  has  not 
been  called,  however,  to  any  duty  specifically  imposed  upon  the 
directors  as  individuals  by  the  terms  of  the  act,  although  if  any 
director  participated  in  or  assented  to  any  violation  of  the  law  by 
the  board  he  would  be  individually  liable.     The  corporation  after 
the   amendment   of  1874   had   power   to  carry  on   its  business 
through  its  officers.     And  although  no  formal  resolution   author- 
ized the  president  to  transact  the  business,  yet,  in  view  of  the 
practice  of  fourteen  years  or  more,  we  think  it  must  be  held  that 
he  was  duly  authorized  to  do  so.     It  does  not  follow  that  the 


'  Bank  Mutual  Redemption  r.  Hill, 
56  Me.  385.  That  directors  of  a  bank, 
after  its  insolvency,  have  no  rights  in 
equity  to  secure  any  advantage  to 
themselves,  see  Roan  r.  Winn,  (1887) 
93  Mo.  503.  As  to  liability  of  directors 
of  a  bank  who  may  have  allowed  a 


bank  to  be  damaged  by  wrongful  acts 
of  its  president,  see  Smith  v.  Rathbun, 
22  Hun,  150.  As  to  liability  of  direct- 
ors of  a  bank  to  depositors  for  their 
gross  negligence  and  mismanagement, 
see  Adams  v.  Manning,  10  W.  N.  C. 
(Pa.)  449. 


M 


itl 


n 


M 


I 


552 


OFFICERS  OF  BANKS. 


[g299 


executive  officer  should  liave  been  left  to  control  the  business  of 
the  bank  absolutely  and  without  supervision,  or  that  the  statute 
furnishes  a  justification  for  the  pursuit  of  that  course.  Its  lan- 
guage does  enable  individual  directors  to  say  that  they  were 
guilty  of  no  violation  of  a  duty  directly  devolved  upon  them. 
Whether  they  were  responsible  for  any  neglect  of  the  board  as 
such,  or  in  failing  to  obtain  proper  action  on  its  part  is  another 
question.  Indeed,  it  is  frankly  stated  by  counsel  that  '  although 
special  provisions  of  tlie  statute  are  quoted  and  relied  upon,  these 
do  not  create  the  cause  of  action,  but  merely  furnish  the  standard 
of  duty  and  the  evidence  of  wrong-doing,'  and  section  556  of 
Morawetz  on  Corporations  is  cited,  which  is  to  the  effect  that 
'  the  liability  of  directors  for  damages  caused  by  acts  expressly 
prohibited  l>y  the  company\s  charter  or  act  of  incorporation  is  not 
created  by  force  of  the  statutory  prohibition.  The  performance 
of  acts  wliich  are  illegal  or  prohibited  by  law  may  subject  the 
corporation  to  a  forfeiture  of  its  franchises,  and  the  directors  to 
criminal  liability,  but  this  would  not  render  them  civilly  liable 
for  damages.  The  liability  of  directors  to  the  corporation  for 
damages  caused  by  unauthorized  acts  rests  upon  tlie  common-law 
rule  which  renders  every  agent  liable  who  violates  his  authority 
to  the  damage  of  his  principal.  A  statutory  prohibition  is 
material  under  these  circumstances  merely  as  indicating  an 
express  restriction  placed  upon  the  powers  delegated  to  the 
directors  when  the  corporation  was  formed.'  It  is  perhaps  unneces- 
sary to  attempt  to  define  with  precision  the  degree  of  care  and 
prudence  which  directors  must  exercise  in  the  performance  of 
their  duties.  The  degree  of  care  required  depends  upon  the  sub- 
ject to  which  it  is  to  be  applied,  and  each  case  has  to  be  deter- 
mined in  view  of  all  the  circumstances.  They  are  not  insurers 
of  the  fidelity  of  the  agents  whom  they  have  appointed,  who  are 
not  their  agents,  but  the  agents  of  the  corporation,  and  they  can- 
not be  held  responsible  for  losses  resulting  from  the  wrongful 
acts  or  omissions  of  other  directors  or  agents,  unless  the  loss  is  a 
consequence  of  their  own  neglect  of  duty,  either  for  failure  to 
supervise  the  business  with  attention  or  in  neglecting  to  use 
proper  care  in  the  appointment  of  agents.  Morawetz,  §  551  et 
seq.,  and  cases.  Bank  directors  are  often  styled  trustees,  but  not 
in  any  technical  sense.  The  relation  between  the  corporation 
and  them  is  rather  that  of  principal  and  agent,  certainly  so  far  as 


§  200J 


OFFICERS  OF  BANKS. 


553 


creditors  are  concerned,  between  whom  and  the  corporation  the 
relation  is  that  of  contract  and  not  of  trust.  But,  undoubtedly, 
under  circumstances,  they  may  be  treated  as  occupying  the 
position  of  trustees  to  cestui  que  trusts  After  referring  to  the 
cases  cited  below,^  the  majority  of  the  court  applied,  through 
the  chief  justice,  these  principles  to  the  particular  acts  of  par- 
ticular ones  of  the  directors  charged  in  the  bill  with  neglect  and 
relieved  them  from  liability  as  charged.^  Four  of  the  justices, 
however,  dissented  as  to  the  acts  of  several  of  the  directors.'^ 


^  Percy  v.  Millaudon,  8  Mart.  (N. 
8.)  (La.)  68;  Spering's  Appeal,  71  Pa. 
St.  11;  Citizens'  Building  Association 
r.  Coriell.  34  N.  J.  Eq.  383;  Hodges  r. 
New  England  Screw  Co.,  1  R.  I.  312; 
Wakeman  r.  Dalley,  51  N.  Y.  27. 

» Briggs  c.  SpauldiQg,  (1891)  141  U. 
8.  132. 

^  Ibid.  Mr,  Justice  Harlan,  speak- 
ing for  himself  and  Gray,  Brewer 
and  Brown,  JJ.,  in  the  dissenting 
opinion,  presented  their  conclusions  in 
these  words  :  "We  are  of  opinion  that 
when  the  act  of  congress  declared  that 
the  affairs  of  a  national  banking  associ- 
ation shall  be  '  managed '  by  its  direct- 
ors, and  that  the  directors  should  take 
an  oath  to  '  diligently  and  honestly  ad- 
minister' them,  it  was  not  intended 
that  they  should  abdicate  their  func- 
tions and  leave  its  management  and  the 
administration  of  its  affairs  entirely  to 
executive  officers.  True,  the  bank 
may  act  by  'duly  authorized  officers  or 
agents,'  in  respect  to  matters  of  cur- 
rent business  and  detail  that  may  be 
properly  intrusted  to  them  by  the  di- 
rectors. But.  certainly,  congress  never 
contemplated  that  the  duty  of  direct- 
ors to  manage  and  to  administer  the 
affairs  of  a  national  bank  should  be  in 
abeyance  altogether  during  any  period 
that  particular  officers  and  agents  of 
the  association  are  authorized  or  per- 
mitted by  the  directors  to  have  full 
control  of  its  affairs.  If  the  directors 
of  a  national  bank  choose  to  invest  its 
officers  or  agents  with  such  control, 

70 


what  the  latter  do  may  bind  the  bank 
as  between  it  and  those  deaUng  with 
such  officers  and  agents.  But  the  duty 
remains,  as  between  the  directors  and 
those  who  are  interested  in  the  bank, 
to  exercise  proper  diligence  and  super- 
vision in  respect  to  what  may  be  done 
by  its  officers  and  agents.  As  to  the 
degree  of  diligence  and  the  extent  of 
supervision  to  be  exercised  by  direct- 
ors, there  can  be  no  room  for  doubt, 
under  the  authorities.  It  is  such  dili- 
gence and  supervision  as  the  situation 
and  the  nature  of  the  business  requires. 
Their  duty  is  to  watch  over  and  guard 
the  interests  committed  to  them.  In  fi- 
delity to  their  oaths  and  to  the  obliga- 
tions they  assume,  they  must  do  all 
that  reasonably  prudent  and  ciireful 
men  ought  to  do  for  the  protection  of 
the  interests  of  others  intrusted  to 
their  charge."  The  justice,  in  sup- 
port of  the  conclusions  of  the  mi- 
nority, quoted  largely  from  many  of 
the  following  cases,  and  cited  the  oth- 
ers :  Martin  r.  Webb,  110  U.  8.  7; 
Cutting  r.  Marlor,  78  N.  Y.  454;  Pres- 
ton r,  Prather,  137  U.  S.  604 ;  Hun  r. 
Cary,  82  N.  Y.  65;  Ackerman  v.  Hal- 
sey,  37  N.  J.  Eq.  356;  Halsey  v.  Ack- 
erman, 38  N.  J,  Eq,  501;  United  Soci- 
ety of  Shakers  v.  Underwood,  9  Bush 
(Ky.),  609;  Horn  Silver  Co.  v.  Ryan,  43 
Minn,  196;  United  States  v.  Means,  43 
Fed,  Rep,  599;  Delano  v.  Case,  121 
111,  247;  Percy  r.  Millaudon,  3  I^. 
568;  Marshall  r.  F.  &,  M.  Savings 
Bank  of  Alexandria,  etc.,  85  Va.  676; 


i1 


M  M 


U' 


\. 


ilHI 


/ 


554 


OFFICERS  OF  BANKS. 


[§  300 


§301] 


OFFICERS  OF  BANKS. 


555 


III 


III 


III 


§  300.  Jurisdiction  of  state  courts  in  cases  of  directors  of 
national  banks  violating  their  duty. —  This  being  a  case 
against  the  directors  of  a  national  bank  which,  being  insolvent 
and  in  the  hands  of  tlie  receiver,  defendant  here,  the  demurrer 
to  the  bill  challenged  the  jurisdiction  of  the  state  court.  To  this 
it  was  said  :  "  The  right  of  action  is  not,  in  our  opinion,  derived 
from  the  act  of  congress,  but  depends  upon  general  principles  of 
equity,  but  in  any  aspect  of  the  case,  the  state  courts  have  con- 
current jurisdiction,  unless  exclusive  jurisdiction  has  been  con- 
ferred upon  the  United  States  courts.*  The  jurisdiction  of  the 
state  courts  over  actions  against  national  banks  is  expressly  recog- 
nized by  the  act,  and  such  jurisdiction  has  been  repeatedly  exer- 
cised in  actions  by  receivers  to  collect  claims  due  to  such  banks. 
There  can  be  no  reason  why  civil  actions  brought  by  stockholders 
in  place  of  the  receiver,  to  enforce  claims  against  delincpient 
directors  or  officers,  should  stand  upon  any  different  footing. 
The  only  cases  in  which  exclusive  jurisdiction  is  conferred,  by  the 
Banking  Act,  upon  the  courts  of  the  United  States,  so  far  as  we 
can  find,  are  proceedings  to  enforce  the  forfeiture  of  the  fran- 
chises of  banking  associations  for  violations  of  the  act  (§  5239), 
and  proceedings  to  enjoin  the  comptroller  of  the  currency  from 
winding  up  the  corporation,  through  a  receiver.  There  is  noth- 
ing in  the  act  which  withdraws  from  the  jurisdiction  of  the  state 
courts  civil  actions  to  enforcerightsof  individuals  against  national 
banks  or  their  officers.^  Criminal  prosecutions  for  offenses  cre- 
ated by  the  act  stand  upon  a  different  footing.  Exclusive  juris- 
diction in  such  cases  is  vested  in  the  Circuit  and  District  Courts 
of  the  United  States  by  the  Judiciary  Act  of  1789."  As  to  par- 
ties, it  was  also  said  :  *'  The  bank  was  a  proper  and  even  necessary 
party  defendant.  Hobinson  v.  Smith,  3  Paige,  222.  It  con- 
tinued to  be  a  corporation,  notwithstanding  the  appointment  of  a 
receiver,  and  the  receiver  may  bring  action  in  its  name.  Pah- 
quioque  Bk.  ^^  Bethel  Bk.,  36  Conn.  325 ;  Kennedy  v.  Gibson,  8 


Building  Fund  Trustees  r.  Bosseiux, 
3  Fed.  Rep.  817 ;  Charitable  Corpora- 
tion V.  Sutton,  2  Atk.  400;  Land 
Credit  Co.  of  Ireland  r.  Lord  Fermoy, 
L.  R,  5Ch.  763;  Williams  r.  McKay, 
40  N.J.  Eq.  189. 

'  Citing  Claflin  r.  Housoinan,  93  U. 
S.  130;  Robinson  i\  National  Bank  of 


Newberne,  81  N.  Y.  385;  National 
Bank  of  Gloversville  r.  Wells.  79  N. 
Y.  498;  affirmed  in  the  Supreme  Court 
of  the  United  States,  January,  1882. 
«  Citing  Cooke  r.  State  Nat.  Bank  of 
Boston.  52  N.  Y.  96;  Bletz  r.  Colum- 
bia Nat.  Bank.  87  Pa.  St.  87. 


Wall.  506 ;  Green  v.  Walkill  Nat.  Bk.,  7  Hun,  63 ;  City  of  Lex- 
ington V.  Butler,  14  Wall.  283;  Bank  v.  Kennedy,  17  Wall.  19. 
The  receiver  was  also  a  necessary  party,  as  it  was  through  him 
that  the  amount  which  might  be  adjudged  against  the  directors 
was  to  be  collected  and  paid  over.  The  presence  of  both  of 
these  parties  was  necessary  to  a  final  determination  of  the 
controversy."  ^ 

§  301.  Jurisdiction  of  courts  of  equity  in  such  cases.— 

The  New  York  Court  of  Appeals  has  sustained  the  jurisdiction 
of  courts  of  equity  of  suits  to  enforce  the  liability  of  directors 
of  corporations  growing  out  of  a  violation  of  their  duties  in 
allowing  or  promoting  the  waste  of  corporate  funds,  for  instance. 
Upon  this  subject  Kapallo,  J.,  for  the  court,  said :  "  The  liability 
of  directors  of  corporations  for  violations  of  their  duty  or 
breaches  of  the  trust  committed  to  them,  and  the  jurisdiction  of 
courts  of  equity  to  afford  redress  to  the  corporation,  and  in 
proper  cases  to  its  shareholders,  for  such  wrongs  exist  independ- 
ently of  any  statute.  By  the  Kevised  Statutes  of  New  York  (2 
B.  S.  462)  it  is  declared  that  the  chancellor  has  jurisdiction  over 
directors,  managers  and  other  trustees,  and  officers  of  corpora- 
tions, and  to  compel  them  to  account  for  their  official  conduct  in 
the  management  and  disposition  of  the  funds  and  property  com- 
mitted to  their  charge,  and  to  compel  payment  by  them  to  the 
corporation  whom  they  represent,  of  all  sums  of  money,  and  the 
value  of  all  property  which  they  may  have  acquired  to  them- 
selves or  transferred  to  others,  or  may  have  lost  or  wasted  by  any 
violation  of  their  duties  as  such  trustees.  These  enactments  are, 
however,  merely  declaratory  of  a  jurisdiction  long  previously 
conceded  to  exist,  both  in  this  state  and  in  England,  and  to  them 
were  added  by  further  provisions  of  the  Kevised  Statutes  certain 
visitorial  powers  not  before  exercised  by  the  Court  of  Chancery 
(except  in  cases  of  charitable  bodies),  viz.,  to  restrain  corpora- 
tions from  exceeding  their  corporate  powers.  This  latter  juris- 
diction was  that  which  the  Court  of  Chancery  disclaimed  in  the 
well-known  case  of  The  Attorney-General  v.  The  Utica  Ins.  Co., 
2  Johns.  Ch.  389,  with  reference  to  which  case  the  provisions 
of  the  Revised  Statutes  just  referred  to  were  framed.  But,  in 
that  very  case,  jurisdiction  in  cases  like  the  present  was  conceded 

'  BriDkerhoff   t.  Bostwick,  (1882)  88  N.  Y.  52,  60,  61. 


I  If 


, 




•t  ' 
I 

lul 


h 


W' 


556 


OFFICERS  OF  BANKS. 


I,;  5 


iii|  '] 


[§301 

t(»  be  inherent  in  the  court,  and  in  Robinson  v.  Smith,  3  Paige, 
222,  233,  the  power  is  declared  to  exist  independently  of  the 
provisions  of  the  Eevised  Statutes,  so  far  as  the  individual  rights 
of  stockholders  are  concerned,  to  call  directors  to  account  and 
make  satisfaction  for  losses  occasioned  by  breaches  of  their  trust. 
This  jurisdiction  has  been  continually  exercised  in  England  and 
in  this  country,  and  is  not  of  statutory  origin.  Angell  &  Ames 
on  Corp.  §  312,  and  cases  cited."  ^ 


§  302] 


OFFICERS  OF  BANKS. 


557 


»   Brinkerhoflf   v.    Bostwick,    (1882) 
88  N.    Y.    52,   58,     59.      See,    also, 
Brinekerhoff  v.  Bostwick,  (1885)  99  N. 
Y.  185.     As  to  how  such  actions  may 
be  brought,  it  was  said  in    Brinker- 
hoflf tj.  Bostwick,  88  N.  Y.  53  :    '  The 
action  to  recover  such  losses,  as  before 
observed,      should     in     general     be 
brought  in  the  name  of  the  corpora- 
tion, but,  if  it  refuses  to  prosecute,  the 
stockholders,  who  are  the  real  parties 
in  interest,  will  be  permitted  to  sue  in 
their  own  names,  making  the  corpora- 
tion a  defendant.     Greaves  v.  Gouge. 
69  N.   Y.   154.      And  that  course  of 
proceeding  is  also   allowed  if  it  ap- 
pears that  the  corporation  is  still  under 
the  control    of   those  who    must  be 
made  the  defendants  in  the  suit.     See 
Butts  V.  Wood,  37  N.  Y,  317;  Robin- 
son V.  Smith,  3  Paige,  222.      In  such 
cases  a  demand  upon  the  corporation 
to  bring  the  suit  would  be  manifestly- 
futile  and  unnecessary.     A  suit  prose- 
cuted under  the  direction  and  control 
of  the  very  parties  against  whom  the 
misconduct  is  alleged,  and  a  recovery 
is  sought,  would   scarcely  afford    to 
the  shareholders  the  remedy  to  which 
they  are  entitled,  and  the  fact  that  the 
delinquent  parties  are  still  in  control 
of  the  corporation  is  of  itself  sufficient 
to  entitle  the  shareholders  to  sue  in 
their    own  names.     Hodges  v.   New 
England    Screw    Co.,   1    R.    I.    312; 
Heath  v.  Erie  Railway  Co.,  8  Blatchf. 
.347,     If  they  could  not  be  permitted 
in  such  cases  to  assert  their  own  rights 
in  a  court  of  equity,  the  directors  so 


long  as  they  remained  in  office  could 
set  them  at  defiance.     In  the  present 
case  the  corporation  cannot  sue,  be- 
cause all  its  rights  of  action  have  been 
transferred  by  operation  of  law  to  the 
receiver.     He  certainly  is  not  a  proper 
person  to  whom  to  intrust  the  conduct 
of  the  action,  even  did  he  consent  to 
institute  it,  or  should  the  comptroller 
of  the  currency  direct  him  so  to  do, 
for  he  is  one  of  the  parties  charged 
with  misconduct  and  against  whom  a 
remedy   is  sought.     It  necessarily  fol- 
lows that  the  shareholders   must  bo 
permitted  to  sue  in  their  own  names, 
or  the  wrongs  complained  of  must  go 
without      redress,     and     substantial 
rights  be  sacrificed  to  a  mere  matter 
of  form.      The  shareholders  are  the 
parties  whose  interests  are  involved  in 
the  proceeding.     If  conducted  in  the 
name  of  the  corporation   or  the  re- 
ceiver, it  would  be  as  their  representa- 
tive and  for  their  benefit;  and  when, 
as  in  this  case,  sufficient  reasons  are 
shown  why   it  cannot  be  effectually 
prosecuted  in  that  form,  the  right  of 
the  shareholders  to  sue  in  their  own 
names  is  sanctioned  by  principle  and 
precedent.      Where    the  shareholders 
are  numerous,  the  suit  may  be  brought 
by  one    or   more    in   behalf  of  all." 
Butts  V.  Wood,  37  N.  Y.  817;  Robin- 
son V.  Smith,  3  Paige,  222;  Hichens  v. 
Congreve,  4  Russ.  562;  Heath  t>.  Erie 
Railway  Co.,   8  Blatchf.  347.      More 
than    sixty    years     ago     Chancellor 
Walworth,  of  the  Court  of  Chancery 
of  New  York,  referring  to  the  allega- 


§  302.  Statutory  liability  of  directors  of  national  banks  — 
actions  to  enforce  it  —  rules. —  The  personal  liability  of  direct- 
ors of  a  national  bank  for  violation  of  the  Revised  Statutes  of 
the  United  States,  section  5204,  by  declaring  dividends  in 
excess  of  net  profits,  and  of  section  6200  for  loaning  to 
separate  persons,  firms  or  corporations  amounts  exceeding 
one-tenth  of  the  capital  stock,  cannot  be  enforced  in  an 
action  at  law.*  Under  the  Revised  Statutes  of  the  United 
States,  section  5239,  providing  that,  if  the  directors  of  a 
national  bank  shall  violate  any  of  tlie  provisions  of  the  title 
relating  to  the  organization  and  management  of  banks,  the 
franchises  of  the  bank  shall  be  forfeited,  such  violation,  how- 
ever, to  be  determined  by  a  proper  court  of  the  United  States  in 


tions  of  the  bill  before  him  said  :  "  If 
[they]  are  true,  there  is  no  doubt  that 
the  directors  of  this  company  were 
guilty  of  a  most  palpable  violation  of 
their  duty,  in  engaging  in  this 
gambling  speculation  in  stocks,  which 
was  wholly  unauthorized  by  their 
charter,  and  which,  the  bill  alleges, 
was  carried  on  to  subserve  their  own 
individual  interests  and  purposes.  I 
have  no  hesitation  in  declaring  it  as 
the  law  of  this  state  that  the  directors 
of  a  moneyed  or  other  joint-stock  cor- 
poration, who  willfully  abuse  their 
trust  or  misapply  the  funds  of  the 
company,  by  which  a  loss  is  sustained, 
arc  personally  liable  as  trustees  to 
make  good  their  loss.  And  they  are 
equally  liable,  if  they  suffer  the  cor- 
porate funds  or  property  to  be  lost  or 
wasted  by  gross  negligence  and  in- 
attention to  the  duties  of  their  trust." 
Robinson  v.  Smith,  (1832)  3  Paige  Ch. 
222,  232.  Adopting  and  approving 
this  rule  declared  by  Chancellor  Wal- 
worth, the  Court  of  Appeals  has 
since  held  that  a  complaint  charging 
the  directors  of  a  national  bank  with 
neglecting  to  perform  their  oflScial 
duties  as  such  directors,  and  negli- 
gently permitting  the  money,  prop- 
erty and  effects  of  the  bank  to  be 
stolen,  wasted  and  squandered;  with 


negligently  permitting  various  persons 
and  corporations  who  were  insolvent 
and  irresponsible  to  overdraw  their 
accounts  to  a  large  amount  without 
security,  and  negligently  permitting 
the  money  of  the  bank  to  be  loaned  to 
irresponsible  persons  and  corporations, 
without  adequate  security,  whereby 
said  money  was  lost;  with  employing 
a  cashier  who  was  dishonest,  unfaith- 
ful and  incompetent,  all  of  which  was 
known  to  them;  with  neglecting  to 
take  and  keep  good  and  sufficient 
security  for  the  i^rformance  of  the 
duties  of  said  cashier  and  of  the 
president  and  other  officers  of  the 
bank;  and  that  they  so  negligently 
and  carelessly  conducted  its  affairs 
that  its  entire  capital,  surplus,  prop- 
erty and  effects  were  lost  and  the 
stock  rendered  worthless,  and  the 
stockholders  were  rendered  liable  for 
a  large  sum  of  money  on  account  of 
the  unpaid  debts  of  the  bank,  stated  a 
cause  of  action  upon  the  personal 
liability  of  directors. 

» Welles  V.  Graves,  (1890)  41  Fed. 
Rep.  459,  in  accordance  with  the  doc- 
trine laid  down  in  Horner  v.  Henning, 
93  U.  S.  228.  See  Stone  v.  Chisolm, 
113  U.  S.  302;  s.  c,  5  Sup.  Ct.  Rep. 
497. 


PT 


558 


OFFICERS  OF  BANKS. 


[§302 


;)02] 


OFFICERS  OF  BANKS. 


559 


a  suit  therefor  by  the  comptroller,  and  that  in  cases  of  sucli  vio- 
lation every  director  participating  therein  shall  be  personally  lia- 
ble for  all  damages  which  the  bank,  its  shareholders,  or  any  other 
person  shall  have  sustained  in  consequence  thereof,  the  comp- 
troller cannot  authorize  the  receiver  of  any  such  bank  to  bring  suit 
under  section  5234  to  enforce  such  personal  liability  until  it  has 
been  adjudged  by  a  proper  court  that  such  acts  have  been  done 
as  aiithorized  a  forfeiture  of  the  charter.*  Directors  of  a 
national  bank  have  been  held  personally  liable  as  provided  by 
section  5239  of  the  Revised  Statutes  of  the  United  States  for 
damages  sustained  in  consequence  of  excessive  loans  where  they 
had  assented  to  a  loan  in  excess  of  the  limit  prescribed  by  section 
5200  of  the  Eevised  Statutes  of  the  United  States,  and  subse- 
quently retired  paper  representing  a  part  of  this  loan  by  charg- 
ing it  against  an  illegal  dividend,  declared  when  the  bad  paper 
reckoned  to  make  up  an  apparent  surplus  more  than  exceeded 
the  capital  stock,  which  transaction  was  invalid,  the  liability 
being  fixed  at  the  amount  of  the  paper  thus  retired.^  An  action 
under  the  act  of  congress  imposing  a  legal  liability  on  the 
directors  of  a  national  bank  for  certain  things  which  they  do 
which  shall  result  in  an  injury  to  the  bank,  its  stockholders  or 
creditors,  and  making  them  liable  for  the  amount  of  the  dam- 
ages, survives  against  the  estate  of  a  director,  the  statute  being  a 
remedial  and  not  a  penal  statute.^  It  is  no  defense  to  an  action 
by  the  receiver  of  a  bank  against  a  director's  estate,  such  bank 
director  having  made  a  wrongful  loan  of  money  from  which  loss 
occurred,  that  the  insolvency  of  the  person  to  whom  the  loan  was 
made  was  not  discovered  until  after  the  death  of  the  director  and 
the  appointment  of  the  receiver.*  Directors  of  an  insolvent 
national  bank  which  has  been  placed  in  the  hands  of  a  receiver 
are  not  amenable  to  a  suit  by  a  stockholder  in  the  bank  to  make 
them  personally  liable  for  the  mismanagement  of  the  bank,  such 
right  of  action  being  in  the  receiver  and  not  in  the  individual 
stockholder.*     The  receivers  of  a  railroad  company  in  Texas  had 


^  Welles  V.  Graves,  (1890)  41  Fed. 
Rep.  459.  See  Kennedy  v.  Gibson,  8 
Wall.  498. 

•Witters  v.  Sowles,  (1890)  43  Fed. 
Rep.  406. 


*  Ibid. 

» Howe  V.  Barney,  (1891)  45  Fed.  Rep. 
668.     In  National  Exchange  Bank  of 
Baltimore   v.   Peters,   (1890)  44  Fed. 
Rep.  13,  Hughes,  Circuit  Judge,  re- 
*Stephensr.  Overstolz,  (1890)43Fed.    ferring  first  to  the  statutes,  discussed 
Rep.  465.  this  question  elaborately  as  follows: 


under  the  orders  of  the  federal  court  appointing  them  deposited 
large  amounts  of  money  in  a  bank  in  that  state.  This  bank 
l)ecame  insolvent  and  its  affairs  were  in  the  hands  of  a  receiver 
appointed  by  a  state  court.  The  balance  of  funds  due  receivers 
on  their  deposit  account  not  being  paid  on  demand,  they  peti- 
tioned the  court  appointing  them,  alleging  a  conspiracy  on  the 
part  of  several  officers  of  that  bank  to  misappropriate  the  funds. 


"  Thus  the  statute  law  makes  directors 
of  a  national  bank  liable  in  damages 
for  violations  of  their  duty,  or  negli- 
gence or  malfeasance  "as  directors,  and 
prescribes  how  they  shall  be  subjected 
to  liability.  Being  liable  in  damages, 
they  are  amenable  to  suit  for  damages 
in  a  jury  proceeding,  and  not,  I  infer, 
to  suit  in  any  other  form,  whether  at 
law  or  in  equity.  But  even  if  thoy 
were  amenable  to  liability  in  a  pro- 
ceeding not  sounding  in  damages,  then, 
the  damages  recoverable  being  an  asset 
of  the  bank,  the  statute  law  empowers 
ami  requires  the  receiver  of  the  in- 
jured bank,  imder  the  direction  of  the 
comptroller,  and  him  alone,  to  sue  the 
claim.  Except  the  receiver,  the  stat 
ute  law  nowhere  authorizes  suit  to  be 
brought  by  any  person  not  in  privity 
Jigainst  directors  of  national  banks. 
The  bill  of  complaint  under  consid- 
<'ration  has,  therefore,  no  sanction  in 
respect  to  its  party  plaintiff  from  the 
statute  law  of  the  land.  Does  it  pre- 
sent a  case  in  which  equity,  in  the  ex- 
ercise of  a  high  prerogative  to  which 
it  feels  at  liberty  sometimes  to  resort, 
will  relieve  against  the  rule  of  privity, 
and  entertain  this  suit,  though  brought 
by  a  plaintiff  otherwise  incompetent 
to  sue?  Certainly  the  bill  contains 
nothing  on  its  face  to  require  or  to 
justify  such  a  recourse.  Exceptional 
authority  to  sue  is  given  only  in  the 
rare  cases  in  which  those  legally  com- 
petent to  sue  wrongfully  refuse  to  do 
80.  When  such  a  case  is  presented, 
equity  will  sometimes  authorize  and 
direct  suit  to  be  brought  by  some 
other  plaintiff  whom  it  may  approve. 


As  before  said,  whatever  is  claimed  in 
the  suit  at  bar  would  be  an  asset  in  the 
hands  of  the  receiver  if  recovered,  and 
the  statute  law  imposes  upon  him  the 
duty  of  suing  for  it,  under  the  comp- 
tn^Uer's  direction.  But  this  bill  con- 
tains no  allegation  either  that  com- 
plainant called  upon  the  comptroller 
to  direct  the  receiver  to  sue,  and  he 
refused,  or  that  the  receiver  himself 
was  cjiUed  upon  and  refuse<i.  Con- 
taining no  such  allegation,  the  bill 
makes  no  case  for  a  suit  by  a  person 
oth<T  than  the  receiver.  Nor  would  it 
follow,  even  if  such  an  application 
had  been  made  and  refused,  and  the 
fact  had  been  only  alleged  in  the  bill, 
that  this  suit  could  be  maintained,  for 
in  cases  where  directors  of  national 
banks  have  violated  or  negligently 
permitted  the  violation  of  the  laws 
regulating  those  banks,  the  statute 
law  seems  to  require  that  the  question 
of  violation  shall  be  judicially  deter- 
mined in  a  proper  court  of  the  United 
States,  in  a  suit  instituted  in  his  own 
name  by  the  comptroller  for  that 
sp>ecific  purpose,  before  the  liability 
can  attach  to  the  directors;  and,  there- 
fore, it  would  seem  that  directors  can- 
not be  pursued  individually  for  such 
violation  until  after  such  an  adjudica- 
tion thus  obtained.  So  that  if  the  re- 
ceiver and  the  comptroller,  though 
called  upon  to  sue  the  defendants  in 
this  suit,  had  refused  to  do  so,  even 
the  allegation  of  such  application  and 
refusal  would  have  been  insufficient 
ground  of  authority  for  bringing  this 
suit.  I  am  of  the  opinion  that  the 
provisions  of   the  National  Baokiog 


f»' 


500 


OFFICERS  OF  BANKS. 


[§302 

the  making  of  securities  to  themselves  for  alleged  personal  debts 
against  the  bank  and  the  appomtment  of  a  receiver,  and  asked 
that  these  officers  of  the  bank  be  punished  as  in  contempt  of  the 
court.  The  rule  for  contempt  was  discharged,  but  an  order  was 
laid  upon  the  receivers  to  institute  such  proceedings  as  might  be 
necessary  to  make  the  respondents  individually  and  collectively 
liable  for  all  the  funds  wrongfully  obtained  from  and  withheld 
from  the  receivers.* 


§303] 


OFFICERS  OF  BANKS. 


561 


Act  enter  as  part  into  the  contracts  of 
creditors  witli  tlie  national  banks,  and 
that  those  provisions  which  define  the 
liability  of  directors,  and  prescribe  the 
proceedin<5's  to  be  taken  against  them, 
when  guilty  of  violations  of  the  act, 
are  exclusive  of  other  liabifity  and 
other  proceedings;  and  that  it  is  not 
within  the  prerogative  of  equity  to 
authorize  a  disregard  of  the  provisions 
of  the  National  Banking  Act.  defining 
such  liability  and  prescribing  such 
proceedings."  See,  on  this  point, 
Smith  i\  Ilurd,  12  Met.  371;  Craig  r. 
Gregg.  S3  Pa.  St.  19;  Allen  i\  Curtis, 

26  Conn.  455;  Evans  r.  Brandon,  53 
Tex.  56,  As  to  the  circumstances 
under  which  a  stockholder  may  bring 
such  actions,  see  Robinson  r.  Smith,  3 
Paige,  222;  Brinkerhoff  v.  Bostwick, 
88  N.  Y.  52;  Smith  v.  Poor,  40  Me. 
415;  Carter  c.  Glass  Co. ,  85  Ind.  180. 
As  to  the  avails  of  such  litigation  by 
stockholder  going  to  the  corporation 
and  being  a  part  of  its  means,  see 
Dewing  v.  Perdicaries,  96  U.  S.  193, 
197,  198. 

'  Southern  Development  Co.  v.  Hous- 
ton &  Texas  Centnd  Ry.  Co.,  (1886) 

27  Fed.  Rep.  344.  Pardee,  J.,  said: 
**  Counsel  for  the  receivers  contend 
that  the  effect  of  the  order  of  court 
designating  the  bank  as  one  of  the 
depositories  of  the  receivers,  and  the 
acceptance  by  the  bank  of  the  re 
ceivers'  deposits,  was  to  make  the  bank 
and  its  officers  ofl3cers  of  the  court, 
and,  therefore,  directly  responsible  to 
the  court  for  misapproprtation  of  the 


moneys  deposited  by  the  receivers 
under  the  order  of  court."  He  then 
said:  "The  adjudgeti  cases  on  this 
point  brought  to  the  attention  of  the 
court  are  unsjitis factory.  The  state- 
ment in  I^palje  on  Contempts  (§  15) 
that  *a  private  corporation  made  the 
depository  of  the  funds  of  the  court, 
is  an  ofhcer  of  the  court,  within  the 
power  of  the  court  to  punish  by  con- 
temi)t  process  for  misconduct,'  is  sup- 
ported by  a  dictum  of  the  Supreme 
Court  of  Illinois  in  the  case  of  In  re 
Western  Marine  &  Fire  Ins.  Co.,  38 
111.  289,  in  which  case  it  is  said 
'When  a  court  makes  an  order  ap- 
pointing a  particular  person  a  deposi- 
tary of  the  court  funds,  and  such  per- 
son, knowing  of  such  order,  accepts 
the  deposit,  he  unquestionably  be- 
comes pro  hoc  vice  an  officer  of  the 
court.  The  court  may  order  him  to 
refund  the  money,  and  if  he  fails  to  do 
so,  without  shorn ng  gome  valid  reason, 
may  proceed  against  him  as  for  a  con- 
tempt. The  same  rule  would  apply 
to  a  corporation,  and  if  its  oflacers, 
Juiving  control  of  its  fu/tds,  and  7iaving 
the  ineaiis  of  payment  belonging  to  th« 
corporation  in  their  hands,  should  re- 
fuse to  pay,  they  might  be  proceeded 
against  as  for  a  contempt.'  It  will  be 
noticed  by  the  foregoing  that  officials 
of  a  corporation  delinquent  as  a  de- 
pository are  to  be  held  as  in  case  of 
contempt  when  they  have  control  of 
its  funds  and  have  the  means  of  pay- 
ment belonging  to  the  corporation  in 
their  hands.    *    *    *    In  the  present 


§303.  President  —  his  power  and  duty.— The  executive 
officers  of  a  bank,  its  president  and  cashier,  are  i3resuined  to  have 
authority  to  direct  the  application  of  any  funds  in  the  bank  to 
its  debts.^  An  official  indorsement  of  a  note  payable  at  a  bank 
by  its  president  will  bind  the  bank.^  A  president  of  a  bank  must 
be  authorized  by  the  board  of  directors,  or  he  will  not  be  autlior- 
ized  to  execute  a  warrant  of  attorney  to  institute  a  suit.^  Should 
a  president  of  a  bank  receive  stock  of  the  bank  in  payment  for  a 
note  made  payable  to  the  bank  in  its  stock,  he  would  hold  the 
stock  for  the  bank  as  its  property.*  It  has  been  held  in  Vermont 
that  the  president  of  a  bank  had  the  right  in  behalf  of  the  bank, 
and  without  special  authority,  to  agree  with  the  makers  of  a  note, 
payable  to  and  at  the  bank,  upon  an  agent  to  receive  money  upon 
the  note  at  some  other  place,  and  to  forward  it  to  the  bank  ;  and 
that  such  agency  might  be  proved  by  parol.^     A  bank  will  be 


case  I  think  that  it  is  somewhat  doubt- 
ful whether  the  funds  deposited  by 
the  complaining    receivers    with   the 
[insolvent  bank]  under  the  aforesaid 
order    of    court,    were  strictly   court 
funds  or  could  be  considered  as  moneys 
paid  into  court.     By  the  orders  ap- 
pointing them,  the  complainants,   as 
joint  receivers,   were  authorized   and 
directed  to  carry  on  and  operate  the 
railways  and  property  of  the  [railway 
corporation  in  their  hands];  and  such 
carrying  on    and    operating  contem- 
plated and  required  the  handling,  re- 
ceiving and  paying  out  of  money,  the 
payment  and  collection  of  bills  and  the 
transaction  of  such  financial  business 
as  would  require  the  medium  of  and 
accommodation     of    banks.      In    the 
transaction  of  this  business,  moneys 
were  not  deposited  as  special  funds  to 
be  drawn  out  on  order  of  the  court, 
but  were  deposited,  generally,  to  the 
credit  of   the    receivers,   and    to   be 
handled  and  used  by  the  bank  like  the 
deposits  of  its  other  patrons  in  a  bank- 
ing, loan  and  discount  business.     And 
it  may  be  further  noticed  that  the  re- 
spondents have  not  the  possession  of 
the  funds  of  the  bank  nor  means  in 
their  hands  belonging  to  the  bank,  the 

71 


possession  of  [one  of  the  respondents], 
as  receiver,  being  that  of  the  [Texas 
court  appointing  him].  So  that  if  we 
take  the  law  to  be  as  broad  as  declared 
by  the  Supreme  Court  of  Illinois,  in 
the  Western  Marine  &  Fire  Ins.  Co. 
case,  it  is  not  broad  enough  to  meet  the 
necessities  of  this  case;  for  if  it  is  con- 
ceded that  the  [insolvent  bank],  by 
designation  of  the  court  and  by  accept- 
ance, became  an  officer  of  the  court, 
and  that  the  funds  deposited  therein 
were  coiu-t  funds,  and  that,  therefore, 
the  bank  is  liable  for  misconduct  in 
misappropriating  such  funds,  as  in 
cases  of  contempt,  there  is  neither 
reason  nor  authority  for  considering 
that  each  servant  or  agent  of  the  bank 
also  became  pro  hoc  vice  an  officer  of 
the  court,  and,  therefore,  amenable  to 
the  court,  as  in  case  of  contempt  for 
misconduct  in  dealing  with  the  bank 
funds." 

1  City  Bank  v.  Bateman,  7  H.  &  J. 
(^Id.)  104. 

«  Aiken  v.   Marine    Bank,   16  Wis. 
679. 

«  Bank  v.  Keim,  10  Phil.  311. 

*  Markley  v.  Rhodes,  59  Iowa,  57. 

5  National   Bank    u.   Strait,  58  Vt. 
448. 


562 


OFFICERS  OF  BANKS. 


[§  303 


§303] 


OFFICERS  OF  BANKS. 


563 


bound  by  whatever  its  president  may  do  in  taking  a  new  note  for 
matured  paper,  so  far  as  it  is  within  the  apparent  scope  of  his 
authority.*  Tlie  president  of  a  bank  cannot  make  a  vahd  contract 
to  pay  for  obtaining  depositors.^  A  president  of  a  bank,  when 
discounting  paper  for  the  bank,  has  no  autliority  to  promise  tlie 
holder  that  he  need  not  pay  it.*  Neither  tlie  president  nor  cashier 
of  a  bank  organized  under  the  laws  of  Kansas  has  the  power, 
virtute  officii^  to  sell  the  safe  of  the  bank  for  a  debt  of  the  bank."* 
A  contract  made  by  a  president  of  a  national  bank  for  the  bank 
to  act  as  agent  in  the  purchase  of  bonds  or  stocks,  as  the  bank  has 
no  such  power,  would  be  vltra  vires  and  not  binding  upon  the 
bank.^  Notice  to  the  president  of  a  bank  is  notice  to  the  bank.* 
A  bank  will  be  affected  with  notice  of  knowledge  acquired  by  its 
president  in  the  course  of  its  business  that  money  deposited  by  a 
depositor  in  his  individual  account  belongs  to  an  estate  of  which 
he  may  have  control,  for  instance,  as  assignee  for  the  benefit  of 
creditors ;  and  the  money  deposited  by  him  cannot  be  appropri- 
ated by  the  bank  to  the  payment  of  liis  notes.  Payments  thus 
made  could  be  recovered  from  the  bank  bv  the  assiojnee.''  Where 
the  cashier  of  a  national  bank  in  the  usual  course  of  business 
takes  a  note  before  its  maturity  without  notice  or  knowledge 
of  any  defense  to  the  note,  the  knowledge  of  the  presi- 
dent of  the  bank  that  there  was  claimed  to  be  a  failure 
of  consideration  would  be  no  notice  to  the  bank  of  that  fact.^ 
It  would  be  a  breach  of  duty  for  a  president  of  a  bank  to  allow  a 
customer  of  the  bank  to  take  away  its  securities  for  inspection, 
and  he  and  his  sureties  would  be  liable  for  the  results  of  such  an 
act  on  his  part  without  regard  to  the  question  of  good  faith.* 


•  Cake  V.  Bank,  116  Pa.  St.  264. 

•  Tifft  V.  Bank,  8  Pa.  Co.  Ct.  Rep. 
606. 

»  First  National  Bank  of  Whitehall 
V.  Tisdale,  (1879)  84  N.  Y.  655. 

*Asher  v.  Sutton,  (1884)  31  Kans. 
286. 

»  Bank  v.  Hoch,  89  Pa.  St.  324. 

•  Savings  Bank  t?.  Holt,  58  Vt.  166. 
'  Bank  v.   Peisart,  2   Penny-packer 

(Pa.).  278. 

•  First  National  Bank  r.  Sherburae, 
14  Bradw.  (111.)  566.  Bank  chargeable 
with  notice  of  facts  within  the  official 


knowledge  of  its  president.  Union 
Bank  I?.  Wando  Mining  &Mfg.  Co.,  17 
S.  C.  361,  Under  what  circumstances 
one  who  may  have  compromised  a 
claim  and  given  a  release  to  the  bank 
may  avoid  that  release  by  reason  of  the 
falsity  of  a  president's  statement,  see 
Gould  T.  Cayuga  County  National 
Bank,  (1877)  56  How.  Pr.  505.  That  a 
president  of  a  bank  has  no  authority 
to  release  debts,  see  Olney  v.  Chadsey, 
7  R.  I.  224. 

'  Bank  r.  Wiegand,  5  W.  N.  C.  (Pft.) 
12. 


An  overdraft  on  a  bank,  if  made  without  authority,  is  a  fraud 
upon  the  part  of  the  drawer ;  if  suggested,  countenanced,  con- 
nived at  and  allowed  by  the  president  of  a  bank,  without  any 
authority  of  the  directors,  it  would  be  a  fraud  on  the  part  of  the 
president,  and  he  will  be  held  liable  personally  for  the  damages 
to  the  bank.*     In  a  Kansas  case  it  appeared  that  one,  at  the  same 
time  stockholder,  director  and  vice-president  of  a  savings  bank, 
sold  his  stock  in  the  bank,  while  it  was  in  an  embarrassed  condi- 
tion, to  an  outside  party  who  had  no  funds  in  the  bank,  but,  on 
the  contrary,  had  an  overdrawn  account  with  the  bank  of  several 
months'  standing,  from  whom  he  received  a  check  on  the  bank 
in  payment  for  the  stock  for  $2,100.     This  outside  party  then 
sold  the  stock  to  the  cashier  of  the  bank,  who  purchased  it  for 
the  bank,  but  had  no  authority  from  the  bank  or  from  any  one 
else  to  make  such  purchase.     The  cashier  then  gave  to  this  out- 
side party  a  credit  for  the  stock  of  $2,100  on  the  books  of  the 
bank,  and  on  the  same  day  gave  the  vice-president  of  the  bank, 
who  had  sold  this  stock,  a  credit  on  the  books  of  the  bank  for  the 
amount  of  the  check  drawn  by  the  outside  part}^,  and  charged  the 
latter  with  a  like  amount.     A  few  days  afterwards  the  vice-presi- 
dent drew  the  amount  out  of  the  bank.     The  Supreme  Court  of 
that  state  held  that  the  bank  could  maintain  its  action  against  this 
officer  for  the  amount  of  money  so  withdrawn  from  the  bank.^ 
As  to  the  duty  of  officers  of  the  bank,  it  was  held  by  the  court 
that  a  director,  having  personal  and  private  dealings  with  his 
bank,  was  bound  to  know  (so  far  as  the  same   affected  his  own 
personal  dealings)  the  general  condition  and  management  of  his 
bank,  and  everything  of  importance  that  occurred  therein,  either 
at  the  time  it  occurred  or  soon  thereafter.     Further,  it  was  held 
that  this  officer,  the  vice-president,  was  bound  to  know  when  his 


»  Oakland  Bank  of  Savings  v.  Wil- 
cox. (1882)  60  Cal.  126.  See,  on  the 
subject  of  personal  liability  of  officers, 
Leffman  v.  Flanigan,  5  Phila.  155; 
Shea  V.  Mabry,  1  Lea  (Tenn.),  319; 
Minor  v.  Mechanics'  Bank,  1  Pet.  72; 
Eichelberger  v.  Finley,  7  Har.  &  J. 
(Md.)  387;  Bank  of  St.  Mary's  v.  Cal- 
mer, 3  Strobh.  (S.  C.)  408;  Lancaster 
Bank  v.  Woodward,  18  Pa.  St.  362; 
Shear  u.  K.  &  K.  R.  R.  Co.,  6  Bax. 
<Tenn.)  278.     In  First  National  Bank 


V.  Reed,  36  Mich.  263,  the  president  of 
the  bank  was  held  personally  liable  for 
moneys  paid  out  by  the  cashier  under 
his  directions  and  without  security 
to  one  who  was  supposed  to  be  irre- 
sponsible, with  whom  the  president 
was  interested  in  the  business  for 
which  the  money  was  obtained,  these 
payments  having  been  kept  from  the 
knowledge  of  the  directors. 

'  German   Savings   Bank  «.  Wulfe- 
kuhler,  (1877)  19  Kans.  60. 


564 


OFFICERS  OF  BANKS. 


[§304 


bank  was  in  an  embarrassed  condition,  and  the  condition  of  an 
account  which  had  been  overdrawn  for  months ;  and  that  where 
the  cashier  had  given  a  credit  to  tlie  person  having  such  over- 
drawn account,  for  an  insufficient  and  illegal  consideration,  the 
officer  was  bound  to  know  the  same  within  less  than  several  daya 
thereafter.* 

§  304.  President's  acts  binding"  on  bank  —  illustrations. — 

In  an  action  by  a  receiver  of  an  insolvent  national  bank  against  a 
correspondent  bank  to  recover  the  amount  of  a  deposit  by  the 
insolvent  bank  with  this  correspondent,  where  the  evidence 
showed  that  the  board  of  directors  left  it  to  the  president,  as  the 
agent  of  the  bank,  to  negotiate  loans,  and  to  make  such  contracts 
as  to  repayment  and  security  as  were  lawful  and  usual,  the  United 
States  Circuit  Court  for  the  southern  district  of  Kew  York  held 
that  the  evidence  was  sufficient  to  establish  the  authority  of  the 
president  to  pledge  the  deposit  with  the  correspondent  bank  as 
security  for  loans  by  it  to  the  insolvent  bank.^  This  was  an  action 
by  the  receiver  of  a  national  bank  against  the  makers  of  a  note 
found  among  its  assets.  The  defense  of  the  makers  was  that 
there  was  no  consideration  towards  them  ;  that  it  was  an  accom- 
modation note  made  by  them  at  the  instance  of  the  president  of 
the  bank,  to  be  used  for  the  purposes  of  the  bank.  The  note  was 
made  payable  to  the  order  of  the  makers  and  indorsed  by  them. 
On  the  trial  the  note  clerk  of  the  bank  testified  to  entries  on  the 
discount  book  indicating  that  the  note  was  discounted  on  a  cer- 
tain day,  and  that  the  account  of  the  proceeds  was  handed  to  the 
president  of  the  bank,  who  put  his  signature  u^^on  it,  thus  making 
it  an  order  on  the  teller  for  the  amount  therein  stated  ;  that  this 
order  was  returned  to  the  clerk,  together  with  the  president's 
own  check  for  an  amount  sufficient  to  make  up  the  face  of  the 
note,  and  that  this  amount  was  used  to  pay  a  former  note  of 


» Ibid. 

»BeU«.  Hanover  Nat.  Bank,  (1893) 
57  Fed.  Rep.  821.  Lacombe,  Circuit 
Judge,  said:  "It  is  true  that  no  ex- 
press authority  from  the  board  of 
directors  to  make  such  an  agreement 
is  shown,  but  the  contract  is  not  an 
unusual  one,  and  authority  to  make  it 
may  be  established  by  proof  of  the 
course  of  business,  by  the  usages  aud 


practice  which  the  directors  may  have 
permitted  to  grow  up  in  the  business 
of  the  bunk,  and  by  the  knowledge 
which  the  board  of  directors  must  be 
presumed  to  have  had  of  the  acts  and 
doings  of  its  subordinates  in  and  about 
the  affairs  of  the  corporation.  Ma- 
honey  Mining  Co.  v.  Anglo- Calif omian 
Bank,  104  U.  S.  194." 


§304] 


OFFICEItS  OF  BANKS. 


565 


the  makers.     As  to  the  former  note,  he  testified  to  entries  on  the 
discount  book  indicating  that  it  had  been  discounted,  and  that 
the  proceeds  were  deposited  to  the  credit  of  the  president  of  the 
bank.      The   bank   a  short  time   afterwards  became   insolvent. 
The  United  States  Circuit  Court  of  Appeafs  for  the  third  circuit 
held  that  this  testimony  did  not  sufficiently  show  the  bank  to  be 
a  honafide  holder  for  value,  as  against  the  defense  that  the  notes 
were  procured  from  the  makers  by  the  president,  who  was  also 
the  managing  officer  of  the  bank,  by  fraud  and  without  considera- 
tion.    They  also  held  that  it  was  error  to  refuse  to  allow  the 
makers  to  show  that  the  note  in  suit,  and  the  former  notes  which 
were  renewed  by  it,  were  given  at  the  solicitation  of  the  presi- 
dent, who,  in  the  actual  conduct  of  the  business  of  the  bank,  was 
its  sole  managing  officer,  and  upon  his  execution  of  a  receipt 
which  was  also  offered  in  evidence  reciting  that  the  note  was  for 
the  use  of  the  bank,  and  was  to  be  paid  by  it  at  maturity ;  and 
that  he  stated  that  he  proposed  to  use  it  in  the  clearing  house,  as 
it  would  look  better  for  the  credit  of  the  bank  than  numerous 
small  notes  which  it  held,  and  which  small  notes  it  would  retain 
to  protect  this  note  of  the  makers,  as  the  facts,  if  shown,  would 
make  a  valid  defense  to  the  action.     It  was  also  held  to  be  error 
to  refuse  the  defendant's  offer  to  show  that  the  president  was  the 
sole  managing  officer  of  the  bank,  in  the  actual  conduct  of  the  busi- 
ness, and  that  the  cashier  occupied  more  the  position  of  a  clerk 
than  that  of  actual  cashier ;  for,  if  the  president  exercised  the 
junctions  of  cashier  and  was  the  sole  managing  officer  of  the  bank, 
he  had  authority  to  borrow  money  for  the  use  of  the  bank  in  the 
regular  course  of  its  business.*     One  intendmg  to  purchase  bank- 


'  Simons  t.  Fisher,  (1893)  55  Fed. 
Rep.  905  (Butler,  D.  J.,  dissenting). 
AcHESON,  Circuit  Judge,  in  the  opinion 
of  the  majority  of  the  court,  referred 
to  the  case  of  Coats  v.  Donnell,  94  N. 
Y.  168,  176,  as  having  features  very 
like  the  case  before  the  court.  He 
said  :  "The  cashier  of  a  bank  [in  that 
case]  orally  agreed  with  a  firm  that  if 
the  latter  would  receipt  certain  drafts 
negotiated  by  the  bank  it  would  keep 
on  deposit  with  the  firm  until  their  ma- 
turity a  balance  equal  to  the  amount 
of  the  drafts,  upon  which  the  firm 


should  have  a  lien;  the  firm  to  be  kept 
informed  of  the  condition  of  the  bank, 
which  the  cashier  stated  to  be  embar- 
rassed, but,  with  certain  expected  aid, 
able  to  continue  business.  The  agree- 
ment was  held  to  be  valid,  and  within 
the  power  of  the  cashier  to  make,  both 
under  his  general  authority  and  by 
virtue  of  a  by-law  which  gave  him 
supervision  of  the  bank,  with  the  duty 
to  attend  to  the  making  of  loans,  dis- 
counts and  other  active  business  trans- 
actions of  the  bank."  It  was  said  in 
Coats  t.  Donnell,  supra :  "  The  cashier 


W 


'<     » 


•I 


l»l 


:i. 


»,'; 


\\^\ 


(.1 


'll 


i 


56C 


OFFICERS  OF  BANKS. 


[§305 


stock  is  entitled  to  rely  upon  a  statement  of  its  president  as  to 
the  bank's  condition,  without  inquiring  further.^ 

§  305.  President's  acts  not  binding  on  bank  —  illustra- 
tions.—The  Nebraska  Supreme  Court  has,  in  an  action  against 
a  national  bank  to  recover  the  amount  of  a  subscription  made  in 
its  name  by  the  president  of  the  bank  to  encourage  and  aid  the 
erection  of  a  paper  mill,  affirmed  the  judgment  of  the  trial  court 
instmcting  the  jury  to  return  a  verdict  for  the  bank.^  The 
president  of  a  national  bank  in  Wyoming  arranged  with  bankers 
in  New  York  to  credit  his  bank  with  $10,000,  with  the  under- 


of  a  bank  is  its  executive  officer,  and 
it  is  well  settled  that  as  an  incident  of 
his  office  he  has  authority,  implied 
from  his  official  designation  as  cashier, 
to  borrow  money  for  and  to  bind  the 
bank  for  its  repayment;  and  the  as- 
sumption of  such  authority  by  the 
cashier  will  conclude  the  bank  as 
against  third  persons,  who  have  no 
notice  of  his  want  of  authority  in  the 
particular  transaction,  and  deal  with 
him  on  the  basis  of  its  existence." 

*  Merrill    r.   Florida  Land  &  Imp. 
Co..  (1893)  60  Fed.  Rep.  17. 

*  Robertson  v.  Buffalo  County  Na- 
tional Bank,  (Neb.  1894)  58  N.  W. 
Rep.  715.  The  court  said  :  ''The  un- 
disputed evidence  in  the  case  is  that 
the  president  of  the  bank,  without  the 
knowledge  or  consent  of  the  directory, 
signed  the  name  of  the  bank  to  the 
subscription  paper,  and  that  the 
directory  of  the  bank  had  never  rati- 
fied this  act  of  the  president.  Whether 
the  court  erred  in  instructing  the  jury 
to  return  a  verdict  for  the  bank  de- 
pends, then,  upon  the  question  as  to 
whether  the  bank  is  bound  by  the  sub- 
scription made  by  its  president.  This 
bank  was  organized  under  the  act  of 
congress  for  the  purpose  of  lending 
money,  receiving  deposits  and  for  the 
conducting  of  a  general  banking  busi- 
ness. The  making  of  donations  of  its 
funds  or  capital  to  aid  in  the  building 
of  paper  mills,  canals  or  churches  is  no 


part  of  the  business  for  which  it  waa 
incorporated.    The  bank  —  that  is,  the 
corporation  — by  the  unanimous  con- 
sent of  its   stockholders,  might,    no 
doubt,   make    such    donation    of   its 
capital  to  any  enterprise  or  person  it 
chose;   but  is  the  bank   bound   by  a 
contract  made  in  its  name  by  its  presi- 
dent, in  and  by  which  it  is  agreed  to 
donate  to  some  person  or  enterprise  a 
part  of  its  capit^ll  ?     A  large  part  of 
the  argument  of  counsel  in  this  court 
has  been  directed  to  the  doctrine  of 
nltra  vires,  but  we  do  not  think  that  it 
is  necessary  to  invoke  that  doctrine  in 
order  to  reach  a  correct  decision  in 
this  case.     It  seems  to  us  that  this 
question  is  one  of  agency.     The  bank 
is  the  principal  and  the  president  of 
the  bank  was  its  agent,  and  the  bank, 
of  course,  was  bound  by  the  acts  of 
its  president,  done  within  the  scope 
of  his    authority.      In  Morawetz    on 
Private  Corporations  (§  423)  it  is  said  : 
•  The  property  and  funds  of  a  corpora- 
tion belong  to   its  stockholders,  and 
cannot  be  devoted  to  any  use  which  is 
not  in  accordance  with  their  chartered 
purposes,  except  by  unanimous  con- 
sent.    No  agent  of  a  corporation  has 
implied  authority  to  give  away  any 
portion  of  the  corporate  property  or 
to     create     a     corporate     obligation 
gratuitously.'     In  Jones  v.  Morrison. 
31  Minn.  140;    s.  c,  16  N.   W.  Rep. 
854,  it  is  said  :    '  The  directors  of  a 


§305] 


OFFICEKS  OF  BANKS. 


5G7 


Standing  that  the  bank  would  not  draw  against  it,  and  had  the 
New  York  bankers  charged  with  the  amount,  and  his  own  per- 
sonal account  with  his  bank  credited  with  the  amount,  placing 
with  the  New  York  bankers  his  individual  note  for  discount  for 
the  same  amount.  He  then  was  allowed  to  overdraw  Jiis  indi- 
vidual account  afterwards,  and  then  authorized  the  New  York 
bankers  to  charge  the  amount  of  his  individual  note  to  his  bank, 
which  thej  did.  The  bank  becoming  insolvent,  the  receiver 
brought  his  action  against  the  New  York  bankers  for  the  amount. 
The  United  States  Circuit  Court  of  Appeals  for  the  second  cir- 
cuit held  that  unless  expressly  authorized  to  do  so  tlie  president 
of  the  bank  could  not  use  the  funds  of  the  bank  to  pay  his  per- 
sonal obligations;  and,  there  being  no  proof  of  such  express 
authority,  that  he  autliorized  the  New  York  bankers  to  do  so  was 
not  a  defense  to  the  suit.* 


corporation  have  no  authority  to  ap- 
propriate its  funds  in  paying  claims 
which  the  corporation  is  under  no  legal 
or  moral  obligation  to  pay,  as  to  pay 
for  past    services    which   have   been 
rendered  and  paid  for  at  a  fixed  salary 
previously    agreed    on,    or   under   a 
previous  agreement  that  there  should 
be  no  compensation  for  them.'    To  the 
same  effect  see  Salem  Bank  r.  Glou- 
cester Bank,   17  Mass.    29;    Bissell  r. 
City  of  Kankakee,  64  111.  249;  Minor 
^.  Bank,  1  Pet.  46;  Case  t\  Bank,  100 
U.  8.    446.     In  Alexander  v.    Cauld- 
well,  83  N.   Y.   480,  it  is  said  :  '  One 
who  deals  with  the  officers  or  agents 
of  a  corporation  is  bound  to  know  their 
powers  and  the  extent  of  their   au- 
thority.   The  corporation  is  only  bound 
by  their  acts  and  contracts  which  are 
within  the  scope  of  their  authority.' 
In  Rich  V.  Bank,  7  Neb.  201,  it  is  said 
in  the  syllabus  :  '  No  officer  of  a  bank 
(;an   bind  it  by  a  promise  to  pay  a 
debt  which  the  corporation  does  not 
owe  and  was  not  liable  to  pay,  unless 
the  bank  authorizes  or  has  ratified  the 
act;    but  ratification  is  equivalent  to 
original  authority  to  act  in  the  matter, 
and  the  corporations  are  bound  in  the 


same  manner  as  natural  persons.'  We 
think  these  authorities  are  decisive  of 
the  case  at  bar.  This  is  not  a  case  in 
which  the  bank  has  received  and  re- 
tains the  fruits  of  an  unauthorized 
contract  made  by  its  agent."  For  an 
illustration  of  what  kind  of  a  contract 
made  by  the  director  of  a  bank, 
specially  delegated  to  take  charge  of 
the  matter,  and  who  acted  under  the 
direct  advice  of  the  president  of  the 
bank,  would  be  binding  upon  the 
bank,  see  Waxahachie  Nat.  Bank  v. 
Vickery,  (Tex.  1894)  26  S.  W.  Rep.  876. 
'  Chrystie  v.  Foster,  (1894)  61  Fed. 
Rep.  551.  Wallace,  Circuit  Judge, 
said  :  "  While  it  may  be  conjectured, 
in  view  of  the  character  of  [the  presi- 
dent's] relations  with  the  bank,  that  it 
would  have  permitted  him  at  any 
time  to  overdraw  his  account,  there  is 
no  evidence  that  it  did  not  rely  upon 
the  credit  [given  it  by  the  New  York 
bankers]  in  its  subsequent  dealings 
[with  the  president],  and  the  presump- 
tion is  that  the  notice  given  by  the  de- 
fendants influenced  the  bank  as  they 
intended  it  should.  The  authorization 
to  the  defendants  by  [the  president], 
in  his  official  capacity  as  president  of 


I) 


568 


OFFICERS  OF  BANKS. 


ilir 


[§  30(; 


§  306.  When  a  bank  is  not  chargeable  with  constructive 
notice  as  to  knowledge  of  its  president—  Tliis  wa^  an  action 
against  a  bank  brouglit  by  the  grantor  of  an  undivided  Jialf  inter- 
est m  a  city  lot  by  a  full  conveyance  of  title  to  one  who  was  the 
owner  of  the  other  undivided  half  interest  in  the  lot,  at  the  time  the 
president  of  the  bank,  and  who  had  subsequently,  for  a  valuable 
consideration,  conveyed  the  whole  lot  to  the  bank  for  its  uses,  to 
enforce  the  vendor^s  lien  upon  the  undivided  half  interest  con- 
veyed by  him.     It  appeared  that  the  bank  knew  nothinc.  of  the 
transaction  between  this  vendor  and  its  president  beyond  the 
deed  of  full  conveyance  from  the  grantor  to  the  president.     The 
United  States  Circuit  Court  of  Appeals  for  the  fifth  circuit  held 
that  the  bank  acquiring  its  title  by  conveyance  from  one  who  held 
the  interest  in  the  lot  under  a  deed  reciting  full  payment  of  the 
purchase  money,  and  having  no  actual  knowledge  that  the  pur- 
chase money  was  not  in  fact  paid,  was  an  innocent  purchaser 
without  notice,  and  was  not  chargeable  with  constructive  notice 
because  of    the  knowledge   of  its  president.     As   to   what   did 
appear  from  the  evidence  that  the  grantor  had  a  conversation 
with  a  director  of  the  bank,  in  which  he  stated  that  he  was  will- 
ing to  convey  his  half  interest  in  the  lot  to  the  president  of  the 
bank,  with  the  understanding   that  the  president  was  to  convev 
the  whole  lot  to  the  bank,  and  that  the  president  of  the  bank  was 
to  pay  him  by  giving  him  credit  upon  notes  then  running  ao-ainst 
him  in  the  bank,  the  court  held  that  it  did  not  amount  to  notice 
to  the  director  that  the  grantor  intended  to  retain  a  vendor's  lien, 
but  rather  imputed  a  notice  that  no  such  lien  was  to  be  retained.' 

the  bank,  to  apply  the  fund  in  their 
hands  belonging  to  the  bank  in  pay- 
ment of  his  note,  does  not  protect  the 
defendants.  It  is  not  pretended  that 
[the  president]  had  any  express  au- 
thority to  apply  the  funds  of  the  bank 
to  the  payment  of  his  own  note.  He 
had  no  implied  authority  to  do  so. 
There  are  no  presumptions  in  favor  of 
such  a  delegation  of  power.  He  who 
assumes  to  rely  upon  the  authority  of 
an  agent  to  bind  his  principal  to  the 
<lischarge  of  the  agent's  own  obliga- 
tion must  have  actual  authority  if  con- 
test arises.  No  principle  of  the 
law  of  agency  is  better  settled  than 
that    no  person  can  act  as  agent  of 


another  in  making  a  contract  for  him- 
self.     West  St.   Louis  Sav.    Bank  r. 
Shawnee    Co.    Bank,   95    U.    S.   557; 
National     Park    Bank     r.     German- 
American  Mut.  Warehousing  &  Secur- 
ity Co..  116  N.  Y.  281;s.  c,  22N.  E. 
Rep.  567;  Anderson  v.  Kissam,  35  Fed. 
Rep.  699.    If  [the  president]  had  used 
his  note  with  the  defendants  to  pro- 
cure an  advance   to  the  bank   for  its 
benefit,  and  not  for  his  own,  and  had 
given  them    such   an    authorization, 
very    different    questions    would    be 
prescnte<l  from  those  which  are  now 
in  the  case." 

'  First   Nat.   Bank    of    Sheffield  v. 
Tompkins,   (1893)  57    Fed.   Rep.   20. 


307] 


OFFICEKS  OF  BANKS. 


569 


§307.  Cashier  — his  power  and  duty.— The  cashier  of  a 
bank  is  tlie  executive  officer  or  agent  of  its  financial  depart- 
ment, and,  in  all  the  duties  imposed  upon  him  by  law  or  usage  as 


Pardee,   Circuit  Judge,   referred  in 
support  of  the  court's  ruling  to  certain 
cases  in  these  words:  "  In  the  case  of 
Whehin    v.  McCrcarj,     64    Ala.    319, 
Mr.  Chief  Justice  Bhickei>l,  speaking 
for  the  court,  declared  the  law  of  Ala- 
bama   as    follows:    '  Whoever    gives 
value,   or  enters  into  transactions  by 
which     his     position     is     materially 
changed,  and  from  which  change  loss 
must  ensue,  on  the  faith  that  the  ven- 
dor of  real  estate,  or  person  with  whom 
he  deals,  has,  as  the  title  papers  ex- 
hibit, a  clear  legal  title,  will  be  pro- 
tected against  outstanding  and  latent 
equities,  of  which  he  has  no  notice. 
A  mortgagor  taking  a  security  for  a 
contemporaneous  loan  or  advance  falls 
within  the  rule  and  is  entitled  to  pro- 
tection.    Boyd  V.  Beck,  29  Ala.  713; 
Wells  V.  Morrow,   38  Ala.   125.     The 
only  notice,  actual  or  constructive,  of 
Mrs.    Whelan's  equity,    which  is  at- 
tributed to  the  insurance  company,  is 
imputed,  because  notice,  it  is  insisted,  is 
traced  to  Williams,  one  of  its  direct- 
ors, active  and  instrumental  in  makiuff 
the  loan  to  Cunningham  and  McCreary, 
and  taking  the  mortgage.     Whatever 
facts  may  have  been  known  to  Wil- 
liams which  ought  to  have  excited  in- 
quiry on  his  part,  came  to  his  knowl- 
edge while  he  was  acting  as  the  agent 
of  Cunningham,  in  a  transjvction  in 
which  the  insurance  company  had  no 
interest.     The  rule  is  settled  in  this 
state  that  a  corporation   will  not  be 
affected  by  notice  which  one  of  its 
directors  or  other  officers   may   have 
received  when  not  acting  for  the  cor- 
poration, but  in  the  transaction  of  his 
own   private   affairs,    and  under  such 
circumstances  that  its  communication 
to  other  officers  of  the  company  is  not 
to  be  expected.    Terrell  v.  Bank,  13 

72 


Ala.  502.     If  the  facts  were  stronger 
for  the  imputation  of  notice  to  Wil- 
liams than  are  found  in  the  record, 
notice  should  not  be  imputed  to  the  in- 
surance   company.'       The     case    of 
Barnes  v.  Gas  Light  Co. ,  27  N.  J.  Eq. 
33-37,  involved  a  question  in  regard 
to  notice  very  similar  to  the  case  in 
hand,  and  the  chancellor  held  as  fol- 
lows: •  That  the  defendants  are  bona 
fide  purchasers  for  valuable  considera- 
tion is  not  denied.     Their  title  is  not 
impugned,  except  on  the  ground  of 
notice,    and    the    claim     to   relief   is 
based  on  the  allegation  that  at  the  time 
when  the  conveyance  was  made  by 
Mr.  Potts  to  them  he  was  their  presi- 
dent, and  this  fact  is  relied  upon  as  of 
itself  sufficient  to  establish   notice  to 
them  of  all   the   facts  which  the  bill 
charges  were  within  his  knowledge. 
The  geneml  proposition  is  undoubtedly 
true  that  notice  of  facts  to  an  agent  is 
constructive  notice  thereof  to  the  prin- 
cipal himself,  where  it  arises  from  or 
is  at  the  time  connected  with  the  sub- 
ject-matter of  his  agency.     The  rule 
is  based  on  the  presumption  that  the 
agent  has  communicated  such  facts  to 
the  principal.     Story  Ag.    §  140.     On 
principles  of  public  policy  the  knowl- 
edge of  the  agent  is  imputed  to  the 
principal.     But  the  rule  does  not  ap- 
ply to  a  transaction  such  as  that  under 
consideration,  for,  in  such  a  transac- 
tion, the  officer,  in  making  the  sale  and 
conveyance,  stands  as  a  stranger  to  the 
company.     Stratton  v.  Allen,  16  N.  J. 
Eq.    229.     His  interest  is  opposed  to 
theirs,  and  the  presumption  is  not  that 
he  will  communicate  his  knowledge  of 
any  secret  impurity  of  the  title  to  the 
corporation,  but  that  he  will  conceal 
it.     Where  an  officer  of  a  corporation 
is  thus  deaUng  with  them  in  his  owa 


II 


•;  ■ 


I' 


570 


OFFICERS  OF  BANKS. 


[§30T 


I" 

1 

'  ■ 

l« 


such  cashier,  he  acts  for  the  bank  and  speaks  for  it.'  A  cashier, 
in  the  absence  of  all  positive  and  known  restrictions,  possesses  the 
incidental  authority,  and  it  is  his  duty  to  apply  the  negotiable 
funds  of  a  bank  as  well  as  the  moneyed  capital  to  the  discharge 


interest,  opposed  to  theirs,  he  must  be 
held  not  to  represent  them  in  the  trans- 
action, so  as  to  charge  them  with  the 
knowledge  he  may  possess,  but  which 
he  has  not  communicated  to  them,  and 
which  they  do  not  otherwise  possess, 
of  facts  derogatory  to  the  title  he  con- 
veys,' citing  in  support  of  the  same 
Bank  v.  Cunningham,  24  Pick.  270; 
Kennedy  v.  Green,  3  Mylne  &  K.  699; 
In  re  European  Bank,  L.  R  .  5  Ch. 
App.  358;  In  re  Marseilles  Extension 
Railway  Co.,  L.  R.,  7  Ch.  App.  161; 
Winchesters.  Railroad  Co.,  4  Md.  231. 
In  Commercial  Bank  of  Danville  o. 
Burgwyn,  (1892) HON.  C.  267,  certain 
promissory  notes  were  indorsed  to  a 
corporation  and  by  its  president  in- 
dorsed for  value  to  a  bank  some  months 
before  they  were  due.  The  president 
of  the  corporation  was  a  director  of  the 
bank  and  in  the  matter  of  discounting 
these  notes  had  spoken  to  the  presi- 
dent of  the  bank,  who  ordered  them 
discounted,  but  this  director,  the  presi- 
dent of  the  corporation,  took  no  action 
in  the  matter  of  the  discounting  of  the 
note.  In  this  action  by  the  bank  upon 
the  note  it  was  claimed  that  the  note 
was  subject  to  a  certain  equity  or  set- 
off of  the  maker,  on  the  ground  that 
the  president  of  the  corporation  knew 
it  had  notice  of  the  impurity  of  the 
note,  and,  being  a  director  of  the  bank, 
notice  to  him  was  notice  to  the  bank. 
The  Supreme  Court  of  North  Carolina 
said:  'That  conceding  *  *  *  that 
if  the  director  of  the  bank  had  such 
notice  at  the  time  of  the  discounting 
of  all  of  the  notes,  it  is  well  established 


that  the  plaintiff  [the  bank]  cannot  be 
affected  therewith  unless  [he]  was  act- 
ing ia  his  official  capacity  for  the  plain- 
tiff in  the  said  discounting  transactions. 
The  foundation  principle  upon  which 
rests  the  doctrine  that  a  party,  whether 
an  individual  or  a  corpomtion,  is 
chargeable  with  notice  imparted  to  his 
agents  in  the  line  of  their  duty,  is  that 
agents  are  presumed  to  communicate 
all  such  information  to  their  principals 
because  it  is  their  duty  so  to  do.  The 
principal  is  conclusively  preaumetl  to 
know  whatever  his  agent  know.s,  if 
the  latter  knows  it  as  agent.  Of 
course  no  such  presumption  can  exist 
where  the  agent  is  dealing  with  the 
corporation  in  the  particular  transac- 
tion in  his  own  behalf.'  In  such 
transactions  the  attitude  of  the  agent 
is  one  of  hostility  to  the  principal. 
He  is  dealing  at  arm's  length,  and  it 
would  be  absurd  to  suppose  that  he 
would  communicate  to  the  principal 
any  facts  within  his  private  knowledge 
affecting  the  subject  of  his  dealing 
unless  it  would  be  his  duty  to  do  so,  if 
he  were  wholly  unconnected  with  the 
principal.  As  was  said  by  the  court 
in  Wickersliam  r.  Chicago  Zinc  Co., 
18  Kans.  481:  'Neither  the  acts  nor 
knowledge  of  an  officer  of  a  corpora- 
tion will  bind  it  in  a  matter  in  which 
the  officer  acts  for  himself  and  deals 
with  the  corporation  as  if  he  had  no 
official  relations  with  it,'  or,  as  was 
said  in  Barnes  r.  Trenton  Gas  Light 
Co.,  27  N.  J.  Eq.  33:  *  His  interest  is 
opposed  to  that  of  the  corporation,  and 
the   presumption  is  not  that  he  will 


» Ellicott  V.  Barnes.  (1884)  31  Kans.  Bank,  10  Humph.  507;  United  States 
172;  Lane  v.  Bank  of  West  Tennessee,  r.  City  Bank  of  Columbus,  21  How. 
9  Heisk.    419;    Maxwell   r.   Planters'   364. 


m 


§307] 


OFFICERS  OF  BANKS. 


671 


of  the  bank's  debts  and  obHgations.*  The  power  of  a  cashier  to 
purchase  for  the  bank  is  not  implied  from  his  office  as  casliier.^ 
A  bank  will  be  bound  by  the  agreement  of  its  cashier  to  extend 
paper.^  A  statement  hy  its  cashier,  upon  inquiry  of  one  known 
by  him  to  be  a  surety  on  a  note  due  the  bank,  that  the  note  had 
been  paid,  with  the  intention  that  the  surety  should  rely  upon 
the  statement,  and  the  surety  does  so,  and  in  consequence  change 
his  position  by  giving  up  securities  or  indorsing  otlier  notes  for 
the  same  principal  or  the  like,  will  estop  a  bank  from  denying 
that  the  note  was  paid."  The  cashier  of  a  bank,  without  special 
authority,  cannot  bind  it  by  an  official  indorsement  of  his  per- 
sonal note.  In  an  action  on  such  a  note  the  onus  would  be  upon 
the  payee  to  show  the  cashier's  authority.^   A  bank  has  been  held 


,.t 


communicate    his  knowledge  of  any 
secret  infirmity  of  the  title  to  the  cor- 
poration, but  tliat  he  will  conceal  it.' 
This  doctrine  has  been  applied  to  the 
case  of  a  director  procuring  the  dis- 
count of  a  note  for  his  own  benefit, 
having  knowledge  that  it  is  founded 
upon  an  illegal  consideration  (Bank  i\ 
Christopher,  40  N.  J.  L.  435).  or  that 
it  was  made  for  his  accommodation 
(Bank  v.  Cunningham,  24  Pick.  270), 
or  that  it  was  obtained  upon  a  false 
pretense  of  having  it  discounted  for 
the  maker  (Washington  v.  Lewis,  22 
Pick.  24),  or  that  it  was  affected  in  his 
hands  with  certain  conditions  (Louisi- 
ana State  Bank  v.  Seuecal,  13  La.  525), 
or  with  a  claim  of  recoupment  of  which 
the  bank  had  no  notice  (Loomis  v.  Bank, 
1  Disney,  286),  or  with  other  equities. 
Savings  Bank??.  Hamlin,  125  Mass.  506. 
To  the  same  effect  are  Corcoran  v.  Snow 
Cattle  Co.,  151  Mass.  74;  Innerarity  v. 
Bank,  139  Mass.  332;  Stevenson  v.  Bay 
City,  26  Mich.  44;  Frost  v.  Belmont,  6 
Allen,  163,  and  other  cases.  In  the  fore- 
going decisions  the  director  was  not  act- 
ing in  his  official  character  in  the  partic- 
ular transaction,  but  had  he  been  so  act- 
ing, the  bank  by  a  great  preponder- 
ance of   authority   would  have   been 
affected  by  his  knowledge." 

'  Maxwell  v.   Planters'  Bank,  (1850) 
10  Humph.  (Tenn.)  507. 


« Lionberger  v.  Mayer,  (1882)  12  Mo. 
App.   575.    As  to  the  acts  of  a  cashier, 
within  the  sphere  of  his  duties,  being 
the  acts  of  a  bank,  see  Burnham  ?\  Web- 
ster,  19  Me.   232;  Medomak  Bank  v. 
Curtis,  24  Me.  36;  Warren  v.  Oilman, 
17  Me.  360;  Farrar  v.  Oilman,   19  Me. 
440;  Badger  v.  Bank  of   Cumberland, 
26  Me.  428;  National  Bank  of  Metrop- 
olis V.  Williams,  46  Mo.  17.     As  to  the 
authority  of  cashiers  of   banks,    see 
Caldwell  v.  National  Mohawk  Valley 
Bank,  64  Barb.  333;  Chemical  National 
Bank  v.  Kohner,  8  Daly,  530.     As  to 
powers    habitually    exercised    by   a 
cashier  with  the  knowledge  and  acqui- 
escence of  the  bank,  see  Merchants' 
Bank  v.  State  Bank,  10  Wall,  604. 

3  Wakefield  Bank  v.  Truesdell,  55 
Barb.  602. 

*  Cocheco  National  Bank  v.  Haskell, 
51  N.  H.  116. 

''West  St.  Louis  Sav.  Bank  r. 
Shawnee  County  Bank,  (1874)  3  Dill. 
403;  affirmed  in  95  U.  S.  557.  In 
Houghton  V.  First  National  Bank  of 
Elkhom,26  Wis.  663,  the  bank  was 
held  to  be  bound  by  its  cashier's  in- 
dorsement of  his  name  followed  by  the 
abbreviation  "  Cas."  on  the  negotiable 
note  of  another,  though  not  done  at 
the  bank,  or  for  its  benefit,  and  by  his 
statement  to  a  purchaser  that  such 
statement  was  all  right.    As  to  pay- 


II  ;  ipp 


I 


572 


OFFICERS  OF  BANKS. 


[§  307 


ill 


III 


Bot  responsible  to  tlie  real  owner  for  money  paid  out  witli  his 
consent  to  the  administrator  of  the  apparent  owner,  the  one  who 
liad  deposited  it,  even  though  his  consent  had  been  given  upon 
the  advice  of  the  bank's  casliier.^  A  bank  will  be  bound  by  rep- 
resentations made  by  its  cashier  in  the  ordinary  course  of  busi- 
ness as  to  the  payment  of  a  note  in  the  bank,  upon  the  faith  of 
which  the  maker  of  the  note  may  have  acted. '^  It  may  be  shown 
by  parol  tliat  a  check  signed  by  one  who  is  the  cashier  of  a  bank 
in  his  own  name  only  is  the  check  of  the  bank.^  The  assignee  of 
a  bank,  it  has  been  held,  could  not  recover  the  securities  deUvered 
by  a  casliier  as  collateral  for  money  borrowed  on  the  bank's  note 
from  the  lender.^  Receiving  offers  for  purchase  of  securities 
held  by  a  bank,  and  a  statement  whether  or  not  the  bank  owns 
securities  in  its  possession,  are  within  the  scope  of  the  general 
authority  of  its  cashier."*  The  act  of  a  cashier  in  certifying  a 
check  given  as  collateral  security  for  the  delivery  of  oil,  "  good 
when  properly  indorsed,"  has  been  held  not  to  have  rendered  the 
bank  liable,  as  his  act  was  outside  his  proper  powers  and  duties.' 
Evidence  of  the  custom  of  bankers  where  a  bank  is  located  to 
borrow  money  on  time  is  competent  in  an  action  against  bankers 
upon  a  note  given  by  their  cashier  for  money  borrowed  which  he 
may  have  appropriated  to  his  own  use,  as  tending  to  show  that 
the  act  was  within  the  scope  of  the  ordinary  and  customary  busi- 
ness of  the  bankers.*^  A  bank  is  not  exonerated  from  its  liability 
for  money  borrowed  by  the  fact  that  its  cashier  may  have  given 
his  own  note  for  money  borrowed  by  him  for  the  bank.®  The 
provisions  in  the  charters  of  certain  banks  in  Georgia  requiring 
all  contracts  whatever  to  be  signed  by  the  president  and  counter- 
signed by  the  cashier  in  order  to  bind  the  banks  were  held  by 
the  Supreme  Court  of  that  state  not  to  apply  to  such  dealings  and 
transactions  as  are  usually  and  necessarily   performed   by   the 


ment  of  overdrafts  by  a  cashier  being 
a  violation  of  his  duty,  see  Bank  r. 
Calder,  3  Strob.  (S.  C.)  403. 
» McDermott  v.  Bank,  100  Pa.  St.  287. 

*  Manufacturers'  Bank  ».  Scofield, 
39  Vt.  590. 

•  Mechanics'  Bank  v.  Bank  of  Colum- 
bia. 5  Wheat.  326. 

*Creswell  v.  Lanahan,  101  U.  8. 
347.  What  is  necessary  to  show  a 
cashier's  authority  to  borrow  money  for 


the  bank .  Ringling  v.  Kohn,  (1878)  6 
Mo.  App.  333;  Donnell  v.  Lewis  Co. 
Savings  Bank,  (1883)  80  Mo.  165. 

'National  Bank  of  Xenia  v.  Stew- 
art, 114  U.  S.  224. 

•  Dorsey  v.  Abrams.  85  Pa.  St.  299. 

'Crain  v.  National  Bank,  114  111. 
516. 

"  City  Bank  of  New  Haven  v.  Per- 
kins, (1859)  4  Bosw.  420. 


§307] 


OFFICEfiS  OF  BANKS. 


573 


cashier  of  a  bank,  such,  for  instance,  as  the  drawing  or  indorsing 
by  a  cashier  in  connection  with  bills  of  exchange,  checks  and 
drafts.*     A  cashier  may,  ex-qfficio,  indorse  a  note  the  property 
of  the  bank  so  as  to   authorize  a  demand   and   notice   to  the 
indorser.^     In  the  course  of  his  ordinary  duties,  the  cashier  of  a 
bank,  virtute  officii,  may  transfer  the  paper  securities  of  the  bank 
in  payment  of  the  debts  of  the  bank.     The  inducement  for  such 
indorsement  of  the  papers  need  not  appear ;   in  the  absence  of 
proof  to  the  contrary  the  presumption  would  be  in  favor  of  the 
propriety  of  the  transfer.     But  such  an  inference  would  not  be 
conclusive.     A  party  interested  would  be  authorized  to  contro- 
vert the  fairness  of  the  transfer  by  showing  that  it  was  not  made 
in  the  regular  course  of  business,  but  in  prejudice  of  the  rights 
and  interests  of  the  bank,  and  thus  defeat  the  transfer.^    The 
exercise  by  the  cashier  of  a  bank  of  his  power  to  pledge  the 
negotiable  securities  belonging  to  the  bank  is  jprima  facie  evi- 
dence that   he  had   the  power.^      Without  authority   from  his 
bank,  evidenced  by  a  resolution  of  the  board  of  directors,  usage 
in  like  cases,  or  in  some  other  way,  a  cashier  cannot  transfer  non- 
negotiable   paper. ^     But   he  has  authority   growing  out  of  his 
peculiar  relation  to  the  bank  and  his  duties  resulting  therefrom 
to  transfer  negotiable  paper  belonging  to  the  bank  for  a  legiti- 
mate purpose.®     A  cashier  can  invest  no  clerk  of  the  bank  with 
any  more  of  his  power  than  is  necessary  to  enable  the  clerk  to 
carry  on  the  usual  and   ordinary  business  of  the  bank.     A  clerk 
acting  as  cashier  in  the  absence  of  that  officer  has  no  authority, 
unless  conferred  upon  him  by  the  directors,  to  transfer  notes  or 


^  Merchants'  Bank  «.  Central  Bank, 
1  Ga.  418;  Cary,  Assignee,  'c.  McDou- 
gald,  7  Ga.  84. 

*  Hartford  Bank  «?.  Barry.  (1821)  17 
Mass.  94;  Folger  ®.  Chase,  (1836)  18 
Pick.  (Mass.)  63. 

3  Everett  is.  United  States,  6  Port. 
(Ala.)  166.  As  to  the  power  of  a  cash- 
ier of  a  bank  to  transfer  its  notes  and 
assets  in  payment  of  the  bank's  indebt- 
edness, see  Kimball  ij.  Cleveland,  4  Mich. 
606;  Peninsular  Bank  p.  Hanmer,  14 
Mich.  208.  Whether  the  power  to  ap- 
ply the  assets  in  this  way  includes  the 
power  to  guarantee  their  collection  or 
invalidity  was  questioned  in  the  last 


case.  As  to  the  powers  of  a  cashier  in 
discharging  and  transferring  securi- 
ties, etc. ,  of  the  bank,  see  State  xi.  Com- 
mercial Bank  of  Manchester,  6  Smedes 
&  Marsh.  (Miss.)  218;  Harper  v.  Cal- 
houn, 7  How.  (Miss.)  203;  Crocket  ©. 
Young,  1  Smedes  &  Marsh.  (Miss.) 
241. 

*  Mercantile  Bank  n.  McCarthy, 
(1879)  7  Mo.  App.  318;  Bank  of  State 
«.  Wheeler,  21  Ind.  90. 

*»  Barrick  v.  Austin,  (1855)  21  Barb. 
241. 

®Bank  of  New  York  t.  Bank  of 
Ohio,  (1864)  29  N.  Y.  619. 


I 

•n' 


¥ 


tff  k" 


574 


OFFICEKS  OF  BANKS. 


[§30T 


!  If 


securities  of  the  bank.^  A  clerk  thus  temporarily  acting  for  the 
cashier  may  transmit  notes  owned  by  the  bank  or  held  for  collec- 
tion to  the  bank's  agents  for  that  purpose,  and  to  vest  in  the  col- 
lecting agents  such  title  as  is  necessary  and  proper  to  accomplish 
that  object.  But  he  has  no  power  to  transfer  any  other  or  higher 
title  thereto,  and  the  agents  of  the  bank  will  not,  as  against  the 
bank,  acquire  any  lien  on  tlie  notes  for  any  balance  due  from  the 
bank.-  As  its  executive  officer,  a  cashier  of  a  bank  has  authority 
to  take  such  measures  for  the  security  and  eventual  collection  of 
a  debt  of  the  bank  as  he  deems  proper,  and  to  act  in  reference  to 
the  collection  or  compromise  of  the  debt  according  to  the  general 
usage,  practice  and  course  of  business.^  A  cashier  of  a  bank  has 
power,  prima  facie^  to  indorse  for  collection  notes  discounted 
and  notes  deposited  with  the  bank  to  be  collected  or  deposited  as 
collateral  security.*  But  he  cannot  indorse,  without  special 
authority,  a  note  made  payable  to  a  bank  and  discounted  by 
another  person.^  A  cashier  may  bind  a  bank  for  costs  incurred 
in  the  collection  of  a  note  which  he  has  indorsed  for  collection.* 
That  it  was  the  usage  of  a  bank,  or  that  the  bank,  through  its 
directors,  had  adopted  his  act,  if  proven,  would  be  a  sufficient 
authority  for  the  satisfaction  of  judgments  in  favor  of  the  bank 
by  its  cashier,  although  he  may  have  no  authority  under  seal  or 
in  writing  to  satisfy  such  judgments.^  A  cashier  has  no  power 
to  accept  bills  of  exchange  on  behalf  of  the  bank  for  the  accom- 
modation merely  of  the  drawers.®  A  bank  will  be  bound  by 
the  official  signature  of  its  cashier  to  a  negotiable  note.*  A  bank 
may  be  held  liable  for  a  loan  obtained  on  its  account  for  which 
the  personal  note  of  its  cashier  may  be  given  on  a  count  for 
money  had  and  received.*®  Unless  the  power  to  accept  has  been 
conferred  upK)n  him  by  the  corporation,  a  bank  will  not  be  bound 


•Potter  t.  Merchants'  Bank,  (1864) 
28  N.  Y.  Wl. 

« Ibid. 

» Bridenbecker  t.  Lowell,  (1860)  32 
Barb.  9. 

*  Elliot  t.  Abbot,  12  N.  H.  549; 
Corser  t?.  Paul,  41  N.  H.  24,  26. 

"» Cross  r.  Rowe,  22  N.  H.  77. 

•  Eastman  v.  Coos  Bank,  1  N.  H.  23, 
25.  As  to  the  power  of  a  cashier  of  a 
bank  to  collect  a  note  due  it  and  to 
adopt  such  measures  as  may  be  neces- 


sary to  that  end,  see  Young  d.  Hudson, 
(1889)  99  Mo.  102. 

'  Bancroft  t>.  Wilmington  Conf. 
Academy,  5  Houst.  (Del.)  577. 

•Farmers',  etc..  Bank  n.  Troy  City 
Bank,  1  Dougl.  (Mich.)  457. 

•Rockwell  V.  ElkhomBank,  13 Wis. 
653;  Ballston  Spa  Bank  v.  Marine  Bank, 
16  Wis.  120. 

'°  Chemical  Nat.  Bank  of  Chicago  f . 
aty  Bank  of  Portage,  (111.  1895)  40  N. 
E.  Rep.  328. 


i'  :^.07] 


OFFICERS  OF  BANKS. 


575 


by  its  casliier's  acceptance  of  a  bill  of  exchange  in  his  official 
capacity.*     A  cashier  of  a  bank  has  no  power  to  transfer  judg- 
ments  in    favor   of   the  bank,  or   to  dispose  of    its    property .^ 
N"either  has  he  power  to  discount  a  note ;  but  if  he  discount  a 
note  his  act  will  be  valid,  if  afterwards  ratified  by  the  bank.^    By 
his  general  power  to  certify  checks,  a  cashier  of  a  bank  is  not 
authorized  to  certify  a  post-dated  check.^     The  general  powers  of 
its  cashier  do  not  include  authority  to  bind  a  bank  to  indemnify 
an  officer  for  levying  on  property.^     There  is  no  implied  power 
in  a  cashier  of  a  bank  to  pledge  its  assets  for  payment  of  an  ante- 
cedent debt.*     K   cashier  of  a   bank  as  such  has  no   power  to 
accept  a  note  signed  by  two  parties  only,  in  payment  and  discharge 
of  a  note  upon  which  another  party  was  also  bound  with  the  two, 
so  as  to  release   the  third   party  from  his   indebtedness  to  the 
bank.'     Neither  can  he,  virtute  ojficii,  release  a  surety  upon  a 
note,  even  though  the  bank  holds  other  security  to  which  it  might 
resort,  nor  make  collateral  contracts  or  ai^reements  of  anv  kind.^ 
it  is  not  within  the  ordinary  scope  of  the  duties  of  a  cashier  of  a 
bank  to  discharge  a  surety  <jn  a  debt  due  the  bank.*     A  cashier 
of  a  bank  caimot,  by  reason  of  the  general  authority  he  may  have 
to  certify  checks,  certify  his  own   checks  or  issue  certificates  of 
<leposit  to  himself.**^     It  would  be  beyond  the  scope  and  power  of 
the  cashier  of  a  private  bank  (himself  a  partner)  to  enter  credits 
upon  the  bank  book  of  a  dej)ositor  without  any  check,  bill  or  note 
l)eing  presented  for  discount.     Should  he  enter  the  credits  on  the 
books  of  the  bank  and  the  depositor  be  permitted  to  draw  the 
money,  the  bank  would  be  estopped  from  setting  up  the  want  of 
authority  in  the  cashier ;  but  it  would  be  otherwise  as  to  credits 
not  entered  on  the  books  of  the  bank,  though  duly  entered  on  the 


*  Pendleton  v.  Bank  of  Kentucky, 
(1824)  1  Mon.  (Ky.)  179. 

•Holt  D.  Bacon,  3  Cushman,  (Miss.) 
567. 

■  Planters'  Bank  r.  Sharpe,  4  Smedes 
«&  Marsh.  (Miss.)  75. 

*  Clarke  National  Bank  v.  Bank  of 
Albion,  (1868)  52  Barb.  592. 

*  Watson  V.  Bennett,  (1851)  12  Barb. 
196. 

*  State  of  Tennessee  r.  Davis,  (Sup. 
Ct.  N.  Y.  Spl.  Term,  1874)  50  How. 
Pr.  447. 


'Ecker  t.  Firet  National  Bank  of 
New  Windsor,  (1882)  59  Md.  291, 
303. 

8  Ibid. 

'  Daviess  Co.  Savings  Association  v. 
Sailor,  (1876)  63  Mo.  24.  That  a  cashier 
has  no  power  to  discharge  a  surety  on 
bank  paper,  see  Cocheco  National  Bank 
r.  Haskell,  51  N.  H.  116.  Release  of 
surety  by  cashier.  Merchants'  Bank  v. 
Rudolf,  5  Neb.  540. 

•"Lee  T.  Smith,  (1884)  84  Mo.  304. 


W 


576 


OFFICERS  OF  BANKS. 


[§  3UT 


depositor's  pass  book.^  The  cashier  of  a  national  bank  which 
holds  the  paper  of  a  firm  of  which  he  was  a  member,  it  has  been 
lield,  could  not  waive  liability  on  an  accommodation  note  procured 
by  him  to  be  substituted  for  the  indebtedness  of  his  lirm.'  A 
cashier  of  a  bank  cannot  bind  it  as  an  accommodation  indorser  on 
his  individual  note.*  Neither  can  he  bind  the  bank  by  assurances 
that  would  release  parties  from  their  liability  on  a  note  held  by 
the  bank/  The  act  of  an  assistant  cashier  of  a  bank,  prohibited 
by  the  bank  to  certify  cliecks,  in  accepting  a  post-dated  check 
without  any  usage  to  justify  it,  would  be  void,  even  as  toward  a 
honajide  holder.^  A  director  in  a  savings  institution  of  West 
Virginia,  by  collusion  with  other  directors  and  the  co-operation 
of  the  cashier,  when  he  knew  the  institution  was  insolvent,  with- 
drew a  deposit  of  a  large  sum  of  money  which  he  had  had  for 
some  length  of  time  in  the  institution  at  interest.  The  money 
was  not  paid  to  the  Avhole  amount,  but  the  cashier  paid  him  in 
bills  and  notes  which  had  been  discounted  by  the  bank  and 
belonged  to  it.  The  bank  having  made  an  assignment  to  one  for 
the  beneiit  of  its  creditors,  he  brought  his  action  against  the 
director  to  recover  the  amount  which  he  had  received  on  the 
ground  of  the  fraud  and  other  wi'ongdoing  by  which  it  was  accom- 
plished. The  Court  of  Appeals  of  West  Virginia  held  that  this 
assignee  or  trustee  was  entitled  to  recover  in  proper  action  the 
amount  of  deposits  which  this  director  had  withdrawn  under  the 
circumstances  disclosed  in  the  case.®    In  an  action  by  a  Nebraska 

» Williams  v.    Dorrier,  135  Pa.    St.    tended  that  he  had  any  such  authority 


445. 


»  Allen  V.  Bank,  127  Pa.  St.  51. 
*West  St.   Louis  Savings  Bank  v. 


from  the  board  of  directors.  The  whole 
record  is  against  any  such  presump- 
tion as  this.     Did  he  then,  virtute  of- 


Shawnee  County  Bank,  95  U.  S.  557.  ficii,  have  the  right  to  dispose  of  the 

*Bank  of    Metropolis    v.   Jones,  8  discounted  bills  and  notes  of  the  bank? 

Pet.  12.  There  is  nothing  in  the  charter  of  the 

'  Pope  f).  Bank  of  Albion,  (1874)  57  institution  conferring  that  right  upon 

N.  Y.  126.  him.     The  management  is  there  con- 

•Lamb   r.  Cecil,  (1884)   25  W.  Va.  ferred  upon  a  board  of  directors.    The 

288.     It  was  necessary  in  determining  Court  of  Appeals  of  New   York,  in 

this  question  for  the  court  to  discuss  Hoyt  v.  Thompson,  1  Seld.  320,  held 

the  question  of   the   power   and  au-  that  where  the  management  of  the  af- 

thority  of  a  cashier  to  dispose  of  the  fairs  of  a  corporation  is  intrusted  by 

discounted  bills  and  notes,  the  prop-  its  charter  to  a  boanl  of  directors,  the 

erty  of  the  bank.     Upon  that  question  president  and  cashier,  unless  specially 

it  was  said  by  Johnson,  President,  authorized  by  the  charter,   have  no 

speaking  for  the  court:  "  It  is  not  pre-  power  to  assign  the  choses  in  action  of 


§307] 


OFFICERS  OF  BANKS. 


577 


i 


bank  upon  a  note  the  maker,  as  a  defense,  claimed  pavment  of 
the  balance  due  on  the  note,  in  that  he  had  sold  to  Ithe  bank 
through  its  cashier  certain  shares  of  stock  in  an  insurance  company, 
the  cashier  promising  at  the  time  that  he  would  credit  them  on  the 
note  when  it  should  be  returned  from  another  city,  where  it  then 
was.     The  Supreme  Court  of  Nebraska  held  that  the  cashier,  by 
virtue  of  his  office,  had  not  the  power  to  accept  the  stock  of  'the 
insurance  company  in  payment  of  the  debt  due  tlie  bank,  but 
that  power,  if  it  existed,  was  lodged  in  the  directory,  and,  as  it 
had  not  expressly  authorized  the  cashier  thereto,  he  exceeded  his 
power  in  agreeing  to  accept,  on  behalf  of  lys  principal,  the  insur- 
ance  company  stock  in  payment  of  the  debt  due  the  bank,  and 
that  the  bank  was  not  bound  thereby.^ 


the  corporation  to  its  creditors  as  secu- 
rity for  the  payment  of  a   precedent 
debt  of  the  corporation  without  au- 
thority from  the  board  of  directors. 
An  assignment  so  made  is  not  merely 
voidable,  but  is  absolutely  void.    Rug- 
GLES,  Ch.  J.,  in  delivering  the  opinion 
of  the  court,  said:  But  the  power  and 
duties  of  the  president  and  cashier  are 
not    prescribed    by    the   charter;    no 
power  is  conferred  upon  them  to  mort- 
gage, assign  or  dispose  of  the  property 
of  the  corporation.     This  is  a  part  of 
the  management  of  the  business  of  the 
company  which  is  confined  expressly 
to  the  directors,  but  not  to  the  presi- 
dent and  cashier.     In  no  case  has  it 
been  held  that  these  officers  are  author- 
ized to  do  an  act  like  that  in  question 
without  the  as.sent  and  authority  of 
the  directors.     To  the  same  effect  is 
Spear  t.  Ladd,  11  Mass.  94,  and  Bank 
f.  Pepoon,  11  Mass.  288.     Indeed,  in 
the  first  of  these  cases  it  was  gravely 
considered   whether  the  board  of  di- 
rectors could  confer  such  powers  on  the 
president  and  cashier;  and,  in  the  sec- 
ond, whether  they  could  confer  it  on 
any  attorney.     In  the  last-named  case, 
Parker,  Ch.  J.  (p.  292),  said:  'This 
power  puts  the  whole  property  of  the 
bank  under  the  control  of  the  directors, 
and  without  doubt  the  power  may  be 

73 


abused.    But  the  stockholders  should 
provide  against  this  evil  in  the  choice 
of  directors.    Having  this  power,  there 
is  no  reason  why  it  should  not  be  ex- 
ercised by  one  of  the  body  with  the 
consent  of  the  rest,  expressed  by  their 
vote.     We  are  satisfied,  therefore,  that 
the  directors  might  by  their  vote  or 
power  of  attorney  authorize  the  presi- 
dent or  any  other  officer  of  the  bank  to 
assign  over  the  promissory  notes  pay- 
able to  the  company.'     In  Fleckner  c. 
U.  S.  Bank,  8  WTieat.  338,  it  was  held 
that  the  authority  of  the  cashier  to 
assign  a  note  of  the  bank  need  not  be 
under  the  corporate  seal,  but  that  a 
resolution  passed  by  the  directors  was 
sufficient  authority  for  the  cashier.     I 
can  find  no  authority  which  holds  that 
the  cashier,  without  authority  from  the 
directors,  can  dispose  of  the  discounted 
bills  and  notes  of  the  bank.     It  would 
be  a  dangerous  power,  indeed,  to  re- 
pose in  an  officer  of    the  bank.     It 
would  put  a  large  part  of  the  property 
of  the  bank  under  the  absolute  control 
of  the  cashier  or  other  officer  exercis- 
cising  such  power;  and  he  might,  for 
his  own  use,  dispose  of  such  property 
and  pass  good  title  thereto." 

'  Bank  of  Commerce  v.  Hart,  (1893) 
37  Xeb.  197.  Ryax,  C,  speaking  for 
the  court,  as  leading  to  and  supporting 


■*t 


578 


OFFICEES  OF  BANES. 


[§30S 


§308] 


I" 


§  308.  Cashier's  liability  for  his  acts.  —  A  cashier  applying 
to  his  use  securities  of  a  bank  will  be  liable  on  his  bond  for  the 
full  amount.*  And  a  misapplication  by  such  officer  of  funds 
delivered  to  him  out  of  business  hours  and  remote  from  the  bank- 
ing house,  will  be  a  violation  of  the  condition    of   his  official 


their  conclusion,  made  reference  to 
leading  authorities,  as  follows:  "In 
Sandy  liiver  Btmk  i\  ^lerchants  & 
Mechanics'  I^uk,  1  Biss.  146,  the  facts 
were:  The  cashier  of  the  3Iechanics' 
Bank  settled  an  account  of  twenty-two 
thousand  dollars  with  the  cashier  of 
the  Sandy  River  Bank,  by  paying  ten 
thousand  dollars  cash  and  giving 
twelve  thousjind  dollars  private  paper, 
which  the  cashier  of  the  Sandy  River 
Bank  accepted  in  payment,  and  gave 
a  receipt  in  full.  The  Sandy  River 
Bank  brought  its  action  against  the 
Merchants  and  Mechanics'  Bank  on  the 
account.  The  latter  pleaded  payment 
by  the  contract  with  the  cashier.  The 
question  in  the  case  was  whether  the 
cashier  had  authority  to  receive  in  pay- 
ment anything  but  money.  In  the 
course  of  the  opinion  delivered,  the 
judge  said:  *  A  cashier  of  a  bank  is 
ordinarily  the  executive  of  the  bank. 
He  is  the  agent  through  whom  third 
persons  transact  their  business  with  the 
bank.  The'bank  generally  holds  him 
out  to  the  world  as  having  authority 
to  act  according  to  the  general  usage, 
practice  and  course  of  business,  and 
all  acts  done  by  him  within  the  scope 
of  such  usages,  practice  and  course  of 
business,  bind  the  bank  as  to  third 
persons  who  transact  business  with 
him  on  the  faith  of  his  official  char- 
acter; and  perhaps  it  may  be  presumed 
without  proof,  and  merely  from  his 
oflSiee,  that  he  is  authorized  to  receipt 
and  discharge  debts,  and  deliver  up 
securities  on  payment  or  discharge  of 
the  debt  for  which  they  are  held. 
*    *    *    But  still  this  authority  is  a 


limited  authority,  and  when  a  party 
claims  a  discharge  from  a  debt  due  the 
bank,  not  by  payment,  but  by  giving 
other  or  diflferent  notes,  bills  or  secu- 
rities, which  the  cashier  has  agreed  to 
take  and  release  the  debt,  his  author- 
ity, like  that  of  any  other  agent,  must 
be  shown  by  proof.  As  a  general 
rule,  a  jury  have  not  a  right  to  infer 
that  the  cashier  of  a  bank,  as  such,  has 
the  authority  to  compromise  and  dis- 
charge debts  without  payment  or  by 
taking  other  securities,  but  the  author- 
ity from  the  bank  must  be  shown  ex- 
pressly or  by  necessary  implication,  or 
it  must  *  *  *  be  established  by 
the  particidar  usage  or  practice  or 
mode  of  doing  business  of  the  bank, 
or  it  must  be  ratified  or  acquiesced  iu 
by  the  bank  in  order  to  be  binding.* 
In  United  Sttites  t>.  City  Bank  of 
Columbus,  21  IIow.  356,  the  facts  were: 
The  cashier  of  the  Columbus  Bank 
gave  to  one  of  its  directors.  Miner,  a 
letter  to  the  secretary  of  the  treasury 
of  the  United  States,  to  the  effect  that 
Miner  had  authority  to  contract  in  be- 
half of  the  bank  for  the  transfer  of 
money  for  the  government.  Relying 
upon  this  letter,  the  secretary  of  the 
treasury  made  a  contract  with  Miner 
for  him  to  transfer  one  hundred 
thousand  dollars  of  the  government's 
money  from  New  York  to  New  Or- 
leans. Miner  received  the  money,  but 
never  delivered  it.  The  United  States 
brought  suit  against  the  Columbus 
bank  to  recover  the  money.  The 
Supreme  Court  of  the  United  States 
decided  that  the  action  could  not  be 
successfully  maintained,  as  the  cashier 


OFFICERS  OF  BANKS. 


579 


bond.*  A  cashier  of  a  banking  corporation,  having  authority  to 
loan  the  money  of  the  bank,  with  or  without  security,  has  been  held 
in  California  liable  for  losses  arising  from  loans  without  security  not 
entered  in  the  books  of  the  bank  nor  reported  to  the  board  of 


of  the  Columbus  bank  had  no  author- 
ity to  make  such  a  contract,  and  there 
was  no  proof  that  the  board  of  di- 
rectors  had    authorized    it.      In    the 
course  of  the  opinion  Justice  Swayne 
said:  '  The  court  defines  the  cashier  of 
a  bank  to  be  an  executive  officer  by 
whom  its  debts  are  received  and  paid, 
and  its  securities  taken  and  transfer- 
red, and  that  his  acts,  to  be  binding 
upon  a  bank,  must  be  done  within  the 
ordinary  course  of  his  duties.    *    *    * 
The  term  'ordinary  business,'  with  di- 
rect reference  to  the  duties  of  cashiers 
of  banks,  occurs  frequently  in    *    *   * 
reports  of  the  decisions  of  our  state 
courts,  and  in  no  one  of  these  has  it 
been  judicially  allowed  to  comprehend 
a  contract  made  by  a  cashier,  without 
an  express  delegation  of  power  from  a 
board  of  directors  to  do  so,  which  in- 
volves the  payment  of  money,  unless 
it  be  such  as  has  been  loaned  in  the 
usual  and  customary  way.     Nor  has 
it  ever  been  decided  that  a  cashier 
could  purchase  or  sell  the  property  or 
create  an  agency  of  any  kind  for  a 
bank  which  he  had  not  been  author- 
ized to  make  by  those  to  whom  has 
been  confided  the  power  to  manage  its 
business,    both    ordinary   and  extra- 
ordinary.'    The  court  then  addressed 
itself  to  the  case  at  bar,  and  said:  The 
power  of  this  bank  to  purchase  stock 
in  an  insurance  company,  if  it  exists 
at  all,  is  an  extraordinary  power  and 
one  not  confided  to  the  cashier,   but 
belonging  to  the  directory.     In  The 
Bank  of  Healdsburg  v.  Bailhache,  65 
Cal.  329,  it  is  said  that  the  power  to 
make  a  settlement  of  defalcation  to  a 
bank,  and  accept  a  deed  of  real  es- 


» Pendleton   r.   Bank  of   Kentucky,  (1824)  1  Mon.  179. 


Ibid. 


tate  in  satisfaction  and  release,  is  the 
function  of  the  board  of  directors  and 
not    of    any    individual    director    or 
officer.     It  has  also  been  decided  that, 
in  the  absence  of   special  authority, 
the  cashier  of  a  bank  could  not  release 
the  surety  from  a  note  owned  by  the 
bank.     Merchants'  Bank    v.   Rudolf, 
5  Neb.  527;   Cocheco  National  Bank 
V.  Haskell,  51  N.  H.  116.     That  in  the 
absence  of  special  authority  or  estab- 
lished usage  the  cashier  has  no  power 
to  compromise  claims  due  his  bank. 
Chemical  National  Bank  v.   Kohner, 
8  Daly,  530.     That  he  had  no  author- 
ity to  bind  his  bank  by  issuing  a  cer- 
tificate of  deposit  to  himself.     Lee  v. 
Smith,  84  Mo.  304.     Nor  bind  the  bank 
by  an  official  indorsement  of  his  own 
note.     West  St.  Louis  Savings  Bank  v. 
Shawnee  County  Bank,  95  U.  S.  557. 
The  cashier  of  the   [plaintiff  bank], 
then,  as  the  executive  officer  of  the 
bank,  was  clothed  with  authority  to 
collect  all  debts  due  the  bank,  but  this 
means    collections    in    money.     If   a 
cashier  may  discharge  the  debts  due 
his  bank  by  exchanging  the  evidences 
of  them  for  stocks  of  an  insurance  com- 
pany or  a  gas  company,  then  he  can, 
under  the  name  and  charter  of  the 
bank,   conduct  an    entirely  different 
business,  and  use  the    funds  of  his 
stockholders  for  a  purpose  for  which 
they  were  never  subscribed,  and  in 
violation  of  the  law  of  the  bank's  cre- 
ation.    The  purposes  for  which  [this 
bank]  was  organized,  as  expressed  in 
its  articles  of  incorporation,  were  to 
receive  deposits  of  money  and  pay  the 
same  out  on  proper  vouchers ;  to  loan 
money  on  personal  security ;  to  issue 


»  , 


580 


OFFICERS  OF  BANKS. 


[§30g 


trustees,  but  treated  in  his  reports  to  the  board  as  cash  on  hand.* 
The  obligors  upon  a  bond  of  the  cashier  of  a  bank  under  a  condition 
for  him  "  safely  and  securely  to  keep  all  moneys  deposited,  and  to 
refund  and  pay  over  the  same  when  properly  required,"  will  not 
be  held  liable  for  money  violently  robbed  from  him  while  in  the 
discharge  of  his  duty.'  A  bond  of  a  casliier  of  a  bank  framed  to 
<*overpast  as  well  as  future  delinquencies  will  be  invalid  against  a 
surety,  if  his  name  was  procured  at  the  desire  of  the  directors 
where  they  have  knowledge  that  past  defalcations  exist  of  which 
the  surety  may  be  ignorant  and  withhold  the  knowledge  from  him 
when  they  have  a  suitable  opportunity  to  communicate  it.^  A 
cashier  of  a  bank  employed  to  sell  certain  shares  of  its  stock  at  a 
fixed  price,  but  before  he  had  completed  the  sale,  the  bank  was 
enjoined  and  proved  insolvent,  has  been  held  not  to  be  responsible 
for  the  supposed  value  of  the  stock,  no  negligence  on  his  part  in 
forwarding  the  sale  being  shown.*  Where  a  bank  brings  an 
action  against  its  cashier  for  a  wrongful  appropriation  of  moneys, 
it  would  be  no  defense  that  at  the  time  of  the  appropriation  he  was 
the  owner  of  four-iifths  of  the  stock  of  the  bank  and  had  since 
that  time  sold  all  of  his  stock  to  other  parties  who  were  now  the 
officers  and  managing  authority  of  the  bauk.^     The  condition  of 


drafts  or  letters  of  credit;  to  buy  and 
sell  securities  of  every  kind,  and  do  a 
general  banking  business.  Had  this 
charter  expressly  provided  that  the 
corporation  might  invest  its  funds  in 
stocks  of  insurance  companies  and  deal 
generally  in  stocks  of  other  corpora- 
tions, such  a  provision  would  have  been 
contrary  to  the  laws  of  the  state  and 
void.  But  there  is  no  provision  in  the 
bank's  charter  which  by  any  reason- 
able construction  can  be  construed  into 
an  authority  to  purchase  and  hold  the 
stocks  of  any  other  corporation.  True, 
it  says  'to  purchase  securities  of  every 
kind,'  but  certificates  of  stock  are  not 
securities  within  the  meaning  of  this 
provision,  nor  such  as  the  word  imports 
in  commercial  or  banking  phraseology. 
'Securities,'  as  here  used,  means  notes, 
bills,  evidences  of  debt,  promises  to  pay 
money."  As  to  the  authority  of  a  sav- 
ings bank's  treasurer,  having  power  to 


collect  its  debts,  under  orders  of  the 
board  of  investment,  to  execute  a 
power  of  stile  under  a  mortgage  to  the 
bank,  by  conveying  to  a  purchaser, 
see  North  Brookfield  S«iv.  Bank  v. 
Flanders,  (Mass.  1894)  37  N.  E.  Rep. 
307.  See,  also.  Bank  v.  Keavy,  128 
Mass.  298;  Holden  r.  Upton,  134  Mass. 
177,  179;  Trustees  of  Smith  Charities 
V.  Connolly,  157  Mass.  272;  s.  C,  31  N. 
E.  Rep.  1058. 

*  San  Joaquin  Valley  Bank  v.  Bours, 
(1884),  65  Cal.  247. 

» Bank  of  Huntsville  v.  Hill,  1  Stew. 
(Ala.)  201. 

3  Franklin  Bank  v.  Cooper,  36  Me. 
179;  Franklin  Bank  v.  Stevens,  39  Me. 
532;  Franklin  Bank  v.  Cooper,  39  Me. 
542. 

*  Washburn  v.  Blake,  47  Me.  316. 
'First    National    Bank    v.    Drake» 

(1883)  29  Eans.  311. 


§308] 


OFFICEE8  OF  BANKS. 


581 


the  bond  of  the  cashier  of  a  state  bank  as  required  by  the  statute 
of  Indiana  is  that  he  "  will  honestly  and  faithfully  discharge  fhisl 
duties  as  such  [officer]     *     *     ^    during  [his]  continuance  in 
oftice.       This  was  an  action  against  the  casliier  of  a  bank  and  his 
sureties  upon  his  official  bond,  and  his  acts  complained  of  were 
that  he  converted  different  amounts  of  the  large  sums  of  money 
coming  into  his  hands  to  his  own  use,  as  alleged  in  one  paragraph 
of  the  complaint.     In  another  it  was  alleged  that  pursuant  to  the 
by-laws  of  the  bank  it  had  organized  an  "  exchange  committee 
composed  of  its  president,  cashier  and  a  designated  director  •  that 
the  by-laws  further  provided  that  the  cashier  should  not  make 
loans  m  excess  of  five  hundred  dollars  without  the  approval  of 
such  committee  or  one  member  besides  himself."     It  was  further 
alleged  that  as  cashier  that  officer,  in  violation  of  his  trust  and 
the  said  by-laws,  loaned  and  otherwise  disposed  of  large  sums  of 
money  belonging  to  the  bank,  which  were  wholly  lost.     Various 
other  breaches  of  the  bond  were  charged  in  allowing  overdrafts 
of  customers,  making  loans  in  violation  of  his  trust  and  the  rules 
and  regulations  of  the  bank ;  also,  that  by  a  conspiracy  with  two 
others,  large  sums  of  money  were  withdrawn  from  the  vaults  and 
invested  in  "options"  and  " bucket-shop  deals "  so-called-  with 
further  allegations  of  the  entire  loss  of  such  moneys  and  the  con- 
cealment on  his  part  of  these  transactions  from  the  other  officers 
of  tlie  bank.     The  sureties,  in  their  answer,  admitted  these  alle- 
gations, but  alleged  that,  in  violation  of  its  duty  and  the  require- 
ment of  the  by-laws  in  force  when  the  bond  sued  on  was  exe- 
cuted, the  bank  failed  to  organize  an  "  exchange  committee,"  and 
because  of  such  failure  the  duties  of  the  cashier  were  delayed 
and,  as  the  result,  the  various  breaches  of  duty  and  losses  com- 
plained of  ensued,  and  hence  they  were  not  liable.     Berkshire, 
l-l''\^^^^^premeCourt,  in  the  opinion,  said  of  this  answer: 
ihe  basal  rock  upon  which  these  paragraphs  of  the  answer  rest 
18  the  allegation  that  there  was  no  exchange  committee  organized 
as  required  by  the  by-laws;"  and  afterwards:  «  But  the  answers 
themselves  disclose  the  existence  of  the  '  exchange  committee ' 
provided  for  in  the  by-laws.     They  show  that  this  committee  was 
^  be  composed  of  the  cashier,  president  and  a  designated  director. 
Ihe  committee  was  composed  of  three  members;  the  by-laws 
named  two  of  them,  or  a  majority ;  the  failure  to  name  a  director 
tor  that  committee  did  not  deprive  the  committee  of  its  powers  • 


. 


^ : , 


i«i 


582 


OFFICERS  OF  BANKS. 


[§  309 


the  two  had  power  to  act.  Besides,  the  by-laws  provided  that 
the  cashier  was  at  Uberty  to  take  any  legitimate  action  in  dispos- 
ing of  the  funds  of  the  bank  with  the  approval  of  its  president ; 
hence,  the  approval  of  the  chief  officer  would  have  been  the 
cashier's  justification  as  to  any  such  transaction.  But  if  it  were 
conceded  that  the  bank  had  entirely  failed  to  provide  for  an 
'exchange  committee'  and  in  the  absence  of  such  committee 
that  tlie  cashier  had  exclusive  and  complete  authority  to  transact 
any  and  all  of  the  business  of  the  bank,  tliis  would  not  relieve  his 
sureties  from  liability  because  of  his  fraudulent  conduct  in  con- 
nection with  [co-conspirators],  whereby  large  sums  of  money 
belonging  to  the  bank  were  invested  in  illegitimate  transactions. 
Under  no  circumstances  was  the  cashier  authorized  to  dispose  of 
the  funds  of  the  bank  for  such  purposes.  With  or  without  the 
approval  of  an  *  exchange  committee,'  such  as  provided  for,  this 
was  a  clear  violation  of  duty  and  rendered  his  sureties  liable." 
The  court  further  held  that  an  agreement  by  the  board  of  direct- 
ors, after  the  execution  of  the  cashier's  bond,  enlarging  his  duties, 
and  increasing  his  salary,  but  not  changing  the  character  of  his 
duties,  or  his  relation  to  the  bank  as  cashier,  was  no  defense  to 
this  action  against  the  sureties  for  the  cashier's  violation  of  duty.* 

§  309.  Knowledge  of  its  cashier  not  imputable  to  bank  — 
illustration. —  In  an  action  by  the  makers  of  a  note  against  a 
bank  cashier  to  have  the  note  surrendered  for  cancellation,  it 
being  alleged  that  there  was  fraud  or  misrepresentation  on  the 
part  of  one  who  was  not  only  cashier  of  the  bank  which  had  dis- 
counted the  note  for  the  corporation,  and  also  secretary  and  treas- 
urer of  this  outside  corporation,  concerning  which  the  represen- 
tations alleged  to  be  fraudulent  were  made,  it  was  attempted  to 
charge  the  bank  with  his  knowledge.  The  Supreme  Court  of 
Missouri,  in  affirming  the  dismissal  of  this  bill,  stated  "  that,"  as 
shown  by  the  evidence,  "in  the  negotiation  for  the  sale  and 
further  delivery  of  the  stock  [the  cashier  of  the  bank]  repre- 
sented, and  only  represented,  the  company;  that  the  plaintiff 
relied  wholly  upon  him,  as  the  secretary  and  treasurer  of  the  com- 
pany, for  the  delivery  of  the  stock  for  which  he  had  contracted. 
To  that  transaction  the  bank  was  an  entire  stranger,  and  in  it  its 
cashier  neither   represented,   nor   undertook   to   represent,   the 

» Wallace  v.  Exchange  Bank  of  Spencer,  (1890)  126  Ind.  265. 


§310] 


OFFICERS  OF  BANKS. 


583 


bank."  ^  Notice  to  a  cashier  that  stock  pledged  to  a  bank  was 
trust  stock  has  been  held  to  be  notice  to  the  bank  of  that  fact.^ 
It  has  been  held  in  Vermont  that  notice  to  the  attorney  of  a  bank 
or  to  the  cashier,  while  acting  in  the  matter  of  attaching  land  for 
the  benefit  of  the  bank,  of  an  equitable  right  in  a  third  person  — 
as,  by  a  defective  deed  or  record  —  was  notice  to  the  bank.* 

§  310.  Rules  as  to  ratification  of  a  cashier's  act  by  the 
bank. — In  a  case  before  the  Supreme  Court  of  Iowa  it  appeared 

'  Benton  v.  German-American  Na- 
tional Bank,  (Mo.  1894)  26  8.  W.  Rep. 
975;  citing  1  Mor.  Priv.  Corp.  §  540c; 
Bank  t.  Loyhed,  28  Minn.  396;  s.  c, 
10  N.  W.  Rep.  421;  DeKay  v.  Water 
(^o.,  38  N.  J.  Eq.  158;  Wilson  v.  Bank, 
(Pa.)  7  Atl.  Rep.  145.  See,  also, 
Bank  r.  Christopher.  40  N.  J.  L.  435; 
Inerarity  v.  Bank.  139  Mass.  332;  s. 
v.,  1  N.  E.  Rep.  282;  Barnes  v.  G^as 
Light  Co.,  27  N.  J.  Eq.  33;  Bank  v. 
Neass,  5  Den.  329;  In  re  European 
Bank,  5  Ch.  App.  358;  Bank  v.  Savery, 
82  N.  Y.  291;  Fisher  v.  Murdock, 
13  Hun,  485;  Gates  v.  National 
Bank,  100  U.  S.  239,  245;  Louisiana 
State  Bank  v.  Senecal,  13  La.  527; 
Branch  Bank  at  Huntsville  v.  Steele, 
JO  Ala.  915.  The  Missouri  court  said: 
"  Whatever  may  have  been  his  knowl- 
edge of  the  condition  of  the  company's 
Ftock  account,  or  of  its  affairs  gener- 
ally, that  knowledge  cannot  be  im- 
puted to  the  bank  when,  subse- 
quently, he  came  to  procure  for  that 
company  a  discount  of  paper  acquired 
in  his  negotiations  for  the  company 
which  he  represented.  It  seems  to  be 
well-settled  law  in  this  state  that 
knowledge  which  comes  to  an  officer 
of  a  corporation  through  his  private 
transactions,  and  beyond  the  range  of 
his  official  duties,  is  not  notice  to  the 
corporation.  State  Savings  Assn.  v. 
Nixon- Jones  Printing  Co.,  25  Mo.  App. 
643;  Bank  v.  Schaumburg,  38  Mo. 
228;  Manhattan  Brass  Co.  «.  Webster 
Glass  &  Queensware  Co.,  37  Mo.  App. 
145;  Hyde  v.  Larkin,  35  Mo.  App.  366; 


Johnston  v.  Shortridge.  93  Mo.  227;  8. 
c,  6  S.  W.  Rep.  64;  Bank  v.  Lovitt, 
114  Mo.  519;  8.  c,  21  S.  W.  Rep.  825. 
In  this  last  case,  which  is  quite  anala- 
gous  to  the  case  in  hand,  we  held  that: 
'  An  officer  of  a  banking  corporation 
has  a  perfect  right  to  transact  his  own 
business  at  the  bank  of  which  he  is  an 
officer,  and  in  such  transaction  his  in- 
terest is  adverse  to  the  bank,  and  he 
represents  himself  and  not  the  bank. 
The  law  is  well-settled  that  where  an 
officer  of  a  corporation  is  dealing  with 
it  in  his  individual  interest  the  corpo- 
ration is  not  chargeable  with  his  un- 
communicated  knowledge  of  facts  de- 
rogatory to  his  title  to  the  property 
which  is  the  subject  of  the  transac- 
tion.' A  corollary  of  the  foregoing 
proposition  is  that  if  a  person  is  an 
officer  of  two  corporations,  and  these 
corporations  enter  into  dealings  with 
each  other,  the  knowledge  of  the 
common  officer  cannot  be  attributed  to 
either  corporation  in  a  transaction  in 
which  he  did  not  represent  it." 

*  Duncan  v.  Jaudon,  15  Wall.  165. 

"Vermont  Mining  Co.  v.  Windham 
County  Bank,  44  Vt.  489.  As  to  the 
effect  upon  the  teller  of  the  bank  of 
knowledge  of  a  cashier  that  a  note  ac- 
quired by  the  bank  was  fraudulently 
negotiated,  see  Fall  River  Union  Bank 
V.  Sturtevant,  (1853)  12  Cush.  (Mass.) 
374.  As  to  the  declarations  of  officers 
not  admissible  against  a  bank  to  prove 
facts,  see  Pemigewassett  Bank  r. 
Rogers,  18  N.  H.  255.  261:  Grafton 
Bank  v.  Woodward,  5  N.  H.  301,  308. 


N! 


.  ' 


I'i  " 


i  » 


(    ' 


584 


OFFICERS  OF  BANKS. 


[§  310 

that  certain  shares  of  stock  in  an  investment  company  were  sold 
by  the  president  of  the  company,  in  payment   for  which  the 
cashier  gave  liim  credit  on  tlie  books  of  the  bank  for  the  agreed 
price  of  the  stock.     The  sliares  were  then  placed  in  an  envelope 
marked  and  figured  as  an  item  in  the  cash  account  for  a  sum  in 
excess  of  the  agreed  price.     The  cashier  afterwards  abstracted 
from  the  envelope  the  amount  in  excess  of  the  agreed  price  and 
appropriated  it  to  his  own  use.     Upon  this  fact  being  afterwards 
ascertained  on  an  examination  of  the  bank's  affairs,  an  action  was 
brought  by  the  bank  against  the  cashier  to  recover  this  amount. 
His  defense  was  tliat  it  was  his  private  transaction.     The  main 
question  presented  to  the  Supreme  Court  was  as  to  a  ratification 
by  the  bank  of  the  acts  of  the  cashier  by  which  he  claimed  that 
the  transaction  was  his  and  not  that  of  the  bank,  so  that  the 
profits  would  belong  to  liim.     The  Supreme  Court  approved  the 
following  instructions  by  the  trial  judge  upon  this  point :  "  In 
regard  to  this  transaction  the  defendant  claims  that  he  purchased 
said  stock  as  an  individual  and  not  as  cashier,  for  himself  and  not 
for  the  bank,  for  eleven  thousand  dollars  ;  that  he  borrowed  the 
money  of  the  plaintiff  bank  to  pay  therefor,  and  that  thereafter 
he  sold  said  stock  to  plaintiff  for  fourteen  thousand  three  hundred 
and  fifty  dollars;  and,  further,  that  March  31,  1891,  [after  he 
had  ceased  to  be  cashier]  a  final  settlement  between  the  plaintiff 
and  defendant  was  had,  and  that  the  facts  in  regard  to  said  trans- 
action were  fully  made  known  to  plaintiff,  and  that,  with  full 
knowledge  of  all  said  facts,  plaintiff  ratified  and  approved  the 
same,  and  that  thereby  plaintiff  is  estopped  from  claiming  there- 
upon.    The  jury  are  instructed  that  if  they  find  that  at  said  time, 
or  at  any  time  subsequent  to  the  transaction,  the  plaintiff,  with 
full  knowledge  in  regard  to  all  the  facts  in  relation  thereto, 
acquiesced  in  and  adopted  and  ratified  said  transaction,  then  they 
are  estopped  from  now  recovering  thereon,  and  in  this  issue  you 
should  find  for  the  defendant.     And,  further,  you  are  instructed 
that  as  soon  as  the  facts  were  known  to  plaintiff's  directors,  if 
they  were  ever  known,  it  was  their  duty  to  either  adopt  the 
transaction  or  repudiate  it ;  and,  if  they  elect  to  repudiate  it,  they 
should  repudiate  it  altogether.     They  cannot  repudiate  it  in  part 
and  adopt  it  in  part.     But,  as  to  all  acts  prohibited  by  law,  no 
aflSrmative  act  of  repudiation  is  necessary.     The  law  presumes 
that  they  are  repudiated,  and  will  not  presume  or  infer  an  affirm- 


I 


§310] 


OFFICERS  OF  BANKS. 


585 


ance.  Such  acts,  to  estop  plaintiff  from  recovery  thereon,  must 
be  expressly  ratified,  and  with  full  knowledge  of  all  the  facts  in 
relation  thereto ;  and  the  burden  of  proof  is  upon  the  party 
who  relies  upon  a  ratification  of  such  unauthorized  and  unlawful 
act  to  prove  that  the  principal,  having  such  knowledge,  acquiesced 
in  and  adopted  and  ratified  such  acts  of  its  servants  and  agents.'-  * 
The  Supreme  Court  of  Iowa  also  in  this  case  approved  the 
refusal  of  the  trial  judge  to  allow  the  defendant  to  show  a  cus- 
tom of  the  officers  of  the  bank  whereby  the  defendant,  its 
cashier,  had  been  i^ermitted,  from  time  to  time  since  the  organiza- 
tion of  the  bank,  to  make  loans  to  himself,  giving  his  notes  or 
other  securities  as  he  thought  proper.^ 


Ml 


'Iowa  State   Sav.   Bank  v.  Black, 
(Iowa,  1894)  59  N.   W.  Rep.  283.     It 
was  said  by  the  court:    "Appellant 
complains  of  the  instruction  in  that 
'  the  term  '  expressly  ratified '  calls  for 
a  higher  degree  of  action  and  a  more 
definite  specific  performance  than  the 
law  requires.'    A  purpose  of  the  in- 
struction was  to  inform  the  jury  as  to 
plaintiff's  rights  and  duties  in  matters 
where  the  acts  of  the  'defendant  were 
prohibited  by  law,  and  that  as  to  such 
matters  the  law    will   presume    that 
they  were  not  acquiesced  in  or  ap- 
proved until  expressly  ratified.     The 
phrase  is    not   to    be   understood   as 
requiring  a  ratification  in  terms,  for 
there  is  no  evidence  of  such  a  ratifica- 
tion.    As  a  matter  of  fact,  the  bank 
did  not  in  terms  ratify  defendant's  act, 
and  hence  the  jury  must  have  under- 
stood that  the  instruction  meant  that 
the  intent  to  approve  the  acts  must 
have  been  plain  or  clear.     With  that 
view  the  instruction  is  not  erroneous. 
It  is  said  that  it  is  error  to  say  of  such 
acts  that  the  law  '  presumes  that  they 
are  repudiated,  and  will  not  presume 
or  infer  an  aflirmance.'    It  is  certain  in 
such  a  case  that  the  presumptions  of 
the  law  are  against  ratification.     The 
law  will  Dot  presume  that  one  person 
ratifies  the  unlawful  acts  of  another. 

74 


The  instruction  means  no  more  than 
that,  in  the  absence  of  proof  of  an  in- 
tent to  ratify  the  acts  of  defendant, 
the  presumptions  of  the  law  are 
against  it.  The  law  does  not  require 
one  man  to  aflEirmatively  repudiate  the 
unlawful  acts  of  another  or  presume 
his  approval  or  aflirmance  of  them." 

'Iowa  State  Sav.   Bank  v.   Black, 
(Iowa,  1894)  59  N.  W.  Rep.  283.     The 
court  said:  "The  object  of  the  testi- 
mony was  to  prove  that  the  officers  of 
the  bank  allowed  defendant  to  make 
illegal  loans  to  himself  and  thus  estop 
the  bank  from  showing  that  the  loan, 
now  claimed  by  them,  was  not  legal. 
The  court,  speaking  of  the  defendant, 
said  to  the  jury:  '  He  had  no  right  or 
authority  as  such  cashier  to  loan  him- 
self as  an  individual  or  to  use  in  any 
manner  for  himself  the  funds  of  the 
bank,  and  all  such  acts  are  wholly  un- 
authorized and  contrary  to  law.'    The 
instruction    is  but  expressive  of  the 
statute  law  of   the  state  regulating 
state  banks,  and  the  policy  of  the  law 
is  public.     It  cannot  by  any  custom 
of  the  officers  of  the  bank  be  disre- 
garded with  impunity.     The  security 
of  the  bank  against  such  practices  is, 
in  a  very  important  sense,  the  security 
of    the    public  in   dealing    with    the 
bank.     A  design  of  the  law  was  to 


.Il 


586 


OFFICERS  OF  BANKS. 


[§311 


§311.  Act  of  cashier  binding  upon  the  bank  —  illustra- 
tion.—  The  cashier  of  a  national  bank  luid  a  note  executed  by  a 
certain  party  payable  to  his  bank  discounted  by  another  bank, 
upon  the  usual  indorsement  of  his  bank  by  him  as  cashier.     Just 
before  this  note  was  falling  due,  tlie  same  party  executed  a  note 
for  a  larger  sum  payable  to  the  cashier  individually.     This  note 
he  indorsed  individually  and  then  placed  the  indorsement  of  his 
bank  by  him  as  cashier  in  the  usual  manner.     He  then  presented 
before  the  other  note  was  due  this  second  note  for  discount  to 
the  same  bank.     They  discounted  it  and  upon  his  request  applied 
a  part  of  the  proceeds  of  the  discount  to  the  payment  of  the 
other  note  and  gave  the  bank's  check  to  them  for  the  balance, 
The  bank  discounting  this  note  brought  its  action  in  a  Minne- 
sota court  against  the  receiver  of  the  bank  represented  by  this 
cashier,  such  bank  having  become  insolvent,  to  have  the  sum  due 
on  the  note  adjudged  a  legal  claim  upon  the  assets  of  the  bank 
in  his  hands.     Among  the  findings  of  the  court  below  was  one 
that  "  the  plaintiff  [meaning  its  officers]  in  good  faith  believed 
that  [the  negotiator  with  it  in  the  transactions]  was  acting  as 
cashier  of  said  bank  in  said  transaction,  and  had  no  evidence  to 
the  contrary,  and  no  reason  to  believe  anything  to  the  contrary, 
except  what  appeared  by  said  proceedings  and  said  notes  herein- 
before specified ;  that  said  plaintiff  gave  credit  to  said  [insolvent] 
bank,  and  to  said  [negotiator]  in  all  of  said  transactions."     Also 
this  finding :   "  Both  of  said  notes  were  made  by  said   [maker] 
and  by  her  delivered  to  said  [negotiator]  for  his  individual  use 
and  accommodation ;  but  plaintiff  had  no  notice  or  knowledge 
thereof,  except  as  shown   by  the  notes  themselves,  until  after  it 
had  discounted  them."     There  was  an  insistment,  on  behalf  of 
the  receiver,  that  the  plaintiff's  cashier,  who  discounted  the  note 
in  suit,  was  not  justified  upon  these   facts  iu  supposing  that  the 
net'otiator  was  acting  officially,  as  casliier  of  the  insolvent  bank, 
in  procuring  the  money  on  the  note ;  and  that  his  statements  or 
conduct  in  the  transaction  were  immaterial,  in  view  of  the  fact 
that  the  note  showed  on  its  face  that  it  appeared  to  be  his  individ- 
ual note,  and  he  had  no  authority  in  fact  to  make  an  accommo- 
dation indorsement  thereon  in  behalf  of  the  bank.     The  Supreme 

prevent  such  loans  being  in  any  way   would  defeat  a  principle,  if  not  the 
made    and    to    permit  the   proposed    entire  purpose,  of  the  law." 
showing  by  defendant  as  an  estoppel 


312] 


OFFICERS  OF  BANKS. 


58T 


Court  held  that  in  view  of  the  fact  that  this  negotiator  was  the 
acting  cashier  of  the  insolvent  bank,  entitled  to  make  indorse- 
ments in  this  form  of  paper  belonging  to  the  bank,  and  presented 
himself  in  that  capacity  in  this  instance,  the  paper  itself  bore  no 
marks  of  suspicion  sufficient  to  affect  the  title  of  the  bank  as  a 
purchaser  in  good  faith,  which,  upon  the  facts,  would  otherwise 
be  presumed.^ 

§  312.  Promise  by  cashier  to  pay  draft  of  a  customer  to 
be  drawn  at  a  future  day  —  not  binding  on  the  bank. — 
A  national  bank  is  empowered  by  United  States  Kevised  Stat- 
utes (§  5136)  "to  exercise  by  its  board  of  directors  or  duly 
authorized  officers  or  agents,  subject  to  law,  all  such  incidental 


*  Merchants'  National  Bank  of  St. 
Paul  V.  McNeir,  (1892)  51  Minn.  123. 
The  court  said:  "  [The  negotiator] 
assumed  to  be  acting  in  his  official 
capacity,  and  appeared  to  be  engaged 
in  the  business  of  his  bank.  He  pro- 
posed to  take  up  the  note  which  he 
had  before  rightfully  negotiated  in 
behalf  of  the  bank  as  cashier,  and  to 
substitute  another  executed  by  the 
same  party.  And  the  cashier  of  the 
plaintiff  bank,  as  the  court  finds,  in 
good  faith,  believed  that  [he]  was  act- 
ing officially  for  [his]  bank,  and  the 
evidence  sustains  this  finding.  If  the 
new  note  had  been  of  the  same  amount 
as  the  old  one  taken  up,  the  fact  that 
it  ran  to  [the  negotiator]  would  hardly 
be  claimed  to  be  sufficient  to  excite 
suspicion.  And  so,  if  the  note  had  been 
subsequently  negotiated  by  plaintiff, 
and  had  passed  in  the  regular  course 
of  business  into  the  hands  of  a  remote 
indorsee,  it  would  hardly  be  claimed 
that  such  indorsee  was  not  a  bojm  fide 
purchaser,  either  on  the  ground  of 
notice  from  the  note  itself,  or  that  he 
was  bound  to  have  instituted  a  pre- 
liminary inquiry  as  to  the  authority 
of  [the  negotiator]  to  make  the  second 
indorsement  as  cashier.  The  fact  that 
[he]  appeared  to  be  the  first  indorser, 
and  the  bank  the  second  indorser,  was 


not,  of  itself,  a  circumstance  so  extra- 
ordinary or  suspicious  as  to  make  the 
case  one  of  gross  negligence  on  the 
part  of  the  plaintiff,  and   subject  it  to 
the  imputation  of  bad  faith  in  receiving 
the  paper.     Nor,  in  the  face  of  the 
finding  of  good  faith  of  the  officers  of 
the   plaintiff  in  the    transaction,  did 
the   circumstance    that    the  surplus, 
over  the  amount  due  upon  the  old 
note,  was  paid  directly  to  [the  nego- 
tiator] either  in  currency  or  by  check 
running  to  him,  amount  to  notice  of 
[his]   intended  fraud  upon  his  bank, 
or  make  the  plaintiff  a  purchaser  mala 
fide  of  the  note.     It  is  not  sufficient, 
under  the  rule  apphed  to  the  transfer 
of  negotiable  paper,  under  the  law 
merchant,  that  there  be  circumstances 
of  suspicion  such  as  would  put  a  care- 
ful purchaser  upon  inquiry.     The  cir- 
cumstances  must  be   so  pointed  and 
direct  as  to  amount  to  evidence    of 
mala  fides,  in  the  absence  of  inquiry, 
or  such  as  to  be  prima  facie  incon- 
sistent with  any  other  view  than  that 
there  is  something  wrong  in  the  title, 
and    thus     amount     to    constructive 
notice.     1  Dan.    Neg.  Inst.  (4th  ed.) 
§  796;  2  Rand.  Com.  Paper,  §§  998, 
1001;  Tied.  Com.  Paper,  §  289;  Free- 
man's Nat.  Bank  v.  Savery,  127  Mass. 
78,  79.'* 


K' 


rr^i 


588 


OFFICERS  OF  BANKS. 


[§313 


powers  as  shall  be  necessary  to  carry  on  the  business  of  banking 
by  discounting  and  negotiating  promissory  notes,  drafts,  *  *  * 
and  other  evidences  of  debt,  *  *  *  by  loaning  money  on 
personal  security,"  etc.  It  was  held  in  the  United  States  Circuit 
Court  for  the  southern  district  of  California  that  under  no  pro- 
vision of  the  statute  above  referred  to  did  the  cashier  of  a  national 
bank  have  power  to  bind  the  bank  to  pay  the  draft  of  a  third 
person  on  one  of  its  customers,  to  be  drawn  at  a  future  day,  when 
it  expected  to  have  a  deposit  from  hhn  sufficient  to  cover  it,  and 
that  no  action  would  lie  against  the  bank  for  its  refusal  to  pay 
such  a  draft.^ 

§  313.  Estoppel  of  a  bank  to  deny  the  validity  of  an  act 
of  its  cashier  in  drawing  drafts  on  its  correspondent,  and 
fraudulently  indorsing  them. —  In  a  very  recent  case  before 
the  New  York  Court  of  Appeals,  which  was  an  action  by  the 
receiver  of  an  insolvent  South  Carolina  bank  to  recover  a  deposit 


•  Flannagan  v.  California  Nat.  Bank, 
(1893)  56  Fed.  Rep,   959.     The  court 
said :    "  In  Bank  v.  Dunn,  6  Pet.  51, 
the  court  would  not  permit  the  presi- 
dent and  cashier  of  the  bank  to  bind  it 
by  their  agreement  with  the  indorser 
of  a  promissory  note  that  he  should 
not  be  liable  on  his  indorsement.     It  is 
said  it  is  not  the  duty  of  the  cashier 
and  president  to  make  such  contracts, 
nor  have  they  power  to  bind  the  bank, 
except  in  the  discharge  of  their  ordi- 
nary duties."    The  court  then  referred 
to  U.  S.  V.  City  Bank  of  Columbus,  21 
How.    356,   and  afterwards  said :    In 
West  St.  Louis  Sav.  Bank  v.  Shawnee 
County  Bank,  95  U.  S.  557,  where  it 
was  attempted,  but  unsuccessfully,  to 
bii\d  a  bank  as  an  accommodation  in- 
dorser on  the  individual  note  of  its 
cashier,  the  court   said:    "Ordinarily 
the  cashier,  being  the  ostensible  execu- 
tive officer  of  a  bank,  is  presumed  to 
have,  in  the  absence  of  positive  restric- 
tions, all  the  powers  necessary  for  such 
an    officer  in  the   transaction  of  the 
legitimate  business  of  banking.     Thus 
lie  is  generally    understood   to  have 


authority  to  indorse  the  commercial 
paper  of  his  bank,  and  bind  the  bank 
by  the  indorsement.  So,  too,  in  the 
absence  of  restrictions,  if  he  has  pro- 
cured bona  fide  rediscount  of  the  paper 
of  the  bank,  his  acts  will  be  binding 
because  of  his  implied  power  to  trans- 
act such  business;  but  certainly  he  is 
not  presumed  to  have  power,  by  reason 
of  his  official  position,  to  bind  his  bank 
as  an  accommodation  indorser  of  his 
own  promissory  note.  Such  a  trans- 
action would  not  be  within  the  scope 
of  his  general  powers;  and  one  who 
accepts  an  indorsement  of  that  charac- 
ter, if  a  contest  arises,  must  prove 
actual  authority  before  he  can  recover. 
There  are  no  presumptions  in  favor  of 
such  a  delegation  of  power.  The  very 
form  of  the  paper  itself  carried  notice 
to  a  purchaser  of  a  possible  want  of 
power  to  make  the  indorsement,  and 
is  sufficient  to  put  him  on  his  guard. 
If  he  fails  to  avail  himself  of  the  notice, 
and  obtain  the  information  which  is 
thus  suggested  to  him,  it  is  his  own 
fault,  and,  as  against  an  innocent  party, 
he  must  bear  the  loss." 


§  313] 


OFFICERS  OF  BANKS. 


589 


of  that  bank  in  a  bank  in  the  city  of  New  York,  it  appeared  that 
the  latter  had  debited  the  former  with  certain  checks  which  the 
cashier  of  the  insolvent  bank  had  drawn  upon  the  New  York 
bank,  payable  to  certain  customers  of  the  bank  of  which  he  was 
the  cashier,  and  then  indorsed  the  names  of  these  payees  upon 
the  checks,  making  them  payable  to  the  order  of  a  New  York  firm 
of  brokers,  who  collected  the  amount  of  these  checks  from  tiie 
bank  upon  which  they  were  drawn.     The  New  York  Court  of 
Appeals  in  its  opinion  referred  to  the  discussion  of  the  trial  judge 
of   the  question  of  what  the  act  of  the  cashier  of   the  bank 
amounted  to  in  law,  as  follows :  "  In  his  judgment,  the  cashier's 
indorsement  of  the  checks  in  the  name  of  the  payee,  which  he 
had  written  in  the  body  of  the  check,  was  not,  in  a  legal  sense, 
forgery.     He  said  that  act  did  not  defraud  the  persons  whose 
names  were  used  as  payees,  nor  the  bank  in  New  York,  nor  his 
own  bank,  but  that  the  fraud  consisted  in  the  unlawful  drawing 
of  the  check  for  his  own  purposes,  with  the  intent  to  convert  his 
own  bank's  funds.     Regarding  the  transaction  in  that  light,  and 
tlie  indorsement  as  a  part  of  one  continuous  act  of  preparing  the 
check  so  that  the  New  York  bank  should  pay  the  funds  drawn 
upon  to  the  indorsees,  he  very  properly  reached  the  conclusion 
that,  so  far  as  the  New  York  bank  was  concerned,  the  cashier's 
intent  was  the  intent  of  his  bank,  and,  hence,  the  payment  of  the 
checks  was  conclusive  upon  it."     Then  it  is  said  of  the  review  of 
the  legal  questions  by  the  General  Term,  sustaining  the  judg- 
ment of  the  trial  judge  dismissing  the  complaint :  "  Upon  the 
question  of  the  effect  upon  the  transaction  of  the  use  by  [the 
cashier]  of  names,  as  payees,  of  persons  who  were  the  customers 
of  the  bank,  it  is  said  in  the  opinion  that  that  fact  did  not  pre- 
vent tlie  application  of  the  principle  which  would   govern   if 
fictitious  names  had  been  selected  and  used  for  payees.     They 
held,  in  substance,  that  the  bank,  through  its  authorized  officer, 
had  put  in  circulation  paper,  with  knowledge  chargeable  to  it,  tliat 
the  names  of  the  payees  did  not  represent  real  persons,  and  with 
the  intention  to  indorse  thereon  the  names  of  the  payees,  who, 
for  all  intents  and  purposes,  were  fictitious  payees,  and  whose 
names  were  adopted  and  resorted  to  as  a  device  to  avoid  suspicion." 
The   Court  of   Appeals   approved   these   two  judgments.^      A 

'  Phillips    a.    Mercantile     National   140  N.  Y.  556,  559,  560,  affirming  67 
Bank  of  the  City  of  New  York,  (1894)   Hun,  378.  The  Court  of  Appeals  in  theur 


I  \ 


I' 


I  'I 


I  ■  I 


\\ 


w 


■i 


590 


OFFICERS  OF  BANKS. 


[§313 


national  bank  of  the  city  of  New  York  was  the  correspondent  of 
a  country  national  bank.  One  who,  during  the  time  in  which 
the  transaction  in  controversy  in  this  case  took  place,  was  cashier, 
and  during  the  remainder  of  the  time  was  president  of  the 
country  bank,  all  the  time  practically  managed  the  bank,  and 
his  codirectors  and  other  officers  had  little  or  no  oversight   of 


opinion  distinguished  Shipman  r.  Bank 
of  the  State  of  New  York,  126  N.  Y. 
318,    in   these  words:  "There  it   had 
been  found  that  the  checks  were  signed 
by  the  firm,   in   the  belief  that  the 
names  of  tlie  payees  represented  real 
persons  entitled  to  receive  the  amount 
of  the  checks,  and  with  the  intention 
that  they  should  be  delivered  to  real 
payees  and  should  not  go  into  circula- 
tion otherwise  than  through  a  delivery 
to  and  an  indorsement  by  the  payees 
named.     [The]  employment  [of  their 
clerk]  did  not  comprehend  the  draw- 
inir  or  indorsement  of  checks  or  drafts, 
and  in  indorsing  upon  the  checks  the 
names  of    the   payees  he  committed 
the  crime  of  forgery,  because  he  was 
without  authority  in  that  respect  and 
did  so  with  the  intention  to  deceive 
his  employers,  the  makers,  and  to  put 
their  checks  in  circulation  for  his  ac- 
count.    That  was  a  case  wholly  other 
than  was  made  out  here.     It  was  stated 
in  the  Shipman  case  that  the  maker's 
intention  is  the  controlling  considera- 
tion, which  determines  the  character 
of  the  paper,   and  that  the  statutory 
rule,  which  gives  to  paper  drawn  pay- 
able to  the  order  of  a  fictitious  person, 
and  negotiated  by  the  maker,  the  same 
validity  as  paper  payable  to  bearer, 
applies  only  when  such  paper  is  put 
into  circulation  by  the  maker   with 
knowledge  that  the  name  of  the  payee 
does  not  represent  a  real  person.     The 
principle  of  that  decision  is  quite  ap- 
plicable to  the  case  at  bar.     Though 
[this  cashier]  selected,  for  the  execu- 
tion of  his  dishonest  purposes,    the 
names  of  persons  who  were  dealers 
with  his  bank,  it  was  in  legal  effect  as 


though  he  had  selected  any  names  at 
random.     The  difference  is  that,  by 
the  methods  resorted  to,   he  averted 
suspicion  on  the  part  of  the  directors 
or  other  oflScers  of    his  bank.     The 
names  he  used  were,  for  his  purposes, 
fictitious,   because  he  never  intended 
that  the  paper  should  reach  the  per- 
sons whose  names  were  upon  them. 
The  transaction  was  one  solely  for  the 
fraudulent  purpose  of  appropriating 
his  bank's  moneys  by  a  trick  which  his 
position  enabled  him  to  perform.    Con- 
cededly,   if  the  names  of  the  payees 
were  of  fictitious  persons  [the  bank 
whose    cashier    drew    these    checks] 
would  have  had  no  claim  upon  the 
defendant;  how,  then,  can  the  trans- 
action be  said  to  assume  a  different 
aspect    because    the    names   adopted 
were  of  known  persons?     As  cashier, 
invested  with  the  authority  to  draw 
checks  upon  the  bank's  accounts  with 
its  correspondents,  instead  of  drawing 
them  directly  to  the  order  of  the  part- 
ies, who  he  intended  should  get  the 
moneys,  he  drew  them  to  the  order  of 
persons  who  had  no  interest  in  them, 
and    thereupon    wrote    their    names 
under  a  direction  to  pay  to  the  real 
parties,  who  were  intended   to  be  the 
recipients  of  the  funds  drawn  upon. 
If  the  checks  had  been  drawn  directly 
to  the  order  of  the  real  parties,  the 
defendant  would   undoubtedly    have 
been  protected  in  paying  them.     As  it 
was,   the  payees  were  fictitious  per- 
sons in  the  eye  of  the  law,  and  the 
only  real  parties  were  the  firms  in  New 
York,  to  whom  the  cashier  sent  them 
in  such  form  as  that  they  could  draw 
the  moneys  upon  them.    The  fictitious- 


§  r,13] 


OFFICERS  OF  BANKS. 


591 


its  affairs.  He  was  engaged  in  stock  speculations  on  his  own 
account  in  New  York,  and  drew  from  time  to  time,  for  his 
own  purposes,  in  favor  of  a  firm  in  New  York,  his  brokers,  on 
the  bank  balance  with  the  New  York  bank.  His  brokers  from 
time  to  time  returned  to  that  bank  sums  to  be  credited  to  the 
country  bank.  The  latter,  being  ruined  by  fraudulent  operations 
of  its  officer  before  mentioned,  who  disappeared,  became  insolvent 
and  was  placed  in  the  hands  of  a  receiver.  This  receiver  brought 
his  action  against  the  firm  of  New  York  brokers  to  recover  the 
sums  so  paid  to  them  by  this  officer  of  the  country  bank  out  of 
the  balance  to  the  credit  of  the  bank  with  the  New  York  bank. 
The  brokers  claimed  the  right  to  offset  the  return  payments  made 
by  them  to  the  New  York  bank.  The  trial  court  ruled  that  they 
were  not  entitled  to  do  it,  and  no  question  in  respect  of  them  was 
submitted  to  tlie  jury.  For  this  error  the  United  States  Supreme 
Court  reversed  and  remanded  the  case  for  a  new  trial,  holding 
that,  at  the  least,  it  was  a  question  to  go  to  the  jury  whether  the 
officers  of  the  bank,  other  than  the  dishonest  official,  in  the  exer- 
cise of  reasonable  and  proper  care,  could  have  ascertained  that 


ness  of  the  maker's  direction  to  pay 
does  not  depend  upon  the  identifica- 
tion of  the  name  of  the  payee  with 
some  existent  person,  but  upon  the 
intention  underlying  the  act  of 
the  maker  in  inserting  the  name. 
Where,  as  in  this  case,  the  intent  of 
the  act  was.  by  the  use  of  the  names 
of  some  known  persons,  to  throw 
directors  and  oflficers  off  their  guard, 
such  a  use  of  names  was  merely  an 
instrumentality  or  a  means  which  the 
<;ashier  adopted,  in  the  execution  of 
his  purpose,  to  defraud  the  bank,  in  an 
apparently  legitimate  exercise  of  his 
authority.  The  cashier,  through  his 
office  and  the  powers  confided  to  him 
for  exercise,  was  enabled  to  perpe- 
trate a  fraud  upon  his  bank,  which  a 
grejiter  vigilance  of  its  officers  might 
have  earlier  discovered,  if  it  might 
not  have  prevented.  If  his  position 
and  the  confidence  reposed  in  him 
were  such  as  to  enable  him  to  escape 
detection  for  the  while,  then  the  con- 
sequences of  his  fraudulent  acts  should 


fall  upon  the  bank,  whose  directors, 
by  their  misplaced  confidence  and  gift 
of  powers,  made  them  possible,  and 
not  upon  others  who,  themselves  act- 
ing innocently  and  in  good  faith,  were 
warranted  in  believing  the  transaction 
to  have  been  one  coming  within  the 
cashier's  powers.  It  may  be  quite 
true  that  the  cashier  was  not  the  agent 
of  the  bank  to  commit  a  forgery,  or 
any  other  fraud  of  such  a  nature,  but 
he  was  authorized  to  draw  or  check 
upon  the  bank's  funds.  If  he  abused 
his  authority  and  robbed  his  bank  it 
must  suffer  the  loss.  The  distinction 
between  such  a  case  and  the  many 
other  cases  which  the  plaintiff's  coun- 
sel cited  from,  is  in  the  fact  that  it  was 
within  the  scope  of  this  cashier's 
powers  to  bind  the  bank  by  his  checks. 
In  transmitting  them,  made  out  and 
indorsed  as  they  were,  the  bank  was 
so  far  concluded  by  his  acts  as  to  be 
estopped  from  now  denying  their 
validity." 


M 


ik 


;l 


592 


OFFICERS  OF  BANKS. 


[§313 


'pi*!  I 


tliese  moneys  had  been  deposited  to  the  account  of  the  insolvent 
hank,  and  would  or  would  not  have  accepted  such  deposits  as  the 
return  of  the  moneys  to  the  bank.^  It  appeared  in  a  case  that 
a  bank  clerk,  the  duty  of  whom  it  was  to  prepare  exchange  for 
the  cashier's  signature,  so  drew  a  draft  for  twenty-five  dollars  to 
his  own  order  that  the  amount  could  be  readily  altered.  After 
procuring  the  signature  of  the  cashier  to  the  draft  by  pretending 
that  he  wished  to  make  a  remittance  of  that  amount,  the  clerk 
altered  the  draft  so  that  it  presented  the  appearance  of  a  genuine 
draft  for  $2,500,  indorsed  it  and  had  it  discounted.  It  was 
sought  in  the  action  to  hold  the  bank  liable  on  this  draft.     The 


'  Kissam  »,  Anderson,  (1892)  145  U. 
S.  435.  Mr.  Justice  Brewer,  speak- 
ing for  the  court,  arffuendo,  said:  "  We 
think  [the  principle  upon  which  the 
trial  court  acted,  which  was  stated  by 
counsel  for  plaintiff  in  his  brief,  as 
follows:  '  It  is  settled  by  abundant 
authority  that  where  one  has  taken 
the  property  of  another  damages  are 
not  mitigated  by  showing  merely  that 
the  wrongdoer  returned  the  property 
without  the  consent  of  the  owner  or 
applied  it  upon  the  owner's  debts.  It 
must  appear  still  further  that  the 
owner  consented  to  such  action  or  that 
the  proceeds  were  so  applied  under 
legal  process  without  connivance  of 
the  wrongdoer,  *  *  *']  does  not 
control  in  this  case.  Defendants  re- 
turned this  money  to  the  [country] 
bank.  They  deposited  it  with  the 
[New  York]  bank,  the  correspondent 
of  the  [former],  and  the  bank  from 
which  they  received  the  money  or  the 
checks  from  the  [former].  In  fact, 
therefore,  the  money  was  placed  where 
it  was  before  it  was  taken  —  in  the 
possession  and  under  the  control  of 
the  [country]  bank.  Not  only  that ;  the 
[New  York]  bank,  in  its  due  course  of 
business,  by  monthly  reports,  in- 
formed the  [country]  bank  that  they 
had  received  this  money,  and  held  it 
subject  to  its  order,  and  it  was  subse- 
quently used  by  the  [country]  bank  in 
drafts  drawn  by  it  in  favor  of  other 


parties.  If  it  be  said  that  no  officer 
of  [this]  bank  knew  of  these  deposits 
except  [its  cashier],  the  wrongdoer, 
and  that  he  subsequently  drew  out 
most  of  these  moneys  in  drafts  to 
further  other  wrongs,  the  reply  is  that 
the  other  officers  and  directors  of  [this] 
bank  were  chargeable  with  knowledge 
of  these  deposits.  If,  through  their 
negligence,  they  did  not  in  fact  know, 
that  is  a  matter  for  which  [this]  bank 
and  not  the  defendants  were  responsi- 
ble. [Defendants]  had  no  supervision 
over  its  affairs,  no  knowledge  as  to 
how  those  affairs  were  managed. 
They  were  not  called  upon  to  go  to  [the 
place  of  its  location]  and  hunt  up  the 
various  officers  and  directors,  and  in- 
form them,  one  by  one,  personally, 
that  these  moneys  had  been  deposited 
to  their  credit  in  the  [New  York] 
bank.  It  was  enough  that  they  de- 
posited them,  and  that  that  bank,  in 
the  regular  course  of  business,  by 
monthly  statements,  informed  the 
[country]  bank  that  it  received  and  held 
those  moneys.  The  learned  circuit 
judge  seemed  to  be  of  the  opinion 
that,  as  they  had  assisted  [this  cashier] 
in  withdrawing  these  funds  from  the 
bank,  they  could  not  escape  responsi- 
bility, unless  the  sum  total  of  his  de- 
falcation was  reduced  by  their  deposits 
to  an  amount  less  than  that  received 
from  him.  In  his  opinion  overruling 
the  motion  for  a  new  trial  he  thus  ex- 


§314] 


OFFICERS  OF  BANKS. 


593 


United  States  Circuit  Court  of  Appeals  for  the  seventh  circuit 
affirmed  the  judgment  rendered  in  the  Circuit  Court  in  favor  of 
the  bank,  holding  that  the  forgery  bj  the  clerk,  and  not  the  neg- 
ligence of  the  bank,  being  the  proximate  cause  of  the  loss,  the 
bank  was  not  liable.  Further,  the  bank  was  not  liable  on  the 
ground  that  the  forgerj  was  committed  by  its  confidential 
employee,  because  in  this  transaction  he  acted  as  a  purchaser, 
and  not  as  an  employee,  and  the  purchase  of  the  draft  being  com- 
plete, he  was  the  owner  of  it  when  the  forgery  was  committed.* 

§  314.  Teller  and  bookkeeper  —  their  powers  and  duties. 

— There  is  no  inherent,  original  power  expressly  conferred  upon 
the  teller  of  a  bank,  in  the  powers  and  duties  usually  conferred 
upon  such  officer  and  to  be  exercised  by  him,  to  enable  him  to 
certify  that  the  checks  of  the  depositors  of  the  bank  will  be  good 
when  presented  for  payment  at  some  future  time ;  nor  is  such 


pressed  himself:  '  Here  all  the  money 
returned  by  [the  wrongdoer]  was  in- 
sufBcieiit  to  replace  his  defalcation  by 
an  amount  much  larger  than  the  sum 
sought  to  be  recovered  of  the  defend- 
ants, and  the  bank  had  no  knowledge 
that  he  had  returned  anything  to  re- 
place what  he  had  misapplied  until  he 
had  again  misappropriated  it.     It  is 
not  unjust  or  unreasonable  to  compel 
the  defendants  to  restore  such  of  the 
funds  of  the  bank  as  they  received 
when  they  are  unable  to  prove  that 
the  bank  was  not  directly  or  ultimately 
a  loser  in   consequence  of  their  acts. 
It  may  be  that  [the  wrongdoer]  would 
have  misappropriated   the  money  of 
the  bank  in  other  ways  if  they  had  re- 
fused to  receive  the  checks,   but  cer- 
tainly one  temptation  would  not  have 
been  in  his  path  if  he  had  found  that 
he  could  not  use  the  paper  of  the  bank 
for  his  speculations  with  the    same 
facility  as  though  it   were  his  own 
money.'    But  surely  they  cannot   be 
held  for  his  subsequent  wrongdoing. 
If  they  have  returned  a  part  of  that 
they  assisted  him  in  wrongfully  with- 
drawing, they  2iTepro  tanto  relieved 
from  responsibility,  and  are  not  to  be 

75 


chargeable  with  his  after  misconduct, 
in  respect  to  wliicrh  they  had  no  part. 
It  will  not  do  to  say  that  they  put  the 
money  where  he  could  check  it  out. 
and,    therefore,    are    responsible    for 
what  he  did  with  it.     They  deposited 
it  to  the  credit  of  the  [country]  bank, 
and  it  was  for  the  officers  and  direct- 
ors of  that  'lank  to  take  care  of  its  de- 
posits.    The  rule  might  be  different  if 
[the  wrongdoer],   the  cashier  of  the 
[country]   bank,  was  the  only  officer 
authorized  to  draw  on  the  [New  York] 
bank,  or  charged  with  knowledge  of 
the  state  of  the  account;  but  the  presi- 
dent and  teller  had  equal  authority,  and 
were  equally  chargeable  with  knowl- 
edge; in   fact,   it  appears  that  these 
officers  did  draw  drafts  on  the  New 
York  bank  and  thus  diminished  the 
total  of  deposits,  and  the  other  direct- 
ors, also,  were  under  some  obligations 
to  know  the  affairs  of  the  bank;  and 
it  will  not  do  to  say  that  the  bank  can 
ignore  the  negligence  of  all  its  officers 
and  profit  by  their  omission  of  duty." 
3  Exchange  Nat.  Bank  of  Spokane 
V.  Bank  of  Little  Rock,  (1893)  58  Fed. 
Rep.  140. 


r 


II' 


lli^ 


■\: 


I      I  I 


?i'iH 


594 


OFFICERS  OF  BANKS. 


[§314 


§314J 


OFFICERS  OF  BANKS. 


595 


>       ♦ 


(P 


I 


power  incident  to,  or  necessary  to,  the  faithful  discharge  of  any 
of  his  duties.^     The  court  further  lield  that  a  jury  would  not  be 
warranted  to  infer  such  a  power  in  a  teller  from  evidence  that 
the  teller  of  the  bank  during  all  the  time  of  his  holding  office 
whenever    the  convenience   of    the  bank   or   of   its   customers 
required  it,  certified  that  checks  were  "  good  "  which  were  drawn 
on  the  bank  by  its  customers  when  funds  to  the  amount  of  such 
checks  were  to  the  credit  of  the  drawers,  and  his  so  doing  wa.s 
in  some  instances  known  to  the  bank  and  was  not  forbidden, 
or  that  it  was  the  usa-e  uf  the  tellers  of  other  banks  to  do  the 
same ;  further,  that  the  usage  of  issuing  certificates  of  deposit  by 
a  teller  of  a  bank  was  not  evidence  to  prove  a  usage  of  certifying 
checks.2     The  teller  of  a  bank  in  I^ew  York  had  general  authority 
to  certify  checks,  qiialiiied  by  directions  not  to  do  so  without 
funds,  and  to  enter  them  in  the  books.     He  certified  checks  in 
violation  of  these  instructions  under  a  fraudulent  arrangement 
with  the  drawer.     The  bank  was  held  liable  to  a  bona  fide  lioldcr 
for  value  of  the  checks.     The  court  further  held  that  the  delay 
of  a  year  in  presenting  the  checks  for  payment  did  not  impair 


I  Mussey  r.  Prest..  etc.,  Eagle  Bank, 
(1845)    9  Met.   (Mass.)    306.      In    the 
opinion  the  usual  duties  of  suchotncer 
are  thus   stated:     'The  office  of  the 
teller  is  implied  in  the  word  used  to 
designate   it  — to  tell    or   count    the 
mon'eys   of  the  bank,  which   are  re- 
ceived or  paid  out.     The  office  is  often 
divided  into  two  branches,  that  of  re- 
ceiving teller  and   of  paying    toller, 
where  the  business  of  the  bank  is  large 
and  the  duties  cannot  conveniently  be 
united  in  one  person.     When  united, 
the  duty  of  the  teller  is  to  receive  all 
moneys  offered  at  the  bank  in   pay- 
ment of  notes  and  bills  previously  dis- 
counted   or  lodged   for  collection  as 
they  severally  fall  due,  and  all  moneys 
offered  by  customers  of  the  bank  to  be 
deposited  to  their  credit  on  account, 
whether  arising  from  moneys  brought 
by  them  to  the  bank,  or  the  proceeds 
of  discounts  made  for  them;  to  pay 
the  checks  of  depositors  as  the  money 
is  from  time  to  time  drawn  out,  or  for 


notes  discounted;  and  to  redeem  the 
bills  of  the  bank  with  specie  when  tli<^ 
same  is  demanded.     This  is  his  official 
employment;  and  in  the  discharge  of 
these  duties  he  is  regularly  to  account 
for  the  moneys  he  has  received  an<l 
paid  out,  not  only  to  prevent  mistakes, 
but  to  charge  him  when  short  or  de- 
hnquent;  and  he  is  also  made  respon- 
sible for  the  payment  of  a  check  when 
the  drawer  has  not  a  like  amount  to 
his  credit  unless  he  applies  to  the  book- 
keeper for  information  as  to  the  state 
of  the  drawer's  account;  and  then,  if 
an  overpayment  is  made  through  the 
mistake  or  fault  of  the  bookkeeper,  he 
and  not  the  latter  is  responsible  forth*; 
loss.      And    when    checks    on    other 
banks  are  received  in  payment  or  on 
deposit  (as  is  the   usage  among   the 
banks  of  the  city),  it  is  made  his  duty 
to  attend  to  their  collection  by  a  given 
hour  of  the  day." 

« Mussey  r.  Prest.,  etc..  Eagle  Bank, 
(1845)9  Met.  (Mass.)  306. 


the  holder's  right.^     A  bank  will  be  estopped  by  its  teller,  upon 
the  presentation  of  a  check  bearing  a  forged  certification,  he  being 
the  officer  whose  certification  it  purports  to  be,  pronouncing  the 
certification   genuine.^     In   a  New  York  case  it  appeared  that 
after  the  certification  of  a  check  it  was  raised  and  the  name  of 
the  payee  changed.     The  check  was  then  tendered  to  the  plain- 
tiffs in  this  case,  who  sent  it  to  the  certifying  bank  during  the 
busy  part  of  the  day,  and  its  teller  was  asked  if  the  check  was 
good.     Before  this  inquiry  the  drawer  of  the  check  had  requested 
the    bank    to    stop  payment.     The   teller,  however,   responded 
affirmatively  to  the  inquiry  made  as  to  the  check  being  good. 
The  Court  of  Appeals  of  New  York  held  that  the  failure  of  the 
paying  teller  to  call  attention  to  the  fact  that  the  bank  had  been 
notified  that  the  check  had  been  lost  in  transit  to  the  payee  and 
that  its  payment  had  been  stopped,  which  facts  were  entered 
upon  the  bank's  register  of  certified  bills,  amounted  to  negligence 
which   would  authorize  a  recovery  against  the  bank;  further, 
that  the  fact  that  the  teller  did  not  know  that  the  draft  presented 
was  the  one  the  payment  of  which  had  been  stopped,  and  his 
good  faith  in  making  the  answer  would  not  prevent  a  recovery.^ 
Should  the  teller  of  a  bank  enter  a  check  purporting  to  be  drawn 
upon  the  bank  in  the  bank  book  of  a  depositor  as  cash,  and  it 
should  turn  out  that  the  check  was  forged,  the  bank  would  have 
to  bear  the  loss.*     Should  the  teller  of  a  bank,  after  receiving,  as 
cash,  an  invalid  check  upon  another  bank,  consent  to  take  it  as 
his  own  and  look  to  the  drawer  of  the  check  for  its  payment,  he 
cannot,  afterward,  without  the  consent  of  the  bank  authorities, 
return  it  to  the  bank.^     A  paying  teller  of  a  national  bank  has  no 
power,  without  the  sanction  of  its  directory,  to  receive  after  bank- 
ing hours  a  post-dated  check  and  to  agree,  for  the  convenience  of 
the  holder  of  the  check,  that  he  will  hold  it  until  the  day  it  is 
presentable  and  will  then  cause  an  account  to  be  opened  by  the 
bank  with  the  holder  and  the  amount  of  the  check  placed  to  his 
credit  so  that  it  can  be  drawn  against.^     The  functions  of  a  note 

^  Farmers'    &    Mechanics'  Bank  v.  *Levy  v.  Bank  of  the  United  States, 

Butchers'  &  Drovers'  Bank.  (1855)  4  4  Dall.  234;  s.  c,  1  Binn.  (Pa.)  27. 

Buer,  219;  affirmed  in  16  N.  Y.  125.  sxjnion    Bank    of    Georgetown    v. 

»  Continental      National     Bank     «j.  Mackall,  2  Cranch  Cir.  Ct.  695. 

National  Bank  of  the  Commonwealth.  «Averell  v.  Second  National  Bank, 

(1872)  50  N.  Y.  575.  (1890)  8  Mack.  (D.  C.)  246.     As  to  a 

» Clews  V.  Bank  of  New  York,  (1889)  post-dated  check  the  court  said:  "It 

114N.Y.70j8.c.,2aN.Y.  St.Repr.397.  should  in  due  course  of  business  be 


I   ■• 


f    I 


n 


;< 


■4\r 


596 


OFFICERS  OF  BAKES. 


f§314 


teller  of  a  bank  do  not  extend  to  the  erasure  of  the  name  of  one 
of  several  makers  of  a  note,  simply  upon  his  request.*  A  bank 
will  not  be  bound  by  the  statement  of  its  teller  that  the  indorse- 
ment upon  a  check  is  genuine.^  It  is  a  gross  violation  of  duty 
for  the  officers  of  a  bank  to  honor  a  check  or  draft  beyond  the 
drawer's  deposits.^  A  bank  will  not  be  bound  by  an  agreement 
of  one  of  its  officers  to  give  notice  to  a  surety  in  case  of  a  default 
on  the  part  of  the  makers  of  a  note  pledged  as  collateral,  in  the 
absence  of  proof  that  authority  was  conferred  upon  the  officer  to 
make  it.*  In  paying  a  debt  due  to  a  bank  in  good  faith  upon 
demand  of  one  whom  he  finds  as  one  of  its  officers  employed  in 
its  business  behind  its  counter,  without  any  knowledge  that  the 
officer's  authority  is  so  limited  that  he  has  no  right  to  receive  it, 
the  bank  will  be  bound  by  the  payment.^  The  bookkeeper  of  a 
bank  or  his  sureties  will  not  be  relieved  from  liability  on  his 
bond  which  provides  that  he  would  strictly  account  f oY  all  moneys 
belonging  to  the  bank  and  apply  its  funds  to  their  proper  uses,  by 
the  consent  of  the  cashier  to  the  taking  by  the  bookkeeper  of 
money  of  the  bank  not  due  him  and  applying  it  to  his  own  use.* 
If,  in  receiving  as  cash  tlie  check  of  an  individual  of  good  credit 
upon  another  bank,  in  which  it  afterwards  appeared  that  he  had 
no  funds,  the  teller  of  a  bank  does  only  what  is  usual  in  the 
ordinary  course  of  trade  and  business  of  banking  and  the  usage  of 
banks  in  like  circumstances,  his  so  taking  it  would  not  be  a  breach  of 
the  condition  of  his  official  bond  to  make  good  to  the  bank  all  dam- 
ages it  should  sustain  through  his  unfaithfulness  or  want  of  care.'' 


presented  by  the  holder  on  the  day  of 
its  date.  It  is  payable  only  on  that 
day  or  after.  The  duty  of  the  banker 
is  simply  to  pay  his  customers'  checks 
over  the  counter  when  presented  on  or 
after  their  date.  It  is  no  part  of  his 
business  to  receive  post-dated  checks 
before  they  are  payable  and  to  engage 
to  present  them  to  himself,  or,  in  other 
words,  to  consider  them  as  presented 
to  him  for  payment  on  the  day  when 
they  are  payable.  Still  less  is  it  his 
business  to  engage  in  advance  to  pay 
checks  which  are  post  dated  as  before 
mentioned.  If  he  should  do  so  it 
would  be  at  his  own  risk,  for  he  could 
not  refuse  to  pay  other  checks  that 


might  be  presented  in  the  meantime, 
although  such  payments  would  leave 
nothing  to  meet  the  post-dated  checks." 

'  Marine  Bank  of  Chicago  v.  Ferry's 
Admr.,  (1860)  40  111.  255. 

'  Walker  c.  St.  Louis  National  Bank, 
(1878)  5  Mo.  App.  214. 

'  Eichelberger  r.  Finley,  7  II.  &  J. 
(Md.)381. 

*  New  Hampshire  Savings  Bank  v. 
Downing.  16  N.  H.  187. 

^  East  River  National  Bank  p.  Gove, 
(1874)  57  N.  Y.  597. 

•  Chew  V.  Ellingwood,  (1885)  86  Mo. 
260. 

'  Union  Bank  of  Georgetown  v, 
Mackall,  2  Cmnch  Cir.  Ct.  695. 


,.  I 


'      » 


CHAPTER  XL 

DEPOSITS  AND  CHECKS. 


§  315.  General  deposits. 

316.  Depositors  —  duty  and  rights. 

817.  When  the  ownership  of  a  de- 

posit is  questioned  —  rules. 

818.  Passing  of   title  by  deposit  of 

check. 

819.  Deposits  in  stivings  banks. 
320.  Receiving  deposits  by  a  bank 

knowing  its  insolvency. 

821.  Certificates  of  deposit. 

322.  Special  deposits. 

823.  The  duty  of  a  bank  as  to  de- 
posits and  its  right  as  to  their 
application. 


§  324.  Checks  generally. 

325.  Certification  of  checks. 

326.  Acceptance  of  a  check  by  a 

bank  —  illustration. 

327.  Presentment     of     checks     for 

payment. 

328.  When  a  draft  on  a  bank  fails  to 

bind  the  fund  in  bank. 

329.  Forged  checks  —  rules. 

330.  Payment  of  forged  checks  or 

payment  of  checks  on  forged 
indorsements. 

331.  Payment  of  raised  checks. 


§  315.  General  deposits.—  It  is  now  perfectly  well  settled 
that  the  relation  between  banker  and  customer  who  pays  money 
into  the  bank,  or  to  whose  credit  money  is  received  there  on 
deposit,  is  the  ordinary  relation  of  debtor  and  creditor ;  and  that 
when  the  bank  receives  the  money  as  an  ordinary  deposit  and 
gives  credit  to  the  depositor,  the  money  becomes  the  funds  of  the 
bank  and  may  be  used  by  it  as  any  other  funds  to  which  it  may 
be  entitled.  It  is  accountable  for  the  deposits  that  it  may  receive 
as  debtor ;  and  in  respect  to  ordinary  deposits,  there  is  an  implied 
agreement  between  the  bank  and  the  depositor  that  the  checks  of 
the  latter  will  be  honored  to  extent  of  the  fund  standing  to  his 
credit.^     A  deposit  is  general,  unless  made  special  by  the  depos- 


'  Hardy  &  Bros.  r.  Chesapeake  Bank, 
(1879)  51  Md.  562,  585;  Horwitz  v. 
Ellinger,  31  Md.  492,  503;  Foley  v. 
Hill,  2  H.  L.  Cas.  28;  Thompson  v. 
Riggs,  5  Wall.  663;  Bank  of  the  Re- 
public V.  Millard,  10  Wall.  152,  155. 
As  to  the  relation  between  general  de- 
positors and  a  bank,  see  Marine 
Bank  r.  Fulton  Bank,  2  Wall.  252; 
Phoenix  Bank  r.  Risley,  111  U.  S.  125; 
Planters'  Bank  v.  Union  Bank,  16 
Wall.  483;   Boyden  t.  Bank  of  Cape 


Fear,  65  N.  C.  13;  McGregor  v. 
Loomis,  1  Disney  (Ohio),  247;  Perley 
T.  Muskegon  County,  32  Mich.  132; 
Neely  v.  Rood,  54  Mich.  134;  Knecht 
V.  United  States  Savings  Institution, 
(1876)  2  Mo.  App.  563;  Union  Bank  «. 
Tutt,  (1878)  5  Mo.  App.  342;  State  r. 
Keim,  8  Neb.  63,  67;  First  National 
Bank  r.  Gandy,  11  Neb.  431,  434;  Sew- 
ard County  V.  Cattle,  14  Neb.  149;  Long- 
bottom's  Exrs.  ??.  Babcock,  9  La.  50; 
Grant  v.  Fiol.  17  La.  162;  Wall  r.  Spur- 


I 


1! 


•  t 

I! 


I 


\., 


'         ) 


i|i 


if 


598 


DEPOSITS  AND  CHECKS. 


[§  315 


itor,  or  it  is  made  expressly  in  some  particular  capacity  by  him. 
On  a  general  deposit  there  will  be  an  implied  promise  on  the  part 
of  the  bank  receiving  it  to  restore  not  the  same  funds,  but  an 
equivalent  sum  when  demanded.*  This  liability  to  pay  out  the 
same  on  the  checks  of  the  depositor  is  implied  by  the  law,  with- 
out a  special  contract  to  that  effect.^  The  law  implies,  also,  that 
where  a  bank  receives  bank  notes  for  deposit,  in  the  absence  of 
any  agreement  to  the  contrary,  that  the  bank  takes  them  at  its 
own  risk.^  And  even  though  a  bank  should  take  bank  notes  with 
the  understanding  that  the  risk  of  their  being  good  was  to  rest 
upon  the  depositor,  yet,  it  is  the  duty  of  the  bank,  upon  knowl- 
edge of  the  insolvency  of  the  bank  issuing  the  notes,  to  give  legal 
notice  of  the  fact  to  the  depositor ;  and  a  failure  to  notify  him 
will  not  be  excused  by  the  depositor's  having  knowledge  of  the 
fact.^  A  bank  receiving  a  sum  of  money  on  deposit  generally, 
must  account  to  the  depositor  for  tlie  amount  in  good  funds,  and 
a  local  custom  of  bankers  would  not  be  admissible  in  evidence,  to 
change  the  liability  of  the  bank.®  Whenever  the  relation  of 
debtor  and  creditor  exists  between  the  bank  and  a  depositor,  the 
bank  will  be  liable  for  any  depreciation  of  the  currency.* 
Where  money  is  collected  and  mixed  up  with  tlie  general  funds 


lock,  10  La.  342;  In  re  Louisiana 
Savings  Bank,  40  La.  Ann.  514.  That 
money,  checks  or  bill  deposited  by  a 
general  depositor  in  a  bank  become  the 
property  of  the  bank,  and  the  relation 
of  debtor  and  creditor  between  the  bunk 
and  depositor  is  thereby  created,  see 
Matter  of  Franklin  Bank,  (1828)  1 
Paige  Ch.  249;  Chapman  r.  White, 
(1852)  6  N.  Y.  412;  Commercial  Bank 
of  Albany  r.  Hughes.  (1837)  17  Wend. 
94;  Marsh  v.  Oneida  Central  Bank 
(1861)  34  Barb.  298;  ^tna  National 
Bank  v.  Fourth  National  Bank.  (1871) 
46  N.  Y.  82.  Under  what  circum- 
stances the  trustee  of  a  school  district 
by  a  deposit  in  bank  becomes  the  cred- 
itor of  the  bank,  see  Union  School 
Township  r.  First  National  Bank, 
(1885)  102  Ind.  464. 

»Brahm  r.  Adkins,  77  111.  263;  Mc- 
Ewen  T.  Davis,  39  Ind.  109. 

«  Thompson  r.  Biggs,  6  D.  C.  99. 


3  Corbit  V.  Bank  of  Smyrna,  2  Harr. 
(Del.)  235. 

<Ibid. 

» Marine  Bank  of  Chicago  v.  Birney, 
28  111.  90. 

•  Marine  Bank  of  Chicago  v.  Chand- 
ler, 27  111.  525.  In  Kupfer  v.  Bank  of 
Galena,  (1861)  34  111.  329,  a  deposit  of 
gold  coin  had  been  made  in  the  bank 
prior  to  the  passage  of  the  "legal 
tender"  laws  by  congress,  and  had 
been  drawn  out  by  checks  paid  in 
treasury  notes.  The  Supreme  Court 
of  Illinois  held  that  the  bank  waa 
responsible  for  the  value  of  the  coin 
as  compared  with  the  notes  in  which 
the  drafts  or  checks  on  this  deposit 
were  paid.  As  to  the  right  to  pay  in 
treasury  notes  of  the  United  States 
where  the  deposit  was  made  in  gold  or 
other  coin,  see  Thompson  v.  Riggs,  6 
D.  C.  99. 


§315] 


DEPOSITS  AND  CHECKS. 


599 


of  a  bank  it  becomes  a  general  deposit  to  the  credit  of  the  party 
for  whom  the  collection  was  made,  and  is  governed  by  the  rules 
which  obtain  in  ordinary  cases  of  deposit  of  money  with  banks.^ 
In  such  case,  therefore,  should  the  funds  after  such  mingling 
become  depreciated,  the  bank  must  sustain  the  loss  and  not  the 
one  for  whom  the  collections  were  made.^     Where  a  depositor 
makes  a  deposit  with  a  bank  to  his  credit,  with  instructions  to 
apply  it  to  the  payment  of  a  claim  against  Jiim  lield  for  collection, 
there  must  be  an  actual  appropriation  of  the  money  for  that  pur- 
pose before  it  will  operate  a  payment  of  the  claim.     Until  this  is 
done  the  instructions  may  be  countermanded.     The  money  depos- 
ited is  the  money  of  the  bank  and  the  depositor  may  draw  upon 
it  or  direct  its  appropriation  in  some  other  way.^     When  a  bank, 
in  the  ordinary  transaction  of  its  business,  receives  money  on  gen- 
eral deposit,  the  money  thereby  becomes  the  property  of  the 
bank  and  the  bank   becomes   debtor  to   tlie  depositor   for  the 
amount  as  so  much  money  had  and  received,  and  any  subsequent 
loss  of  the  money  or  destruction  of  its  value,  falls  on  the  bank. 
The  depositor  is  only  a  creditor  of  the  bank.'*     If  the  bank  fail, 
and  be  unable  to  pay  its  debts  in  full,  the  depositor  comes  in  only 
as  a  general  creditor  and  can  only  receive  his  pro  rata  share  of 
the  assets.*     Where  money  is  deposited  with  a  bank  by  a  board 
of  officials  in  their   official   relation,  when   superseded  by   the 
appointment  of  a  new  board,  the  money  becomes  subject  to  the 
check  of  the  new  board.^     A  banking  corporation  taking  from 
another  an  assignment  of  all  of  its  property,  on,  as  a  considera- 
tion, agreeing  to  pay  all  of  the  debts  and  liabilities  of  this  other, 
and  proceeding  to  conduct  the  business  of  banking,  and  crediting 
a  depositor  of  the  former  with  the  amount  of  his  deposit  upon  its 
own  books  of  account,  thereby  assumes  the  relation  to  the  depos- 
itor which  the  former  owes  to  him."^     The  receipt  of  a  cashier  of 
a  bank  is  evidence  of  a  deposit  in  a  bank.^     In  a  Kew  York  case 
where  a  bookkeeper  in  the  bank,  as  well  as  bookkeeper  for  one  of 


'  Marine  Bank  of  Chicago  v.  Rush- 
more,  28  111.  463. 
'Ibid. 
'  Moore  v.  Meyer,  57  Ala.  20. 

*  Henry  v.  North.  Bank  of  Ala.,  63 
Ala.  527. 

*Ibid. 

•  Carman    v.  President  &  Directors 
of   the  Franklin  Bank  of  Baltimore, 


(1883)  61  2.1d.  467.  The  court  refers 
to  and  comments  upon  Lewis  v.  Park 
Bank,  42  N.  Y.  463,  and  Swartwout  d. 
Mechanics'  Bank  of  New  York,  5 
Denio,  555. 

'  Green  v.  Odd  Fellows'  Savings  & 
Commercial  Bank,  (1884)  65  Cal.  71. 

®  State  Bank  v.  Kain,  Breese  (111.), 
75. 


tioo 


DEPOSITS  AKD  CHECKS. 


[§315 


the  bank's  depositors,  received  from  the  latter  money  for  the 
purpose  of  depositing  it  in  bank,  entered  the  amount  in  the  led- 
ger of  the  bank  and  in  tlie  depositor's  bank  book,  but  the  money 
was  not  received  by  the  latter  nor  entered  in  the  cash  book,  it 
was  held  that  in  making  tlie  deposit  the  bookkeeper  was  the  agent 
of  the  depositor  and  not  of  the  bank,  and  that  the  bank  was  not 
accountable  for  the  money  intrusted  by  the  depositor  to  the  book- 
keeper for  deposit.^  A  credit  on  the  books  of  a  bank  for  a  gen- 
eral deposit  is  an  acknowledgment  of  the  receipt  of  so  much 
money.*  A  paper  headed  with  the  names  of  bankers,  showing 
that  a  party  had  made  a  deposit  with  them,  stating  the  amount 
thereof,  and  signed  by  them,  has  been  held  to  be  hona  fide  evi- 
dence of  a  general  deposit  against  the  bankers.^  A  pass  book, 
given  by  a  bank  to  a  depositor,  is  not  a  written  contract  but  is 
^rima  facie  evidence  that  the  bank  has  received  the  amounts  on 
tlie  dates  therein  stated,  and  binds  the  bank  like  any  other  form 
of  receipt,  and  is  open  to  explanation  by  evidence  aliunde} 
Should  a  bank  receive  the  deposit  of  a  minor  it  must  honor  his 
checks.^  Should  a  bank  credit  a  depositor  with  the  amount  of  a 
check  drawn  upon  it  by  another  of  its  customers,  and  there  be 
no  want  of  good  faith  upon  the  part  of  the  depositor,  the  act  of 
crediting  would  be  equivalent  to  a  payment  in  money.  And  a 
bank,  it  has  been  held,  could  not  recall  or  repudiate  the  payment, 
because,  upon  an  examination  of  the  accounts  of  the  drawer,  it 
was  ascertained  that  he  was  without  funds  to  meet  the  check, 
though  when  the  payment  was  made  the  officer  making  it 
labored  under  the  mistake  that  there  were  funds  sufficient.* 
A  check  left  with  a  bank  for  collection  and  credited  to  the  deposr- 


» Manhattan  Co.  n.  Lydig,  (1809) 
4  Johns.  377 . 

•Corbit  T.  Bank  of  Smyrna,  2 
Ilarr.  (Del.)  235.  Whether  a  bank  can 
go  behind  its  cashier's  entry  on  a 
depositor's  bank  book  to  prove  that 
the  amount  deposited  was  a  smaller 
Kum  has  been  queried  in  Johnaon  r. 
Farmers*  Bank,  1  Harr.  (Del.)  117. 

>  Brahm  n.  Adkins,  77  111.  263. 

^Talcott  r.  First  Nat.  Bank  of 
Lamed,  (Kans.  1894)36Pac.  Rep.  1066. 
8ee  Davis  v.  Bank,  53  Mich.  163;  s.  c. 

18  N.  W.  Rep.  629;  Bank  r.  Smith, 

19  Johns.  116;  Asher  ».  Bunk,  7  Alb. 


Law  J.  43;  Anderson  v.  Leverick, 
(Iowa)  30  N.  W.  Rep.  39.  The  court 
distinguished  Jassoy  v.  Horn,  64  111. 
379,  aud  Long  v.  Straus,  107  Ind.  94; 
8.  c,  6  N.  E.  Rep.  123,  and  7  N.  E. 
Rep.  763. 

^Bank  v.  Headley,  17  W.  N.  C. 
(Pa.)  557. 

•City  National  Bank  f).  Burns, 
(1880)  68  Ala.  267;  citing  Chambers  v. 
Miller,  13  C.  B.  (N.  S.)  125;  Levy  «». 
U.  S.  Bank,  4  Dall.  234;  Oddie  v.  Na- 
tional Bank,  45  N.  Y.  735;  8.  c,  6  Am. 
Rep.  160;  Bolton  r.  Richard,  6  Term 
Rep.  139;  National  Bank  i\  Burkhardt. 


Hii 


§  '^15]  DEPOSITS  AND  CHECKS.  601 

itor  may  be  charged  back  to  him  in  case  the  check  proves  a 
fraudulent   one.^     Where   commercial  paper  is  delivered  to  a 
bank  under  an  arrangement  that  the  depositor  be  allowed  to 
draw  against  it,  the  paper  becomes  the  property  of  the  bank,  and 
tlie  depositor  cannot  thereafter  claim  it.^    The  mere  discounting 
of    paper  and  placing  the  amount  thereof    to  the  credit   of  a 
depositor  who  already  has  a  large  balance  to  his  credit,  will  not 
make  the  bank  a  purchaser  for  value  so  as  to  protect  it  against 
infirmities  in  the  paper.     Entering  the  amount  of  the  discount 
to  the  credit  of  the  depositor  simply  creates  the  relation  between 
the  bank  and  depositor  of  debtor  and  creditor ;  and,  as  long  as 
that  relation  remains  and  the  deposit  is  not  drawn  out,  the  bank 
,lias  simply  promised  to  pay  ;  the  depositor  has  parted  with  no 
value  and  would  not  be  entitled  to  the  protection  of  a  hona  fide 
liolder  of  paper.^     But  wliile  the  mere  discounting  of  paper  by  a 
bank  and  placing  the  amount  thereof  to  the  credit  of  a  depositor 
having  already  a  balance  to  his  credit  will  not  constitute  the  bank  a 
purchaser  for  value  so  as  to  cut  off  equities,  yet,  as  by  the  dis- 
count and  credit,  it  becomes  a  debtor  to  the  depositor  if  before 
receiving  notice  of  any  infirmity  in  the  paper  it  pays  out  on  the 
checks  of  the  depositor  the  full  amount  due  him,  including  the 
discount,  the  bank  thereby  will  become  a  purchaser  for  value  so 
as  to  be   entitled   to  full  protection.-*     This  rule  would   obtain 
though  the  depositor,  by  subsequent  deposits  or  discounts,  pre- 
serve a  constant  balance  to  his  credit,  for,  in  the  absence   of 
special  facts  demanding  a  different  rule,  payments  are  applied  to 
the  oldest  debts.^     The  fact  that  the  depositor  be  itself  a  bank 
and  the  regular  correspondent  of  tlie  discounting  bank  would 
not  change  the  rules  as  already  stated.^ 

100  U.  S.  686.  The  Alabama  court 
distinguished  Boyd  'c.  Emmerson,  2  Ad. 
&  Ell.  184,  and  Kilsby  t.  Williams,  5 
Barn.  <&  Aid.  815.  See  on  the  subject 
of  drawing  checks,  Martin  ».  Morgan, 
Gow,  123;  8.  c,  3  J.  B.  Moore,  635; 
Peterson  v.  Union  National  Bank,  52 
Pa.  St.  206;  National  Gold  Bank  & 
Trust  Co.  T.  McDonald,  51  Cal.  64;  s. 
c,  21  Am.  Rep.  697. 

>  Rapp  c.  Bank,  26  W.  N.  C.  (Pa.) 
458. 

» Flannery  t.  Coates,  (1883)  80  Mo. 
444;  Ayres  ?;.  Bank,  (1883)79  Mo.  421; 

76 


Bullene  t>.  Coates,  (1883)  79  Mo.  426; 
Armstrong  t.  Exchange  National 
Bank,  133  U.  S.  433.  When  bankers 
will  not  be  held  liable  as  guarantors  of 
a  deposit  made  with  other  bankers,  see 
Dustin  &  Musick  v.  Hodgen,  (1868)  47 
111.  125. 

«Munn  T.  Second  National  Bank, 
(1883)  30  Kans.  412. 

*  Fox  t.  Bank  of  Kansas  City,  (1883) 
30  Kans.  441. 

*Ibid. 

*Ibid.  As  to  what  constitutes  a 
legal  deposit  of  money  in  a  bank  and 


I'll 


t 


i 


G02 


DEPOSITS  AND  CHECKS. 


[§  au> 


§  316.    Depositors  —  duty    and    rights. —  Depositors    must 
know  and  conform  to  tlie  ordinary  usage  of  business  of  the  bank.* 
"Where  one  of  two  partners  carrying  on  business  in  his  o\vn  name 
deposits  moneys  of  the  firm  in  his  own  name  in  bank,  the  other 
partner  will  have  the  right,  during  tlie  lifetime  of  liis  partner,  to 
change  tlie  account,  placing  it  to  the  credit  of  the  firm,  and  after 
his  death  to  draw  against  it  as  surviving  partner.^     Though  a 
depositor's  account  may  be  deemed  balanced,  and  the  lapse  of 
time  be  such  that  as  a  whole  account  it  cannot  be  opened,  yet 
particular  items  may  be  shown  to  be  false.'    A  depositor  is  not 
precluded  by  a  rule  of  a  bank,  that  all  payments  made  and  received 
must  be  examined  at  the  time,  from  showing  afterwards  that 
there  was  a  mistake  made  in  the  entry  of  his  deposit.^     Neither  , 
will  he  be  concluded  by  entries  made  in  his  deposit  book  by  the 
bank  in  writing  up  his  account  if  he  has  made  objection  to  it 
within  a  reasonable   time   after   the   account  was   written  up.'^ 
Where  the  entry  of  a  deposit  was  made  by  the  teller  of  a  bank, 
and  the  amount  was  erroneously  stated  to  him  by  the  depositor's 
clerk,  and  the  depositor  questioned  its  correctness  on  the  day  of 
the  deposit,  as  soon  as  lie  discovered  a  mistake  had  been  made, 
the  Supreme  Court  of  New  York  held  that  the  depositor  should 
be  allowed  to  recover  from  the  bank  the  difference  between  the 
amount    entered    and    the   true   amount.®     The   United   States 
Supreme  Court  lias  held  that  a  depositor  in  a  bank  was  estopped 
to  question  the  correctness  of  his  bank  account  by  omission  to 
examine  entries  in  his  pass  book  and  vouchers  returned,  and  to 
report  errors."'    They  also  held  that  a  depositor  intrusting  exami- 

tbe  bank's  liability,  see  Jackson  Insur-  *  Schneider  r.  Irving  Bank,  (1865)  1 
ance  Co.  t.  Cross,  (1872)  9  Heisk.  Daly.  500;  s.  c,  30  How.  Pr.  190.  See 
(Tenn.)  283.  Godin  t.  Bank  of  the  Commonwealth, 

» American  National  Bank  v.  Bushey,  6  Duer,  76,  as  to  what  amounts  to  an 
45  Mich.  135.  As  to  the  effect  of  accounting  between  a  bank  and  a  de- 
usnge  of  the  bank  upon  other  par-  positor  which  will  bind  the  latter, 
lies,  see  Leavitt  v.  Simea,  3  N.  H.  'Mechanics  &  Farmers'  Bank  r. 
14;  Piscataqua  Bank  r.  Carter,  20  N.  Smith,  (1821)  19  Johns.  115.  In  Win- 
H.  246,  248;  Moore  r.  Waitt,  13  N.  H.  ter  v.  Bank  of  New  York,  2  Caines. 
415;  Crosby  v.  Wyatt,  10  N.  H.  318.    337,  a  bank  was  held  liable  to  the  true 

depositor,  though  the  deposit  had  been 
partly  credited    to   one    who  falsely 


'  Commercial  National  Bank  v.  Proc- 
tor, (1881)  98  111.  558. 


» Manhattan  Co.  v.  Lydig,  (1809)  4   claimed  to  be  the  depositor,  and  the 


Johns.  377. 

*  Mechanics    &    Farmers'    Bank 
Smith,  (1821)  19  Johns.  115. 


bank  had  parted  with  value  to  him  on  it. 
v.       'Leather    Manufacturers'    Bank    «. 
Morgan,  117  U.  S.  96. 


§316] 


DEPOSrrS  AND  CHECKS. 


603 


nation  of  his  bank  account  and  vouchers  to  his  clerk,  without 
proper  supervision,  was  liable  for  loss  by  the  clerk's  forgeries, 
wliere  the  bank  had  used  due  care.^     A  check  drawn  by  a  depos- 
itor, never  accepted  and  not  accounted  for,  would  be  no  obstacle 
to  a  suit  for  the  deposit.^     In  an  action  against  a  depositor  for  an 
overdraft  he  may  set  off  coupons,  payable  to  bearer,  for  which 
the  bank  may  be  liable.^     Should  a  depositor  on  the  same  day  of 
liis  deposit,  and  before  it  is  placed  to  his  credit  on  the  books  of 
the  bank,  direct  the  cashier  to  change  the  deposit  to  the  credit  of 
another,  which  is  done,  and  the  money  be  drawn  out  on  the  checks 
of  the  latter,  the  depositor  will  not  be  allowed  to  recover  the 
amount   of   the   deposit   from   the  bank.*     As  a  general  rule, 
deposits  of  money  in  bank,  subject  to  the  checks  of  the  depositor, 
draw  no  interest.     It  seems  that  if  there  should  be  unreasonable 
and  vexatious  delay  in  payment  the  depositor  may  demand  inter- 
est.'    In  an  Illinois  case  it  appeared  that  a  depositor  in  a  bank, 
expecting  to  be  absent  for  a  short  time,  gave  his  clerk  and  book- 
keeper a  power  of  attorney  to  draw  checks  on  the  bank  against 
deposits  for  fifteen  days  only,  and  placed  the  power  of  attorney 
with  the  bank.     After  his  return  he  resumed  drawing  his  own 
checks.     But  after  the  expiration  of  fifteen  days  the  clerk  con- 
trived to  draw  cliecks  without  the  knowledge  of  the  depositor,  a 
part  of  which  he  applied  to  the  business  of  his  employer  and 
appropriated  the  balance  to  his  own  use.     In  the  depositor's  suit 
against  the  bank  to  recover  his  deposits,  the  Supreme  Court  held 
that  the  bank  was  liable  to  the  depositor  for  the  moneys  paid  out 
on  the  checks  drawn  by  the  clerk  after  his  agency  ceased,  so  far 


it 


'  Leather  Manufacturers'  Bank  v. 
Morgan,  117  U.  S.  96. 

'Jackson  Insurance  Co.  v.  Cross, 
(1872)  9  Heisk.  (Tenn.)  283. 

^  Bank  of  the  United  States  ij.  Mac- 
alester,  9  Pa.  St.  475. 

*Neff  v.  Greene  County  National 
Bank,  (1886)  89  Mo.  581. 

« First  National  Bank  of  Springfield 
®.  Coleman,  (1882)  11  Bradw.  (111.)  508. 
The  court  said:  "  It  cannot  be  said  that 
there  has  been  any  unreasonable  and 
vexatious  delay,  unless  the  debtor  lias 
thrown  some  obstacle  in  the  way,  or, 
by  some  management  of  his  own,  in- 
duced the  creditor  to  prolong  the  term 


of  proceeding  against  him.  Sammis 
®.  Clark,  13  111.  544;  Hitt  v.  Allen,  13 
111.  592.  And  the  defending  in  good 
faith  of  a  suit  brought  for  the  recovery 
of  the  money  is  not  a  vexatious  delay. 
Aldrich  v.  Dunham,  16  111.  403."  In 
Jassoy  V.  Horn,  (1872)  64  111.  379, 
where  payment  of  an  account  evi- 
denced by  the  entries  in  a  depositor's 
book  had  been  repeatedly  demanded 
and  ten  years  had  elapsed  after  the  de- 
posit of  the  money, the  Illinois  Supreme 
Court  held  that  the  delay  of  payment 
was  vexatious  and  unreasonable  and 
that  interest  should  be  allowed  on  the 
account. 


604 


DEPOSITS  AND  CHECKS. 


[§316 


§316] 


DEPOSITS  AND  CHECKS. 


605 


as  he  had  appropriated  them  to  his  own  use.^  It  was  insisted 
l>efore  the  court  that  the  court  before  which  this  case  was  tried 
had  erred  in  rendering  judgment  for  any  greater  sum  than  the 
amount  checked  out  by  the  clerk  before  the  bank  book  or  pass 
book  of  the  depositor  was  written  up  the  first  time,  when  all  the 
checks  were  returned  to  the  depositor.  It  was  claimed  that  from 
that  date,  at  least,  the  bank  had  the  right  to  presume  that  the 
clerk  had  authority  to  draw  checks.  The  Supreme  Court,  how- 
ever, affirmed  the  judgment.^  In  a  case  where  a  bank  received 
a  deposit  of  a  check  under  an  agreement  that  the  check  should  be 
paid  out  of  the  first  unappropriated  funds  of  the  drawer  that 
came  in,  and  large  sums  came  in  from  the  drawer,  but  all  appro- 
priated, the  bank  was  held  not  liable  upon  its  agreement.^  There 
must  be  a  demand  for  payment  before  a  suit  can  be  brought 
against  a  bank  for  a  deposit.*  And  this  demand  previous  to  a 
suit  is  indispensable  to  the  maintenance  of  a  suit  for  such  deposit, 
unless  circumstances  are  shown  which  amount  to  a  legal  excuse 
for  not  making  such  demand.^  A  depositor,  however,  would 
have  an  immediate  cause  of  action  against  a  bank  and  its  stock- 
holders, for  the  amount  of  his  deposit  upon  stoppage  of  payment 
by  the  bank.*     An  action  against  the  bank  cannot  be  maintained 


'Manufacturers'   National  Bank  v. 
Biirnes,  (1872)  65  111.  69. 

« Ibid.  The  court  said:  "  The  same 
question  arose  in  the  case  of  Weisser  v. 
Denison,  10  N.  Y.  68.  There,  as  here, 
a  clerk  had  drawn  checks  in  the  name 
of  his  employer,  and  the  pass  book 
had  been  several  times  written  up  and 
the  checks  returned  before  discovery 
of  the  fraud.  The  court  held  that  the 
balancing  of  the  pass  book  and  the  re- 
turn of  the  checks  are  for  the  protec- 
tion of  the  depositor,  and  not  for  that 
of  the  bank,  and  the  failure  of  the  de- 
positor to  examine  the  checks  is  not 
such  negligence  on  his  part  as  to  ex- 
onerate the  bank  from  Uability  for  the 
continued  payment  of  checks  improp- 
erly drawn.  ♦  ♦  ♦  The  facts  that 
the  plaintiff  [in  the  case  before  us]  had 
been  thus  careful  to  give  the  clerk  ex- 
press written  authority,  and  to  limit  it 
to  fifteen  days,  and  to  lodge  this  au- 


thority with  the  bank,  in  pursuance  of 
a  previous  arrangement,  were  suffi- 
cient to  show  the  bank  that  the  plain- 
tiff had  no  intention  of  giving  to  the 
clerk  a  general  authority  to  draw. 
The  bank  was  guilty  of  great  negli- 
gence in  paying  checks  of  the  clerk 
drawn  after  that  period,  and  cannot  be 
excused  merely  because  the  plaintiff 
failed  to  examine  the  returned  checks, 
which  he  had  a  right  to  presume  had 
been  drawn  by  himself  alone.  We 
consider  the  reasoning  of  the  New 
York  Court  of  Appeals,  in  the  case 
cited,  very  satisfactory,  and  adopt  its 
decision  as  the  better  rule." 

'Johnston  v.  Bank,  101  Pa.  St.  600. 

*Downes  v.  Phcenix  Bank,  (1844)  6 
Hill,  297. 

«Brahm  v.  Adkins,  77  111.  263. 

•  Mitchell  V.  Beckman,  (1883)  64  Cal. 
117. 


upon  a  certificate  of  deposit  issued  to  one,  "  subject  to  order  of 
himself  *  *  *  and  payable  on  return  of  this  certificate " 
before  a  demand  for  payment  and  a  refusal  to  pay.^  A  depositor 
will  be  relieved  from  demanding  the  payment  of  his  deposit  as 
prehminary  to  the  right  to  sue,  by  a  notice  from  the  bank,  or  by 
an  advertisement,  that  his  claim  would  not  be  paid  at  the  coun- 
ter.* Upon  the  suspension  of  a  national  bank  and  the  appoint- 
ment of  a  receiver,  a  depositor  in  the  bank,  from  the  date  of  his 
demand  for  it,  will  be  entitled  to  interest  on  his  deposit.^  Where 
money  may  be  deposited  by  the  drawee  in  a  bank  to  pay  a  cer- 
tain draft,  not  there  at  the  time,  the  drawers  would  have  no 
interest  on  the  money  until  the  application  to  their  draft  is  made. 
The  drawee  may  revoke  his  direction  at  any  time  before  the 
money  is  so  applied.*  In  an  Indiana  case  one  who  wished  a  loan 
of  money  employed  a  firm  to  negotiate  it  for  him.  They  applied 
to  another  firm,  who  procured  the  money  from  their  principal,  a 
security  company,  and  deposited  it  in  bank.  Soon  afterwards  the 
first  party  executed  his  note  and  mortgage  for  the  amount  and 
delivered  them  to  the  firm  who  had  procured  the  money,  and 
they,  in  turn,  left  a  check  on  the  bank,  with  one  of  the  firm  first 
named,  to  be  delivered  to  the  first  party  when  he  obtained  the 
release  of  prior  incumbrances  on  his  land,  which  he  agreed  to  do 
at  a  certain  time.  He  did  not  carry  out  the  agreement  at  the 
time  fixed,  nor  subsequently,  and  ten  days  later,  while  the  check 
was  still  in  the  keeping  of  others,  the  bank  on  which  it  was  drawn 
failed.  The  court  held  that  the  loss  was  not  his,  and  that  he 
could  maintain  an  action  against  the  security  company  for  the 
surrender  and  cancellation  of  the  note  and  mortgage.*^  One  keep- 
ing an  account  with  a  banking  house,  depositing  funds  which  are 
at  the  time  current,  has  a  right  to  insist  upon  payment  in  current 
funds,  although  the  funds  deposited  may,  in  the  meantime,  have 
depreciated  in  value.®    There  has  been  a  case  before  the  Supreme 

» Brown  v,  McElroy,  (1876)  52  Ind.  « National  Bank  «j.   Mechanics'  Na- 

404.  tional  Bank,  94  U.  S.  437, 

'Farmers   &   Mechanics'    Bank    v.  *Bank  v.  Higbee,  109  Pa.  St.  130. 

Planters'  Bank,  10  G.  &  J.  (Md.)  422.  ^  Security  Company  v.  Ball,  (1886) 

That  demand  must  be  made  for  pay-  107  Ind.  165. 

ment  of  deposit  before  action  to  re-  «Willett8  v.    Paine,    (1867)  43   111. 

cover  it,  see  National  Bank  of  Fort  Ed-  432. 
ward  V.  Washington  County  National 
Bank,  (1875)  5  Hun,  605. 


4 


i>)i 


606 


DEPOSITS  AND  CHECKS. 


[§316 


Court  of  Michigan  in  wliicli  it  appeared  that  the  two  members  of 
a  firm  joined  in  a  letter  to  the  bank,  in  which  the  firm  kept  an 
account,  instructihg  it  to  pay  no  checks  on  the  part  of  the  firm 
unless  they  were  countersigned  by  a  son  of  one  of  the  partners, 
who  was  the  bookkeeper  of  the  firm.  The  other  partner  made 
an  arrangement  with  the  bank  by  which  he  was  to  get  money  for 
their  busniess  at  another  point  where  he  conducted  it.  He  drew 
a  number  of  checks  in  the  name  of  the  firm  at  different  times 
which  were  not  countersigned  by  the  bookkeeper.  A  check 
drawn  in  this  way  finally  came  back  to  the  bank  not  paid,  and 
was  charged  up  to  the  firm.  For  overdrafts  on  this  account 
the  bank  brought  its  action  against  the  firm.  On  the  trial  of  this 
action  there  was  no  showing  by  the  bank  that  the  firm  derived 
any  benefit  from  the  moneys  received  upon  these  checks,  it  rest- 
ing its  claim  upon  the  contract  implied  from  the  signing  of  the 
checks  in  tlie  firm  name.  The  majority  of  the  court  affirmed  the 
judgment  of   the    trial  court  in  favor  of  the  firm.*     A  person 

>  Gladstone  Exchange  Bank  p.  Keat-    in   the   case  that  the  defendants  are 
ing,  (1892)  94  Mich.  429.     ^^Ioxtgom-    estopped  from  relying  upon  this  dc- 
ERY,   J. ,   speaking  for  the  majority,    f ense.  for  the  reason  that  there  was  an 
said:  "  It  is  suggested  that  the  burden    opportunity  for  an  examination  of  the 
of  proof  would  rest  upon  the  defend-    account  and  checks,  and  that  the  de- 
ants  to  show  that  the  moneys  did  not    fcndants  should  have  examined  these 
go  to  the  benefit  of  the  rirm.     In  my    (•hecks,  and  notified  the  [bank]  of  the 
judgment,  this  is  not  the  corn  -t  rule   excess  of  authority  and  of  the  inva- 
in  such  a  case.     The  [bank]  seeks  to   lidity   of  the  checks."     The  case    of 
recover,    notwithstanding    it    appear,^    Bank  r.  Morgan,  117  U.  8.  96,  cited  to 
aflQrmatively  that  the  money  was  paid   sustain  this  position,  was  distinguished 
out  by  it   upon   cheeks  which  'were   in   the  opinion  of  the  Michigan  Su- 
drawn  withoiit  the  requisite  authority    preme  Court,  as  follows:  "But  in  the 
of  the  firm.     There  can  be  no  doubt    eise  cited,  the  party  drawing  the  check 
about  the  power  of  either  member  of    had  prium  facie  authority  to  draw  it; 
a  copartnership  to  protect  himself  by   the  bank  acted  in  good  faith  in  making 
stipulating  that  the  other  member  shall   the  payment;   the  check  passed  back 
not  have  the  authority  to  bind  the  firm   into  the  hands  of  the  drawer,  with 
by  signing  checks,  if  notice  is  given    opportunity  to  examine  and  observe 
to  the  bank  which  is  the  depository   the  error;  it  appeared  charged  in  the 
of  the  firm;  and  when,  on  the  affirma    account  of  the  drawer.     Under  these 
tive  showing  of  the  bank,  as  in  this   circumstances,  it  was  held  that  there 
case,  it  appears  that  the  bank  has  dis-    was  a  duty  to  notify  the  bank,  in  order 
regarded  the  notice,  how  can  it  be  said   that  it  might  protect  itself.     But  what 
that  a />nm«/ac«e  case  is  shown,  with-   notice   was  requisite  in   this  case  to 
out  further  showing  that  some  benefit   enable  the  bank  to  protect  itself?    The 
was  derived  by  the  firm  from  the  pay-   moment  it  paid  one  of  these  checks, 
ment  of  the  money?    It  is  suggested   its  oflScers  knew  from  direct  notiflca- 


§  ;uT] 


DEPOSITS  AND  CHECKS. 


607 


<lepositing  money  with  one  bank,  to  be  transmitted  for  his  use 
and  benefit  to  another  bank,  which  refuses  or  is  unable  to  receive 
it,  and  cannot  be  compelled  to  receive  it,  the  purpose  of  the 
deposit  failing,  the  bank  so  receiving  the  same  will  hold  it  to  the 
use  of  the  depositor,  and  nuist  account  to  him  for  it.  Money  so 
deposited  and  expressed  in  the  certificate  of  deposit,  to  be  for- 
warded in  the  usual  course  of  business,  cannot  be  regarded  as 
assets  of  the  bank  to  which  it  was  to  be  remitted,  and  the  bank 
receiving  the  deposit  cannot  apply  the  same  in  jmyment  of  debts 
due  from  the  correspondent  bank,  nor  would  such  money  be  sub- 
ject to  garnishment  at  the  suit  of  creditors  of  that  bank.^ 

§  317.  When  ownership  of  deposit  is  questioned  —  rules. — 

Tn  a  controversy  over  the  right  to  a  bank  deposit  where  it  is 
denied  that  the  depositor  was  the  owner  of  the  fund,  and  entitled 
to  draw  the  same  from  the  bank,  it  may  be  shown  that-  the 
ownership  of  the  deposit  is  in  another,  and  that  a  payment  to 
him  releases  the  bank  from  liability.^  A  receiver  of  a  corpora- 
tion appointed  upon  the  removal  of  a  former  receiver  drawing  a 
check  upon  the  bank,  where  the  receiver's  deposits  of  funds  had 
been  made  fclr  a  supposed  l)alance  due  on  that  account,  the  bank 
<leclined  to  pay  it  on  the  ground  that  there  was  no  such  balance. 
The  evidence  showed  the  payment  of  a  check  by  the  former 
receiver  drawn  to  an  individual  for  the  amount  of  money  received 
by  him  belonging  to  her  and  deposited  to  the  credit  of  the 
receiver's  account.  In  an  action  upon  the  protested  check  the 
bank  had  judgment  in  its  favor.  Upon  appeal  the  Maryland 
Court  of  Appeals  afiSrmed  this  judgment,  holding  that  where 
such  a  receiver  had  deposited  to  his  credit,  as  receiver,  money 
belonging  to  an  individual,  the  corporation  was  under  obligation 
to  repay  such  person,  and  was,  therefore,  not  prejudiced  by  the 


tion  that  they  were  violating  the  ex- 
press instructions  and  directions  of 
(lefendants.  Why  notify  them  of  what 
they  already  knew?  If  either  party 
was  entitled  to  notice  cf  this  transac- 
tion from  the  other,  it  was  certainly 
the  two  defendants,  as  individuals, 
who  were  entitled  to  notice  from  the 
bank  that  some  person  connected  with 
the  firm  was  assuming  to  violate  the 
express  instaictions  of  the  firm,   of 


ti^t 


which  the  bank,  as  well  as  the  defend- 
ants, was  apprised."  Grant,  .1.,  dis- 
sented on  each  of  the  points  just 
discussed. 

'  Drovers'  National  Bank  r.  O'Hare, 
(1887)  119  111.  646;  s.  c,  10  N.  E.  Rep. 
360;  followed  in  Union  Stock  Yards 
Nat.  Bank  v.  Dumond.  (1894)  150  111. 
501;  8.  c,  37  N.  E.  Rep.  863. 

« Wichita  Nat.  Bank  v.  Maltby, 
(Kans.  1894)  36  Pac.  Rep.  1000. 


i 

i 


I' 


•  ♦ 


008 


DEPOSITS  AND  CHECKS. 


L8  "1 


giving  of  a  check  by  the  receiver  to  the  individual  in  payment  of 
the  obligation.*     Neither  the  bank  nor  the  attorney  can  deny 
that  money  deposited  by  the  depositor  as  attorney  for  another 
belongs  to  the  latter."    Money  credited  to  a  depositor  may  bo 
shown  to  be  the  property  of  a  third  person  and  be  reached  by 
attachment  against  the  latter,  or  he  may  stop  payment  by  proper 
notice.     In  the  absence  of  any  extrinsic  claim,  however,  to  the 
money   the   bank   would   be   bound    to    honor    the   depositor's 
check.^     In  the  absence  of  proof  of  fraud  a  deposit  in  the  name 
of  a  third  person  is  prima  facie  a  payment  of  a  debt  due  him, 
and  the  third  person's  ownership  will  be  good  as  against  all  other 
persons.*     T\iQ  prima  facie  presumption  is  that  money  deposited 
in  a  bank  belongs  to  the  person  in  whose  name  it  may  have  been 
deposited ;  if   claimed   by  another  person  the  burden  of  proof 
would  be  upon  him  to  establish  his  ownership.^     And  a  bank  will 
not  be  permitted  to  allege  that  money  received  by  it  from  a 
depositor  belongs  to  some  one  else.«     In  an  Ohio  case  a  party 
deposited  money  in  one  bank  to  the  credit  of  another  bank,  but, 
without  knowledge  of  tlie  latter,  took  a  letter  from  the  bank 
securing  the  deposit,  addressed  to  the  one   credited   with  the 
deposit^dvising  it  of  the  deposit,  and  afterwards*  delivered  the 
letter  to  a  third  person,  with  his  own  name  indorsed  on  the  letter 
in  blank,  for  presentation  to  tlie  bank  credited  with  the  deposit. 
The  court  held  tliat,  as  between  the  depositor  and  the  latter  bank, 
the  bearer  of  the  letter  had  authority  to  control  the  fund,  and, 
for  that  purpose,  to  write  a  check  or  order  over  the  blank  signa- 
ture ;  also,  it  was  held  that  the  fact  that  this  bank  held  the  note 
of  the  party  making  the  deposit,  then  overdue,  did  not  constitute  a 
notice  that  the  fund  was  to  be  applied  to  the  payment  of  this  noteJ 


»Eccle8  B.  Drovers  &  Mechanics' 
Nat.  Bank,  (Md.   1894)  29  Atl.  Rep. 

963. 

'Burger  p.  Burger.  135  Pa.  St. 
499;  B.  c.  26  W.N.  C.  (Pa.)  355. 

•Hemphill  ^.  Yerkes,  132  Pa.  St.  545; 
8.  c.  25  W.  N.  C.  (Pa.)  417. 

*  Ferry  v.  McKenna,  9  Pa.  Co.  Ct. 

Rep.  17. 

« Egbert  v.  Payne,  99  Pa.  St.  244. 

•Bank  v.  Alexander,  120  Pa.  St.  476. 

'  Weirick  v.  Mahoning  County  Bank, 
(1866)  16  Ohio  St.  396.    See  Ring  & 


Rice  V.  Foster,  6  Ohio,  279;  Mitchel  v. 
McCabe,  10  Ohio,  405;  Moore  v.  Gano, 
12  Ohio,  300;  Howe  v.  Hartness,  Hill 
&  Co.,  11  Ohio  St.  449;  Corn  well  v. 
Kinney,  1  Handy  (Ohio).  496;  Fuller- 
ton  V.  Sturges,  4  Ohio  St.  529;  Putnam 
V.  SulUvan,  4  Mass.  45;  Selser  v.  Brock. 
3  Ohio  St.  307.     In  Tradesmen's  Bank 
V.  Astor,  (1833)  11  Wend.  87,  the  facta 
were  that  the  president  of  the  bank 
became  treasurer  of  a  voluntary  as- 
sociation, and  as  treasurer  opened  an 
account  with  the  bank^epositing  the 

H 


§317] 


DEPOSITS  AND  CHECKS. 


C09 


f 


A  bank  cannot  claim  a  lien  upon  a  bank  account  opened  with  it  by 
one  as  the  general  agent,  when  it  knows  that  he  is  agent  of  a  cor- 
poration, for  an  individual  debt  of  the  depositor  to  the  bank.^ 
A  factor  depositing  money  in  a  bank  which  has  knowledge  that 
it  is  the  proceeds  of  sales  of  goods  for  his  principal's  account,  and 
the  principal's  ownership,  the  bank  will  not  be  allowed,  as 
against  the  principal,  to  appropriate  the  deposit  to  payment  of  a 
general  balance  due  from  the  factor  to  the  bank.^  A  bank 
refusing,  without  cause,  to  honor  a  depositor's  check  has  been 
held  liable  for  substantial  damages,  though  no  special  loss  was 
shown.^  In  case  a  bank,  with  which  an  agent  or  trustee  has 
deposited  money  belonging  to  his  principal  or  beneficiary,  without 
his  authority,  and  in  ignorance  of  the  true  ownership  of  the 
fund,  applies  the  deposit  to  a  debt  wliich  the  depositor  may  owe 
it,  the  owner  would  not  be  debarred  by  that  fact  from  recovering 
the  money  from  tlie  bank  if  it  can  be  identified.*  The  rule  that 
a  trustee  may  follow  trust  property  as  long  as  it  can  be  traced 
has  no  application  in  an  action  to  recover  money  as  a  general 
deposit  in  a  bank.®  As  against  a  depositor,  a  bank  cannot  allege 
tliat  the  fund  in  its  hands  belongs  to  a  third  person  against 
whom  the  bank  has  a  counterclaim.^  A  bank  would  not  be 
authorized  to  pay  out  money  on  check  of  a  depositor  in  his 
individual  name  where  the  deposit  has  been  credited  to  him  as 
trustee.'^  The  money  belonging  to  a  county  deposited  by  a 
county  treasurer  in  a  bank  in  his  name  as  "  treasurer,"  no  money 
of  the  treasurer  being  mixed  with  it,  upon  his  becoming  a 
bankrupt,  belongs  to  the  county,  and  it  would  be  no  defense  in  an 
action  against  the  bank  to  recover  the  deposit  that  it  had  l)een 
paid  to  the  assignee  in  bankruptcy  of  the  treasurer.^  There  is 
justification  for  payment  by  a  bank  of  money  upon  orders 
of  the  one  depositing  the  money   or  his  agent,   until  notice 


funds  of  the  association  therein,  which 
account  he  overdrew.  It  was  held 
that  the  bank  could  recover  the 
amount  overdrawn  from  the  members 
of  the  association  as  he  drew  upon  the 
account  as  the  agent  of  the  association. 

'National  Bank  v.  Insurance  Co., 
104  U.  S.  54. 

'Union  Stock  Yards  Bank  t. 
Gillespie.  137  U.  S.  411, 

77 


»  Patterson  v.  Bank,  130  Pa.  St.  419. 

*Burtnett  v.  First  National  Bank, 
38  Mich.  630. 

«>  McLain  v.  Wallace.  (188.5)  103  Ind. 
562. 

«Bank  v.  Mason,  95  Pa.  St.  113. 

'  Ihl  V.  Bank  of  St.  Joseiih,  (1887) 
26  Mo.  App.  129. 

8  Supervisors  of  Schuyler  County 
V.  Bank  of  Havana,  (1875)  5  Hun,  649. 


* 


610 


DEPOSITS  AND  CHECKS. 


L§  31S 


is  received  of  an   adverse   claim  of   ownership  of  the  funds.* 
Where  a  bank  is  notified  of  adverse  claims  to  a  deposit,  as  that  a 
depositor  has  parted  with  his  interest,  and  others  have  succeeded 
to  his  rights  by  his  act  or  through  operation  of  law,  the  bank 
would  not  be  justified  in  paying  the  depositor.^     When  a  bank 
is  enjoined  by  a  court  from  paying  the  sum  deposited  with  it, 
either  to  the  depositor  or  to  his  assignee,  it  is  its  duty  to  obey  the 
mandate  of  the  court,  and  not  to  pay  out  the  funds  deposited 
with  it  until  the  parties  claiming  the  same  can  have  an  oppor- 
tunity to  contest,  by  interpleader  or  otherwise,  the  good  faith  of 
the  assignmeut.3     siiould  a   bank  pay  to  any  person  other  than 
the  depositor  the  money  he  may  have  deposited  with  it,  the  bank 
wonld  be  required   to  show  not  only  that  the  money  did  not 
belong  to  the  depositor,  but  that  it  did  belong  to  the  person  to 
whonT  it  was  paid.*    Where  money  belonging  to  one  person  had 
been  deposited  in  a  bank  in  the  name  of  another,  the  bank's  pay- 
ment to  the  committee  of  the  real  owner  of  the  money  (the 
owner   having  became  a  lunatic)  was  held  by  the  New  York 
Court  of  Appeals  to  have  been  legal  and  to  have  discharged  the 
bank,  and  that  it  was  a  protection  against  the  equitable  claim  of 
;i  third  person  to  whom  the  one  in  whose  name  the  money  was 
deposited  had  given  a  check,  of  which  facts  the  bank  had  no 
notice.' 

§  318.    The  passing  of  title   by  deposit  of  a  check.— 

Whether  the  title  to  a  check  deposited  with  a  bank  passes  to  the 
bank  before  collection,  so  as  to  immediately  create  the  relation  of 
debtor  and  ci-editor  between  the  bank  and  a  depositor,  is  a  ques- 
tion of  fact  depending  upon  the  circumstances  and  course  of 
dealing  in  each  particular  case.  Here  certain  checks  marked 
"  For  de^wsit ''  were  deposited  in  a  bank  at  a  quarter  to  three  on 
Saturday,  and  credit  was  immediately  given  for  the  amount  of 
the  checks  on  the  pass  book  of  the  depositor.  The  bank  closed  at 
three  and  the  next  day  was  declared  insolvent  with  the  checks 
still  in  its  hands.     The  custom  of  the  bank  was,  at  the  close  of 


'  McEwen   t>.  Davis,  (1872)  39  lud. 

109. 

« Qerman  Exchange  Bank  t.  Com- 
missioners of  Excise,  (Sup.  Ct.  N. 
Y.  Spl.  Term,  1879)  6  Abb.  N.  C. 
394. 


'Springfield  Marine    &   Fire    Ins. 

Co.  r.  Peek,  (1882)  1C)2  111.  265. 
*  Patterson  p.  Bank   130  Pa.  St.  419 
'Viets  V.   Union  National  Bank  of 

Troy,  (1886)  101  N.  Y.  563. 


g  318] 


DEPOSnS  AND  CHECKS. 


611 


each  day's  business,  to  balance  its  books,  crediting  depositors  with 
the  amount  of  their  checks,  and,  if  a  check  was  subsequently 
returned  unpaid  from  the  clearing  house,  it  was  charged  off  to 
the  depositors.     This  depositor  did  not  know  of  this  custom.    He 
had  made  deposits  with  the  bank  for  several  years  without  any 
special  arrangement,  and   had  never  drawn  against  uncollected 
checks,  except  by  particular  understanding.     On  these  facts  the 
United  States  Circuit  Court  for  the  district  of  Massachusetts  held 
that  title  had  passed  to  the  bank  so  as  to  create  the  relation  of 
debtor   and   creditor.     But   these   facts    being    alleged   in    the 
depositor's  bill  against  the  receiver  of  the  insolvent  bank,  and 
connected  with  further  allegations  that,  at  the  time  the  checks  were 
received,  the  bank  was  "  irretrievably  insolvent,  and  made  so  by 
the  operations  of  the  president  and  two  others  of  the  oirectors," 
and  that  the  depositor  then  believed  it  to  be  solvent,  and  had  no 
means  of  knowing  of  its  insolvency,  the  court  held  this  was  suffi- 
cient to  show  fraud,  and  to  render  the  bank  liable  to  return  the 
checks  or  their  proceeds.     Further,  it  was  not  necessary  for  the 
bill  to  specifically  allege  that  the  oflficers  of  the  bank  had  knowl- 
edge of  its  insolvency,  since  such  knowledge  would  be  implied 
from  the  allegation  that  the  insolvency  was  caused  by  the  presi- 
dent and    two  of  the  directors.'      This    case    was   on   appeal 
before  the  United  States  Circuit  Court  of  Appeals  for  the  first 
circuit,  and  that  court  held  that,  under  the  circumstances  of  the 
case,   no    title    passed    to    the    bank    by    the   deposit    of    the 
check  "For   collection,"   and   that   the   depositor   was   entitled 
to  the  proceds  of  the  check  collected  and  passing  to  the  receiver 
of    the    bank    then    insolvent.^      One    corporation   which    had 


*  City  of  Somerville  v.  Beal,  Re- 
ceiver, (1892)  49  Fed.  Rep.  790. 

'Beal,  Receiver,  v.  City  of  Somer- 
ville, (1892)  50  Fed.  Rep.  647.  The 
opinion  of  Putnam,  Circuit  Judge,  is 
an  elaborate  one,  and  it  so  learnedly 
discusses  the  whole  question  and  so 
distinguishes  the  cases  on  this  subject 
that  we  give  it  in  this  note.  He  said: 
"The  fact  that  the  checks  were  ex- 
pressly indorsed  'For  deposit,'  does 
not  change  the  nature  of  what  oc- 
curred in  this  instance,  as  there  are  no 
intervening  equities,  although  it  em- 


phasizes it.  The  paying  of  actual 
money  by  a  customer  into  a  bank  of 
deposit  does  not  create  a  bailment,  be- 
cause, by  the  settled  customs,  recog- 
nized by  the  Supreme  Court  of  the 
United  States,  the  House  of  Lords  and 
numerous  other  courts,  the  bank  is 
authorized  to  mingle  the  money  at 
once  with  its  general  fund,  creating 
immediately  the  relation  of  debtor 
and  creditor,  subject  by  further  cus- 
tom to  draft  in  the  usual  course  of 
business.  But,  with  reference  to  the 
checks  claimed  by  the  city  of  Somer- 


( ( 


4 ' 


m 


J '.'I 


I 


* 


612 


DEPOSITS  AND  CHECKS. 


[§  318 


deposited  a  sight  bill  drawn  upon  another  indebted  to  it  iu 
anotlier  city  in  a  bank  in  which  it  kept  its  account,  and  the  bank 
had  credited  it  to  the  corporation  on  its  books  as  a  cash  item,  and 
the  bank,  which  was  insolvent  at  the  time,  forwarded  the  bill  to 
its  correspondent  in  the  other  city,  who  collected  the  same  after 
the  bank  had  failed  and  closed  its  doors,  brought  an  action  in  the 
federal  court  for  the  southern  district  of  New  York  against  the 


ville,  the  word  by  which  the  transac- 
tions ordinarily  described   may    con- 
veniently have,  and,  therefore,  should 
have,  its  full  natuml  force  and  mean- 
ing.    A  mere  deposit  would  only  re- 
quire a  bank  to  keep;  but  a  usage 
requiring  the  Maverick  to  do  in  this 
case  something  more  has  continued  so 
long,  and  is  so  notorious  and  universal, 
tliat  the  law  can  take  judicial  notice  of 
it,  and  it  happens  that  its  terms  and 
limitations  cannot  be  mistaken.     The 
bank  must  use  due  diligence  to  col- 
lect, and  as  collections  are  completed, 
the  bank  no  longer  holds  the  avails  as 
bailee,   but  is   authorized  to  mingle 
them  with  its  other  funds,  and  thus 
constitute  itself   a  debtor.     This,  of 
course,  makes   the  entire  transaction 
something  more  than  a  mere  deposit, 
in  any  proper   sense,   but   this  word 
well  gives  color  to  all  that  follows, 
and  converts  all  that  is  due  between 
the  customer  and  the  bank  to  and  in- 
cluding   the    actual    turning    of    the 
checks  into  money,  into  locatio  operis, 
according  to  its  meaning  as  explained 
by  Judge  Story  in  his  work  on  Bail- 
ments, chap.  6,  art.  2.     Aside   from 
the  right  of  tbe  bank   to  constitute 
itself    a  debtor    from    the    time    the 
checks  are  converted  into  cash,  or  its 
equivalent,  instead  of  a  mere  trustee 
or  agent,  no  qualification  of  the  strict 
legal  relations  created  by  a  bailment 
isdeducible  from  the  general  nature 
of  the  transaction,  the  terms  in  which 
it  is  expressed,  or  the  settled  custom, 
or  is  shown  by  the  appellant.    *    *    * 
The  first  impression  coming  from  the 
fact  that  the  deposit  was  immediately 


entered  to  the  credit  of  the  city  in  its 
pass  book  favors  the  view  of  the  ap- 
pellant;   but  a  careful  consideration 
will  demonstrate  that  this  was  a  mere 
matter  of  convenience,  and  the  entry 
would  have  been  the  same  on  either 
theory,  as  was  illustrateti  in  Manufac- 
turers' Nat.  Bank  r.  Continental  Bank, 
148  Mass.  553;  s.  c,  20  N.   E.   Rep. 
193.  and  Ilailway  Co.  v.  Johnston,  133 
U.  S.  566;  s.  c,  10  Sup.  Ct.  Rep.  390. 
On  the  other  hand,  the  appellant  fails 
to  show  that  the  city  had  an  absolute 
right  to  check  against  the  deposit  as 
soon   as  made,  irrevocable  by  notice 
from  the  bank;    and  that  such  right 
did  not  exist  must  be  received  by  this 
court  as  a  matter  of  judicial  knowl- 
edge,  notwithstanding  the  parties  in 
Moors  v.  Goddard,  147  Mass.  287;  s.  c, 
17  N.  E.  Rep.  532,  and  the  complain- 
ant in  this  case  seem  to  have  regarded 
it  necessary  to  prove  the  practice  of  a 
particular  bank  with  reference  to  this 
matter.     This  is  inconsistent  with  any 
theory  except  that  the  bank  is  a  bailee 
of  deposited  checks  until  they  are  col- 
lected; as  is  also  the  admitted  fact  that 
the  bank  is  entitled  to  return  to  its 
customer     an     uncollectible    check, 
though  he  neither  indors'^s  it  nor  gives 
any  special  agreement  to  that  effect. 
The  appellant  fails  to  show  any  obli- 
gation to  receive  back  such  checks, 
unless  from  special  custom;  and  it  is 
more  in  harmony  with  fundamental 
principles  to  presume  that  this  right 
to  return   grows   out  of    the    former 
than  the   latter.     It  strains   the   law 
to  convert  the  natural  incidents  of  a 
bailment  into  a  right  of  an  entirely 


§318] 


DEPOSITS  AND  CHECKS. 


61? 


u 


receiver  of  the  bank  to  recover  the  sum  collected  on  this  sight 
bill.  The  question  in  the  case  was  whether  the  draft  belonged  to 
the  plaintiff  at  the  time  it  was  paid  by  the  drawee.  If  it  did  the 
defendant  did  not  acquire  title  to  the  money.  If  the  transaction 
in  controversy  was  equivalent  to  a  discount  of  the  draft  the  bank 
acquired  the  title  to  the  paper ;  if  it  was  not,  the  bank  merely 
became  the  agent  of  the  plaintiff  to  collect  the  proceeds.     The 


different  character,  to  be  sustained,  if 
at  all,  by  a  custom  violative  of  the 
ordinary  rules    governing   analogous 
transactions.       No    authorities    have 
been  cited  or  found  which  bind  this 
court  to  the  contrary  of  what  is  here- 
inbefore expressed,      l^ilway  Co.  v. 
Johnston,  133  U.  S.  566;  s.  c,  10  Sup. 
Ct.  Rep.  390,  is  not  in  point,  as  the 
paper  in  question  in  that  case  was  not 
a  check,  but  a  sight  draft,  and  the  de- 
cision was  made  to  rest  mainly  on  the 
ground  of  fraud,  as  was  stated  by  the 
learned  judge  from  whose  decree  in 
the    Circuit    Court    this    appeal   was 
taken.     Ex  parte  Richdale,  19  Ch.  Div. 
409,  is  criticized  in  Balbach  ».  Frehng- 
huysen,  15  Fed.  Rep.  675.     It  can  be 
added  to  what  is  there  said  that  so  far 
as  the  case  touches  this  at  bar,  the 
different  judges  who  sat  in  the  Court 
of  Appeal  used  essentially  varying  ex- 
pressions, all  of  which  were  unneces- 
sary, beyond  the  proposition  that  the 
banker  there  in  question  was,  under 
the  special  circumstances,  a  holder  for 
value.     Bank  v.  Loyd,  90  N.  Y.  530, 
so  much  relied  on  as  estabhshing  an 
absolute  title  in  the  bank  from  the  in- 
stant the  checks  were  deposited,  may 
perhaps  settle  the  law  for  the  state  of 
New   York.     It   apparently    was   so 
considered  by  Judge  Wallace  as  late 
as  1886,  as  stated  in  Railway  Co.  t. 
Johnston,  27  Fed.  Rep.  243.     The  law 
of  New  York  was  especially  found  by 
the  Supreme  Court  of  Massachusetts 
to  be  as  stated  in  Bank  v.  Loyd,  in 
Brooks  V.  Bigelow,  142  Mass.  6;  s.  C; 
6  N.  E.  Rep.  766,  and  though  perhaps 


not  of  importance,  yet  it  is  noteworthy 
that  the  parties  deemed  it  necessary  to 
prove  the  rule  of  that  state  as  though 
local  and  peculiar,  and  not  to  be  gath- 
ered from  the  common  law.     Bank  v. 
Loyd  is  discussed    by  the  Supreme 
Court  in  Railway  Co.  v.  Johnston,  al- 
ready cited;   and  its  effect  is  stated 
(page  575,  133  U.  S.  and  page  392,  10 
Sup.  Ct.  Rep.)  to  be  in  substance  that 
a  transfer  by  a  bank  of  a  draft  de- 
posited for    collection   and    indorsed 
generally,  would  confer  title  by  reason 
of    'reputed   ownership.'      This  was 
the  pith  of  the  New  York  decision, 
the  question  being,  not  as  to  title  be- 
tween the  primary  bank  and  its  cus- 
tomer,  but  between    the    latter   and 
another  bank  to  which  the  drafts  had 
been  remitted.     Bank  v.  Hubbell,  117 
N.  Y.  384;  8.  c,  22  N.  E.  Rep.    1031 
(decided  November  26,  1889),  can  be 
distinguished    from  the   case  at  bar 
only  by  the  fact  that  in  the  former  the 
checks  were  expressly  indorsed   '  For 
collection.'     They  were  charged   by 
the  depositor  to    the    banker  simul- 
taneously with  forwarding  them,  and 
were  in  like  manner  credited  at  once 
on  reception  and  before  collection,  and 
such  as  were  protested  were  charged 
back.     The  banker  did  not  keep  the 
proceeds  of   the  collections   distinct, 
nor  remit  them  specifically;  but  they 
were  mingled  with  his  other  funds, 
and  remittances  of  balances  were  made 
each  week.     These  covered  the  exist- 
ing credits  on  the  books  of  the  banker, 
whether  or  not  at  that  time  collected. 
This  method  of  business  had  continued 


¥ 


f 


I 


m4 


014 


DEPOSITS  AND  CHECKS. 


[§318 


bill  was  dismissed.'  The  mere  credit  of  a  check  upon  the  books 
of  a  bank,  which  may  be  canceled  at  any  time,  does  not  make  the 
bank  a  bona  fide  purchaser  for  value.  If,  after  such  credit,  and 
before  payment  for  value  upon  the  face  tlieroof,  the  holder 
receives  notice  of  the  insolvency  of  the  bank,  it  cannot  become  a 


for  many  years.  Notwithstanding  the 
checks  were  indorsed  specially  'For 
collection,'  the  transactions  as  a  whole 
were  identical  in  substance  with  those 
usual  in  connection  with  a  deposit  as 
made  in  the  case  at  bar;  and  the 
course  of  proceedings  and  the  practi- 
cal construction  given  them  by  the 
parties  were  precisely  the  same  as 
though  the  checks  had  been  indorsed 
generally.  The  special  indorsements 
efifected  nothing,  except  to  give  notice 
to  a  transferee  or  other  stranger. 
They  were  covered  into  the  transac- 
tions, and  added  nothing  to  them,  be- 
cause checks  delivered  a  banker  are 
'For  collection'  in  any  view.  The 
checks  were  accompanied  with  letters 
stating  that  they  were  indorsed  '  For 
collection  and  credit.'  The  court  said 
that  this  amounted  to  a  direction  to 
credit  after  the  collection;  but  the 
practice  was  to  credit  before,  so  that 
the  letters  of  advice  were  thus  actually 
superseded.  Moreover,  as  already 
said  about  the  word  'collection,'  the 
word  '  credit '  added  nothing,  and  was 
entered  into  the  transactions,  because 
the  banker  could  do  this  in  any  event 
unless  instructed  to  remit  specially. 
In  this  case  the  Court  of  Appeals  held 
that  the  title  to  the  checks  remained 
in  the  depositor  while  they  were  un- 
collected. In  Balbach  i\  Frelinghuy- 
sen,  already  cited,  the  United  States 
Circuit  Court  for  the  district  of  New 
Jersey  laid  down  as  the  result  of  its 
conclusions  the  rule  that  a  bank  is, 
until  collection,  a  bailee  of  checks 
deposited,  or  agent  of  its  customers' 
depository." 

>  St.  Louis  &  S.  F.  Ry.  Co.  t.  Johns- 
ton, (1886)  27  Fed.  Rep.  243.  Wallace, 


J.,  having  stated  the  question  involved 
as  stated  in  the  text,  discussed  it  in 
these  words:  "  The  case  of  Metropoli- 
tan Nat.  Bank  v.  Loyd.  90  N.  Y.  531 
(affirming  the  same  case  in  the  Supreme 
Court,  reported  in  25  Hun,  101),  is  an 
authority  directly  in  point  against  the 
plaintiff's  right  to  recover.  In  that 
case  the  plaintiff  deposited  with  the 
bank  a  check  drawn  upon  another 
bank  in  a  different  city,  indorsed  by 
him,  and  the  amount  of  the  check  was 
entered  by  the  bank  upon  the  pass 
book  of  the  depositor  as  cash,  with  the 
depositor's  knowledge.  It  was  held 
that  the  bank  became  the  owner  of  the 
check.  The  opinions  delivered  in  this 
case,  both  in  the  Court  of  Appeals  and 
in  the  Supreme  Court,  are  a  full  and 
able  discussion  of  the  questions  in- 
volved, and  contain  a  full  review  of 
the  authorities  bearing  upon  them. 
On  the  other  hand,  the  case  of  Balbach 
V.  Frelinghuysen,  15  Fed.  Rep.  675,  de- 
cided by  the  Circuit  Court  of  the  dis- 
trict of  New  Jersey,  follows  the  views 
expressed  in  Morse  on  Banks  and  Bank- 
ing (page  427),  and  holds  that  the 
checks  so  deposited  do  not  become  the 
property  of  the  bank,  although  by  the 
course  of  business  between  the  de- 
positor and  the  bank  the  depositor  has 
been  allowed  to  draw  against  the  de- 
posits before  the  paper  has  been  actu- 
ally collected.  Upon  principle,  there 
is  no  reason  w^hy,  if  the  parties  choose 
to  treat  the  deposit  of  such  paper  as  a 
deposit  of  cash,  the  transaction  should 
not  be  deemed  equivalent  to  a  dis- 
count of  the  paper  by  the  bank.  Sight 
bills  drawn  by  one  corpor.ition  upon 
another  of  prominent  financial  stand- 
ing, like  the  interest  coupons  of  such 


§  318] 


DEPOSITS  AXD  CHECKS. 


fil 


y 


honafide  holder  by  subsequent  payment.'  A  national  bank  in 
Dakota,  witli  knowledge  tliat  tlie  county  treasurer  of  a  county  liad 
not  sufficient  county  funds  in  his  hands  to  balance  his  official 
accounts,  consented  to  give  him  fictitious  credit  in  order  to  enable 


corporation,  or  like  certified    checks 
upon  banks,  are  generally  accepted  in 
commercial  usage  as  the  equivalent  of 
money.      They  have    pmctically  the 
same  attributes  as  bills  issued  by  bank- 
ing corporations,   which   are  merely 
promises  to  pay  at  sight,  and  are  every- 
where accepted  as  money,  in  the  ab- 
sence of  special  circumstances  affect- 
ing the  financial  standing  of  the  cor- 
poration issuing  them.     Where  bank 
bills  are  credited  at  their  face  to  their 
depositors,  and  are  treated  by  the  de- 
pository as  a  deposit  of  money,  the 
bank  receiving  them  l)ecomes  a  debtor 
to  the  depositor  for  the  face  amount, 
although  the  currency  may  at  the  time 
be  depreciated.     Marine  Bank  v.  Ful- 
ton Bank,  2  Wall.  253.     When  a  sight 
bill  is  deposited  with  a  bank  by  a  cus- 
tomer at  the  same  time  with  money  or 
currency,  and  a  credit  is  given  him  by 
the  bank  for  the  paper,  just  as  a  like 
credit  is  given  for  the  rest  of  the  de- 
posit,  the  act  evinces  unequivocally 
the  intention  of  the  bank  to  treat  the 
bill  and  the  money  or  currency  with- 
out discrimination,    as  a    deposit  of 
cash,  and  to  assume  towards  the  de- 
positor the  relation  of  a  debtor  instead 
of  a  bailee  of  the  paper.     If  the  cus- 
tomer assents  to  such  action  on  the 
part  of  the  bank  by  drawing  checks 
against  the  credit,  or  in  any  other  way, 
he  manifests  with  equal  clearness  his 
intention  to  be  treated  as  a  depositor  of 
money,  and,  as  such,  as  a  creditor  of 
the  bank  instead  of  a  bailor  of  the  pa- 
per.     Under    such    circumstances    it 
should  be  held  that  the  bank  acquires 
title  to  the  paper  just  as  it  would  to  a 
deposit  of  money.     The  intention  of 
the  parties  in  the  particular  transaction 
may  be  ascertained  from  the  course  of 


their  previous  dealings.     AVhen  it  ap- 
pears that  it  has  been  the  uniform  prac- 
tice between  the  parties  in  their  past 
dealings  to  treat  deposits  of  paper  as 
deposits  of  cash,  their  intention  to  do 
so  in  the  particular  transaction  should 
be  inferred,  in  the  absence  of  new  and 
inconsistent  circumstances.    It  is  quite 
certain  that  bankers  do  not  invariably 
credit  their  customers  for  sight  paper 
as  for  cash,  but  are  generally  influenced 
by  the  financial   responsibility  of  the 
customer  or  the  drawee  of  the  paper,  or 
both.     If  a  bank  does  not  wish  to  as- 
sume the  relation  of  a  debtor  for  the 
paper  to  the  depositor,  this  intention 
may  be  manifested  in  a  very  explicit 
manner  by  crediting  the  paper  as  pa- 
per.    This  was  done  in  Thompson  v. 
Giles,  2  Barn.  &  C.  422.  in  the  Case  of 
Rowton,  1  Rose,  15,  and  in  the  Case  of 
Sargeant,  Id,  153,     Some  significance 
must  be  attached  to  a  credit  entry  of 
the  paper  upon  the  books  of  the  bank 
as  cash,  and  the  natural  implication 
would  seem  to  be  that  the  bank,  by 
making  such  an  entry,  assumes  to  re- 
ceive the  bill  as  money,    Correlatively, 
if  the  depositor  understands  that  the 
bank  proposes  to  receive  the  paper  as 
money,  and  Assents,   expressly  or  by 
acquiescence,  it  would  seem  that  he 
consents  to  part  with  the  title  to  the 
paper.     For    these    reasons   the  con- 
clusions reached  in  IMetropolitan  Nat. 
Bank   r.    Loyd.  are  adopted  as  satis- 
factory.   The  authorities  bearing  upon 
the  general  questions  are  so  fully  cited 
and  discussed  in  the  opinions  in  that 
cjisc  that  it  is  deemed  unnecessary  for 
present  purposes  to  refer  to   them." 
'  Dresser  r. Missouri,  etc..  Construe 
tionCo.,  93  U.  S.  92;  Mann  r.   Second 
National  Bank,  30  Kans.  412;  Central 


> 


rllHI 


1 1 


m 


% 


61G 


DEPOSITS  AND  CHECKS. 


[§310 


him  to  impose  upon  tbe  county  commissioners,  who  were  about 
to  examine  his  accounts.  The  treasurer  was  given  a  cashier's 
clieck  for  a  large  sum,  which  he  indorsed  and  took  to  the  com- 
missioners. They  received  it,  but  refused  to  discharge  him  or 
liis  bondsmen,  and  placed  the  check  and  such  funds  as  he  had  in 
cash  in  a  box  and  delivered  them  to  his  bondsmen.  The  latter 
deposited  the  money  and  the  check  in  another  bank  in  tlie  same 
place.  This  last  bank,  as  appeared  by  the  evidence  in  the  case, 
manifested  a  desire  to  get  control  of  this  check,  with  a  view  to 
oppress  its  rival  bank  which  had  issued  it,  and  seemed  to  have  a 
knowledge  of  how  it  was  issued.  The  bank  brought  an  action 
against  the  bank  issuing  it  to  recover  the  amount.  The  question 
of  the  haiiajide  ownership  of  this  check,  and  how  far  the  bank 
holding  it  was  protected  as  a  purchaser  for  value  without  notice, 
was  the  main  one  before  the  court.  The  United  States  Supreme 
Court  held  that  the  circumstances  under  which  the  check  was 
issued  were  a  plain  fraud  upon  the  law,  and  also  upon  the  county 
commissioners ;  that  the  receipt  of  it  and  turning  it  over  to  the 
bondsmen  of  the  county  treasurer  was  a  single  act  intended  to 
assist  the  bondvsmen  in  protecting  themselves,  and  was  incon- 
sistent with  the  idea  of  releasing  tliem  from  their  obligations ; 
that  the  question  wliether  the  evidence  did  or  did  not  establish 
tlie  fact  that  tlie  bank  in  which  it  was  deposited  was  an  innocent 
holder  should  have  been  submitted  to  the  jury.^ 

§  319.  Deposits  in  savings  banks. —  A  savings  bank  cannot 
refuse  to  return  a  depositor's  money  to  him  because  he  deposited* 


National  Bank  v.  Valentine,  18  Ilun, 
417;  Manfg. National  Bank  t>. Newell,  71 
Wis.  309;  BuUer  p.  Harrison,  Cowp. 
565. 

^  Thompson  v.  Sioux  Falls  National 
I^nk,  (1893)  150  U.  S.  231.  As  to  tbe 
Testing  of  title  in  a  check  deposited  to 
the  credit  of  payee  and  indorsed  for 
deposit,  see  Ditch  r.  Western  Nat. 
Bank  of  Baltimore,  (Md.  1894)  29  Atl. 
Rep.  72,  where  there  is  a  full  review 
of  the  cases  upon  this  subject.  In 
Security  Bank  of  Minnesota  r.  North- 
western Fuel  Co.,  (Minn.  1894)  59  N. 
W.  Rep.  987.  it  was  held  that  upon  a 
deposit  being  made  by  a  customer  of 


a  bank,  in  the  ordinary  course  of 
business,  of  checks,  drafts  or  other 
negotiable  paper,  received  and  credited 
on  his  account  as  money,  the  title  to 
the  checks,  drafts  or  other  paper  im- 
mediately becomes  the  property  of  the 
bank,  unless  a  different  understanding 
affirmatively  appears.  Further,  that 
an  indorsement  by  the  customer  of  a 
check  payable  to  his  own  order  ''for 
deposit  in  the  [name  of  the  bank]  to 
the  credit  of  [the  name  of  the  de- 
positor] is  sufficient  to  pass  the  title  to 
the  check  to  the  bank,  and  is  not  a  re- 
strictive or  qualified  indorsement." 
The  court  cite  in  support  of  its  ruling 


m 


rii 


§  319] 


DEPOSITS  AND  CHECKS. 


617 


it  in  the  name  of  some  one  else.^  General  depositors  of  savings 
banks  caimot  set  off  their  deposits  against  their  debts  due  the 
bank.  The  rule  is  different  in  the  case  of  sjiecial  deposits  out  of 
the  ordinary  course  of  business  which  the  bank  may  have  received 
and  converted  to  its  own  use.^  A  savings  bank  in  New  Jersey, 
under  a  special  charter,  was  authorized  to  receive  and  invest 
deposits  for  the  benefit  of  the  depositors,  the  income  or  the  profit 
to  be  divided  among  them  after  reasonable  deductions  for  neces- 
sary expenses,  the  principal  to  be  repaid  to  the  depositors  at  such 
time  and  with  such  interest  and  under  such  regulations  as  the 
board  of  managers  should  from  time  to  time  jDrescribe.  Under 
tlieir  regulations  they  not  only  received  deposits  participating  in 
the  profits,  and  not  payable  except  on  thirty  days'  notice,  but 
also  another  kind  of  deposits,  called  by  them  *'  special  deposits," 
which  were  not  to  participate  in  the  profits,  and  were  to  be 
repaid  to  the  depositors  without  any  preliminary  notice.  Both 
kinds  of  deposits  were  mingled  in  the  funds  of  the  bank  indistin- 
guishably.  A  receiver  was  appointed  for  the  bank  under  insol- 
vency proceedings.  The  court,  as  to  the  relations  between  the 
depositors  and  the  bank  and  the  rights  of  the  different  claims 
against  the  assets,  held  as  follows  :  That  the  bank  was  a  mere 
trustee  for  the  benefit  of  the  depositors ;  that  a  depositor  who 
borrowed  money  from  the  bank,  secured  by  his  note  or  mortgage, 
could  not  set  off  against  his  debt  the  amount  of  his  deposit  at  the 
time  when  the  decree  of  insolvency  was  made ;  that  the  so-styled 
"  special "  depositors  were  not  entitled  to  j^riority  in  payment 
over  the  other  class  of  depositors ;  that  debts  and  expenses  con- 
tracted by  the  bank  in  carrying  on  its  ordinary  business  were  to 
be  preferred ;  that  a  claim  under  the  covenant  in  a  lease  for  rent 
accruing  after  the  surrender  of  the  premises  to  the  lessor  by  the 
receiver  could  not  be  maintained  ;    that  money  paid  to  the  bank 


Bank  v.  Miller,  77  Ala.  168;  Bank  r. 
Smith,  132  Mass.  227;  Fletcher  v. 
Osbourn,  (>nnn.)  57  N.  W.  Rep.  336. 
'  Davis  V.  Lenawee  County  Savings 
Bank,  53  Mich.  163.  As  to  deposits  in 
savings  banks  by  one  in  the  name  of 
others,  see  Kimball  t.  Norton,  59  N. 
H.  1;  Blasdel  v.  Locke,  52  N.  H.  238; 
Marcy  r.  Amazeen,  61  N.  IL  131; 
Smith  r.  OGsipee  Savings  Bank,  64  N. 

78 


H.  228;    Bartlett  r.  Remington,  59  N. 
H.  364;  Giles  v.  Merritt,  59  N.  H.  325. 


2  Cogswell  i\ 


Rockingham  Savings 


Bank,  59  N.  H.  43.  As  to  the  state- 
ments in  a  savings  bank  deposit  book 
being  a  part  of  the  contract  between 
the  bank  and  the  depositor,  see  Heath 
r.  Portsmouth  Savings  Bank,  46  N. 

n.  78. 


IINI 


m 


t 


mH 


618 


DEPOSITS  AND  CHECKS. 


l^-li> 


in  exchange  for  its  cheek,  given  for  the  acconiniodation  of  the 
payee,  which  was  dislionored,  presumably  went  into  the  funds, 
and  the  debt  should  be  preferred  ;  that  checks  given  to  depositors 
on  account  of  deposits  were  not  to  be  preferred.^  Money 
deposited  with  a  savings  institution,  to  l>e  paid  at  certain  times 
prescribed,  may,  after  demand  made  in  pursuance  of  the  by-laws, 
be  recovered  in  an  action  of  assumpsit.  It  would  be  no  defense 
that  the  institution,  having,  in  accordance  with  its  by-laws,  invested 
its  funds  in  stocks  which  have  depreciated,  was  unable  to  repay 
the  whole  amount  of  the  deix)sits.^  Tteasonaole  care  and  dili- 
gence is  required  of  the  officers  of  savings  institutions.^  Reason- 
able care  and  diligence  do  not  necessarily  require  the  disbursing 
officer  of  a  savings  institution  to  demand  strict  proof  of  the 
identity  of  the  depositor  in  paying  money  on  the  presentment  of 
a  deposit  book.'*  A  deposit  in  a  savings  bank  stated  in  the 
depositor's  "  deposit  book  "  not  made  payable  to  order  or  bearer 
cannot  be  assigned  so  as  to  enable  the  assignee  to  maintain  an 
action  for  the  deposit  against  the  bank.''  A  depositor  in  a  sav- 
ings bank  hi  Pennsylvania  drew  an  order  thereon  payable  nine 


*  Stockton  V.  Mechanics'  Bank,  5 
Stew.  Eq.  (N.  J.)  163. 

*Makin  v.  Institution  for  Savings. 
19  Me.  128;  Makin  «?.  Institution  for 
Savings,  23  Me.  350. 

*SuUivan  v.  Lewiston  Institution 
for  Savings.  56  Me.  507. 

''Sullivan    v.    Lewiston    Institution 
for  Savings,  56  Me.  507.     In  this  case 
the  depositor  received  a  book  of  deposit 
containing  a  copy    of    the    by-laws, 
which,  in  accordance  with  their  pro- 
visions, he  thereupon  "subscribed  and 
thereby  signified  his  assent  to."  These 
by-laws  provided   that  "all  deposits 
shall  be  entered  in  a  book  to  be  given 
the    depositor,    which    shall    be    his 
voucher  and  the  evidence  of  his  proi)- 
erty  in  the  institution,"  and  thtit    "the 
money  of  any  depositor  may  be  drawn 
either    personally    or    by    witnessed 
order,  in  writing  of  the  depositor,  but 
no  money  shall  be  paid  to  any  person 
without  the  production  of  the  original 
book,    that    such    payment    may    be 


entered  therein,"  and  that  "the  insti- 
tution will  not  be  responsible  for  loss 
sustained   when  a  depositt)r   has  not 
given  notice  of  his  book  being  stolen 
or  lost,  if  such  book  be  paid  in  whole 
or  in  part  on  presentment."     Subse- 
quently   the    depositor's    book     was 
stolen,  presented  to  and  paid  by  the 
disbursing  officer  of  the  institution  in 
good  faith.     In  this  action  of  the  de- 
positor to  recover  the  deposit  it  wa.H 
held  that  if  the  disbursing  officer,  using 
rejisonable  care  and  diligence,  but  lack- 
ing present  means  of  identifying  the 
depositor,  paid  Itona  fide  on  presenta- 
tion of  the  book  by  one  apparently  in 
the  lawful  possession  of  the  book,  a.s 
the  owner  of  it,  the  institution  had  a 
right  to  rely  upon  the  contract  of  the 
depositor  safely  to  keep  the  evidence 
of  his  claim,  or  make  known  its  \om 
before  it  was  presented  for  payment. 
'Howard  r.  Savings  Bank,  40  Vt. 
597. 


mm 


§320] 


DEPOSITS  AND  CHECKS. 


619 


weeks  from  date.  Upon  the  npper  margin  of  the  blank  form 
nsed  were  printed  the  words,  *'"Retnrn  notice  ticket  with  this 
order."  On  the  lower  margin  below  the  drawer's  signature  were 
the  following  printed  words :  "  Deposit  book  must  be  at  bank 
before  money  can  be  paid."  The  Supreme  Court  of  that  state 
held  that  there  was  enough  on  the  face  of  the  order  to  show  that, 
in  the  commercial  sense,  it  was  not  a  regular  check  and  was  not 
intended  to  operate  as  such,  but  was  drawn  on  a  specially  deposited 
fund,  held  by  the  bank  subject  to  certain  rules  and  regulations 
requiring  certain  things  to  be  done  before  payment  of  the  order 
could  be  required.  "The  effect  of  these  requirements,"  they 
said,  "  was  to  restrain  or  qualify  the  otherwise  general  operation 
of  the  order."  The  court  was  controlled  by  the  settled  doctrine 
that  anything  written  or  printed  on  a  negotiable  instrument  prior 
to  its  issuance  by  the  maker,  relating  to  the  subject-matter  of  the 
instrument  and  tending  to  restrain  or  qualify  it,  must  be  regarded 
as  part  of  the  contract  intended  to  be  evidenced  thereby.* 


i  i.ii 


II 


II 


§  320.  Receiving  deposits  by  a  bank  knowing  its  insol- 
vency.—  In  receiving  a  deposit,  after  his  insolvency,  a  banker  is 
guilty  of  fraud.  In  such  case  the  depositor  will  be  entitled  to 
rescind  the  contract  and  recover  the  check. ^  The  depositor  of  a 
check  upon  another  bank  with  a  bank  which  receives  it  having 
knowledge  of  its  insolvency  at  the  time,  may,  in  an  action  alleg- 
ing fraud,  recover  the  check  or  the  proceeds  thereof.''     Upon  the 


*  Iron  City  National  Bank  v.  McCord, 
(1891)  139  Pa.  St.  52. 

'American  Trust  &  Sav.  Bank  v. 
Gueder  &  Paeschke  Manufg.  Co., 
(111.  1894)  37  N.  E.  Rep.  227;  Chaffee 
V.  Fort,  2  Lans.  81;  St.  Louis,  etc., 
R.  R.  Co.  V.  Johnston,  133  U.  S.  566. 

'Grant  v.  Walsh,  (N.  Y.  1895)  40 
N.  E.  Rep.  209.  Haight,  J.,  speak- 
ing for  the  court,  said  :  "  The  rule  ap- 
pears to  be  well  settled  that  one  who 
has  been  induced  to  part  with  his 
property  by  the  fraud  of  another, 
under  guise  of  a  contract,  may  upon 
the  discovery  of  the  fmud  rescind 
the  contract  and  reclaim  the  property, 
unless  it  has  come  into  the  possession 
of  a  bond  fide  holder.      In    Ciai^ic   r. 


Hadley,  99  N.  Y.  131;  s.  c,  1  N.  E. 
Rep.  537,  an  action  was  brought  by 
the  plaintiff  against  the  receiver  of 
the  First  National  Bank  of  Buffalo  to 
recover  the  amount  of  a  draft  deposited 
with  the  bank  at  a  time  when  the 
managers  thereof  knew  that  it  was 
insolvent.  It  was  held  that  permitting 
the  plaintiff  to  make  the  deposit  in 
reliance  upon  the  supposed  solvency 
of  the  bank  was  a  gross  fraud  upon 
the  plaintiff,  and  that  the  latter  was 
entitled  to  reclaim  the  draft  or  its 
proceeds.  The  same  rule  was  recog- 
nized in  Bank  t.  Loyd,  90  N.  Y.  530- 
537,  but  in  that  case  there  was  no 
allegation  of  fraud  in  the  answer,  and 
consequently  it  was  held  that  the  evi- 


620 


DEPOSITS  AND  CHECKS. 


[§320 


m 


m\ 


■  i 


discovery  of  the  fraud  practiced  by  a  banker  in  receiving  on 
deposit  a  check  or  draft,  when  he  knows  that  he  is  insolvent,  the 
depositor  may  rescind  the  contract,  and  reclaim  the  check  or  draft 
deposited,  unless  such  check  or  draft  has  come  into  the  possession 
of  a  lonafide  holder  for  value.^  If  the  proceeds  of  such  a  check 
or  draft  can  be  traced,  the  fund  will  create  a  trust  in  favor  of  the 
depositor  in  those  proceeds.^  Should  a  bank  receiving  from  one 
of  its  customers,  for  deposit,  his  check  upon  another  bank,  know- 
ing its  own  insolvency  at  the  time,  and  transfer  this  check  to 
another  bank,  in  an  action  by  the  latter  against  the  drawee  of  the 
check,  if  the  drawee  answer,  by  way  of  defense,  that  there  was 
fraud  practiced  upon  him  by  the  receiver  of  the  check,  and  show 
such  fraud,  the  burden  of  showing  that  it  was  a  lonafide  holder 
of  the  check  would  be  upon  the  bank  to  which  the  check  was 
transferred.^     In  a  South  Dakota  case  it  appeared  that  the  plain- 


dence  offered,  tending  to  show  fraud, 
was  properly  excluded." 

» National  Citizens'  Bank  of  New 
York  r.  Howard.  (N.  Y.  Super.  Ct. 
Spl.  Term,  1886)  3  How.  Pr.  (N.  8.)  511. 

'Importers'  &  Traders'  Bank  t. 
Everett,  (Sup.  Ct.  1889)  21  N.  Y. 
St.  Repr.  98;  s.  c,  4  N.  Y.  Supp. 
599;  citing  Anonymous,  67  N.  Y. 
598. 

3  Grant  v.  Walsh,  (N.  Y'.  1895)  40  N. 
E.  Rep.  209.  Haioht,  J.,  speaking 
lor  the  Court  of  Appeals,  said  :  "  In 
Bank  x>.  Diefendorf,  123  N.  X.  191- 
206;  8.  c,  25  N.  E.  Rep.  402,  Ruger, 
Ch.  J.,  in  delivering  the  opinion  of  the 
court,  says :  '  The  burden  of  making 
out  good  faith  is  always  upon  the 
party  asserting  his  title  as  a  bona  fide 
holder,  in  a  case  where  the  proof 
shows  that  the  paper  has  been  fraudu- 
lently, feloniously  or  illegally  ob- 
tained from  its  maker  or  owner. 
Such  a  party  makes  out  his  title  by 
presumptions,  until  it  is  impeached 
by  evidence  showing  the  paper  had  a 
fraudulent  inception;  and  when  this 
is  done  the  plaintiff  can  no  longer  rest 
upon  the  presumptions,  but  must 
show  affirmatively  his  gooil  fnith.'  In 
Vosburgh    r.  Diefendorf,    lll>    X.    V. 


357-364;  8.  c,  23  N.  E.  Rep.  801, 
O'Brien,  J.,  says:  'In  this  state  it 
must  be  regarded  now  as  a  settled  rule 
that,  when  a  maker  of  negotiable, 
paper  shows  that  it  has  been  obtained 
from  him  by  fraud  or  duress,  a  subse- 
quent transferee  must,  before  entitled 
to  recover  on  it,  show  that  he  is  a 
bona  fide  purchaser.'  In  Bank  t?. 
Green,  43  N.  Y.  298,  it  was  held  that 
a  party  suing  upon  a  negotiable  note 
purchased  before  maturity  is  pre- 
sumed, in  the  first  instance,  to  be  a 
bona  fide  holder,  but  when  the  maker 
has  shown  that  the  note  was  obtained 
from  him  under  duress,  or  that  he  was 
defrauded  of  it,  the  plaintiff  would 
then  be  required  to  show  under  what 
circumstances,  and  for  what  value,  he 
became  the  holder.  The  reason  of 
this  rule,  as  stated  by  Rapallo,  J.,  is 
that  '  where  there  is  a  fraud  the  pre- 
sumption is  that  he  who  is  guilty  will 
part  with  the  note  for  the  purpose  of 
enabling  some  third  party  to  recover 
upon  it,  and  such  presumption 
operates  against  the  holder,  and  it 
devolves  upon  him  to  show  that  he 
gave  value  for  it.'  Citing  Bank  v. 
No.xon,  45  X.  Y.  762;  Bank  c.  Carll. 
55  N.  Y.  440;    Wilson  r.  Rocke,  58  N. 


DEPOSITS  AND  CHECKS. 


621 


§320] 

tiff  had  deposited  witli  a  bank,  a  few  days  before  its  insolvency 
was  admitted  and  its  doors  closed,  a  sum  of  money,  taking  from 
the  bank  a  receipt,  stating  the  purpose  for  which  the  money  was 
left.  This  purpose  was,  as  shown  by  the  receipt,  that  when  a 
warranty  deed,  properly  executed,  conveying  to  him  certain  lands, 
together  with  an  abstract  showing  good  title  in  the  party  who  was 
to  execute  this  deed,  was  delivered  to  the  bank  by  the  grantor,  the 
money  was  to  be  paid  to  the  latter.  The  bank  going  into  the 
hands  of  a  receiver,  the  latter  refused  to  pay  the  sum  of  money 
to  the  plaintiff  upon  demand.  The  Supreme  Court  affirmed  the 
order  of  the  court  in  which  the  proceedings  in  insolvency  were 
instituted  to  the  receiver  to  pay  this  money  to  the  plaintiff  on  his 
petition  for  such  order,  holding  that  the  sum  of  money  so  deposited 
was  a  trust  fund,  and  did  not  become  assets  of  the  bank,  nor  pass  to 
the  receiver  as  such.^    A  depositor  in  a  bank  in  Nebraska  which  had 


Y.  642;  Nickerson  v.  Ruger,  76  N.  Y. 
279;  2  Greenl.  Ev.  §  172;  Bailey  v. 
Bidwell,  13  Mces.  &  W.  73."  As  to 
fraud  in  receiving  deposits  by  bankers 
with  a  knowledge  of  their  insolvency, 
see  Cragie  v.  Hadley,  (1885)  99  N.  Y. 
131;  Rochester  Printing  Co.  v.  Loomis, 
(1887)  45  Hun,  93. 

»  Kiramel  v.  Dickson,  (S.  D.  1894)  58 
N.  W.  Rep.  561.  There  was  pre- 
sented to  the  court,  on  behalf  of  the 
receiver,  an  affidavit  of  the  secretary 
of  the  bank  stating  that  when  it  was 
left  with  the  bank  this  money  "was 
treated  the  same  as  any  other  deposits 
of  said  bank  and  mixed  with  the  other 
money  therein."  It  was  not  intimated 
that  this  was  done  with  the  knowledge 
of  the  one  who  left  the  money  with 
tlie  bank  for  a  distinct  purpose,  or 
that  he  in  any  manner  consented  to  it. 
The  court  said:  "  Upon  these  facts  it 
would  appear  that  the  money  was  left 
in  trust  for  a  particular  purpose.  He 
could  not,  afterwards,  without  the  ac- 
quiescence of  [the  one  who  left  it] 
change  its  relation  to  him  from  that  of 
a  bailee  or  trustee  to  that  of  a  general 
debtor.  We  apprehend  that  no  dif- 
ferent principle  is  involved  because 
one  of  the   parties  happens  to  be  a 


bank.  Suppose,  under  the  same  cir- 
cumstances, [plaintiff]  had  left  the 
money  with  [the  secretary]  personally, 
and  he  had  failed  and  made  an  assign- 
ment, would  this  money  so  found  in 
his  possession  pass  to  his  assignee  as 
his  property?  If  so,  when  and  how 
did  it  become  due?  That  he,  or  the 
bank  in  this  case,  had,  without  the 
consent  of  [the  plaintiff]  diverted  the 
money  and  used  it  for  some  other  pur- 
pose, ought  not  to  affect  [his]  rights. 
Abuse  of  a  trust  can  confer  no  rights 
on  the  party  abusing  it,  or  on  those 
claiming  privity  with  him.  It  is  not 
claimed  that  [cash  or  money]  found  in 
the  bank's  vault  when  it  failed  is  the 
very  money  or  a  part  of  it  deposited 
by  [plaintiff],  and  it  is  not  necessary 
that  it  should  be  so.  If  the  money  deliv- 
livered  to  the  bank  had  been  used  by  it 
in  its  business,  it  had  presumably  either 
paid  its  debts  pro  tanto,  or  increased 
its  assets;  and  the  general  creditors  of 
the  bank  would  be  in  the  same  condi- 
tion if  the  money  found  in  its  posses- 
sion were  paid  over  in  execution  of 
the  trust  as  though  the  money  depos- 
ited had  been  kept  separate,  and  the 
identical  money  received  had  been  so 
paid  over.     Peak  v.  EUicott,  30  Eans. 


f-; 


622 


DEPOSITS  AND  CHECKS. 


[§320 


HI 


r 


i 


•^|i 


$ 


become  insolvent  and  made  an  assignment,  claimed  in  tlie  courts 
that,  upon  his  allegations  that  the  bank  was  insolvent  at  the  time 
it  received  the  deposit  specified,  within  the  knowledge  of  all  of 
its  officers,  and  that  the  officers  received  his  money  with  the 
intention  of  cheating  and  defrauding  him,  he  should  be  decreed 
to  have  a  preference  on  account  of  his  claim  in  the  payment  from 
the  funds  in  the  hands  of  the  assignee.  The  Supreme  Conrt  of 
the  state  held  that  he  did  not  have  a  right  to  a  preference  over 
other  creditors  upon  the  case  made  in  his  petition.*    In  a  late  case 


j^  ^520] 


DEPOSITS  AND  CHECKS. 


623 


156;  8.  c,  1  Pac.  Rep.  499,  was  a  case 
entirely  analogous  to  this.  Peak  had 
left  with  the  bank  of  which  Ellicott, 
upon  its  failure,  became  assignee, 
money  to  pay  a  note  which  the  bank 
was  to  send  for.  As  in  this  case,  he 
took  a  receipt  showing  the  purpose 
for  which  the  money  was  left.  The 
bank  passed  the  amount  to  the  credit 
of  Peak.  After  the  failure  of  the  bank, 
it  not  having  paid  the  note,  Peak 
brought  action  against  the  assignee, 
asking  the  same  relief  as  is  asked  in  this 
case,  to  wit,  that  the  assignee  be  re- 
quired to  pay  over  the  amount  in  full 
as  a  trust  fund.  The  Supreme  Court 
reversed  the  trial  court,  holding  that 
the  transaction  constituted  a  trust; 
that  the  relation  created  was  not  th;it 
of  a  debtor  and  creditor,  but  that  of 
principal  and  agent,  or  bailor  and 
bailee;  and  that  the  subject  of  such 
trust  did  not  pass  to  the  assignee  as 
assets  of  the  bank.  It  was  held,  fur- 
ther, that  the  manner  in  which  the 
bank  had  treated  the  fund  by  credit- 
ing it  to  Peak  and  mixing  it  with  its 
own  money  did  not  affect  his  right  to 
claim  the  amount  from  the  funds  on 
hand.  Ellicott  v.  Barnes,  31  Kaus. 
170:  s.  c,  1  Pac.  Rep.  767,  was  a  simi- 
lar case  and  the  same  rule  controlled. 
McLeod  V.  Evans,  66  Wis.  401;  s.  c, 
28  N.  W.  Rep.  173,  214,  applies  the 
same  principles,  with  the  same  result, 
where  a  draft  had  been  left  for  collec- 
tion with  a  banker,  who  afterwards, 
and  before  the  depositor  had  received 


its  proceeds,  suspended  and  as- 
signed. The  court  held  that  the  pro- 
ceeds of  the  draft  constituted  a  trust 
fund,  which  did  not  pass  to  the  as- 
signee, and  there  not  being  sufficient 
cash  in  the  hands  of  the  assignee  to 
pay  the  amount,  that  the  same  should 
be  a  lien  upon  the  assigned  estate. 
The  sjime  principle,  though  to  some- 
what different  facts,  was  applied  in 
People  V.  City  Bank  of  Rochester,  9G 
N.  Y.  32,  and  again  in  People  v.  Bank 
of  Dansville,  39  Hun,  187." 

•  Wilson  V.  Coburn,  (1892)  35  Neb. 
530.  The  court  said:  "  The  rule  on 
the  subject  is  stated  by  Judge  Stoky 
thus:  'The  right  to  follow  the  trust 
fund  ceases  only  where  means  of  as- 
certainment fail,  which,  of  course,  is 
the  case  when  the  subject-matter  is 
turned  into  money  and  mixed  and 
confounded  in  a  general  mass  of  prop- 
erty of  the  same  description.'  Story's 
Eq.  1259.  That  the  foregoing  rule  is 
applicable  to  cases  like  this,  where  the 
funds  in  controversy  are  the  assets  of 
an  insolvent  bank,  is  well  settled.  In 
111.  Trust  &  Savings  Bank  v.  Smith,  21 
Blatchf.  275,  Judge  Wallace,  after 
remarking  that  the  property  comes 
into  the  hands  of  the  receiver  as  a 
trust  fund  for  the  benefit  of  all  the 
creditors,  proceeds  as  follows:  'It 
would  be  a  violation  of  law  upon  his 
part  to  set  a.side  any  part  of  their 
assets  for  the  complainant  unless  his 
portion  is  capable  of  identification  or 
being    definitely    traced    and    distin- 


in  the  federal  court  for  the  district  of  Indiana,  it  has  been  held 
that  where  money  and  checks  were  unsuspectingly  deposited  in  a 
hank,  which  was  known  by  its  managing  officer  to  be  hopelessly 
insolvent^  a  few  minutes  before  closing  time  on  the  last  day  on  which 
it  did  business,  and  the  checks  were  subsequently  collected  by  the 
bank's  clerk,  the  wliole  of  the  deposit  was  charged  with  a  trust, 
and  an  equal  amount  might  be  recovered  from  the  receiver,  who 
retained  the  specific  money  among  the  general  mass  of  the  bank's 
funds.'     It  was  insisted  in  this  case,  on  behalf  of  the  receiver  of 


guished,'  etc.  Counsel  for  plaintiff 
in  error  rely  with  confidence  upon  the 
case  of  Cragie  v.  Hadley,  99  N.  Y. 
131.  We  do  not,  however,  regard  that 
rase  as  authority.  That  was  an  ac- 
tion against  the  defendants  for  the 
proceeds  of  a  dm  It  received  for  collec- 
tion from  an  insolvent  bank.  The 
fund,  therefore,  was  easily  distin- 
guishable' from  the  other  assets  of  the 
bank.  It  is  evident  from  subsequent 
cases  in  New  York  that  that  case  has 
never  been  regarded  as  an  authority 
in  cases  like  this,  where  the  money  of 
the  claimant  has  been  mingled  with 
the  other  funds  of  the  bank,  and  can- 
not be  distinguished  from  other  assets 
in  the  hands  of  the  assignee  or  re- 
ceiver. In  re  N,  River  Bank,  14  N. 
Y.  Supp.  261,  is  a  case  directly  in 
point.  The  Supreme  Court  therein, 
after  showing  that  Cragie  r.  Hadley 
was  not  authority,  for  the  reason  given 
above,  hold  that  the  petitioner  was  not 
entitled  to  preference,  although  he  de- 
posited his  money  on  the  forenoon  of 
the  day  on  which  the  bank  closed  its 
doors,  on  the  assurance  that  it  was 
solvent,  upon  the  ground  that  it  did 
not  appear  that  the  money  had  not 
gone  into  the  general  funds  of  the 
bank,  and  because  he  had  failed  to 
impress  upon  the  funds  in  the  hands 
of  the  receiver  the  character  of  a  trust. 
In  Atkinson  t.  Rochester  Printing  Co., 
114  N.  Y.  168,  the  same  distinction  is 
made,  and  the  court  says:  'The  fact 
that  the  defendant  became  a  creditor 


of  the  insolvent  bank  through  the 
fraud  of  its  officers,  and  the  bank,  a 
trustee  ex  malejicio,  gave  the  defendant 
no  right  to  a  preference  over  other 
creditors  unless  it  could  trace  and  re- 
cover its  property.'  And  such  is  the 
law  as  recognized  from  the  earliest 
history  by  the  courts  of  chancery. 
Ryall  r.  RoUe,  1  Atkyns,  172;  Thomp- 
son's Appeal,  22  Pa.  St.  16;  Perry  on 
Trusts,  §  128." 

1  Wasson  r.  Hawkins,  (1894)  59  Fed. 
Rep.  233.  Arguendo,  it  was  said  by 
Baker,  D.  J.  :  "The  bank  was  in- 
solvent, and  was  known  by  its  pres- 
ident, who  had  sole  management  of  it, 
to  be  insolvent.  The  knowledge  of 
the  president  was  the  knowledge  of 
the  bank.  Martin  v.  Webb,  110  U.  S. 
7;  s.  c.  3  Sup.  Ct.  Rep.  428;  Bank  t. 
Walker,  130  U.  S.  267;  s.  c,  9  Sup. 
Ct.  Rep.  519,  It  fraudulently  con- 
cealed its  insolvency  from  the  com- 
plainant, who  was  ignorant  of  it,  and. 
believing  it  to  be  solvent,  he  deposited 
in  the  bank  bank  notes  and  checks  to 
[a  certain]  amount  within  five  minutes 
of  its  final  collapse.  The  reception  of 
tti(;  money  and  checks,  under  such  cir- 
cumstances, was  a  fraud  upon  the 
plaintiff,  and  entitled  him  Xo  rescind 
the  transaction,  and  recover  back  his 
deposit  from  the  bank.  The  keeping 
of  the  bank  open,  and  the  conducting 
of  its  business  in  the  usual  manner, 
constituted  a  representation  to  its  cus- 
tomers of  the  solvencv  of  the  bank, 
upon  which  they  had  the  right  to  rely; 


> 


i»iii 


1'  \ 


624 


DEPOSITS  AND  CHECKS. 


[§320 


§321] 


DEPOSITS  AND  CHECKS. 


62: 


If 


IW) 


the  bank,  that,  though  the  money  and  checks  were  obtained  by 
fraud,  the  title  to  them  vested  in  the  bank ;  and  that  the  only 
relation  subsisting  between  the  plaintiff  depositor  and  the  bank 
was  that  of  creditor  and  debtor ;  and  that  he  could  not  reclaim  the 
money  and  checks,  because  money  has  no  mark  and  cannot  be 
identified  ;  and  that  the  plaintiff  had  no  lien  on  the  funds  in  the 
receiver's  hands  entitling  him  to  priority  or  preference  over  the 
other  creditors  of  the  bank.  The  court  held  adversely  to  this 
contention ;  that  the  depositor  was  entitled  to  be  preferred  out 
of  the  funds  in  the  hands  of  the  receiver.^ 


and  if  the  bank  was  known  to  be  in- 
solvent   by    the    officers    who    were 
charged  with  its  management,  the  con- 
cealment of  that  fact  from  a  person 
about  to  make  a  deposit  would  consti- 
tute a  fraud    upon  him     The   title 
acquired   by  the  bank  to  the  money 
and  checks  deposited  under  such  cir- 
.  cumstances  would  be  voidable  at  the 
election  of  the  depositor,  who  could 
bring  suit  to  recover  his  deposit,  with- 
out any  previous  demand.     The  bank 
would  become  a  trustee  ex  malejicio, 
and  would  hold  the  deposit  for  the  use 
of  the  -depositor,   and  subject  to  his 
'right of  reclamation,     l^ilway  Co.  v. 
Johnston,  133  U.  S.  566;  s.  c,  10  Sup. 
Ct.  Rep.  390;  Cragie  t.  Iladley,  99  N. 
Y.  Rep.  131;  s.  c,  1  N.  E.  Rep.  537; 
City  of  Somerville  t.  Beal,   49  Fed. 
Rep.  790:  Peck  t.  Bank,  43  Fed.  Rep. 
357.     In  the  case  of  Cragie  v.  Hadley, 
supra,  it  was  held  that  the  acceptance 
of  the  deposit  by  a  bank  hopelessly 
insolvent  constituted  such  a  fraud  as 
entitled  the  depositor  to  his  drafts  or 
their  proceeds.     In  Anonymous  Case, 
67  N.  Y.  698,  the  court  say:  '  This  is 
not  like  the  case  of  a  trader  who  has 
become    embarrassed    and   insolvent, 
and  yet  has  reasonable  hopes  that  by 
continuing  in  business  he  may  retrieve 
his  fortunes.     In  such  a  case  he  may 
buy  goods  on  credit,  making  no  false 
representations,  without  the  necessary 
imputation  of  dishonesty.    Nichols  v. 


Pinner,  18  N.  Y.  295;  Brown  d.  Mont- 
gomery, 20  N.  Y.  287;  Johnson  v.  Mo- 
nell,  2  Keyes.  655;  Chaffee  v.  Fort, 
2  Lans.  81.  But  it  is  believed  that  no 
case  can  be  found  in  the  books  holding 
that  a  trader  who  was  hopelessly  in- 
solvent and  knew  that  he  could  not 
pay  his  debts,  and  that  he  m.ust  fail  in 
business,  and  thus  disappoint  his  cred- 
itors, could  honestly  take  advantage 
of  a  credit  induced  by  his  apparent 
prosperity,  and  thus  obtain  property 
which  he  had  every  reason  to  believe 
he  could  never  pay  for.'  And  it  was 
decided  that  '  in  the  case  of  bankers, 
where  greater  confidence  is  asked  and 
reposed,  and  where  dishonest  dealings 
may  cause  widespread  disaster,  a  more 
rigid  responsibility  for  good  faith  and 
honest  dealing  will  be  enforced  than  in 
the  case  of  merchants  and  other 
traders; '  and  that  *  a  banker  who  is, 
to  his  own  knowledge,  hopelessly  in- 
solvent, cannot  honestly  continue  his 
business  and  receive  the  money  of  his 
customers;  and,  although  having  no 
actual  intent  to  cheat  and  defraud  a 
particular  customer,  he  will  be  held  to 
have  intended  the  inevitable  conse- 
quences of  his  act,  f .  e. ,  to  cheat  and 
defraud  all  persons  whose  money  he 
receives,  and  whom  he  fails  to  pay  be- 
fore he  is  compelled  to  stop  business.* " 
'  Wasson  v.  Hawkins,  (1894)  59  Fed. 
Rep.  233.  The  discussion  by  the  court 
of  the  question  thus  raised  deals  very 


§  321.  Certificates  of  deposit.— In  making  the  discount  of  a 
note,  a  bank  may  give  a  certiiicate  of  deposit  for  the  proceeds, 
instead  of  paying  over  the  money  to  the  borrower.*  Where  one 
person  hitrusts  money  to  another  to  deposit  in  bank,  the  bank 
having  knowledge  of  the  ownership,  but  no  discretion  as  to  the 


fully  with  English  as  well  as  other  au- 
thorities, and  was  in  these  words:  "  It 
was  said  by  Lord  King  in  Deg  v.  Deg, 
2  P.  Wms.  414,  'that  money  had  no 
earmark,  inasmuch  that  if  a  receiver 
of  rents  should  lay  out  all  the  money 
in  the  purchase  of  land,  or  if  an  ex- 
ecutor should  realize  all  his  testator's 
estate,  and  afterwards  die  insolvent, 
yet,  a    court    of   equity    could    not 
charge   or    follow    the    land.'"     See, 
also,  Cox  i\  Bateman,    2  Ves.  Sr.  19. 
And  bank  notes  and  negotiable  bills 
have  been  represented  as   possessing 
the  same  quality.    But  the  notion  that 
money,    because  it  had  uo  earmark, 
could  not  be  followed  into  or  charged 
upon  land  in  the  hands  of  the  trustee 
or  his  executor,  arose  from  some  mis- 
conception,   and    could    not  be  sup- 
ported.   In  Miller  v.  Race,  1  Burrows, 
*452,  Lord  Mansfield  exposed  this 
misconception,   and    pointed  out  the 
true  reason  why  money  could  only  be 
pursued     under    particular    circum- 
stances.    He  observed:  *'It  has  been 
quaintly   said  that  the    reason    why 
money  cannot  be  followed  is  because 
it  has  no  earmark;  but  this  is  not  true. 
The  true  reason  is  upon  the  currency 
of  it;  it  cannot  be  recovered  after  it 
has  passed  in  currency.     So,  in  case  of 
money  stolen,  the  true  owner  cannot 
recover  it  after  it  has  been  paid  away 
fairly  and  honestly  upon  a  valuable 
and   bona  fide  consideration;  but,  be- 
fore money  has  passed  in  currency,  an 
action  may  be  brought  for  the  money 
itself.     Apply  this  to  the  case  of  a 
bank  note.     An  action  may  lie  against 
the  finder,  it  is  true,  and  it  is  not  at  all 
denied,  but  not  after  it  has  been  paid 


away  in  currency;  and  this  point  has 
been  determined  even  in  the  infancy 
of  banknotes."  Lord  Ellenborougu, 
in  Taylor  v.  Plumer,    3  Maule  &  S. 
562,  575,  observed:  "The  dictum  that 
money  has  no  earmark  must  be  under- 
stood as  predicated   only  on  an  undi- 
vided and  uudistinguishable  mass  of 
current  money;  but  money  kept  in  a 
bag,  or  otherwise  kept  apart  from  other 
money,      guineas,     or     other      coin 
marked  (if  the  fact  were  so)  for  the 
purpose  of  being  distinguished  are  so 
far  earmarked   as  to    fall  within  the 
rule  which    applies   to   every    other 
description  of  personal  property  while 
it  remains  in  the  hands  of  the  factor 
or  his  general  legal    representative." 
After    these     references    to    English 
cases,  it  was  said  :  "The  true  distinc- 
tion, therefore,  between  money,  bank 
notes  or  negotiable    bills,    and  other 
chattels,  would   seem  to  be  that  the 
former,  for   the    protection   of    com- 
merce,  cannot  be  followed    into  the 
hands  of  a  bona  fide  holder  to  whom 
they    have    passed  in  due  course  of 
business,  while  other  chattels  affected 
by  a  trust  may,  in  general,  be  pur- 
sued  and    reclaimed.      The    ancient 
notion  that  money  could  not  be  fol- 
lowed, even  as  between  trustee  and 
cestui  que  trust,  because  money  had  no 
earmark,   has  given    way  to  a  more 
just      and       enlightened       doctrine. 
Money,   bank    notes     and  negotiable 
bills  may  be  followed  by  the  rightful 
owner,  where  they  have  not  been  cir- 
culated or  negotiated,  or  if  the  person 
to  w^hom  they   have   passed  has  ex- 
press notice  of  the   trust.     Miller  v. 
Race,  1  Burrows,  *452;  1  Smith  Lead. 


*  Mississippi  Railroad  Co.  v.  Scott,  7  How.  (Miss.)  79. 
79 


m 


•ft 


! 


626 


DEPOSITS  AND  CHECKS. 


[§321 


manner  of  making  the  deposit,  it  will  be  warranted  in  receiving 
the  money  and  giving  a  certificate  of  deposit  therefor  in  the  name 
of  the  person  presenting  the  money  for  deposit.  And  where  the 
real  owner  of  the  money  deposited,  receiving  notice  of  the  man- 
ner in  which  it  was  deposited,  fails  to  dissent  thereto  within  a 


Cas.    (5th    Amcr.    ed.)    597    (*250); 
Taylor  v.  Plumer,  3  Mnule  &  S.  562, 
575;   King    v.  Eggintoa,   1  Term   R. 
370;  Ryall  r.   Rolle.  1  Atk.  172;  Pen- 
nell  r.  Deflfell.  4  DeGex.  M.  &  G.  372; 
In  re    Hallett's    Estate,   36  Eng.    R. 
779;  8.  c,   13  Ch.  Div.  69<>;  National 
Bank  r.   Insurance  Co.,  104  U.  S.  54. 
The  only  difference   between  money 
and  notes  and  bills,  is  that  money  is 
not  earmarked,  and,  therefore,  cannot 
be  traced,   except    under     particular 
circumstances,  while  bills  and  notes, 
having  a  number    and     date,     may 
generally  be  identified  with  less  diffi- 
culty.    It  is  conceded  that,  if  plaintiff 
could  identify  the  particular  coins  and 
bank  notes  which  he  had  deposited,  he 
would    have    the    right  to  withdraw 
them  from  the  mass  of  coins  and  bank 
notes  which  passed  into  the  hands  of 
the  receiver;    but  it  is  insistetl    that 
inasmuch  as  the  money  deposited  by 
him  has,  like  water,  flowcnl  into  the 
common  mass  and  so  become  incapable 
of  identification,  the  right  to  pursue 
and    reclaim    it    is    lost,   although  it 
is  admitted  that  the   very  coins  and 
bank    notes   deposited    by  him   con- 
stitute a  part  of  the    common  mass. 
It  is  charged  in  the  bill,  and  admitted 
by  the  demurrer,   that  the    identical 
coins  and  bank  notes  deposited  by  the 
plaintiff  remained  in  the  bank  when  it 
stopped  business,  and  came  into  the 
hands  of  the  receiver,  who  now  has 
them  in  his  possession  as  a  part  of  the 
general  mass  of  coins  and  notes  held 
by  him  as  such  receiver.     In  such  a 
case  the  identification  is  sufficient  to 
entitle    the    depositor   to  follow  and 
reclaim   the   deposit    made   by  him. 
Although  the  identical  coins  and  bank 


notes  cannot  be  ascertained,  yet,  as  It 
is  admitted  that  so  much  in  coins  and 
bank  notes  belonging  to  the   plaiutiiT 
is  in  common  mass,  he  is  entitled,  in 
equity  and  good  conscience,  to  take  so 
much  out.     If  he  does  not  withdraw 
from  the  common  mass  the  very  coins 
and  bank  notes  deposited  by  himself, 
no  injustice  is  done,  for  he  leaves  an 
equitable  amount  of  his  own  in  place 
of  every  coin  or  bank  note  deposited 
by  another.      Pennell    r.    Deffell,   4 
DeGex,   M.  &  G.  372;  In  re  Hallett's 
Estate.  36  Eng.  R.   779;   s.  c,  13  Ch. 
Div.  696;  Cnvgie  r.   lladley,  99  N.  Y. 
131;  8.  c.  1  N.  E.  Rep.  537;  National 
Bank  v.  Insurance  Co.,  104  U.  S.  54; 
Frelinghuysen   r.    Nugent,    36    Fed. 
Rep.   229;    Peters  r.   Bain,  133  U.  S. 
670;  8.  c,  10  Sup.  Ct.  Rep.  354;  Bank 
V.  Dowd.  38  Fed.  Rep.  172;  Atkinson 
V.  Printing  Co.,  114  N.  Y.   168;  8.  C, 
21  N.  E.  Rep.  178;    In  re  North  River 
Bank,  14  N.  Y.  Supp.  261.     And  the 
proceeds  of  the  checks  are  governed 
by  the  same    principle,    because  the 
identical  coins  and  bank  notes  realized 
from  their  collection  constitute  a  part 
of  the  common  mass  in  the  receiver's 
hands.     The  mere  fact  that  the  plain- 
tiff became  a  creditor  of  the  insolvent 
bank  through  the  fn\ud  of  its  presi- 
dent, and  that    the    bank    became  a 
trustee  ex  maleficio,  would  give  him 
no    right    to    preference    over    other 
creditors,    unless    he  can    trace    and 
identify  his  money  as  a  part  of  the 
common  mass.     But  when  it  is  shown 
by  indubitable  proofs,  or  is  admitted, 
as  in  the  present  case,  that  the  identi- 
cal bank  notes  and  coins  so  obtained 
by    fraud,    constitute   a    part  of  the 
common  mass  of  bank  notes  and  coins 


321] 


DEPOSITS  AND  CHECKS. 


627 


reasonable  time,  he  will  be  held  to  have  ratified  the  same.  And 
after  the  lapse  of  several  years  4ie  cannot  object  that  the  bank 
subsequently  paid  over  the  money  to  his  agent  upon  the  presenta- 
tion of  the  certificate  of  deposit,  the  bank  having  no  knowledge 
that  the  agent's  possession  of  the  certificate  was  wrongful  and 
tortious.*  A  certificate  of  deposit  is  prima  facie  evidence  of 
indebtedness.^  A  certificate  of  deposit  payable  in  "  currency " 
means  prhna  facie  money  current  by  law,  or  paper  equivalent 
in  value  circulating  in  the  business  community  at  par.^  By 
giving  a  certificate  of  deposit  for  current  bank  notes,"  the 
receiver  of  the  deposit  admits  that  to  be  the  character  of  the 
money  received,  and  will  be  estopped  by  the  admission  from  show- 
ing that  the  funds  received  were  not  current,  or  claiming  the 
right  to  pay  in  anything  but  the  same  character  of  funds.*  A 
certificate  of  deposit  has  been  treated,  in  fact  and  in  law,  as  a 
promissory  note  for  the  payment  of  money .^  A  certificate  of 
deposit  for  a  stated  sum,  to  draw  interest,  if  left  for  thirty  days, 
and  payable  on  return  of  the  certificate  properly  indorsed,  has 


in  the  hands  of  the  receiver,  in  my 
judgment,  the  modern  and  better 
doctrine  is  that  the  depositor  may  take 
out  of  the  common  mass  so  much  as 
he  has  put  in." 

>  Bank  of  Montreal  w  Dewar,  (1880) 
6  Brad w.  (111. )  294.  On  the  first  point  the 
court  cited  McNeil  tJ.  Tenth  National 
Bank,  46  N.  Y.  325;  Anderson  v.  Arm- 
stead,  69  111.  452. 

'Cushman  v.  Illinois  Starch  Co.,  79 
Bl.  281. 

3  Phelps  ?).  Town,  14  Mich.  374.  In 
Hulbert  id.  Carver,  (1863)  40  Barb.  265, 
where  the  plaintiffs  had  deposited 
money  with  defendants,  bankers  in 
Chicago,  lUinois,  taking  a  certificate 
that  they  had  deposited  in  the  bank- 
ers'oflBce  a  certain  amount  "Illinois 
currency,"  payable  to  the  order  of 
themselves  on  return  of  the  certifi- 
cate, the  Supreme  Court  of  New  York 
held  that  they  were  at  least  entitled  to 
payment  in  Blinois  currency,  receiv- 
able in  the  ordinary  transactions  of 
business  at  par,  if  not  entitled  to 
specie. 


*  Osgood  ©.  McConnell,  (1863)  32  Bl. 
74.  As  to  the  meaning  of  "  currency  " 
and  "current  bank  bills"  the  court 
said:  "  This  court  has  repeatedly  held 
that  currency  and  current  bank  bills 
have  a  fixed  known  signification.  That 
the  term  currency  means  bank  bills  or 
other  paper  money,  which  passes  as  a 
circulating  medium  in  the  business 
community  as  and  for  the  constitu- 
tional coin  of  the  country.  Current 
bank  bills,  it  will  be  perceived,  mean 
precisely  the  same  thing  as  currency. 
This  question  has  been  repeatedly 
before  the  court,  and  it  has  been  uni- 
formly so  held.  See  Chic^igo  Fire  «& 
Marine  Ins.  Co.  «?.  Keiron,  27  111.  501 
Marine  Bank  v.  Chandler,  27  111.  525 
Galena  Ins.  Co.  -c.  Kupfer,  28  111.  332 
Chicago  Marine  &  Fire  Ins.  Co.  xi.  Car- 
penter, 28  111.  360;  Marine  Bank  t. 
Rushmore,  28  111.  463;  Swift  t?.  Whit- 
ney, 20  111.  144;  Trowbridge  v.  Seaman, 
21  111.  101." 

5  Bank  of  Peru  t.  Farnsworth,  18 
Bl.  563;  Laughhn  «.  Marshall,  19  DL 
390. 


I 


U 


ii 


628 


DEPOSITS  AND  CHECKS. 


[§321 


§321] 


DEPOSITS  AND  CHECKS. 


629 


m 


been  held  to  be  a  good  promissory  note.^    Where  a  bank  addresses 
to  another  bank  an  instrument  stating  that  a  person  had  deposited 
with  it  a  stated  sum  of  money  to  the  credit  of  the  latter  bank 
for  the  use  of  a  third  person,  such  instrument  would  be  in  its 
legal  character  a  certificate  of  deposit.^     A  certificate  of  deposit, 
"  payable  in  current  funds,"  is  equivalent  to  a  promissory  note, 
but  not  being  payable  in  money  is  not  governed  by  law  merchant.^ 
Indorsees  of  a  certificate  of  deposit,  not  bearing  interest,  who 
received  it  more  than  six  years  after  it  had  been  paid  and  should 
have  been  surrendered,  were  held  by  the  Indiana  Supreme  Court 
to  have  taken  it  as  dishonored  paper,  and  not  as  a  continuing 
negotiable  security,  and  not  entitled  to  enforce  its  second  pay- 
ment after  such   an   unreasonable  delay.*     The   transferree  by 
indorsement  of  a  certificate  of  deposit,  takes   it  subject  to  all 
equities  between  the  payee  and  the  bank.'    In  a  case  where  a 
national  bank  upon  a  deposit  made  by  a  depositor  over  its  coun- 
ter, in  the  usual  course  of  business,  issued  to  him  a  certificate  of 
deposit,  which  he  received  in  the  belief  that  it  was  the  obligation 
of  the  bank,  but  wliich  purported  to  be  the  individual  obligation 
of  its  president,  the  officers  of  the  bank  knowing  of  and  permit- 
ting this  course  of  business,  the  Supreme  Court  of  New  \  ork 
held  that  the  defendant  was  not  bound  by  the  acceptance  of  the 
certificate  to  knowledge  or  notice  that  the  deposit  was  accepted 
by  the  president  of  the  bank  individually,  but  was  entitled,  under 
the  circumstances,  to  believe  the  certificate  was  the  obligation  of 
the  bank,  and  that  the  bank  was  estopped  to  deny  its  liability  on 
the  certificate.'     A  bank  has  been  held  responsible  for  the  money 
of  a  depositor  notwithstanding  a  fraud  perpetrated  by  its  officers 
in  inducing  the  depositor  to  accept  their  certificate  of  deposit  as 
that  of  the  bank.^    But  a  bank  would  not  be  responsible  for  an 

1  Howe  f>.  Hartness.  (1860)  11  Ohio   222;  Lindsey  v.  McClelland,  18  Wis. 
gj.  44g  481;   Klauber  v.  Biggerstaff,  47   Wis. 

» Armstrong  v.  American  Exchange   551. 
National  Bank.  133  U.  S.  433.  'Humboldt  Trust    Co.'s  Estate,   3 

3  National  State  Bank  of  La  Fayette   Pa.  Co.  Ct.  Rep.  621. 
«  Rin-cl  (1875)  51  Ind.  393.  •  West   v.  First    National  Bank  of 

**Gre°gg  V,  Union  County  National  Elmira.  (1880)  20  Hun.  408.  As  to 
Bank  (1882)  87  Ind.  238.  As  to  the  negotiability  of  a  certificate  of  deposit, 
regulkrity  of  certificates  of  deposit,  sec  see  Smith  v.  Mosby ,  Receiver,  (1872)  9 
O'Neill  V.  Bradford,  1  Finn.  (Wis.)  Heisk.  (Tenn.)  501. 
390-  Ford  V.  Mitchell,  15  Wis.  304;  '  Steckel  ^.  Bank.  93  Pa.  St.  376; 
Piatt  V  Sauk  County  Bank,  17  Wis.    Ziegler  v.  Bank,  93  Pa.  St.  393. 


interest-bearing  certificate  of  deposit,  issued  by  its  president  in 
the  name  of  his  firm,  under  circumstances  by  which  the  depositor 
could  not  have  been  misled.^  In  an  Illinois  case  it  appeared  that 
the  employee  of  owner  of  money,  who  had  intrusted  it  to  him  to 
deposit  for  him  in  a  bank,  deposited  it  in  his  own  name,  the  bank 
knowing  whose  money  it  was  at  the  time.  The  employee  after- 
ward indorsed  the  certificate  of  deposit  to  the  owner  of  the 
money,  who  deposited  the  certificate  in  the  safe  to  which  his 
employer  had  access,  but  gave  no  notice  of  these  facts  to  the 
bank  until  after  the  employer  had  taken  the  certificate,  and  drawn 
the  money  on  it,  and  had  it  placed  to  his  own  individual  account, 
when  he  did  inform  the  bank  of  his  rights.  After  this,  however, 
lie  treated  the  transaction  as  a  loan  to  his  employee  for  over 
three  years,  expecting  to  have  him  secure  it.  During  this  time 
he  made  no  claim  on  the  bank.  The  Supreme  Court  held  that 
under  these  facts  the  owner  of  the  money  thus  deposited  could 
not  maintain  an  action  of  trover  against  the  bank  for  a  conver- 
sion of  the  money,  for  the  reason  that  he  had  by  his  acts  vested 
his  employee  with  an  apparent  ownership  or  control  of  the  money, 
and  had  thus  acquiesced  in  the  payment  of  the  money  to  him.^ 
Tlie  assigning  of  a  certificate  of  deposit  transfers  to  the  assignee 
the  whole  sum  deposited,  as  stated  in  the  certificate.^  An  innocent 
holder  of  a  certificate  of  deposit  issued  to  a  cashier,  naming  him, 
for  funds  deposited  belonging  to  his  bank  which  the  cashier 
transferred  to  him,  would  be  protected,  though  the  transfer  may 
be  in  bad  faith  on  the  part  of  the  cashier.*  An  attempt  by  the 
holder  of  a  certificate  of  deposit  to  obtain  payment  of  it  before 


»Bank  v.  Williams.  11  W.  N.  C. 
(Pa.)  347.  In  Jenkins  v.  Walter,  8  G. 
&  J.  (Md.)  218,  a  guardian  had  depos- 
ited money  of  his  ward  in  a  bank  and 
received  a  certificate  of  deposit  pay- 
able to  his  own  order.  On  the  day  of 
deposit,  by  an  indorsement  on  the  cer- 
tificate made  to  himself,  he  declared  it 
to  be  the  property  of  his  ward,  and 
placed  in  bank  for  his  benefit.  The 
depositor  subsequently  failed.  The 
court  held  that  the  bank  might  apply 
the  fund  in  satisfaction  of  any  claim 
it  had  against  the  depositor. 

''Dewar  v.  Bank  of  Montreal,  115 
III.  22. 


'  Springfield  Marine  &  Fire  Ins.  Co. 
V.  Peck,  (1882)  102  III.  265.  In  Hazle- 
ton  V.  Bank  of  Columbus,  32  Wis.  34, 
a  bank  which  had  paid  its  certificate 
of  deposit  to  one  to  whom  it  had  been 
properly  indorsed,  though  without 
consideration  as  to  one  who  really 
owned  it  and  the  money,  and  the 
indorsement  was  forged,  it  was  held, 
would  not  be  liable  on  the  certificate 
to  the  original  payee. 

4  Perpetual  Ins.  Co.  v.  Cohen, 
(1845)  9  Mo.  421.  In  Philipps  v.  Fran- 
ciscus,  (1873)  52  Mo.  370,  where  one 
owing  money  to  another  took  the 
amount,  and,  after  placing  it  in  an  ea- 


t 


:  t 


M 


630 


DEPOSITS  AND  CHECKS. 


[§321 


I 


ii 


it  falk  due,  is  not  inconsistent  with  its  ownership  by  some  one 
else.*  The  hrnia  fide  holder  of  a  certificate  of  deposit  issued  by 
a  bank  payable  on  its  return,  properly  indorsed,  to  whom  it  was 
transferred  seven  years  after  its  issue,  has  been  held  entitled  to 
recover  the  amount  from  the  bank,  notwithstanding  the  bank  had 
paid  it  to  the  original  holder.^  The  holder  of  a  non-negotiable 
certificate  of  deposit,  which  has  been  indorsed  to  him  in  blank  by 
the  payee  and  delivered  to  him,  may  make  a  valid  pledge  of  it  to 
an  innocent  party,  without  reference  to  the  equities  between  him- 
self and  the  payee.''  On  demand  of  payment  of  a  certificate  of 
deposit  in  a  savings  institution  payable  to  the  depositor  or  order, 
on  demand  and  on  return  thereof,  the  bank  has  the  right  to  insist 
that  the  certificate  shall  be  produced  and  delivered  up  as  its 
voucher  of  payment,  and  security  against  any  future  claim.*  In 
a  Vermont  case  it  appeared  that  an  insolvent  person  fraudulently 
procured  a  certification  of  a  check  from  a  bank,  which  he  deposited 
in  a  second  bank  to  the  credit  of  a  third  bank  for  the  use  of  one 
to  whom  he  was  indebted  to  that  amount.  The  creditor  of  the 
insolvent  had  previously  directed  the  latter  to  deposit  that  sum 
for  him  in  bank,  but  had  no  communication  with  the  second  bank, 
above  referred  to,  on  the  subject.  The  bank,  on  receiving  the 
deposit,  had  addressed  a  letter  to  the  third  bank,  informing  them 
of  the  deposit  and  credit,  but,  before  this  bank  received  the  letter, 
notified  them  by  telegraph  by  procurement  of  the  bank  certify- 
ing the  check,  not  to  make  payment  to  the  creditor  upon  this 
credit,  as  there  was  something  wrong.     The  creditor  was   also 


velope,  sealed  the  package  and  placed 
it  in  the  hands  of  a  banker  and  took  a 
certificate  of  deposit  of  the  same, 
which  he  indorsed  and  delivered  to  his 
creditor,  the  title  of  the  latter  to  the 
money  was  held  to  be  complete.  In 
Second  National  Bank  of  Baltimore  r. 
Wrightson,  Exr.,  (1884)  63  Md.  81.  it 
appeared  that  the  appellee's  testator 
had  deposited  a  sum  of  money  in  the 
bank  and  received  a  certificate  of  de- 
posit stating  that  the  same  was  pay- 
able to  the  order  of  himself  or  of  his 
wife  (naming  her)  on  the  return  of  the 
certificate.  The  Court  of  Appeals 
held  that  upon  the  death  of  the  de- 
•  positor  a  payment  of  the  certificate  to 


the  wife  was  not  authorized,  but  that 
the  bank  was  entitled  to  a  credit  for 
the  amount  which  she  had  drawn  and 
applied  to  the  use  of  his  estate  in  the 
way  of  personal  expenses,  etc.  Citing 
Murray  f.  Cannon,  Admr.,  41  Md. 
466;  Taylor  v.  Henry  &  Bruscup, 
Admrs.,  48  Md.  550. 

'  Burrows  v.  Bangs,  34  Mich.  304. 

« National  Bank  of  Fort  Edward  v. 
Washington  County  National  Bank, 
(1875)  5  Hun,  605. 

3  International  Bank  ».  German 
Bank.  (1879)  71  Mo.  183. 

*  Fells  Point  Savings  Inst,  of  Balti- 
moie  V,  Weedon,    Admr.,  18  Md.  320. 


§321] 


DEPOSITS  AND  CHECKS. 


631 


informed  by  telegraph  by  his  debtor,  the  insolvent,  the  drawer  of 
the  check,  that  payment  of  the  credit  had  been  stopped.  These 
telegrams  were  received  as  early  at  least  as  the  creditor  received 
notice  of  the  deposit,  and  before  he  had  in  any  way  acted  upon 
it.  The  certifying  bank,  before  becoming  fully  informed  of  the 
fraud,  had  paid  the  money  on  tlie  check  to  the  second  bank.  On 
the  bill  in  chancery  brought  by  the  certifying  bank,  the  Supreme 
Court  held  that  it  was  entitled  to  reclaim  the  money  from  the 
bank  to  which  it  had  paid  it ;  that  the  receipt  of  the  money  by 
that  bank  was  not  in  law  a  payment  to  the  creditor,  considering 
the  relations  between  all  the  parties  growing  out  of  this  trans- 
action.^ The  right  of  action  upon  an  ordinary  certificate  of 
deposit  does  not  arise  until  a  demand  for  payment  is  made.^ 
Limitations  on  a  certificate  of  deposit  payable  with  interest  on 
demand  and  on  return  of  same,  run  along  from  the  time  of 
demand  actually  made.^  The  defendant  in  this  New  York  case, 
a  director  of  a  national  bank,  had  deposited  a  certain  amount  of 
money  in  the  bank,  and  received  three  certificates  of  deposit,  two 
at  one  time  and  one  at  another,  bearing  six  per  cent  interest.  The 
two  certificates  first  issued,  the  cashier,  in  a  Httle  more  than  three 
years  after  their  issue,  voluntarily  paid  by  a  transfer  of  negotiable 
paper  belonging  to  the  bank,  and  the  payment  of  a  small  cash 
difference,  giving  as  a  reason  therefor  "  that  his  directors  did  not 
like  his  paying  so  large  a  rate  of  interest ; "  the  payment  was  not 
requested  by  the  depositor.  Near  nine  months  later  the  third 
certificate,  which  had  been  indorsed  and  transferred  by  the 
depositor  to  another  national  bank,  was  paid  to  the  bank  in  the 
settlement  of  exchanges  between  the  banks  in  the  usual  man- 
ner. At  the  time  of  the  payment  the  bank  was  insolvent, 
and  had  been  so  for  some  years,  its  insolvency  being  known 
only  to  the  cashier,  and  it  was  in  good  credit  with  the  public, 

'  Bank  of   Republic  i\  Baxter,   31  while  failed.     In  an  action  against  the 

Vt.    101.     In    Cate    v.   Patterson,   25  payee  as  indorser,  he  was  held  not  to 

Mich.  191,  the  payee  of  a  certificate  of  have  been  relieved  from  liability  on 

deposit  had  transferred  it  with  a  special  the  ground  that  the  presentment  for 

request  that  it  should  not  be  presented  payment  was  not  in  due  time, 

until   three  months  had  expired,  and  'Munger  v.  Albany   City  National 

had  actually  received  from  the  pur-  Bank,  (1881)  85  N.  Y.  580. 

chaser  the  interest  accrued  at  the  date  ^  Fells  Point  Savings  Inst,  of  Balti- 

of  the  transfer.     The  purchaser  pre-  more  -v.  Weedon,  Admr.,  etc.,  18  Md. 

sented    the  certificate  after  the  time  320. 
expired  and  the  bank  had  in  the  mean- 


iHi 


632 


DEPOSITS  AND  CHECKS. 


[§321 


i  l! 


i 


doing  business  without  suspicion.  Its  financial  condition  shortly 
after  the  payment  of  the  third  certificate  of  deposit  became 
public  from  the  absconding  of  the  cashier  and  one  of  the  book- 
keepers. The  receiver  of  the  bank,  afterwards  appointed,  brought 
this  action  against  the  former  depositor  to  recover  the  amount  of 
the  deposits  paid  him,  upon  the  gi'ound  tliat  the  payments  were 
void  under  the  section  of  United  States  Revised  Statutes  cited 
below,^  which  provides  as  follows :  "  All  transfers  of  the  notes, 
bonds,  bills  of  exchange  or  other  evidences  of  debt  owing  to  any 
national  banking  association,  or  of  deposits  to  its  credit-,  all 
assignments  of  mortgages,  sureties  on  real  estate,  or  of  judg- 
ments or  decrees  in  its  favor ;  all  deposits  of  money,  bullion  or 
other  valuable  thing  for  its  use,  or  for  the  use  of  any  of  its  share- 
holders or  creditors ;  and  all  payments  of  money  to  either,  made 
after  the  commission  of  an  act  of  insolvency,  or  in  contemplation 
thereof,  made  with  a  view  to  prevent  the  application  of  its  assets 
in  the  manner  prescribed  by  this  chapter,  or  with  a  view  to  the 
preference  of  one  creditor  to  another,  except  in  payment  of  its 
circulating  notes,  shall  be  utterly  null  and  void."  The  New  York 
Court  of  Appeals  aftirmed  the  dismissal  of  this  action  upon  the 
findings  of  fact  and  evidence  by  the  trial  court,  which  had  also 
been   affirmed   by  the  General  Term.^     In  a  case  it  appeared 


'  §  5242. 

'Hayes  r.  Beardsley,  (1892)  136  N. 
Y.  299.  Earl,  Ch.  J.,  in  the  opinion. 
8aid:  "The  bank  had  not  committed 
any  act  of  insolvency,  as  it  met  all  its 
obligations  as  they  became  due  or 
were  demanded  during  more  than  six 
weeks  after  the  last  certificate  was 
paid.  While  its  cashier  knew  that  the 
bank  was  insolvent,  and  must  have 
expected  that  it  would  ultimately  fail 
to  meet  its  obligations  and  be  obliged 
to  go  into  liquidation,  yet  it  cannot  be 
f«iid  to  have  been  an  undisputed  fact 
in  the  case  that  the  financial  collapse 
of  the  bank  was  impending  or  immi- 
nent, and  there  is  little  if  any  ground 
for  saying  that  these  payments  were 
made  in  contemplation  of  insolvency. 
The  cashier  paid  the  certificates,  as  he 
did  all  other  demands  upon  the  bank 
as  they  were  from  time  to  time  pre- 


sented by  its  numerous  customers. 
The  first  two  certificates  were  paid,  as 
we  must  assume,  for  the  reason  as- 
signed by  the  cashier  at  the  time,  be- 
cause they  were  bearing  interest  at  a 
larger  rate  than  the  directors  of  the 
bank  were  willing  longer  to  pay,  and 
the  last  certificate  was  paid  to  the 
[bank  holding  it]  in  the  ordinary 
course  of  business  in  the  settlement  of 
exchanges  between  the  two  banks. 
There  was  no  satisfactory  evidence 
that  these  payments  were  made  by  the 
bank  to  prevent  the  application  of  its 
assets  in  the  manner  prescribed  in  the 
National  Banking  Act  or  with  a  view 
to  a  preference  of  the  defendant  over 
the  other  creditors  of  the  bank.  The 
circumstances  under  which  the  pay- 
ments were  made  and  the  condition 
and  credit  of  the  bank  at  the  time  for- 
bid the  inference  that  the  payments 


§321] 


DEPOSITS  AND  CHECKS. 


633 


that  two  persons  who  were  directors  both  of  a  savings  bank  and 
of  a  national  bank,  procured  money  from  the  savings  bank  on 
two  notes  made  by  third  persons  to  them,  and  given  for  the  pay- 
ment of  stock  of  the  national  bank,  issued  in  the  names  of 
the  third  persons  for  then*  benefit.  These  persons  represented  to 
the  savings  bank  that  it  would  have  to  carry  the  notes  but  a  short 
time,  and  that  the  national  bank  would  take  care  of  them.  They 
were  behind  in  their  account  with  the  national  bank,  and  the 
savings  bank  allowed  them  to  overdraw  their  accounts  with  it  to 
a  large  amount,  which  money  was  used  in  settling  their  accounts 
with  the  national  bank.  After  this  the  savings  bank  delivered  the 
notes  and  the  check  representing  the  overdrafts  to  the  national 
bank,  and  received  from  the  latter  a  certificate  of  deposit  for  an 
amount  covering  the  whole  amount  represented  by  the  notes 
and  check.  In  a  suit  by  the  receiver  of  the  savings  bank,  which 
had  become  insolvent,  against  the  receiver  of  the  national  bank. 


were  made  for  such  a  purpose.  The 
defendant  was  not  selected  as  a  favor- 
ite creditor.  During  all  the  years  of 
the  insolvency  of  the  bank  all  cred- 
itors were  treated  alike,  and  there  was 
no  preference  of  one  over  another. 
All  its  demands  were  met  at  maturity. 
There  does  not  appear  from  the  facts 
found  to  be  any  better  ground  for 
claiming  that  these  payments  made  to 
the  defendant  were  void  than  there  is 
for  making  the  same  claim  in  refer- 
ence to  the  numerous  payments  made 
in  the  regular  course  of  business  by 
this  bank  to  its  customers  during 
many  months  prior  to  the  closing  of 
its  doors.  In  order  to  uphold  a  re- 
covery in  an  action  like  this  there 
should  be  some  satisfactory  evidence 
that  the  cashier  or  other  officer  actu- 
ally paid  the  money  of  the  bank  in 
contemplation  of  insolvency  for  the 
purpose  of  giving  a  preference  to  the 
payee  and  with  a  view  to  prevent  the 
application  of  the  assets  of  the  bank 
to  the  creditors  generally,  as  provided 
in  the  National  Banking  Act.  We 
think  all  the  circumstances  surround- 
ing these  deposits  and  payments  for- 

80 


bid  such  an  inference."  As  to  the 
effect  of  the  defendant  being  a  di- 
rector it  was  said:  "  The  insolvency  of 
this  bank  seems  to  have  been  covered 
up  and  concealed  by  the  cashier  with 
great  skill  and  ingenuity.  It  was 
not  discovered  by  the  bank  examin- 
ers in  making  their  examinations  of 
the  bank,  and  no  one  of  the  directors 
had  the  least  suspicion  of  it.  The 
fact  that  the  defendant,  entirely  igno- 
rant of  the  insolvency  of  the  bank, 
was  a  director  does  not,  under  such 
circumstances,  as  a  matter  of  law, 
charge  him  with  liability  for  the  pay- 
ment made  to  him.  In  the  trial  of  the 
ca.se  and  in  weighing  and  balancing 
the  evidence  that  fact  might  have 
weight  —  in  some  cases  controlling 
weight  —  with  the  trial  court.  But 
when,  after  all  the  evidence  is  given, 
it  is  found  that  the  director  acted  in 
good  faith,  was  ignorant  of  any 
wrongdoing  or  of  the  insolvency  of 
the  bank,  then  a  payment  made  to  him 
must  be  tested  under  section  5242  [U. 
S.  Rev.  St.]  like  payments  made  to 
any  other  creditor  of  the  bank." 


;   I 


r: 


f 


634 


DEPOSITS  AND  CHECKS. 


[§  322 


#1 


also  insolvent,  based  upon  tins  certificate  of  deposit,  it  was  held 
that  the  certificate  of  deposit  was  without  consideration  and  void, 
and  that  the  savings  bank  would  have  to  submit  to  the  loss  accruing 
to  it  out  of  the  transaction,  as  the  loss  was  due  to  the  fraud  or 
incompetency  of  its  own  officers.^ 

§  322.  Special  deposits.— The  United  States  Supreme  Court 
has  held  that  the  provision  of  the  National  Banking  Association 
Act,  that  it  shall  be  lawful  for  a  national  bank  after  its  failure  to 
"  deliver  special  deposits,"  was  as  effectual  a  recognition  of  the 
power  of  a  national  bank  to  receive  special  deposits  as  an  express 
declaration  to  that  effect  would  have  been.^     Bank  notes,  when 
received  by  a  bank  on  general  deposit,  become  the  property  of 
the  bank,  and  the  amount  a  debt  payable  on  demand  by  the  bank 
to  the  person  entitled  to  it.     An  action  of  debt  or  assumpsit 
against  the  bank  is  the  only  remedy  of  the  creditor  in  ease  pay- 
ment be  refused.     But  it  is  different  if  they  be  deposited  as  a 
special  deposit.     The  deposit  then  is  nothing  but  a  bailment. 
And  if  a  cashier  of  the  bank  converts  them  it  is  a  tortious  act  for 
which  he  will  be  held  individually  liable  in  an  action  of  trover.* 
A  deposit  in  bank  will  not  be  made  a  special  one  nor  will  the  lia- 
bility  of   the  bank   be   changed  by  the  addition  of  the  word 
"  clerk  "  to  the  name  of  a  general  depositor.*     Where  a  bank  lias 
given  a  receipt  for  money  received  "  on  deposit,"  such  a  receipt 
would  not  show  whether  it  was  a  special  or  general  deposit, 
and  the  bank  would  be  allowed  to  show  by  parol  evidence  that 
the  transaction  was  in  fact  a  special  deposit.*     In  cases  of  special 
deposit  the  right  of  property  remains  in  the  depositor,  and  he  is 
entitled  to  receive  back  the  identical  thing  deposited.*     A  bank, 
in  receiving  a  special  deposit,  undertakes  to  exercise  no  greater 
care  in  its  preservation  tlian  the  depositor  has  the  reasonable  right 

» Murray  t.  Pauly,   (1893)  56  Fed.  (1885)  103  Ind.  562;  Keene  r.  Collier,  1 

Rep   962.  Mete.  (Ky.)  417.     As  to  a  special  dc- 

»  National  Bank  r.  Graham.  (1879)  posit  of  bonds,  see  Van  Leuven  r.  First 

100  U.  8.  699,  which  overruled  Whit-  National  Bank  of  Kingston,  (1873)  54 

ney  v.  National  Bank  of  Brattlcboro,  N.  Y.  671. 

50  Vt  388  '  ^^°  ^-  Beekman,  66  Iowa,  672. 

»  Coffin  V.  Anderson.  (1837)  4  Blackf .  •  Lowry  r.  Polk  County.  51  Iowa.  5a 

(Ind  )  395.  As  to  a  bank's  liability  to  return  a  spo- 

*  McLaiB  V.  Wallace.  (1885)  103  Ind.  cial  deposit  in  kind,  see  Chesapeake 

562.    Distinction  between  special  and  Bank  v.  Swain,  29  Md.  483. 
general  deposits,  McLain  i\  Wallace, 


§322] 


DEPOSITS  AND  CHECKS. 


G35 


to  suppose  is  exercised  in  caring  for  its  own  property  of  like 
description.*  A  bank,  receiving  a  package  of  money  as  a  special 
deposit  without  compensation,  will  be  bound  only  for  slight  care, 
and  responsible  only  for  gross  negligence.^  The  obligation  of  a 
banker  in  the  keeping  of  a  deposit  will  not  be  increased  by  a  mere 
showing  to  the  depositor  the  facilities  and  securities  of  the  bank.' 
A  bank  will  be  liable  where  special  deposits  are  lost  by  reason  of 
gross  neghgence  or  willful  inattention  on  the  part  of  its  directors.* 
In  case  a  special  deposit  of  bonds,  stock  or  coin  with  a  bank  be 
stolen  or  embezzled  by  its  clerk  or  cashier  and  he  does  not  par- 
ticipate in  the  act  and  is  guilty  of  no  negligence  in  the  matter,  the 
bank  vdll  not  be  responsible  to  the  depositor  for  its  value.^  A 
national  bank  will  be  held  liable  for  damages  occasioned  by  the 
loss,  through  negligence,  of  a  special  deposit  made  in  it  with  the 
knowledge  and  acquiescence  of  its  officers  and  directors.®  Robbery 
by  burglars  of  securities  deposited  for  safe-keeping  in  the  vaults 
of  a  bank  would  be  no  proof  of  negligence  on  the  part  of  the 
bank  in  caring  for  the  property ."^  In  a  Vermont  case,  one  depos- 
iting with  the  cashier  of  a  national  bank  $4,000  of  United  States 
bonds,  received  this  writing :  "  Received  of  J.  D.  Whitney  four 
thousand  dollars  for  safe-keeping  as  a  special  deposit."  [Signed] 
"  S.  M.  Waite,  C."  This  appearing  to  be  a  naked  deposit  with- 
out reward,  the  Supreme  Court  of  that  state  held  that  the  word 
"safe-keeping"  only  indicated  the  purpose  for  which  the  bonds 
were  delivered  and  received,  and  did  not  import  a  contract  to 
keep  safely ;  that  the  bank  was  answerable  only  for  fraud  or  gross 
negligence  in  the  keeping  of  the  bonds,  and  was  not  liable  for  the 


*  United  Society  of  Shakers  v.  Un- 
derwood, (1873)  9  Bush  (Ky.).  616. 

» Hale  V.  Rawallie,  (1871)  8  Kans. 
136. 

*Ibid.  An  illustration  of  a  bank 
being  rendered  liable  to  a  depositor  as 
trustee  for  a  breach  of  trust  in  connec- 
tion with  its  application  of  the  avails  of 
a  special  deposit  for  the  benefit  of  de- 
positor's agent,  Manhattan  Bank  v. 
Walker,  130  U.  S.  267.  In  Leach  v. 
Hale,  31  Iowa,  69,  United  States  bonds 
were  deposited  with  a  bank  for  the 
purpose  of  their  being  converted  into 
similar  bonds  of  another  denomina- 


tion. The  Supreme  Court  held  that 
the  transaction  should  be  deemed  one 
for  a  compensation  and  not  a  gratui- 
tous one,  and  that  the  bank  was  liable 
as  a  bailee  for  hire. 

*  United  Society  of  Shakers  v.  Un- 
derwood, (1873)  9  Bush,  616.  As  to 
the  care  with  which  a  bank  must  keep 
a  special  deposit,  see  Boyden  n  Bank 
of  Cape  Fear,  65  N.  C.  13. 

'  Sturges  r.  Keith,  (1870)  57  III.  451. 

«•  National  Bank  v.  Graham,  (1879) 
100  U.  S.  699. 

'  Wylie  V.  Northampton  Bank,  119 
U.  S.  361. 


\i  -    - 


686 


DEPOSrrS  AND  CHECKS. 


[§323 


^ 


\m 


ImR 


t 


loss  by  robbery  or  larceny,  if  the  bank  acted  in  good  faith  and 
took  the  same  care  of  these  bonds  as  it  did  of  its  own  of  like 
cliaracter.*  By  a  cashier  wrongfully  transferring  a  special  deposit 
and  putting  it  with  the  funds  of  the  bank,  and  the  bank  report- 
ing and  treating  it  as  a  part  of  its  assets,  a  conversion  of  the 
deposit  is  efiEected,  and  no  demand  and  refusal  would  be  neces- 
sary for  the  depositor  to  maintain  an  action  of  trover  against  the 
bank.^  Where  a  bank  receiving  a  special  deposit  had  transferred 
it  to  another  bank  established  at  the  same  place,  with  the  same 
officers,  and  the  deposit  was  embezzled  by  the  cashier,  the  Ken- 
tucky Court  of  Appeals  held  that  the  bank  receiving  the  deposit 
would  be  liable  unless  the  depositor  directly  or  by  implication 
assented  to  or  ratified  the  transfer  prior  to  the  loss.* 

§  323.  The  duty  of  a  bank  as  to  deposits  and  its  right  as 
to  their  application. —  A  deposit  received  under  special  agree- 
ment must  be  applied  by  the  bank  according  to  the  agreement.* 
A  depositor  with  a  bank  who,  having  made  overdrafts,  should 
transfer  securities  to  the  bank,  and  request  that  these  overdrafts 
be  paid,  would  thereby  create  a  valid  trust  for  the  payment  of 
sucli  outstanding  checks  and  drafts,  whether  presented  or  not, 
and  the  holders  of  such  checks  and  drafts  would  be  entitled  to 
payment  out  of  tlie  securities  so  deposited  in  preference  to  the 
general  creditors  of  the  depositor.^    Where  a  depositor  of  a  bank 


» Whitney  t.  National  Bank  of 
Bnittleboro,  55  Vt.  154.  As  to  the  li- 
ability of  a  bank  receiving  special  de- 
posits where  loss  is  the  result  of  their 
gross  negligence,  see  Foster  v.  Essex 
Bank,  17  Mass.  479;  Lancaster  County 
National  Bank  t.  Smith,  62  Pa.  St. 
47;  Scott  V.  National  Bank  of  Chester 
Valley,  72  Pa.  St.  471;  First  National 
Bank  of  Carlisle  v.  Graham,  79  Pa.  St. 
106:  Turner  v.  First  National  Bank  of 
Keokuk,  26  Iowa,  562;  Smith  v.  First 
National  Bank  in  Westfleld,  99  Mass. 
605;  Chattahoochee  National  Bank  p. 
Schley,  58  Ga.  369. 

*  First  National  Bank  of  Monmouth 
t).  Dunbar,  19  Bradw.  (111.)  558. 

»  Ray  V.  Bank  of  Kentucky,  (1874) 
10  Bush  (Ky.),  350.  That  a  bank  is 
not  liable  in  case  its  cashier  fraudu- 


lently takes  away  a  special  deposit 
made  in  the  bank,  see  Foster  v.  Essex 
Bank,  (1821)  17  Mass.  479;  Smith  v. 
Westfield  Bank,  (1868)  99  Mass.  606. 

4  Wilson  1).  Dawson,  (1876)  52  Ind. 
513,  in  which  case  the  surety  of  a  de- 
positor for  debts  due  at  the  bank, 
where  the  depositor  had  deposited 
more  than  sufficient  to  pay  those  debts, 
but  under  special  agreement  that  these 
deposits  were  to  be  paid  out  on  checks 
for  certain  purposes,  some  of  which 
deposits  was  in  bank  when  the  debts 
matured,  and  paid  out  under  the 
agreement,  was  held  not  released, 
though  ignorant  of  the  special  agree- 
ment with  the  depositor. 

« Watts  V.  Shipman,  (1880)  21  Hun. 
598. 


§323] 


DEPOSITS  AND  CHECKS. 


637 


t\ 


is  indebted  to  the  bank  by  bill,  note  or  other  independent  indebt- 
edness, the  bank  has  the  right  to  apply  so  much  of  the  funds  of 
the  depositor  to  the  payment  of  his  matured  indebtedness  as  may 
be  necessary  to  satisfy  the  same.^  And  the  same  rule  obtains 
where  a  depositor  makes  his  paper  to  third  persons  payable  at 
the  bank.  As  it  is  the  duty  of  the  bank  to  pay  its  customers' 
checks,  when  in  funds,  so  at  least  it  has  authority,  if  it  is  not 
under  actual  obligation,  to  pay  his  notes  and  acceptances  made 
payable  at  the  bank.  It  is  a  presumption  of  law  that  if  a  cus- 
tomer does  so  make  payable  or  negotiable  at  a  bank  any  of  his 
paper,  it  is  his  intent  to  have  the  same  discharged  by  his  deposit.^ 
The  Supreme  Court  of  Ilhnois  has  held  that  the  order  of  a 
depositor  to  his  bank  to  apply  his  funds  deposited  to  the  payment 
of  a  note  of  his  payable  at  the  bank  is  necessary  to  give  the  bank 
power  to  pay  the  note.^  Verbal  direction,  or  a  check  or  draft  or 
some  other  writing  signed  by  a  depositor  to  a  bank  in  which  he 
has  deposits,  is  necessary  to  justify  a  payment  by  the  bank  out 
of  his  funds  of  a  draft  which  the  depositor  has  accepted  made 
payable  at  such  bank.*    A  bank  may  apply  all  the  funds  of  a 


*Home  National  Bank  v.  Newton, 
(1881)  8  Bradw.  (111.)  563;  citing  Morse 
on  Banks  &  Banking  (2d  ed.),  42;  Com- 
mercial Bank  of  Albany  d.  Hughes,  17 
Wend.  94. 

'Home  National  Bank  v.  Newton, 
(1881)  8  Bradw.  (111.)  563;  citing  Morse 
on  Banks  i&  Banking,  37.  The  Illinois 
Appellate  Court  in  Home  National 
Bank  v.  Newton,  supra,  further  said : 
"The  neglect  of  the  bank  to  make 
such  appropriation  would  discharge 
the  indorsers  and  sureties.  McDowell 
V.  Bank  of  Wilmington,  1  Harrington 
(Del.),  369;  Dawson  v.  Real  Estate 
Bank,  5  Pike  (Ark.),  283.  The  act  of 
thus  making  his  paper  payable  at 
a  bank  is  considered  as  much  his 
order  to  pay  as  would  be  his  check, 
and,  if  the  bank  pay  without  express 
orders  to  the  contrary,  it  is  a  defense 
to  a  suit  by  the  depositor  for  the 
money  so  paid.  Mandeville  v.  Union 
Bank  of  Georgetown,  9  Cranch,  9. 
And  the  rule  seems  to  be  settled  that 


if  a  bank  advances  the  money  to  pay 
a  note  or  bill  of  its  customer  made 
payable  at  the  bank,  it  may  recover 
from  the  depositor  as  for  money 
loaned,  the  paper  so  made  payable  be- 
ing deemed  equivalent  to  a  request  to 
pay.  He  makes  the  bank  his  agent 
with  implied  authority  to  protect  his 
credit  by  appropriating  his  deposits  to 
the  payment  of  his  maturing  obliga- 
tions made  payable  at  the  bank. 
Fcrster?'.  Clements,  2  Camp.  17;  Alan- 
deville  v.  Union  Bank  of  Georgetown, 
9  Cranch,  9.  These  general  principles 
are  sufficient  to  show  the  relation 
which  exists  between  a  bank  and  its 
depositors  in  respect  to  the  paper  of 
the  latter  made  payable  by  its  terms 
at  the  bank,  and  they  make  the  bank 
the  agent,  not  of  the  payee  of  such 
paper,  but  of  the  maker." 

3  Ridgely  National  Bank  v.  Patton, 
109  ni.  479. 

^Haines  v.  McFerren,  19  Bradw. 
(111.)  172.     As  to  the  lack  of  power  of 


4 


638 


DEPOSITS  AND  CHECKS. 


[§323 


II 


m 


depositor  which  it  has  to  his  credit  to  an  indebtedness  created  by 
the  payment  upon  a  discount  by  the  bank  upon  him  until  it  is 
fully  discharged.^     The  full  balance  due  a  general  depositor  may 
be  tendered  to  him  at  any  time  by  the  bank  holding  it,  but  he 
cannot  be  compelled  by  the  bank  to  receive  less.^    A  bank  can- 
not set  off  an  individual  deposit  against  a  partnership  debt  to  the 
bank.^    Where  money  is  deposited  in  a  bank  in  the  name  of  a 
firm,  and  the  bank  pay  a  check  out  of  the  same  drawn  by  one  of 
the  firm  in  his  own  name  only,  to  justify  such  payment  the  bank 
would  be  required  to  show  tliat  the  money  thus  drawn  on  the 
firm  account  was  applied  to  the  use  of  the  firm.*     It  would  be 
no  excuse  for  a  bank,  in  paying  out  funds  deposited  in  the  name 
of  a  firm  upon  the  individual  check  of  a  member  of  that  firm, 
that  the  partner  drawing  the  check  told  the  officer  of  the  bank 
that  it  was  drawn  on  the  joint  account  and  in  his  individual  name 
by  mistake,  and  directed  liim  to  pay  it  and  any  other  of  the  like 
kind  which  he  might  draw  out  of  the  firm's  funds.^     In  an  Indi- 
ana case  money  in  the  form  of  a  draft  was  sent  by  A.  to  a  bank, 
with  directions  to  place  it  to  his  credit  and  await  his  further 
orders.     The  banking  firm  gave  a  receipt  for  it.     Afterward  A. 
agreed  with  B.  that  the  draft  should  be  transferred  to  B.'s  credit, 
but  the  banking  firm  was  not  privy  to  the  agreement,  nor  did  A. 
notify  them  of  it.     B.,  without  authority  from  A.,  wrote  to  the 
firm,  ordering  them  to  place  the  draft  to  his  credit,  and  they 
replied  that  they  had  done  so.     In  the  suit  brought  by  A.  against 
the  bankers  after  payment  of  the  same  was  refused  by  them  upon 
his  demand,  the  Supreme  Court  held  that  the  bankers  were  liable 
to  A.  for  the  amount  of  the  draft.®     A  bank  is  under  no  obli- 
gation to  pay  checks  of  its  depositors  in  excess  of  their  deposits, 
unless  there  be  a  special  arrangement  to  that  effect.*^    A  bank 


§323] 


DEPOSITS  AND  CHECKS. 


639 


a  bank  to  transfer  money  deposited 
with  it  to  the  payment  of  notes  exe- 
cuted by  the  depositor,  payable  at  the 
bank,  unless  depositor  consent,  see 
Scott  V.  Shirk,  (187T)  CO  Ind.  160.  As 
to  its  not  being  bound  to  pay  Such 
money  on  a  note  held  by  a  third  party 
upon  oral  request  of  the  depositor 
when  not  proposed  to  surrender  the 
note  to  the  banker  or  give  any  other 
evidence  of  payment,  see  McEwen  v. 
Davis,  (1872)  39  Ind.  109. 


*  Union  Bank  of  Quincy  v.  Tutt, 
(1878)  5  Mo.  App.  342. 

«  Coots  V.  McConnell,  89  Mich.  742. 

>  International  Bank  v.  Jones,  119 
111.  407. 

*Coote  &  Jones  c.  Bank  of  U.  S.,8 
Cranch  Cir.  Ct.  50. 

'Ibid. 

•  Coffin  V.  Henshaw,  (1858)  10  Ind. 
277. 

'  Decatur  National  Bank  v.  Murphy, 
(1881)  9  Bradw.  (111.)  112. 


may  maintain  an  action  against  the  drawer  for  payment  made  by 
its  cashier  on  checks  overdrawn.^  Should  a  depositor  fraudu- 
lently overdraw  his  account,  and  the  identical  money  is  placed 
])y  him  to  his  credit  in  another  bank,  the  bank  from  which  it  was 
drawn  ma}^  reclaim  it  from  the  one  in  which  he  has  placed  it.^ 
After  receiving  from  a  depositor  a  genuine  check  drawn  upon  it 
by  another  depositor,  and  crediting  the  amount  to  the  one  deposit- 
ing it,  even  on  the  deposit  ticket  alone,  through  its  receiving  teller, 
a  bank  cannot  return  it  to  the  depositor  as  not  good,  although  the 
drawer's  account  may  have  been  overdrawn  at  the  time  the  check 
was  deposited."'^  A  bank  receiving  a  deposit  under  an  agreement 
to  apply  it  to  the  payment  of  a  debt  due  some  designated  person, 
cannot  divert  it  from  the  purposes  of  the  trust  by  paying  it  to  a 
different  person.*  Should  one  to  whom  a  bank  has  by  mistake 
paid  the  money  of  one  of  its  depositors,  make  any  payment  to 
the  depositor  on  that  account,  the  bank  would  be  entitled  to  a 
credit  for  the  amount  paid  on  its  account  with  the  depositor.^ 
Where  the  bank  book  of  a  depositor  is  written  up  and  balanced, 
his  checks  returned  and  his  indebtedness  canceled,  this  constitutes 
a  full  settlement  of  the  depositor's  account,  and,  if  acquiesced  in, 
it  cannot  be  questioned.*  The  effect  of  a  delay  in  questioning 
the  accuracy  of  the  balance  credited  to  a  depositor  on  his  pass 
book  after  it  has  been  written  up  and  returned  to  him,  without 
objection,  if  the  bank  has  not  suffered  by  his  silence,  is  to  charge 
him  witli  the  burden  of  establishing  fraud,  error  or  mistake  in 
his  account.  When  he  does  this  he  is  entitled  to  have  it  cor- 
rected."^ Where  one  indebted  to  a  bank  has  a  less  sum  standing 
to  his  credit  on  deposit  on  the  bank's  books,  the  bank  has  a  right 
to  retain  the  sum  on  deposit  in  part  payment  of  its  claim.* 
Where  the  maker  of  a  note  indorsed  by  the  payee  to  a  bank  dis- 
counting it  becomes  insolvent  before  the  maturity  of  the  note, 
having  a  deposit  at  the  bank,  the  bank  may  set  off  the  deposit 
against  the  note,  and  prove  the  balance,  if  any,  against  the  maker 


'  Franklin  Bank  v.  By  ram,  39.  Me. 
489. 

'  Tradesman's  Bank  v.  Merritt, 
(1829)  1  Paige  Ch.  302. 

a  Oddie  V.  National  City  Bank.  (1871) 
45  N.  Y.  735. 

*  Judy  V.  Farmers  &  Traders'  Bank, 
(1884)  81  Mo.  404. 


*  Ilgenfritz  V.  Pettis  County  Bank, 
(1886)  21  Mo.  App.  558. 

« Peddicord  d.  Connard,  85  111.  102. 

'Frank  v.  Chemical  National  Bank 
of  New  York,  (1874)  37  N.  Y.  Super. 
Ct.  26. 

8  Union  Bank  v.  Cochran,  7  G.  &  J. 
(Md.)  138. 


640 


DEPOSITS  AND  CHECKS. 


[§323 


in  insolvency.^    A   bank  holding  overdue  paper  of  one  of  its 
depositors,  would  not  be  bound,  though  it  might  have  the  right, 
to  apply  his  deposits  to  the  payment  of  the  paper.'    A  bank 
holding  and  owning  a  depositor's  past-due  note,  the  amount  of 
which  may  exceed  the  amount  of  his  deposit,  may,  however,  hold 
the  deposit  account  against  the  note,  and  refuse  to  pay  checks 
drawn  against  the  deposit.*    Where  a  note  was  discounted  at  a 
bank,  for  the  benefit  of  the  first  indorser,  and  the  money  was 
passed  to  his  credit  as  a  deposit,  and  a  portion  of  it  remained  in 
the  bank  until  the  note  became  payable,  the  Maine  Supreme 
Court  of  Judicature  held  that  it  was  optional  with  the  bank  to 
retain  this  money,  in  part  payment  of  the  note  or  not ;  that  the 
omission  to  retain  it  did  not  destroy  the  bank's  right  to  recover 
the  full  amount   from  another  indorser.*     A  bank  may  secure 
and  discharge  any  obligation  it  may  assume  for  a  depositor,  or 
which  may  be  imposed  upon  it  l>y  operation  of  law,  as  in  garnish- 
ment proceedings,  by  retention  of    a  sufficient  sum  from  the 
deposits  in  its  possession  made  by  the  depositor.^     A  bank  is  not 
bound  to  apply  subsequent  deposits  to  the  payment  of  a  note  for 
the  protection  of  a  guarantor .«     A  bank  may  apply  to  the  dis- 
charge of  the  indebtedness  of  a  depositor  on  a  note  which  the 
bank  may  have  discounted,  which  has  not  been  paid  at  maturity, 
all  funds  of  his  held  at  the  date  of  the  maturity  of  the  note,  or 
afterwards  acquired  in  the  course  of  business  with  him,  whether 
a  general  deposit  or  commercial  paper  placed  by  him  in  bank  for 
collection.'    But  a  bank  has  no  lien  upon  the  deposit  of  a  cus- 

» Demmon  v.  Boylston  Bank,  (1849)    payable  at  the    bank.      It  was  held 
5  Cush.  (Mass.)  194.     As  to  the  ap-  that    the    letter    accompanying    the 
plication  of  a  deposit  to  a  note  of  the  check  was  not  an  assignment  of  the 
depositor  falling  due  in  a  bank,  see   fund  to  the  holder  of  the  note  due  the 
Mahaiwe    Bank    v.   Peck,   (1879)  127   fourth,  and  that  he  could  not  main- 
Mass  298     In  ^Etna  National  Bank  v.    tain  an  action  against  the  bank. 
Fourth  National  Bank.  (1871)  46  N.  Y.       «  Citizens'  Bank  of  Steubenville  v. 
82  it  appeared  that  certain  depositors   Carson.  (1862)  32  Mo.  191. 
remitted  to  a  bank  a  check  for  deposit,       ^Ehlermannr.  St.   Louis    National 
with  a  letter  saying.  "Please  credit  to   Bank,  (1883)  14  Mo.  App.  591. 
our  account  and  charge  us  our  note  of       *  Ticonic  Bank  v.  Johnson.  21  Me. 

426. 


five  thousand  dollars  due  4th  inst." 
The  bank  received  the  check  and 
credited  it  to  the  depositors  on  the 
third,  and  on  that  day  applied  it  to 
the    payment  of  a   paSt-due  note  of 


'McEwen  v.  Davis,  (1872)  39  Ind. 

109. 
•Bank   v.  Shreiner,  110  Pa.  St.  188. 
'  Muench  v.  Valley  National  Bank, 


$5,000  made   by  the  depositors  and   (1881)  11  Mo.  App.  144. 


§323] 


DEPOSITS  AND  CHECKS. 


641 


tomer  for  the  purpose  of  indemnifying  itself  against  a  possible 
loss  upon  unmatured  commercial  paper  of  the  customer  dis- 
counted by  the  bank.^  And  a  bank  holding  the  note  of  a 
depositor  for  a  certain  sum  can,  on  the  morning  of  the  last  day 
of  grace  upon  such  note,  apply  to  its  payment  any  money  of  the 
depositor  then  remaining  on  deposit  in  the  bank.^  There  is  no 
such  lien  on  the  funds  deposited  with  a  bank  in  its  favor  as  will 
allow  it  to  apply  the  funds  of  a  depositor  upon  an  indebtedness 
or  liability  of  his  not  yet  due.^  Neither  can  a  bank  retain  the 
money  of  a  depositor  to  meet  a  note,  the  payment  of  which  the 


*  State  Savings  Association  v.  Boat- 
men's Savings  Bank,  (1881)  11  Mo. 
App.  292. 

^  Home  National  Bank  v.  Newton, 
(1881)8  Bradw.  (111.)  563.     This  was 
an  action  brought  by  the  payee  of  a 
check  drawn  by  one  Newell  upon  the 
bank,  which  the  bank  declined  to  pay 
for  want  of  funds  of  the  drawer,  it 
having  applied  his  balance  to  a  note 
of  his  falling  due  on  the  day  when 
this  check  was  presented,  the  applica- 
tion of  the  balance  being  made  before 
the  presentation    of  the  check   with 
others   for  payment.     Arguendo,   the 
appellate  court  referred  to  the  follow- 
ing cases,  first  as  to  when  an  action 
can  be  brought  on   paper  due  with 
days  of  grace  :  Walter  v.  Kirk,  14  111. 
55;     Reese    v.    Mitchell.   41    111.  365; 
Osborn  v.   Moncure,    3    Wend.    170; 
Smith  V.  Aylesworth,   40  Barb.   104; 
Wilcombe    v.    Dodge,     3    Cal.     260; 
Staples    V.    Franklin    Bank,    1    Met. 
(Mass.)  43;    Greeley  v.    Thurston,    4 
Greenl.  (Me.)  479;  Dennie  ??.  Walker,  7 
N.  H.  201;  Farmers'  Bank  v.  Duvall,  7 
G.  &  J.  (Md.)89;  Wilson  v.  Williman, 
1  Nott  &  McC.  (S.  C.)  440;  Coleman  v. 
Ewing,  4Humph.  241;  Flint  o.  Rogers, 
3  Shepley,  67;  Leftley  v.  Mills,  4  Term 
R.  170.     They  then  referred  to  cases 
as  to  the  presentment  of  such  notes: 
Griffin  v.  Goflf,  12  Johns.  423;  Jack- 
son V.  Newton,  8  Watts,  401;  Farmers' 
Bank  v.  Duvall,  7  G.  &  J.  (Md.)  78; 
Mechanics'  Bank  v.  Merchants'  Bank, 

81 


6  Met.  (Mass.)  13.  They  then  said  : 
"As  a  bill  or  note  is  payable  on  the 
last  day  of  grace,  or,  when  there  is  no 
grace,  on  the  day  of  its  maturity,  the 
maker  or  acceptor  has  the  right  to  pay 
it  on  that  day,  though  he  cannot  pay 
it  on  the  day  before  without  the  con- 
sent of  the  holder.  By  making  his 
note  payable  at  the  Home  National 
Bank,  Newell  authorized  the  bank  to 
pay  it  at  maturity.  He  constituted 
the  bank  his  agent,  and  directed  it 
to  pay  the  note  on  the  day  it  fell  due. 
The  act  of  making  the  note  payable 
there,  was,  as  we  have  already  seen,  a 
direction  to  the  bank  to  appropriate 
any  moneys  he  might  have  on  deposit 
to  the  payment  of  his  note,  so  far  as 
might  be  required  for  that  purpose, 
on  the  day  of  its  maturity.  The  law 
knows  no  parts  of  a  day  in  respect  to 
the  maturity  of  commercial  paper; 
Newell's  note  was  equally  due  at  ten 
o'clock  in  the  morning  as  at  three  in 
the  afternoon,  and  it  is  no  answer  to 
say  that  an  action  for  its  non-payment 
could  not  be  brought  against  him  for 
its  non-payment  until  the  following 
day.  He  authorized  his  agent  to  pay 
it  on  the  day  of  its  maturity,  and  this 
must  be  construed  to  mean  at  any  hour 
of  the  day." 

^Merchants'  National  Bank  v.  Rit- 
zinger,  20  Bradw.  (111.)  27;  Jordan  v. 
National  Shoe  &  Leather  Bank,  74  N. 
Y.  467;  s.  d.,  30  Am.  Rep.  319;  Bank 
V.  Jones,  2  Pennypacker  (Pa.),  377. 


♦.' 


.1 


t 


11 


! 


642 


DEPOSITS  AND  CHECKS. 


depositor  may  have   guaranteed,   the   note   not   being  due   at 
the  tune.^     Where  the  maker  of  a  note  held  by  a  bank  has  funds 
in  the  bank  on  general  deposit  when  the  note  falls  due,  the  bank 
is  bound  to  apply  the  funds  to  his  credit  in  payment  of  the  note  ; 
if  it  fails  to  do  so,  the  indorser  upon  the  note  will  be  thereby  dis- 
charged from  liability.^    A  bank  holding  a  depositor's  note  must 
charge  it  against  his  account  at  maturity,  or  else  the  indorser  will 
be  discharged.'     A  bank  will  be  bound  to  pay  a  note  payable  at 
its  counter,  of  which  it  is  the  owner,  with  any  general  deposit  of 
the  maker  in  its  hands.     Should  it  let  the  note  go  to  protest,  the 
indorsers  would  be  discharged.*     A  bank  may  refuse  to  apply  a 
deposit  of  the  maker  of  a  note  after  maturity,  so  as  to  relieve  tlie 
indorser.^     In  the  absence  of  express  directions,  or  an  agreement 
to  that  effect,  it  is  optional  with  a  bank  whether  it  will  apply  a 
general  deposit  made  by  the  maker  of  a  note  held  by  it  which  is 
past  due,  on  the  note  or  not.     It  is  under  no  obligation  to  do  so, 
even  as  to  an  indorser.     The  general  deposit  does  not  of  itself 
operate  as  a  payment  of  sucli  a  note.*     A  de])t  due  by  a  depositor 
to  a  bank  will  be  extinguished  by  a  check  drawn  in  payment  of 
it,  the  check  operating  as  an  appropriation  of  the  fund  from  the 
time  of  its  presentment.'     The  Supreme  Court  of  Missouri  have 
affirmed  a  holding  of  a  lower  court  that,  where   a  bank   had 
received  from  a  non-resident  money  which  it  had  agreed  to  invest 
for  him  in  real  estate  security,  and  having  passed  the  same  to  his 
credit,  led  him  to  believe  that  the  investment  had  been  made, 
and  subsequently  assigned  its  assets  for  the  benefit  of  its  credit- 
ors, the  relation  of  trustee  and  cestui  que  trust  existed  and  not 
that  of  depositor  and  depositary  between  them,  and  that  the 
bank  was  liable  for  wrongfully  mixing  the  money  with  its  own.*' 
In  a  case  where  a  draft  was  deposited  in  a  bank,  drawn  against 
by  a  check,  and  the  check  certified  to  the  bank  in  which  it  was 
to  be  deposited,  and  before  the  check  arrived  the  bank  certify- 


'  Commercial  National  Bank  v. 
Proctor,  (1881)  98  111.  558. 

« McDowell  V.  Bank  of  Wilmington 
&  B.,  1  Harr.  (Del.)  369. 

3  Bank  v.  Foreman,  27  W.  N.  C.  (Pa.) 

154. 

*  Bank  r.  llenninger,  105  Pa.  8t. 
496.  As  to  the  duty  of  a  bank  to 
sureties  on  promi-ssory  notes  as  to  de- 


posits in  its  hands,  see  Bank  v. 
LeGrand,  13  W.  N.  C.  (Pa.)  317. 

'Huckstein  v.  Herman,  1  Walk. 
(Pa.)  92. 

•National  Bank  of  Newburgh  v. 
Smith.  (1876)  66  N.  Y.  271;  s.  c,  23 
Am.  Rep.  48. 

'  Uubacli  r.  Leibert,  87  Pa.  8t.  55. 

8  Harrison  r.  Smith,  (1884)  83 Mo.  210. 


§  323] 


DEPOSITS  AND  CHECKS. 


643 


ing  it  had  made  an  assignment,  it  was  hold  that  the  fund  remained 
in  the  first  bank  impressed  with  the  trust,  and  that  the  relation 
of  general  creditors  was  not  created  between  the  depositors  and 
the  bank.*     A  court  in  Illinois  having  by  order  made  a  bank  a 
depository  of  court  funds  and  of  funds  of  its  officers,  a  clerk  of 
the  court  made  a  deposit  of  funds  belonging  to  the  court  in  the 
bank,  just  as  other  depositors  did,  the  money  being  commingled 
with  that  of  the  bank,  and  there  being  no  agreement  to  keep  the 
funds  separate.     The  bank  became  insolvent  and  was  placed  in 
the  hands  of  a  receiver.     The  Illinois  Supreme  Court  held  that 
the  deposit  being  a  general  one,  and  not  a  mere  naked  bailment, 
and  there  being  no  means  of  identifying  the  money  deposited, 
even  if  the  assets  of  the  bank  were  in  the  hands  of  the  receiver, 
it  was  error  to  require  the  receiver  to  pay  the  deposit  in  full ;  that 
the  clerk  was  oiAy  entitled  to  share  pro  rata  with  other  deposit- 
ors and  creditors  of  the  bank.^     Where  the  circumstances  under 
which  a  lost  check  came  into  plaintiff's  possession  were  so  sus- 
picious that  a  person  of  ordinary  prudence  ought  to  have  hesi- 
tated and  examined  further  before  buying,  the  Supreme  Court  of 
Louisiana  held  that  no  recovery  could  be  had  on  it.^     Where  a 
bank  check  was  received  in  payment,  during  banking  hours,  the  day 
it  was  drawn,  in  the  usual  course  of  business,  under  circumstances 
not  suspicious,  and  no  negligence  was  shown  from  which  bad 
faith  could  be  inferred,    the  same  court  held  that  the  holder 
might  recover  from  the  drawer,  though  the  check  had  been  lost 
or  stolen.*    A  bank  having,  without  instruction,  paid  a  forged 


'Stoller  7).  Coates,  (1885)  88  Mo. 
614,  holding  the  bank  chargeable  with 
the  amount  of  the  converted  fund  as  a 
preferred  demand.  In  State  ex  rel. 
Girardey  v.  Southern  Bank,  33  La. 
Ann.  957,  it  appeared  that  the  Bank  of 
Commerce  sent  to  the  Southern  Bank 
for  collection  three  checks  on  other 
banks  in  New  Orleans.  The  checks 
were  collected  and  the  proceeds  passed 
to  the  credit  of  the  Bank  of  Commerce 
in  its  general  account,  as  it  had  given 
no  instructions  for  any  special  dis- 
position of  the  money,  but,  on  the 
contrary,  drew  against  the  proceeds 
of  these  checks  as  an  ordinary  de- 
positor.    On  the  same  day  that   the 


checks  were  collected  the  assets  of  the 
Southern  Bank  were  seized  by  the 
sheriff,  and  receivers  were  appointed. 
The  Bank  of  Commerce  claimed  in 
this  case  the  restitutio  ad  integrum  of 
the  proceeds  of  the  three  checks.  The 
Supreme  Court  held  that  the  Bank  of 
Commerce  was  an  ordinary  depositor 
of  the  Southern  Bank;  that  the  pro- 
ceeds of  the  checks  were  mixed  with 
its  general  funds,  and  the  Bank  of 
Commerce  was  no  more  than  an 
ordinary  creditor. 

8  Otis  V.  Gross,  (1880)  96  Bl.  612. 

'  Vairin  v>.  Hobson,  8  La.  55. 

*  Marsh  v.  Small,  3  La.  Ann.  403. 


h 


*4 


i 


I'    H 


644 


DEPOSITS  AND  CHECKS. 


[§324 


acceptence,  and  sent  the  same  by  mail  to  the  firm  whose  names 
were  forged  as  acceptors,  the  Kansas  Supreme  Court  held,  were 
not  thereby  entitled  to  a  credit  for  the  amount  of  the  payment 
against  the  firm.  The  firm,  as  the  court  viewed  it,  were  under 
no  legal  obligation  to  immediately  examine  the  acceptance  upon 
its  being  received  by  them,  to  ascertain  whether  it  was  genuine 
or  not,  and  were  not  chargeable  with  negligence  for  not  discover- 
ing the  forgery  immediately.  In  such  a  case  it  was  sufficient  to 
give  notice  when  the  forgery  was  discovered.^  One  having 
inclosed  a  note  in  a  letter  to  a  bank  and  asked  the  bank  to  dis- 
count it  and  place  the  proceeds  to  the  writer's  credit,  and  in  that 
event  to  charge  a  certain  overdraft  of  a  corporation  against  tho 
credit,  and  the  bank  having  declined  to  discount  the  note,  the 
United  States  Supreme  Court  held  that  the  bank  had  no  right  to 
hold  the  note  as  collateral  for  the  overdraft.^ 

§  324.  Checks,  generally.—  Checks,  like  bills,  are  generally 
negotiable  instruments  payable  to  bearer,  sometimes  to  order, 
requiring  as  essentials  a  drawer,  drawee  and  payee.^  That  it 
shall  be  instantly  payable  on  demand  is  an  essential  characteristic 
of  a  check  upon  a  bank.*  The  payment  of  a  check,  before  made, 
can  be  countermanded  by  the  drawer.^  Although  not  identical 
with  a  bill,  a  check  on  a  bank  is,  in  many  respects,  governed  by 
the  same  rules ;  and  when  payable  to  order  is  negotiable  by 
indorsement.*  The  effect  of  drawing  a  check  by  a  depositor  upon 
his  banker  is  to  transfer  the  sum  named  to  the  payee,  provided 
the  depositor  has  that  sum  to  his  credit  on  the  books  of  the 
banker,  and  an  assignment  of  the  check  carries  the  title  to  the 


'First  National  Bank   v,   Tappan, 
(1870)  6  Kans.  456. 

» Bank  of  Iklontrcal  v.  White,  (1880) 
14  Sup.  Ct.  Rep.  1191. 

3  Hewitt  V.  {Goodrich,  10  La.  Ann. 
340.  In  Ridgley  National  Bank  v. 
Patten  109  Bl.  479,  an  instrument 
drawn  by  a  depositor  in  this  form, 
after  giving  the  date  and  the  name 
of  the  bank:  "Pay  to  A.  and  B.  for 
account  of  C.  &  Co.,  ten  hundred  and 
eighteen  23-100  dollars."  and  signed 
by  the  depositor,  was  held  to  be  a  vulid 
check,  and  that  it  operated  to  transfer 


that  sum  out  of  the  funds  of  the 
drawer  in  bank  to  the  drawee  for  the 
purposes  named  in  the  check.  For  an 
illustration  of  what  would  be  a  bank- 
ers check  and  not  an  ordinary  bill  of 
exchange,  see  Harrison  v.  Wright, 
(1884)  100  Ind.  515. 

*  Merchants'  National  Bank  v.  Bit- 
zinger,  118  Bl.  484. 

5  Albers  v.  Commercial  Bank,  (1884) 
85  Mo.  173;  Bank  v.  Bank,  118  Pa.  St. 

294. 
«  Barbour  v.  Bayon,  5  La.  Ann.  304, 


§324] 


DEPOSITS  AND  CHECKS. 


645 


fund  to  each  successive  holder.^  But  a  banker  is  not  bound  to 
pay  the  check  of  a  depositor  in  anything  but  money.  So,  where 
a  depositor  drew  a  check  upon  his  banker  for  Chicago  exchange, 
which  he  was  to  send  to  his  creditors  at  their  request,  the  Appel- 
late Court  of  Illinois  held  that  these  creditors  could  not,  upon 
failure  of  the  depositor  to  send  the  Chicago  draft,  maintain  an 
action  against  the  banker  upon  the  original  check  drawn  upon 
liim.^  A  bank  check  payable  in  "  current  funds "  is  payable  in 
whatever  is  current  by  law  as  money .^  When  a  check  is  drawn 
upon  a  bank  payable  to  the  drawer's  order  and  assigned  by  him, 
and  he  has  not  sufficient  money  to  his  credit  to  pay  the  check  in 
full,  the  bank  will  be  under  no  obligation  to  pay,  and  an  assignee 
can  have  no  recovery  upon  such  a  check  in  an  action  against  the 
bank.*  A  draft  given  on  a  bank  in  the  ordinary  course  of  busi- 
ness does  not  constitute  an  equitable  assignment  of  the  fund.* 
And,  in  this  case,  it  was  held  that  it  was  not  sufficient  to  consti- 
tute such  an  assignment  that  the  draft  was  drawn  by  a  bank 
against  its  reserve  fund  in  another  city,  and  was  given  in  exchange 
for  clearing-house  certificates  upon  the  representation  of  its  presi- 
dent that  it  owed  a  heavy  debt  at  the  clearing  house  which  it  was 
unable  to  meet,  and  his  further  statement  showing  the  amount  of 
the  reserve  fund  against  which  the  draft  was  drawn.*  A  bank 
by  retaining,  on  the  settlement  of  a  depositor's  account,  the  exact 


'  Merchants'  National  Bank  v.  Rit- 
zinger,  20  Bradw.  (III.)  27;  Bank  of 
America  v.  Indiana  Banking  Co.,  114 
111.  483.  As  to  the  drawing  of  a  check 
by  a  depositor  upon  the  bank  holding 
the  deposits  operating  to  transfer  the 
title  to  the  sum  named  in  the  check,  see 
Foster  v.  Paulk,  41  Me.  425;  Hogue  v. 
Edwards,  (1881)9  Bradw.  (111.)  148; 
Union  National  Bank  v.  Oceana 
County  Bank,  80  111.  212.  And  that  the 
payee  may  sue  the  bank  therefor,  see 
Brown  v.  Pierce,  80  III.  214;  C.  M.  & 
F.  Ins.  Co.  V.  Stanford,  28  111.  168; 
Bickford  v.  First  National  Bank,  42 
Bl.  239;  Brown  v.  Leckie,  43  Dl.  497; 
Seventh  National  Bank  v.  Cook,  73 
Pa.  St.  485. 

2  Hogue  V.  Edwards,  (1881)  9  Bradw. 
(Bl.)  148.    A  rehearing  of  this  case  was 


denied  in  Hogue  v.  Edwards,  (1881)  9 
Bradw.  (111.)  263. 

3  Bull  v.  Bank  of  Kasson,  123  U. 
S.  105. 

*  Coates  V.  Preston,  105  Bl.  470.  In 
Pack  r.  Thomas,  13  Smedea  &  Marsh. 
(Miss.)  11,  it  was  held  that  it  was  not 
competent  to  prove  by  parol  that  a 
check  payable  in  "dollara"  simply, 
was  intended  by  the  parties  to  be 
paid  in  depreciated  bank  notes,  as  that 
would  be  to  vary  a  written  contract  by 
parol. 

"^Bank  v.  Millard,  10  Wall.  152; 
Bank  v.  Schuler,  120  U.  8.  511;  s.  c. 
7  Sup.  Ct.  Rep.  644. 

*  Fourth  Street  National  Bank  v. 
Yardley,  (1893)  55  Fed.  Rep.  850  (a 
bill  against  the  receiver  of  the  bank 
to  charge  him  as  trustee  of  a  fund). 


♦  » 


V'' 


m 


4 


>^ 


i 

I 


646 


DEPOSITS  AND  CHECKS. 


[§324 


amount  of  an  outstanding  check,  impliedly  accepts  the  check,  and 
subjects  itself  to  an  action  by  the  holder  upon  the  check.^  An 
unaccepted  and  uncertified  check  not  being  an  equitable  assign- 
ment to  the  credit  of  the  holder,  is  but  an  order  which  may  be 
countermanded.'  Should  the  -  paying  teller  of  a  bank  after  a 
notice  to  the  bank  by  the  drawer  of  a  check  not  to  pay  it,  and  his 
promise  that  lie  would  not  do  so,  afterwards  pay  it  to  the  holder, 
the  drawer  may  recover  from  the  bank  the  amount  of  the  check 
so  paid.^  A  check  upon  a  bank  is  payable  in  the  kind  of  funds 
deposited  prior  to  its  date,  and  a  subsequent  agreement  between 
the  depositor  and  the  bank  that  other  funds  would  be  received  is 
not  binding  upon  the  payee  of  the  check.*  It  appeared  in  an 
Illinois  case  that  at  a  time  when  the  banks  in  that  state  were 
receiving  and  paying  out  the  paper  of  Illinois  banks  which  were 
of  doubtful  solvency,  and  tlieir  paper  at  a  discount,  two  bankers, 
in  the  usual  course  of  tlieir  business,  had  mutual  accounts  grow- 
ing out  of  remittances  and  collections,  and  the  relations  existing 
between  them  were  such  that  the  depositor  could  withdraw  his 
funds  at  pleasure,  and  the  receiver  of  the  deposits  could  in  like 
manner  return  them.  The  Supreme  Court  of  that  state  held 
that,  in  the  absence  of  any  agreement  between  them  on  the  sub- 
ject, the  holder  of  the  deposits  would  be  compelled  to  pay,  or 
return  in  current  funds  or  funds  at  par.  But  the  banker  who 
owned  the  deposit,  with  a  considerable  balance  to  his  credit  with 
his  correspondent,  having  notified  the  latter  by  letter  that  he 
should  require  that  any  remittances  he  might  desire  should  be 
made  in  the  paper  of  certain  banks,  which  were  specified  in  his 
letter,  it  was  held  tliat  this  direction  left  the  holder  of  the  depos- 
its at  liberty  to  make  the  remittances  in  bills  of  any  of  the  banks 
so  designated,  which  the  owner  of  the  deposits  would  be  com- 
pelled to  receive  at  their  nominal  value.  Further,  that  after  the 
receipt  of  such  letter,  the  holder  of  the  deposits  was  authorized  to 
remit  to  the  owner  the  entire  balance  standing  to  his  credit,  with- 


»  Say  lor  v.  Bushong,  100  Pa.  St.  27. 
As  to  the  drawer  of  a  bank  check 
being  relieved  of  liability  by  a  delay 
of  nine  days'  presentment  of  a  check, 
see  Kinyon  t.  Stanton,  44  Wis.  479  ; 
Cork  V.  Bacon,  45  Wis.  192. 

« Florence    M.   Co.   v.  Brown,   124 
U.  8.  385. 


•  Schneider  v.  Irving  Bank,  (1865) 
1  Daly,  500;  s.  c,  30  How.  Pr.  190. 
As  to  the  duty  of  a  bank  in  the  pay- 
ment of  checks  drawn  upon  it  by  a 
depositor,  see  Dodge  v.  National  Ex- 
change Bank,  (1870)  20  Ohio  St.  234. 

*  Marine  Bank  of  Chicago  v.  Ogden> 
(1862)  29  111.  248. 


§  324] 


DEPOSITS  AND  CHECKS. 


647 


out  further  order,  in  the  class  of  paper  designated  in  the  letter,  at 
its  nominal  value,  or  in  the  paper  of  any  one  of  the  banks  desig- 
nated. Further,  this  right  of  the  holder  of  the  deposits  would 
not  be  affected  by  the  fact  that  subsequent  to  the  notice  given 
him,  and  before  he  had  received  any  further  notice  on  the  sub- 
ject, the  paper  of  such  banks  had  continued  to  depreciate  in  value. 
It  appeared  also  in  this  case  that  the  holder  of  the  deposits  had 
transmitted  to  the  owner  the  entire  balance  due  him  in  a  package 
of  these  bills ;  the  latter  retained  it  a  week  without  opening  it  to 
learn  the  character  of  its  contents,  knowing  it  was  a  remittance 
from  his  correspondent,  and  the  amount  of  it,  and  did  not  notify 
the  correspondent  that  he  would  not  receive  it.  The  court  held 
that  by  such  delay  he  waived  even  any  right  he  may  have  had  to 
refuse  to  receive,  at  its  nominal  value,  any  of  the  paper  of 
banks  contained  in  the  package.^  An  individual  depositor 
may  draw  a  check  in  favor  of  a  bona  fide  creditor  and  appropri- 
ate his  funds  in  a  bank  to  such  creditor,  vesting  him  with  full 
power  to  sue  the  bank  and  recover  upon  the  check,  notwithstand- 
ing an  indebtedness  to  the  bank  of  a  partnership  of  which  the 
depositor  is  a  member. ^  A  check  duly  notified  to  the  bank  upon 
which  it  is  drawn  constitutes  an  equitable  assignment  of  the  fund 
on  which  it  is  drawn.^  A  check  upon  a  bank  certified  by  its 
teller  is  equivalent  to  a  bill  of  exchange  accej^ted  by  the  bank, 
and  the  bank  is  liable  on  the  certified  check  to  a  honafi/le  holder 
whether  it  had  funds  of  the  drawer  or  not.'*  A  check  drawn  by 
one  in  extremis^  with  directions  to  the  payee  to  defray  the  funeral 
expenses  of  the  drawer  from  the  amount,  and  to  pay  the  balance 
to  his  heirs,  not  accepted  by  the  bank  at  the  death  of  tlie  drawer, 
has  been  held  not  to  have  operated  as  an  assignment  of  the  fund 
so  as  to  make  the  bank  liable  to  the  payee.^  The  Indiana 
Supreme  Court  has  held  that  a  banker's  check  drawn  upon  the 
drawer's  banker  without  words  of  transfer,  and  drawn  upon  no 


»  Cushman  ?>.  Carver,  (1869)  51  111. 
509.  See,  also,  Marine  Bank  of  Chicago 
f).  Rushmore,  28  111.  463;  Marine 
Bank  of  Chicago  v.  Chandler,  27  III. 
525. 

'  International  Bank  v.  Jones,  119 
111.  407. 

^  Gordon  &  Gomila  v.  Muchler,  34 
La.  Ann.  604. 


*  Meads  v.  Merchants'  Bank  of  Al- 
bany, (1862)  25  N.  Y.  143. 

">  Second  National  Bank  r.  Williams, 
13  Mich.  282.  That  a  check  is  an  ap- 
propriation of  so  much  money  in  the 
bank  to  the  payee  and  holder,  see  Chou- 
teau V.  Rowse,  (1874)  56  Mo.  65;  Lewis 
T.  International  Bank,  (1883)  13  Mo. 
App.  202. 


I  i 


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If 


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'* 


648 


DEPOSITS  AND  CHECKS. 


[§324 


particular  designated  fund,  did  not  of  itself,  either  as  between  the 
drawer  and  drawee,  or  drawer  and  payee  or  holder  of  the  check, 
act  as  an  appropriation  or  equitable  assignment  of  a  fund  in  the 
hands  of  the  drawee ;  nor  did  it  operate  as  an  assignment  of  a  part 
of  the  drawer's  chose  in  action  against  the  drawee ;  and,  hence,  the 
holder  of  the  check  was  not  entitled  to  a  preference  as  against  the 
depositors  and  the  general  creditors  of  an  insolvent  drawer.^  If 
bank  bills  are  deposited  as  depreciated  paper,  the  depositor  has 
no  right  to  draw  for  funds  at  par  or  expect  payment  on  a  check 
thus  drawn.^  A  right  of  action  is  given  to  the  drawer  of  a  check 
in  case  he  has  funds  in  bank  to  meet  it  by  the  refusal  of  the  bank 
to  pay  it,  if  the  refusiil  to  pay  is  without  his  authority.^  The 
presenting  of  a  check  to  a  bank  on  which  it  is  drawn  for  pay- 
ment, and  the  bank's  stamping  it  paid  and  canceled,  although  not 
in  fact  paid,  but  subsequently  returned  to  the  collecting  bank  pre- 
senting it,  would  not  be  such  a  payment  as  would  discharge  the 
drawer/  A  bank  paying  a  check  drawn  to  order,  without  the 
indorsement  of  the  payee,  before  it  can  refuse  to  pay  upon 
demand  by  the  payee  having  possession  of  the  paper,  is  bound  to 
prove  that  the  payee  has  parted  with  his  title.''  To  a  national 
bank's  action  to  recover  an  overdraft  which  amounts  to  a  simple 
loan,  the  omission  of  an  officer  of  the  bank  to  exact  security  for 
the  money  loaned  cannot  be  made  a  ground  of  defense.**  A 
banker  cannot  set  off  a  demand  he  holds  against  the  person  pre- 
senting a  check  for  payment."  A  check  drawn  upon  a  bank  for 
more  than  the  amount  of  the  drawer's  funds  on  deposit  creates  no 


'  Harrison  v.  Wright,  (1884)  100  Ind. 
515. 

«  Willetts  V.  Paine,  (1867)  43  III.  432. 
See  Lawrence  v.  Schmidt.  35  111.  440; 
Galena  Ins.  Co.  v.  Kupfer.  28  111.  332. 

•Citizens'  National  Bank  of  Daven- 
port V.  Importers',  etc.,  National  Bank 
of  New  York.  (1887)  44  Hun.  386. 

*  Mcintosh  V,  Tyler,  (1888)  47  Hun, 
99 ;  citing  Turner  v.  Bank  of  Fox 
I^ke,  4  Abb.  Ct.  of  App.  Dec.  434;  s. 
€.,  3  Keyes,  425;  Burkhalter  v.  Second 
National  Bank,  42  N.  Y.  538;  Kelty  v. 
Second  National  Bank,  52  Barb.  328. 

*  Citizens'  National  Bank  of  Daven- 
port V.  Importers',  etc.,  National  Bank 
of  New  York,  (1887)  44  Hun,  386. 


•  Union  Gold  Mining  Co.  r>.  Rocky 
Mountain  National  Bank,  (1873)  2  Colo. 
248. 

'  Brown  v.  Lcckie,  (1867)  43  111.  497. 
The  court  said:  "  In  the  case  of  Crom- 
well r.  Lovett,  1  Hall,  (N.  Y.)  56,  it  was 
held  that  a  check  on  a  banker  given  in 
the  ordinary  course  of  business,  is  not 
presumed  to  be  received  as  an  absolute 
payment,  even  if  the  drawer  have 
funds  in  the  bank,  but  as  the  means  to 
procure  the  money.  The  holder,  in 
such  a  case,  becomes  the  agent  of  the 
drawer  to  collect  the  money,  and  if 
guilty  of  no  negligence  whereby  an 
actual  injury  is  sustained  by  the 
owner,  ho  will  not  be  answerable,  if. 


§  324] 


DEPOSITS  AND  CHECKS. 


649 


lien  upon,  and  will  give  the  payee  no  right  to  the  actual  balance, 
until  the  bank  has  agreed  to  pay  it  j)ro  taiito}  The  Illinois 
Supreme  Court  has  held  that  the  holder  of  a  bank  check,  who  has 
paid  value  for  it,  is  entitled  to  as  much  of  the  funds  of  the  drawer 
on  deposit  as  the  check  calls  for,  and,  when  presented  for  payment, 
the  bank  on  which  it  is  drawn  will  become  the  holder  of  the 
drawer's  money  to  the  use  of  the  holder  of  the  check,  and  will  be 
bound  to  account  to  him  for  the  amount  unless  other  equities 
liave  intervened.^  The  rights  of  the  holder  of  the  check  and 
the  bank  are  fixed  from  the  time  the  check  is  presented  for  pay- 
ment, and  the  bank  will  have  no  right,  subsequently,  to  pay  other 
checks  or  other  demands  either  to  itself  or  to  others  which  may 
afterwards  be  presented,  or  which  may  afterwards  accrue.^  A 
bank  receiving  an  indorsed  check  for  a  special  purpose,  not  in  the 
regular  course  of  banking  business,  has  been  held  to  be  responsi- 
ble for  an  erroneous  appropriation  of  the  proceeds.*  The  payee 
of  a  check  has  been  held  not  responsible  to  a  bank  for  amount 


from  any  peculiar  circumstances  at- 
tending the  bank,  the  check  is  not  paid. 
And  in  a  suit  against  the  drawer  for 
the  consideration  of  such  a  check,  the 
holder  may  treat  it  as  a  nullity,  and 
resort  to  the  original  cause  of  action." 

'  Dana  t.  Boston  Third  National 
Bank,  (1866)  13  Allen,  (Mass.)  445. 

*  Fourth  National  Bank  of  Chicago 
r.  City  National  Bank  of  Grand  Kapids, 
1873)  68  111.  398. 

3  Ibid.  Mr.  Justice  Breese  said  : 
**  The  universal  custom  informs  us 
what  the  contract  of  all  the  parties  to 
such  transaction  is.  It  informs  us 
that  the  banker,  when  he  receives  the 
deposit,  agrees  with  the  depositor  to 
pay  it  out  on  the  presentation  of  his 
checks,  in  such  sums  as  those  checks 
may  specify,  and  to  the  person  pre- 
senting them,  and  with  the  whole 
world  the  banker  agrees  that  whoever 
shall  become  the  owner  of  such  check 
shall,  upon  presentation  thereof,  be- 
come thereby  the  owner,  and  entitled 
to  receive  the  amount  specified  in  the 
check,  provided  the  drawer  shall  at 
that  time  have  that  amount  on  de- 
82 


posit.  It  was  further  said  in  Muun 
V.  Burch,  25  111.  35,  to  deny  to  the 
holder  of  a  bank  check  both  a  legal 
and  equitable  right,  after  presentation 
of  the  check,  to  the  money  of  the 
di-awer  in  the  hands  of  a  banker,  would 
destroy  the  most  valuable  feature  of 
bank  deposits  and  checks.  In  the  very 
nature  of  such  transactions  a  banker's 
lien  cannot  extend  to  the  money  left  on 
deposit  with  him,  according  to  the 
customs  and  usages  of  banks.  It  has 
never  been  so  extended,  but  is  con- 
fined to  securities  and  valuables  which 
may  be  in  the  banker's  custody  as  col- 
laterals. The  credit  must  be  given  on 
the  credit  of  the  securities  or  valuables, 
either  in  possession  or  expectancy. 
Russell  V.  Hadduck,  3  Gilm.  233.  This 
is  the  extent  of  a  banker's  lien."  See, 
also,  Johnson  v.  Ward,  2  Bradw.  (111.) 
261;  Brahm  v.  Adkins,  77  111.  263. 
When  the  holder  of  a  check  is  not  sub- 
ject to  equities  existing  between  the 
original  parties.  Rochester  Bank  v. 
Harris,  (1871)  108  Mass.  514;  Ames  v. 
Mcriam,  (1867)  98  Mass.  294. 
*  Parker  r.  Hartley,  91  Pa.  St.  465. 


iX 


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650 


DEPOSITS  AND  CHECKS. 


[§32^ 


paid  to  him,  without  fraud  on  his  part,  although  paid  by  mis- 
take.^    The  mere  presentment  of  a  check  does  not  fix  upon  a  bank 
the  liability  to  pay  it.^     Should  a  bank,  without  funds,  pay  a 
check  long  overdue,  it  would  take  it  subject  to  all  the  equities  of 
the  drawer.^     A  bank,  though  it  may  have  by  mistake  paid  a 
check  and  placed  it  upon  the  canceling  knife,  would  not   be 
thereby  prevented  from  recovering  upon  it  against  the  drawer.* 
One  receiving  a  counterfeit  bill  from  a  bank  in  payment  of  a 
check  may  retuni  it  in  a  reasonable  time  after  discovering  that  it 
is  not  genuine.'     The  drawer  of  a  check  and  his  sureties  will  be 
discharged  by  the  acceptance  of  the  drawee,  with  the  consent  of 
the  payee  of  a  check  conditionally  fixing  some  other  time  or  mode 
of  payment  than  is  implied  in  the  language  and  terms  of  the 
clieck.«    No  law  requires  the  drawee  of  a  check  to  delay  pay- 
ment until  advice  that  it  has  been  drawn.*^     A  check  to  bearer, 
taken,  though  from  one  who  obtained  it  unfairly,  yet  immediately 
after  its  issue,  and  without  notice,  entitles  the  holder  to  recover 
the  sum  it  calls  for.«     Where  a  check  is  drawn  on  a  bank  in 
which  the  drawer  has  no  funds  it  need  not  be  presented  at  all, 
in  order  that  an  action  may  be  maintained  upon  it.*     Should  a 
bank  pay  a  post-dated  check  before  the  day  on  which  it  is  dated, 
it  will  be  a  payment  to  its  own  wrong,  and  no  defense  to  an 
action  for  the  amount  of  the  fund  by  one  to  whom  it  may  have 
been  assigned  in   good  faith.^<»     A   bank  on  which  a   check  is 
drawn  is  not  constituted  an  agent  for  the  owner  of  the  check 
to  receive  the  proceeds  by  his  sending  the  check  to  it  through 
the  mail." 


'Hull  V.  Bank,  Dud.  (S.  C.)  259. 
•Albers  r.  Commercial  Bank,  (1884) 
86  Mo.  178. 
»  Lancaster  Bank  v.  Woodward,  18 

Pa.  St.  357. 

*  State  Savings  Association  d.  Boat- 
men's Savings  Bank,  (1881)  11  Mo. 
App.  292. 

'  Boyd  V.  Mexico  Southern  Bank, 
(1878)  67  Mo.  537.  In  Murray  v.  Bulls 
Head  Bank,  (1871)  3  Daly,  364,  a  bank 
which  had  through  its  teller  cashed  a 
check  drawn  on  another  bank,  and  part 
payment  was  made  in  a  counterfeit 
bank  bill,   was    held  liable    for    the 


amount  of  the  counterfeit  bill  to  the 
owner  of  the  check. 

•  Warrensburg  Co-operative  Build- 
ing Assn.  V.  Zoll,  (1884)  83  Mo.  94. 

'  Merchants'  Bank  v.  Exchange 
Bank,  16  La.  457. 

«  Clark  V.  Stackhouse.  2  Mart.  (La.) 
326. 

»  Foster  ».  Paulk,  41  Me.  425. 

">  Godin  V.  Bank  of  Commonwealth, 
(1856)  6  Duer,  76. 

"  People  V.  Merchants  &  Mechan- 
ics' Bank  of  Troy,  (1879)  78  N.  Y.  269; 
8.  c,  34  Am.  Rep.  532. 


i\ 


I 


§325] 


DEPOSITS  AND  CHECKS. 


651 


§  325.  Certification  of  checks. —  A  hauk  may  render  itself 
liable  to  tlie  holder  and  payee  of  a  check  by  a  formal  acceptance 
written  npon  the  check,  in  which  case  it  stands  to  the  holder  in 
the  position  of  a  drawer  and  acceptor  of  a  bill  of  exchange.*  The 
same  resnlt  may  be  accomplished  by  the  bank's  writing  upon  the 
check  the  word  "  good  "  or  any  similar  words  which  indicate  a 
statement  by  it  that  the  drawer  has  funds  in  the  bank  applicable 
to  the  payment  of  the  check,  and  that  it  will  so  apply  them.^ 
Such  a  certificate  discharges  the  drawer  of  the  check,  and,  as  to 
him,  amounts  to  a  payment.^  The  certifying  of  a  check  as  "  good  " 
is  not  a  mere  declaration  of  an  existing  fact,  but  creates  a  new  and 
binding  obligation  on  the  part  of  the  bank.  Its  meaning  is  not 
merely  that  the  check  was  "  good  "  when  certified,  but  that  it 
shall  be  "  good  "  when  presented  for  payment.  A  certified  check, 
therefore,  is  as  truly  an  absolute,  unconditional  promise  to  pay 
npon  demand  the  sum  it  specifies,  as  an  ordinary  bank  note ;  and 
laches  in  making  the  demand  is  no  more  imputable  in  the  one 
case  than  in  the  other.*  The  fact  that  a  check  may  have  been 
properly  drawn  on  a  national  bank  (a  public  depository)  by  an 
officer  of  the  government  in  favor  of  a  public  creditor  does  not 
alter  the  rule  that  the  holder  of  a  bank  check  cannot  sue  the  bank 
for  refusing  payment  in  the  absence  of  proof  that  it  was  accepted 
by  the  bank  or  charged  against  the  drawer.^  Payment  to  a 
stranger  upon  an  unauthorized  indorsement  of  a  check  will  not 
operate  as  an  acceptance  of  the  check  so  as  to  authorize  an  action 
by  the  real  owner  to  recover  the  amount  of  the  check  as  upon  an 
accepted  check.*  Although  certified  checks  pass  from  hand  to 
hand  as  cash,  they  are  not  cash,  or  currency,  in  the  legal  sense  of 
the  terms,  and  they  do  not  lose,  on  that  account,  any  of  the  char- 


*  Merchants'  Bank  v.  State  Bank,  10 
Wall.  604;  Espy  v.  Bank  of  Cincin- 
nati, 18  Wall.  604. 

'  Cook  V.  State  Bank  of  Boston,  52 
N.  Y.  96. 

3  Bank  v.  Leach,  53  N.  Y.  350; 
Meads  v.  Merchants'  Bank,  25  N.  Y. 
143;  Mussey  v.  Prest.,  Directors,  etc., 
Eagle  Bank,  9  Met.  (Mass.)  311;  Wil- 
lets  V.  Phojnix  Bank,  2  Duer,  121. 

*  Willcts  V.  Phcenix  Bank,  (1853)  2 
Duer  (N.  Y.),  121.  Holding  upon  the 
doctrine  of  the  text  that  the  plaintiffs, 


holders  for  value,  were  entitled  to  re- 
cover the  sum  advanced  by  them  upon 
four  checks  certified  by  the  bank, 
although  payment  was  not  demanded 
until  two  months  after  the  checks  were 
certified,  and  in  the  interval  the  drawer 
had  withdrawn,  upon  other  checks,  all 
his  funds  from  the  bank. 

^  Bank  of  the  Republic  r.  Millard.  10 
Wall.  152. 

^  First  National  Bank  of  Washing- 
ton V.  Whitman,  (1876)  94  U.  S.  343. 


'1 


L'  ' 


,»- 


n 


-\\ 


652 


DEPOSITS  AND  CHECKS. 


[§325 


acteristics  of  bills  of  exchange,  and,  therefore,  when  dishonored, 
the  holder  has  a  right  to  look  to  the  drawer  for  payment.*     The 
only  effect  of  certifying  a  check  "  good"  is  to  give  it  additional 
currency  by  carrying  with  it  the  evidence  that  it  was  drawn  in 
good  faith  on  funds  to  meet  its  payment,  and  lending  to  it  the 
credit  of  the  drawee  in  addition  to  the  credit  of  the  drawer. 
Beyond  this  it  does  not  differ  from  an  uncertiiied  check.^    The 
indoi-sement,  by  the  proper  officer  of  a  bank,  upon  a  check  drawn 
upon  it  payable  to  bearer,  that  it  is  "  good,"  would  be  priw^afaeie 
an  admission  on  the  part  of  the  bank  that  the  money  drawn  for 
is  in  bank,  subject  to  the  order  of  the  drawer.     This  presumption, 
however,  may  be  repelled  by  proof,  as  that  the  admission  was 
made  by  mistake.^     Certifying  a  check  is  only  an  agreement  that 
the  signature  of  the  drawer  is  genuine,  and  that  he  has  funds  to 
meet  it.*    A  bank  will  not  be  relieved  from  its  responsibility  to 
the  innocent  holder  of  a  check  certified  by  its  officer  authorized  to 
do  so,  by  the  fact  that  he  may  have  transgressed  his  authority  and 
certified  checks  where  the  drawer  had  no  funds."^     Where  a  check 
had  been  delivered  by  the  drawer  to  the  payee  for  accommoda- 
tion, and  the  payee  had  transferred  it  without  indorsement  to 
another,  who  took  it  to  the  bank  on  which  it  was  drawn  for  certi- 
fication, and  while  it  was  so  in  the  possession  of  the  bank  the 
drawer  notified  the  bank  not  to  pay  it,  it  was  held  by  the  Supreme 
Court  of  New  York  that  the  payment  of  the  check  by  the  bank 
was  unauthorized,  and  that  the  drawer  could  recover  the  amount 
from  the  bank.«    A  bank  will  not  be  bound,  by  a  parol  repre- 
sentation that  a  check  is  good,  to  pay  it  whenever  presented  until 
barred  by  limitation,  such  a  representation  not  bemg  equivalent 
to  a  certification ;  neither  would  the  holder  of  the  check  be  reheved 
from  the  duty  of  proper  diligence  in  presenting  it  for  payment. 
The  deposit  of  the  drawer  of  a  check  upon  which  it  is  drawn,  is 
paid  as  the  effect  of  the  holder  of  the  check  procuring  it  to  be 

»  Bickford  t^.  First  National  Bank.    Am.  Rep.  305.     As  to  the  power  of  a 
42  jjl  238  ^»^^  ^^  ^®^^^y  cheeks,  see  Merchants 

»  Brown  t.  Leckie.  (1867)  43  111.  497;   Bank  v.  State  Bank.  10  Wall.  604. 
citing  Rounds  v.  Smith.  (1860)  43  111.       »  Hill  v.  Trust  Co..  108  Pa.  St.  1.     ^ 
245-  Bickford  v.  First  National  Bank,       •  Freund  v.    Importers  &  Traders 
42  ill  238.  National  Bank.  (1875)  3  Hun.  689;  s.  c, 

8  Smith  r.  Branch  Bank  at  Mobile,    6  T.  &  C.  236. 
(1845)  7  Ala.  880.  '  Bank  of   Springfield   r^  Fi^Na. 

*  Marine  National  Bank  t.  National   tional  Bunk  of  Spnngfield,  (1888)  dO 
City  Bank.  (1874)  59  N.  Y.  67  ;  s.  c,  17   Mo.  App.  271. 


DEPOSITS  AND  CHECKS. 


653 


§325] 

certified  instead  of  collecting  it.^  The  drawer  of  a  check  will  V>e 
discharged  by  the  holder's  procuring  it  to  be  certified  instead  of 
collecting  it.-*  In  case  a  certificate  of  "  good  "  on  a  check  be  erro- 
neously made  by  a  bank,  and  the  error  be  discovered  and  notice 
given  to  the  bank  presenting  the  check  in  time  for  it  to  make  a 
re-presentment  and  charge  the  indorsers,  the  certifying  bank  will 
be  relieved  from  further  liability.^  A  new  and  binding  obliga- 
tion is  created  on  the  part  of  a  bank  by  its  certifying  a  check  as 
"  good  "  to  hold  sufficient  funds  of  the  drawer  to  meet  the  check ; 
and  the  holder's  right  is  not  impaired  by  a  delay  on  his  part  in 
demanding  payment.-*  The  act  of  a  bank  certifying  the  genuine- 
ness of  a  check  and  directing  its  payment  by  a  correspondent 
bank,  operates  as  a  promise  to  pay  the  check  upon  presentation  at 
the  correspondent  bank,  properly  indorsed.  The  obligation  of  the 
bank,  as  shown  by  such  certification,  amounts  to  a  representation 
that  the  drawer  has  funds  in  the  bank  with  wliich  to  pay 
the  check,  and  that  it  will  retain  and  pay  them  to  the  holder 
through  the  designated  agency,  upon  presentation  there,  properly 
indorsed.*  A  bank  certifying  a  check  drawn  upon  it  by  one  of 
its  depositors  is  primarily  liable  upon  it.«  One  taking  a  check 
which  has  been  certified  by  a  bank  in  good  faith,  for  value,  in  the 
ordinary  course  of  his  business,  may  recover  against  the  bank 
although  the  signature  to  the  check  may  be  a  forgery.     And  it 


»  Bills  v.  National  Park  Bank,  47  N. 
Y.  Super.  Ct.  302. 

« First  National  Bank  of  Jersey 
City  0.  Leach.  (1873)  52 N.  Y.  350;  s.  c, 
11  Am.  Rep.  708. 

3  Irving  Bank  v.  Wetherald.  (1867) 
36  N.  Y.  335,  affirming  34  Barb.  323. 

*  Farmers  &  Mechanics'  Bank  v. 
Butchers  &  Drovers'  Bank,  (1855)  4 
Duer,  219.  In  Mills  v.  State  Bank,  5 
N.  J.  Law  J.  56,  it  appeared  that  on  a 
certain  date  a  check  was  drawn  in  fa- 
vor of  the  plaintiff  on  the  State  Bank, 
and  indorsed  by  the  cashier  "  good  at 
the  Mechanics'  Bank."  The  plaintiff 
retained  the  check  for  two  months, 
when  the  Mechanics'  Bank  failed.  In 
this  action,  on  proof  that  at  the  date  of 
the  failure  of  the  Mechanics'  Bank  the 
State  Bank  had  sufficient  funds  in  that 


bank  to  meet  the  check,  the  plaintiff 
was  held  not  entitled  to  recover,  on  ac- 
count of  her  negligence  in  delaying  the 
presentation  of  the  check  for  payment 
for  so  long  a  time. 

^  Lynch  v.  First  National  Bank  of 
Jersey  City,  (1887)  107  N.  Y.  179;  s. 
c. ,  1  Am.  St.  Rep.  803;  citing  ^tna  Na- 
tional Bank  v.  Fourth  National  Bank, 
46  N.  Y.  82;  Crawford  v.  West  Side 
Bank,  100  N.  Y.  50;  Risley  v.  Phenix 
Bank,  83  N.  Y.  318;  Oneida  Bank  v. 
Ontario  Bank,  21  N.  Y.  490. 

6  Drovers'  National  Bank  v.  Provis- 
ion Co..  117  111.  100.  As  to  what  the 
liability  of  a  bank  upon  certified 
checks  results  from,  see  Cooke  v.  State 
National  Bank  of  Boston,  (1873)  52  N. 
Y.  96;  s.  c,  11  Am.  Rep.  667. 


.« 


r  t 


1 1 


i 


.v 


654 


DEPOSITS  Ain>  CHECKS. 


[§326 


would  make  no  difference  that  the  payee's  name  was  fictitious.' 
The  money  paid  upon  a  raised  check  by  a  bank  certifymg  and 
paying  it  may  be  recovered  from  the  one  receiving  it,  as  for 
money  paid  under  a  mistake  of  fact.'  The  money  paid  by  a  bank 
upon  a  certified  check  may  be  recovered  if  it  prove  that  the  filhng 
in  of  the  check  was  forged.  And  the  bank  will  not  be  estopped 
from  showing  the  body  of  the  check  to  be  a  forgery  by  the  verbal 
assurance  of  its  teller  to  the  payee  that  the  check  was  correct  in 
every  particular.^  Payment  of  a  raised  check  on  the  faith  of  a 
certificate  of  a  bank  has  l)een  held  not  to  raise  an  estoppel  pre- 
cluding the  bank  from  recovering  back  the  money  paid  on  it.* 

§  326.  Acceptance  of  a  check  by  a  bank  —  illustration.— 
In  a  case  in  the  United  States  Circuit  Court  for  the  western  dis- 
trict of  Missouri  it  appeared  that  a  cattle  company  had  agreed 
to  sell  to  one  T.  a  large  number  of  cattle  for  a  fixed  sum  of 
money.      He   oifered  in  payment  for  the  cattle  his  check  on 
defendant  bank.     The  cattle  company  refused  to  accept  it  unless 
persons  to  wliom  it  was  indebted  would  accept  it  in  payment  of 
the  debt.    The  payee  of  the  check  telegraphed  to  the  bank  asking 
if  it  would  pay  T.'s  check  for  the  amount  specified,  and  the  bank 
telegraphed :  "  T.  is  good.    Send  on  your  paper.'    The  telegram 
was  shown  to  the  creditors  of  the  cattle  company,  who  took  the 
check  in  payment  of  their  debt.     Upon  the  issues  raised  by  the 
defendant's  answer  it  was  held  that  the  answer  by  the  bank  was 
an  acceptance  of  the  check  for  the  sum  named  in  the  first  tele- 
gram, and  was  suflicient,  under  Eevised  Statutes  of  Missouri 
(§  533),  providing  that  an  acceptance  of  a  bill  of  exchange  must 
be  in  writing,  and  section  534,  providing  that  an  acceptance  on  a 
separate  paper  will  bind  the  acceptor  in  favor  of  one  to  whom  it 
has  been  drawn,  who  takes  the  bill  on  the  faith  thereof  for  a 
valuable  consideration,  to  render  the  bank  liable  to  plaintiffs  on 
the  check.     And  in  such  case,  the  evident  purpose  of  the  inquiry 

*  Hagen  v.  Bowery  National  iianK  *  Security  Bank   of   New  York  e. 

(1872)  6  Lans.  490;  s.  c,  64  Barb.  197.  National  Bank  of  Republic.  (1876)  67 

»St.    Nicholas    Bank    v.    National  N.  Y.  458;  s.  c,  23  Am.  Rep.  129. 

Bank  of  the  State  of  New  York,  (1876)  *  Marine  National  Bank  v.  National 

3   N.    Y.    Wkly.    Dig.    583;    citing  City  Bank,  (1874)  59  N.  Y.  67;  s.  c, 

Marine  Nat.   Bank  v.  National  City  17  Am.  Rep.  305. 
Bank,  (1874)  59  N.  Y.  67;  8,  c,  17  Am. 
Rep.  305. 


tl' 


§  ^>2T] 


DEPOSITS  AND  CHECKS. 


665 


being  to  obtain  assurance  of  payment  before  taking  the  check, 
the  bank  was  liable  under  Revised  Statutes  of  Missouri  (§  535), 
providing  that  an  unconditional  written  promise  to  accept  a  bill 
before  it  is  drawn  shall  be  deemed  an  actual  acceptance  in  favor 
of  any  person  to  whom  it  is  shown,  and  who  on  the  faith  thereof 
receives  the  bill  for  a  valuable  consideration.^  The  same  case 
was  before  the  court  again,  when  there  were  some  further  rulings 
as  to  the  bank's  liability  on  the  check  by  reason  of  its  acceptance 
by  telegram.  It  was  held  that  the  bank  which  had  agreed  to 
accept  the  check  for  a  certain  sum  could  not  refuse  payment 
because  the  check  when  presented  concluded  with  the  words 
"  with  exchange,"  no  place  of  exchange  being  mentioned.  Still 
this  was  mere  surplusage,  and  of  no  effect.^  It  was  also  held  that 
a  bank  check  payable  to  "the  order  of"  the  payee  was  a  bill  of 
exchange  within  the  meaning  of  Revised  Statutes  of  Missouri 
(§  553),  requiring  an  acceptance  of  a  "  bill  of  exchange  "  to  be  in 
writing.^ 

§  327.  Presentment  of  checks  for  payment. —  Upon  pre- 
sentation of  a  check  for  payment  the  payee  or  legal  holder 
becomes  the  owner,  entitled  to  the  sum  called  for  by  the  check, 
if  that  amount  stands  to  the  credit  of  the  drawer  on  the  books  of 
the  bank.*     Bank  checks  being  payable  immediately  on  present- 


*  Grarrettson  r.  North  Atchison  BMiik, 
(1889)  39  Fed.  Rep.  163.  As  to  princi- 
ples applicable  to  bank  checks,  see 
Bank  v.  Bank,  10  Wall,  647;  Cooke  v. 
Bank,  52  N.  Y.  96;  Jarvis  v.  Wilson, 
46  Conn.  90-92;  Freund  p.  Bank,  76 
N.  Y.  355,  356;  Bank  r.  Richards,  109 
Mass.  413;  Whilden  r.  Bank,  64  Ala. 
29,  30.  As  to  how  an  acceptance  of  a 
check  may  be  made,  see  Bank*.  Bank, 
1  N.  Y.  Leg.  Obs.  26;  Espy  v.  Bank, 
18  Wall.  604 ;  Whilden  v.  Bank,  64 
Ala.  32,  33;  Bank  v.  Howard,  40  N.  Y. 
Super.  Ct.  20.  As  to  a  check  passing 
to  another  for  a  valuable  consideration, 
see  Railroad  Co.  v.  Bank,  102  U.  S. 
14-22:  Pope  r.  Bank,  59  Barb.  226; 
Freund  v.  Bank,  76  N.  Y.  353-358. 

'  Garrettson  v.  North  Atchison  Bank, 
(1891)  47  Fed.  Rep.  867.  C.  f.,  Brink- 
man  f.  Hunter,  73  Mo.  179;  Lindley  v. 


Bank,  76  Iowa,  629;  s.  c,  41  N.  W. 
Rep.  381;  Hughitt  v.  Johnson,  28  Fed. 
Rep.  865;  Hill  v.  Todd.  29  111.  101-103; 
Clauser  r.  Stone,  29  111.  114.  As  to  a 
defense  that  presentation  of  a  check 
for  payment  was  unreasonably  de- 
layed, see  Bull  v.  Bank,  123  U.  S. 
Ill,   112;  s.  c,  8  Sup.  Ct.  Rep.  62. 

^  Garrettson  v.  North  Atchison  Bank, 
(1891)  47  Fed.  Rep.  867,  affirming  Gar- 
rettson V.  North  Atchison  Bank,  (1889) 
39  Fed.  Rep.  163.  Garrettson  v.  North 
Atchison  Bank,  39  Fed.  Rep.  168, 
and  47  Fed.  Rep.  867,  were  affirmed 
bv  the  United  States  Circuit  Court  of 
Appeals  in  North  Atchison  Bank  v. 
Garrettson,  (1892)  51  Fed.  Rep.  168. 

*Shaffner  v.  Edgerton,  13  Bradw. 
(111.)  132;  Priest  v.  Way,  87  Mo.  16; 
Munn  r.  Burch,  25  111.  35. 


f 


r 


h 


V. 


1 1 ' 


656 


DEPOSITS  AND  CHECKS. 


[§327 


ment  are  not  entitled  to  days  of  grace.*     Whether  days  of  grace 
are  to  be  allowed  on  a  draft  in  the  form  of  a  check  depends  upon 
the  question  whether  the  instrument  is  payable  on  demand  or  at 
a  future   day.^     A  check  drawn  on  a  bank  ordering  it  to  pay 
money  to  a  third  party  or  order  on  a  day  subsequent  to  its  date 
would  be  entitled  to  grace.^     A  check  drawn  by  one  party  upon 
another  payable  to  a  third  person,  due  tliirty  days  after  date,  has 
been  held  in  a  suit  by  the  drawee  against  the  drawer  to  be  enti- 
tled to  days  of  grace.*     An  instrument  drawn  upon  the  cashier  of 
a  bank,  payable  sixty  days  after  date,  has  been  held  to  be  a  bill 
of  exchange,  and  entitled  to  days  of  grace.     It  was  also  held  in 
the  same  case  that  it  was  essential  to  a  check,  eo  7iomine^  that  it 
should  be  payable  on  demand.''     A  draft  on  a  bank  for  money 
payable  at  a  day  subsequent  to  its  date,  has  been  held  to  be  a  bill 
of  exchange,  and  entitled  to  days  of  grace.*     A  bank  check  pay- 
able fifteen  days  after  date  has  been  declared  in  an  Indiana  case 
to  be  an  inland  bill  of  exchange,  and  to  have  every  feature  of 
such  a  bill."^     A  demand  in  business  hours  on  the  day  succeeding 
that  on  which  a  check  is  drawn  is  a  sufficient  presentment.^     Pre- 
sentment of  a  check  is  excused  by  the  stoppage  of  its  payment  by 
the  drawer.*     The  fact  that  a  check  may  be  drawn  by  a  depositor 
of  funds  in  a  bank  in  favor  of  the  cashier  of  the  bank  just  previ- 
ous to  the  service  upon  the  bank  of  process  in  garnishment,  has 
been  held  not  to  be  in  itself  evidence  of  fraud  or  want  of  good 
faith.*®     A  bank  which  had  sent  another  bank  a  bad  check,  sup- 
posing and  affirming  that  it  came  from  the  bank  to  which  it  was 
returned  and  been  paid  money  by  the  latter  for  tlie  clieck,  rely- 
ing upon  this  statement,  which  was  erroneous,  has  been  held  liable 
in  an  action  by  the  latter  for  the  money,  as  paid  under  a  mis- 
take of  fact,  although  the  error  in  the  statement  was  not  discov- 
ered until  three  days  after  the  payment  of  the  money,  when  the 


» Barbour  p.  Bayon.  5  La.  Ann.  304. 

•Morrison  r.  Bailey,  (1855)  5  Ohio 
St.  13.  When  an  instrument  drawn 
on  a  bank  is  a  check  and  not  a  bill  of 
exchange,  and  not  entitled  to  days  of 
grace,  see  Andrew  v,  Blachly,  (1860) 
11  Ohio  St.  89. 

*  Ivory  V.  Bank  of  Missouri,  (1865) 
36  Mo.  475. 

*  Cutler  V.   Reynolds,   (1872)  64  111. 

S21. 


'Woodruff  V.  Merchants'  Bank,  25 
Wend.  673. 

«Bowen  v.  Newell,  8  N.  Y.  190. 

^  Glenn «).  Noble,  1  Blackf.  (Ind.)  104. 

'Ocean  Co.  v.  Ophelia,  11  La.  Ann. 
28. 

•Woodin  V.  Frazee,  (1874)  38  N.  Y. 
Super.  Ct.  190. 

'"  Bank  of  America  r.  Indiana  Bank- 
ing Co..  114  111.  483. 


§327] 


DEPOSITS  AND  CHECKS. 


657 


drawer  of  the  check  had  failed.^  A  bank  paying  a  fraudulently 
altered  post-dated  clieck  before  its  true  date  would  not  be  enti- 
tled to  charge  it  against  the  drawer.^  Checks  are  governed  by 
the  same  rules  that  bills  are,  as  to  demand,  protest  and  notice.  A 
holder  of  a  check,  to  recover  against  the  drawer,  must  show  a 
presentment  for  payment  and  protest,  or  tliat  the  drawer  had  no 
funds  in  the  hands  of  the  drawee.^  A  post-dated  check  will  not 
be  entitled  to  days  of  grace,  as  a  bill  of  exchange.*  The  obliga- 
tion of  the  drawee  to  pay  a  check  and  a  bill  are  the  same.^  A  bank 
check  has  been  held  to  be  a  bill  of  exchange,  within  the  meaning 
of  that  term  as  used  in  the  Illinois  Statute  of  Limitations.®  When 
payment  of  a  check  is  made  to  the  payee  an  indorsement  by  him 
is  not  necessary.''  Mere  priority  in  drawing  a  check  gives  the 
holder  no  preference  or  privity  in  payment  over  the  holders  of 
checks  subsequently  drawn.^  The  nejrlect  of  the  holder  of  a 
check  to  present  it  will  postpone  his  right  to  the  funds  to  that  of 
a  subsequent  attachment  upon  the  funds.^  A  honafide  indorsee  of 
a  bank  check,  who  had  delayed  for  six  months  to  present  it  for  pay- 
ment, funds  remaining  in  the  hands  of  the  drawee  and  the  drawer, 
being  unprejudiced  by  the  delay,  has  been  held  not  subjected  to 
equities  between  the  drawer  and  a  previous  holder  of  the  check.'" 
Presentment  and  notice  are  not  required  where  bank  checks  are 


*  Union  Bank  v.  United  States  Bank, 
(1807)  3  Mass.  74. 

'Crawford    v.    Bank,   3    Lancaster 
Law  Rev.  (Pa.)  245. 

'  Succession  of  Kercheval,  14  La. 
Ann.  457;  Barnet  o.  Smith.  30  N.  H. 
256;  Shrieve  t.  Duckham,  (1822)  1  Litt. 
(Ky.)  195;  Humphries  v.  Bicknell,  2 
Litt.  (Ky.)  297;  Sutcliflfe  &  Bird  v. 
McDowell.  2  Nott  &  McC.  (8.  C.)  251; 
Lilley^.  Miller,  2  Nott  &  McC.  (S;  C.) 
257.  As  to  the  necessity  of  proof  of 
presentment  and  notice  of  dishonor  of 
a  check,  to  entitle  the  owner  to  resort 
to  the  drawer  for  payment,  see  Case  v. 
Morris,  31  Pa.  St.  100.  Payment  of  a 
part  of  the  check  after  it  becomes  due 
by  the  drawer  dispenses  with  the  ne- 
cessity of  such  proof.  Levy  v.  Peters, 
9  Serg.  &  Rawle  (Pa.),  125. 
83 


*  Champion  tJ.  Gordon,  70  Pa. 
St.  474;  Lawson  v.  Richards,  6  Phil. 
179. 

s  City  Bank  ».  Girard  Bank,  10  La. 
566. 

« Rogers  v.  Durant,  140  U.  S.  298. 
As  to  tbe  transfer  of  the  sum  named 
in  a  check  to  the  payee,  see  Bank  of 
America  v.  Indiana  Banking  Co.,  114 
111.  483. 

^  Huber  v.  Bossart,  (1886)  70  Iowa, 
718. 

*  Moses  V.  Franklin  Bank  of  Balti- 
more, 34  Md.  574.  See,  also,  Norris 
V.  Despard,  38  Md.  487. 

•Harry  v.  Wood,  2  Miles  (Pa.),  327; 
Kuhn  V.  Bank,  20  W.  N.  C.  (Pa.)  230. 

'0  Bull  V.  Bank  of  Kasson,  123  U.  8. 
105. 


P 


iim 


658 


DEPOSITS  AND  CHECKS. 


[§32T 


w 


M 


h 


If  t" 


payable  at  a  future  day  or  protested.^  A  bank  check  must  be 
presented  for  payment  by  the  liolder  within  a  reasonable  time ; 
should  it  not  be,  the  delay  is  at  the  holder's  peril.  As  to  what  is 
a  reasonable  time  would  depend  upon  the  circumstances  in  each 
case.  And  the  time  of  presentation  may  be  extended  by  the 
assent  of  the  drawer,  express  or  implied.  In  a  Connecticut  case, 
by  way  of  illustration,  the  plaintiff,  desiring  to  make  a  remittance 
to  a  creditor  at  a  distance,  and  there  being  no  bank  in  the  place 
where  he  lived,  asked  the  defendant,  who  had  an  account  with 
a  banker  in  a  neighboring  city,  to  take  the  amount  of  him  in 
bank  bills  and  give  him  his  check  therefor,  which  the  latter  did, 
fully  understanding  the  object.  The  plaintiff,  to  whose  order  the 
check  was  payable,  at  once  indorsed  it  to  his  creditor  and  sent  it 
by  the  next  mail.  It  was  three  days  before  the  check  reached 
the  place  where  tlie  banker  resided,  on  whom  it  was  drawn,  and 
was  presented  for  payment,  at  which  time  the  banker  had  failed 
and  payment  was  refused.  The  plaintiff  took  up  the  check  and 
brought  this  action  against  the  drawer.  The  Supreme  Court  of 
Connecticut  held  that  the  check  was  presented  within  a  reason- 
able time  under  the  circunistances,  and  held  the  drawer  liable  to 
the  drawee  for  its  amount.^  JSTegligence  cannot  be  imputed  to 
the  holder  of  a  check  upon  a  bank  for  the  payment  of  money  if 


>Blacbly  v.  Andrew,  (1855)  1   Dis- 
ney (Ohio),  78. 

»  Woodrufif  V.  Plant,  (1874)  41  Conn. 
344.  The  court  said:  "  What  is  a  rea- 
sonable time  will  depend  njKjn  circum- 
stances; and  will,  in  many  cases,  de- 
pend upon  the  time,  the  mode,  and  the 
place  of  receiving  the  cheek,  and 
upon  the  relations  of  the  parties  be- 
tween whom  the  question  arises.  Story 
on  Prom.  Notes,  i^  493;  Mohawk  Bank 
t.  Broderick,  13  Wend.  133.  Here 
three  days  only  elapsed  between  the 
giving  of  the  check  and  its  present- 
ment for  payment.  The  particular 
circumstances  attending  this  case  we 
consider  very  important.  The  de- 
fendant knew  that  the  plaintiff  desired 
this  check  to  make  a  remittance;  that 
it  was  not  to  be  immediately  presented 
for  payment,  and  would  not  reach  the 
bank   for  several  davs.     The  case  of 


Daggett  V.  Whiting,  So  Conn.  366,  is 
certainly  an  authority  to  show  that 
what  the  understanding  of  the  parties 
was  at  the  time  that  the  check  was 
drawn  and  delivered  enters  into  the 
contract.  That  the  time  for  present- 
ment may  be  extendetl  by  the  assent 
of  the  dniwer,  express  or  implied,  is 
well  settled.  Alexander  v.  Burchfield, 
7  3Ian.  &  Gr.  1061;  s.  c,  49  Eng. 
Com.  Law  Rep.  1060."  See  on  this 
subject,  Bridgeport  Bank  v.  Dyer, 
19  Conn.  136;  Taylor  v.  Wilson,  11 
Met.  (Mass.)  44;  Ames  v.  Meriam,  98 
Mass.  294;  First  Nat.  Bank  v.  Harris, 
108  Mass.  514;  Morrison  v.  Bailey,  5 
Ohio  St.  13;  Stephens  v.  McNeill,  26 
Barb.  652;  Rickford  v.  Ridge,  2 
Oampb.  537;  Robinson  v.  Hawksford, 

9  Adol.«fc  El.  (N.  8.)  52;  Hare  v.  Henty.. 

10  C.  B.  (N.  S.)  64;  Prideaux  v.  Grid- 
dle. L.  K.,  4  Q,  B.  455. 


I 


§327] 


DEPOSITS  AND  CHECKS. 


659 


he  demands  payment  on  the  day  following  that  on  which  he 
received  it.  If,  however,  the  holder  unreasonably  delays  in  pre- 
senting the  check  for  payment,  and  in  the  meantime  the  bank 
fails,  the  loss  will  be  the  holder's  and  not  that  of  the  drawer  of 
the  check.^  In  case  it  appears  that  the  drawer  of  a  check  has 
sustained  any  injury  by  the  delay  or  negligence  of  the  holder  of 
the  check  in  presenting  it  for  payment,  the  drawer  will  be  dis- 
charged from  liability.'*  Wliere  a  holder  of  a  check  had  neglected 
to  present  it  for  payment  until  twenty-five  days  after  it  was 
drawn,  during  which  time  the  drawer  failed,  the  Supreme  Court 
of  Illinois  held  that  the  holder  of  the  check  could  have  no 
recourse  upon  the  drawer  unless  he  showed  that  no  loss  occurred 
to  the  drawer  through  liis  delay  in  presentation  of  the  check.^ 
Where  one  having  funds  in  a  bank  gives  a  check  which  the  holder 
neglects  to  present  for  payment  within  a  reasonable  time,  the 
drawer  cannot  be  held  liable  for  non-payment  in  current  fimds 
unless  the  holder  shows  not  only  that  the  funds  on  deposit  were 
depreciated  at  the  date  of  the  check,  but  also  that  they  were 
depreciated  at  the  time  of  the  deposit,  and  that,  therefore,  the 
drawer  had  no  right  to  draw  the  check,  or  to  expect  its  payment 
in  current  funds.''  The  holder  of  a  check  will  be  exercising  due 
diligence  when  he  presents  it  for  payment  in  accordance  with  the 
usage  of  the  banks  in  the  place  where  it  is  made  payable,  and  of 
the  persons  who  have  accounts  with  such  banks,  provided  this 
usage  be  lawful  and  well  known  or  recognized  by  the  mercantile 
community,  and  by  the  parties  to  the  check.''  One  giving  a 
check  may  expressly,  or  by  implication,  extend  the  time  during 
which  he  will  remain  liable  for  the  amount  of  the  check  before 
its  presentment  for  payment.^    The  drawer  of  a  check  cannot 


^  Clark  V.  National  Metropolitan 
Bank,  2  MacArthur  (D.  C),  249. 

*  Ibid.  That  the  discharge  of  the 
drawer  of  a  bank  check  from  liability 
will  result  from  neglect  of  the  holder 
to  present  the  same  for  payment 
within  a  reasonable  time,  and  that  the 
doctrine  applies  to  all  holders,  payees 
or  transferees,  see  Daniels  v.  Kyle,  5 
Ga.  245. 

»  Willetts  V.  Paine,  (1867)  43  Bl.  432. 

*Ibid. 

^Marrett  v.  Brackett,  60  Me.  524. 
The  holder  of  a  check  allowed  until 


the  next  day  after  its  date  to  present 
it.  Veazie  Bank  v.  Winn,  40  Me.  60. 
That  a  check  must  be  presented  for 
payment  on  its  date  or  the  day  there- 
after where  all  the  parties  reside  in  the 
same  place,  see  Bank  v.  Weil,  4  Pa. 
Co.  Ct.  Rep.  346. 

« Holmes  v.  Roe,  62  Mich.  199.  As 
to  the  duty  of  a  bank  in  the  matter  of 
paying  the  checks  drawn  upon  it  by  a 
depositor,  see  Moses  v.  Fmnklin  Bank 
of  Baltimore,  34  Md.  574.  Right  of  ac- 
tion of  a  holder  of  a  check  against 
bank  refusing  payment  when  drawer 


::i 


J. 


1 


If 

Ji 


I 


660 


DEPOSITS  AND  CHECKS. 


[§327 


'IJI 


object  to  any  delay  in  presenting  it  unless  he  can  show  special  injury 
to  himself  arising  from  the  delay.*     The  drawer  of  a  check  will 
be  released  by  the  failure  to  give  him  notice  of  non-payment  of 
the  same  only  to  the  extent  of  the  injury  he  may  receive  thereby. 
In  case  of  failure  of  the  drawee,  then  proof  of  notice  of  non- 
payment would  be  necessary  to  rebut  the  presumption  of  injury 
arising  from  the  failure ;  and  when  the  drawer  has  no  funds  in 
the  hands  of  the  drawee  to  meet  the  check,  demand  and  notice 
will  be  necessary .2     The  drawer  of  a  check,  if  otherwise  liable, 
will  not  be  discharged  because  of  a  failure  to  present  the  check  at 
the  clearing  house  in  accordance  with  mercantile  usage,  even 
though  it  would  have  been  paid  if  presented  there,  when  it  has 
been  duly  presented  to  the  drawee  and  payment  demanded  and 
refused.^     Four  days'  delay  in  presenting  a  check  has  been  held 
not  too  much.*     A  delay  in  the  presentment  of  a  draft,  payable 
on  demand,  for  eleven  days  has  been  held  not  a  reasonable  time.* 


has  funds  in  bank.  Fogarties  v.  State 
Bank,  12  Rich.  (8.  C.)  518.  As  to  a 
court's  preventing  the  vexatious  draw- 
ing of  small  checks  against  a  deposit, 
see  Chicago  Marine  &  Fire  Ins.  Co.  v. 
Stanford,  28  111.  168. 

>  Emery  v.  Hobson,  63  Me.  32. 

*Pack  i?.  Thomas,  13  Smedes  & 
Marsh.  (Miss.)  11;  Graham  v.  Mors- 
tadt.  (1890)  40  Mo.  App.  333. 

'Kleekamp  v.  Meyer,  (1878),  5  Mo. 
App.  444.  When  presentment  of 
check  to  justify  an  action  against  the 
drawer  is  not  necessiiry,  see  Gushing 
«.  Gore,  (1816)  15  Mass.  69;  Franklin 
Bank  v.  Freeman,  (1835)  16  Pick.  535. 
Rules  in  actions  by  the  holders  of 
checks  against  the  drawers.  Ball  v. 
Allen,  (1819)  15  Mass.  433;  EUis  v. 
Wheeler,  (1825)  3  Pick.  (Mass.)  18. 

*  Piece  V.  Daniel,  16  W.  N.  C.  (Pa.) 
35.  In  St.  John  v.  Homans.  (1844)  8 
Mo.  382,  where  all  the  parties  to  the 
check  resided  in  the  same  state,  a  de- 
lay of  eight  days  in  presenting  the 
check  for  payment  was  held  sufficient 
to  discharge  the  drawer.  In  Freiberg 
«.  Cody,  55  Mich.  108,  it  appeared  that 
a  check  for  a  small  sum  was  given 
late  in  the  afternoon  at  a  lumber  camp, 


twenty  miles  from  the  pluce  where  the 
bank  upon  which  it  was  drawn  was 
located,  to  a  merchant  whose  place  of 
business  was  twenty-seven  miles  by 
rail  in  another  direction;  and  had  to  be 
there    on  the   following  day,    which 
was  Saturday.     On  Monday  he  left 
the  check  at  a  local  bank  for  collec- 
tion,  but  the  bank  on  which  it  wa» 
dmwn    failed    that  day.     The    court 
held  that  the  delay  in  presenting  the 
check  for  payment  was  not  such  as 
would    release  the  debt  for  which  it 
was  given. 

'Newark  Banking  Co.  n.  Bank  of 
Erie,  63  Pa.  St.  404.  As  to  reasonable 
delay  in  presenting  a  check  for  pny- 
ment,  sec  Chouteau  v.  Bowse,  (1874) 
56  Mo.  65.  As  to  time  within  which  a 
check  must  be  paid,  see  Wear  v.  Lee, 
(1885)  87  Mo.  358.  As  to  the  eifect  of 
delay  in  presentment  of  a  check,  see 
Flemming  v.  Denny,  2  Phil.  111.  As 
to  right  of  action  after  presentment  and 
demand  and  failure  to  pay  by  drawee 
with  funds  of  depositors  in  hand,  see 
Mc  Grade  p.  German  Savings  Institu- 
tion, (1877)  4  Mo.  App.  336;  Zelle  #. 
German  Savings  Institution,  (1877)  4 
Mo.  App.  401;  Senter  v.  Continental 


i'!' 


If 


§328] 


DEPOSITS  AND  CHECKS. 


661 


A  delay  in  presenting  a  check  for  payment  would  be  excused  in 
case  tiie  holder  is  prevented  by  any  state  of  things  beyond  his 
control  from  presenting  it  or  sending  it  to  be  presented.  But  in 
case  the  delay  is  protracted  to  a  considerable  length  of  time  the 
reason  must  be  shown.*  As  to  what  is  a  reasonable  time  within 
which  a  check  was  presented  may  be  submitted  to  the  jury  under 
appropriate  instructions.^  Where  a  drawer  has  no  funds  and 
makes  no  provision  for  meeting  a  check  or  withdraws  his  funds 
before  its  presentation,  he  cannot  take  advantage  of  a  want  of 
diligence  in  presenting  it  for  payment.^  Tlie  indorser  of  a 
check,  drawn  for  his  accommodation,  who  is  bound  to  provide 
funds  to  meet  it,  will  not  be  entitled  to  notice  of  non-payment.* 
Tlie  custom  of  banks  in  doing  business  among  themselves  through 
the  clearing  house  does  not  alter  the  rule  that  a  check  must  be 
presented  to  the  bank  on  which  it  was  drawn,  at  least  during 
banking  hours  of  the  next  succeeding  day.^  In  an  action  upon 
a  check  by  the  holder  against  a  bank  the  burden  will  be  upon  the 
holder  to  show  that  the  sum  called  for  by  the  check  stood  to  the 
credit  of  the  drawer  when  presented.^  A  reply  of  a  bank  to 
which  a  raised  check  is  sent  for  information,  that  it  is  all  right, 
would  be  a  guaranty  of  the  signature  and  the  state  of  the  draw- 
er's account,  and  not  of  the  genuineness  of^  the  filling  in.^  The 
indorsement  of  a  raised  check  is  in  effect  a  representation  and 
warranty  to  the  drawee  that  it  is  genuine,  upon  which  the  drawee 
may  rely  in  making  payment,  for  reimbursement  by  the  indorser 
after  discovery  of  the  fraud.®  A  bank  is  entitled  to  establish 
that  a  raised  check  was  a  forgery  and  to  recover  back  the  money 
paid  thereon,  notwithstanding  its  recognition  and  payment,  the 
signature  being  genuine,  under  an  honest  mistake.* 

§  328.  When  a  draft  on  a  bank  fails  to  bind  the  funds  in 
bank. —  The  United  States  Supreme  Court  had  before  it  a  case 


Bank,  (1879)  7  Mo.  App.  532;  State 
Savings  Assn.  v.  Boatmen's  Savings 
Bank,  (1881)  11  Mo.  App.  293. 

>  Moody  V.  Mack,  (1869)  43  Mo.  210. 

» Selby  V.  McCullough,  (1887)  26  Mo. 
App.  66. 

•Moody  V.  Mack,  (1869)  43  Mo.  210; 
Sterrett  v.  Rosencrantz,  3  Phil.  54. 

*  Williams  v.  Hood,  1  •Phil.  205. 

» Rosenblatt  v.  Habermann,  (1880)  8 
Mo.  App.  486. 


*  International  Bank  v.  Jones,  15 
Bradw.  (111.)  594, 

'Espy  V.  Bank  of  Cincinnati,  18 
Wall.  604. 

8  City  Bank  v.  First  National  Bank, 
45  Tex.  203. 

'  National  Bank  of  Commerce  v.  Na- 
tional Mechanics'  Bank,  (1873)  35  N.  Y. 
Super.  Ct.  282;  affirmed  in  55  N.  Y. 
211. 


I 


'I 


if 


I     . 


'« 


X 


m 


'I 


i 

'•if 


'I 


662 


DEPOSITS  AND  CHECKS. 


[§328 

in  which  it  appeared  that  the  drawers  of  a  check  upon  a  bank 
making  an  assignment  for  the  benefit  of  creditors  just  afterwards, 
immediately  gave  notice  to  the  bank  of  this  assignment,  and 
requested  the  bank  to  hold  the  funds  in  its  hands  for  the  benefit 
of  the  assignee.  Virtually,  this  notice  to  the  bank  was  prior  to 
the  presentation  of  the  check  by  the  payee  of  the  latter,  and  the 
bank  refused  to  pay  the  check.  In  this  action  of  the  payee  of 
the  check  against  the  bank  for  the  recovery  of  the  amount  of  the 
check,  the  court  held  that  the  check  or  draft  did  not  bind  the 
funds  in  the  hands  of  the  bank  until  it  had  notice  of  the  draft  or 
check  by  presentation  for  payment,  or  otherwise  ;  and  that,  until 
then,  other  checks  drawn  afterwards  might  be  paid,  or  other 
assignments  of  the  fund,  or  part  of  it,  might  secure  priority  by 
giving  prior  notice.^     A  banking  firm  of  Ohio  gave  its  draft  or 


» Laclede  Bank  v.  Schuler,  (1887) 
120  U.  8.  511;  s.  c,  7  Sup.  Ct.  Rep. 
644.  Mr.  Justice  Miller,  speaking 
for  the  court,  said:  "The  question  of 
how  far  and  under  what  circumstances 
a  check  of  a  depositor  in  a  bank  will 
be  considered  an  equitable  assignment 
to  the  payee  of  the  check  of  all  or  any 
portion  of  the  funds  or  deposits  to  the 
credit  of  the  drawer  in  the  bank,  is 
one  which  has  been  very  much  con- 
sidered of  late  years  in  the  courts,  and 
about  which  there  is  not  a  unanimity 
of  opinion.  In  this  court  it  is  very 
well  settled  that  such  a  check,  unless 
accepted  by  the  bank,  will  not  sustain 
an  action  at  law  by  the  drawee  against 
the  bank,  as  there  is  no  privity  of 
contract  between  them.  Marine  Bank 
f>.  Fulton  Bank.  2  Wall.  252;  Bank  of 
Republic  r.  Millard,  10  Wall.  152; 
First  National  Bank  of  Washington  r. 
Whitman.  94  U.  8.  343.  But  while 
this  may  be  considered  as  the  estab- 
lished doctrine  of  this  court  in  regard 
to  the  rights  of  the  parties  at  law,  and 
is  probably  the  prevailing  doctrine  in 
nearly  all  the  courts,  it  is  urged  in 
this  case,  and  several  courts  have  so 
decided,  that  such  a  check  is  an  ap- 
propriation of  the  amount  for  which 
it  is  drawn  of  the  funds  of  the  drawer 


in  the  hands  of  the  bank.  Roberts  v. 
Austin  Corbin  &  Co.,  26  Iowa,  315; 
Fogarties  r.  State  Bank,  12  Rich.  Law, 
518;  8.  c,  78  Am.  Dec.  468;  Munn  v. 
Burch,  25  111.  35;  German  Savings 
Inst.  V.  Adae.  1  McCrary,  501.  But 
however  this  doctrine  may  operate  to 
secure  an  equitable  interest  in  the 
fund  deposited  in  the  bank  to  the 
credit  of  the  drawer  after  notice  to 
the  bank  of  the  check,  or  presentation 
to  it  for  payment,  a  question  which  we 
do  not  here  decide,  we  are  of  opinion 
that,  as  to  the  bank  itself,  the  holder 
of  the  fund  and  its  duties  and  obliga- 
tions in  regard  to  it,  the  bank  remains 
unaffected  by  the  execution  of  such  a 
check  until  notice  has  been  given  to  it 
or  demand  made  upon  it  for  its  pay- 
ment." In  Schuler  v.  Laclede  Bank, 
(1886),  27  Fed.  Rep.  424,  which  was 
affirmed  in  the  case  just  cited, Brewer, 
J.,  disposed  of  the  contentions  of  the 
holder  of  the  check  in  these  words ; 
•*  This  question  must  be  solved  in  a 
court  of  equity  upon  equitable 
grounds,  and  I  think  that  it  is  equi- 
table for  a  bank,  upon  the  day  on 
which  a  note  becomes  due,  and  at  any 
time  during  the  day,  having  funds  of 
the  maker  in  Its  possession,  to  apply 
those  funds  to  the  payment  of  that 


§328] 


DEPOSITS  AND  CHECKS. 


C63 


check  npon  a  Xew  York  bank.  They  having  made  an  assign- 
ment for  the  benefit  of  creditors  before  it  was  presented  to  the 
New  York  bank,  the  latter  npon  presentation  refused  to  pay  it, 
and  paid  over  the  funds  in  its  liands  to  the  assignee  of  the  insol- 
vent firm.  The  holder  of  the  draft  or  check  brought  his  action 
against  the  assignee  for  the  amount.  In  considering  the  case 
brought  before  them  the  Supreme  Court  of  Ohio  stated,  in  its 
opinion,  the  practical  question  to  be  "  whether  the  unaccepted 
draft  for  a  part  only  of  the  amount  due  the  drawer  gave  the 
payee  or  holder  priority  over  the  other  creditors  of  the  drawer." 
Their  conclusion  was  that  a  check  or  draft  for  a  part  only  of  the 
sum  due  the  drawer  does  not,  before  acceptance,  constitute  an 
equitable  assignment  of  the  amount  for  which  it  is  drawn ;  and 
where,  after  it  is  drawn,  the  drawer  makes  an  assignment  of  all 
liis  property  for'  tlie  benefit  of  his  creditors,  notice  of  which  is 
received  by  the  drawee  before  acceptance,  the  property  in  the 
whole  amount  then  remaining  to  the  credit  of  the  drawer  passes 
to  the  assignee  for  the  equal  benefit  of  all  his  creditors,  and  the 
holder  of  the  check  or  draft  has  no  priority  over  the  other 
creditors.^     The  court,  later  in  its  opinion,  said :  "  While,  how- 


note,  although  by  so  doing  it  leaves 
nothing  standing  to  the  credit  of  the 
maker  to  apply  on  checks  drawn  by 
him.  As  between  the  bank,  the  holder 
of  a  note  due  and  the  payee  of  a  check 
upon  that  bank  the  equities  are  in 
favor  of  the  bank.  Or,  at  least,  if  the 
equities  are  equal,  legal  title  to  the 
funds  and  possession  is  with  the  bank, 
and  it  should  not  be  postponed." 

•  Covert  V.  Rhodes,  (1891)  48  Ohio  St. 
66.  Arguendo,  it  was  said  by  the  court: 
"  Some  cases  and  text  writers,  we  are 
aware,  maintain  with  much  earnest- 
ness the  position  taken  by  the  counsel 
for  the  plaintiff,  that  a  draft  or  bank 
check  for  part  of  the  amount  due  the 
drawer  is  an  equitable  assignment  pro 
tanto,  orivlng  the  payee  or  holder  an 
equitable  property  in  the  fund,  which 
may  be  pursued  as  long  as  it  can  be 
certainly  identified,  except  into  the 
hands  of  third  persons  who  have  ac- 
quired possession  of  it  for  value,  and 
without  notice.     But  the  great  weight 


of  authority  is,  we  think,  the  other 
way.  Mr.  Pomeroy,  in  his  work  on 
Equity  Jurisprudence,  section  1284, 
says  that,  'An  ordinary  bill  of  ex- 
change or  draft  drawn  generally  and 
not  upon  any  particular  fund,  whether 
accepted  or  not  by  the  drawee,  does 
not  operate  as  an  equitable  assignment. 
Its  operation  is  not  changed  even  when 
funds  have  been  placed  in  the  drawee's 
hands  as  a  means  of  payment;  for  the 
drawee  may  apply  these  funds  to 
another  use,  and  although  this  act 
might  violate  his  duty  to  the  drawer, 
the  payee  would  obtain  no  interest  in  or 
claim  upon  the  specific  fund.  Accord- 
ing to  the  great  prepoaderance  of 
authority,  a  check  is  in  this  respect  a 
bill  of  exchange,  and  does  not  act  as 
an  equitable  assignment  of  a  portion 
of  the  drawee's  deposit  equal  in 
amount  to  the  face  of  the  check.'  Ac- 
cording to  the  same  author,  in  order 
that  the  doctrine  of  equitable  assign- 
ment may  apply,   there    must    be  a 


I 

1 


664 


DEPOSITS  AND  CHECKS. 


[§328 

ever,  we  regard  it  as  well  settled  that  a  draft  or  check  for  a  part 
only  of  the  drawer's  deposit  or  sum  due  him  does  not  operate  as 
an  equitable  assignment,  a  different  rule  seems  to  obtain  where 
an  order,  draft  or  check  is  drawn  for  the  whole  amount  of  the 
deposit,  or  the  exact  sum  due.  There  may  be  in  such  cases,  it  is 
said,  a  sufficient  designation  of  the  specific  fund  to  be  transferred 
to  constitute  an  equitable  assignment."  *     A  draft  indorsed  to  a 


specific  fund  upon  which  the  assign- 
ment may  operate,  and  '  the  sure  cri- 
terion is  whether  order  or  direction  to 
the  drawee,   if  assented   to  by  him, 
would  create  an  absolute  personal  in- 
debtedness   payable    by  him    at    all 
events,  or  whether  it  creates  an  oblisra- 
tion  only  to  make  payment  out  of  tlie 
particular    designated     fund.'"     The 
Ohio  court  resumed  :  "  The  obligation 
of  a  bank  to  its  general  depositors  is  not 
that  of  bailee  or  trustee,  but  that  of 
debtor  simply.     It  does  not  agree  to 
pay  checks  (jr  bills  drawn  on  it  out  of 
any  particular  fund;  nor  does  it  retain 
any  particular  fund  for  that  purpose. 
As  said  by  Mr.  Justice  Datis  in  liank 
of  Republic  v,  MiUard,  10  Wall.  152, 
155,  when  deposits  are  received  by  the 
bank,  '  unless    there  are  stipulations 
to  the  contrary,   they  belong  to  the 
bank,  become  part  of  its  general  fund, 
and  can  be  loaned  by  it  as  other  money. 
The  banker  is  accountable  for  the  de- 
posits which  he  receives  as  a  debtor, 
and  he  agrees  to  discharge  these  debts 
by  honoring  the   checks  which    the 
depositor  shall  from  time  to  time  draw 
on  him.     The  contract   between   the 
parties  is  purely  a  legal  one,  and  has 
nothing  in  the  nature  of  a  trust  in  it.' 
The  authorities  are,  without  exception, 
to  that  effect.     There  is  little,  if  any, 
conflict  of  authority  upon  the  proposi- 
tion  that  on  notice   of  the  drawer's 
death,  before  acceptance  6y  the  bank, 
its  right  to  pay  the  bill  or  check  ceases, 
and    its  indebtedness  to  the  drawer 
becomes    assets   of    his  estate.     The 
reason,  we  apprehend,  is  not  because 


the  bank  is  the  agent  of  the  owner  for 
the  disbursement  of  a  particular  fund, 
and  the  agency  is  terminated  by  the 
death  of  the  principal,  but  because, 
before  acceptance,  the  title  remains  in 
the  drawer,  and  devolves  immediately 
on  his  death  on  his  personal  repre- 
sentative by  operation  of  law.  The 
authorities  are  also  nearly  uniform  to 
the  effect  that  the  holder  of  such 
draft  or  check  cannot  maintain  an 
action  against  the  drawee  without  the 
latter's  acceptance.  The  reason  given 
is,  that  without  acceptance  there  is  no 
privity  between  them.  It  would  seem 
clear  that  if  before  acceptance,  the 
check  or  draft  operated  as  an  equitable 
assignment  pro  tanto,  such  an  action 
might  be  maintained;  foran  equitable 
assignment  transfers  the  fund,  and 
the  refu.«al  of  the  drawee  to  pay 
would  be  a  conversion  by  him  of  the 
payee's  property,  for  which  suit  might 
at  once  be  brought."  The  court  fur- 
ther cited  in  support  of  their  views, 
besides  Laclede  Bank  v.  Schuler,  120 
U.  S.  515,  Grammel  v.  Carmer,  55 
Mich.  201;  Dickinson  v.  Coates,  As 
signee,  79  Mo.  250;  Bullard  v.  Randall, 
1  Gray,  605;  Attorney-General  v.  Con- 
tinental Life  Insurance  Co.,  71  N.  Y, 
325;  Kimball  r.  Donald,  20  Mo.  577; 
Loyd  p.  McCaffrey,  46  Pa.  St.  410; 
Chapman  r.  White,  6  N.  Y.  412; 
Dykers  r.  Bank,  11  Paige,  612;  Hop- 
kinson  t.  Forster,  19  L.  R.  (Eq.)  74; 
Moses  r.  Bank,  34  Md.  574. 

»  Covert  V.  Rhodes,  48"  Ohio  St.  66. 
Upon  this  it  was  said  by  the  Ohio 
court:  "This  distinction  is  made  by 


§  328] 


DEPOSITS  AND  CHECKS. 


665 


bank  for  collection,  with  directions  to  remit  New  York  exchange, 
was  paid  by  the  drawee  overdrawing  on  the  bank  receiving  it, 
and  the  draft  canceled.  The  bank  remitted  its  check  for  the 
proceeds,  but  assigned  for  the  benefit  of  creditors  before  the 
check  was  paid.  The  Tennessee  Supreme  Court  held  in  such 
case  that  no  trust  existed  in  favor  of  the  payee  of  the  draft,  and 
he  was  not  entitled  to  any  priority  of  payment  over  other  credit- 
ors by  the  assignee.*     They  also  held,  there  being  a  contention 


many  well-considered  cases.     Among 
them  Moore  v.  Davis,  57  Mich.  251; 
Bank  v.  Railway  Company,  52  Iowa, 
378,    384;    MandeviUe    v.    Welch,    5 
Wheat.  277;  Kingman  v.  Perkins,  105 
Mass.  Ill;  Macomber  v.  Doane,  2  Al- 
len, 541;  Robbins  v.  Bacon,  3  Me.  346; 
Gibson  v.  Cooke,  20  Pick.  15-17.    In 
the  opinion  of  the  court  in  Moore  v. 
Davis,  57  Mich.  251,  Cooley,  Ch.  J., 
discussing  the  distinction  between  the 
two  ^classes  of  cases,   says:    '  In  the 
recent  case  of  Grammel  v.  Carmer.  55 
Mich.  201,  the  question  whether  a  draft 
was  an  assignment  of  the  fund  in  the 
drawee's  hands  to  the  extent  of  the 
sum  drawn  for,  was  considered    and 
decided  in  the  negative.     That,  how- 
ever, was  the  case  of  a  banker's  draft, 
and   it  was  not  drawn  for  the  whole 
fund  in  the  drawee's  hands.     Many 
r-ases  were  cited  in  the  opinion  filed  in 
that  case,  and  the  following,  not  then 
rited,  are  to  the  same  effect:  Shand  r, 
DuBuisson,  L.  R.,  lHi:q.283;  Lewis «. 
Traders'  Bank,  30  Minn.  134:  Jones  v. 
Pacific  Wood  Company,  13  Nev.  359; 
Rosenthal  v.  Martin  Bank,  17  Blatchf. 
318;  DolseniJ.  Brown,  13  La.  Ann.  551; 
Sands    v.    Matthews,    27    Ala.    399.' 
CooLEY,  Ch.  J.,  then  distinguished  the 
cases  as  follows:  '  But  this  case  dif- 
fers from  Grammel  v.  Carmer,  55  Mich. 
201,  in  the  fact  that  the  draft  now 
in  question  was  drawn  for  the  exact 
amount  of  a  sum  claimed  to  be  due 
from  the  drawee  to  the  owner  for  a 
biU  of  merchandise,   and    that    the 


account  was  attached    to  the   draft, 
evidently  for  the  purpose  of   being 
sent   forward    with    it.     When    thus 
sent   forward    it    would    explain    to 
the  drawees  the  account  on  which  it 
was  drawn,  but  it  must  also  have  been 
understood  to  serve  a  further  purpose, 
namely,  to  be  evidence  in  the  hands  of 
the  dmwees  that  the  account  was  paid 
when  the  draft  was  taken  up  by  them. 
There  could  be  no  sufficient  reason  for 
attaching  it  at  all,   unless  it  was  un- 
derstood that  payment  of  the  draft 
would  be  payment  of  the  account  as 
well.     By  the  general  commercial  law, 
as  was  sjiid  in  Grammel  v.  Carmer,  the 
purchaser  of  the  draft  is  supposed  to 
take  it  in  reliance  upon  the  responsi- 
bility of  the  drawer,  and  he  has  no 
other  reliance    until  it    is    accepted. 
This  is  the  general  rule.     But  if  the 
draft  is  for  the  whole  amount  of  a 
fund  the  draft  may.  in  connection  with 
other  circumstances,  tend  to  show  an 
intent  that  it  should  operate  as  an  as- 
signment.' "    The  Ohio  court  then  con- 
cluded as  follows:     "Gardners.  The 
Natl.  City  Bank,  39  Ohio  St.  600,  be- 
longs to  this    latter   class   of   cases. 
There  the  draft   was   for   the    exact 
amount  due  the   drawer,  and  in  the 
opinion  Johnson,   Ch.   J.,    carefully 
distinguishes  the    case  from  those  in 
which  the  draft  was  drawn  for  a  part 
only    of   the  amount  owing  by  the 
drawee." 

'  Akin  V.  Jones,  (Tenn.  1894)  27  S. 
W.  Rep.  669. 


666 


DEPOSITS  AND  CHECKS. 


.  [§  320 


contra,  that  the  delivery  of  a  check  against  a  general  deposit  was 
not  a  legal  or  equitable  assignment  of  any  portion  of  the  fund.^ 

§329.  Forged  checks  —  rules. —  One  purchasing  a  forged 
check  and  indorsing  it,  gives  it  credit  and  will  be  liable  to  the  party 
paying  it.^     The  indorsee  of  a  bank  check  obtains  no  title  to  the 


»  Akin  c.  Jones.  (Tenn.   1894)  27  S. 
W.   Rep.    669.     It    was   said  by  the 
court:      "The    case   of    Imboden    r. 
Perrie,  13  Lea.  504,  involved  more  of 
the  features  presented  in  this  case  than 
any  other  reported  in  this  state.     In 
that  case  the  question  arose  between 
creditors.     One  creditor  held  a  check 
of  the  debtor  against  a  general  deposit 
of  the  debtor  in  bank,  while  the  other 
was    an    attachment  creditor  of  that 
fund.     The  question  was  fairly  raised 
in  that  case  whether  the  check  worked 
an  equitable  assignment  of  the  fund  in 
bank  to  the  checkholder  before  the 
presentation  of  the  check  or  notice  to 
the    bank.     If  so,  the  check-holding 
creditor  was  entitled  to  priority.     If 
not,  then  the  attachment  had  priority. 
Judge  TuRNEY,  in  delivering  the  opin- 
ion of  the  court  against  the  defend- 
ant's theory  of  equitable  assignment, 
cited  approvingly  the  opinion  of  Chief 
Justice  Church  in  Attorney -General 
r.  Continental  Life  Ins.  Co.,  71  N.  Y. 
325,  to  the  effect  that  checks  drawn  in 
the  ordinary  form,  not  describing  any 
particular  fund  or  using  any  words  of 
transfer  of  the  whole,  or  any  part,  of 
any  amount  standing  to  the  credit  of 
the  drawer,  but  containing  only  the 
usual  request,  are  of  the  same  effect  as 
inland  bills  of  exchange,  and  do  not 
amount  to  an  assignment  of  the  funds 
of  the  drawer  in  bank.     'This  doc- 
trine/ he    continues,    'accords    with 
the   relations   between     the    parties. 
Banks  are  debtors  to  their  customers 
for  the  amount  of  their  deposits.     A 
check  is  a  request  of  the  customer  to 
pay  the  whole  or  a  portion  of  such  in- 
debtedness to  the  bearer  or  to  the  order 


of  the  payee.     Until  presented  and  ac- 
cepted, it  is  inchoate.  It  vests  no  title, 
legal  or  equitable,  in  the  payee  to  the 
fund.     Before  acceptance  the  drawer 
may  withdraw  his  deposits.     The  bank 
owes  no  duty  to  the  holder  until  the 
check     is    presented     for    payment. 
Knowledge    that    checks    have    been 
drawn   does  not  make  it   obligatory 
upon  the  bank  to  retain  the  deposits 
to  meet  them.     These  rules  are  indis- 
pensable   to    the    safe  transaction  of 
commercial  business.     »    *    * '     The 
case  of  Attorney- General  r.  Continen- 
tal Life  Ins.  Co.,  71  N.  Y.  325.  *   *  ♦ 
presented    the    exact    state    of    facts 
found  in  this  record.     In  that  case  the 
insurance    company    gave    its    check 
upon  a  trust  company  in  payment  of  a 
loss,  the  company  having  at  the  time 
on  deposit  a  sum  exceeding  the  amount 
of  the  check,  but  prior  to  its  presenta- 
tion a  receiver  of  the  insurance  com- 
pany was  appointed  who  withdrew  all 
the   funds  deposited    with  the  trust 
company.    In  an  action  by  this  check- 
holder  against  the  receiver  to  recover 
the  whole  amount  of  the  check  out  of 
the  funds  in  his  hands,  it  was  held  by 
the  Court  of  Appeals  of  New  York 
that  the  check,  not  having  been  drawn 
upon  a  particular  fund,  was  not  an 
equitable    assignment  pro  tanto  of  a 
general  deposit,  and  that  the  check - 
holder  was  not  entitled  to  payment  in 
full  in  preference  to  the  claims  of  other 
creditors."    See,  also,  Rislcy  r.  Bank, 
83  N.    Y.   318;  iEtna  Nat.    Bank   r. 
Fourth  Nat.  Bank,  46  N.  Y.  87. 

» Merchants'     Bank     v.     Exchange 
Bank,  16  La.  457. 


-t; 


§329] 


DEPOSITS  AND  CHECKS. 


667 


same  where  the  indorsement  is  a  forgery.^  "Where  a  bank  upon 
which  a  check  is  drawn  has  paid  it  to  another  bank  with  which  it 
was  deposited  by  one  receiving  it  with  an  unauthorized  indorse- 
ment of  the  name  of  the  payee,  the  bank  may,  upon  discovery 
of  the  facts,  recover  the  money  which  it  has  paid  irrespective 
of  the  question  as  to  whether  or  not  it  had  l)een  called  upon  by 
the  drawee  to  pay  the  amount  again.^  The  fact  that  the  drawee 
of  a  check  may  have  brought  suit  against  other  persons  as  fraud- 
ulent receiptors  will  not  release  a  bank  which  has  paid  the 
check  upon  a  forged  indorsement.^  A  bank  taking  drafts  with 
forged  indorsements  from  a  person  wrongfully  in  possession 
of  them,  collecting  and  surrendering  them  to  the  drawees, 
would  be  liable  to  the  owners  of  the  drafts  for  conver- 
sion.* The  indorsement  of  the  owners,  named  as  payees  of 
these  checks,  were  forged  and  the  checks  passed  to  a  third  party 
or  value,  who  deposited  them  for  collection  with  a  bank.  The 
checks  were  collected  by  the  bank  and  the  proceeds  credited  to 
this  third  party.  The  court  held  that  a  joint  and  several  action 
was  maintainable  by  the  owners  of  the  checks  against  tliis  party 
and  the  bank  for  the  proceeds  of  the  checks.^  A  depositor  in  a 
bank,  who,  being  deceived  by  his  clerk,  drew  a  check  in  favor  of 
a  customer,  and  his  clerk  forging  an  indorsement  of  the  payee's 
name  on  which  the  bank  paid  the  check,  has  been  held  not  to  be 
precluded  from  disputing  the  bank's  right  to  charge  the  check  to 
his  account  because  of  entry  of  the  check  in  his  pass  book,  its 
return  by  the  bank  with  the  vouchers,  and  retention  by  the 
depositor,  without  objection  for  several  months.*  It  is  not  the 
duty  of  a  bank  depositor  to  examine  his  pass  book  or  returned 
checks  with  a  view  to  detect  forgeries  in  the  indorsements.  He 
may  assume  that  the  bank  ascertained  the  genuineness  of  the 
indorsements  before  payment.''  '  A  bank  is  bound  also  to  ascertain 
the  genuineness  of  an  indorsement  upon  a  check,  and  a  drawee  of 


'  Indiana  National  Bank  v.  Holts- 
claw,  (1884)  98  Ind.  85. 

'  Central  National  Bank  v.  North 
River  Bank,  (1887)44  Hun,  114. 

*  August  V.  Fourth  National  Bank, 
(Sup.  Ct.  1888)  15  N.  Y.  St.  Repr. 
956. 

*  People  V.  Bank  of  North  America, 
(1879)  75  N.  Y.  547. 


'  White  Ti.  Mechanics'  National  Bank, 
(1871)  4  Daly,  235. 

*  Welsh  ».  German- American  Bank, 
(1878)  73  N.  Y.  424;  s.  c,  29  Am.  Rep. 
175. 

"  Ibid.  See,  also,  Bank  of  British 
North  America  v.  Merchants'  National 
Bank  of  New  York,  (1881)  13  N.  Y. 
Wkly.  Dig.  374. 


'i4> 


l» 


6r.8 


DEPOSITS  AND  CHECKS. 


[§329 


a  check,  payable  to  the  order  of  the  payee,  will  not  be  bound  by 
a  payment  made  by  the  bank  on  a  forged  indorsement  of  the 
payee's  name.*  The  responsibility  of  the  drawee,  who  pays  a 
forged  check,  for  the  genuineness  of  the  drawer's  signature,  is 
absolute  only  in  favor  of  one  who  has  not  by  his  own  fraud  or 
negligence  contributed  to  the  success  of  the  fraud  or  to  mislead 
the  drawee.  So,  if  a  payee  take  a  check  drawn  payable  to  his 
order,  from  a  stranger  or  other  third  person,  without  inquiry, 
although  in  good  faith  and  for  value,  and  give  it  currency  and 
credit  by  indorsing  it  before  securing  payment  of  it,  the  drawee 
may  recover  back  the  money  paid  on  it.^  In  case  a  bank  has  paid 
out  a  depositor's  money  on  forged  checks,  the  fact  that  the 
depositor  may  have  obtained  collateral  security  to  reimburse  him 
for  the  acts  of  the  forger,  would  be  no  reason  why  a  recovery 
may  not  be  had  of  the  bank,  where  notliing  has  been  realized  out 
of  the  security.*  If  the  drawee  of  a  bank  check  pays  a  forged 
check  to  the  holder,  he  will  not  be  entitled  to  recover  back  the 
money  so  paid,  where  there  has  been  no  fraud  practiced  upon 
him.*     But  the  drawee  or  payer  of  a  forged  bank  check  may 


^  Welsh  V.  German-American  Bank, 
<1878)  73  N.  Y.  421;  s.  c.  29  Am.  Rep. 
175.  That  a  bank  pays  a  check,  the 
signature  of  which  is  forged,  at  its 
peril,  see  Frank  v.  Chemical  National 
Bank  of  New  York,  (1881)  84  N.  Y. 
209,  affg.  45  N.  Y.  Super.  Ct.  452.  In 
Mackintosh  v.  Eliot  Bank,  (1877)  123 
Mass.  393,  the  bank  which  had  paid 
out  money  on  a  check  purporting  to 
be  signed  by  one  of  its  depositors,  but 
the  signature  on  which  was  in  fact 
forged  by  the  depositor's  clerk,  was 
held,  in  the  absence  of  evidence  that 
that  the  clerk  had  or  was  supposed  by 
the  bank  to  have  any  authority  to  sign 
the  depositor's  name,  not  exempt  from 
liability  to  the  depositor  by  proof  that 
the  forgery  was  committed  on  a  blank 
form  taken  from  the  depositor's  check 
book,  which  was  left  lying  about  in 
his  office  during  the  day ;  that  the  check 
was  stamped  with  a  hand  stamp  some- 
times used  on  his  checks,  and  which 
was  accessible  to  any  one  in  his  office; 
that  the  clerk  was  allowed  to  fill  up 
checks,   and  was  introduced  by  the 


depositor  to  the  officers  of  the  bank  as 
the  person  who  was  authorized  to  re- 
ceive money  on  the  depositor's  checks. 

'  North  America  Bank  v.  Bangs, 
(1871)  106  Mass.  441.  In  Belknap  «. 
North  America  Bank,  (1868)  100  Mass. 
376.  a  drawer  of  a  check  payable  to 
A.  B.  or  order,  who  sent  it  by  his  clerk 
to  the  post  office  to  be  mailed  inclosed 
in  a  sealed  letter,  was  held  not  guilty 
of  negligence  which  would  render 
him  liable  on  the  check  in  the  hands 
of  the  holder  in  good  faith  for  value, 
to  whom  the  clerk,  after  abstracting  it 
from  the  letter,  passed  it  altered  by 
forging  the  words  ' '  or  bearer "  after 
A.  B.  and  before  "or  order,"  and  ob- 
literating the  latter  words. 

'  Bank  v.  Green,  3  Pennypacker 
(Pa.),  456.  As  to  a  bank  paying  a 
forged  check  and  being  bound  to  know 
the  signature  of  its  depositors,  see  Com- 
mercial &  Farmers'  National  Bank 
r.  First  National  Bank,  30  Md.  11. 

*  First  National  Bank  of  Quincy  r. 
Bicker,  (1874)  71  111.  440.  The  court 
said:  "Bankers  are  supposed  to  have 


§329] 


DEPOSITS  AND  CHECKS. 


669 


recover  the  amount  paid  by  him  on  it,  where  the  holder  or  payee 
is  himself  at  fault,  or  has  been  guilty  of  fraudulent  practices 
which  may  have  thrown  the  drawee  off  his  guard.*  The  court 
further  held  that  where  the  holder  of  a  forged  check  presented  it 
to  the  drawee,  and  received  payment  on  it,  and  withheld  knowl- 
edge which  he  then  possessed  of  facts  which  rendered  it  morally 
certain  that  the  check  was  a  forgery,  he  was  not  in  a  position  to 
set  up,  in  this  suit  brought  to  recover  back  the  money,  that  the 
drawee  was  obliged  to  know  the  signature  of  his  own  depositors, 
and  that  he  was  estopped  to  say  that  he  was  mistaken.^     Should 


a  better  opportunity  to  know  the  sig- 
natures of  their  depositors  to  checks 
than  a  drawee  that  of  a  single  corre- 
spondent whose  bills  are  drawn  with 
less  frequency,  and  are,  perhaps,  held 
to  a  higher  degree  of  diltgeuce  in  that 
regard.  The  principles  applicable  to 
checks  and  to  bills  are  regarded  as 
sufficiently  analogous  to  make  a  decis- 
ion rendered  upon  one  instrument  a 
precedent  for  a  case  arising  on  the 
other.  Hence,  we  find  the  case  of 
Price  V.  Nealf  3  Burr.  1354,  is  referred 
to  in  nearly  or  quite  all  the  decisions 
on  this  question.  That  was  an  action 
to  recover  back  money  paid  On  two 
forged  bills.  It  was  declared  the  plain- 
tiff could  not  recover  for  the  reason 
the  defendant  had  received  the  money 
on  the  bills  indorsed  to  him  for  a 
valuable  consideration  without  any 
suspicion  of  forgery,  and  that  it  was 
incumbent  on  the  plaintiff  to  be  satis- 
fied the  bill  drawn  on  him  was  in  the 
drawer's  hand  before  he  accepted  or 
paid  it,  but  it  was  not  incumbent  on 
the  defendant  to  inquire  into  it.  The 
doctrine  of  this  case,  so  far  as  it  holds 
the  drawee  is  bound  to  know  the 
handwriting  of  his  correspondent, 
when  applied  to  the  case  of  a  bill  ac- 
cepted or  paid  by  him,  where  the 
drawer's  name  has  been  forged,  has 
seldom,  if  ever,  been  departed  from. 
It  is  said  to  have  its  foundation  in  a 
sound  public  policy,  and  considerations 
of  convenience  in  commercial  transac- 


tions make  it  imperative  it  shall  be 
enforced.  The  general  rule,  no  doubt, 
has  its  exceptional  cases,  and  the  doc- 
trine as  stated  by  Lord  Majjsfield  in 
Price  V.  Ncale,  has  certainly  been  very 
much  limited  by  more  modern  decis- 
sions.  The  difficulty  does  not  lie  in 
the  general  rule  itself,  for  it  is  un- 
doubtedly supported  by  reason  and 
the  weight  of  authority,  but  in  its  ap- 
plication to  particular  cases  only." 

'  First  National  Bank  of  Quincy  v. 
Bicker,  (1874)  71  111.  439.  It  appeared 
in  this  case  that  the  holder  of  the 
forged  check,  which  he  had  received 
and  paid  for  without  knowing  that  it 
was  a  forgery,  after  acquiring  knowl- 
edge of  facts  calculated  to  arouse  sus- 
picion that  it  was  a  forgery,  presented 
it  at  the  bank  on  which  it  was  drawn 
and  demanded  payment,  without  dis- 
closing the  facts  which  aroused  his 
suspicion;  he  was  told  by  the  teller  of 
the  bank  that  he  did  not  certainly 
know  the  signature  to  the  check,  and 
would  only  pay  it  on  condition  that 
the  holder  would  indorse  it;  thereupon 
the  holder  did  indorse  it  and  received 
the  money  on  it,  and  the  bank,  within 
a  few  hours,  discovered  the  forgery 
and  then  ordered  that  the  money  be 
refunded.  The  court  held  that  the 
drawee  could  recover  the  money  paid 
imder  this  state  of  facts. 

'  First  National  Bank  of  Quincy  v. 
Bicker.  (1874)71  111.  439.  The  court 
also  said:  "  It  is  contended  there  is  no 


II 


670 


DEPOSITS  AND  CHECKS. 


[§3L'9 


a  savings  bank  pay  out  money  on  a  forged  order,  without  requir- 
ing a  compliance  with  the  by-laws  printed  in  a  depositor's  pass 
book,  the  payment  would  be  in  its  own  wrong,  fhough  the  pass 
book  may  have  been  produced  at  the  time.^      If,  however,   it 


hf 


I'  "* 


duty  resting  on  the  innocent  holder  of 
a  check,  on  presenting  it  for  payment, 
to  communicate  to  the  bank  suspicions 
he  may  have  as  to  its  spurious  char- 
acter, if  at  the  time  he  took  it  he  had 
no  reason  to  suspect  it  was  a  forgery. 
The  cases  of  The  Bank  of  St.  Albans  r. 
The  Farmers'  Bank,   10  Vt.  141,  and 
Ward  p.  Allen,  2  Met.  (Mass.)  53,  are 
cited  in  support  of  this  proposition. 
We  have  looked  into  these  cases,  but 
we  do  not  think  they  sustain  the  doc- 
trine to  the  extent  asserted.    While  we 
have  the  highest  respect  for  the  courts 
that  rendered  those  decisions,  we  must 
be  permitted  to  express  our  dissent 
from  the  principle  insisted   upon,  as 
being  unsound  in  law  and  in  good  con- 
duct.   No  warrant  can  be  found  for  its 
introduction  in  the  exigencies  of  bank- 
ing or  commercial  transactions.     Such 
a  doctrine,  in  our  opinion,  would  tend 
rather  to  debase  than  maintain  com- 
mercial integrity.     Where  exceptional 
circumstances  and  excusing  facts  are 
made  clearly  to  appear,   courts  have 
permitted  a  recovery,  and  in  some  in- 
stances very  slight  palliating  circum- 
stances have  been  declared  sufficient. 
The  case  of  Wilkinson  v.  Johnson,  3 
B.  &  C.  428,  is  a  well-reasoned  case  on 
this  point.     The  case  of  Goddard  v. 
Bank,  4  Comst.  (N.  Y.)  147.  is  a  still 
stronger  case  illustrative  of  the  excep- 
tions to  the  general  rule.    In  that  case 
the  plaintiffs  were  informed  a  draft 
had  been  drawn  by  their  correspond- 
ent, a  bank  in  uhio,  on  the  American 
Exchange  Bank  at  New  York,  which 
had  been  protested,  and  was  then  in 
the  hands  of  the  notary.     The  plain- 
tiff called    to  see  the  notary   about 
taking  up  the  draft,  but,  owing  to  his 
absence,  did  not  see  the  draft.    On 
this  information  the   plaintiffs  acted, 
and  supposing  his  correspondent  (the 


Canal  Bank)  had,  by  mistake,  drawn 
on  the  Exchange  Bank  with  which  it 
had  just  before  kept  an  account,  in- 
stead   of  drawing   on  the  plaintiffs, 
and  wishing  to  protect  the  credit  of 
the  drawer,  he  left  a   check   with  a 
party  in  the  office,  to  be  delivered  to 
the  notary,  to  take  up  the  draft,  and 
gave  directions    to   have    it    sent    to 
his  office  that  day.     The  notary  took 
the  check  and  paid  the  money  to  the 
defendants,  but  failed  to  send  the  draft 
as    requested.      When    the    plaintiff 
called  the  next  day  on  the  notary  for 
the  draft,  on  its  production  he  immedi- 
ately pronounced  it  a  forgery,   and 
thereupon    went    to    the    defendant 
bank  and  demanded  the  money  back. 
On   this  state  of    facts  the  plaintiffs 
were    permitted    to    recover    on    the 
ground  they  were  guilty  of  no  negli- 
gence, as  the  notary,  when  he  received 
the  check,  and  handed  it  over  to  the 
defendant,  both  he  and  they  honestly 
affirmed  the  draft  was  genuine.     In 
McKleroy  v.  Southern  Bank  of  Ken- 
tucky, 14  La,  Ann.  458,  while  admit- 
ting the  full  force  of  the  general  rule, 
it  was,  nevertheless,  ruled,   where  a 
party  becomes  the  holder  of  a  forged 
draft  before  it  had  been  accepted,  and 
the  loss  had  already  attached  before 
payment  by  the  acceptors,   who  im- 
mediately, on  ascertaining  the  spurious 
character  of  the  paper,  gave  notice  to 
the  holder,  such  a  case  was  an  excep- 
tion to  the  general  rule,  and  the  ac- 
ceptors were  not  estopped  from  prov- 
ing the  forgery  and    recovering  the 
money    back.      The    principle    upon 
which  the  case  is  decided  is,  the  holder 
had  suffered  no  loss,  it  having  already 
occurred,  and  he  ought  not  to  be  per- 
mitted to  profit  by  the  mere  accident 
of  payment." 
»  Bank  v.  Cupps,  91  Pa.  St.  315, 


g  :i30] 


DEPOSITS  AND  CHECKS. 


t)71 


I  1 


sliould  make  a  payment  on  such  an  order  in  strict  accordance  with 
such  by-law,  the  depositor  would  be  bound  by  it.* 

§  330.  Payment  of  forged  checks  or  payment  of  checks 
on  forged  indorsements. —  In  view  of  the  relation  between  the 
banks  and  their  depositors  and  of  their  rights  and  obligations,  the 
principle  is  universally  maintained  that  banks  and  bankers  are 
bound  to  know  the  signatures  of  their  own  customers,  and  that 
they  pay  checks  purporting  to  be  drawn  by  them  at  their  peril.^ 
Where  a  bank,  holding  deposits,  subject  to  cliecks,  pays  a  forged 
check,  it  will  be  liable  for  the  amount,  with  legal  interest  from 
judicial  demand.^  If,  when  the  bank  book  of  a  depositor  is  bal- 
anced and  returned  to  him  together  with  the  canceled  checks  or 
vouchers,  he  has  knowledge  of  facts  from  which  he  could,  by  the 
exercise  of  reasonable  care  and  inquiry,  have  discovered  forgeries, 
and  if,  owing  to  his  failure  to  make  the  discovery  and  communi- 
cate it,  the  bank  suffers  loss  or  is  placed  in  a  worse  position  than 
it  would  otherwise  have  occupied,  tlie  depositor  would  lose  his 
right  to  recover  money  paid  by  the  bank  on  forged  indorsements 
of  his  checks.'*  Such  loss  or  disadvantage  to  the  bank  would  not 
be  presumed  ;  it  would  be  required  to  prove  it.  Unless  it  be 
affirmatively  shown,  the  depositor  would  not  be  estopped  to 
recover  the  amount  of  such  payments.^  A  bank  having  paid  a 
check  drawn  upon  it  cannot  recover  the  money  from  the  person 


'Burrill  r.  Bank,  93  Pa.  St.  134. 
As  to  the  effect  of  payment  of  a  check 
upon  a  forged  indorsement,  see  Dodge 
V.  National  Exchange  Bank,  (1870)  30 
Ohio  St.  335. 

*  Commercial  &  Farmers'  Nat.  Bank 
V.  First  National  Bank,  30  Md.  11. 

'Laborde  v.  Consolidated  Associa- 
tion, 4  Rob.  (La.)  190;  Etting  r.  Com- 
mercial Bank,  7  Rob.  (La.) 459. 

*Wind  V.  Fifth  National  Bank, 
(1889)  39  Mo.  App.  73. 

'  Ibid.  In  Smith  r.  Mechanics'  Bank, 
6  La.  Ann.  611,  the  facts  were  that  a 
broker  discounted  at  the  usual  rate, 
but  without  inquiry,  for  an  entire 
stranger,  a  bill,  purporting  to  be 
drawn  by  a  planter,  and  accepted  by  a 
well-known  house  in  New  Orleans, 
and  indorsed  in  blank  by  an  unknown 


payee,  presumed  to  be  fictitious.  The 
names  of  the  drawer  and  acceptor 
were  forged.  In  payment,  the  broker 
gave  upon  a  bank,  of  which  he  had 
for  many  years  been  a  customer,  a 
check  to  the  order  of  the  acceptors. 
The  names  of  the  acceptors  were  again 
and  very  badly  forged  on  the  check, 
and  the  check  was  presented  to  the 
bank  and  paid.  The  broker  had  gen- 
erally drawn  his  checks  to  the  order  of 
those  for  whom  he  discounted,  though 
there  was  no  understanding  between 
him  and  the  bank  as  to  the  mode  of 
their  business.  The  acceptors  were 
not  customers  of  the  bank,  in  which, 
however,  they  paid  large  amounts 
of  their  paper.  No  relations  whatever 
existed  between  the  broker  and  the 
acceptors.     The    Supreme    Court   of 


iTu 


672 


DEPOSITS  AND  CHECKS. 


[§330 


to  whom  it  was  paid  on  the  ground  tliat  the  check  was  a  forged 
one  '     The  facts  that  a  forged  check  was  written  on  one  of  the 
depositor's  own  blanks  taken  from  his  book,  and  that  the  depos- 
itor had  furnished  his  signature  to  the  forger  and  had  grounds  of 
suspicion,  have  been  held  to  be  no  reasons  for  holding  the  depos- 
itor liable  for  a  payment  made  by  the  bank  upon  a  forged  check 
Checks  drawn  payable  to  the  order  of  plaintiff,  in  a  New  York 
case,  coming  into  the  hands  of  their  clerk,  he  fraudulently  indorsed 
their  names  and  transferred  the   checks  to   other   parties  and 
appropriated  the  money  received  from  them  to  his  own  use. 
Subsequently,  the  checks  were  deposited  in  a  bank,  the  money 
collected  by  the  bank  and  paid  to  their  depositors.     It  was  held 
that  the  plaintiffs  were  entit\ed  to  recover  the  amount  collected 
by  the  bank  in  their  action  against  it.«     The  fact  that  a  depositor 
receives,  under  a  mistake  as  to  the  fact  of  payment,  a  check  paid 
upon  a  forged  indorsement  of  the  name  of  the  payee,  as  one  prop- 
erly paid  and  charged  to  his  account,  will  not  deprive  him  of  his 
right  to  recover  the  amount  of  the  check  from  the  bank  which  hm 
paid  it  *     If  a  bank  pays  money  on  a  forged  check,  no  matter  under 
what  circumstances  of  caution,  or  however  honest  the  belief  in  its 
genuineness,  if  the  depositor  himself  be  free  of  blame,  and  has 
done  nothing  to  mislead  the  bank,  all  the  loss  must  be  borne  by 
the  bank  for  it  acts  at  its  peril,  and  pays  out  its  own  funds,  and 
not  those   of  the   depositor."     A   depositor  is  simply  bound  to 

Louisiana  held  that  the  bank,  although       *  Bank  of  British  North  Ameri^  v. 
itself  ffrossly  negligent,  was  entitled    v.  Merchants'  National  Bank  of  New 
rlrge  the  broker's' check  to  his   York,  (1883)  91  N.  Y.  106,  affirm  ng 
debit  in  account.     The  court  was  di-    48  N.   Y    Super.   Ct   1-     See.   also 
Tided  and  the  justices  each  discussed    Thomson  o.  Bank  of  British  North 
Se  questions  involved  very  fully  and   America,  82  N.  Y.  1      That  a  bank 
Interestingly  in  their  several  opinions,    paying  a  certificate  of  deposit  upon  a 
1  National   Bank   of  the  Common-   forged  indorsement  of  the  payee  may 
wealth  ..Grocers' National Bank,(1867)   recover  the  amount  from   the  bank 
2  Daly    289;  s.  c,  35  How.  Pr.  412.      through  which  it  had  passed  for  coi- 
*  Levitt    t>.    Stanton,    Hill    &    D.    lection,  see  Merchants' Bank  r.  Manne 

g  413  Bank.  3  Gill  (Md.).  96.     That  a  bank 

» Johnson  1?.  First  National  Bank  of   is  not  bound  by  the  admission  of  its 

Hoboken,  (1875)  6  Hun.  124.     As  to   cashier  that  a  forged  bill  is  genuine 

payment  of  forged  checks,  see  Stuy-   see  Merchants' Bank  tJ.  Marine  Bank,  8 

vesant  Bank  c.  National  Mechanics'   Gill  (Md.),  96. 

Banking  Association,    (1872)  7  Lans.       *  Hardy     &    Bros.    «.    Chesapeato 

197;  Allen  v.  Fourth  National  Bank   Bank,  (1879)  51  Md.  562,  586- 

of  New  York.  (1874)  37  N.  Y.  Super. 

Ct.  137;  affirmed  in  59  N.  Y.  12. 


DEPOSITS  AND  CHECKS. 


673 


§330] 

refrain  from  doin^  any  act  that  would  reasonably  have  the  effect 
of  misleading  the  bank  to  its  hurt  or  injury,  and  not  fail  to  do 
any  act  that  positive  duty  requires  him  to  do  for  the  protection 
of  the  bank.     Should  a  bank  account  be  balanced  on  the  deposit- 
or's bank  book,  and  the  book  and  canceled  checks  returned  to  the 
depositor,  after  the  lapse  of  a  reasonable  time,  within  which  the 
checks  and  account  might  be  compared,  without  objection  being 
made,  a  presumption  will  arise  that  the  account  as  balanced  and 
the  checks  charged  in  the  account  are  correct.     This  presump- 
tion proceeds  upon  the  ground  simply  of  an  implied  admission, 
and  is  only  prima  facie  in  its  effect.^     It  arises  from  the  natural 
and  usual  habits  of  careful  business  men  to  examine  and  scru- 
tinize such  accounts  when  rendered ;  but  it  is  Hable  to  be  repelled 
by  showing  that  the  error  or  fraud  complained  of  was  not  discov- 
erable by  the  exercise  of  reasonable  care  and  diligence,  or  that 
there  was  no  such  appearance  of  things  as  to  excite  the  suspicion 
of  a  reasonable  man,  or  that,  for  any  reason,  the  depositor  had 
not    had    an    opportunity    to     examine   the   accounts.'^      If    a 
depositor  who  is  in  the  habit  of  drawing  checks  upon  his  deposit 
account,  should,  by  word  or  acts,  cause  the  bank,  the  latter  acting 
upon  such  reasonable  grounds  as  prudent  business  men  generally 
act,  to  make  payment  on  a  forged  check,  the  depositor  would  not 
be  allowed,  as  against  the  bank,  to  set  up  the  forgery  that  he,  by 
his  conduct,  had  induced  the  bank  to  act  on  as  a  genuine  check.^ 
Where  on  a  forged  indorsement  a  bank  has  paid  a  check,  the 
bank  is  not  responsible  to  the  drawer  where  the  person  who  com- 
mitted the  forgery  is  identified  to  the  bank  by  one  who  believes 
him  to  be  the  payee,  and   is   in   fact  the  person  to  whom  the 
drawer  had  delivered  the  check,  and  whom  he  believes  to  be  the 
payee.     And  should  the  drawer  of  such  a  check,  for  more  than  a 
month  after  discovering  that  it  had  been  paid  upon  a  forged 
indorsement,  neglect  to  notify  the  bank  that  he  will  hold  it  respon- 
sible therefor,  the  bank  will  be  released  from  liability  even  though 
it  had  notice  of  the  forgery  as  soon  as  the  drawer  had.'*    In  a 
depositor's  suit  against  a  bank  in  Maryland,  some  of  the  checks 
paid  by  the  bank  were  forged  by  a  confidential  clerk  intrusted  by 

» Wiggins  «.  Burkham,  10  Wall.  129.  *  United     States    «?.    National    Ex- 

•Weisser  «.  Denison,  10  N.  Y.  68,  change  Bank,  (1891)  45  Fed.  Rep.  163. 

76;  National  Bank  c.  Whitman,  94  U.  As    sustaining    the   first    point,     see 

8.  343,  346.  Gloucester  Bank  i).  Salem    Bank,  17 

'Hardy    &    Bros.     t.    Chesapeake  Mass.   33;  Bank  of  U.   S.  ®.  Bank  of 

Bank,  (1879)  51  Md.  562,  586.  Georgia,  10  Wheat.  333;  Price  i?.  Neal, 

85 


••  ■♦ 


674 


DEPOSITS  AND  CHECKS. 


[§330 


them  to  make  the  entry  of  all  checks  in  their  bank  book.     In 
making  the  fraudulent  entry  of  these  forged  checks  in  the  depos- 
itor's bank  book  the  Court  of  Appeals  held  that  he  was  not  the 
accent  of  his  employers  for  any  such  purpose ;  also,   that  the 
c?erk's  fraudulent  knowledge  in  regard  to  acts  and  transactions 
outside  of  and  beyond  his  employment  could  not  be  imputed  to 
his  principal.     The  court  also  held  that  in  this  case  the   jury 
should  have  been  required  to  lind  either  that  the  depositors  had 
knowledge  in  fact  that  the  forgeries  had  been  committed,  or  that, 
from  carelessness  and  indifference  to  the  rights  of  others,  they 
failed  to  inform  themselves  from  sources  of  information  readily 
accessible  to  them,  and  which,  by  the  exercise  of  ordinary  dili- 
gence of  business  men,  would  have  disclosed  to  them  the  fact  that 
the  forgeries  had  been  committed.     If  such  facts  were  found  to 
exist,  then  it  must  be  also  found,  in  order  to  work  an  estoppel 
upon  the  depositor  to  claim  that  the  checks  paid  were  forged,  that 
the  bank  acted  in  honoring  and  paying  forged  checks  presented 
after  other  forged  checks  had  been  returned  with  the  balanced 
bank  books  to  the  depositors,  in  reference  to  the  conduct  of  the 
latter  in  failing  to  make  known  an  objection  to  the  account,  a^ 
stated  and  balanced  in  the  bank  book  so  returned,  and  that  such 
omission  and  neglect  of  the  depositors  did  in  fact  mislead  the 
bank  into  the  error  of  .paying  the  forged  checks  presented  after 
the  other  forged  checks  had  been  returned  with  tlie  balanced  bank 
book  to  the  bank.     The  court  distinguished  De  Feriet  v.  Bank  of 
America,  23  La.  Ann.  310,  in  these  words:  "There,  when  the 
lirst  check  was  forged  by  the  plaintiffs  confidential  clerk,  and 
paid  by  the  bank,  the  plaintiff  was  notified  of  the  draft  upon  his 
account  and  went  at  once  to  the  bank,  and  upon  being  shown  the 


3  Burr.  1355.     As  sustaining  the  sec- 
ond point,  see  Redington  t.  Woods, 
45  Cal.  406;  Cooke  v.  United  States, 
91  U.  S.  396;  United  States  t.  Bank,  6 
Fed.  Rep.    134.    It  appeared  in  the 
case  of  Wells,   Fargo  &  Co.  i?.  United 
States,  (1891)  45  Fed.  Rep.  337,  that  a 
pension  check,  drawn  by  mistake  for 
$1,280.20  instead  of  $18,  was  indorsed 
by  the  payee  to  a  bank,  and  by  that 
bank  indorsed  for  collection  to  another 
w-hich   indorsed   it   to    the    assistant 
treasurer  of  the  United   States,  who 
paid  it.     The  assistant  treasurer  re- 


tained out  of  money  due  the  collecting 
bank    from    the    United    States     the 
amount  of  the  check.     In  this  action 
by  the    collecting  bank   against   the 
United  States  for  the  money  retained 
by  the  assistant  treasurer,  it  was  held 
that  the  money  collected  by  the  col- 
lecting bank  upon  the  pension  check 
which  it  had  paid  over  to  its  principal, 
the  forwarding  bank,  could  not  be  re- 
covered from  the  collecting  bank,  and 
the  latter,  therefore,  could  recover  the 
money  due  it  which  had  been  retained 
from  the  United  States. 


§331] 


DEPOSITS  AND  CHECKS. 


676 


clieck,  while  he  stated  that  he  had  not  signed  the  check  hunself, 
he  refused  to  denounce  it  as  a  forgery.  After  seeing  the  clerk, 
the  plaintiff  reported  back  to  the  bank  that  the  check  was  all 
right.  The  clerk  made  deposits  to  make  the  check  good,  and  the 
plaintiff  himself  drew  upon  the  deposits  thus  made.  He  contin- 
ued the  forger  in  his  employ ;  and,  subsequently,  the  same  clerk 
forged  another  check  which  the  bank  paid ;  and,  upon  discovery 
of  the  second  forgery,  the  plaintiff  denounced  it.  But  it  was  held 
that,  by  his  conduct  in  ratifying  the  act  of  the  clerk  in  drawing 
the  first  forged  check,  the  plaintiff  was  precluded  from  holding 
the  bank  liable  for  the  payment  of  the  second ;  that  the  bank 
was  misled  by  the  approval  and  ratification  of  the  first  forgery, 
and  that  it  was,  therefore,  excusable  for  paying  the  second  forged 
check  drawn  in  all  respects  similar  to  the  first.  In  that  case  there 
was  no  question  as  to  the  want  of  knowledge  on  the  part  of  the 
plaintiff  of  the  first  forgery  committed  by  the  clerk,  and  his  full 
ratification  and  adoption  of  the  act,  nor  was  tliere  any  in  regard 
to  the  fact  that  the  bank  had  been  misled.'' 

§331.  Payment  of  raised  checks.— The  United  States 
Supreme  Court  reversed  the  judgment  of  the  Circuit  Court  in 
favor  of  a  depositor  against  a  bank,  holding  that  a  depositor  in  a 
bank,  who  sends  liis  pass  book  to  be  written  up  and  receives  it 
back  with  entries  of  credits  and  debits  and  his  paid  checks  as 
vouchers  for  the  latter,  is  bound  personally  or  by  an  authorized 
agent,  and  with  due  diligence,  to  examine  the  pass  book  and 
vouchers,  and  to  report  to  tlie  bank,  without  unreasonable  delay, 
any  errors  which  may  be  discovered  in  them  ;  and  if  he  fails  to 
do  so,  and  if  the  bank  is  thereby  misled  to  its  prejudice,  he  can- 
not afterwards  dispute  the  correctness  of  the  balance  shown  by 
the  pass  book.  Further,  it  held  that  if  a  depositor  in  a  bank 
delegates  to  a  clerk  the  examination  of  his  written-up  pass  book 
and  paid  checks  returned  therewith  as  vouchers,  without  proper 
supervision  of  the  clerk's  conduct  in  the  examination,  he  does 
not  so  discharge  his  duty  to  the  bank  as  to  protect  himself  from 
loss,  if  it  turns  out  that  without  his  knowledge  the  clerk  com- 
mitted forgery  in  raising  the  amounts  of  some  of  those  checks, 
and  thereby  misled  the  bank  to  its  prejudice,  in  spite  of  due  care 
on  the  part  of  its  officers.^ 

'  Leather    Manufacturers'   Bank   v.    well   and    fully  considered    opinion, 
Morgan,  (1886)  117  U.  S.  96.     In  a  Harlan,  J.,  for  the  court  reviewed 


11 


I    i 


676 


DEPOSITS  AND  CHECKS. 


[§331 


the   leading   cases    pertinent   to   the 
questions   before  the  court,  and  de- 
clared the  law  in  such  cases  in  the  fol- 
lowing words  :  "  While  it  is  true  that 
the  relation  of  a  bank  and  its  depositor 
is  one  simply  of  debtor  and  creditor 
(PhoDnix  Bank  v.  Risley,  111  U.  S.  125, 
127),  and    that    the    depositor  is  not 
chargeable  with  any  payments  except 
such  as  are  made  in  conformity  with 
his  orders,  it  is  within  common  knowl- 
edge that  the  object  of  a  pass  book  is 
to  inform  the  depositor  from  time  to 
time  of  the  condition  of  his  account 
as  it  appears  upon  the  books  of  the 
bank.     It  not  only  enables  him  to  dis- 
cover errors  to  his  prejudice,  but  sup- 
plies evidence  in  his  favor  in  the  event 
of  litigation  or  dispute  with  the  bank. 
In  this  way  it  operates  to  protect  him 
against  the  carelessness  or  fraud  of  the 
bank.     The  sending  of  his  pass  book 
to  be  written  up  and   returned  with 
the  vouchers,  is,  therefore,  ia  effect,  a 
demand  to  know  what  the  bank  claims 
to  be  the  state  of  his  account.     And 
the   return    of    the    book,    with   the 
vouchers,  is  the  answer  to  that  demand, 
and,  in  effect,  imports  a  request  by  the 
bank  that  the  depositor  will,  in  proper 
time,  examine  the  account  so  rendered. 
and   either  sanction  or  repudiate  it. 
In  Devaynes  v.  Noble,  1  Meriv.  530, 
535,  it  appeared    that    the  course  of 
dealing  between  banker  and  customer, 
in  London,  was  the  subject  of  inquiry 
in  the   High    Court    of  Chancery  as 
early  as  1815.     The  report  of  the  mas- 
ter stated,  among  other  things,  that 
for  the  purpose  of  having    the  pass 
book  '  made  up  by  the  bankers  from 
their  own  books  of  account,  the  cus- 
tomer returns  it  to  them  from  time  to 
time  as  he  thinks  fit ;  and,  the  proper 
entries  being  made  by  them  up  to  the 
day  on  which  it  is  left  for  that  pur- 
pose, they  deliver  it  again  to  the  cus- 
tomer,  who  thereupon    examines   it, 
and,  if  there   appears   any    error   or 
omission,  brings  or  sends  it  back  to  be 


rectified ;  or,  if  not,  his  silence  is  re- 
garded as  an  admission  that  the  entries 
are  correct.'    This  report  is  quite  as 
applicable  to  the  existing    usages  of 
this  country  as  it  was  to  the  usages  of 
business  in  London  at  the  time  it  was 
made.     The  depositor  cannot,   there- 
fore, without   injustice  to  the  bank, 
omit  all  examination  of  his  account, 
when  thus   rendered  at  his  request. 
His  failure  to  make  it,  or  to  have  it 
made,  within  a  reasonable  time  after 
opportunity  given  for  that  purpose,  is 
inconsistent  with  the  object  for  which 
he  obtains  and  uses  a  pass  book.    It 
was  observed  in  First  National  Bank 
r.    Whitman,    94  U.    S.   343,    346  — 
although  the  observation  was  not,  per- 
haps, necessary  in  the  decision  of  the 
case  —  that  the  ordinary  writing  up  of 
a    bank    book,      with     a    return    of 
vouchers  or  statement    of  accounts, 
precludes    no   one  from   ascertaining 
the  truth    and    claiming    its    benefit. 
Such  undoubtedly  is  a  correct  state- 
ment of  a  general  rule.     It  was  made 
in  a  case  where  the  account  included  a 
check,  in  respect  to  which  it  was  sub- 
sequently discovered  that  the  name  of 
the  payee  had  been  forged.     But  it  did 
not  appear  that  either  the  bank  or  the 
drawer  of  the  check  was  guilty  of 
negligence.     The  drawer  was  not  pre- 
sumed to  know  the  signature  of  the 
payee;  his  examination  of  the  account 
would  not  necessarily  have  disclosed 
the  forgery  of  the  payee's  name;  there- 
fore, his  failure  to  discover  that   fact 
sooner  than  he  did  was  not  to  be  at- 
tributed to  want  of  care.     Without  im- 
pugning the  general  rule  that  an  ac- 
count rendered  which  has  become  an 
account  stated,  is  open  to  correction 
for  mistake  or  fraud  (Perkins  v.  Hart, 
11  Wheat.  237,  256;  Wiggins  v.  Burk- 
ham,  10  Wall.  129.  132),  other  princi- 
ples come  into  operation,  where  a  party 
to  a  stated  account,  who  is  under  a 
duty,  from  the  usages  of  business  or 
otherwise,  to  examine  it  within  a  rea- 


§331] 


DEPOSITS  AND  CHECKS. 


677 


sonable  time  after  having  an  oppor- 
tunity to  do  so,  and  give  timely  notice 
of  his  objections  thereto,  neglects  alto- 
gether to  make  such  examination  him- 
self, or  to  have  it  made,  in  good  faith, 
by  another  for  him,  by  reason  of  which 
negligence,   the   other  party  relying 
upon  the  account  as  having  been  ac- 
quiesced in  or  approved,  has  failed  to 
take  steps  for  his  protection  which  he 
could  and  would  have  taken  had  such 
notice  been  given.     In  other  words, 
parties  to  a  stated  account  may  be  es- 
topped by  their  conduct  from  ques- 
tioning its  correctness."    After  some 
discussion  of  the  doctrine  of  estoppel 
and  the  citation  of  cases  bearing  upon 
the  doctrine,  it  is  said:  "Upon  this 
doctrine  substantially  rests  the  decis- 
ion in  Bank  of  United  States  v.  Bank  of 
Georgia,  10  Wheat.  333,  343,  where  the 
question   was  as  to  the  right  of  the 
Bank  of  Georgia  to  cancel  a  credit 
given  to  the  Bank  of  the  United  States 
in  the  general  account  the  latter  kept 
with  the  former  for  the  face  value  of 
certain  bank  notes,  purporting  to  be 
genuine  notes  of  the  Bank  of  Geonria 
and  which  came  to  the  hands  of  the 
other  bank  in  the  regular  course  of 
business  and   for  value.     The    notes 
were  received  by  the  Bank  of  Georgia 
as  genuine,  but  being  discovered  nine- 
teen days  thereafter  to  be  counterfeits, 
they  were  tendered  back  to  the  Bank 
of  the  United  States,  which  refused  to 
receive  them.     The  court  held  that  the 
loss  must  fall  upon  the  Bank  of  Geor- 
gia.    Mr.  Justice  Story,  who  deliv- 
ered the  opinion  of  the  court,   after 
observing  that  the  notes  were  received 
and  adopted  by  the  Bank  of  Georgia  as 
its  genuine  notes,  and  treated  as  cash, 
and  that  the  bank  must  be  presumed 
to    use    reasonable    care,   by   private 
marks  and  otherwise,  to  secure  itself 
against  forgeries  and  impositions,  said: 
•  Under  such  circumstances,    the   re- 
ceipt by  a  bank  of  forged  notes,  pur- 
porting to  be  its  own,  must  be  deemed 
an  adoption  of  them.    It  has  the  means 


of  knowing  if   they  are  genuine;  if 
these  means  are  not  employed  it  is  cer- 
tainly evidence  of  a  neglect  of  that  duty 
which  the  public  have  a  right  to  re- 
quire.     And  in   respect   to   persons 
equally  innocent,  where  one  is  bound  to 
know  and  act  upon  his  knowledge,  and 
the  other  has  no  means  of  knowledge, 
there  seems  to  be  no  reason  for  burden- 
ing the  latter  with  any  loss  in  exonera- 
tion of  the  former.     There  is  nothing 
unconscientious  in  retaining  the  sum 
received  from  the  bank,  in  payment  of 
such  notes,  which  its  own  acts  have 
deliberately  assumed  to  be  genuine. 
If  this  doctrine  be  applicable  to  ordi- 
nary cases,  it  must  apply  with  greater 
strength  to  cases  where  the  forgery 
has  not  been  detected  until  after  a  con- 
siderable lapse  of   time.     Even,'  he 
added,   'in  relation  to  forged  bills  of 
third  persons  received  in  payment  of  a 
debt,  there  has  been  a  qualification  en- 
grafted on  the  general  doctrine  that 
the  notice  and  return  must  be  within  a 
reasonable  time;  and  any  neglect  will 
absolve  the  payor  from  responsibility.' 
It  was,  therefore,  held   that,  as  the 
Bank  of  Georgia  could  by  ordinary 
circumspection     have     detected    the 
fraud,  it  must  account  to  its  depositor 
according  to  the  entry  made  in   its 
books  at  the  time  of    receiving  the 
notes.     Further  on  it  was  said:  This 
court,  in  the  [cases  Bank  of  United 
States  V.  Bank  of  Georgia,  10  Wheat. 
333,  and  Cooke  v.  United  States,  91  U. 
S.  389,  recognizing  the  same  principle] 
refers,  with  approval,  to  Gloucester 
Bank  v.  Salem  Bank,  17  Mass.  33,  42. 
In  that  case  it  appeared  that  the  Salem 
Bank  exchanged  with  the  Gloucester 
Bank,   for  value,  certain  bank   notes 
which   purported  to  be,   and    which 
both  banks  at  the  time  beheved  to  be, 
the  genuine  notes  of  the  Gloucester 
Bank,  and  which  the  latter  bank  did 
not,  until  about  fifty  days  after  the 
exchange,   discover  to    be   forgeries. 
The  question  was  whether  the  Salem 
Bank  was  bound  to  account  for  tbo 


I 


!« 


1»    I 


I 


678 


DEPOSITS  AND  CHECKS. 


[§331 


value  of  the  notes  so  ascertained  to  be 
counterfeit.    Chief   Justice  Parker, 
speaking  for  the  whole  court,  observed 
that  the  parties  being  equally  innocent 
and  ignorant,  the  loss  should  remain 
where    the    chance  of   business    had 
placed  it,  and  that  in  all  such  cases  the 
just  and  sound  principle  of  decision 
was  that  if  the  loss  can  be  traced  to 
the  fault  or  negligence  of  either  party, 
it  should  be  fixed  upon  him.     He  said: 
'And  the  true  rule  is  that  the  party 
receiving  such  notes   must    examine 
them  as  soon  as  he  has  opportunity, 
and  return  them  immediately.     If  he 
does  not,  he  is  negligent;  and  negli- 
gence will  defeat  his  right  of  action. 
This  principle  will  apply  in  all  cases 
where    forged    notes  have    been   re- 
ceived,    but     certainly     with     more 
strength   where    the   party   receiving 
them  is  the  one  purporting  to  be  bound 
to  pay.     For  he  knows  better  than  any 
other  whether  they  are  his  notes  or  not, 
and  if  he  pays  them,  or  receives  them 
in  payment,  and  continues  silent  after 
be  has  had  sufficient  opportunity  to 
examine  them,  he  should  be  considered 
as  having  adopted  them  as  his  own.' 
These  cases  are  referred  to  for  the  pur- 
pose of  showing  some  of  the  circum- 
stJinces    under   which  the  courts,   to 
promote  the  ends  of  justice,  have  sus- 
tained the  general  principle  that  where 
a  duty  is  cast  upon  a  person,  by  the 
usages  of  business  or  otherwise,   to 
disclose  the  truth  —  which  he  has  the 
means,  by  ordinary  diligence,  of  ascer- 
taining —  and  he  neglects  or  omits  to 
discharge  that  duty,  whereby  another 
is  misled  in  the  very  transaction  to 
which  the  duty  relates,  he  will  not  be 
permitted,  to  the  injury  of  the  one 
misled,  to  question  the  construction 
rationally  placed  by  the  latter  upon  his 
conduct."    The  court  then  applied  the 
principle  just  referred  to  to  the  facts 
in  this  case,  and  said:  "  It  seems  to  us 
that  if  the  case  had  been  submitted  to 
the  jury,  and  they  had  found  such 


negligence  upon  the  part  of  the  de- 
positor as  precluded  him  from  disput- 
ing the  correctness  of  the  account  ren- 
dered by  the  bank,  the  verdict  could 
not  have  been  set  aside  as  wholly  un- 
supported by  the  evidence.     In  their 
relations  with  depositors,  banks  are 
held,  as  they  ought  to  be,  to  rigid  re- 
sponsibility.    But  the  principles  gov- 
erning those  relations  ought  not  to  be 
so  extended  as  to  invite  or  encourage 
such  negligence  by  depositors  in  the 
examination  of  their  bank  accounts, 
as  is  inconsistent  with  the  relations  of 
the  parties  or  with  those  established 
rules  and  usages  sanctioned  by  busi- 
ness men  of  ordinary  prudence  and 
sagacity,   which  are  or  ought  to  be 
known  to  depositors.     We  must  not 
be  understood  as  holding  that  the  ex- 
amination by  a  depositor  of  his  account 
must  be  so  close  and  thorough  as  to 
exclude  the   possibility  of  any  error 
whatever  being   overlooked   by  him. 
Nor  do  we  mean  to  hold  that  the  de- 
positor is  wanting  in  proper  care  when 
he  imposes  upon  some  competent  per- 
son the  duty  of  making  that  examina- 
tion and  of  giving  timely  notice  to  the 
bank  of  objections  to  the  account.     If 
the    examination   is   made    by    such 
an  agent  or  clerk  in  good  faith  and 
with  ordinary  diligence,  and  due  notice 
given  of  any  error  in  the  account,  the 
depositor  discharges  his  duty  to  the 
bank.     But  when,  as  in  this  case,  the 
agent    commits   the  forgeries  which 
misled  the  bank  and  injured  the  de- 
positor, and,  therefore,  has  an  interest 
in  concealing  the  facts,  the  principal 
occupies  no  better  position  than  he 
would   have  done   had  no   one  been 
designated  by  him  to  make  the  re- 
quired examination,  without,  at  least, 
showing  that  he  exercised  reasonable 
diligence  in  supervising  the  conduct 
of  the  agent  while  the  latter  was  dis- 
charging the  trust  committed  to  him. 
In  the  absence  of  such  supervision, 
the  mere  designation  of  an  agent  to 


§331] 


DEPOSITS  AND  CHECKS. 


679 


discharge   a  duty    resting    primarily 
upon  the  principal,  cannot  be  deemed 
the  equivalent  of  performance  by  the 
latter.     While  no  rule    can    be    laid 
down  that  will  cover  every  transaction 
between  a  bank  and  its  depositor,  it  is 
sufficient  to  say  that  the  latter's  duty  is 
discharged  when  he  exercises  such  dili- 
gence as  is  required  by  the  circum- 
stances of  the  particular  case,  includ- 
ing the  relations  of  the  parties,   and 
the  established  or  known    usages  of 
banking  business."    The  court,  refer- 
ring to  Weisser  v.  Denison,  10  N.  Y. 
68,   70;    Welsh    v.   German-American 
Bank,    73    N.     Y.     424;    Frank     v. 
Chemical  Bank,  84  N.   Y.   209,    213, 
which    showed    a    settled    course    of 
decision  in  the  highest    court  of  the 
state    of  New   York    sustaining    the 
grounds  upon  which  the  Circuit  Court 
proceeded    in    giving    its*  judgment, 
said :  '*  There  are,  it  must  be  conceded, 
some  expressions  in  the  first  two  cases 
which,  at  first  glance,  seem  to  justify 
the  position  of  counsel.     But  it  is  to 
be  observed,  in  reference  to  the  case 
of  Weisser  v.  Denison,  that  it  is  said 
in  the  opinion  of  the  court  that,  as  the 
bank  had  not  taken  any   action,   nor 
lost  any  rights,  in  consequence  of  the 
silence  of  the  depositor,  the  only  effect 
of  such  silence  was  to  cast  the  burden 
upon  him  to  show  fraud,  error  or  mis- 
take in  the  account  rendered    by  the 
bank.        From     Welsh     v.    German- 
American   Bank,  it  is  clear  that  the 
comparison  by  the  depositor  of  his 
check  book  with  his  pass  book  would 
not    necessarily     have    disclosed    the 
fraud  of    his  check,    for   the   check 
when  paid  by  the  bank  was,  in  respect 
of  date,  amount,  and  name  of  payee, 
as  the  depositor  intended  it  to  be,  and 
the    fraud    was    in    the    subsequent 
forgery  by  the    clerk  of  the  payee's 
name.     As  the  depositor  was  not  pre- 
sumed to  know,  and  as  it  did  not  ap- 
pear that  he   in  fact  knew,  the  signa- 
ture of  the  payee,  it  could  not  be  said 


that  he  was  guilty  of  negligence  in 
not  discovering,   upon    receiving  his 
pass  book,  the  fact  that  his  clerk,  or 
some  one  else,  had   forged  the  payee's 
name  in  the  indorsement.     The  latest 
expression  of  the  views  of  the  Comt 
of  Appeals  of  New  York  is  in  Frank 
V.   Chemical  National    Bank.      From 
what  is  there  said  it  is  evident  that 
that  learned  tribunal  does  not  give  its 
sanction  to  the  broad  proposition  that  a 
depositor  who  obtains  periodical  state- 
ments of  his  account,  with  the  vouchers, 
is  under  no  duty  whatever  to  the  bank 
to    examine    them,  and    give  notice, 
within  a  reasonable  time,  of  errors  dis- 
covered therein.      The  court  in  that 
case,  speaking  by  Judge  Andrews, 
who  delivered  the  opinion  in  Welsh  v. 
German-American    Bank,     refers    to 
Weisser  r.  Denison.     After  observing 
that  it  was  unnecessary  to  restate  the 
ground  of  that  decision,  and  adverting 
to  the  argument  that  where  a  pass 
book  was  kept,  which  was  balanced 
from  time  to  time  and  returned  to  the 
depositor,  with  the  vouchers  for  the 
charges  made  by  the  bank,  including 
forged  checks,  the  latter  is  under  a 
duty  to  the  bank  to  examine  the  ac- 
count and  vouchers,  with  a  view  to  as- 
certain whether  the  account  is  correct, 
he  proceeds:  '  It  does  not  seem  to  be  un- 
reasonable, in  view  of  the  course  of 
business  and  the  custom  of  banks  to 
surrender  their  vouchers  on  the  peri- 
odical writing  up  of  the  accounts  of 
depositors,   to    exact  from  the  latter 
some  attention  to  the  account  when  it 
is  made  up,  or  to  hold  that  the  negli- 
gent omission  of  all  examination  may, 
when  injury  has  resulted  to  the  bank, 
which  it  would  not  have  suffered   if 
such  examination  had  been  made  and 
the  bank  had  received  timely  notice  of 
the  objections,  preclude  the  depositor 
from  afterwards  questioning  its  cor- 
rectness.    But  where    bogus    checks 
have  been  paid  and  charged  in  the  ac- 
count and  returned  to  the  depositor, 


1 


*l 


i , 


oso 


DEPOSITS  AND  CHECKS. 


[§331 


he  is  under  no  duty  to  the  bank  to  so 
conduct  the  examination  that  it  will 
necessarily  lead  to  the  discovery  of  the 
fraud.     If  he  examines  the  vouchers 
personally,  and  is  himself  deceived  by 
the  skillful  character  of  the  forgery, 
his  omission  to  discover  it  will  not  shift 
upon  him  the  loss  which,  in  the  first 
instance,  is  the  loss  of  the  bank.  Banks 
are  bound  to  know  the  signatures  of 
their  customers,  and  they  pay  checks 
purporting  to  be  drawn  by  them   at 
their  peril.     If  the  bank  pays  forged 
checks  it  commits  the  first  offense.     It 
cannot  visit  the  consequences  upon  the 
innocent  depositor,  who,  after  the  fact, 
is  also  deceived  by  the  simulated  paper. 
80.  if  the  depositor,  in  the  ordinary 
course  of  business,  commits  the  ex- 
amination of  the  bank   account  and 
vouchers  to  clerks  or  agents,  and  they 
fail    to    discover   checks    which    are 
forged,  the  duty  of  the  depositor  to  the 
bank  is  discharged,  although  the  prin- 
cipal, if  he  had  made  the  examination 
personally,  would  have  detected  them. 
The  alleged  duty,  at  most,  only  re- 
quires the  depositor  to  use  ordinary 
care;  and  if  this  is  exercised,  whether 
by  himself  or  his  agents,  the  bank  can- 
not Justly  complain,  although  the  for- 
geries are  not  discovered  until  it  is  too 
late  to  retrieve   its  position  or  make 
reclamation    from  the   forger.'      The 
court     distinguished    Manufacturers' 
National  Bank  v.  Barnes.  65  111.  09.  to 
which  they  were  referred  in  behalf  of 
the  depositor.    Afterwards,  there  was 
a  reference  to  other  cases,  as  follows: 
*  An  instructive  case  is  that  of  Dann  r. 
Bank  of  the  Republic,  133  Mass.  156, 
158,  where  the  issue  was  between  a 
bank  and  its  depositor  in  reference  to 
a  check  which  the  latter's  clerk  altered 
after  it  had  been  signed,  and  before  it 
was  paid  by  the  bank.     The  court  said 
that  the  plaintiffs,  who  were  the  de- 
positors, owed  to  the  bank  '  the  duty  of 


exercising  due  diligence  to  give  it  in- 
formation that  the  payment  was  un- 
authorized; and  this  included  not  only 
due  diligence  in  giving  notice  after 
the  forgery,  but  also  due  diligence  in 
discovering  it.'    If  the  plaintiffs  knew 
of  the  mistake,  or  if  they  had  that  no- 
tice of  it  which  consists  in  the  knowl- 
edge of  facts  which,  by  the  exercise  of 
due  care  and  diligence,  wiU  disclose 
it,  they  failed  in  their  duty;  and  adop- 
tion of  the  check  and  ratification  of  the 
payment  will  be  implied.     They  can- 
not now  require  the  defendant  to  cor- 
rect a  mistake  to  its  injury  from  which 
it  might  have  protected  itself  but  for 
the     negligence    of     the    plaintiffs. 
Whether  the  plaintiffs  were  required, 
in  the  exercise  of  due  diligence,  to  read 
the  monthly  statements  or  to  examine 
the  checks,   and  how  careful  an  ex- 
amination they  were  bound  to  make, 
and  what  inferences  are  to  be  drawn, 
depend  upon  the  njiture  and  course  of 
dealing  between  the  parties,  and  the 
particular  circumstances  under  which 
the  statements  and  checks  were  de- 
delivered  to  them.'     80  in  Hardy  v. 
Chesapeake    Bank,   51  Md.  562,  591, 
which  was  also  a  case  where  checks 
forged  by  the  confidential  clerk  of  the 
depositor  had  been  paid  by  the  bank, 
and,   as    shown  by    the    pass    book, 
were    charged    to    his    account,    the 
court,  upon  an  elaborate  review  of  the 
authorities,    said,    upon   the    general 
question,  that  *  there  is  a  duty  owing 
from  the  customer  to  the  bank  to  act 
with  that  ordinary  diligence  and  care 
that  prudent  business  men  generally 
bestow  on  such  cases,  in  the  examina- 
tion and  comparison  of  the  debits  and 
credits  contained  in  his  bank  or  pass 
book,  in  order  to  detect  any  errors  or 
mistakes  therein.     More  than  this,  un- 
der ordinary  circumstances,  could  not 
be  required,' 


I  M 


CHAPTEE  XII. 


COLLECTIONS. 


§  332.  General  rules. 
333.  Duty  of  bank. 

834.  Rules  as  to  notes  payable  at 

bank. 

835.  "When  a  bank  is  liable  for  failure 

to  collect  notes. 

836.  What  action  on  its  part  will  re- 

lieve a  collecting  bank  from 
liability. 


§  337.  Rules     as     to     checks     and 
drafts. 

338.  Negligence  of    a  bank   as  to 

check  held  for  collection. 

339.  When  a  bank  collecting  a  draft 

is  liable  to  the  owner. 

340.  When  indorser  of  check  is  re- 

lieved from  liability. 


§  332.  General  rules. —  An  indorsement  of  a  promissory  note 
"  for  collection  "  makes  the  indorsee  an  agent  for  the  collection  of 
the  note.*  Such  an  indorsement  is  restrictive  and  cannot  be 
shown,  by  parol,  to  be  absolute.^  A  bank,  though  it  may  have  no 
interest  in  it,  for  certain  purposes  must  be  considered  the  holder 
of  a  note  left  with  it  for  collection.^  A  bank  has  authority  only 
to  receive  payment  of  a  note  placed  with  it  for  collection ;  it  can- 
not sell  or  transfer  it.*  A  bank  receiving  notes  for  collection 
from  its  regular  correspondent,  cannot  apply  them  to  balancing 
the  account  between  them  where  it  knows  the  notes  were  sent  for 


'  Rock  County  National  Bank  v. 
Hollister,  21  Minn.  385. 

» Third  National  Bank  v.  Clark,  23 
Minn.  263.  As  to  kind  of  agency 
a  bank  has  when  a  note  or  bill  is  placed 
with  it  for  collection,  its  duty  and  it ; 
liability  for  negligence  in  the  dis- 
charge of  that  duty,  see  Bank  of  Mo- 
bile V.  Huggins,  (1841)  3  Ala.  206.  lii 
this  case  the  Alabama  Sui)reme  Court 
differs  as  to  the  duty  to  cause  the 
note  to  be  protested  with  the  New 
York  courts  in  Sniedes  v.  L'lica  Buuk. 
20  Johns.  372:  s.  c,  on  enor,  3Coweu, 
663;  McKinster  r.  Bank  of  Utica,  9 
Wend.  46;  s.  c,  on  error,  11  Wend. 
473.  They  refer  to  Colt  v.  Noble,  5 
Mass  167;  Tunno  v.  Lague,  2  Johns. 
CJas.  1.  The  question  of  damages  in 
such  cases  is  fully  discussed  by  the 
Alabama  courts,  and  they  comment 
86 


upon  Bank  of  Washington  v.  Triplett 
&  Neale,  1  Pet.  26,  and  Van  Wart  v. 
Woolley,  3  B.  &  C.  439;  Hamilton  v. 
Cunningham,  2  Brock.  350;  Stowe  v. 
Bank  of  Cape  Fear,  3  Dev.  408;  Branch 
Bank  at  Montgomery  v.  Enox,  1  Ala. 
148.  They  differ  with  the  Louisiana 
Supreme  Court  in  Durnford  -v.  Pat- 
terson, 7  Mart.  460;  Crawford  v. 
Louisiana  Sttite  Bank,  1  Mart.  (N.  S.) 
214;  Montillet  v.  Bank  of  the  United 
States,  1  Mart.  (N,  S.)  365;  Pritchard 
r.  Louisiana  State  Bank,  2  La.  415; 
Miranda  v.  City  Bank,  6  La.  741.  They 
comment  on  Allen  v.  Suydam,  17 
Wend.  368;  St.  John  v.  O'Connel,  7 
Port.  (Ala.)  466. 

« Burnham  v.  Webster,  19  Me.  232. 

*  Wolff  V.  Walter,  (1874)  56  Mo. 
292;  Fuller  v.  Bennett,  55  Mich.  357. 


G82 


CX>LLECTIONS. 


[§332 


collection  and  tliat  they  belonged  to  a  third  person.^    Paper  coming 
from  one  bank  to  another  indorsed,  and  with  directions  to  collect 
it,  and  there  being  nothing  to  indicate  that  the  paper  does  not 
belong  to  the  bank  remitting  it,  may  he  regarded  the  paper  of  the 
latter,  although  it  may  have  been  deposited  by  the  indorser  in  the 
remitting  bank  for  collection.^     One  depositing  with  a  bank  for 
collection  negotiable  paper  payable  at  a  distant  point,  is  charge- 
able with  knowledge  of  the  custom  of  banks  to  intrust  the  paper 
to  other  banks  for  collection  at  the  place  where  payment  is  to  be 
made.     The  bank  receiving  such   paper  becomes  responsible  to 
the  depositor  as  agent,  with  authority  to  employ  another  bank  to 
collect  it,  and  will  not  be  liable  for  the  negligence  of  its  corre- 
spondent in  making  the  collection,  if  it  has  used  reasonable  care 
in  the  selection  of  its  correspondent.*    A  bill  of  exchange  or  note 
received  by  a  bank  for  collection  which  is  payable  at  a  distant 
place,  must  be  seasonably  transmitted  by  the  receiving  bank  to  a 
suitable  bank  or  other  agent  at  the  place  of  payment."     A  bank 
should  neither  send  a  check  received  by  it  for  collection  directly 
to  the  bank  on  which  it  is  drawn,  nor  accept  in  payment  a  draft 
of  the  latter  on  another  bank.     But  the  collecting  bank's  negli- 
gence would  be  condoned  by  an  order  from  the  depositor  to  hold 
such  a  draft  for  a  few  days.'^     A  suitable  agent  must  be  some 
other  than  the  one  who  is  to  make  the  payment.*     In  receiving  a 
note  for  collection  a  bank  assumes  the  duty  of  taking  the  proper 
steps  to  ^x  the  liability  of  the  indorser,  and  for  a  neglect  of  that  duty 
is  responsible  to  the  extent  of  the  damages  suffered    thereby.'' 
Commercial  paper  having  l)een  received  by  a  bank  for  collection, 
there  is  an  implied  undertakuig  on  its  part  that  in  case  of  its  dis- 
honor, the  bank  will  take  all  steps  necessary  to  protect  the  hold- 
ers' rights  against  all  previous  parties  to  the  paper .^      A  bank 


'  Sweeny  v.  Easter,  1  Wall.  166. 

*Cody  V.  City  National  Bank,  55 
Mich.  379. 

3  Guelich  v.  National  State  Bank,  56 
Iowa.  434.  As  to  the  duty  of  a  bank 
when  a  note  is  placed  with  it  for  col- 
lection, see  Fabens  v.  Mercantile  Bank, 
(1839)  23  Rck.  (Mass.)  330;  Phipps  r. 
Millbury  Bank,  (1844)  8  Met.  (Mass.) 
V9;  Steele  v.  Russell,  5  Neb.  214. 

*  Drovers'  National  Bank  r.  Anglo- 
American  P.  &  P.  Co.,  18  Bradw.  (111.) 
191. 


» Hazlett  1^.  Bank,  132  Pa.  St.  118; 
8.  c,  25  W.  N.  C.  282. 

« Ibid.  Bank  v.  Goodman,  109  Pa. 
St.  422. 

'  West  T.  St.  Paul  National  Bank, 
(1893)  54  Minn.  466;  s.  c.  56  N.  W. 
Rep.  54;  Borup  c.  Nininger,  5  Minn. 
523;  Jagger  v.  National  German- 
American  Bank,  53  Minn.  386:  s.  c, 
55  N.  W.  Rep.  545. 

•  Jagger  r.  National  German- Ameri- 
can Bank  of  St.  Paul,  (1893)  53  Minn. 
886;  8.  c,  55  N.  W.  Rep.  545. 


§332] 


COLLECTIONS. 


683 


exercising  reasonable  care  and  skill  in  selecting  an  agent  to  pre- 
sent paper  received  for  collection  at  a  distant  place  will  not  be 
liable  for  that  agent's  default.^  The  duty  of  a  bank,  where  it 
receives  a  bill  or  note  for  collection,  and  its  transmission  to 
another  place  is  necessary,  is  discharged  by  sending  it  in  due 
season  to  a  competent,  reliable  agent,  with  proper  instructions  for 
its  collection.^      A  collecting  bank,  in  another  city,  cannot,  on 


*  Stacy  V.  Dane  County  Bank,  12 
Wis.  629;  Lee  v.  Bank,  1  Chest.  (Pa.) 
109.  As  to  a  note  payable  at  another 
place,  left  for  collection  with  a  bank, 
and  its  seasonably  transmitting  it  to 
a  suitable  bank  in  that  place  for  col- 
lection, and  the  transmitter  not  being 
liable  for  any  negligence  of  the  latter, 
see  Fabens  v.  Mercantile  Bank,  (1839) 
23  Pick.  330;  Dorchester  &  Milton 
Bank  v.  New  England  Bank,  (1848) 
1  Cush.  (Mass.)  177. 

*  ^tna  Insurance  Co.  v.  Alton  City 
Bank.   (1861)  25  111.  243.     As  to  the 
question  of  liability  of  a  bank,  occur- 
ring from  the  acts  of  its  correspond- 
ents,  the   IlUnois  court  said:  "  Upon 
examination  of  the  adjudged  cases  it 
will  be  found  that  entire  harmony  upon 
this  question  does  not  prevail.     In  the 
case  of  The  Mechanics'  Bank  v.  Earp, 
4  Rawle,  384,  it  was  held  that  a  bank 
in  which  bills    had    been  deposited, 
having  only  received  them  for  trans- 
mission to  their  agents  for  collection, 
at  the  place  of  the  residence  of  the 
drawees,  with  the  instructions  of  the 
depositors,  was  not  liable  for  the  fail- 
ure of  the  bank  to  whom  the  bills  were 
transmitted  to  collect  the  money.     In 
that  case  the  court  refers  to  the  cases 
of   Lawrence  v.   Stonington  Bank,  6 
Conn.    528,  and  The  Bank  of  Wash- 
ington V.   Triplett   &  Neale,   1   Pet. 
25,   and   Jackson   v.   Union    Bank,  6 
Harr.  &  J.   (Md.)  148,  as  sustaining 
the  rule    announced.      Again,  in  the 
case  of  The  Bank  of  New  Orleans  v. 
Smith,  3  Hill  (N.  Y.),  560,  the  court 
held  that  when  a  bill  is  left  with  a 


bank  for  collection,  and  they  transmit 
it  in  due  season  to  a  competent  agent 
at  the  place  of  the  residence  of  the 
drawee,  with  the  necessary  directions, 
that  they  thereby  fully  discharge  their 
duty  and   incur  no  further  liability. 
In  support  of  the  rule  the  court  refers 
to  the  cases  of  East-Haddam  Bank  v. 
Scovil,   12  Conn.  303,  and  Fabens  v. 
The    Mercantile  Bank,  23  Pick.  330. 
The  court  also  refer  to  and  approve 
of    the   case  of  Allen   v.   Merchants' 
Bank  of  N.  Y.,  15  Wend.  482,  where 
the  same  doctrine  is  announced  in  these 
words:  '  And  we  find,  on  an  examina- 
tion of  these  cases,  they  fully  sustain  the 
rule  announced  in  this  case.'    It  is  true 
that  the  case  of  Allen  v.   The  Mer- 
chants' Bank,  22  Wend.  215,  decided 
by  the  Court  of  Errors,  announces  a 
different  rule  and  reverses  the  decision 
of  the  Supreme  Court.     In  that  case 
the  decision  was  by  a  divided  court, 
the  chancellor  delivering  a  dissenting 
opinion.      The  last  case  extends  the 
rule,  so  that  a  bank  receiving  com- 
mercial paper  for  collection  is  liable 
for    loss    resulting  from    neglect,  to 
banks  receiving  such  paper  for  trans- 
mission, where  loss  occurs  by  neglect 
of  the  agent  to  whom  it  is  transmitted, 
and   makes  no  distinction  in  the  two 
classes  of  cases.     Where  a  bank  re- 
ceives   a    bill  or   note  for  collection 
against  a  drawee  or  maker,  resident  at 
the  place  of  the  bank,  or  where  the 
bank  undertakes  for  its  collection  by 
their  own  otficers,   there   can   be  no 
doubt  that  it  would  be  Uable  for  any 
loss  that  might  result  from  neglect.'* 


I 


H 


t 


€>bk 


COLLECTIONS. 


[§332 


failure  of  its  correspondent,  the  transmitting  bank,  credit  the 
proceeds  of  a  draft  or  note,  sent  to  it  for  collection,  to  its  own 
account.     It  is  liable  to  the  owner.^      A  bank  will  not  be  ren- 
dered liable  for  its  omission  to  have  a  negotiable  note,  deposited 
with  it  for  collection,  protested,  where  a  by-law  of  the  l)ank 
required  the  costs  of  protesting  to  be  deposited  with  it,  which  had 
not  been  done.^      If  bankers  undertaking  to  collect  bills,  checks 
or  notes  for  others  neglect  to  give  notice  of  the  default  of  the 
makers,  where  it  is  the  usage  of  banks  to  give  such  notice,  the-y 
will  be  liable  to  the  holders  in  damages.^     A  banker  cannot  hold 
the  proceeds  of  a  note,  sent  to  him  for  collection  and  credit  by  a 
correspondent,  against  the  real  owner  of  the  note  to  apply  on  the 
credit  of  collections  sent  him  by  this  correspondent,  because  he 
may  keep  an  account  with  that  correspondent  for  his  convenience, 
made  up  of  money  put  there  by  him  to  draw  exchange  against 
it/      Where  banks  had  kept  account  current  with  each  other  for 
years,  crediting  the  one  the  other  with  paper  received,  etc.,  and 
the  paper  appeared  to  be  the  property  of  the  bank  remitting  it, 
it  has  been  held  that  there  was  a  lien  for  general  balance  on  the 
paper  so  transmitted,  no  matter  who  was  the  owner.^      The  bank, 
to  which  was  originally  transmitted,  for  collection,  drafts  drawn 
on  a  corporation,  sending  them  to  a  third  bank  for  collection,  and 
the  latter  taking  acceptances  from  the  officer  on  whom  they  were 
drawn,  instead  of  the  corporation  itself,  has  been  held  liable  to 
the  bank  originally  transmitting  the  drafts  for  the  damage  ensu- 
ing from  the  act  of  the  third  bank.®      The  accidental  loss  or  dis- 
appearance in  a  bank  of  a  bill  sent  to  it  for  collection  would  be 
presumptive  proof  of  negligence.'      Where  one  places  in  a  bank, 
for  collection,  notes  and  drafts  on  third  persons,  giving  no  instruc- 
tions as  to  the  kind  of  funds  in  which  it  may  collect  them,  should 


As  to  a  bank  being  relieved  of  re- 
sponsibility by  using  due  diligence  in 
the  selection  of  the  correspondent  to 
which  it  transmits  for  collection  a  bill 
or  note  left  with  it  for  collection,  see 
Daly  V.  Butchers  &  Drovers'  Bank, 
(1874)  56  Mo.  94. 

•Hackett  p.  Reynolds,  114  Pa.  St. 
328. 

'Pendleton  v.  Bank  of  Kentucky, 
(1824)  1  Mon.  (Ky.)  171. 

'Smedes    v.  Utica  Bank,  (1823)  20 


Johns.  372;  Bank  of  Utica  v.  McKin- 
ster,  (1833)  11  Wend.  473;   Curtis  v. 
Leavitt,  15  N.  Y.  9,  167. 
*Bury  V.  Woods,  (1885)17  Mo.  App. 

245. 

*  Bank  of  Metropolis  r.  New  Eng- 
land Bank,  1  How.  234. 

•  Exchange  National  Bank  t>.  Third 
National  Bank,  112  U.  S.  276. 

'Chicopee    Bank    v.    Philadelphia 
Bank,  8  WaU.  641. 


COLLECTIONS. 


685 


§333] 

the  bank  receive  payment  in  a  currency  then  in  general  use,  of 
a  depreciated  character  as  compared  with  gold,  the  bank  will  be 
held  liable  only  for  the  real  value  of  such  depreciated  currency.^ 
A  bank  receiving  a  check  in  payment  of  a  note  held  by  it  against 
the  drawer,  after  the  check  has  been  paid,  cannot  refuse  to  deliver 
up  the  note  for  cancellation  on  the  ground  that  it  had  not 
matured.^  A  collection  made  by  a  bank  after  it  has  suspended, 
must  be  held  by  it  as  agent  in  trust  for  the  owner .^  The  negli- 
gence of  a  collecting  bank  in  not  presenting  a  draft  for  payment, 
is  the  negligence  of  the  holder.*  A  bank's  duty,  where  a  note 
is  left  with  it  for  protest,  is  to  exercise  ordinary  and  reasonable 
diligence  in  giving  notice.^  A  known  custom  to  demand  pay- 
ment of  a  note,  left  with  a  bank  for  collection,  without  actually 
presenting  the  note  to  the  maker  in  person,  would  be  binding 
upon  indorsers.*  A  known  custom  of  a  bank  to  demand  pay- 
ment on  the  day  before,  or  the  day  after,  a  note  falls  due,  would 
be  binding  on  an  indorser.' 

§  333.  Duty  of  bank. —  When  a  bill  or  note  is  received  by  a 
bank  for  collection  in  the  ordinary  course  of  business,  without 
any  special  agreement  on  the  subject,  and  the  bank  in  due  time 


> Henry  v.  North.  Bank  of  Ala.,  63 
Ala.  527,  in  which  the  collections  were 
made  in  confederate  money. 

'Union  Savings  Association  v. 
Clayton,  (1878)  6  Mo.  App.  587. 

•Jockusch  V.  Towsey,  51  Tex.  129. 

*  Harvey  v.  Bank,   119  Pa.  St.  212. 

'  Mount  1).  First  National  Bank,  37 
Iowa,  457.  As  to  liability  of  a  bank, 
receiving  note  for  collection  and  fail- 
ing to  notify  indorsers  of  its  protest, 
and  thereby  discharging  them,  for  the 
holder's  loss,  see  Bank  of  Washington  v. 
Triplett,  1  Pet.  25;  Bird  v.  Louisiana 
State  Bank,  93  U.  S.  96.  As  to  the 
duty  of  bankers  in  such  cases,  see  Brit- 
ton  V.  Niccolls,  104  U.  S.  757.  As  to 
liability  for  neglect  on  the  part  of  a 
bank  receiving  a  note  for  collection,  see 
Thompson  v.  Bank,  3  Hill  (S.  C),  77. 
As  to  a  bank's  being  protected  from 
liability  by  its  usage,  and  not  being 
liable  for  the  negligence  of  a  notary 


in  the  matter  of  demand  and  protest,  see 
Warren  Bank  v.  Suffolk  Bank,  (1852) 
10  Cush.  (Mass.)  582. 

6  Jones  V.  Fales,  (1808)  4  Mass.  245; 
Whit  well  V.  Johnson,  (1821)  17  Mass. 
452;  City  Bank  v.  Cutler,  (1826)  3 
Pick.  (IMass.)  414. 

'Jones  V.  Fales,  (1808)  4 Mass.  245; 
City  Bank  v.  Cutter,  (1826)  3  Pick. 
(Mass.)  414.  What  is  a  sufficient  de- 
mand for  payment  of  a  note  left  with 
a  bank  for  collection,  see  Tredick  v. 
Wendell,  1  N.  H.  80.  The  effect  of 
usage  on  the  part  of  banks  concerning 
dt  mands  on  makers  of  notes,  and  no- 
tices to  indorsers,  see  Lincoln  &  Kenne- 
beck  Bank  v.  Page,  (1812)  9  Mass.  155; 
Smith  V.  Whiting,  (1815)  12  Mass.  8; 
Blanchard  v.  Hilliard,  (1814)  11  Mass. 
85;  Central  Bank  v.  Davis,  (1837)  19 
Pick.  (Mass.)  375;  Chicopee  Bank  v. 
Eager,  (1845)  9  Met.  (Mass.)  583. 


* 


686 


COLLECTIONS. 


[§333 


delivers  it  to  the  notary  iisnally  employed  by  it  in  sucli  matters 
so  that  the  necessary  demand,  protest  and  notice  may  be  made 
and  given,  the  bank  will  not  be  answerable  for  loss  resulting  from 
the  failure  of  the  notary  to  perform  his  duty.*     Personal  notice 
to  the  indorser  may  be  dispensed  with,  and  he  will  be  charged  by 
the  bare  deposit  of  notice  in  the  post  office,  even  if  it  never 
comes  to  hand.^    In  case  a  note  payable  on  demand,  at  a  particu- 
lar place,  be  lost,  a  court  of  equity  affords  no  remedy  to  the 
owner  before  a  demand  for  payment  has  been  made  at  the  place 
designated.^     A  notice  to  a  distant  indorser  of  the  protest,  etc., 
of  a  note  payable  at  bank  must  ordinarily  be  sent  to  his  nearest 
post  office,  but  this  rule  may  be  dispensed  with  if  shown  that  the 
notice  was  sent  to  the  place  where  the  indorser  would  get  the 
earliest  intelligence.*     In  case  the  holder  of  a  note  delivers  it  to 
a  bank  with  the  understanding  that  this  bank  shall  forward  the 
note  to  another  bank  for  collection,  and  it  is  so  forwarded  and 
received,  the  latter  bank  will  be  responsible  to  the  owner  of  the 
note  for  any  negligence  in  its  collection   whereof  the  owner  of 
the  note  may  suffer  loss."*     So  where  the  latter  bank  delivers  such 
note  to  the  notary  public  for  demand,  protest  and  notice,  such 
notary  was  the  attorney  of  the  bank  and  was  incompetent  for  the 
purpose  of  making  such  demand  and  serving  such  notice,  and  the 
demand   was  not  properly  made  and   notice   was  not  properly 
served,  so  that  the  indorsers  of  the  note  were  entirely  discharged, 
the  bank  was  held  responsible  to  the  owner  of  the  note.*     A  bank 
having  received  a  note  for  collection  with  direction  that  it  should 
receive  payment  of  the  note  in  New  York  exchange,  it  being  a 
bank  of  exchange  as  well  as  of  deposit,  the  Iowa  Supreme  Court 
held  the  acceptance  in  payment  by  the  bank  of  its  own  certificate 


»  Citizens'    Bank    of   Baltimore    r. 
Howell,  8  Md.  530. 
•Bell  V.  Hagerstown  Bank,  7  Gill 

(Md.),  223. 

» Streater  v.  Bank  of  Cape  Fear,  2 
Jones  Eq.  (N.  C.)  31. 

*  Bank  of  the  United  States  r.  Lane, 
8  Hawks  (N.  C),  453.  An  illustration 
of  a  lack  of  diligence  on  the  part  of  a 
bank  in  sending  notice  of  dishonor  of 
a  protested  bill  of  exchange  to  the 
indorser.  Runyon  v.  Montfort,  Busb. 
(N.  C.)  371.     As  to  liability  of  banks 


for  neglect  in  protesting,  etc.,  notes 
deposited  with  them  for  collection, 
see  Chapman  c.  McCrea,  (1878)  63  Ind. 
360.  As  to  available  defense  of  bank 
when  charged  with  such  neglect,  see 
Locke  T.  Merchants,  National  Bank, 
(1879)  66  Ind.  353.  Liability  of  bank 
for  failure  to  present  a  bill  to  the 
drawee,  see  Tyson  v.  State  Bank,  (1842) 
6  Blackf.  (Ind.)  225. 

»  Bank  of  Lindsborg  v.  Ober,  (1884) 
31  Kans.  599. 

•  Ibid. 


§  :5a3] 


COLLECTIONS. 


687 


of  deposit  payable  on  demand  was  a  discharge  of  the  indebted- 
ness, notwithstanding  its  failure  to  remit  the  amount  to  the  cred- 
itor and  afterwards  becoming  insolvent,  it  appearing  that  on  the 
day  it  received  this  payment  the  bank  was  paying  its  obligations 
and  liad  money  on  hand  with  which  the  certificate  could  have 
been  paid  in  cash  if  demanded,  although  it  was  actually  insolvent, 
that  fact  not  being  known  to  the  holder  of  the  certificate.^  The 
measure  of  damages  in  an  action  against  a  bank  with  which  a  bill 
has  been  deposited  for  collection,  and  it  has  failed  to  take  proper 
steps  to  charge  the  drawer  or  indorsers,  whereby  the  holder  of 
the  bill  was  unable  to  collect  it,  is  the  face  of  the  bill,  with 
interest.^  By  deUvering  a  bill  held  by  it  for  collection  to  a  notary 
with  instructions  to  protest  on  tlie  wrong  day,  a  bank  would  ren- 
der itself  liable  to  the  owner  of  the  bill.^  It  seems  though  that 
where  negotiable  paper  is  delivered  to  a  bank  for  collection 
merely,  the  bank's  duty  will  be  discharged  by  a  proper  demand 
of  payment,  and  by  giving  notice  of  its  non-payment  to  the 
bank's  principal  only,  without  giving  the  proper  notice  also  to 
other  indorsers,  unless  some  contract  or  commercial  usage  be 
shown  to  raise  a  more  extended  obligation.^  In  a  Massachusetts 
case  it  appeared  that  a  bank,  holding  a  note  for  collection, 
received  the  amount  from  an  agent  of  the  maker,  and  by  mistake 
gave  up  to  him  a  similar  note  of  another  person  and  returned  the 
first  note  to  its  owner,  to  whom  tlie  maker  paid  it  on  demand, 
and  immediately,  though  four  days  after  the  payment  to  the 
bank,  examined  the  note  in  his  agent's  hands,  and,  discovering  the 
mistake,  returned  it  to  the  bank  and  demanded  back  liis  money. 
The  Supreme  Court  of  Judicature  held  that  he  was  entitled  to 
recover  it  back,  with  interest  from  the  time  of  the  demand, 
although  the  bank  had  meanwhile  paid  the  amount  to  the  owner 
of  tlie  other  note,  the  maker  of  which  was  insolvent  and  the 


'  British  &  American  Mortgage  Co. 
«.  Tibballs,  63  Iowa,  468. 

•  American  Express  Co.  t.  Haire, 
(1863)  21  Ind.  4.  For  an  illustration 
of  the  owner  of  a  promissory  note 
placed  for  collection  through  a  bank 
and  its  correspondent  not  sustaining 
damage,  see  Indig  t.  National  City 
Bank  of  Brooklyn,  (1880)  80  N.  Y. 
100. 


2  Commercial  Bank  of  Kentucky  v. 
Varnum,  (1872)  49  N.  Y.  269.  As  to 
the  liability  of  a  collecting  bank  tak- 
ing a  draft  which  may  be  dishonored, 
see  First  National  Bank  of  Meadville 
r.  Fourth  National  Bank,  77  N.  Y. 
320;  8.  c,  33  Am.  Rep.  618. 

*  State  Bank  of  Troy  r.  Bank  of 
the  Capitol,  (1863)  17  Abb.  Pr.  364;  8. 
c,  41  Barb.  343;  27  How.  Pr.  57. 


ill 


688 


COLLECTIONS. 


[\ 


333 


indorsers  discharged  for  want  of  demand.^     A  contract  to  be  so 
responsible,  expressly  proven  or  inferable  from  an  unequivocal 
course  of  dealing,  is  necessary  to  bold  a  banker  receiving  paper 
for  collection  absolutely  responsible  for  the  amount  previous  to 
collection.*      A  bank  will  not  be  discharged  from  its  obligations 
to  procure  a  proper  presentment  and  notice  in  case  of  non-pay- 
ment of  a  note  deposited  with  it  by  one  of  its  customers  for  col- 
lection with   a  request  to  have  it   protested  if   not   paid,   by 
merely  employing  a  notary  for  the  purpose  of  making  a  demand^ 
Where  presentment  is  not  necessary  to  charge  the  parties,  and 
would  be  useless  if  made,  a  bank  with  which  a  draft  is  placed 
for  collection  would  not  be  liable  for  neglect  to  present  it.*     A 
maker  of  a  note  paying  it  to  the  bank  holding  it  for  collection  , 
cannot  recover  the  payment  from  the  bank  on  the  ground  tliat 
the  bank  has  failed  to  remit  to  the  owner.'^      A  bank  will  not 
be  held  liable  for  an  omission  to  protest  notes  deposited  with  it 
for  safe-keeping  and  not  for  collection.*     The  plaintiff  bank  in 
a  Connecticut  case  brought  its  action  to  recover  of  a  national 
bank  in  the  hands  of  a  receiver  the  amount  of  notes  or  bills  sent 
by  it  for  collection  to  this  bank.     The  circumstances  were  these : 
Its  cashier  had  given  notice  to  the  cashier  of  the  defendant  bank 
to  protest  and  return  all  paper  not  paid.     The  notes,  drafts  and 
checks  of  one  of  the  makers  which  had  been  sent  by  the  plaintiff 
bank  to  the  cashier  of  defendant  bank  for  collection  and  charged 

quired  of  a  bank  receiving  a  note  or 
bill  for  collection,  and  its  liability  in 
default  of  such  diligence,  see  Capitol 
State  Bank  v.  Lane,  52  Miss.  677.     As 
to  the  rules  governing  as  to  demand 
and  presentment  of  notes  payable  at 
bank,  see  Lewis  v.  Planters'  Bank,  3 
How.  (I^Iiss.)  267;  Ellis  v.  Commercial 
Bank  of  Natchez,  7  How.  (Miss.)  294; 
Harrison  v.   Crowder,    6    Smedes    & 
Marsh.  (Miss.)  464;  Barlow  v.  Plant- 
ers' Bank,  7  How.  (Miss.)  129.     When 
the  note  remains  during  the  whole  day 
of  the  day  it  falls  due,  allowing  days 
of  grace,   see  Duncan  v.   Watson,   6 
Cush.  (Miss.)  187;  Goodloe  v.  Godly, 
13  Smedes  &  Marsh.  (Miss.) 233;  Bland 
V.   Commercial  &   Railroad  Bank,   3 
Smedes  &  Marsh.  (Miss.)  250. 


»  Andrews  t.  Suffolk  Bank,  (1859) 
12  Gray  (Mass.),  461. 

«  Scott  V.  Ocean  Bank,  (1861)  23  N. 
Y.  289,  affirming  5  Bosw.  192. 

•Ayrault  v.  Pacific  Bank,  (1868)  6 
Robt.  (N.  Y.)  337;  affirmed  in  47  N.  Y. 

570. 

*  Mobley  v.  Clark.  (1858)  28  Barb. 
390.  In  Jacobsohn  v.  Belmont,  7 
Bosw.  14,  a  banker,  who,  under  pecu- 
liar circumstances,  acted  with  the 
knowledge  and  concurrence  of  the 
owner  of  the  paper  in  delaying  to  pre- 
sent it  for  collection  was  held  not 
liable  for  negligence. 

'Smith  p.  Essex  Co.  Bank,  (1856) 

22  Barb.  627. 

•  New  Orleans  Canal  Co.  v.  Escoffle, 
2  La.  Ann.  830.    As  to  diligence  re- 


OOLLECTIONS. 


G80 


§334] 

to  the  latter  and  posted  in  the  account  against  the  defendant 
bank,  were  not  paid  by  him  or  the  acceptors  and  were  protested 
or  returned,  and  no  notice  of  their  non-payment  was  given  to  the 
plaintiff.  A  semi-monthly  statement  of  the  account  was  sent  by 
the  cashier  of  the  remitting  bank  to  the  cashier  of  the  collecting 
bank  and  its  correctness  acknowledged  by  the  latter.  The 
Supreme  Court  held  that  the  remitting  bank  liad  a  right,  after  a 
reasonable  time  had  elapsed  without  notice  of  non-payment  or  a 
return  of  the  papers,  to  charge  the  amount  of  the  notes,  bills 
and  checks  to  the  defendant  bank  and  to  recover  in  assumpsit  for 
an  account  stated.^  In  case  the  holder  of  a  note  delivers  it  to 
a  bank,  with  directions  as  to  the  appropriation,  but  not  the 
manner  of  realizing  the  proceeds,  tlie  bank  will  be  authorized  to 
discount  the  note  or  collect  it  at  maturity.^ 

§  334.  Rules  as  to  notes  payable  at  bank.— The  presump- 
tion is  proper  that  when  a  note  is  made  payable  at  a  bank 
the  parties  expect  collections  to  be  made  through  the  bank,  and, 
though  the  bank  holding  the  money  is  technically  the  agent  of 
the  depositor,  yet  the  money  that  may  be  deposited  to  meet  such 
a  note  is  deposited  for  the  holder  of  the  note,  and  it  would 
require  no  act  of  the  depositor  to  authorize  the  bank  to  pay  it.^ 
Where  a  note  was  made  payable  at  a  bank  and  the  maker  depos- 
ited with  the  bank  the  amount  necessary  to  fully  discharge  it, 
and  the  bank  afterwards  failed,  the  Iowa  Supreme  Court  held 

luding  with  Seeley,  to  permit  his 
paper  to  accumulate  in  the  bank  un- 
paid, by  failing  to  enter  the  paper 
upon  the  books  of  the  bank,  and  to 
inform  the  directors  of  its  possession 
and  non-payment,  and  in  permitting 
the  account  of  the  plaintiff  to  accu- 
mulate in  such  an  unusual  manner 
and  to  such  an  unusual  extent  without 
informing  them  of  it.  It  also  shows 
gross  negligence  in  the  officers  of  the 
defendant  bank  in  intrusting  its  entire 
management  to  [the  cashier].  But 
these  facts  do  not  constitute  a  defense, 
unless  knowledge  of  them  can  be 
brought  home  to  the  plaintiff." 

»  Drown  v.  Pawtucket  Bank,  (1833) 
15  Pick.  (Mass.)  88. 

'  Lazier  v.  Horan,  55  Iowa,  75. 


»  National  Pahquioque  Bank  v.  First 
National   Bank  of    Bethel,   (1870)  36 
Conn.  325.     In  this  case  the  bank  de- 
fended partly  on  the  ground  of  fraud- 
ulent practices  of  its  cashier  in  col- 
lusion   with     the    drawee.     Of     this 
branch  of  the  defense,  the  court  said: 
**It  is   perfectly   apparent    that    the 
cashier  of  the  defendant  bank  received 
the  notes,  drafts  and  checks  sent  by 
the   plaintiffs  for  collection;  that  he 
had    ostensibly    the    powers    usually 
given  to  the  cashier  of  such  an  asso- 
ciation; that  it  was  his  duty  to  collect 
them  or  to  protest  and  return  them; 
and  that  by  retaining  them  without 
collection,  protest  or  notice,  he  made 
the  defendant  bank  liable  to  the  plain- 
tiffs  for  their  amount.     The  finding 
shows  gross  fraud  on  his  part,  by  col- 

87 


It  i 
llv  . 


690 


CJ0LLECTI0N8. 


[§  334 


I 


that  the  deposit  was  a  full  defense  to  the  action  of  the  payee  or 
indorsee  against  the  maker.^     Notes  payable  at  bank  must  be  pre- 
sented to  the  bank  for  payment  to  charge  tlie  indorser.^     A  bank 
would  not  be  authorized  to  receive  the  money  for  the  payee  of  a 
note  not  in  its  possession  simply  because  the  note  was  made  pay- 
able at  that  bank.''    When  a  note  payable  at  a  bank  is  held  by  it, 
the  note  should  remain  in  the  bank  until  the  completion  of  busi- 
ness hours.*     The  known  custom  of  a  bank,  that  notice  to  the 
directors  thereof,  who  are  indorsers  on  notes,  should  be  left  on  the 
cashier's  desk,  instead  «»f  being  delivered  to  the  directors,  would 
be   binding  on  the  directors.^*     The  practice  of  banks  to  give 
notice  to  the  makers  of  notes  of  the  time  of  their  maturity  can- 
not, where  such  notice  has  been  delivered,  be  substituted  for  a 
demand  for  payment  so  as  to  charge  the   indorser.^     A    bank 
whicli  by  mistake  has  certified  a  promissory  note  made  payable  at 
its  banking  house  to  be  "  good"  can  correct  such  mistake  before 
rii^hts  and  liabilities  liave  been  incurred  or  losses  sustained  in  con- 
sequence of  it  J    When  a  note  is  made  payable  at  a  bank,  all  that 
tlie  holder  is  ri'ipiired  to  do  is  to  make  demand  for  payment  at 
the  bank.®     Where  a  note  payable  at  bank  is  left  there,  and 
remains  during  hanking  hours  on  the  last  day  of  grace,  and  no 
funds  are  provided  for  taking  it  up,  that  would  be  sufficient  evi- 
dence of  demand  and  refusal  of  payment.'      In  the  absence  of 

1  jjjI^j  cumstances,    was   entitled  to  recover 

« Sullivan    r.    :Mitclull,    1  Carolina    from   the  principal  and    his   trustees 
l^w  Repository  iX.  (  .),  482;  Smith  r.    the  amount  of    the  note  so  canceled 


§334] 


COLLECTIONS. 


691 


McLean,  N.  C.  Term  Rep.  72. 


and  delivered  up. 

» Cheney  r.  Libby,  134  U.  S.  68.  'Weld  r.  Gorham.  (1813)  10  Mass. 

^  Planters'  Bank  r.  Markham.  5  How.  366.  As  to  notice  of  protest  by  mail 
(Miss.)  397.  In  Dewey  r.  Bowers,  4  where  that  method  of  service  is  the 
Ired.  (N.  C.)  538,  a  bank  received  usage,  see  Benedict?'.  Rose,  16  S.C.  629. 
from  the  maker  of  a  note  which  it  had  As  to  notice  by  a  bank  of  non-pay- 
discounted  a  draft  on  New  York  and  ment  of  note,  see  Bank  v.  Wallace,  13 
awreed  to  apply  the  proceeds,  if  the    S.  C.  347. 

draft  was  collected,  to  the  payment  of       « Farmers'    Bank    of    Maryland    v. 
the  note  after  declining  to  receive  the    Duvall,  7  G.  &  J.  (Md.)  78. 
draft  in  discharge  of  the  note.  After-       ^  Second  National  Bank  of  Baltimore 
wanls  the  cashier  of   the  bank,  by   t.   Western  National   Bank  of  Balti- 
mistake,  supposing  the  draft  to  have   more,  (1878)  51  Md.  128. 
been  paid,  canceled  the  note  and  de-       «Bank  v.  Flagg,  1  Hill  (S.  C),  17<. 
livered    it  to  the  principal.     It  was       'Lafayette    Bank    v.  McLaughlin, 
soon  ascertained   that   the  draft  had   (Super.  Ct.  Cincinnati,  1846)  4  West, 
been    protested  and    never  paid.     It   Law  J.  70. 
was  held  that  the  bank,  under  the  cir- 


any  special  contract,  a  bank  with  which  notes  are  deposited  is 
only  bound  to  receive  the  money,  if  paid,  and,  if  not  paid,  to  fix 
the  liability  of  the  parties  by  due  demand  and  notice.^  The 
maker  of  a  note  payable  at  bank  will  be  presumed  to  consent  to 
be  governed  by  the  custom  of  the  bank  with  regard  to  making 
them  and  of  payment  of  such  notes.^  Where,  by  the  custom  of 
a  bank,  notes  payable  there  and  in  its  possession  and  not  paid  dur- 
ing banking  hours  on  the  day  on  which  they  fall  due,  are  con- 
sidered as  dishonored,  without  any  formal  demand,  then  no  such 
formal  demand  and  presentment  would  be  necessary  to  charge  an 
indorser.^  Where  the  bank  at  which  a  note  is  payable  is  the 
holder,  it  would  be  a  sufficient  demand  for  the  officers  of  the  bank 
to  hand  it  to  a  notary  after  banking  hours,  telling  him  there  are  no 
funds  to  meet  it.*  When  discounting  a  note  or  bill,  should  a  bank 
inquire  of  the  one  presenting  it  as  to  the  indorser's  residence,  and 
send  a  notice  to  the  place  named,  this  would  be  sufficient  to 
charge  the  indorser,  even  though  he  may  never  have  resided  at 
the  place  named."  A  person  indorsing  a  note  with  the  knowl- 
edge of  a  custom  of  a  bank  not  to  give  out  notes  for  protest 
until  three  o'clock  on  the  third  day  of  grace  would  be  bound 
thereby.*  Where  the  known  and  established  usage  in  a  bank  as 
to  papers,  the  third  day  of  grace  on  which  falls  on  Sunday,  is  not 
to  demand  payment  until  Monday,  the  bank  receiving  a  note,  the 
third  day  of  grace  falling  on  Sunday,  to  be  collected  according 
to  the  known  and  established  mode  of  transacting  its  business, 


*  Crow  «.  Mechanics'  Bank,  12  La. 
Ann.  692. 

'Harrison  v.  Crowder,  6  Smedes  & 
Marsh.  (Miss.)  464. 

*  Cohea  r.  Hunt.  2  Smedes  &  Marsh. 
(Miss.)  227.  In  Mount  v.  First  Na- 
tional Bank,  37  Iowa,  457,  the  note 
was  left  with  the  bank  for  protest 
without  direction  as  to  where  notice 
to  the  indorser  was  to  be  sent.  The 
notice  was  sent  by  mistake  to  a  person 
of  the  same  name  as  that  of  the  in- 
dorser and  living  in  the  neighborhood. 
The  court  held  that  the  bank  was  not 
liable  for  negligence. 

*U.  S.  Bank  r.  Garneal,  2  Pet. 
543. 


^  Palmer  r.  Whitney,  (1863)  21  Ind. 
58.  In  Commercial  &  Railroad  Bank 
1).  Hamer,  7  How.  (Mss.)  448,  it  was 
held  that  generally  a  note  payable  in 
bank  should  be  presented  for  payment 
during  banking  hours,  but  where  it 
was  the  custom  of  the  bank  to  keep  its 
back  door  open,  with  its  teller  present 
after  banking  hours  to  answer  demands 
then  made,  and  a  note  was  then  pre- 
sented, and  the  teller  answered,  ac- 
cording to  the  truth  of  the  case,  that 
there  were  then  no  funds  and  had  not 
been  during  the  day  to  pay  the  note, 
the  presentment  was  good. 

'Bank  of  Columbia  v.  Mc Kenny, 
3  Cranch  Cir.  Ct.  361. 


692 


COLLECTIONS. 


[§335 


would  not  l,e  liable  to  damage  for  omitting  to  demand  payment 
on  Saturday.^ 

*'rr  "tU     n^wL  no    paid  when  it  matured,  and  the 
collection,     ^l^e  note  wa«  P       ^^^_^^  ^^^  ^^^^^ 

Unk  owmng  f '«  "f  ^ J^  ""^f^  „,„„„d  tUat  by  its  negligence  the 

'^''*'   Z  i:^r  i'jr  o tld  tl.  mdori  haUe.     The  trial 
owner  had  lost  its  rifenx  the  defendant.    This  judg- 

court  rendered  a  judgm-t  in  fa^^^^^  ^^  Ohio,  which  held 

ment  was  reversed  by  t^^  ^^P^^  ,,     i^„  j.^j  i,een  guilty 

of  the  note.^ 


1  Patriotic  Bank  v.  Farmers'  Bank 
o!  Alexandria,  2  Cranch  Cir.  Ct.  560. 
As  to  liability  of  bank  for  negligence  in 
such  matters,  see  Bank  ..  Burns  12 
Colo.  539;  s.  c.  21  Pac.  Rep.  ^4; 
Drovers'  Nat.  Bank  ..  A"f ' A";-"«^^ 
Packing  &  Ptov.  Co..  117  U-  m  «• 
c    7  N  E.  Rep.  601;  Bank  v.  Good- 

'       i«\aT»o    ^t  424-  8  c.,2Atl.  Rep. 
man,  109  Pa.  bt.  4-4,  ».  ^., 

687-    Farwell  v.   Curtis,  7  Biss.   162, 
Mig  ^.  Bank.  80  N.  Y.   100;  Bnggs 
..  Bank,  89  N.  Y.  182.    In  Holmes  . 
Roe,  62  Mich.  199.  it  was  held  that 
where  the  person  receiving  a  check 
upon  a  banker  and  the   banker    on 
whom  it  is  drawn  are  in  the  same 
place,  in  the  absence  of  specid  cir- 
cumstances it  must  be  presented  for 
payment  the  same  day  or.  at  east,  the 
day  after  it  is  received;  but.  if  m  dif- 
ferent places,  the  check  must  be  for- 
warded  for  presentment  on  the  aay 
after  it  is  received  at  the  latest^   8ee, 
also  Hamilton  v.  Winona  Stdt&  Lum- 
ber Co.,  (1893)  95  Mich.  436 

«Bank^.  Bank.  (1892)  49  Ohio  St. 
351  The  opinion  of  the  court  evinces 
a  full  and  careful  discussion  of  the 
law  relating  to  the  questions  involved, 


and  shows  such  a  statement  of  the 
facts  which  explain  its  ruUng,  that  we 
give  it  in  the  words  of  the  court.     It 
was  said:    "The   real  contention  be- 
tween the   parties  was  whether  [the 
paveel.the  indorser  of  the  promissory 
noie.  had  been  discharged  from  liabil- 
ity to  the  [plaintiff]  by  reason  of  the 
negligence  of   the   [defendant].     The 
note  had  been  transmitted  to  the  [de- 
fendant]  for  collection  and  was  not 
paid  at  maturity.     If  [defendant]  by 
its  neghgence  had  discharged  the  in- 
dorser. then  it  should  beheld  hable  for 
the  damage  it  thereby  caused;  but  it, 
notwithstanding    the    alleged    negh- 
gence. [the  indorser]  remained  liable, 
it  should  be  exonerated,  for  all  the 
duty  it  owed  to  the  [plaintiff],  in  case 
the  note  was  not  paid,  was  to  take 
such  action  as  would  charge  the  in- 
dorser     When  the  note  matured  the 
[defendant]  in  error  notified  the  makers 
and  one  of  them  came  to  its  banking 
house.     A  plain  and  simple  duty  then 
confronted  the  [defendant]:    Either  to 
require  payment  of  the  note,  or,  in  de- 
fault thereof,  to  take  such  action  as 
by  the  law  merchant  was  necessary  to 


COLLECTIONS. 


693 


§336] 

§  336.  What  action  on  its  part  will  relieve  a  collecting 
bank  from  liability.— Tlie  United  States  Circuit  Court  of 
Appeals  for  tlie  sixtli  circuit  has  held  that  a  bank  receiving  a  cer- 
tificate of  deposit  issued  by  a  banli  for  collection  and  mailing  it 
to  the  bank  which  issued  it,  with  a  request  for  a  remittance,  was 
guilty  of  negligence.  But  in  this  particular  case  it  appeared  that 
the  plaintiff  bank  on  May  8,  1888,  mailed  to  the  defendant  bank 
the  certificate  of  deposit  for  collection,  and  on  May  ninth  the  lat- 


charge  the  indorser.     It  did  neither. 
That  the  note  was  conditionally  paid  is 
suggested;  what  that  may  mean  in  this 
connection  is  not   clear.     No  doubt, 
that,  as  between  the  holder  and  the 
maker  of  a  promissory  note,  a  condi- 
tional payment  may  be  made;  but  the 
rules  of  the  commercial  law  require  a 
holder,  who  intends  to    hold  an  in- 
dorser liable,  to  give  notice  to  the  lat- 
ter of  the  default  of  the  maker.     Any- 
thing less  than   a  full  and  absolute 
payment  is  a  default,  but  nothing  less 
than  that  measures  the  duty   of  the 
maker.     In  this  case,  however,  there 
was  no  conditional    payment    made. 
True,  the  [defendant]  had  in  its  hands 
the  means  of  enforcing  payment,  but 
did  nothing;   it   simply  accepted  the 
maker's  promise  that,  if   [the  payee] 
did  not  give  further  time,  they  would 
pay  the  note.     If  the  [defendant]  had 
given  notice  to  the  [plaintiff]  of  the 
default  of  the  maker,  it  would  have 
discharged  its  duty,  for  it  would  have 
afforded  the  latter  an  opportunity  to 
give  notice  to  [the  indorser].     Lawson 
u.  Bank.  1  Ohio  St.  206.    Where,  how- 
ever, a  holder  of  a  promissory  note 
passes  by  an  immediate  indorser,  and 
serves  notice  of  non-payment  upon  one 
more  remote,  he  cannot  avail  himself 
of    the  time  the  immediate  indorser 
would  have  had  to  serve  the  remote 
one  if  the  holder  had  given  notice  to 
the  former;  but  the  holder  in  that  case 
must  give  notice  to  the  remote  indorser 
within  the  same  time  that  he  is  re- 
quired   to  give  it  to  the  immediate 


indorser.       1     Parsons   on    Notes    & 
Bills,  514;  Dobree  v.  Eastwood,  3  Car. 
&    P.    250;    Simpson    v.    Turney,     5 
Hump.  419;  Rowe  r.  Tipper.  13  C.  B. 
249;  :Marsh  v.  Maxwell.  2  Camp.  210. 
Therefore,  if  the  letter  of  [the  makers] 
had  been  sufficient  in  form  and  sub- 
stance to  fix  the  liability  of  [the  payee 
indorser]  it  was  mailed  too  late  and 
for  that  reason   he    was   discharged. 
This  release  of  [the  indorser]  was  an 
accomplished  fact  before  the  makers 
of  the  note  applied  to  him  fo  extend 
the  time  of  payment.     The  omission 
of  the  bank  to  require  payment,  or  in 
default  thereof  to  give  the  necessary 
notice  to  charge   [the  indorser]   was 
caused    by    the    solicitation    of    the 
makers.     *    *    *    The  most   careful 
scrutiny  of  the  record  fails  to  disclose 
that  [the   indorser],  up  to   this  time, 
said  or  did  anything  to  mislead  the 
bank  or  to  induce  it  to  relax  its  vigil- 
ance,  or   omit  any  step  necessary  in 
law  to  charge  him  as  indorser.     [The 
indorser],  therefore,  had  a  perfect  de- 
fense   against    any    action    taken    to 
charge  him  as  an  indorser,  unless  by 
his  subsequent   conduct  he  has  for- 
feited his  right    to  set    up    this  de- 
fense."     After    discussing     whether 
there  was  sufficient  notice  to  the  in- 
dorser and  whether  he  was  estopped 
to  defend,  the  court  then  made  this 
query:  "  Was  due  diUgence  shown  in 
giving  this  notice  ? "    This  was   an- 
swered as  follows:     "  The  last  day  of 
grace   was   October  17  and  the  letter 
was  not  mailed  until  the  19th,  two 


r 

I 


J 

■■■.  I 


C94 


COLLECTIONS. 


[§33G 


ter  mailed  it  to  the  bank  issuing  it.  On  June  first  the  defendant 
bank  credited  the  plaintiff  bank  with  the  item  in  the  account 
current  for  May,  and  wrote  that  nothing  had  been  heard  from 
the  bank  issuing  the  certificate  after  repeated  inquiries,  and 
requested  that  the  matter  be  investigated  and  a  duplicate  or  a 


days  later.     To  constitute    due  dili- 
gence it  should  have  been  deposited 
in  the  post  office  in  time  to  have  de- 
parted in  the  earliest  mail  to  the  resi- 
dence of  [the  indorser]  that  departed 
after  business  hours  on  the  18th.    Law- 
son  T.  Bank.  1  Ohio  St.  206.    It  is  true 
that  if  the  [defendant]  had  chosen  to 
give  notice  of  non-payment    to    the 
[plaintiff]  that  the   [plaintiff]    would 
have     had    one     day     after    it     re- 
ceived  notice   within  which   to    give 
notice  to  [the   indorser]  and  in   that 
case    a    notice   to  [by?]    the.  [plain- 
tiflf]  to  [the  indorser]  on  the  19th  of 
October  would  have  been  in  time.     1 
Pars,  on  Notes  &  Bills,  513;  Lawson 
D.  Bank,  1  Ohio  St.  206.     On  October 
17,  1888,  the  day  after  the  note  ma- 
tured,   one    of    the    makers    *    *    * 
was  called  into  this  bank  and  his  at- 
tention was  directed  to  it;  the  makers 
then  had    funds  in  the  bank  which 
could  have  been  applied  to  its  pay- 
ment, but  upon  [this  maker's]  repre- 
sentation that   his   firm  was  pressed 
for  means  it  was  induced  to  indulge 
them  until  they  could  apply  to  [the 
payee]  for  a  short  extension  of  the 
time  of  payment,  promising  to  pay  it 
if  [he]  refused  to    extend  the  time. 
After  two  days' delay,  they  mailed  the 
letter  of  October  19,  to  which  he  re- 
ceived in  answer  [the  payee's]  letter  of 
the  20th,  granting  the  favor,  of  which 
the  bank  was  at  once  advised;  it  there- 
upon continued  to  receive  and  pay  out 
for  the  makers  large  sums  of  money 
until  November  1,  1888,  on  which  day 
the  makers  assigned  their  property  in 
trust  for  their  creditors,  having  assets 
sufficient  to  pay  only  a  few  cents  on 


the  dollar  of  their  indebtedness.    No 
doubt  but  for  this  letter  of  [the  payee's] 
the  bank  would   have    charged    this 
note  against  the  maker's  deposits,  and 
in  that  way  demand  its  payment.     If 
[the  indorser]  had  been  influenced  by 
the  facts,  and  chose  to  grant  an  exten- 
sion  to  the  makers,    and    the    bank 
relying  thereon  had  paid  out  all  the 
funds  of  the  makers  before  the  assign- 
ment   was    made,  and    thus  lost    its 
means  of  indemnity,  he  should  be  held 
to  abide  the  consequences.     But  he 
had  no  such  knowledge,     lie  neither 
knew  that  he  had  been  discharged  by 
the  bank's  neglect,  nor  that  the  bank 
had  indemnity  within  its  control.     His 
granting  the  extension  was  an  indis- 
creet act  in  itself,  and  he  should  not 
be  charged  with  consequences  that  he 
had     no    reason    to     suspect    would 
flow     from    it.       On     the    contrary, 
this  bank  [the  defendant   here]   was 
an    actor    in    the   entire    transaction. 
With  means  of  payment  in  its  hands, 
it  chose    to    indulge    the  makers   in 
direct   violation    of   its  duty  to  the 
[plaintiff].     It  knew  this  indulgence 
was  granted  to  the  makers  of  the  note, 
expressly,  to  enable  them  to  apply  for 
an  extension  of  payment  to  one  who, 
upon  the  face  of  the  paper,  was  only 
liable  in  case   it  did  the  very  duty 
that  it   must  of  necessity  violate  to 
grant  the  indulgence.     And  when  the 
letter   from   [the  indorser]  was  made 
known  to  it,  and  it  proceeded  to  act 
upon  the  extensions  granted,  it  had  no 
reason  to  beUeve  that  he  had  granted 
the  extension  with  knowledge  of  the 
facts,  and  it  took  no  action  to  advise  him 
of  their  existence.  Under  these  circum- 


337] 


COLLECTIONS. 


695 


remittance  obtained  from  the  issues  of  the  certificate.  On  June 
twenty-second,  having  received  no  answer  to  this  letter,  the 
defendant  bank  wrote  the  plaintiff  bank  that  repeated  letters 
about  the  item  had  remained  unanswered,  that  they  had  written 
the  plaintiff  bank  for  a  duplicate,  and  that  they  now  charged  the 
plaintiff  bank  with  the  item,  which  was  accordingly  done  in  the 
account  current  for  June.  This  closed  the  correspondence  with 
reference  to  the  matter.  The  issuers  of  this  certificate  continued 
in  good  credit  until  after  January  1,  1889,  w^hen  they  failed. 
The  Court  of  Appeals  held  that  under  these  facts  the  defendant 
bank  was  not  responsible  to  the  plaintiff  bank  for  more  than 
nominal  damages,  approving  of  the  instruction  of  the  lower  court 
that  those  letters  and  the  charging  back  amounted  to  a  renuncia- 
tion of  the  defendant's  agency  so  far  as  the  defendant  could 
renounce  it,  adding  that  the  defendant  could  not,  by  its  renuncia- 
tion, put  an  end  to  the  agency  as  the  facts  then  were,  and  relieve 
itself  from  liability  without  the  consent,  express  or  implied,  of 
the  plaintiff,  and  that  such  consent  would  be  implied  from  the 
silence  of  the  plaintiff  after  being  informed  of  the  renunciation  ; 
and  that  if  the  j^laintiff  made  no  objection  to  the  renunciation, 
tlie  defendant  was  not  liable  for  damage  thereafter  resulting  from 
events  subsequent,  and  not  from  the  sending  of  the  certificate  to 
the  issuers  for  collection.^ 


§  337.  Rules  as  to  checks  and  drafts. —  A  bank  receiving 
a  bill  for  collection  from  another  bank,  becomes  the  agent  of  the 
remitting  bank  and  not  of  the  owner  of  the  bill,  and,  in  the 
absence  of  agreement  to  the  contrary,  would  be  answerable  to  the 
remitting  bank  for  neglect  in  the  discharge  of  its  duties  as  agent, 
whereby  that  bank  sustains  loss  or  damage.^  It  is  the  duty  of  a 
bank  receiving  for  collection  a  bill  payable  at  a  future  time  to  use 
due  diligence  in  presenting  it  and  in  giving  notice  of  a  failure  of 
due  acceptance,  or  where  a  bank  receives  a  bill  for  collection,  pre- 
sents it  for  acceptance,  and  gives  no  notice  of  non-acceptance,  it 

stances  [the  defendant]  must  be  held  '  First  Nat.   Bank  of  Evansville  c. 

to  have  assumed  the  risks  that  natu-  Fourth  Nat.  Bank  of  Louisville,  (1893) 

rally  flowed  from  its  actions,  one  of  56  Fed.  Rep.  967. 

which  was  that  [the  indorser]  might  '  Commercial  Bank  v.  Union  Bank, 

avail  himself  of  a  defense   thus    af-  (1854)  11  N.  Y.  203. 

lorded  to  him  by  its  own  negligence." 


I 


ooc 


COLLECTIONS. 


[§337 


will  be  held  liable  to  the  owner  for  the  amount  of  the  bill  in  case 
the  acceptance  be  defective.^  A  bank  acting  merely  as  collecting 
agent  of  drafts,  without  knowledge  that  the  money  collected  was 
to  be  received  in  any  way  for  its  own  benefit,  or  to  be  applied  on 
an  indebtedness  to  it,  or  on  its  own  account,  will  not  be  held  to 
have  received  the  money  in  paynicnt  of  its  indebtedness  or  on  its 
accoimt.^  A  bank  receiving  a  draft  for  collection,  with  instructions 
from  the  holder  of  the  draft  to  collect  the  money  due  on  it  and 
hold  the  same  until  called  for,  by  crediting  it  to  the  account  of 
another  in  violation  of  the  instructions,  will  become  liable  to  the 
holder  for  whom  collection  was  made.^  Where  a  collection  of  a 
draft  is  made  for  the  owner  under  a  direction  of  himself,  or 
some  one  accompanying  him,  given  in  his  presence  and  hearing, 
to  hold  the  money  imtil  one  or  the  other  of  the  two  should  give 
further  directions  as  to  the  disposition  of  the  money,  and  this 
otlier  person  afterwards  have  the  money  paid  to  himself  or  placed 
to  his  credit  to  make  good  an  overdraft  on  his  own  account,  the 
bank  would  not  be  liable  to  the  owner  for  the  sum  collected.*  It 
is  the  duty  of  the  bank  with  which  a  check  or  bill  is  deposited 
for  collection,  to  transmit  it  to  a  suitable  agent  to  demand  pay- 
ment in  such  a  manner  that  no  loss  may  happen  to  any  party  to 
the  check,  whether  the  drawer,  indorser  or  indorsee.^  The 
acceptor  of  a  bill  of  exchange,  discounted  by  a  bank,  with  bill  of 
lading  atttiched,  which  the  acceptor  or  other  bank  regarded  as 
genuine  at  time  of  acceptance,  but  which  proved  to  be  a  forgery, 
has  been  lield  bound  to  pay  the  bill  to  the  bank  at  maturity.*' 
The  rule  upon  which  this  holding  was  made  was  that  bad  faith  in 
taking  negotiable  paper,  which  will  defeat  recovery  thereon,  must 
be  something  more  than  failure  to  inquire  into  their  considera- 
tion, because  of  rumors  or  general  reputation  as  to  bad  character 
of  maker  or  drawer.'     The  words  "  for  collection,"  appended  to 

'  Walker  r.  Bank  of  State  of  New  •  Goetz  v.  Bank  of  Kansas  City,  119 

York,  (1854)  9  N.  Y.  582,  affirming  13  U.  8.  551. 

Barb.  636.  ■>  Ibid.     When  the  holders  of  drafts 

'  Merchants'    Bank    of    Canada    v.  must  bear  the  loss  where  they  have  not 

Union  R.  R.  &    Transportation   Co.,  been  returned  or  presented  in  a  rea- 

(1877)  69  N.  Y.  373.  sonable  time  and  the  drawer  has  be- 

3  International   Bank   r.  Ferris,  118  come  insolvent.     Colling  wood  v.  Mer 

III.  465.  chants'  Bank,  15  Neb.  121. 

*  Ibid. 

*  Drovers'  National  Bank  c.  Provis- 
ion Co.,  117  111.  100. 


o 


071 


COLLECTIONS. 


CO* 


an  indorsement  upon  a  check,  limit  the  effect  which  the  indorse- 
ment would  have  without  them  and  give  authority  to  the  holder 
only  to  collect  for  the  benefit  of  the  indorser.*  It  may  be  shown 
by  a  bank  taking  a  certified  check  on  another  bank,  either  as  a 
payment,  on  account,  or  for  the  purpose  only  of  collection,  that 
the  check  had  availed  nothing,  where  the  bank  so  receiving  the 
check  may  have  discharged  its  duty  by  an  effort  to  collect  it.^ 
A  bank  receiving  a  check  for  collection  and  retaining  it  for  four 
days  without  presenting  it  for  payment,  or  making  any  offer  for 
its  collection,  or  giving  any  notice  to  the  depositor  of  its  non- 
payment, has  been  held  in  North  Carolina  liable  for  loss  ensuing 
therefrom.^  Where  a  bank  received  a  check  upon  itself  for  col- 
lection, being  at  the  time  a  large  creditor  of  the  drawer,  and 
failed  without  excuse  to  notify  the  depositor  of  the  non-payment 
of  the  check,  it  was  held  guilty,  in  law,  of  negligence,  and  that 
by  its  action  the  bank  had  made  the  check  its  own  and  was  liable 
for  its  whole  amount.*  A  bank  receiving  a  check  for  collection 
payable  at  a  day  subsequent,  would  bo  liable  to  the  owner  for 
failing  to  j^resent  it  at  the  proper  time  where  it  had  presented  it 
for  payment  without  allowing  days  of  grace."^      A  bank  receiving 


'  Hoffman  v.  First  National  Bank  of 
Jersey  Qty,  17  Vroom  (N.  J.),  604. 

*  Drovers'  National  Bank  v.  Provis- 
ion Co..  117  111.  100.  In  Bickford  v. 
First  National  Bank  of  Chicago,  (1866) 
43  111.  238,  the  check  was  drawn  and 
certified  and  depo.sited  in  a  bank  after 
ten  o'clock  a.  m.,  and  before  three 
o'clock  p.  M.  on  a  certain  day,  where  it 
remained  until  next  morning,  when  it 
was  taken  in  the  usual  course  of  busi- 
ness to  the  bank  on  which  it  was 
drawn.  The  bank  was  closed  and  con- 
tinued so.  The  check  was  protested 
for  non-payment  and  due  notice  given. 
The  Supreme  Court  of  Illinois  held 
that  there  was  sufficient  diligence  to 
hold  the  owner  of  the  check.  In  New 
York,  etc.,  R.  R.  Co.  r.  Smith,  4N.  J. 
Law  J.  34,  a  certified  check  was 
given  on  a  New  York  bank  to  the  agent 
of  the  railroad  company  in  Newark. 
By  a  rule  of  the  company  the  agent 
could  not  indorse  the  check,  but  was 
88 


required  to  send  it  to  the  principal  of- 
fice in  New  York  city.  Two  days 
after  the  check  was  given  it  was  re- 
turned in  due  course  of  collection  to 
the  Newark  bank,  which  had  mean- 
while failed.  It  was  held  that  there 
was  no  negligence  in  the  presentation 
of  this  check  which  would  prevent  the 
company  recovering  the  amount  of 
the  check  from  the  drawer. 

^  Bank  of  New  Hanover  v.  Kenan, 
76  N.  C.  340. 

"*  Ibid.  An  illustration  of  no  want 
want  of  reasonable  diligence  in  the  pre- 
sentation of  a  check  for  payment. 
Werk  r.  Mad  River  Valley  Bank, 
(1858)  8  Ohio  St.  301.  As  to  the  effect 
of  delay  in  presenting  check  for  pay- 
ment, see  Stewart  v.  Smith,  (1867)  17 
Ohio  St.  82;  McGregor  v.  Loomis, 
(1850)  1  Disney  (Ohio),  247. 

*  Ivory  T.  Bank  of  Missouri,  (1865), 
3r>  Mo.  475. 


em 


CX)LLECTION8. 


[§  337 


from  a  depositor  a  check  upon  another  bank  for  collection,  should 
the  collection  fail,  without  fault  of  the  bank  receiving  the  check 
for  collection,  has  a  right  to  return  the  check  and  cancel   the 
credit  given  the   depositor  for  the  amount.^     The  bank  m  an 
Indiana  case,  holding  a  check  drawn  in  its  favor,  indorsed  it  to  a 
bank  "  for  collection  for  account  of  "  itself,  and  sent  it  by  mail  to 
this  bank  with  a  letter  from  its  cashier,  stating,  "  I  inclose  for 
collection  and  cr,  as  stated  below "  (specifying  this  and  other 
checks  and  drafts  sent).     The  check  was  placed  by  tins  bank  on 
ite  collection  register,  where   were   entered   only   such   checks 
received  for  collection  as  were  treated  as  the  property  of  the 
parties  sending  them,  no  credit  being  given  therefor  until  they 
were  collected.    The  cashier  of  this  bank  indoi-sed  the  check  for  col- 
lection and  transmitted  it  to  a  third  bank,  with  authority  by  letter 
to  credit  the  second  bank  with  the  proceeds  when  collected.     On 
the   same  day  the  transmitting  bank  failed  and  went  mto  the 
hands  of  a  bank  examiner.     Two  days  afterwards  the  third  bank 
collected  the   check,   with  notice  by  newspaper  report  of  the 
failure  of  the  second  bank,  but  not  notifying  the  drawee  of  this 
fact  of  which  thev  had   no   notice.     The  collecting  bank  then 
credited  the  failed  bank  with  the  amount  collected  on  the  check 
it  being  then,  on  account  of  previous  dealings,  legally  indebted 
to  it      The  bank  examiner  also  having  in  charge  the  books  of  the 
failed  bank,  without  the  consent  of  the  remitting  bank,  credited 
it  and  charged  the  collecting  bank  with  the  amount  of  the  check 
on  the  books  of  the  failed  bank,  which,  at  the  time  it  received 
tlie  check,  was  largely  indebted  to  the  remitting  bank.     In  this 
action,  brought  by  the  latter  against  the  collecting  bank,  the  court 
held  that  it  was  entitled  to  recover ;  that  the  indorsement  of  the 
check  to  the  failed  bank  did  not  vest  title  in  it,  or  give  it  any 
right  to  the  proceeds  ;  that  the  accompanying  letter  meant  that  tt 
should  collect  for  the  remitting  bank  and  place  the  proceeds  to 
its  credit  and  not  that  the  failed  bank  should  treat  the  check  as 
its  own  or  credit  the  remitting  bank  therewith  before  collection  ; 
that  the  transaction  did  not  make  the  former  the  debtor  of  the  latter 
before  the  check  was  collected,  or  deprive  the  latter  of  its  rights 
to  the  check  or  its  proceeds  before  its  collection  by  the  former ; 

1  Decatur    National  Bank  ..  Mur-   aid,  51  Cal.  64;  Boyd  v.  Emerson.  29 
phy,  (1881)  9  Bradw.  (111.)  112.     See,    E.  C.  L.  68. 
also*  National  Gold  Bank  r.  McDon- 


§  337] 


COLLECTIONS. 


G99 


that  the  collecting  bank  was  the  agent  of  the  failed  bank,  and 
being  notified  by  the  indorsement  on  the  check  that  the  latter 
was  not  the  owner  of  it  or  entitled  to  its  proceeds,  the  former 
had  no  right  to  credit  the  amount  to  the  latter  on  its  indebted- 
ness to  the  former ;  that  the  notice  it  had  of  the  failure  of  its 
correspondent  was  sufficient  to  require  the  collecting  bank 
to  regulate  its  action  with  a  view  to  the  rights  of  the  remitting 
bank,  as  affected  by  the  failure  of  its  correspondent;  tliat  the 
directions  in  the  letter  of  the  casliier  of  the  remitting  bank  to  the 
failed  bank  constituted  an  authority  to  mingle  the  fund  with  the 
general  funds  of  the  bank  when  collected,  whereby  the  former 
bank  would  become  a  general  creditor  of  the  latter  instead  of 
being  entitled  to  the  fund  ;  that  the  insolvency  and  suspension  of 
the  latter  operated  as  a  revocation  of  such  authority,  and  if  it 
had  authority  to  collect  at  all  after  its  suspension,  the  former 
bank  would  be  entitled  to  the  specific  fund,  and  the  collecting 
bank,  being  an  agent  of  the  failed  bank,  had  no  more  power  or 
right  as  to  the  specific  fund  than  its  principal ;  that  the  rights  of 
the  remitting  bank  were  not  injuriously  affected  by  anything  done 
by  the  bank  examiner  with  its  knowledge  or  consent,  and  that  the 
fact  that  the  collecting  bank  had  credited  the  amount  collected 
upon  its  debt  against  the  failed  bank,  did  not  discharge  it  from 
liability.^  A  bank  to  which  an  inland  bill  of  exchange  is 
transmitted  for  collection  through  the  intervention  of  another 
bank,  becomes  the  agent  of  the  payee  and  is  answerable  to  him 
alone  for  any  breach  of  its  duty  in  relation  to  the  bill.^ 
Where  accounts  are  kept  between  different  banks,  and  one  of 
them  fails  to  pay  over  money  received  on  drafts  or  bills  of 
exchange  collected  for  the  other,  the  remedy  is  against  the 
defaulting  bank,  and  not  against  the  drawer  of  the  bill  or  draft.^ 
Should  a  bank  receive  a  bill  for  collection  and  omit  to  present  it 
at  the  proper  time  or  place  for  payment,  and  a  loss  be  sustained 
in  consequence  of  such  an  omission  to  present  it  for  payment,  the 
bank  would  be  liable  to  the  extent  of  the  loss."*  And  the  right 
of  action  against  the  bank  would  not  be  waived  by  the  owner  of 
the  bill  withdrawing  it  from  the  custody  of  the  bank ;  nor  would 

'  First  National  Bank  v.  First  Na-  '  Kupfer  v.  Bank  of  Galena,  (1864) 

tional  Bank,  (1881)  76  Ind.  561.  34  111.  328. 

•  Farmers'  Bank  r.  Owen,  5  Crancb  *  Branch    Bank  at   Montgomery  i\ 

Cir.  Ct.  504.  Knox,  (1840)  1  Ala.  148. 


\ 


TOO 


COLLECTIONS. 


[§33T 


the  bank  be  discharged  from  its  liability  to  answer  for  its  negli- 
gence by  the  pursuit  of  any  of  the  parties  liable  upon  the  bill.* 
The  facts  of   a   case  in  the   federal   court  for  the   district  of 
Colorado  were  as  follows :  The  bank  sued  here  received  from  the 
plaintiff  bank  a  sight  draft  for  collection,  drawn  by  the  plaintiff 
bank  on  a  third  bank  against  funds  actually  to  the  credit  of  the 
drawer ;  the  defendant  received  this  draft  for  collection  January 
tenth,  and  transmitted  it  directly  to  the  drawee,  its  correspondent, 
on  the  same  day ;  it  should  have  reached  the  drawee  in  two  days ; 
the  drawee  continued  good  until  January  twenty-ninth,  when  it 
failed.     Tlie  drawee  did  not  acknowledge  the  receipt  of  the  draft, 
and,  in  fact,  the  draft  miscarried  and  never  reached  the  drawee  ; 
the  defendant  made  no  inquiries  about  it  until  February  ninth  ; 
the  plaintiff  and  defendant  both  supposed,  meanwhile,  that  the 
draft  had  been  paid ;  the  defendant  gave  the  plaintiff  no  notice 
of  any  kind  in  respect  of  the  draft  until  February  eleventh.     lu 
its  action  against  the  collecting  bank  to  recover  the  amount  of 
the  draft,  the  collecting  bank  was  held  liable  on  the  ground  that, 
by  its  negligent  omission  of  duty,  a  loss  had  resulted  to  the  plain- 
tiff.'-^     The  measure  of  damages  in  such  a  case  was  held  to  be  the 


§337] 


COLLECTIONS. 


TOl 


*  Ibid.  As  to  the  time  witliin  which 
the  holder  of  a  bill  of  exchange  must 
present  it  for  acceptance,  see  Bank  of 
Bennington  v.  Raymond,  12  Vt.  401. 

«  First  National  Bank  of  Trinidad 
V.  First    National    Bank    of    Denver, 
(1878)   4   Dill.   29().     Dillon,   C.   J., 
said:     "  I  have  fully  examined  the  ad- 
judged cases  relating  to  the  duty  and 
responsibility  of  a  bank  which  under- 
takes to  act  as  a  collecting  agent  for 
its  customers  or  for  other  banks.     They 
clearly  show  that  the  defendant  bank 
ought   to   have  ascertained,  within  a 
reasonable    time,   whether    the    draft 
transmitted  had  been  received  by  its 
correspondent,  and  if  not  to  have  ad- 
vised the  plaintiff  thereof.     The  prac- 
tice of  banks  to  send  such  checks  or 
drafts  directly  to  the  dnnrre  (as  in  this 
case)  is  attended  with  some  obvious 
additional  peril,  and  does  not  weaken, 
if  indeed  it  does  not  increase,  the  dili- 
gence required  of  the  collecting  bank 


in  respect  to  inquiry  and  notice.     The 
defendant  bank  allowed  an  unreason- 
able time  to  elapse  before  it  made  in- 
quiry concerning  the  draft,  and  more 
than  a  reasonable  time  had  elapsed  be- 
fore the  failure  of  the   Kansas  City 
Rank    occurred.     It  was    this    negli- 
gence that  caused  the  loss,  since  it  is 
estabhshed  by  the  evidence  that  the 
draft  would  have  been  paid  if  it  had 
been  presented  at  any  time  before  the 
suspension   of    the    drawee    on    the 
29th  day  of    January.     Here,    then, 
was  an  uuexcused  delay  for  fifteen  or 
sixteen  days  to  make  any  inquiry  or 
give  any  notice.     Aside  from  the  cus- 
tom or  usage  pleaded  in  defense  *  *  * 
the  decisions  in  England  and  in  this 
country  are  uniform  that  such  delay  to 
make  inquiry  and  omission  to  notify 
the   party  interested,  as  occurred  in 
this  case,  impose  a  liability  if  loss  is 
thereby  occasioned." 


full  amount  of  the  draft.^  In  an  early  Connecticut  case  it 
appeared  that  the  plaintiff  had  drawn  a  bill  of  exchange,  payable 
to  his  order,  upon  a  person  residing  in  the  city  where  the  defend- 
ant bank  did  business ;  that  he  indorsed  it  in  blank  and  lodged  it 
with  a  New  York  bank  for  collection ;  that  the  cashier  of  that 
bank  indorsed  it  in  blank  and  forwarded  it  to  a  bank  in  Connecti- 
cut, the  cashier  of  which  indorsed  it  in  the  same  manner  and 
transmitted  it  to  defendant  bank,  each  of  these  indorsements  being 
made  for  the  purpose  of  collection  only.  The  money  was  paid 
to  the  defendant  bank  by  the  acceptor,  and  the  defendant  claimed 
in  this  action  of  the  drawer  the  right  of  treating  it  as  a  collection 
on  account  of  the  Connecticut  bank,  through  which  it  came  to 
defendant,  and  to  set  off  the  avails  of  the  collection  to  the  credit 
of  that  bank  upon  the  general  account  between  the  banks.  The 
Supreme  Court  of  Connecticut  held  that  the  defendant  was  not 
the  factor  or  banker  of  the  Connecticut  bank  through  which  it 
received  the  bill,  and  as  agent,  or  in  any  other  capacity,  did  not 
have  a  lien  on  the  avails  of  the  bill  for  the  general  balance  of  its 
account  with  that  bank.=^  They  further  held  that  the  custom  of 
transmitting  bills  for  collection  from  one  bank  to  another,  and 
crediting  on  account  the  avails  received,  whatever  effect  it  might 
have  had  between  themselves,  could  not  affect  the  claims  of  a 
third  person,  who  may  have  confided  the  collection  of  a  bill  to 
one  of  them,  without  assent,  either  express  or  implied,  to  the 
mode  of  transacting  their  business.^      Where  a  draft  was  deposited 


»  First  National  Bank  of  Trinidad r. 
First  National  Bank  of  Denver,  (1878) 
4  Dill.  290. 

,'  Lawrence  v.  Stonington  Bank 
(1827)  6  Conn.  520.  The  court  referred 
as  follows  to  certain  Enghsh  cases: 
"In  Jourdaine  v.  Leprone,  1  Esp.  66, 
it  was  said  by  Lord  Kenyon  that  a 
banker  had  a  lien  on  a  note  paid  into 
his  house,  and  of  course  a  right  to  re- 
tain it  for  his  general  balance.  The 
doctrine  more  clearly  appears  from  the 
case  of  Davis  v.  Bowsher,  5  Term  Rep. 
488.  A  customer  lodges  bills  of  ex- 
change in  the  hands  of  his  banker  gen- 
erally,  and  when  the  banker  advances 
money  to  him  he  applies  it  to  the  dis- 
count of  such  of  the  bills  as  happen 


to  be  nearest  in  value  to  the  sum  ad- 
vanced, but  without  any  special  agree- 
ment to  that  effect.  This  does  not  in- 
validate the  banker's  general  lien  upon 
all  the  other  bills  in  his  hands,  but  he 
may  retain  them  in  order  to  secure  the 
payment  of  his  general  balance.  These 
cases,  and  others  to  the  same  effect, 
are  inappropriate  to  the  one  before  us. 
The  transaction  of  sending  notes  for 
collection  from  one  bank  to  another 
has  no  analogy  to  the  payment  of  notes 
to  a  banker  and  obtaining  discount  on 
a  part  of  them." 

^  Lawrence  v.  Stonington  Bank, 
(1827)  6  Conn.  521.  That  bills  of  ex- 
change must  be  presented  to  the 
drawees  in  a  reasonable  time,  and  that 


702 


CJOLLECTIONS. 


[§337 


in  a  bank  without  directions  that  it  should  be  treated  as  a  separate 
fund,  and  was  forwarded  for  collection  to  another  bank  which 
failed,  and  the  drafts  and  deposits  between  the  two  banks  had 
been  Constantly  changing,  it  has  been  held  that  the  owner  of  the 
draft  should  share  ^ro  rata  with  other  creditors.^     .f^^^^^.f  ^^^^ 
in  an  action  against  a  bank  for  money  received  to  its  ere Jt  t  at 
the  bank  was  employed  to  collect  certam  drafts,  and  that  the 
mley  was  paid  toV  correspondent,  a  bank  in  the  place  where 
the  drawee  lived,  and  that  the  correspondent  forwarded  a  draft 
for  the  money  to  the  defendant,  it  would  devolve  upon  the  latter 
to  show  that,  through  no  default  or  want  of  diligence  on  its  part 
the  draft  was  not  paid.'     Where  acceptance  of  a  draft  is  refused,  it 
is  not  necessary  to  present  the  draft  for  Payment «      A  bank 
receiving  a  bill  for  collection  becomes  the  agent  of  the  owner, 
and  in  the  discharge  of  its  obligations  as  his  agent  is  bound  to 
present  it  for  acceptance  without  reasonable  delay,  and  to  present 
it  for  payment  upon  maturity  ;  if  not  accepted  or  not  paid  when 
presented  the  bank  should  take  such  steps  by  protest  and  notice 
L  are  necessary  to  charge  the  drawer  and  indorser.     Otherwise, 


wlmt  is  a  reasonable  lime  depends  upon 
the  facts  in  each  case,  see  Montelius  r. 
Charles,  76  111.  303;  Walsh  v.  Dart,  23 
Wis.  334;  Knott  o.  Venable.  42  Ala. 
186;  Veazie  Bank  X).  Winn,  40  Me.  60; 
East  River  Bank  ^.  Gedney,  4  E.  D. 
Smith,  582;  Phoenix  Ins.  Co.  v.  Allen, 
U  Mich.  501;  Fugitt  ^.  Nixon,  44  Mo. 
295;  Aymar  i\  Beers,  7  Cow.  705;  Sice 
«.  Cunningham,  1  Cow.  397;  Robinson 
«.  Ames,  20  Johns.  146;  Bachellor  v. 
Priest,  12  Pick.  399;  Wallace  «.  Agry, 

4  Mason,  336. 

»  Edson  V.  Angell,  58  Mich.  336. 

«  Simpson  v.  Waldby,  63  Mich.  439. 
As  to  the  responsibility  of  a  bank  em- 
ployed to  collect  drafts  upon  parties  at 
a  distance  for  the  failure  or  dishonesty 
of  its  correspondent  selected  by  itself, 
see  Simpson  r.  Waldby,  63  Mich,  439. 
As  to  the  right  of  the  owner  of  a  bill 
remitted  through  a  bank  for  collection 
to  recover  it  of   the  bank,  notwith- 
standing   the     latter's     placing    the 
amount  to  the  credit  of  its  correspond- 


ent in  settling  the  latter^s  indebtedness 
to  it,  see  ]Vlillikin  i\  Shapleigh,  (1865) 

36  Mo.  596. 

3  Exeter  Bank  r.  Gordon,  8  N.  H. 
66,  78.     In    Tsunnemaker    v.    Lanier, 
(1867)  48  Barb.  234,  the  bankers  had 
received  for  collection  a  draft  upon  a 
trust  company,  and  on  presenting  the 
same  at  their  office  received  in  pay- 
ment the  check  of  the  trust  company 
upon  a  bank  and  surrendered  the  draft. 
The  bankers  neglected  to  present  the 
check  for  payment  on  the  day  they 
received  it,  and  before  banking  hours 
on  the  next  business  day   the  trust 
company  suspended  payment  and  its 
check  was  dishonored  on  presentation. 
The  Supreme  Court  of  New  York  held 
that  the  bankers,  by  surrendering  the 
draft,  assumed  the   responsibility  of 
taking  the  check  of  the  trust  company 
in  payment,  and  that  the  existence  of 
a  custom  in  the  city   of   New  York 
among  business  men  to  take  the  checks 
of  the  trust  company  without  certifica- 


^  :138] 


COLLECTIONS. 


Y03 


it  becomes  liable  to  the  owner  for  the  damages  wliicli  he  may 
sustain  by  such  neglect  to  perform  its  duties,  unless  there  be  some 
agreement  to  the  contrary,  express  or  implied.^ 

§  338.  Negligence  of  a  bank  as  to  check  held  for  collection. 

—  In  a  late  Kansas  case  the  payee  of  a  check  upon  a  bank  brought 
action  against  the  drawer,  basing  his  action  upon  the  fact  that  there 
was  money  to  the  credit  of  the  drawer  in  the  bank,  and  the  bank 
becoming  insolvent,  Jiad  made  an  assignment,  and  the  check  came 
back  unpaid.  It  appeared  that  tlie  payee  of  the  check  had  placed 
it  in  the  liands  of  liis  bank  as  liis  agent  for  collection,  and  the 
latter  had  sent  it  to  the  drawee  for  collection.  The  question  for 
decision  by  the  Supreme  Court  of  Kansas  was  stated  to  be 
whether  the  negligence  of  the  payee  and  his  agent,  his  bank,  in 
sending  the  check  directly  to  the  drawee  operated,  under  the 
facts  agreed  upon,  to  discharge  tlie  drawer  from  liability.  The 
court  said  :  "  From  the  agreed  statement  it  appears  that  the 
check  reached  Kiclifield  on  the  12th  of  December,  1889,  after 
business  hours;  that  the  bank  on  which  it  was  drawn  was  open, 
doing  a  general  business,  receiving  de})osits  and  paying  money  on 
checks  during  its  regular  banking  hours  on  the  thirteenth.  Dur- 
ing that  day  a  letter  was  written,  addressed  to  the  [payee's  bank], 
with  which  was  inclosed  the  check  and  the  statement  '  No  funds 
in  bank.'  This  letter  was  deposited  in  the  post  office  after  bank- 
ing hours,  and  received  at  [the  place  where  the  check  was  drawn] 
after  business  hours  on  the  fourteenth.  The  refusal  to  pay  was, 
therefore,  not  communicated  to  any  one  until  the  fourteenth.  Can 
it  be  presumed  that  if  the  check  had  been  regularly  presented  over 
the  counter  to  the  TtichHeld  Bank  on  the  thirteenth  a  false 
answer  would  have  been  given,  as  was  in  fact  given  by  letter  and 
payment  refused  ?  It  is  admitted  that  the  defendant  had  more 
than  money  enough  to  his  credit  to  meet  the  check.  Had  pre- 
sentment been  made  by  another  agent  of  the  plaintiff  and  pay- 
ment refused,  steps  might  have  been  taken  immediately  to  pro- 
tect the  drawer's  rights ;  but,  the  check  being  in  the  hands  of 
the  drawc^,  of  course  no  effort  could  be  made  by  it  to  prosecute 
itself,  and  the  fact  that  payment  was  refused  was  not  communi- 

tion,   in    the    same  manner  as  bank       '  Montgomery  County  Bank  «.  Al- 
checks,  was  no  defense  to  an  action  by   bany  City  Bank,  (1852)  7  N.  Y.  459. 
the  owners  of  the  draft  to  recover  the 
amount  of  the  same. 


ro4 


COLLECTIONS. 


[§338 


cated  to  tlie  [payee's  bank]  until  the  night  of  the  day  following 
the  last  one  on  which  the  Richfield  Bank  was  open  for  business. 
It  might  be  that  the  answer  *  Xo  funds  in  l)ank '  was  literally 
true,  and  that  the  Richlield  Bank  liad  not  the  money  with  which 
to  make  payment  at  any  time  during  the  day  of  the  thirteenth  ; 
but  we  are  not  at  liberty  to  indulge  in  any  presumptions  of  that 
kind,  the  agreed  facts  showing  that  it  received  deposits  and  paid 
checks  during  the  whole  of  that  business  day.  This  case  must  be 
decided  in  accordance  with  established  principles,  and  the  fact 
that  tlie  Richiield  Bank  was  a  small  concern  in  a  very  sparsely 
peopled  part  of  the  state,  and  perhaps  never  had  &i\y  large 
amount  of  funds  in  its  possession,  cannot  bo  made  a  pretext  for 
breaking  down  those  wholesome  rules  of  business  which  have 
been  built  up  and  defined  wnth  so  much  care  and  precision.  The 
request  in  this  case  by  letter  was  not  an  ordinary  demand  of  pay- 
ment calling  for  current  funds,  but  was  a  recpiest  for  Kansas  City 
exchange,  wdiich  the  drawee  would  of  course  be  at  perfect  lil)erty 
to  refuse.  In  cases  of  this  kind  a  hardship  necessarily  results  to 
one  party  or  another.  Courts,  in  their  decisions,  must  be  guided 
by  fixed  rules.  The  plaintiff,  having  trusted  in  the  good  faith  of 
the  Richfield  Bank  by  sending  the  check  to  it,  must  bear  tlie 
burden  of  the  loss  occasioned  by  its  failure  occurring  after  the 
day  on  which  regular  presentment  should  have  been  made.'-  ^     It 


'  Anderson  v.  Rodgers,  (Kans.  1894) 
36  Pac.  Rep.  1067,  1069.  The  ruling 
was  the  result  of  an  application  of  the 
principles  declared  in  these  words:  '  *  It 
is  true,  as  was  said  by  this  court  in 
Gregg  «. George,  16 Kans.  546,  that  Mn 
order  to  charge  the  drawee  of  a  check, 
the  same  strict  rule  of  diligence  in 
making  demand  and  giving  notice  of 
non-payment  does  not  obtain  as  in  cases 
of  ordinary  bills  of  exchange.  As  a 
general  rule  he  is  not  discharged  un- 
less be  suffers  some  loss  in  conse- 
quence of  the  delay  of  the  holder.'  If 
the  drawee  of  a  check  has  no  funds  on 
deposit  to  meet  it,  or  if,  having  funds 
in  the  bank  at  the  time,  he  afterwards 
withdraws  them,  and  the  check  is  not 
paid  on  that  account,  the  drawee 
[drawer?],  having  suffered  no  injury 
by  reason  of  delay  in  its  presentment, 


will  not  be  discharged  from  liability; 
but  when  a  person,  having  funds  on 
deposit  in    a    bank,   draws    a   check 
against  them,  the  holder  of  the  check, 
if  he  delays  its  presentment,  assumes 
the  risk  of  the  failure  of  the  bank.     It 
is  said  in  Daniels  on  Negotiable  Instru- 
ments,  (§   586):     'The   fact  that  the 
check  is  presumed  to  be  drawn  against 
deposited    funds    makes    it    of   even 
greater  importance  than,  in  the  case  of 
a  bill,   that  a  check   should   be  pre- 
sented, and  that  the  drawer  should  be 
notified  of  non-payment  in  order  that 
he  may  speedily  inquire  into  the  causes 
of  refusal,  and  be  placed  in  a  position 
to  secure  his  funds  which   were  de- 
posited in  the  bank.'    The  rule,  how- 
ever, as  to  the  time  allowed  the  holder 
for  presentment  of  a  check,  in  order 
to  relieve  him  from  the  risk  of  loss  by 


§339] 


COLLECTIONS. 


705 


would  not  be  negligence  on  the  part  of  a  bank  receiving  a  check 
from  one  of  its  customers  for  collection  to  forward  the  check  by 
uiail ;  but  if,  failing  to  hear  from  it  within  a  reasonable  time,  the 
bank  neglects  to  make  inquiry  or  give  notice,  this  would  be  neg- 
ligence, and  the  bank  would  make  itself  liable  for  ensuing  loss 
occasioned  by  the  drawer's  insolvency.* 

§  339-  When  a  bank  collecting  a  draft  is  liable  to  the 
owner. —  It  was  held  in  the  federal  court  for  the  district  of 
Indiana  that  a  bank  which  was  an  indorsee  for  collection  for 


failure  of    the    drawer,    is  definitely 
fixed  by  the  authorities:  (1)  Where  the 
payee  to  whom  the  check  is  delivered 
receives  it  in  the  place  where  the  bank 
on  which  it  is  drawn  is  located,  he 
must  present  it  by  the  close  of  bank- 
ing hours  on  the  next  business  day. 
(2)  Where  the  check,  as  in  this  case,  is 
drawn  on  a  bank  located  at  a  place 
distant  from  that  in  which  it  was  re- 
ceived by  the  payee,  it  must  be  sent 
for  presentment  for  payment  by  mail 
on  the  next  secular  day  after  it  is  re- 
ceived, and  presented  on  the  next  day 
after  its  receipt.      In    this    case  the 
check  seems  to  have  been  forwarded 
for  payment  in  due  time,  but  it  was 
sent  directly  to  the  drawee  by  mail, 
with  the   request  that  the    bank    of 
Richfield  remit  the  amount  by  mail  in 
exchange     on     Kansas     City.      The 
[payee's  bank],  therefore,  elected  the 
drawee  of  the  check  as  its  agent  for 
collection.     That  this  was  negligence 
is  well  settled  by  the  authorities.     It 
is  said  in  Daniel  on  Negotiable  Instru- 
ments (volume   1,  §  328a),    'For  the 
purposes  of  collection,  the  collecting 
bank  must  employ    a   suitable    sub- 
agent.    It  must  not  transmit  its  checks 
or  bills  directly  to  the  bank  or  party 
by  whom  payment  is  to  be  made,  with 
the  request  that  remittances  be  made 
therefor.      It   is  considered    that   no 
firm,  bank,  corporation  or  individual 
can  be  deemed  a  suitable  agent,  in 
89 


contemplation  of  law,   to  enforce  in 
behalf  of  another  a  claim  against  itself.' 
This    proposition    is    sustained     by 
abundant  authorities.     Drovers'  Nat. 
Bank  v.  Anglo-American  Packing  & 
Provision  Co.,  117  111.  100;   s.  c,  7  N. 
E.  Rep.  601;   Bank  v.  Burns,  12  Colo. 
539;    8.  c,  21  Pac.  Rep.  714;    Bank  r. 
Goodman,  109  Pa.  St.  432;  s.  c.  2  Atl. 
Rep.  687;    First  Nat.  Bank  of  Evans- 
ville  ??.  Fourth  Nat.  Bank  of  Louisville, 
6  C.  C.  A.  183;    s.  c,  56  Fed.  Rep. 
967;  Farwell  v.  Curtis.  7Biss.  160;  s.  c, 
Fed.   Cases,    No.  4,690."    It  was  in- 
sisted before  the  court  that  inasmuch 
as  the  check  was  forwarded  in  due 
time  and  came  into  the  hands  of  the 
drawee,  which  refused  payment,  and 
returned    the    check  with  the   state- 
ment *•  No  funds  in  bank,"  the  defend- 
ant was  not  injured  by  the  mode  of 
presentment;   that  an  answer  of  "  No 
I'unds,"  sent  by  mail,  was  as  effectual 
a    refusal    to    pay  as    though    made 
across  the  counter  at  the  bank.     To 
this  the  court  said:    "  Where  due  pre- 
sentment is  not  made  the  burden  of 
proof  is  upon  the  holder  of  the  check 
to  show  that  the  drawer  has  not  suf- 
fered injury."     Ford  v.  McClung,  5 
W.  Va.  166;  2  Pars.  Notes  &  B.  71;   2 
Dan.   Neg.   Inst.  §  1588;    Daniels   v. 
Kyle,  1  Ga.  304. 

'  Shipsey  v.  Bowery  National  Bank, 
(1875)  59  N.  y.  485. 


TOG 


COLLECTIONS. 


[§ 


340 


account  of  a  prior  indorsee  for  collection  was  liable  to  the  owner 
of  the  draft  for  the  amount  collected,  and  not  remitted  to  the 
owner  or   the  prior    indorsee,  notwithstanding  credit  for  the 
amount  was  given  the  latter  and  he  charged  the  collector  and 
credited  the  owner,  and  was  charged  for  the  same  by  the  owner, 
and  though  the  collector,  by  virtue  of  an  agreement  witii  its 
indorser,  whereby  the  amount  due  from  one  to  the  other  for  col- 
lections was  to  be  placed  to  the  latter's  credit  with  a  certain  bank, 
wrote  to  that  bank  to  place  the  amount  to  the  credit  of  the  prior 
indorser,  which  order  it  could  have  countermanded  after  notice 
of  the  latter's  failure.^     In  a  case  in  the  federal  court  it  appeared 
that  the  owners  of  a  bill  of  exchange  sent  it  to  a  certain  bank 
indorsed  by  them  for  collection.     At  the  time  the  bank  received 
the  bill  of  exchange   it  was  insolvent,  to  the  knowledge  of  its 
manaijing  officer,  and  on  that  day,  or  following  morning,  it  failed. 
Prior^o^its  failure  this  bank  indorsed  the  bill  of  exchange  to 
another  bank,  which  collected  it  and  kept  the  proceeds,  crediting 
the  insolvent  bank,  which  was  indebted  to  it,  with  the  amount 
collected.     Tlu^  court  held  that  the  first  bank  acquired  no  title 
because  of  its  fraud  in  not  disclosing  its  insolvency,  and  the  col- 
lecting bank    had   no  better  title,   as  the  owner's  indorsement 
showed  that  the  bank  was  merely  the  owners  agent  to  collect  the 
proceeds.^ 

§  340.  When  indorser  of  a  check  is  relieved  of  liability.— 
The  question  of  liability  of  an  indorser  of  checks  drawn  payable 
to  his  order,  bv  one  upon  a  bank  with  which  the  latter  kept  an 
account,  to  the  bank  in  which  he  placed  the  checks,  they  being 
received  as  cash  as  shown  by  the  record  of  the  case,  and  not  for 
collection  by  the  bank,  has  been  considered  in  a  recent  case  before 
the  Nebraska  Supreme  Court.  There  had  been  delay  in  the 
presentation  of  the  checks,  and  the  court  declined  to  lay  down 
any  rule  by  which  the  indorsee  of  a  check  must  present  the  same 
for  payment  in  any  given  time  to  hold  the  indorser.     But  in  this 

i  Commercial  Nat.  Bank  of  Cincin-  Nat.  Bank  of  Chicago «.  Bank,  3  Fed. 

nati   r.   Hamilton  Nat.    Bunk  of  Ft.  Rep.  257;  Blaine  v.  Bourne    11  R.  1. 

Wayne  (1890)  42  Fed.  Rep.  880.     See  119;  Bank  r.  Ilubbell,  22  N.  E.  Rep. 

Sweeny  v  Easter.  1  Wall.  173:  Bank  1034;  Whiter.  Bank.  102  U.  S.  658. 

of  the  Metropolis  r.  First  Nat.  Bank  of  '  Peck  r.  First  National  Bank.  (1890) 

Jersey  City.  19  Fed.  Rep.  303;  Bank  43  Fed.  Rep.  367. 
V.  Armstrong,  39  Fed.  Rep.  684;  First 


S  34(^] 


C!OLLECTIONS. 


707 


particular  case  they  held  that  the  checks  were  not  presented  in  a 
reasonable  time.^ 


»  First  National  Bank  of  Wymore  v. 
Miller.  37  Neb.  500.     The  court  con- 
sidered the  question  as  to  whether  the 
indorsee  was  damaged  by  the  delay  in 
presgntiug  the  checks  was  wholly  im- 
material, upon  the  rule  st.ited,  as  they 
said,  in  the  following  cases:  "  In  North- 
western Coal  Co.  r.  Bowman  &  Co  ,  69 
Iowa,  150,  the  court  say.  after  deciding 
that  the  plaintiff  had  held  the  check  in 
question  an  unreasonable  time  before 
presenting   it,  and  that  it  could    not 
recover   against  indorsers :  '  The  fact 
that  the  drawer  had  no  funds  in  the 
hands  of  the  drawee  when  the  check 
was  drawn,  makes  no  difference.'     In 
Gougli  r.   Staats.   13  Wend.   510,   the 
Supreme  Court  of  New  York  say  :  '  If 
there  has   not   been   <lue  diligence  iu 
presenting  the  check  for  payment,  the 
indorser  is  discharged,  although  he  has 
not   been    prejudiced    by  the  delay.' 
The  Nebraska  court  said  further:  '  The 
authorities  all  stiy  that  in  order  to  hold 
an  indorser  of  a  check  it  must  be  pre- 
sented by  the  indorsee  in  a  reasonable 
time,  and  as  lo  Avhat  is  a  reasonable 
time,  depends  upon  the  facts  and  cir- 
cumstances  of  each  particular  case.' 
The  facts  in  this  case  were  that  the 
checks  were  placed  in  the  bank  about 
the  close  of  banking  hours,  on  the  31st 
day  of  May,  1890.    The  bank  on  which 
they    were    drawn    was    in    a    place 
twenty -seven  miles  distant  from   the 
location  of  the  bank  receiving  them, 
and  a  mail  left  the  latter  place  at  6  r. 
M.  daily,  arriving  at  the  place  where 
the  bank  upon  which  the  checks  were 
drawn  was  lociited,  at  9  r.  m.  of  the 
same  day.     The  bank  receiving    the 
checks  made  no  inquiry  of  the  bank 
on    which    they  were    drawn,    as    to 
whether  the  checks  were  good,  nor  did 
it  at  any  time  advise  that  bank  that  it 
held  the  checks,   but  on  the  day  of 
their  receipt  mailed  them  to  a  bank 
in   another    state,  which   bank   sent 


them  by  mail  to  a  bank  in  Omaha, 
Nebraska,   which  bank  in  turn  sent 
them  by  mail  to  the  bank  on  which 
they  were  drawn,  they  arriving  there 
on  June  5,  where  they  were  then  pro- 
tested for  non-payment.     In  Smith  v. 
Janes.   20  Wend.    192,   the    Supreme 
Court  of  New  York  say:  'The  holder 
of  a  check  can  recover  against  the  in- 
dorser only  when  he  has  used    due 
diligence  iu  presenting  or  giving  notice 
of  demand  and  non  payment.     *    *    * 
Where  the  parties  all  reside  in  the  same 
place,  the  check  should  be  presented 
on  the  day  it  is  received,  or  on  the  fol- 
lowing  day;  and  when  payable  at  a 
different  place  from  that  in  which  it  is 
nenotiated,  it  should  be  forwarded  by 
the  mail  on  the  same  or  the  next  suc- 
ceeding   day  for  presentment.'      See, 
also,    Holmes    r.  Roe^  62   Mich.    199. 
In    :\[ohawk    Bank    r.   Broderick,   10 
AVend.  304,  the  Supreme  Court  of  New 
York  say:  '  A  cheek  on  a  bank  for  the 
payment  of  money,  to  charge  an  in- 
dorser, must  be  presented  with  all  dis- 
patch and  diligence  consistent  with  the 
transaction  of  other  commercial  con- 
cerns, and   it    was  accordingly  held, 
where  a  check  was  received  in  Schen- 
ectady on  the  14th  of  January,  drawn 
on  a  bank  in  Albany,  a  distance  of  six- 
teen miles  from  the  former  place,  and 
between  which  places  there  is  a  daily 
mail,  and  not  presented  until  the  6th 
of  February,  that  laches  was  imputable 
to  the  holder,  and  that  the  indorser  was 
discharged.     Although  it  is  said  that 
checks  are  like  inland  bills  of  exchange, 
and  are  to  be  governed  by  the  same 
principles,  greater  diligence  is  required 
in  presenting  them  than  in  presenting 
"bills  of   exchange.'     This    case   was 
affirmed  by  the  Court  for  the  Correction 
of  Errors  in  13  Wend.  133.     See  to  the 
same  effect  Northwestern  Coal  Co.  v. 
Bowman,  69  Iowa,  150." 


End  of  Volume  I. 


tHIIJI' 


i      COLUMBIA  UNIVERSITY  LIBRARIES 

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THE  UBRARIES 


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A  TEEATISE  ON  THE  LAW 


PERTAINING  TO 


CORPORATE    FINANCE 


INCLUDING 


THE  FINANCIAL  OPERATIONS  AND  ARRANGEMENTS 
OF  PUBLIC  AND  PRIVATE  CORPORATIONS 


AS  DETERMINED  BY 


THE  COURTS  AND  STATUTES 
OF  THE  UNITED  STATES  AND  ENGLAND 


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IN    TWO    VOLUMES 

VOL.  II 


ALBANY 
H   B.  PARSONS,  LAW  PUBLISHER 

1896 


OCI 


CO 

in 

en 


Copyright,  1891; 


TABLE  OF  CONTENTS. 


HRNRY  B.  PARSOlffd. 


•  •  • 


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TABLE  OF  CONTENTS. 


VOLUME   11. 

CHAPTER  Xm. 

INSOLVENCY  OF  BANK. 

PAOB. 

§  341.  Rules  generally 709 

342.  Appointment  of  a  receiver  for  a  national  bank 713 

343.  When  an  appointment  of  a  receiver  is  not  authorized 714 

344.  Powers  of  a  receiver  for  a  national  bank 714 

345.  Actions  of  such  receivers  —  rules 715 

346.  Action  to  control  the  conduct  of  such  receivers 718 

847.  What  a  receiver   cannot   set  off  in'  an  action  to  recover  trust 

funds  coming  into  his  hands 720 

348.  When  a  receiver  cannot  question  the  disposition  of  funds  com- 
ing into  the  hands  of  a  clearing  house  association 721 

849.  Attachment  of  property  of  an  insolvent   bank  retains  its  lien 

against  a  receiver  of  the  bank  subsequently  appointed 722 

350.  Claims    Hgainst    an    insolvent    bank  —  jurisdiction    of    court  ' 

appointing  receiver 724 

851.  For  what  amount  claim  should  be  made  and  allowed 727 

352.  What  a  claimant  may  be  charged  with 729 

353.  Claim  of  an  indorser  who  paid  a  note  not  surrendered  to  him. . .  730 

354.  Debts  due  savings  banks  preferred  under  New  York  statute. . . .  732 

355.  Claims  of  municipal  corporations  for  moneys  deposited  by  their 

officers 735 

356.  Claims  preferred  to  general  creditors  —  illustrations 738 

857.  Claims  not  preferred  to  those  of  general  creditors  —  illustrations.  747 


CHAPTER  XIV. 

LIABILITY  OP  BANK  SHAKEHOLDERS. 

358.  Rules  generally 756 

359.  Rule  under  Minnesota  statute 759 

360.  Rule  under  Michigan  statute 760 

361.  Stockholder  relieved  from  liability  by  a  sale  of  his  stock  through 

a  broker 762 

362.  Pledgee  of  stock  incurs  no  liability 763 

363.  When  a  stockholder  is  relieved  from  liability 766 

364.  The  rule  where  shares  are  transferred  to  avoid  liability 766 

365.  When  a  transfer  of  shares  does  not  relieve  the  stockholder 767 

366.  Liability  of  stockholder  survives 768^ 

867.  Liability  of  a  married  woman  upon  shares  of  stock  held  by  her 

in  her  own  right 770» 

868.  Rules  as  to  actions  to  enforce  liability  of  stockholders 772^ 


TABLE  OF  CONTENTS  —  YOLUME  H. 


CHAPTER  XV. 

OFFICEBS  OP  NATIONAL  BANKS  —  CRIMINAL  ACTS. 

PJkOX. 

*§  809.  Misapplication  of  funds  by  oflflcers 778 

870.  Making  "  false  entries  "  in  reports,  etc 774 

371.  Improper  certification  of  check 781 

372,  Restrictions  of  banking  law  of  New  York  upon  banks  and  their 

officers 788 

CHAPTER  XVI. 

mCAL  JfANAQBAIENT  —  PUBLIC  CORPORATIONS. 

'^  878.  The  power  of  county  commissioners  under  statutes  of  Nebraska 

as  to  purchase  of  lands  for  a  poor  farm ^86 

874.  Power  of  a  building  commission  of  a  town  in  Connecticut "^88 

875.  Tor  what  purposes  a  board  of  education  in  Connecticut  cannot 

use  the  public  funds . .      789 

876.  Management  of  school  funds  of  the  state  by  an  auditor  of  a  county 

under  Indiana  statutes 791 

•877.  Erroneous  payments  into  the  treasury  of  a  county  by  a  county 
treasurer  under  Indiana  statutes  —  his  right  to   recover  the 

««me 793 

■878.  For  what  a  school  district  may  settle  account  of  an  ex-assessor. .       794 

879.  The  board  of  auditors  of  a  town  may  be  ordered  to  pay  a  judg- 

ment against  the  town  for  interest  on  its  bonds 794 

880.  The  right  of  a  de  facto  county  treasurer  to  salary '796 

881.  Payments  to  city  official  in  excess  of  his  salary  may  be  recovered 

of  him 798 

882.  Compelling  a  ministerial  officer  to  distribute  the  fund  in  his 

hands >799 

883.  County  warrants  —  their  issue  and  validity  —  rules  governing. . .      801 

884.  Statute  of  Limitations  not  applicable  to  county  warrants 808 


CHAPTER  XVII. 

FISCAL  MANAOEMICNT  —  PRIVATE  CORPORATIONS. 

§  385.  Execution  of  contracts  by  corporations 805 

386.  What  would  be  conclusive  of  the  execution  of  a  contract.   810 

337,  Declaring  dividends 810 

388.  Rules  as  to  declaring  dividends  by  a  mining  corporation 811 

889.  Borrowing  money  to  pay  dividends 814 

890.  Rescinding  a  declaration  of  dividend 815 

391.  Contracts  within  and  outside  the  power  of  private  corporations. .  817 

592.  Rules  as  to  estoppel  to  plead  that  contents  are  ultra  vires 820 


TABLE  OF  CONTENTS VOLUME  II. 


-mi 


CHAPTER  XVIII. 

COTOfTY  BONDS. 

PAOK. 

%  393.  County  bonds  generally .•. .      824 

394.  Bonds  issued  for  refunding  indebtedness ►. . .      827 

395.  Bonds  not  within  the  power  of  a  Texas  county  to  issue  for  the 

erection  of  court  houses 828 

896.  Rights  of  holders  of  such  bonds 829 

397.  The  effect  of  a  statute  of  Texas  as  to  county  bonds  in  which 

school  funds  may  be  invested 830 

898.  Validity  of  bonds  as  affected  by  the  place  of  execution 831 

899.  Validity  of  bonds  as  affected  by  constitutional  requirements 832 

400.  Validity  of  bonds  as  affected  by  limitations  as  to  indebtedness..      833 

401.  The  validity  of  judgments  against  a  county  for  which  the  bonds 

were  issued  cannot  be  questioned  in  actions  on  the  bonds 840 

402.  The  statements  of  a  county's  agent  in  sale  of  the  bonds  not 

operative  as  an  estoppel  upon  the  county  to  refund 841 

403.  When  a  county  may  plead  an  overissue 842 

404.  When  the  defense  that  a  county  was  not  fully  organized  when 

the  bonds  were  issued  is  not  open  to  the  courts 843 

405.  Counties  suable  in  federal  courts 845 

406.  Plea  of  Statute  of  Limitations  on  county  bonds 845 

407.  When  statute  as  to  presentation  of  claims  is  not  applicable  to 

judgments  upon  bonds  and  coupons 846 

408.  The  proper  proceeding  of  courts  where  some  of  the  bonds  of  a 

series  are  valid  and  others  invalid >847 

CHAPTER  XIX. 

CITY  BONDS. 

§  409.  City  bonds  generally 849 

410.  Extension  of  a  bonded  debt  of  a  city 852 

411.  Bonds  for  funding  indebtedness 854 

412.  Effect  of  a  statutory  limitation  on  bonds 856 

413.  Bonds  in  compromise  of  outstanding  indebtedness 858 

414.  The  effect  of  a  statute  legalizing  an  issue  of  bonds 859 

415.  Bonds  for  public  improvements  —  limitations  on  power  to  issue.  860 

416.  Effect  of  an  order  by  resolution  of  council  of  a  city  for  an 

election  to  authorize  the  issue  of  bonds 861 

417.  Bonds  valid  when  issued  as  a  part  of  the  general  indebtedness 

of  a  city 862 

418.  Validity  of  bonds  as  affected  by  a  restriction  in  the  charter  of  a 

city 863 


CHAPTER  XX. 

TOWNSHIP  BONDS. 


^  419.  Effect  of  ordinance  of  town  coimcil  not  being  published  upon 
the  validity  of  the  bonds 


865 


vm 


TABLE  OF  CONTENTS VOLUME  II. 


TABLE  OF  CONTENTS VOLUME  U, 


» 
IX 


PAOB. 

§  420.  Bonds  for  purchase  of  gravel  road   under  Indiana  statute  — 

statute  held  to  be  constitutional 357 

421.  The  duty  and  power  of  county  authorities  where  the  vote  of  the 

towns  is  favorable  in  such  cases §70 

422.  Effect  upon  bonds  of  a  constitutional  limitation  upon  the  indebt- 

edness to  be  incurred  by  towns 373 

423.  Town  bonds  for  improvement  of  public  park  under  resolution 

of  the  Connecticut  legislature  —  when  authorized  and  to  what 
extent 374 

424.  The  effect  of  recitals  in  town  bonds  as  to  estoppel  of  the  town  to 

claim  they  were  issued  without  authority 37^ 

425.  What  is  required  of  a  bona  fide  purchaser 877 

CHAPTER  XXI. 

SCHOOL  DISTBICT  BONDS. 

§  426.  School  district  bonds  generally 879 

427.  Bonds  executed  by  a  de  facto  board  of  education 880 

428.  The  power  of  a  city  in  California  to  issue  bonds  for  building 

school  houses 880 

429.  The  power  to  issue  bonds  under  Nebraska  statutes 882 

430.  When  such  bonds  are  void  under  Nebraska  statutes 883 

431.  Validity  of  bonds  as  afiected  by  constitutional  restriction  upon 

indebtedness  of  municipal  corporations 884 

432.  Bonds  secured  by  a  pledgee  of  school  fund  and  property 887 

433.  Conditions  precedent  to  the  issue  of  bonds 888 

434.  The  adoption  of  a  statute  to  obtain  authority  to  issue  bonds  — 

mode  of  calling  election 890 

485.  When  non-compliance  with  the  requirements  of  the  Constitution 

of  the  state  is  not  a  defense  against  bona  fide  purchasers 89!^ 

486.  When  the  defense  that  the  site  of  the  school  house  was  not 

owned  by  the  district  is  not  open  in  a  bona  fide  holder's  action 

on  the  bonds 893 

487.  When  the  defense  that  the  proceeds  of  the  bonds  were  used  for 

another  purpose  is  not  open  in  such  an  action 894 

438.  What  does  not  create  an  estoppel  of  the  district  to  defend 895 

489.  One  of  the  latest  decisions  on  the  effect  of  recitals  in  bonds. . .  ^     89ft 


CHAPTER  XXII. 

MUNICIPAL  AID  BONDS  —  COUNTY. 

§  440.  Coimty  aid  bonds,  generally 898 

441.  Elections  to  authorize  aid  bonds  — how  called— how  questions 

must  be  submitted  to  voters  —  how  result  determined,  etc. . .        904 

442.  Conditions  to  subscription  —  the  right  to  prescribe,  etc 918 

443.  When  authority  to  subscribe  to  stock  gives  no  power  to  issue 

bonds  in  payment 990 


4 


¥ 


I 


§  444.  When  a  donation  of  bonds  is  authorized  ""^022 
445.  When  county  bonds  donated  to  a  railroad'company'cannoi'b^ 

scaled  down 

^^'  ^  kuds""^  ''''  ^"'"''''  county"secured '  by  mortgage  of  its  swamp  ^^^ 

447.  Precinct  aid  bonds. ..!!.......  i ' ^^^ 

448.  The  denomination  of  bonds  'changed  from '  those  named  in"  ihe  ^^^ 

fher^eb      ''''^^'  ^^^^^"^^  statutes  -  their  validity  not  affected 

449.  WhatamountstoagVftof  bondVinaidnotauihorized.'.'.';;   ""  HI 

450.  Consolidation  of  railroads-  effect  as  to  county  aid                    '    *  qZ 

451.  Constitutionality  of  a  Tennessee  aid  statute              qq^ 

452.  Ratification  of  bonds '     '   ^ 

463.  Rules  as  to  statutes  legalizing  a'  prior  issue  of  bonds  .' 9^ 

454.  Recitals  on  face  of  aid  bonds  —  their  effect                      94^ 

455.  Bonds  and  coupons  not  claims  which  require  presentation' io 

county  authorities  before  suit 9.0 

456.  Coupons— rules  governing ........[. oIi 

457.  A  county  suable  on  precinct  bonds  .!. qAa 

468.  Rules  as  to  pleading  in  such  cases .' ^^ 


CHAPTER  XXIII. 

MUNICIPAL  AID  BONDS  —  CITY. 

City  aid  bonds,  generally ^  .^ 

Rules  as  to  such  bonds  settled  in  United  s't'aies' Supreme*  Court'.      955 
Why  state  decisions  should  not  control  United  States  Supreme 
Court ^ 

95g 

When  the  issue  of  aid  bonds  by  a  city  is  authorized  . .   958 

rolV^^  "^^^  ^'^  municipal  aid  is  lost  by  delay  in  constructing 

The  election  as  to  aid  and  the  effect  of  curative  'legisk'tion;  ;'.*.*'  m 

This  case  distinguished  from  others gg. 

Aid  to  railroads  outside  the  state » ^ 

Estoppel  of  a  city  to  claim  that  bonds  were  wrongfuil'y  issued .' .'  964 

What  will  not  affect  the  rights  of  bona  fide  bondholders  965 
When  a  purchaser  of  void  municipal  bonds  cannot  maintain  'an 

action  for  money  had  and  received ggg 

Miscellaneous  rules  as  to  railroad  aid  bonds. 9^9 


§459. 
460. 
461. 

462. 
463. 

464. 
465. 
466. 
467. 
468. 
469. 

470. 


CHAPTER  XXIV. 

MUNICIPAL  AID  BONDS  —  TOWNS. 

§  471.  Aid  by  towns,  generally 

472.  Bonds  invalid  unless  conditions  are  "(implied  vrith .077 

473.  How  irregularity  of  elections  affect  the  validity  of  bonds '.'.'.'..'.  [      979 


TABLE  OF  CONTBHT& — VOLUME  II. 


PAOK. 

^  474.  Effect  of  recitals  on  face  of  bond IBl 

475.  Tiie  power  of  ccHnmUsioners  of  towns  for  issuing  aid  bonds 

under  New  York  statutes 989 

476.  The  sealing  of  such  bonds 989 

477.  Proceedings  under  New  York  statutes  preliminary  to  issue  of 

bonds 99a 

478.  Bonds  issued  after  the  passage  of  an  act  authorizing  a  change  in 

their  terms 998 

479.  Rules  as  to  the  taxes  collected  for  payment  of  aid  bonds  issued 

under  New  York  statutes 994 

480.  Power  of  town  authorities  as  to  aid  bonds  under  Kansas  statutes 

—  for  what  time  they  may  run 998 

481.  Power  of  towns  in  Massachusetts  as  to  aid  bonds — their  power 

in  the  sale  of  them 999 

482.  Power  of  towns  in  Mississippi  as  to  aid  bonds  —  for  what  time 

they  may  run 1000 

483.  Actions  by  bona  fide  holders  on  such  bonds — what  they  need 

not  show 1001 

484.  Bonds  absolutely  void  —  effect  upon  holders 1003 

485.  When  a  curative  act  of  the  legislature  will  not  validate  them  . . .  1005 

486.  Effect  of  curative  act  of  New  York 1006 

487.  Township  aid  bonds  under  South  Carolina  laws  made  a  legal 

indebtedness  by  subsequent  legislation 1007 

488.  An  Ohio  statute  as  to  town  aid  held  unconstitutional 1011 

489.  Miscellaneous  rules  as  to  town  aid  bonds 1011 


CHAPTER  XXV. 

BONDS  AND  COUPONS  —  PRIVATE  CORPORATIONS. 

§  490.  Bonds  of  private  corporations,  generally 1018 

491.  Meeting  of  stockholders  to  authorize  the  issuance  of  bonds— 

when  legally  held 1019 

493.  Interest  on  bonds  —  what  rate,  etc 1020 

493.  When  principal  liecomes  due 1021 

494.  Bonds  —  when  "  issued  "  imder  Wisconsin  statute 1022 

495.  When  a  mortgage  trustee  should  countersign  bonds 1022 

496.  Pledge  of  its  bonds  by  a  corporation  —  rights  of  pledgee,  etc. . .  1028 

497.  Validity  of  bonds  as  affected  by  statutory  or  constitutional  pro- 

visions   1027 

498.  Validity  of  bonds  as  affected  by  the  manner  of  sale  and  charac- 

ter of  purchasers 1081 

499.  Reorganization  —  surrender  of  old  bonds  and  stock  for  new 

bonds  —  rules 1035 

500.  Bondholders  —  when  bona  fide  holders  and  when  not — the  rights 

of  such 1037 

601.  Holders  of  income  bonds  —  rules  as  to  an  accounting  with  them.  1044 

502.  Detached,  uncanceled  coupons  —  rules  governing 1046 

603.  Actions  on  coupons  —  rules  governing 1047 


TABLET  or  OOlfTSNTO  —  VOLUMBII. 


JT 


PAC«, 


564  Guaranty  of  bonds  of  one  corporation  by  another — rules 1049' 

606.  Lease  of  a  bonded  railroad  —  when  lessee  is  not  bound  on  the 

bonds 1051 


CHAPTER  XXVI. 

MORTGAGES  AND  TRUST  DEEDS  —  PRIVATE  CORPORATIONS. 

§  606.  Power  of  corporations  to  execute  mortgages  and  trust  deeds  upon 

their  property 1054 

507.  Statutes  requiring  assent  of  stockholders  to  mortgages  con- 

strued       10^ 

508.  Mortgages  and  trust  deeds-— rules  to  as  place  of  execution, 

authorization — mode  of  execution^  to  whom  executed,  etc. . .     1069 

509.  Estoppel  of  corporation  to  deny  authority  of  officers  to  mort- 

gage   1077 

510.  Effect  of  laches  of  corporation  in  repudiating  a  mortgage. 1079 

511.  What  are  reasonable  provisions  in  a  mortgage^ 1079 

512.  Chattel  mortgages  of  corporations 1061 

518.  Deeds  ot  trust  and  mortgages  securingdlrectors  —  ^<^en  properiy 

given 1088 

614.  The  validity  of  mortgages  as  affected  by  restrictions,  constitu- 

tional, statutory,  or  in  charter  upon  indebtedness  to  be  incur- 
red      1087 

615.  A  mortgage  of  corporation  property  to  pay  purchase-money 

debts 108& 

516.  Illustration  of  an  equitable  mortgage 1091 

617.  Mortgage  of  a  consolidated  railroad  company  —  estoppel  to  claim 
its  validity  on  the  ground  that  the  consolidation  was  not  legally 

perfected 1093 

518.  Illustration  of  a  fraudulent  mortgage 1093 

519.  What  corporation  mortgages  cover,  and  what  they  do  not  cover.  1094 
620.  Trustees  of  such  mortgages  —  their  duty,  rights  and  powers 1101 


CHAPTER  XXVn. 

INSOLVENCY  OF  PRIVATE  CORPORATIONS. 

§  521.  How  far  the  assets  of  an  insolvent  corporation  are  a  trust  fund 

for  its  creditors  noft 

622.  The  power  of  directors  of  a  corporation  to  execute  an  assignment 

of  the  corporation's  property  for  the  benefit  of  creditors 1111 

623.  Preference  of  creditors  by  insolvent  corporations 1112 

524.  Attachment  of  property  of  insolvent  corporation  —  the  rights  of 

a  creditor  to  attach  —  lien  of  its  attachment,  etc 1117 

525.  Receivers — rules  as  to  appointment 1121 

626.  Removal  of  receivers  and  assignees 1125 

627.  The  rights  of  receivers  and  assignees  as  to  property  of  insolvent 

corporation 1127 

628.  Other  rights  of  receivers  and  assignees  of  insolvent  corporations.     1129 


■ 


Xll 


TABLE  OF  CONTENTS VOLUME  II. 


§  629.  Insolvent  beneficial  association  —  rules  ^u^. 

530.  Liability  of  stockholders  on  unpaid  subscriptions -the 'court's 

nght  to  enforce  and  how  enforced  . .  oo 

531.  Creditors'  bills- equitable  jurisdiction.' .' ' .' !  4^ 

^'  rL';™'^^"'''^  1142 

Odd.  Kules  m  cases  of  insolvent  banks. . .  ^77 

1144 


CHAPTER  XXVIII. 

FORECLOSURE  OP  MORTGAGES  AND  TRUST   DEEDS. 

Jurisdiction  of  actions  to  foreclose -  - .,» 

Bringing  such  actions  —  rules J:^ 

Parties  to  such  actions [[ 

General  rules  as  to  such  actions.   ... .' JJ^ 

Decrees  in  such  actions  -  general  rules. ...['. .  J^ 

Decrees  for  sale  of  property ::J^ 

Rirchasers  at  sales  under  the  decrees- thei;  right's  and  liabilities.'  1172 

Who  may  be  heard  on  petition  in  foreclosure  suits  ^7! 

Disposition  in  decree  of  proceeds  of  sale .  h/Jq 

Allowances  in  foreclosure  suits t^i^ 


%  534. 
535. 
536. 
537. 
538. 
539 
540. 
641. 
542. 
543. 


CHAPTER  XXIX. 

RECEIVERS  IN  PGllECLOSURE  SUITS. 

§  544.  Receivers-theirappointment-when  they  should  be  appointed 
ruK   n  ~Z      °^^      appointed -their  discharge  and  removal. . . .        1186 

545.  Conditions  attached  to  the  appointment  of  a  receiver.   . .  1193 

546.  Receiver's  right  as  to  possession  of  the  property  of  the  insoiveni 

corporation 

647.  The  relation  of  thereceiver  to  property  leased  by  the 'corpora'ti'on    ^^^^ 

coming  into  his  hands .._ 

648.  Powers  of  receivers  as  to  contracts,  etc Joaq 

^^   ^trployet' *'*''''' ^""^  '''  receivers  as  to  regulating"wag;s'of 

550.  Receiver's  certificates'-  when  ihey'  will  be  authorized  '-'the  lien     ^^ 

of  such  certificates  and  its  enforcement  1010 

551.  Rules  as  to  claims  against  receiver  growing  out  of"  rolling  stock 

coming  into  his  possession .  01  ^ 

^3'  tj^H^irl^""!'''"^"^'"^'^^  1219 

553.  Junsdiction  of  actions  against  receivers  jooa 

6.^.  Claims  against  receivera  for  injuries  to  persons  or'property'dur-' 

mg  receivership . 

555.  Rules  as  to  actions  for  injuries' io  'perao'n's  during  receivership' .' .'    1231 
5a6.  Rules  as  to  allowances  to  receivers  for  counsel  and  expenses  of 
parties  in  actions  where  receivera  are  appointed  —  what  will 
be  allowed  and  what  not jggg 

557.  Actions  allowed  a  receiver  for  the  protection  and' benefit' of' the 

property  in  his  hands -gg- 


TABLE  OF  CONTENTS  —  VOLUME  IL 


XUl 


§  558. 
659. 
560. 
561. 
662. 
563. 
664. 
665. 


566. 
667. 


CHAPTER  XXX. 

PRIORITIES  OF  LIENS  IN  FORECLOSURE  SUITS. 

Priorities  of  liens  —  general  rules. . . .  ^^^^ 

Debts  contracted  for  construction .              \^ 

Presumption  as  to  preferential  character  of  a  clai'm! 12^ 

Mechanic's  lien  as  viewed  by  the  United  States  Supreme 'court.'  1247 

Furmshera  of  supplies  -  Kentucky  statutes  construed. .  mo 

The  rule  under  Ohio  statutes t^l 

Contractors  -  Tennessee  statutes  construed i  orjo 

Furnishera    of   supplies  -  Virginia    statutes  on"t'hi;";ub'je;i 

construed *' 

^  1254 

Loans  of  money  to  corporation  before  receiverahip  1256 

Claims    for    services    rendered    the    corporation    prior  to 'the 
appointment  of  a  receiver. ...  .^sfi 

568.  When  cases  are  not  properly  removabl'e  to'u'nited"  State's  court 
from  state  court, . . . 

*     1260 


CHAPTER  XXXI. 

TAXATION  BY  PUBLIC  CORPORATIONS. 

General  rules 

Exemption  from  taxes ^^^^ 

License  tax ....!.... ^^^ 

Assessment  of  taxes  for  benefits... ^ffl 

When  a  levy  of  taxes  by  a  school  district  is'n^i  a'ut'h'oriz;d. ".'."  1271 

Irregulanty  in  the  levy  of  taxes 1271 

^Vhen  an  assessment  cannot  be  attacked. ...         ttjl 

Federal  taxation  of  incomes .^^^ 

Injunction  of  a  collection  of  taxes      j^S 


§  569. 
570. 
671. 
672. 
573. 
674. 
675. 
576. 
577. 


§578. 
579. 
580. 
581. 
582. 
583. 
584. 
585. 
586. 


CHAPTER  XXXII. 

TAXATION  OF  PRIVATE  CORPORATIONS. 

General  rules 

Exemption  from  taxation  — rules..*.* ?^ 

Taxation  of  corporations  -  rules  in  New  'York \^ 

Pri wS  t'™'""  ~  "'"  "  ^^-«y^--  •  •  •  •  •  '• ."  -■  .*  •' .' .' :  im 

Computation  of  such  rule. ...   ^^^ 

Taxation  of  banks  and  shares 'of  bank  'stock'l  'rules.'  .*.*." l^ 

Taxation  of  railroad  corporations -rules  t^ 

Taxation  of  insurance  corporations .tZ 

loUO 


I     , 


f 


I 

I  ■:. 
;i 
ti 


il 


II 


CORPORATE  FINANCE. 


I 


CHAPTEE  XIII. 

IJTSOLVENCY  OP  BANK. 


§341. 
342. 

843. 

344. 

345. 

346. 

347. 

348. 


849. 


Rules  generally. 

Appointment  of  a  receiver  for  a 
national  bank. 

When  an  appointment  of  a  re- 
ceiver is  not  authorized. 

Powers    of   a   receiver   for   a 
national  bank. 

Actions  of  such  receivers  — 
rules. 

Action  to  control  the  conduct 
of  such  receivers. 

What  a  receiver  cannot  set  off 
in  an  action  to  recover  trust 
funds  coming  into  his  hands. 

When  a  receiver  cannot  ques- 
tion the  disposition  of  funds 
coming  into  the  hands  of  a 
clearing  house  association. 

Attachment  of  property  of  an 
insolvent  bank  retains  its  lien 
against  a  receiver  of  the  bank 
subsequently  appointed. 


§350. 


351. 


352 


353. 


354. 


355. 


356. 


357. 


Claims    against   an   insolvent 

bank  — jurisdiction  of  court 

appointing  receiver. 
For  what  amount  claim  should 

be  made  and  allowed. 
What     a    claimant    may     be 

charged  with. 
Claim  of  an  indorser  who  paid 

a  note   not   surrendered   to 

him. 

Debts  due  savings  banks  pre- 
ferred under  New  York 
statute. 

Claims  of  municipal  corpora- 
tions for  moneys  deposited 
by  their  ofl5cers. 

Claims  preferred  to  general 
creditors  —  illustrations. 

Claims  not  preferred  to  those  of 
general  creditors  --  illustra- 
tions. 


§Ml.  Rules  generally.- No  better  evidence  need  be  pro- 
duced to  prove  tlie  insolvency  of  a  bank  than  a  return  of  nuUa 
bona  made  by  a  sheriff  upon  executions  issued  against  if  A 
check  does  not  become  absolutely  and  under  all  circumstances 
the  property  of  a  bank  wlien  deposited  in  it  for  collection  and 
the  bank  gives  credit  for  it  upon  its  books.  Should  the  bank  fail 
while  the  check  is  still  in  its  hands  and  before  it  has  been  sent 
out  for  collection,  it  may  be  recalled  by  the  depositor.  If  in 
such  c^e  a  receiver  be  appointed  for  the  bank  and  the  depositor 
demands  the  check  of  him,  the  receiver  ought  to  charge  the 
B^countof  the  depositor  with  the  amount  and  return  tSck 
o  the  depositor.^     Among  other  questions  before  the  federal 

he  riXT"^"'  "'  *''  insolvency  of  this  national  bank  a"d 
the  right  to  various  assets  coming  into  the  hands  of  its  receiver, 

^Wheelock  ..  Kost,  (1875)  77  111.      'Balbach  ..  Frelinghuysen,  6  N.  J. 

Law  J.  105. 


710 


INSOLVENCY  OF  BANK. 


[§341 


I 


was  this,  whether  a  bank,  which  had  sent  it  a  draft  for  collec- 
tion, which  it  in  turn  remitted  to  its  correspondent  bank  at  the 
residence  of  the  owner,  and  the  draft  was  paid  to  the  latter,  the 
latter  not  liaving  remitted  to  the  insolvent  bank  or  the  latter 
given  the  owner  of  the  draft  credit  for  the  avails  up  to  tlie  time 
it  was  declared  insolvent,  could  recover  the  proceeds  of  tliis  col- 
lection from  the  correspondent  bank.     The  United  States  Circuit 
Court  for  the  district  of  Massachusetts  held  that,  until  this  remit- 
tance was  made,  or  the  principal  bank  had   given  the  original 
owner  of  the  draft  credit  for  the  avails,  the  original  owner  of  the 
draft,  as  the  owner  of  the   proceeds   tliereof,  was   entitled   to 
recover  them  from  the  correspondent  bank.     That  though  the 
correspondent  w^as  the  agent  of  tlie  bank   sending  it  the  draft, 
and  payment  to  it  was  to  that  extent  a  payment  to  the  principal, 
yety  until  the  proceeds  were  actually  remitted  to  such  principal,' 
and   mingled   with   its  general  funds,  or  were  so  credited,  the 
owner  of  the  draft  had  the  option  to  decline  to  consider  it  his 
debtor,  and  to  claim  the  proceeds  in  the  hands  of  the  agent, 
and  when  the  principal  failed,  and  a  receiver  was  appointed,  the 
receiver  took  the  proceeds  of  the  draft  when  remitted  to  him, 
subject  to  the  same  right  of  reclamation  by  the  owner  that  the 
latter  had  as  against   the   agent/     A   national   bank   becoming 
insolvent  and  being  placed  in  the  hands  of  a  receiver,  pursuant 
to  the  National  Banking  Association  Act,  the  rights  and  liabilities 
of  debtors  and  creditors  of  the  bank  become  fixed  at  the  appoint- 
ment of  the  receiver,  and  upon  his  appointment  its  property  is 
subject,  after  prior  government  claims,  if  any,  to  disposal  and 
ratable  distribution,   upon   principles   of  equity,  among  all  its 
general  creditoi-s.»    Upon  the  insolvency  of  a  bank,  and  its  affairs 
going  into  the  hands  of  a  receiver,  general  depositors  must  be  paid 
jprorata^    In  the  event  of  a  bank  becoming  insolvent  and  its 
affairs  being  administered  through  a  receivership,  one  who  has 
made  a  general  deposit  of  trust  funds  in  it,  in  good  faith  on  the 
part  of  himself  and  the  bank,  establishing  the  relation  of  debtor 
and  creditor  between  them,  can  be  given  no  preference  over  other 
general  depositors.*    It  appeared  in  a  New  Jersey  case  that  on  a 

>  National  Exchange  Bank  of  Dallas  '  McLain  ^.  Wallace,  (1885)  103  Ind 

t».Beal,(1892)50Fed.Rep.  355;  affirmed  562. 

in  Beal  ».  National  Exchange  Bank  of  ^  Fletcher  t>.  Sharpe,  (1886)  108  Ind. 

Dallas,  (1893)  55  Fed.  Rep.  894.  276. 

•  Balch  ».  Wilson,  25  Minn.  299. 


§  341] 


INSOLVENCY  OF  BANK. 


711 


certain  day  the  directors  of  a  bank  discovered  that  its  cashier  had 
embezzled   its   funds,  but  not  to  such  an  extent,  as  they  then 
supposed,  as  to  render  the  bank  insolvent,  and   the   bank   con- 
tmued  business.     The  next  day  a  customer  of  the  bank  deposited 
with  the  bank  about  $600  in  cash  and  checks,  which  were  credited 
in  his  bank  book,  and  the  checks  duly  forwarded  for  collection 
and  credited  to  the  bank  by  its  correspondent.     The  next  dav  the 
bank  suspended  through  insolvency.     The  clahn  of  this  depositor 
was  held  to  have  no  preference  in  payment  over  those  of  other 
depositors.^     In  its  control  of  a  savings  bank,  in  a  deficiency  of 
assets   to   pay  its   depositors   in  full,  the  New  Jersey  Chancery 
Court  held  that  a  deposit  in  the  bank,  under  a  family  agreement 
of  a  sum  of  money,  to  pay  $1,460  per  annum  to  the  widow  for 
life,  and  the  surplus  of  income  from  such  deposit,  if  any  to  her 
children,  which  the  bank  had  received  under  authority  of  its 
cliarter  to  accept  and  execute  any  trusts  committed  to  it,  by  any 
person,  by  will  or  otherwise,  or  by  order  of  any  court,  was  not 
entitled  to  preference  in  payment  over  others ;  that,  even  if  the 
trust  claimed  for  it  had  been  shown,  nothing  in  the  charter  of  the 
bank  gave  the  fund  tlie  priority  claimed  for  it,  and  it  would  not 
be  entitled  to  it.^     A  state  court  is  not  deprived  by  anvthing  in 
the  National  Banking  Association  Law  of  jurisdiction  to  deter- 
mme  and  segregate  a  trust  fund  held  by  the  receiver  of  an  insol- 
vent national  bank,  and  to  render  judgment  for  a  proper  disposal 
ot   the   fund  in  accordance  with  the  trust.^    An  indorser  of  a 
promissory  note,  in  an  action  against  him  by  the  receiver  of  an 
insolvent  national  bank,  cannot  defend  by  a  claim  of  set-off  for 
money  deposited  in  the  bank.^     The  United  States  Circuit  Court 

7StIw''r!^^T^'«?''^'"^"^^'^'    ''"'^'   '^^  ^^^^  «^«^^d  f-"  ^Pon  the 
'^L     %  ^      tl  ''•      .  corporation  issuing  the  bonds,  and  not 

J^^l^J^ewark  Savings  Institution,  upon  the  holder  of  the  bonds,  see 
5  Stew.  Eq.  (N.  J.)  627.  As  to  the  Adams  ..  Hackensack  Improvement 
liabilities  of  a  national  banking  asso-  Commission,  15  Vroom  (N.  J.)  638 
ciation  to  which  its  assets  when  in  the  apUnt  Road  Cart  Co.  r  Stephens 
hands  of  a  receiver  will  be  applied  and  (1888)  32  Mo.  App.  341.  As  to  a  stat^ 
mtably  divided  among,  see  Turner  ..  court's  jurisdiction  to  follow  the  pro- 
First  National  Bank.  26  Iowa.  562.  ceeds  of  certain  drafts  in  the  hands  of 
For  a  case  holding  that  where  money   a  receiver  of  a  national  bank  as  trust 

mlt  rf7  rV'^!!'  '  ^'",^  ^''  P'^-    ^^'"^^^^'^'  ^"^  '^  ^^'^'^  tl^-r  payment 
ment  of  certain  bonds  issued  by  a  pub-    to  the  parties  entitled,  see  Tuttle  v  Fre- 

hc  corporation,  but  the  owner  of  the    linghuysen.  11  Stew.  Eq.  (N  J  )'l2 

bonds  had  not  presented  them  for  pay-       *  Stephens.     Receiver      v  '   Schuch- 

ment  when  they  fell  due,  and  the  bank   mann,  (1888)  32  Mo  App  333 


712 


INSOLVENCY  OF  BANK. 


[§341 


of  Appeals  for  the  third  circuit  has  ho]d  fliaf  fi     •  ^ 
.ote  which  is  discounted  b,  a  r^J^J^ILtL!^^ 
after  tlie  bank  becomes  insolvent  and  a  receiver  w«l  7.         T 
w^  entitled  to  set  off  against  the  note  the  ZZoU^Zlt 
in  the  bank  at  the  time  of  its  failure.^     In  an  action  b,  h   recdve 
of  a  national  bank  upon  a  note  due  the  bank  imr..  f       "^^^^^^^^ 
Tointlv  at  tho  fim*.  r^  ]  •  ^^^^  *^^^  persons 

Cour?Y!i;i  ?  appointment,  the  Minnesota  Supreme 

Court  lield  that  promissory  notes  not  due  at  the  tim^  nf  T 
appomtment  of  the  receiver,  upon  which  tit  nk  a^lllt' 
were  liable  as  makers,  and  owned  at  that  time  by  one  of  th^ 
defendants  only,  and  originating  in  a  different  tranic^Ton  couW 
not  be  offset  against  the  claim  of  the  receiver  on  the  It^  ToS 
In  case  of  an  assignment  of  a  bank  for  the  benefit  of  cldTo,. 


§  342] 


INSOLVENCY  OF  BANK. 


713 


>  Yardley  r.  Clothier,  (1892)  51  Fed. 
Rep.  506,  affirming  49  Fed.  Rep.  337. 
The  court  cited  and  commented  upon 
Skiles  V.  Houston,  110  Pa.  St.  2;j4;  s. 
c,  2  Atl.  Rep.  30;  Bosler's  Admr  v 
Bank,  4  Pa.  St.  32;  In  re  Middle  Dist 
Bank,  1  Paige.  584;  Van  Waggoner  v 
Gas  Light  Co..  23  N.  J.  Law,  283- 
Hade   V.    McVay.   31    Ohio    St    231;' 
Clarke  r.  Hawkins,  5  R.  I.  224;  Bal- 
bach  r.  Frelinghuysen,  15  Fed.  Rep. 
685,  and  disapproved  of  Armstrong  t 
Scott,  36  Fed.  Rep.  63,  and  Stephens 
ff.  Schuchmann.  32  Mo.  App.  333. 

'Balch    T.    Wilson,  25  Minn.   299. 
In  Scnierenberg  v.  Stephens,  (1888)  32 
Mo.  App.  314,  and  Nichols  r.  Stephens 
(1888)  32  Mo.  App.  330,  it  appeared 
that  a  national  bank  had  determined  in 
due  form  to  increase  its  capital  stock 
from  1300,000  to  §500,000,  but  the  new 
stock  subscriptions  never  exceeded  the 
sum  of  $130,000,  whereupon  the  bank 
advertised  an  increase  to  $430,000,  but 
this    assumed    increase    was    never 
authorized   by  a  vote  of  the  stock- 
holders and  was  never  certified  to  the 
United  States  comptroller  of  the  cur- 
rency, or  by  him  approved  or  certified. 
The  plaintiffs  in  these  suits  had  sub- 
scribed and  paid  in  certain  sums  for  so 
much  of  the  proposed  addition  to  the 
original  stock  of  |200,000.    The  btmk 


becoming  insolvent,  it  was  held  that 
the    plaintiffs    never    became    stock- 
holders, and  were  entitled  to  be  treated 
as  creditors  to  the  amount  paid  in  by 
them  and  to  have  judgment  against 
the  receiver  for  payment  of  the  same 
m  due  course  of  his  administration  of 
the  assets  of  the  bank.     In  Flint  Road 
Cart  Co.  r.  Stephens,  (1888)  33  Mo. 
App.  341,  it  appeared  that  a  sum  of 
money  had  been  placed  in  the  hands 
of  the  cashier  of  an  insolvent  national 
bank  to  indemnify  him  as  surety  on  an 
attachment  bond  in  behalf  of  the  cart 
company.     The  cashier  had  mingled 
It  with  the  bank's  funds  so  that  it 
went  with  the  assets  of  the  bank  into 
the  hands  of  the  receiver.     It  was  held 
that  the  sum  of  money  was  a  trust 
fund  separate  from  the  general  assets 
of  the  bank,  and  upon  the  discharge 
of  the  surety's  obligation  the  company 
was  entitled  to  recover  it  from  the  re- 
ceiver  without   any  reference  to  his 
administration  upon  the  claims  of  the 
bank's  creditors.     For  a  case  showing 
under  what  circumstances  a  contract 
with  other  parties  by  the  cashier  of  a 
bank  which  subsequently  became  in- 
solvent would  inure  to  the  benefit  of 
tlie  bank,  see  Hayes  v.  Orr,  (1891)  47 
Fed.  Rep.  286. 


i 


tl.e  holders  of  its  notes  are  entitled  to  a  preference  over  the 
holders  of  certificates  of  deposit'    The  noteholders  of  a  bank 
after  a  demand  and  refusal,  will  be  entitled  to  interest  on  their 
claims  m  preference  to  depositors.'    Where  a  state  bank,  organ- 
ized as  a  national  bank,  becomes  insolvent,  a  judgment  debt  due 
to  It  as  a  national  bank  cannot  be  paid  in  the  notes  of  the  old 
stete  ba„k.»     Where  a  bank  orders  its  correspondent  bank  to 
plaoo  to  Its  credit  with  another  bank  the  balance  due  it,  and  by 
mistake  the  correspondent  places  an  amount  in  excess  of  what  is 
due  to  the  credit  of  that  bank,  upon  an  assignment  bv  the  latter 
and  IS  assignee  receiving  the  amount  from  the  bankVith  which 
It  had  been  credited,  the  bank  making  the  mistake  may  recover 
this  excess  from  the  assignee  of  the  assigning  bank/    Upon 
stopping  payment  by  a  national  bank,  a  debtor  to  the  bank  cannot 
set  off  a  claim  subsequently  assigned  to  him.»     It  has  been  held  in 
the  federal  court  for  the  eastern  district  of  Virginia  that  where 
insolvent  debtors  of  an   insolvent  national  bank   assign,  giving 
preferences   m   favor  of   the  bank,  where  there  is  notliL  if 
the  language  of  the  assignment,  or  in  the  circumstances  under 
which  the  <kbt  was  created,  to  negative  the  presumption  that  the 
debt  should   bear  interest,  and  nothing  in  the  conduct   of  the 
receiver  of  the  national  bank  to  estop  him  from  claiming  interest 
interest  must  be  paid.«  ^  mierest, 

§  342.  Appointment  of  a  receiver  for  national  bank  —The 

Banki„?tt  '"  T  •°"^'['?""  "'  *'"  ^"'•'•^"'^^  ''y  *'-  National 
Banking  Act,  authorizing  him,  whenever  he  becomes  satisfied  of 

the   inso  vency  of  a  national  bank,    to  appoint  a  receiver    liL 

ofTbtk  1  '-^.f  ^«-^*-"-J-'  -d  Lis  decision  as  to  the  inrivency 
of  a  bank,  for  the  purpose  of  such  an  appointment,  held  to  be 
final  and  not  reviewable  by  the  court.     7nd  the  c^mptroL' 
ngh   to  appoint  a  receiver  under  that  act  is  not  affected  by  the 
nght  ^ven  to  stockholders  of  national  banks  by  United  St^! 

datir     ?:r^".f ""  '''''  *^  P"'  ^  '^^"'^  in'ohmtary  l  qS 
dation.    Neither  is  the  power  of  the  comptroller  to  take  action, 

«B     1      ;  r.  ^^^  ^a°k,  (1880)  48  Fed   Ren   4qq 

^  Thorp  ..   Wegefarth,    56  Pa.  St.       .fiain  ,.  Peters,  (1890)  44  Fed.  Rep. 
90 


714 


INSOLVENCY  OF  BANK. 


[§§  343,  344 


§345] 


INSOLVENCY  OF  BANK. 


715 


I 


before  the  bank  ceases  to  do  a  banking  business,  limited  by  the 
provision  of  the  statute,  tliat  after  the  receiver  lias  liad  charge  of 
tlie  bank  long  enough  to  pay  all  its  debts  the  stockholders'^may 
select  an  agent  to  take  charge  of  such  assets  as  remain.  And  the 
provision  of  the  act,  authorizing  the  appointment  of  a  receiver  by 
the  comptroller  to  "  close  up "  a  national  banking  association, 
contemplates  the  liquidation  and  iinal  winding  up  of  the  busi- 
ness of  the  bank,  not  the  mere  closing  of  the  bank,  and  does  not 
limit  tlie  power  of  the  comptroller  to  take  action  before  the  bank 
has  closed  its  doors.* 

§  343.  When  an  appointment  of  receiver  of  a  bank  is  not 
authorized.— A  demurrer  to  an  action  brought  by  one  appointed 
by  a  court  receiver  of  a  bank  in  California  was  sustained  in 
the  United  States  Circuit  Court  for  that  district.  The  court 
held  that  the  statute  of  that  state  authorizing  the  attorney- 
general,  on  the  recommendation  of  the  bank  commission- 
ei-8,  to  institute  suit  to  enjoin  any  bank  guilty  of  violating  the 
banking  laws  from  doing  further  business,  and  if  the  bank  be 
found  insolvent  to  cause  its  business  to  be  wound  up  under  the 
direction  of  the  bank  commissioners,  did  not  authorize  the  court 
to  appoint  a  receiver  for  the  bank ;  and  a  receiver  appointed  in 
sucli  a  proceeding  and  manner  was  without  authority  to  maintain 
a  suit  to  collect  claims  of  the  bank.  It  was  further  held  that  the 
statute  of  the  state  providing  that  upon  the  "  dissolution  of  any 
corporation  "a  receiver  may  be  appointed  on  the  application  of 
creditors  or  stockholders,  did  not  apply  to  the  case  of  an  insolvent 
bank  which  the  state  was  proceeding  against  for  \'iolating  its 
charter.* 

§  344.  Powers  of  a  receiver  for  a  national  bank.— Section 
5234  of  the  United  States  Eevised  Statutes,  referring  to 
receivers  appointed  for  national  banking  associations  becoming 
insolvent,  provides  as  follows :  "  Such  receiver,  under  the  direc- 
tion of  the  comptroller,  shall  take  possession  of  the  books, 
records  and  assets  of  every  description  of  such  association,  collect 

»  Washington  Nat.  Bank  of  Tacoma   345;  reaffirmed  in  ^lurraj  v.  American 
R  Eckels,  (1893)  57  Fed.  Rep.  870.         Surety  Co.  of  New  York,  (1894)  61 

« Murray  v.  American    Surety  Co.    Fed.  Rep.  273. 
of  New  York,   (1894)  59  Fed.   Rep. 


all  debts  due  and  claims  belonging  to  it,  and,  upon  the  order  of  a 
court  of  record  of  competent  jurisdiction,  may  sell  or  compound 
all  bad  or  doubtful  debts,  and,  on  a  like  order,  may  sell  all  the 
real  and  personal  property  of  such  association  on  such  terms  as 
the  court  shall  direct,  and  may,  if  necessary  to  pay  the  debts  of 
such  association,  enforce  the  individual  liability  of  the  stockhold- 
ers." An  application  was  made  in  the  United  States  District 
Court  for  the  southern  district  of  California  for  an  order  author- 
izing the  receiver  of  an  insolvent  national  banking  association 
within  that  jurisdiction  to  compound  the  statutory  liability  of 
certain  of  its  stockholders.     Eoss,  D.  J.,  denied  the  petition.* 

§  345.  Actions  of  such  receivers  —  rules. —  A  receiver  of  a 
national  bank  may  sue  in  the  United  States  Circuit  Court  to 
recover  an  indebtedness  owing  to  the  bank,  without  regard  to  the 
amount  involved.^     A  national  bank  which  had  pledged  nego- 


'  In  re  Certain  Stockholders  of  the 
California  Nat.  Bank  of  8an  Diego, 
(1892)  53  Fed.  Rep.  38.  These  were 
the  reasons  given  for  the  court's  ac- 
tion: "Assuming  that  the  court  is  au- 
thorized to  grant  the  order  asked  for, 
it  is  unhesitatingly  refused.  To  sanc- 
tion proceedings  by  which  a  stock- 
holder in  a  national  banking  associa- 
tion fraudulently  puts  away  his  prop- 
erty for  the  purpose  of  avoiding  his 
just  and  legal  obligations  as  such 
stockholder,  and  is  then  permitted  to 
compromise  his  liability  for  the  pay- 
ment of  a  less  sum  than  is  due,  is  to 
place  a  premium  upon  fraud.  With 
such  conduct  there  should  be  no  com- 
promise. Laws  are  made  to  be  ob- 
served and  enforced,  and  every  one 
should  be  made  to  know  that,  in  re- 
spect to  every  contract  made  pursuant 
to  these  provisions,  the  government 
will  accord  and  exact  fair  dealing  and 
the  utmost  good  faith.  It  is  far  bet- 
ter that  the  entire  amount  of  the  obli- 
gations of  the  stockholders  in  question 
should  be  lost  to  the  trust  fund  than 
that  the  slightest  judicial  countenance 
should  be  given  the  proposed  proceed- 
ings.   The  liability  of  the  stockhold- 


ers of  the  insolvent  bank  is  several, 
not  joint.  Kennedy  r.  Gibson,  8  Wall. 
505.  And  there  is  no  reason  why  the 
property  of  every  one  who  has  con- 
veyed or  may  convey  it  for  the  fraud- 
ulent purpose  of  avoiding  his  first  and 
legal  obligations  arising  under  the  law 
should  not  be  followed  and  every 
reason  why  it  should  be.  *  *  * 
It  is,  however,  to  say  the  least,  ex- 
tremely doubtful  whether  the  court 
has  the  power  to  authorize  the  com- 
promising of  the  statutory  liability  of 
a  stockholder  in  a  national  bank. 
*  *  *  It  is  by  no  means  clear  that 
the  statutory  liability  of  the  stock- 
holders is  a  debt  within  the  mean- 
ing of  the  clause  authorizing  the 
court  to  sanction  the  compounding  of 
all  bad  or  doubtful  debts."  This 
point,  how^ever,  was  not  decided,  it 
not  being  necessary. 

« Yardley  v.  Dickson,  (1891)  47  Fed. 
Rep.  835.  SeeU.  S.  v.  Mooney,  116  U. 
8.  104;  s.  c,  6  Sup.  Ct.  Rep.  304;  Ken- 
nedy V.  Gibson,  8  Wall.  498;  Freling- 
huysen  v.  Baldwin,  12  Fed.  Rep.  395; 
Piatt  V.  Beach,  2  Ben.  303;  Stanton  v. 
Wilkeson,  8  Ben.  357;  Price  v.  Abbott, 
17  Fed,  Rep.  506;  U.  S.  v.  Shaw,  39 


716 


INSOLVENCY  OF  BANK. 


[§345 


tiable  notes  to  another  bank  to  secure  a  loan  became  insolvent. 
The  bank  to  which  the  notes  had  been  pledged  held  them  after 
a  receiver  for  the  insolvent  bank  had  been  appointed,  still  taking 
steps  to  collect  them  on  account  of  a  balance  of  its  loan.     Those 
who  had  obtained  judgments  against  the  insolvent  bank  in  the 
state  courts  had  by  garnishment  proceedings  sought  to  enforce 
their  claims  against  the  proceeds  of  these  notes  in  the  hands  of 
the  bank  holding  them.     The  Circuit  Court  of  the  United  States, 
in  which  the  receiver  brought  his  action  in  equity  against  this 
bank,  and   the   creditors   endeavoring   to   enforce   their  claims 
against  the  insolvent  bank  in  the  state  courts,  to  recover  the  con- 
trol of  these  notes  as  a  part  of  the  assets  of  the  insolvent  bank, 
that  he  might  distribute  the  proceeds  as  other  assets,  upon  a 
demurrer  tiled  by  the  respondents,  sustained  the  jurisdiction  of 
the  Court  of  Equity  in  the  matter.^    The  receiver  of  an  insolvent 
national  bank,  it  has  been  held,  may  at  any  time  dismiss  an  attor- 
ney employed  by  him,  regularly  or  otherwise,  to  prosecute  claims 
of  the  bank,  and  employ  another  in  his  place,  when  the  court 
will,  by  order,  substitute  him  in  the  place  of  the  dismissed  attorney, 
except  as  to  such  cases  as  the  latter  may  have  commenced  and 
finished.     But  where  a  contract  has  been  entered  into  between 
the  receiver  and  the  attorney  that  the  latter  should  receive  the 
attorney's  fees  provided  for  in  the  notes  he  was  employed  to  col- 
lect, the  court  will  not  direct  the  substitution  of  another  attorney 
in  unfinished  cases  until  the  receiver  deposits  the  amount  of  the 
attorney's  fees  reserved  in  the  notes  as  a  security  to  the  dismissed 
attorney  for  such  services  as  he  may  have  rendered.^     The  maker 
of  a  note  upon  which  the  receiver  of  a  national  bank  has  brought 
action  may  plead  as  set-off  any  debt  of  the  bank  to  him  existing 
at  the  time  of  its  failure,  as  the  receiver  takes  the  choses  in  action 
belonging  to  the  bank  subject  to  all  claims  and  defenses  which 
might  have  been  interposed  as  against  the  bank  before  the  liens 
of  the  United  States  and  general  creditors  attached.^    Where  a 
bank  has  received  the  proceeds  of  a  fraudulent  sale  of  stock 
belonging  to  it,  the  fact  that  a  receiver  for  the  bank  is  subse- 

Fed.  Rep.  433;  Mitchell  v.  Walker,  2  v.  Mixter,  124  U.  8.  721 ;  s.  c,  8  Sup. 

Browne  Nat.  Bank  Cas.  180;  Hendee  Ct.  Rep.  718. 

V.  Railroad  Co.,  26  Fed.  Rep.  677.  « In  re  Herman.  (1892)  50  Fed.  Rep. 

» Chase  v.  Cannon  (1891)  47  Fed.  Rep.  517. 

674,  the  court  considering  the  case  in  »  Adams  v.  Spokane  Drug  Co.,  (1893) 

its  important  features  similar  to  Bank  57  Fed.  Rep.  888,  following  Yardley  t>, 


§345] 


INSOLVENCY  OF  BANK. 


nr 


quently  appointed  does  not  give  its  creditors  such  right  in  the 
proceeds  as  will  prevent  the  purchaser  of  the  stock  rescinding 
the  order  and  requiring  restitution.^     A  state  bank  of  Ohio  dis- 
counted its  note  payable  to  the  order  of  its  cashier  and  indorsed 
by  him  with  a  national  bank  in  Ohio  for  a  sum  of  money  which 
was  to  remain  on  deposit  to  the  credit  of  the  former  bank  in  the 
latter,  subject  to  its  check.     It  had  drawn  but  a  small  amount  of 
this  deposit  when  the  national  bank  was  taken  in  charge  by  the 
comptroller  of  the  currency,  on  account  of  its  insolvency,  and 
placed  in  the  hands  of  a  receiver  for  the  purpose  of  winding  up 
its  affairs.     The  receiver  brought  action  against  the  state  bank 
and  its  cashier  upon  its  note.     The  bank  claimed  the  right  to  set 
off  the  balance  on  deposit,  tendering  the  amount  which  it  had 
drawn  by  its  checks.     Judgment  upon  a  demurrer  to  the  answers 
was  given  in  favor  of  the  receiver.     The  bank  then  filed  its  bill 
in  equity  for  injunction  to  restrain  the  collection  of  the  judg- ' 
ment,  and  claiming  the  same  right  to  set-off.     This  bill  was  dis- 
missed on  demurrer  in  the  United  States  District  Court,  and 
among  others,  upon  appeal  to  the  United  States  Circuit  Court  of 
Appeals  the  latter  court  certified  to  the  United  States  Supreme 
Court,  for  its  opinion,  the  following  question :  "  Where  a  national 
bank  becomes  insolvent,  and  its  assets  pass  into  the  hands  of  a 
receiver  appointed  by  the  comptroller  of  the  currency,  can  a 
debtor  of  the  bank  set  off  against  this  indebtedness  the  amount 
of  a  claim  he  holds  against  the  bank,  supposing  the  debt  due 
from  the  bank  to  have  been  payable  at  the  time  of  its  suspension, 
but  that  due  to  it  to  have  been  payable  at  a  time  subsequent 
thereto  ? "     The  Su]>reme  Court  of  the  United  States  answered 
this  question  afiirmatively.^ 


Clothier,  49  Fed.  Rep.  337;  Pauly  d. 
State  Loan  &  Trust  Co.,  56  Fed.  Rep. 
430;  affirmed  by  United  States  Circuit 
Court  of  Appeals  in  Pauly  v.  State 
Loan  &  Trust  Co.,  58  Fed.  Rep.  666. 

*  Merrill  v.  Florida  Land  Imp.  Co., 
(1893)  60  Fed.  Rep.  17,  affirming  52 
Fed.  Rep.  77;  s.  c  ,  2  C.  C.  A.  629;  2 
U.  S.  App.  434. 

•  Farmers  &  Merchants'  State  Bank 
«.  Armstrong,  (1892)  146  U.  S.  499. 
The  charter  of  the  national  bank  was 
forfeited  and  the  bank  dissolved  by  a 
decree  of  the  Circuit  Court,  July  12, 


1887,  when  title  to  its  assets  was 
necessarily  thereby  transferred  to  the 
receiver.  National  Bank  v.  Colby,  21 
Wall.  609.  After  stating  this  fact, 
Fuller,  Ch.  J.,  speaking  for  the 
court,  arguendo,  said:  "The  note  in 
controversy  did  not  mature  until  Sep- 
tember 7,  1887,  but  the  deposit  to  the 
credit  of  the  Farmers'  Bank  was  due 
for  the  purposes  of  suit  upon  the 
closing  of  the  Fidelity  Bank  [the  one 
in  hands  of  receiver],  as  under  such 
circumstances  no  demand  was  neces- 
sary.    The  receiver  took  the  assets  of 


1 


718 


INSOLVENCY  OF  BANK. 


[§340 


§  346.  Actions  to  control  the  conduct  of  such  receivers  — 
The  United   States  Circuit  Court   for  the   western   district 'of 
Washington  sustained  the  removal  of  a  suit  from  tlie  state  court 
the  object  of  which  suit  was  to  control  the  action  of  the  receiver 
of  a  national  bank  appointed  bj  the  comptroller  of  the  currency 
It  was  held  that  in  such  an  action,  to  secure  the  application  of 

the  Fidelity  Bank  as  a  mere  trustee   fies  the  set  off  of  the  debt  due  upon 
for  creditors,  and  not  for  value  and    the  other.     Blount  ..  Windley    95  11 

sTlZ  tT  f'  "f '  "  ''''  '"'^^^^  ^'  ^'-  ''''•  '''■     1°  ^-"  ^-  "-"^on.  129 

eirs^nH  n'r    ™'^'  ^"*^J^^*^«^"  U-   S-   352.  262,  it  was  decided    hat, 

claims  and  defenses  that  might  have  when  a   life  insurance   company  bc- 

been  mterposed  as  against  the  insol-  comes  insolvent  and  goes  into  liquida- 

UnldTr      ?'r:^      "'°'  "'  ""  *^^"'  ^^^  ^™^"°^  ^^^  -  -  endowment 

itors  a  tached     The  right  to  assert  set-  time,   may,  in  settling  the  comnany's 

fu^VnfT''^   ?    '''^''^'^^°'^"'   "^"^^^'   be  set  off  against  the  amount 
courts  of  equity,  from  a  very  early  day.    due  on  a  mortgage    deed   from  the 

were  accustom^  togrant  relief  in  that   holder  of  the  policy  to  the  company 

regard  independently  as  well  as  in  aid    by   way   of  compensation;   and    .Mr' 

of    statutes    upon    the    subject.     In   Justice  Bradley,  delivering  the  opin^ 

equity,   rehef  was  usually  accorded,    ion  of  the  court  said:  '  We  are  inclined 

TllJl'\  ^T'""^   ?''''''''    ^^"1-   ^''''    '°  ^^'^  ""'''"^  '^'^^  ^'^^^^«  the  holder  of  a 
J^  ^43o).     where,  although   there  are   life  insurance  policy  borrows  money 

natural  and  independent  debts,    yet   of  the  insurer,   it  will  be  presumed" 
there  is  a  natural   credit  between  the  prima  facie,   that  he  does  so  on  the 
parties,  founded,  at  the  time,  upon  the    faith  of  the  insurance  and  on  the  ex- 
existence  of  some  debts  due  by  the    pectation  of  possibly  meeting  his  own 
crediting    party    to    the    other.      By    obligation  to  the  company  by  that  of 
natural  credit,  in  the  sense  in  which  the   the  company  to  him,  and  that  the  case 
temw  are  here  used,  we  are  to  under-   is  one  of  mutual  credits,  and  entitled 
stand,  a  knowledge  on  both  sides  of  an    to  the  privilege  of  compensation  or 
existing  debt  due  to  one  party,  and  a   set-off  whenever  the  mutual  liquida- 
crwiit  by  the  other  party,  founded  on   tion  of  the  demands  is  judicially  dc- 
and  trusting  to  such  debt,  as  a  means   creed  on  the  insolvency  of  the  coni- 
of  discharging  it.'     This  definition  is    pany.'    And  the  ca.se  of  Scammon  r 
hardly  broad  enough  to  cover  all  the    Kimball,  92  U.  S.  362,  was  referred  to 
cases    where,    as    the    learned    com-   where  it  was  held  that  a  bank   havin- 
mentatorconcedes,  there  being  a 'con-   insurance   in  a    company    which  was 
nection  between  the  demands,  equity   rendered  insolvent  by  the  Chicago  fire 
acts  upon  it,  and  allows  a  set-off  under   of    1871,   had  a  right  to   set   off  the 
particular   circumstances.'      §    1434.    amount   of   his    [its?]    insurance   on 
Courts  of  equity  frequently  deviate    property    consumed     against    money 
from   the   strict    rules  of  mutuality   of  the  company  in  his  [its?]  hands  on 
when  the  justice  of  the  particular  case   deposit,   although  the   insurance  wj.s 
reqmres  it,  and  the  ordinary  rule  is    not  a  debt  due  ut  the  time  of  the  in- 
that   where    the    mutual    obligations   solvency.      Indeed,     natural     justice 
have  grown  out  of  the  same  tran.sac     would  seem  to  require  that  where  the 
tion,  insolvency  on  the  one  hand  justi-   transaction  is  such  as  to  mise  the  pre- 


346] 


INSOLVENCY  OF  BANK. 


719 


part  of  the  funds  in  the  hands  of  a  receiver  appointed  by  the 
comptroller  of  the  currency  in  satisfaction   of 'plainSs  c^ 
against  the  insolvent  bank  for  money  received  bv  if  ««Tii    f 
agent,  the  bank  was  only  a  nomina/pa^tr  he  r^^^^^^^^^^^ 
one  to  be  held  accountable  for  any  unauthorized  dTspositL^^^^^  tt 
money  sued  for;  and,  since  the  object  of  this  suit  was  to  control 

this  Should  be  doneisltr  To  any    Tt^lTlT ^'^^^  ^^^^ 
subsequent  equity  not  arising  out  of     qu^    o  'rilf  .       "\'"'  '"'^^' 
a  purchase  for  value  without  notice,    a^e  ment  o  t  nli.^  T^^    '.  ''^'''^ 
In  the  case  at  bar  the  credits  between    of  thtT  r        u^  """^  ^^''  °^^"'« 

the  banks  were  reciprocal  and  t^:   J  ^.et  K^^^ 

parts  of  the  sametmnsaction,  in  Which   vency  "^d     1    "'  ^'"'.  ^  T"'' 
each  gave  credit  tn  thn  «fT,L        .,       \    ^  "^^    ^^     contemplation 

the  principle    apnlicable    tn    m„t?i  "  "■='    ""  """  directed 

credits  applied     It  was  thereW    h  "'"'■"■'  ""  "''"'•  '"'""''"'■  P'^^S^'  or 

balance  upon  J^Z^Z^'  tt  T-'"''   """'^"^  ""^   oreditor'n^y 

accounts  which  was  the  d^  M  T  ,"''''*""' S™""  P«y"cnt  than  another, 

Farmers' Bank  hid  he  right  asT^ains^  aft  rT'"'  """   '"""   '^  ""^^ 
the  receiver   of   the  Fidel  tv    nit  T   '^"■"«"'P'-'ti''n  of   insol- 

although  the  no,    L.^r    V;  ,;   v'id'it  '^'"^? '  "'"*  '^  ""'"^'- 

suspension  of  the  bank  ,o  set  off  ...»    1  "      P'"'^"'''^  ^^'^  "«  al- 

balance  due  upon  itrdenol  I  .  "  ""^  ^  considered  a  prefer- 

unless  the  provTsions  of  the  nT    i    TT'  ""^  "  '^  '"'''  *•■"  "  '«  -V  the 

Banking  Law  we  e  to  the  c!^™      .  '™?'  "  "'^-  """^  ""=  ^''"^  '»  ^e- 

*    *    *    The  argument  h  t  «t  rZ'    f ""      ""''''  '""  ^"^"^  "^  '«^"'  «<> 

tions  5234,  5236  'nd  442,  R ev  S       '  r^^T  °'  ""  '""'^  "'  "'^  '"-•" 

US.]byimpIicationforbid  hlssttofP  T-!,    Thf'-'-q«"-cmeut  as  to  ratable 

teeause  they  require   hat  xferth'        ?'y«''=''<is  is  to  make  them  from  what 

demption  of  the  rcuttin!  n        h         "°°«'  '"  """  "•''"'^■••"''1  that  which 

been  fully  p  o^L  for    n  "'   "'""^  time  of  the  insolvency  belongs 

creditors,  and  that  no  preferences  iriven  thi!    •        .            "  "  """''"S  "^^  *" 

or  suffered,   in  contemoUroroTo;  poLTou/r''^ '"'"'"''™'    ^ 

after  committing  the  act  of  insolvon^v  ,                  ^^  '"''"'^^-   *«    bank- 

shall  stand.    And  it  is    ns"  til  thli  "  /  ""'  "'  ''  ^''^-  ^'^P-  '■  ^o"- 

the  assets  of  the  bank  ex  "'1^^  t,l  '"'  P'°^'''™  '°  ""y  ^"^  "'^oct- 

time  of  the  act  of  ins^lvenerineud:  b\f  "  "'f   "■■   "'"   ^""""S    "f  a 

all  its  property  without  ^^IrdZ'  f'  """^    "^  '''    ^""'"^  section, 

existing  liens  thereon:  s'.'^^therto'^  sT^^'r""  "  '^-'k-Ptey  were  to 
We  do  not  regard  this  ZliT        f  ""''  »PP""'se  the  lands,   ..oods 

able.      CndouCJ    a'ny  drsrittn    '^V't  ^"^'"^'^  "'  *«  "^"^^  .' 
by  a  national  bank  bein/insoCn  ?.       •  ""   ''""'"   ^"''    ^battels,    o^ 

-contemplation  of  bsoCctof  i^'   "^-77  '°  """'"  '"«  ^-  '<"  "-e 
choses  in  action,  sc.curmes  oV  other   TJ^     "  '""^  ""^■'"^"'  "^  '"e  said 

-ets  „>ade  to  prevent    their  app.      a  foX^^  Tr  "'-^  ""••  ™'^  ='"'^«' 

ppu     accoidmg  to  the  quantity  of  his  or 


730 


INSOLVENCY  OF  BANK. 


[§347 


§348] 


INSOLVENCY  OF  BANK. 


Y21 


the  official  conduct  of  the  receiver,  appointed  under  the  authority 
of  the  national  banking  laws,  and  his  defense  must  rest  on  tlio 
interpretation  of  those  laws,  the  case  was  within  the  jurisdiction 
of  the  federal  Circuit  (Jourt  as  being  one  "arising  under  the 
*     *     *    laws  of  the  United  States." ' 

§  347.  What  a  receiver  cannot  set  off  in  an  action  to 
recover  trust  funds  coming  into  his  hands. —  The  United 
States  Circuit  Court  of  Appeals  for  the  third  circuit  affirmed  the 
holding  of  the  court  below  in  this  case,  that  the  debts  of  a  part- 
ner and  his  firm  to  a  bank  could  not,  in  equity,  be  set  off  by  a 
receiver  of  a  bank  against  trust  moneys  which  the  partner,  after 


their  debts.  4  Statutes  of  the  Realm, 
part  1,  539.  Yet  ia  the  earliest  re- 
ported decisions  upon  set-oflf  it  was 
allowed  under  this  statute.  Anony- 
mous, 1  Mod.  215;  Curson  r.  African 
Co.,  1  Vern.  121;  Chapman  r.  Derby, 
3  Vern.  117.  The  succeeding  statutes 
were  but  in  recognition,  in  bankruptcy 
and  otherwise,  of  the  practice  in  chan- 
cery in  the  settlement  of  estates,  and 
it  may  be  said  that  in  the  distribution 
of  the  assets  of  insolvents  under  vol- 
untary or  statutory  trusts  for  credit- 
ors, the  set  off  of  debts  due  has  been 
universally  concided.  The  equity  of 
equality  among  creditors  is  either 
found  inapplicable  to  such  set-offs  or 
yields  to  their  superior  equity.  We 
are  dealing  in  this  case  with  an  equi- 
table set-off,  but  if  on  June  20  [the  day 
the  bank  was  ordered  closed]  the  note 
had  matured  and  each  party  had  a 
cause  of  action  capable  of  enforce- 
ment by  suit  at  once,  upon  the  argu- 
ment for  the  receiver,  th^  legal  set  off 
would  be  destroyed  just  as  effectually 
as  it  is  contended  the  equitable  set-off 
is.  We  cannot  believe  congress  in- 
tended such  a  result,  or  to  destroy  by 
implication  any  right  vested  at  the 
time  of  the  suspension  of  a  national 
bank.  The  state  of  case  where  the 
claim  sought  to  be  offset  is  acquired 
after  the  act  of  insolvency  is  far  other- 
wise, for  the  rights  of  the  parties  be- 


come fixed  as  of  that  time,  and  to 
sustain  such  a  transfer  would  defeat 
the  object  of  these  provisions.  The 
transaction  must  necessarily  be  held  to 
have  been  entered  into  with  the  inten- 
tion to  produce  its  natural  result,  the 
preventing  of  the  application  of  the 
insolvent's  assets  in  the  manner  pr<'- 
scribed.  Venango  National  Bank  r. 
Taylor,  56  Pa.  St.  14;  Colt  r.  Brown, 
12  Gniy,  233.  Our  conclusion  is  that 
this  set-off  should  have  been  allowed, 
and  this  has  heretofore  been  so  held 
in  well-considered  cases.  Snyder's 
Sons  Co.  p.  Armstrong,  37  Fed.  Rep. 
18;  Yardley  v.  Clothier,  49  Fed.  Rep. 
337;  Armstrong  v.  Warner,  21  Weekly 
L.  Bull.  136;  27  Weekly  L.  Bull.  100." 
»  Grant  v.  Spokane  Nat.  Bank,  (1891) 
47  Fed.  Rep.  673;  citing  Armstrong  r. 
Ettlesohn,36Fed.Rep.  209;  Armstrong 
V.  Trautman,  36  Fed.  Rep.  275 ;  Mc- 
Conville  v.  Gilmour,  36  Fed.  Rep.  277; 
Sowles  V.  Witters,  43  Fed.  Rep.  700; 
Tennessee  0.  Davis,  100  U.  8.  257-264; 
Railroad  Co.  v.  Mississippi,  102  U.  S. 
135-141;  Removal  Cases,  115  U.  S.  11; 
8.  c,  5  Sup.  Ct.  Rep.  1113;  Bachrack 
V.  Norton,  132  U.  S.  337;  s.  c,  10  Sup. 
Ct.  Rep.  106;  Feibelman  r.  Packard. 
109  U.  S.  421-423;  s.  c,  3  Sup.  Ct. 
Rep.  289;  Reagan  v.  Aiken,  138  U.  S. 
109;  8.  c,  11  Sup.  Ct.  Rep.  283;  Bock 
r.  Perkins,  139  U.  S.  630;  s.  c,  11 
Sup.  Ct.  Rep.  677. 


the  debts  were  contracted,  mingled  with  the  firm's  deposits  with- 
out the  bank's  knowledge,  and  the  whole  amount  of  which 
remained  continuously  in  the  bank  until  it  failed.* 

§  348.  When  a  receiver  cannot  question  the  disposition 
of  funds  coming  into  the  hands  of  a  clearing  house  associ- 
ation.— It  appeared  in  this  case  that,  by  special  agreement,  a 
national  bank  of  Philadelphia,  instead  of  the  usual  deposit  of 
securities  as  collateral  for  payment  of  its  daily  balance  at  the 
clearing  house  of  that  city,  each  day  left  with  the  manager  of  the 
clearing  house  all  checks  drawn  on  it,  and  other  evidences  of  its 
indebtedness  received  from  other  banks,  to  be  held  until  the  bal- 
ance due  from  it  for  the  day  was  paid.  While  certain  checks  and 
other  evidences  of  its  indebtedness  were  so  held,  the  bank  was 
closed  by  the  comptroller  of  the  currency.  Upon  this  happen- 
ing the  clearing  house  collected  the  amount  of  the  checks  and 
other  evidences  of  indebtedness  from  the  banks  from  which  they 


»  Fisher  r.   Knight,  (1894)  61   Fed. 
Rep.  491,  affirming  Knight  v.  Fisher, 
(1893)  58  Fed.   Rep.  991.     Achesox, 
Circuit  Judge,  arguendo,  said:  "There 
is  abundant  authority  for  the  doctrine 
that  the  real  ownership  of  a  fund  de- 
posited in  a  bank  may  be  shown  to  be 
in  another  than  the  person  in  whose 
name  the  deposit  is  made;  and  the 
fund  recovered  from  the  bank  by  the 
true  owner,  if  the  bank  has  not  been 
misled  or  prejudiced  by  the  apparent 
ownership.     Frazier  v.  Bank,  8  Watts 
&  S.  18;  Stair  v.  Bank,  55  Pa.  St.  364; 
Bank  v.  King,  57  Pa.  St.  202.     Upon 
the  admitted  facts,  and  under  the  au- 
thorities, we  are  of  the  opinion  that 
the  fund  in   controversy  belonged  to 
the  plaintiff  and  was  recoverable  by 
him  from  the  bank  or  its  receiver. 
The  court  below  was  clearly  right  in 
holding  that  the  defendant  could  not 
set  off  against  the  plaintiff's  claim  the 
liability  of  N.  T.   Lewis  as  a  stock- 
holder of  the  bank,  or  the  amount  of 
the  note   for    one    thousand    dollars. 
The  liability  of  Lewis  upon  his  assess- 
ment was  altogether   his    individual 

91 


debt,  and  in  no  view  of  the  case  was  it 
a  proper  set-off.     Norcross  r.  Benton, 
38  Pa.  St.  217.     Neither  the  bank  nor 
the  receiver  had  done  anything  upon 
the  faith  of  the  apparent  ownership  of 
the  fund,  and  neither  was  prejudiced 
in  consequence  of  the  deposit  having 
been  made  in  the  name  of  N.  T.  Lewis 
&  Son.     The  note  was  not  taken  on 
the  credit  of  the  deposit.     It  was  dis- 
counted thirty  days  before  the  plain- 
tiff's   money    came    into    the    bank. 
Nearly  two  months  had  elapsed  after 
the  closing  of  the  bank  before  the  note 
matured.     The  bank  had  no  lien  upon 
the  deposit  for  a  debt  not  due.     Jor- 
dan V.  Bank,  74  N.  Y.  467,  472.     The 
rights  of  the  parties  were  fixed  upon 
the  insolvency  of  the  bank  and  the  ap- 
pointment of  the  receiver.     As  the  de- 
fendant had  no  right  then  to  apply  the 
plaintiff's  money  to  pay  the  debt  of 
N.  T.   Lewis  &  Son,  he  has  no  such 
right  now.     Certainly,  the  mere  delay 
of  the  plaintiff  in  bringing  suit  until 
after  the  maturity  of  the  note  did  not 
change  the  situation." 


722 


INSOLVENCY  OF  BANK. 


[§349 


§  349] 


INSOLVENCY  OF  BANK. 


II     t 


had  been  received,  and  from  the  amount  realized  paid,  besides 
the  bank's  balance  for  the  day,  dne  bills  given  by  it  for  its  bal- 
ances for  the  preceding  day,  by  their  terms  payable  only  through 
the  clearing  house  the  day  after  issue,  and  actually  in  the 
exchanges  held  when  the  bank  closed,  and  applied  the  remainder 
towards  cancellation  of  clearing  house  loan  certificates  issued  to 
the  bank  under  an  agreement  between  the  banks  whereby  any 
loss  from  failure  of  one  to  pay  such  certificates  was  chargeable 
upon  the  others.  Tlie  receiver  of  the  insolvent  bank  instituted 
a  suit  against  the  clearing  house  committee  of  the  Clearing  House 
Association  to  recover  tliose  checks  or  the  money  collected 
thereon,  and  had  a  decree  in  his  favor  in  the  Circuit  Court.  Upon 
appeal  to  the  United  States  Circuit  Court  of  Appeals  for  the  third 
circuit,  the  apjKjllate  court  held  that,  as  the  transaction  on  the 
part  of  the  bank  was  not  in  contemplation  of  insolvency,  nor 
with  a  purpose  to  give  a  preference,  or  to  prevent  application  of 
its  assets  as  prescribed  by  law,  the  exchange  between  the  banks 
was  valid,  and  that  it  w^as  not  avoided,  nor  were  the  rights  of  the 
clearing  house  or  of  the  creditor  banks  impaired  by  what  subse- 
quently occurre<l.  Therefore,  the  receiver  of  the  bank,  taking 
its  assets  subject  to  all  equities  and  rights  against  it,  had  no  equity, 
in  his  suit,  to  question  the  appropriation  of  the  money  paid  by 
the  otlier  banks.  ^ 

§  349.  Attachment  of  property  of  an  insolvent  bank  — • 
retains  its  lien  against  a  receiver  of  the  bank  subsequently 
appointed. —  A  receiver  of  a  bank  in  ]S^ebraska  made  a  motion 
to  dissolve  an  attachment  w^hich  had  been  levied  upon  real  estate 
belonging  to  the  bank  in  the  suit  of  a  depositor  for  the  amount 
of  his  deposit.  The  motion  was  tried  upon  a  stipulation  of  facts 
which  showed  that  the  attachment  was  levied  properly  upon 
the  thirteenth  of  November ;  that  the  bank  was  then  unable  to 
pay  its  obligations ;  that  before  noon  of  that  day  the  bank  sus- 
pended business,  and  posted  on  its  doors  a  notice  as  follows : 
"  Bank  closed ;  in  hands  of  receiver ;  depositors  will  be  paid  in 
full ; "  that  on  the  morning  of  that  date  the  managers  of  the 
bank  telegraphed  to  the  "  state  banking  board  "  that  the  bank  was 
closed,  and  asked  the  board  to  send  a  receiver ;  that  on  the  four- 

'  Philler  r.  Yardley,  (Green,  D.  J.,  reversing  Yardlcy  v.  Philler,  58  Fed. 
dissenting)  (1894)  63    Fed  Rep.  645,    Rep.  746. 


723 


teenth  of  mvember  the  bank  was  duly  examined  by  an  examiner 
appointed  by  the  "  state  banking  board,"  and  that  on  the  nine- 
teenth of  November  the  receiver  of  the  bank  was  appointed  by  the 
court.     The  contention  of  the  receiver  was  that  after  the  bank 
suspended  business  and  closed  its  doors  on  the  thirteenth  its  prop- 
erty was  not  subject  to  attachment  at  the  suit  of  a  creditor,  but 
that  all  the  bank's  assets  from  that  moment  became  a  trust  fund,  to 
be  divided  pro  rata  among  all  the  bank's  creditors ;  or,  if  the  prop- 
erty of  the  bank  was  subject  to  attachment  on  the  thirteenth,  then 
the  appointment  of  a  receiver  on  the   nineteenth  vacated  the 
attachment.     The  Supreme  Court  of  that  state  held  that  the  lien 
acquired   by  the  creditor  of  the  bank  on  the  real  estate  of  the 
bank  by  the  levy  of  his  attachment  thereon  was  not  dissolved  by 
the  appointment  of  a  receiver  to  take  charge  of  the  assets  of  the 
bank,  and,  as  the  creditor's  lien  was  acquired  prior  to  the  appoint- 
ment of  the   receiver,  that  officer   took   the   property  attached 
incumbered  with  the  lien.* 


'  Arnold  r.  Weimer,  (Neb.   1894)  58 
N.  W.  Rep.  709.     In  disposing  of  the 
contention  of  the  receiver  the  court 
first  showed  that  there  was  no  express 
statute  or  provision  in  the  State  Bank- 
ing Act  which  sustained  his  conten- 
tion, and   then   proceeded   to  discuss 
the  questions  involved  in  these  words: 
"  Another  argument  of  the  receiver  is 
that,  inasmuch  as  the  assets  of  a  na- 
tional bank  are  not  liable  to  be  attached 
at  the  suit  of  a  creditor,  the  legisla- 
ture must  have  intended,  by  the  enact- 
ment of  the  Banking  Law  of  this  state, 
that  the  assets  of  an  insolvent  banking 
association,  from  the  moment  of  its  in- 
solvency,   should    occupy    the    same 
status  as  the  assets  of  an  insolvent  na- 
tional  bank.     If  the   legislature  had 
intended  by  the  Banking  Act  to  render 
the  property  of  an  insolvent  bank  ex- 
empt from  an  attachment  of  the  suit 
of  one  of  its  creditors,  it  would  doubt- 
less have  said  so.     The  National  Bank- 
ing Act  expressly  provides  that  the 
Umted   States  shall  have  a  first  and 
paramount  lien  upon  all  the  assets  of 
the  bank,  and  that  no  attachment  shall 


be  issued  against  said  as.sociation  or  its 
property  till  the  final  judgment  ren- 
dered in  the  suit  brought.     Counsel 
for  the  receiver  cites  us  to  State  ?>. 
Commercial  State  Bank,  28  Neb.  677; 
8.  c,  44  N.  W.  Rep.  998,  as  an  au- 
thority for  the   contention.     In   that 
case  one  McConaughy   was    a    large 
stockholder  in  the  Commercial  State 
Bank.     He  (McConaughy)  became  in- 
solvent, and  made  an  assignment  to 
the  sheriff  for  the  benefit  of  his  (Mc- 
Conaughy's)    creditors.      The    sheriff 
took   possession  of  not  only  McCon- 
aughy's    property,    but    claimed   the 
right  to  the  possession  of  the  assets  of 
the  bank  as  well.     The  attorney-gen- 
eral made  application  to  this  court  for 
the  appointment  of  a  receiver  for  the 
assets  of  the  bank.     The  sheriff,  as 
McConaughy's  assignee,  resisted  'the 
application,     claiming    that    McCon- 
aughy   owned   all    the   stock  in  the 
bank.     The    court,    by    the    present 
Chief  Justice  Norval,  held,  in  effect, 
that,  although  McConaughy  was  the 
owner  of  the  majority  of  all  the  stock 
of  the  corporation,  he  did  not  thereby 


i  ti 


i 


724 


INSOLVENCY  OF  BANK. 


[§360 


§350.  Claims  against  an  insolvent  bank— jurisdiction  of 
court  appointing  receiver.— A  bank  in  tlie  state  of  Michigan  pre- 
senting a  claim  for  a  note  which  had  been  rediscounted  with  it 
and  indorsed  by  a  savings  bank  of  tliat  state  to  a  receiver  in 
^vhose  liands  the  latter  was  under  the  banking  laws  of  that  state 
for  winding  np  its  affairs,  and  being  refused  payment  by  the 
receiver,  petitioned  the  Circuit  Court  praying  that  an  issue  might 
be  framed  for  the  trial  of  the  liability  of  the  insolvent  bank  to 
the  former  on  the  note  to  be  entered  upon  the  law  side  of  the  court. 
This  petition  was  refused  on  the  ground  tliat  under  the  General 
Banking  Law  of  the  state  the  court  had  no  jurisdiction  in  the  matter, 


become  the  corpomtion;  and  that 
"While  his  assignee  could  hold  his 
(McConaughy's)  property,  the  assignee 
had  no  claim  to  the  assets  of  the  bank; 
that  they  were  a  trust  fund  for  the 
payment  of  its  debts,  and  that  the 
rights  of  creditors  to  the  bank's  prop- 
erty were  superior  to  the  rights  of  the 
stockholders  and  the  assignee  of  the 
stockholders  thereto.  Nothing  in  that 
case  supports  the  contention  made  by 
the  receiver.  There  being  no  statu- 
tory provision  which  exempts  the 
property  of  this  bank  froin  attach- 
ment at  the  suit  of  one  of  its  creditors 
prior  to  the  appointment  of  a  receiver 
therefor,  or  possession  taken  by  the 
sheriff  under  [the  statute  of  this  state], 
and  no  provision  creating  an  attach- 
ment already  levied  upon  the  appoint- 
ment of  a  receiver  for  its  assets,  we 
proceed  to  inquire  what  right  or  title 
the  receiver  acquired  to  the  property 
attached  by  virtue  of  his  appointment. 
[Our  statute]  provides  that  the  order 
of  attachment  shall  bind  the  property 
attached  from  the  time  of  the  service 
of  the  order.  *  *  *  In  Beach  on 
Keceivers  (§202)  it  is  said:  'It  is  a 
general  rule  that  the  receirer  obtains 
title  subject  to  all  liens  previously  ac- 
quired, but  this  rule  is  applicable  only 
to  property  which  is  subject  to  levy 
and  sale  under  execution.  As  to  other 
property  —  such,  for  example,  as  equi- 
table interests  —  the  commencement  of 


the  action  for  the  appointment  of  a 
receiver  creates  a  lien  in  favor  of  the 
plaintiff.'  The  real  estate  attached  [in 
this  suit]  was  subject  to  levy  and  sale 
under  execution.  The  legal  title  to 
this  property  was  in  the  bank.  A 
question  very  similar  to  the  one  at  bar 
arose  and  was  decided  in  Hubbard  i\ 
President,  etc.,  7  Met.  (Mass.) 340.  In 
that  case  the  Phoenix  Bank  stopped 
payment  on  the  3d  day  of  October, 
1842,  and  afterwards,  on  the  same  day, 
the  Hamilton  Bank  brought  suit 
against  the  Phoenix  Bank  in  the  Com- 
mon Pleas  Court  in  Suffolk  county, 
and  had  an  attachment  issued  and 
levied  upon  the  real  and  personal 
property  of  the  Phoenix  Bank.  On 
the  sixth  of  October,  '  on  the  applica- 
tion of  the  bank  commissioners,'  the 
Supreme  Court  of  Massachusetts  issued 
an  injunction  restraining  the  Phoenix 
Bank  from  transacting  any  further 
business  until  a  hearing  could  be  had. 
On  the  eighteenth  of  October  the 
Supreme  Court  appointed  a  receiver 
to  take  possession  of  the  assets  of  the 
Phoenix  Bank.  The  receiver  then  filed 
a  petition  in  the  Supreme  Court  pray- 
ing it  to  enjoin  the  Hamilton  County 
Bank  from  further  prosecuting  its  suit 
at  law  against  the  Phoenix  Bank,  and 
to  dissolve  the  attachment  levied  upon 
the  property  of  the  Phoenix  Bank. 
The  court,  by  Dewey,  J.,  said:  'This 
leads  us  directly  to  the  consideration 


§350] 


INSOLVENCY  OF  BANK. 


725 


but  that  the  remedy  of  the  bank  was  by  suit  in  the  usual  form 
against  the  insolvent  bank.  The  bank  applied  to  the  Supreme 
Court  of  the  state  for  a  raandamus  to  compel  the  Circuit  Court 
to  order  such  issue  to  be  framed  and  proceed  to  the  trial  of  the 
cause.  There  was  a  contention  on  the  hearing  that,  inasmuch  as  the 
state  itself  did  not  expressly  confer  power  upon  the  court  appoint- 
ing the  receiver  to  take  cognizance  of  the  claims  presented  for  allow- 
ance against  the  insolvent  savings  bank,  therefore,  no  such  power 
could  be  exercised  by  the  Circuit  Court.  To  this  the  court  said  : 
"  Section  55  of  the  act,  in  express  terms,  places  the  receiver  under 
the  direction  of  the  court  in  taking  possession  of  the  property 


of  the  effect  to  be  given  an  injunction 
upon  a  banking  corporation  and  the 
appointment  of  a  receiver  under  the 
statute;  and,  in  connection  therewith, 
and  as  the  material  inquiry  in  the 
present  case,  to  consider  the  nature 
and  effect  of  an  attachment  or  mesne 
process,  and  to  what  extent  such  at- 
tachment constitutes  a  lien  or  incum- 
brance upon  the  assets  of  the  bank. 
The  power  and  authority  of  receivers 
appointed  under  the  provisions  of  the 
statutes  referred  to  are  not  distinctly 
defined  by  this  statute,  but  it  is  pro- 
vided in  general  terms  that  one  of  the 
justices  of  the  court  may  appoint  re- 
ceivers to  take  possession  of  the  prop- 
erty and  effects  of  the  corporation, 
subject  to  such  rules  and  orders  as 
may,  from  time  to  time,  be  prescribed 
by  the  Supreme  Judicial  Court,  *  *  * 
There  is  no  express  provision  in  the 
statutes  cited  dissolving  existing  at- 
tachments upon  the  transfer  of  the 
property  of  the  corporation  to  receiv- 
ers similar  to  that  found  in  the  Gen- 
eral Insolvent  Law;  and  if  such  effect 
follows,  it  results  from  general  prin- 
ciples governing  cases  of  this  nature, 
rather  than  by  force  of  any  special 
enactment.  *  *  *  We  are  satisfied 
that  under  the  laws  of  Massachusetts 
an  attachment  is  a  lien  or  incumbrance 
upon  the  property  attached.  It  fast- 
ens itself  upon  the  property,  and  who- 
ever takes  the  property  takes  it  cum 


onere.  It  is  constantly  spoken  of  as  a 
lien  in  the  books  of  reports,  in  the 
arguments  of  the  bar,  and  in  the  opin- 
ions of  the  bench.  It  is  not  a  lien  in 
that  sense  which  requires  the  party 
to  be  in  possession  of  the  property  thus 
incumbered  or  charged  with  it.  An 
attachment  of  real  estate  does  not  re- 
quire a  change  of  possession,  but  that 
does  not  make  it  the  less  a  lien  in  the 
sense  which  we  attach  to  that  term. 

*  *  *  But  it  is  further  urged  that 
if  such  be  the  rule  of  law  as  to  the  na- 
ture and  effect  of  an  attachment,  yet 
it  is  a  lien  capable  of  being  dissoTved, 
and  that  by  the  force  and  effect  of  the 
injunction  issued  by  this<?ourt  against 
the  Phoenix  Bank,  and  the  appoint- 
ment of  receivers  to  take  control  and 
management  of  tbe  assets  of  the  bank 
for  the  benefit  of  all  concerned,  the 
attachment  was  ipso  facto  dissolved. 

*  *  *  We  think  there  is  a  manifest 
distinction  between  the  case  of  an  at- 
tachment before  and  one  made  after 
proceedings  instituted  praying  for  an 
injunction  and  the  appointment  of  re- 
ceivers. In  the  latter  case  the  attach- 
ment is  ineffectual.  The  property  is 
in  other  hands,  and  beyond  the  process 
of  an  attachment.  But  in  the  former 
case  a  valid  attachment  has  been  made, 
and,  hence,  it  will  bind  the  property; 
and  although  the  assets  pass  into  the 
hands  of  receivers,  they  take  them 
with  all  the  liens  thereon,  and  an  ex- 


Tae 


INSOLVENCY  OF  BANK. 


[§350 


§351] 


INSOLVENCY  OF  BANK. 


727 


and  assets  of  the  bank,  tlie  collection  of  claims,  compounding  of 
debts,  sales  ot  property  and  the  enforcement  of  the  individual 
liability  of  stockholders.  It  is  true  that  the  statute  fixes  the 
depository  oi  the  fund,  not  with  the  register  of  the  county,  but 
wijth  the  state  treasurer,  and  the  distribution  is  under  the  direc- 
tion of  the  commissioner,  but  the  receiver  is  nevertheless  an 
officer  of  the  court  as  much  as  a  receiver  appointed  in  the  ordi- 
nary way  under  a  bill  in  chancery.  The  commissioner  of  banking 
does  not  appoint  the  receiver.  It  is  done  by  the  court  upon  the 
petition  ot  tlie  commissioner  approved  by  the  attorney-general ; 
and  when  the  funds  are  paid  into  the  liands  of  the  receiver,  and 
deposited  with  the  state  treasurer,  the  receiver  and  not  the  com- 
missioner makes  the  ratable  dividends.  The  receiver  represents 
the  insolvent  bank.  Under  the  statute  aJl  claims  ajrainst  it  are 
to  be  presented  to  him  for  allowance,  and  if  he  does  not  allow 
them  the  claimant  may  invoke  the  aid  of  the  court."  ^ 


isting  attachment  is  a  lien.  •  *  *  It 
seems,  therefore,  quite  clear  that  there 
is  nothing  in  the  nature  of  the  process 
by  injunction  against  the  Phcenix 
Bank,  and  the  appointment  of  receiv- 
ers which  necessarily  dissolves  an  at- 
tachment of  the  assets  of  the  bank 
previously  made.  There  is  nothing  in 
the  principle  of  equal  distribution 
among  all  creditors  pro  rata  which  has 
been  considered  powerful  enough  to 
set  aside  the  priority  already  acquired 
by  a  vigilant  creditor.  There  is  noth- 
ing in  our  statutes  declaring  such  pre- 
vious attachments  to  be  dissolved  by 
force  and  effect  of  appointment  of  re- 
ceivers, ' "  The  Nebraska  court  then 
cited  as  to  the  same  effect  as  the  Mas- 
pachtisetts  case,  just  referred  to,  the 
case  of  Von  Roun  r.  Superior  Court,  58 
Cal.  358,  and  Walling  ij.  Miller,  108  N. 
Y.  173;  8.  c,  15  N.  E.  Rep.  65.  They 
then  saiid  of  a  Colorado  case:  "  In 
Breene  v.  Bank,  (Col.)  17  Pac.  Rep. 
280,  the  Merchants  and  Mechanics' 
Bank  suspended  payment  on  the  after- 
noon of  the  30th  of  January,  1884.  It 
was  then,  and  had  been  for  some  time, 
insolvent.  At  the  time  it  closed  its 
doors  it  was  indebted  to  Breene  in  the 


sum  of  seven  thousand  dollars,  and  on 
that  day  he  brought  a  suit  against  the 
bank  to  recover  the  amount  due  him, 
and  caused  an  attachment  to  be  issued 
and  levied  upon  the  assets  of  the 
bank.  Six  days  later,  on  application 
of  the  stockholders,  one  Talbot  was 
appointed  receiver  for  the  bank.  He 
intervened  in  the  suit  brought  against 
the  bank  by  Breene,  and  filed  a  notice 
to  dissolve  the  attachment.  The  Su- 
preme Court  of  Colorado  held  that  the 
creditors  of  insolvent  corporations,  as 
those  of  other  insolvents,  have  no  equi- 
table liens  superior  to  an  attachment 
unless  a  court  of  equity  lawfully  as- 
sumes jurisdiction  before  attachment, 
and  reversed  the  judgment  of  the  Dis- 
trict Court,  which  had  dissolved  the 
attachment  on  the  motion  of  the 
receiver." 

'  Citizens'  Savings  Bank  r.  Person, 
Circuit  Judge,  etc.,  (1893)  98  Mich. 
173,  175.  176.  The  court  then  said : 
*'  It  is  apparent  that  the  court  appoint- 
ing the  receiver  has  jurisdiction  over 
him  and  the  fund,  and  may  permit 
any  claimant  to  present  his  claim  in 
that  proceeding,  and  make  his  proofs 
and  establish  it  therein.     There  can  be 


§  351.  For  what  amount  claims  should  be  made  and 
allowed. —  An  allowance  by  the  comptroller  of  the  currency  out 
of  the  assets  of  an  insolvent  national  bank  to  a  creditor  who 
brought  suit  on  his  claim  and  reduced  it  to  judgment,  for  the 
amount  due  on  the  claim  at  the  date  of  the  failure,  and  the  dis- 
allowance by  him  of  the  claim  as  it  appeared  on  the  face  of  the 
judgment,  was  approved  by  the  Supreme  Court  of  the  United 
States  in  a  suit  for  ^nandamus  to  compel  the  comptroller  to  pay 
a  dividend  on  the  amount  claimed  on  the  face  of  the  judgment.^ 


found   in  this  statute  no  prohibition 
upon  the  court,  they  having  jurisdic- 
tion, from  proceeding  under  its  general 
powers   to  hear    and    determine    the 
(luestions  arising   upon   such   claims. 
The  claims,  under  the  statute,  are  not 
to  be  presented  to  the  insolvent  bank, 
but  to  the  receiver;  and  in  any  action 
brought  to  prove  such  claim  against 
the  insolvent  bank,  the  receiver,  and 
not  the  bank,  is  necessarily  the  party 
interested  in  contesting  it  and  to  insist 
upon  its  being  properly  established  by 
competent  evidence.     In  doing  this  he 
is  acting  as  an  officer  of  the  court  and 
\mder  its  direction.     The  court,  by  the 
appointment  of  the  receiver,  has  taken 
into  its  own  hands  the  subject-matter 
of  the  litigation  over  such  claims  as 
may  be  presented,  and  holds  it  pend- 
ing the  proceedings  and  until  the  final 
<lisposition  of  all  questions,  legal  and 
equitable,  involved  in  the  action.     It 
would  lead  to  most  unseemly  strug- 
gles if  parties  having  claims  against 
insolvent   banks   could   apply  to  any 
other  tribunal  for  such  allowance,  and 
thus  compel  the  receiver,  who  must  in 
all  such  cases  be  made  the  party  de- 
fendant, to  appear  in  other  jurisdic- 
tions to  defend  against  the  other.     To 
permit  the  receiver  to  be  sued  in  any 
other  court  upon  such  claims  would 
not  be   compatible  with  the  dignity 
and  authority  of  the  court  appointing 
him,  and  would  lead  to  great  incon- 
venience and  cost  to  the  estate  which 
the   receiver  represents.     The  proper 


and  orderly  manner  for  the  allowance 
of  such  claims  is  by  petition  to  the 
court  appointing  the  receiver,  and  in 
the  same  action.     The  practice  is  for 
persons  having  claims  against  prop- 
erty in  the  hands  of  a  receiver  to  inter- 
vene in  the  suit  by  petition,  and  have 
their  rights  adjudicated.    Beach  Rec. 
§  654.     The  court  should  grant  leave 
to  the  petitioner  so  to  intervene  and 
prove  his  claim,  unless  it  clearly  ap- 
pears that   the  demand  has  no  legal 
foundation.    The  insolvent  bank  is  not 
the  party  to  be  impleaded.     The  re- 
ceiver is  the  only  proper  party.     He 
has  the  assets  of  the  bank  under  his 
control  and  is  bound   to  protect  the 
fund  for  those  who  are  legally  entitled 
to  distributive  shares.     No  suit  can  be 
brought  by  or  against    the    receiver 
without  leave  of  the  court  appointing 
him;  but  that  court  should  in  all  cases 
permit  the  party  having  the  claim  to 
intervene  in  the  proceeding  and  make 
proof  of  it,  when  he  shows  a  probable 
cause  of  action,   and   in  appropriate 
cases  the  trial  should  be  upon  the  law 
side." 

■  AVhite  r.  Knox,  (1884)  111  U.  8. 
784,  affirming  the  refusal  of  the  7nan- 
damus.  Waite,  Ch.  J.,  for  the  court,  ^ 
said  as  to  the  law  in  such  case :  * 
"Dividends  are  to  be  paid  to  all 
creditoi-s  ratably,  that  is  to  say,  pro- 
portionally. To  be  proportionate  they 
must  be  made  by  some  uniform  rule. 
Tluy  arc  to  be  paid  on  all  claims 
against    the   bank  previously    proved 


I  p 


728 


INSOLVENCY  OF  BANK. 


[§351 


It  was  claimed  by  a  bank  here  that  had  made  a  loan  to  this 
insolvent  bank  and  received  from  it  collaterals  to  secure  that 
loan,  that  it  was  entitled  to  prove  its  claim  for  a  dividend  from 
the  receiver  for  the  full  amount  of  the  original  loan  notwith- 
standing it  liad  received  money  upon  a  portion  of  the  collaterals. 


and  adjudicated.     All  creditors  are  to 
be  treated  alike.     The  claim   against 
the  bank,  therefore,  must  neccessarily 
be  made  the  basis  of  the  apportion- 
ment.    If  the  comptroller  js  stitisfied 
with  the  proof  which  is  furnislied  to 
him,  he  can  allow  the  claim,  and  when 
the    allowance  is    made  the  creditor 
becomes  entitled  at  once  to  participate 
in  all  dividends  that  may  be  declared. 
If  the  comptroller  declines  to  recog- 
nize the  claim  as  valid,  it  must  be  es- 
tablished by  the  adjudication  of  some 
competent  court  before  it  can  share  in 
the  distribution  of  assets.    When  ad- 
judicated in  favor  of  the  creditor  it  is 
esti\blished  as  aclaim  against  the  bank, 
and  must  be  treated  accordingly  by 
the  comptroller.     The  business  of  the 
bank  must  stop  when  insolvency  is 
declared.      Rev.     Stat.  §    5258.      No 
new  debt  can  be  made  after  that.    The 
only  claims  the  comptroller  can  recog- 
nize in  the  settlement  of  the  affairs  of 
the  bank  are  those  which  are  shown 
by  proofs  satisfactory  to  him,  or  by 
the  adjudication  of  a  competent  court, 
to  have  had  their  origin  iu  scraething 
done    before  the   insolvency.     It    is 
clearly  his  duty,  therefore,  in  paying 
dividends,   to  take  the  value  of    the 
claim  at  that  time  as  the  basis  of  dis- 
tribution.    If  interest  is  added  on  one 
claim  after  that  date  before  the  per- 
centage of  dividends  is  calculated,  it 
should  be  upon  all,  otherwise  the  dis- 
tribution would  be  according  to  dif- 
ferent rules,  and  not  ratably  as   the 
law  requires."     There  was  an  insist- 
ment  in  this  case,  on  the  part  of  the 
relator,  that  he  was  entitled  to  divi- 
dends on  his  judgment.   ;is  that  was 
the  amount  adjudicated  to  him,  and 


the  advantage  he  would  get  in  this 
way  was  no  more  than  just,  because  of 
the  trouble  and  expense  he  was  put  to 
in  carrying  on  his  litigation,  and  the 
delay  he  had  suffered  in  getting  his 
money.  To  this  the  chief  j  ustice  said : 
"  The  question  here  is  not  whether  he 
should  be  paid  interest  on  the  seveml 
items  of  percentage  which  make  up 
the  aggregate  of  sixty-five  per  cent 
from  the  time  of  the  payment  of 
dividends  to  other  creditors  until  his 
claim  was  adjudicated,  but  whether 
the  amount  of  his  judgment  must  be 
taken  as  the  sum  on  which  his  dividend, 
is  to  be  paid.  As  has  already  been  seen , 
the  dividends  are  to  be  paid  on  the 
adjudicated  claim,  not  on  the  amount 
due  upon  the  claim  when  adjudicated. 
The  j  iidgment  established  the  claim  as  a 
claim  against  the  bank  at  the  time  of  the 
insolvency,  and  the  amount  due  when 
the  judgment  was  rendered.  Thus  the 
claim  was  adjudicated,  and  the  amount 
due  at  the  date  of  the  judgment  ascer- 
tained; but  for  the  comptroller  todUpa/ 
the  relator  on  the  amount  due  him' at 
that  time,  and  the  other  creditors  on  the 
amount  due  them  eight  years  before, 
when  the  insolvency  occurred,  would 
certainly  not  be  making  ratable  divi- 
dends from  the  assets  on  all  claims 
against  the  bank.  It  was  clearly  right, 
therefore,  to  ascertain  from  the  judg- 
ment how  much  was  due  on  this  claim 
at  the  date  of  the  insolvency,  and  make 
the  distribution  accordingly.  The 
trouble  and  expense  which  the  relator 
has  been  put  to  for  the  establishment 
of  his  claim  are  but  incidents  to  the 
business  in  which  he  was  engaged.  It 
was  the  duty  of  the  comptroller,  if  not 
satisfied  of  the  correctness  of  the  claim 


§  .352] 


INSOLVENCY  OF  BANK. 


729 


The  United  States  Circuit  Court  for  the  soutliern  district  of  Ohio 
held,  however,  that  Revised  Statutes  United  States,  sections  5235, 
523G,  which  j^rovide  respectively  that  the  comptroller  on  appoint- 
ing a  receiver  for  an  insolvent  national  bank,  shall  advertise 
for  proof  of  claims,  and  that  he  shall  make  a  ratable  dividend  of 
the  moneys  paid  over  to  him  by  the  receiver  among  those  who 
have  presented  their  claims,  cannot  be  construed  to  fix  the  date  of 
the  suspension  of  the  bank  as  a  date  with  reference  to  which  all 
calculations  of  the  amount  due  to  creditors  are  to  be  made  as  a 
basis  for  dividends.  Therefore,  where  after  such  suspension,  but 
before  the  filing  of  a  claim  with  the  receiver,  such  claim  was 
reduced  by  collecting  from  collaterals,  it  should  have  been  credited 
with  such  collections  when  filed,  and  the  balance  then  found  due 
used  as  the  basis  for  ascertaining  claimant's  dividend.^ 

§  352.  What  a  claimant  may  be  charged  with.—  This 
claimant  upon  funds  of  the  insolvent  national  bank  in  the  hands 
of  a  receiver,  having  in  its  hands  collaterals  placed  with  it  at  the 
time  it  made  its  loan  to  the  bank  by  the  vice-president  of  the 
same,  there  were  several  rulings  necessary  by  the  peculiar  circum- 
stances as  they  appeared  in  the  case.  Among  the  collaterals  to 
secure  tliis  loan  was  a  note  for  $25,000  made  by  one  party  and 


when  presented,  to  disallow  it,  and  if 
an  attempt  was  made  to  obtain  its  ad- 
judication, to  make  such  defense  as  in 
his  judgment  was  proper.  No  provis- 
ion is  made  by  law  for  the  payment  of 
the  expenses  of  the  claimant  in  his  liti- 
gation beyond  the  taxable  costs,  and 
necessarily  that  loss  must  fall  on  him 
as  it  does  on  every  one  who  has  the 
misfortune  to  be  driven  to  the  courts 
for  the  judicial  determination  of  his 
rights." 

^  Chemical  National  Bank  r.  Arm- 
strong, (1892)  50  Fed.  Rep.  798.  Sage, 
J.,  distinguished  White  i\  Knox,  111 
U.  S.  784;  8.  c.,4  Sup.  Ct.  Rep.  686, 
by  which  the  contention  of  the  claim- 
ant it  was  urged  was  supported,  and 
then  said:  "In  none  of  the  cases  de- 
cided by  the  Supreme  Court  does  it 
appear  that  any  payment  on  account 
of  the  indebtedness  of  the  creditor 
92 


was  made,  from  the  proceeds  of  col- 
laterals or  otherwise,  after  the  suspen- 
sion of  the  bank  and  before  the  proof 
of  claim.  There  are  two  other  cases 
in  Pennsylvania,  in  which  the  doctrine 
claimed  by  counsel  for  complainant  is 
approved,  and  the  weight  of  authority 
is  the  other  way.  In  Lewis  v.  U.  8.,  93 
U.  S.  618;  Case  v.  Bank,  100  U.  S. 
446,  and  Eastern  Township  Bank  i\ 
Vermont  Nat.  Bank,  22  Fed.  Rep.  186, 
the  claim  proven  was  for  the  entire 
amount  of  the  principal  of  the  in- 
debtedness as  it  existed  when  proved, 
and  at  the  date  of  the  failure  of  the 
bank,  for  nothing  had  been  realized 
from  collateml,  and  there  had  been  no 
partial  payments,  and  the  questions 
as  to  the  time  with  reference  to  which 
the  amount  due  shall  be  adjusted  re- 
lated exclusively  to  the  payment  of 
interest. " 


f30 


INSOLVENCY  OF  BANK. 


[§  35;5 


indorsed  by  a  second  for  the  acconunodation  of  the  vice-president 
of  the  bank.  A  short  time  before  the  maturity  of  this  note  and 
other  collaterals,  the  vice-president  of  the  bank  re<piested  that 
they  he  not  presented  for  i>ayinent,  but  returned,  promising  that 
other  collaterals  should  be  substituted  for  them  ;  all  of  which  was 
done  except  that  this  note  was  not  returned.  The  insolvent  bank 
did  not  order  back  this  note,  and  just  afterwards  it  matured  M'ith- 
out  presentment  or  notice  of  dishonor  to  the  indorser,  who  was 
the  only  solvent  party  to  the  note.  The  court  held  that  the 
claimant  national  bank,  liaving  by  its  negligence  failed  to  pre- 
serve the  liability  of  the  indorser,  w^as  chargeable  with  the 
amount  of  the  note  as  so  much  received  on  its  claims.  That  it 
was  no  excuse  to  the  claimant  bank  that  the  insolvent  bank  was 
not  a  party  to  the  note,  it  having  received  it  as  a  security  for  a 
loan  to  the  insolvent  bank  under  circumstances  from  which  it 
might  naturally  infer  the  note  to  be  the  property  of  the  insolvent 
bank.  That  the  objection  by  the  claimant  bank  that  the  note  was 
made  and  indorsed  merely  for  the  accommodation  of  the  vice- 
president,  who  was  not  a  party  to  the  note,  and  that  consequently 
the  claimant  bank  could  not  have  recovered  thereon  if  the  indorser's 
liability  had  been  preserved,  could  not  be  maintained  in  view  of 
the  fact  that  the  indorser  had  paid  three  notes,  companions  to  the 
one  in  question,  without  objection,  and  of  evidence  that  he  was 
interested  with  the  vice-president  in  procuring  the  loan  which  the 
note  partly  secured.  That  tlie  claimant  bank,  having  refused  an 
offer  of  the  receiver  to  pay  dividends  on  a  tixed  sum  of  money 
which  was  about  the  amount  due  to  it  on  the  loan  after  deduct- 
ing collections  on  collaterals,  was  not  entitled  to  interest  on  its 
dividends  on  affirmance  of  the  action  of  the  receiver  by  the  court. 
That  on  ascertaining  the  amount  on  which  the  bank  was  entitled 
to  a  dividend,  money  collected  on  the  collaterals  after  proof  of  its 
claim,  should  not  be  deducted  from  the  amount  proven.* 

§  353-  Claim  of  an  indorser  who  paid  a  note  which  was 
not  surrendered  to  him. —  In  this  case  a  note  had  been  indorsed 
and  discounted  at  a  bank.  The  bank  had  placed  this  note  with 
the  clearing  house  with  which  it  was  connected,  where  it  was 
when  the  note  was  alx>ut  to  become  due.  The  indorser  paid  the 
amount  of  this  note  to  the  bank  which  discounted  it  when  it  fell 

»  Chemical  Nat.  Bank  v.  Armstrong,  (1892)  50  Fed.  Rep.  798. 


§353] 


INSOLVENCY  OF  BANK. 


731 


due,  and  had  a  receipt  from  the  cashier  for  the  amount,  binding 
itself  to  recover  the  note  and  return  it  to  the  indorser.     The 
bank  became  insolvent,  and  a  sum  in  cash  largely  exceeding  the 
amount  paid  in  by  the  indorser  of  this  note,  which  had  been 
placed  with  the  bank's  cash,  went  into  the  hands  of  the  receiver. 
The  committee  of  the  clearing  house  having  procured  a  judgment 
upon  this  note  against  the  indorser,  the  latter  paid  it  and  brought 
his  action  against  the  receiver  of  the  insolvent  bank  to  recover 
the  money  he  had  paid  in  to  the  bank  for  which  this  note  was  to 
have  been  surrendered  to  him.     The  Circuit  Court  for  the  east- 
ern district  of  Pennsylvania  held  that  the  effect  of  the  payment 
by  the  indorser  to  the  bank  and  the  giving  the  receipt  by  the 
latter  was  to  establish  a  fiduciary  relation  between  the  parties, 
and  not  that  of  debtor  and  creditor,  entitling  the  indorser  to  have 
the  assets  in  the  hands  of  the  receiver  apphed  in  payment  of  the 
amount  he  had  j^laced  in  the  bank.^ 


•Massey  v.  Fisher,  (1894)  63   Fed, 
Rep.  958.     Butler,  D.  J.,  said:  '*  The 
money  was  delivered  and  received  to 
extinguish  the    note.      Neither  party 
contemplated  that  the  bank  might  use 
it  for   another   purpose,   leaving   the 
note    outstanding,   and  the  plaintiff's 
liability  unextinguished.     Such  appli- 
cation of  it,  therefore,  would  be  a  viola- 
tion of  duty  and  a  fraud.      But   the 
question  is  not  new;  it  arose  and  was 
decided  in  People  v.    City  Bank    of 
Rochester.   96  N.  Y.   32.     The  facts 
there  were  substantially  like  those  be- 
fore us.     It  is  true  the  check  in  that 
case  was  drawn  in  terms  to  pay  the 
note.     This,  however,  is  an  immaterial 
difference.     It  is  as  plain  here,  as  it 
was  there,  that  the  money  was  deliv- 
ered and  received  to  take  up  the  note. 
In  Peak  v.  Ellicott,  30  Kans.  156;  s.  c, 
1  Pac.  Rep.  499,  the  facts  were  iden- 
ticiil  with  those  before  us.     In  each  of 
these  cases  it  was  held  that  the  trans- 
action established  a  fiduciary  relation 
between   the   parties.     *    *    *     The 
receiver    and    creditors   stand  on   no 
higher  plane  than  the  bank,  and  can 
no  more  assert  that  it  was  the  bank's 


money  than  the  bank  could.     It   is 
true  they  are  entitled  to  all  the  bank's 
property;  but  this  was  not  its  prop- 
erty.     It   is   not    important    that  the 
plaintiff's  money  bore  no  mark,  and 
cannot  be  identified.     It  is  sufficient 
to  turn  it  into  the  bank's  vaults,  and 
find  that  a  sum  equal  to  it  (and  pre- 
sumably representing  it)  continuously 
remained  there  until  the  receiver  took 
it.     The  modern  rules  of  equity   re- 
quire no   more.     Knatchbull   v.  Hal- 
lett.    13  Ch.  Div.  696;  Xational  Bank 
r.  Insurance  Co.,   104  U.  S.  54;  Bank 
V.    King,    57  Pa.    St.    202;    Stoller  v. 
Coates,  88  Mo.  514;  McLeod  v.  Evans, 
66  Wis.  401;  s.  c,  28  N.  W.  Rep.  173, 
214;  People  v.  City  Bank  of  Rochester, 
96  N.  Y.  32;  Bank  v.  Weems,  69  Tex! 
489;   6  8.   W.   Rep.  802;  Harrison  r. 
Smith,  83   Mo.  210;  Beach  Eq.   Jur. 
§  285;  Fisher  v.  Knight,  61  Fed.  Rep. 
491;  8.  c,  9  C.  C.  A.  582."     Bank  r. 
Dowd.  38  Fed.  Rep.   172,  was  disre- 
garded.   The  judge  resumed:  "There 
is  a  class  of  cases  — to  which  Bank  f>. 
Beal,  49  Fed.  Rep.  606,  and  Bank   r. 
Armstrong.    148  U.    S.  50;    s.    c.    13 
Sup.  Ct.  Rep.  533,  belong  — iu  which 


I 


733 


INSOLVENCY  OF  BANK. 


[§354 


§354] 


INSOLVENCY  OF  BANK. 


733 


§  354-  Debts  due  savings  banks  preferred  under  New 
York  statutes. —  The  Banking  Law  of  New  York  provides  as 
follows :  "  Debts  due  savings  banks  from  insolvent  banks  pre- 
ferred. All  the  property  of  any  bank  or  trust  company  which 
shall  become  insolvent,  sliall,  after  providing  for  the  payment  of 
its  circulating  notes,  if  it  has  any,  be  applied  by  the  trustees, 
assignees,  or  receiver  thereof,  in  the  first  place,  to  the  payment  in 
full  of  any  sum  or  sums  of  money  deposited  therewith  by  any 
savings  bank,  but  not  to  an  amount  exceeding  that  authorized  to 
be  so  deposited  by  the  provisions  of  this  chapter,  and  subject  to 
any  other  preference  provided  for  in  the  charter  of  any  such 
trust  company."*  A  national  bank  in  the  state  of  New  York 
becoming  insolvent,  and  being  placed  in  the  hands  of  a  receiver, 
there  was  a  submission  of  a  controversy  to  the  Supreme  Court  of 
the  state  of  New  York  as  to  whether  there  should  not  be  a  judg- 
ment in  favor  of  a  savings  bank  of  that  state  against  the  receiver 
for  the  amount  of  the  deposit  it  had  make  with  the  national  bank 
within  the  limits  of  the  Banking  Law,  as  a  preference  against  the 
insolvent  bank's  assets,  under  the  provisions  of  the  law  of  New  York 
above  referred  to.  The  receiver's  contention  was  that  the  statute 
of  New  York  was  in  conflict  with  sections  5236  and  5242,  United 
States  Revised  Statutes,  which  prohibit  preferences  between  cred- 
itors of  insolvent  national  banks,  and  provide  for  2^  pro  rata  divi- 
dend of  assets  among  the  bank's  creditors.  The  Supreme  Court  of 
New  York  held  that  national  banks  were  subject  to  state  legislation 
and  were  governed  thereby  except  where  such  legislation  was  in 
conflict  with  the  act  of  congress,  or  where  it  tended  to  destroy  the 
utility  of  said  banks  as  agents  of  the  United  States,  or  interfered 
with  the  purposes  of  the  creation  ;  and  that  it  was  only  when  their 
state  law  incapacitated  them  from  discharging  their  duties  to  the 
government  that  it  becomes  unconstitutional.  They  upheld  the 
constitutionality  of  the  state  law  as  to  the  deposit  of  moneys  by  sav- 
ings banks.^    The  court  held  that  this  statute  of  New  York  as  to 


it  is  held  that  although  the  relations 
of  the  parties  there  involved  were  in 
the  beginning  fiduciary,  they  ceased 
to  be  so  when  the  agent  commingled 
the  money  with  its  own.  These,  how- 
ever, were  oases  where  commercial 
paper  was  delivered  for  collection  and 
credit,  and  where  the  collection  and 
credit  terminated  the  agency .      The 


commingling  and  use  of  the  money 
were  in  pursuance  of  the  understand- 
ing; and  upon  this  construction  of  the 
transaction  the  decisions  rest.  Thr 
distinction  is  noticed  in  Knatchbull  n. 
Hallett,  13  Ch.  Div.  702." 

'  Laws  N.  Y.  1892,  chap.  689,  §  130. 

^  Elmira  [Savings  Bank  v.  Davis, 
(1893)  73  Hun,  357;  s.   c,   26  N.  Y. 


saving's  banks'  deposits  in  insolvent  banks,  giving  them  a  preference 
over  other  creditors,  was  not  in  conflict  with  the  statutes  of  the 
United  States  providing  for  no  preference  among  creditors  and  for  a 
pro  rata  distribution  of  the  assets  of  insolvent  national  banks  among 
the  creditors  presenting  claims  to  the  receivers.  And  a  judgment 
was  rendered  in  favor  of  the  savings  bank  against  the  receiver  of 
this  national  bank  for  the  amount  of  its  deposits.^     Whether  or 


Supp.  200.  The  court  referred  to  and 
quoted  from  Waiter. Do wley,  94  U.  8. 
527;  National  Rank  v.  Commonwealth, 
9  Wall.  353,  and  W.  U.  Tel.  Co.  r. 
Massachusetts,  125 U.  S.  551,  and  said: 
**  Applying  these  principles  to  the  pres- 
ent case,  it  is  difficult  to  see  how  the 
state  act  interferes  with  the  utility  of 
the  national  bank  as  an  agent  or  instru- 
mentality of  the  general  government. 
No  possessory  right  is  given  until  after 
the  bank,  by  reason  of  its  insolvency, 
has  ceased  to  be  of  any  utility  as  an 
agent  or  instrumentafity  of  the  govern- 
ment, and  after  its  circulating  notfcs 
arc  provided  for.  The  logic  of  the 
case  in  9  Wallace  will  uphold  the  law 
in  question  here  unless  it  is  in  conflict 
with  some  provision  of  the  United 
States  statute  on  the  subject." 

*  Elmim    Savings   Bank   ??.    Davis, 
(1893)  73  Hun,  357;  s.   c,  26  N.   Y. 
Supp.  200.     The  court  referred  to  the 
application  of  the  ordinary  doctrine  of 
set-off  in  case   of  insolvency  against 
the  receiver  of  a  national  bank  in  Scott 
XI.  Armstrong,  146  U.  S.  499,  and  then 
said:  "  In  Casey,  Receiver,   v.  La  So- 
ciete  de  Credit  Mobilier.  2  Woods,  77, 
it  was  held  that  the  preference  of  one 
creditor  by  a  national  bank,  mentioned 
in  section  5242  of  the  Revised  Statutes, 
is  a  preference  given  to  the  creditor 
to  secure  or  pay  a  pre-existing  debt; 
that  when  a  national  bank  receives  a 
loin  on  condition  that  the  lender  shall 
bp  secured  therefor,  and  security  is  ac- 
cordingly given  by  pledging  a  part  of 
the  assets  of  the  bank,  this  is  not  a 
preference  within  the  meaning  of  sec- 
tion 5242,  although  the  bank  is  then  in 


an  embarrassed  state;   that  the  fact 
that  the  assets  pledged  were  changed 
from  time  to  time  as  they  fell  due,  and 
others  substituted  in  their  stead,  ac- 
cording to  the  contract  between  the 
bank  and  the  pledgee,  did  not  make 
the  pledge  of  the  substituted  assets 
void;  that  the  title  of  the  receiver  is 
the  same  as  that  of  an  assignee  in 
bankruptcy,    and    is    subject    to    all 
equities.     *    *    *    In  the  present  case 
it  must  be  presumed  that  the  national 
bank,  when,  from  time  to  time  it  re- 
ceived the  deposits  from  the    savings 
bank,  knew  of  the  law  which  author- 
ized such  deposit  and  provided  for  the 
preference.      The  savings  bank   was 
not  bound  to  deposit  in  that  particular 
bank,  nor  was  the  latter  bound  to  re- 
ceive the  deposit.     But   if   the    one 
made  and  the  other  received  the  de- 
posit, it  must  be  assumed  that  both 
parties  then  intended  that  the  security 
provided  for  by  the  statute  should,  at 
the  proper  time,  be  operative.     There 
was  then,  in    effect,    a  contract  that 
if    the  deposit    or    loan    was    made, 
the  security   should  be  given.     This 
was  a  part  of  the  transaction  in  each 
case  of  deposit.     It  was  not  a  case  of  a 
security  for  a  prior  indebtedness,  but 
it  was  a  case  where,  on  each  occasion, 
a  consideration  passed  of  equal  value 
with  the  security  or  right  given.     In 
this  view,  and  within  the  rulings  in 
the  cases  above  referred  to,  there  was 
not  a  preference  in   violation  of  the 
provisions  of  section  5242.     By  virtue 
of  the  state  act  and  the  conduct  of  the 
parties,  the  savings  bank  had  at  least 
an  equitable  lien,  which  is  effective 


I 


I 


•3-1 


INSOLVENCY  OF  BANK. 


[§354 


§355] 


IN80LVENCT  OF  BANK. 


735 


! 

I  ! 


ii 


,  -1 


not  a  savings  bank,  under  the  statutes  of  New  York,  would  be 
entitled  to  a  preference  or  be  bound  by  the  United  States  statute 
to  take  its  jpro  rata  part  of  the  proceeds  of  the  assets  of  an  insol- 
vent national  bank,  does  not  appear  to  have  been  yet  passed  upon 
by  the  federal  courts.  But  it  will  probably  be  very  soon.  A  suit 
of  a  savings  bank  against  a  receiver  of  a  national  bank  instituted 
in  the  courts  of  Xew  York  has  been  removed  to  the  United  States 
Circuit  Court  for  the  northern  district  of  that  state.  There  was 
a  motion  made  in  the  federal  court  to  remand  tlie  case,  but  the 
court  denied  the  motion.^  A  motion  to  remand  this  suit  to  the 
state  court  from  which  it  had  been  removed  to  the  federal  court 
on  the  ground  that  it  was  not  a  suit  "  arising  under  the  Constitu- 
tion or  laws  of  the  United  States ''  under  the  act  for  removal  of 
cases  from  the  state  courts,  was  denied.^ 


within  the  principles  laid  down  in 
Scott  r.  Armstrong,  and  is  not  antago- 
nistic to  the  pro  rata  distribution  pro- 
vided for  in  section  5236.  The  re- 
ceiver took,  subject  to  any  valid  liens 
or  equities.  The  bank  that  he  repre- 
sents received  the  deposits  subject  to 
the  condition  imposed  by  the  state 
statute,  and  whether  it  be  said  that  a 
trust  was  impressed  or  a  lien  imposed, 
the  statute  bound  the  bank  and  its  as- 
sets when  they  passed  to  the  receiver 
and  interfered  with  no  rights  of  the 
government.  The  principles  laid  down 
in  the  Scott  case  are  quite  applicable, 
and  justify  the  claim  of  plaintiff  to  a 
preference." 

'  Auburn  Sav.  Bank  r.  Hayes,  (1894) 
61  Fed.  Rep.  911.  Cox,  D.  J.,  sjiid: 
"  This,  it  seems  to  rae,  is  a  controversy 
'  arising  under  the  laws  of  the  United 
States.'  Were  it  not  for  the  state  law 
the  plaintiff  would  of  course  be  paid 
ratably  with  the  other  creditors. 
Whether  or  not  the  state  can  legislate 
in  this  manner  with  reference  to  na- 
tional banks  is  a  question  which  the 
federal  courts  and  not  the  state  courts 
should  decide.  To  give  the  state 
courts  sole  jurisdiction  to  determine 
whether  state  legislation  is  in  conflict 
with  the  National  Bank  Act  would,  to 


say  the  least,  tend  to  throw  the  na- 
tional system  into  confusion.  The 
doctrine  of  Tehan  t.  Bank,  39  Fed. 
Rep.  577,  is  hardly  applicable  to  the 
present  cause.  In  the  Isham  case  there 
was  no  federal  question,  because  the 
rule  of  the  common  law  applicable  to 
that  controversy  was  controlling  alike 
upon  the  state  and  United  States 
courts.  Here,  on  the  contrary,  the 
construction  of  a  United  States  statute 
is  involved.  The  plaintiff  may  be 
right  as  to  the  interpretation  of  the 
statute,  but  that  its  construction  is  in- 
volved there  can  be  no  doubt.  What- 
ever defense  the  defendant  has  de- 
pends upon  the  sections  [of  the  United 
States  Revised  Statutes]  referred  to. 
The  question  presented  by  the  motion 
is  not  what  the  construction  of  these 
sections  should  be,  but  whether  the 
state  courts  or  the  United  States  courts 
should  construe  them.  I  am  of  the 
opinion  that  this  power  belongs  to  the 
United  States  courts.  Sowles  n.  Wit- 
ters, 43  Fed.  Rep.  700;  Grant  t.  Bank, 
47  Fed.  Rep.  673;  Walker  v,  Richards, 
55  Fed.  Rep.  129." 

*Hot  Springs  Independent  School 
Dist.  No.  10  of  Fall  River  County  p. 
First  Nat.  Bank  of  Hot  Springs,  (1894) 
61  Fed.  Rep.  417.    Sanborn,  Circuit 


§  355-  Claims  of  municipal  corporations  for  moneys 
deposited  by  their  officers. —  The  treasurer  and  tax  collector 
of  a  county  in  California,  without  authority  of  law,  deposited 
coiinty  moneys  in  a  bank  and  received  certiiicates  of  deposit 
marked  "  Special.*'  In  an  action  in  equity  brought  by  the  coimty, 
the  bank  having  become  insolvent,  it  was  held  in  the  United 
States  (/ircuit  Court  for  that  district  that  the  title  to  the  moneys 
did  not  pass  to  the  bank,  altliough  there  was  no  agreement  that 
the  identical  bills  should  be  returned,  and  they  were  mixed  with 
the  bank's  general  fund,  and  the  county  was  entitled  to  recover 
an  equal  amount  from  the  receiver  prior  to  the  payment  of  the 
general  depositors.  Upon  tlie  question  raised  on  behalf  of  the 
receiver  that  there  was  no  jurisdiction  of  the  case  in  an  equity 
court,  the  plaintiff  having  his  remedy  at  law,  it  was  held  that  the 
county's  rights  in  such  case  were  enforceable  only  by  a  bill  in 
equity,  there  being  no  priority  of  contract  between  it  and  the 
bank.^     The    United    States  Circuit  Court    for    the  district  of 


Judge,  sjiid:  "  This  suit  is  brought  to 
compel  the  receiver  of  tliis  insolvent 
national  bank  to  first  pay  to  the  com- 
plainant, out  of  the  funds  of  the  b.mk 
in  his  hands,  several  thousand  dollars 
before  he  pays  any  dividend  to  any 
creditor,  on  the  ground  that  this  re- 
ceiver holds  this  sum  of  money  as  ii 
trust  fund  for  the  complainant,  and 
not  as  part  of  the  property  of  the  bank, 
to  be  distributed  among  its  creditors. 
AVhatever  funds  and  property  this  re- 
ceiver has  he  has  received  from  this 
insolvent  bank,  and  he  holds  them  by 
virtue  of  the  laws  of  the  United  States 
under  which  he  holds  his  appdlnt- 
ment,  and  in  accordance  with  which 
he  must  discharge  the  trust  devolved 
upon  him.  In  this  suit  he  has  inter- 
posed a  demurrer  to  the  plea  of  the 
complainant,  and  the  question  now  at 
issue  is,  what  construction  shall  be 
placed  upon  the  provisions  of  the  Na- 
tional Banking  Law  with  reference  to 
the  distribution  of  the  funds  of  the  in- 
solvent banks  by  receivers  under  the 
admitted  facts  of  this  case?  I  am 
clearly  of  the  opinion  that  this  case  is 


one  arising  imder  the  laws  of  the 
United  States.  *  *  *  Sowles  r. 
Witters,  43  Fed.  Rep.  700;  Sowles  v. 
Hank.  46  Fed.  Rep.  513;  San  Diego 
Co.  w  California  Nat.  Bank,  52  Fed. 
Rep.  59." 

'  San  Diego  County  c.  California 
Nat.  Bank,  (189-?)  52  Fed.  Rep.  59.  It 
was  said  by  the  court:  "A  similar 
point  was  raised  in  the  case  of  Na- 
tional Bank  t.  Insurance  Co.,  104  U.  8. 
54.  In  that  case  one  Dillon  was  the 
agent  of  the  insurance  company.  He 
kept  an  account  with  the  bank;  the 
account  was  entered  on  the  bank 
books  with  him  as  general  agent.  As 
agent  of  the  insurance  company  he 
collected,  and  it  was  his  duty  to  re- 
mit, the  premiums.  In  the  course  of 
his  dealings  with  the  bank  he  bor- 
rowed money  on  his  personal  obliga- 
tions. Finally  the  bank  sought  to 
appropriate  his  deposits  to  the  pay- 
ment of  this  debt.  The  insurance 
company  filed  its  bill  in  equity  to  re- 
cover the  amount  of  those  deposits,  as 
equitably  belonging  to  it.  The  fact 
that  they  were  premiums  received  for 


736 


INSOLVENCY  OF  BANK. 


[§355 


§355] 


INSOLVENCY  OF  BANK. 


I  t 


Washington  denied  an  injunction  upon  the  motion  of  a  county 
of  that  state  to  forbid  the  receiver  of  a  national  bank  paying 
dividends  to  creditors  pending  a  suit  by  the  county  to  recover  of 
the  receiver  the  amount  of  monevs  deposited  in  the  bank  on  its 
account  by  the  treasurer  of  tlie  county.  The  riglit  to  priority 
over  other  creditors  of  the  bank  was  claimed  by  the  county  on 
the  ground  that  the  officers  of  the  bank,  at  the  time  of  accept- 
ing the  deposit,  knew  that  the  money  was  in  the  official  custody 
of  the  treasurer,  and,  therefore,  a  trust  fund.  It  was  held  by  the 
court  that  under  the  provisions  of  United  States  Revised  Statutes 
(§  5242),  which  forbids  all  preferences  among  creditors,  the 
county  had  no  priority.^   Cotemporaneously  with  this  last-ref  erred - 


73T 


the  insurance  company  was  shown. 
The  court  said:  '  It  is  objected  that 
the  remedy  of  the  complainant  below, 
if  any  existed,  is  at  law,  and  not  in 
equity.  But  the  contract  created  by 
the  dealings  in  a  bank  account  is  be- 
tween the  depositor  and  the  bank 
alone,  without  reference  to  the  bene- 
ficial ownership  of  the  moneys  de- 
posited. No  one  can  sue  at  law  for  a 
breach  of  that  contract  except  the  par- 
ties to  it.  There  was  no  privity 
created  by  it,  even  upon  the  facts  of 
the  present  case,  as  we  have  found 
them  between  the  bank  and  the  insur- 
ance company.  The  latter  would  not 
have  been  liable  for  an  overdraft  by 
Dillon,  as  was  decided  by  this  court 
in  National  Bank  v.  Insurance  Co.,  103 
U.  8.  783;  and,  conversely,  for  the 
balance  due  from  the  bank  no  action 
at  law  upon  the  account  could  be 
maintained  by  the  insurance  company. 
But  although  the  relation  between 
the  bank  and  its  depositors  is  that 
merely  of  debtor  and  creditor,  and  the 
balance  due  on  the  account  is  only  a 
debt,  yet  the  question  is  always  upon 
'  To  whom  in  equity  does  it  beneficially 
belong?'  If  the  money  deposited  be- 
longs to  a  third  person,  and  was  held 
by  the  depositor  in  a  fiduciary  capac- 
ity, its  character  is  not  changed  by 
being  placed  to  his  credit  in  his  bank 


account.'  See,  also.  Bank  v.  Gillespie, 
137  U.  S.411;  8.  c,  11  Sup.  Ct.  Rep. 
118;  Bank  r.  Walker,  130  U.  8.  267; 
s.  c.  9  Sup.  Ct.  Rep.  519.  In  the 
present  case  not  only  did  the  defend- 
ant bank,  according  to  the  averments 
of  the  bill,  have  knowledge  that  the 
depositors  of  the  moneys  in  question 
were,  at  the  time  ot  such  deposits,  offi- 
cers of  the  complainant  county,  and 
that  the  moneys  so  deposited  belonged 
to  the  compkinant,  and  were,  there- 
fore, held  by  the  officers  depositing 
the  stime  in  trust  for  the  county,  but 
the  bank  is  chargeable  with  notice  of 
the  fact  that  the  law  of  the  state  made 
it  illegal  for  those  officers  to  make,  or 
the  bank  to  receive,  such  deposits. 
Yarnell  p.  City  of  Los  Angeles,  87  Cal. 
603;  s.  c,  25  Pac.  Rep.  767."  As  to 
the^rule  decfared  in  the  text,  see  Na- 
tional Bank  r.  Insurance  Co.,  104  U.  S. 
56,  67;  Peters  a  Bain.  133  U.  S.  694; 
8.  c,  10  Sup.  Ct.  Rep.  a54. 

» Spokane  County  r.  Clark,  (1894)  61 
Fed.  Rep.  538.  The  court,  as  to  the 
law  in  such  cases,  sjiid:  "Money  held 
by  a  bank  as  trustee  is  not  a  part  of 
its  assets,  nor  legally  subject  to  claims 
of  its  creditors.  If  the  money  had 
been  kept  intact  as  a  special  deposit, 
or  if  it  were  possible  to  prove  that  any 
of  the  complainant's  money  or  any  se- 
curities or  property  acquired  by  the 


to  case,  the  United  States  Circuit  Court  for  the  district  of  Oregon 
held  adversely  to  the  claim  of  a  county  of  Oregon  in  a  suit 
against  the  receiver  of  a  national  bank,  and  the  intervention  in 
the  same  suit  of  a  city  of  that  state,  which  sought  to  have  a 
decree  that  certain  deposits  made  in  the  bank  by  the  sheriff  of 
the  county  and  the  treasurer  of  the  city  to  be  property  of  the 
county  and  city  respectively,  and  that  the  receiver  hold  the  same 
as  trustee  for  these  municipalities,  and  that  they  have  a  lien  upon 
all  money,  choses  in  action  and  other  property  of  the  bank  to  the 
amount  of  the  aggregate  of  the  deposits  made  by  their  officials. 
They  were  held  not  to  have  any  preference  over  other  creditors.^ 


bank   by  investment  of  money  with 
which  it  had  been  mingled  came  into 
the    receiver's    hands,    according    to 
principles  of  equity  now  firmly  estab- 
lished, the  rights  of  this  complainant 
to  the  relief  prayed  for  would  be  clear; 
but  there  is  no  averment  in  the  bill  of 
complaint  that   the   money  deposited 
can   be   traced,    nor    that    the    estate 
which   has    come  into  the  receiver's 
hands  includes  securities  or  property 
of  the  bank  acquired  since  receiving 
said  deposit.     It  does  not  appear  that 
any  of  said  money  was  invested,  nor 
tliat  it  was  not  all  paid  out  to  the  de- 
positors or  creditors  before  the  bank 
closed  its  doors.     The  complainant's 
argument  is  based  upon  an  assump- 
tion   that   the  bank  profited   by   tor- 
tiously  converting  the  money.     That 
the  bank  could  not  acquire  title  to 
money  of   the   county    by    its    own 
wrongful  act  is  manifestly  true;  but 
where  the  holder  of  trust  funds  has 
actually  expended  the  same,  and  be- 
come insolvent,  a  practical  difficulty 
in  the  way  of  restoring  the  money  to 
its  owner  arises,  which  can  no  more 
be  overcome  by  a  court  of  equity  than 
by  any  other  human   agency.     ITiat 
very  difficulty  confronts  the  complain- 
ant and  the  court  in  this  case;  for  it  is 
a  fact  that,  in  place  of  actual  money 
in  the  bank  when  it  suspended,  there 
was  only  a  legal  liability,  arising  from 
the  conversion  and  expenditure  of  the 
93 


money  deposited    by    the    treasurer. 
The  practical  difficulty  of  the  case  is 
not  diminished  in  the  least  by  character- 
izing the  conversion  as  a  tort,  or  by 
any  stronger    term,   for  the   fact  re- 
mains that    the    money  is  gone.     It 
cannot  be  recovered  until  found.    The 
plaintiff's  right  in  this  suit  attaches 
not  to  specific  property  to  which   it 
has  title,  but  only  to  a  chose  in  action. 
The  law  forbids    preferences   in   the 
distribution  of  the  estate  of  an  insol- 
vent national  bank  among  its  credit- 
ors, and  makes  no  exceptions  of  debts 
due  to  municipal,  county  or  state  gov- 
ernments, nor  in  favor  of  claims  aris- 
ing ex.  delicto."     The  court  refers  to 
National  Bank  v.  Insurance  Co.,  104 
U.  S.  54;  Peters  v.  Bain,  133  U.  S.  670; 
s.  c,  10  Sup.   Ct.   Rep.   354;  Freliug- 
huysen  v.  Nugent,  36  Fed.  Rep.  229; 
Bank  v.  Armstrong,  148  U.  S.  50;  s.  c, 
13  Sup.  Ct.  Rep.  533,  as  sustaining  its 
holding. 

'  Multnomah  County  v.  Oregon  Nat. 
Bank,  (1894)  61  Fed.  Rep.  912.  Bel- 
linger, D.  J.,  arguendo,  said:  "It  is 
settled  that  a  person  may  follow  and 
reclaim  his  property,  wrongfully  ap- 
propriated by  another,  so  long  as  he 
can  find  it.  If  its  form  has  been 
changed,  he  may  follow  the  substan- 
tial equivalent  of  his  property  in 
whatever  form.  The  property  into 
which  his  own  has  been  changed  is 
impressed  with  a  trust  in  his  favor. 


738 


INSOLVENCY  OF  BANK. 


[§35C 


§356] 


INSOLVENCY  OF  BANK. 


739 


t|!\ 


H  i 


§  356.  Claims  preferred  to  those  of  general  creditors  — 
illustrations.—  In  a  late  case  before  the  Court  of  Civil  Appeals 
in  Texas  the  facts  were  that  plaintiff  sent  a  draft  to  the  bank  for 
collection.  The  bank  collected  it  and  then  passed  into  the  hands 
of  a  receiver  without  remitting.  The  defense  of  the  receiver  to 
the  action  of  the  plaintiff  was  that  plaintiff  had  sent  the  draft  for 

But  the  great  weight  of  authority  is   The  court  refused  to  make  the  pay- 
a^rainsl  any  extension  of  the  rule  be-    ment  of  such  fund  out  of   the  assets 
yond  this.    The  cases  most  relied  upon   in  the  receiver's  hands,  a  charge  upon 
by  the  complainants  were  those  in  the   such  assets  precedent  to  the  claims  of 
Supreme  Court  of  Wisconsin,  but  since   the  other  creditors  of  the  bank.     These 
the  argument  defendant  has  called  my   are  all  recent  and  well-considered  cases, 
attentton  to  the  case  of  Silk  Co.  «.  Flan-   and   each   of    these  contains  a  large 
ders  (decided  in  the  Supreme  Court  of   number  of  citations  in  support  of  the 
Wisconsin  in  March  of  this  year)  58  N.    conclusion  reached."    The  court  then 
W   Rep    383,  which  overrules  former   referred  to  the  following  case  agamst 
decisions  upon  this  question,  and  de-    these  authorities,  to  wit:    San  Diego 
Clares    the  doctrine  that   when  trust   County  r.  California  Nat.  Bank,  52  Fed. 
money  beconus  so  mixed  up  with  the    Rep.  59,  in  which  Ross.  J.,  said:  "  The 
trustee's  individual  fun<l  that  it  is  im-    ordinary  creditors  became  such  volun- 
possible  to  trace  and  identify  it  as  en-    tarily.      They  deposited    the    money 
teriug  into  some  specific  property,  the    with  the  bank  with  their  eyes  open, 
trust  ceases;  that  the  court  will  go  as   But  the  money  of  the  complanr.int  was 
far  as  it  can  in  thus  tracing  and  follow-    deposited  by  its  officers  and  received 
ing  trust  money,  but  when,  as  a  mat-   by  the   bank,  not  only  without    the 
tor  of  fart    it  cannot  be   tractni.  the   knowledge  of    the  complainant,    but 
equitable  right  of  the  ceMui  q>ie  trust   contrary  to    law.     To  put  the    com- 
to  follow   it   fails      The  recent  cases   plainant  on  the  same  terms  with  the 
of    Slater    r.    Oriental  Mills,    (by  the    ordinary  creditor  is  to  make  the  former 
Supreme  Court  of   Rhode  Island)  27   share   in  a  loss  to  which   it  did    not 
Atl     Rep     443     and    Association    «.    voluiit  irily  subject  itself,  and  to  give 
Austin    (Supreme  Court  of  Alabama)   to  the  latter  a  share  in  money  which 
13  So  Rep  908  are  to  the  same  effect,    never  in  equity  became  the  property 
The  case  of  Shields  v.   Thomas,  (Su-   of  the  bank.      This   is  certainly   not 
preme    Court  of    Mississippi)  14   So.    just."    Bellinger.  D.  J.,  disapproved 
Rep  84  is  similar  to  the  present  case   of  this  in  these  words:  "  Notwithstand- 
in  its  facts.    The  sheriff  of  a  county,    ing  the  respect  in  which  I  hold  the 
without  authority,  deposited  in  a  bank,    opinion  of  Judge  Ross,  I  cannot  adopt 
which  shortly  afterwards  failed,  taxes   this  view  in  the  face  of  the  cases  that 
collected  by  him.  the  officers  of  the   hold  this  other  doctrine.     The  correct- 
bank  knowing  the    character  of    the   ness  of  his  conclusions  as  to  the  mjus- 
f und     The  cash  that  came  into  the   tice  of  giving  the  general  creditors  of 
hands  of  the  receiver  of   such  bank   the  bank  a  share  in  the  money  which 
was  less  than  the  amount  of  such  fund,    never  in  equity  became  the  property  of 
and  it  did  not  appear  that  the  fund,  or   the  bank,  cannot  be  questioned.     But 
any  part  of  it.  came  into  the  receiver's   this  is  not  what  happens  in  the  case  un- 
hands either  in  its  original  form  or  as   der  consideration.    It  does  not  appear 
a  part  of  the  mass  of  the  bank's  assets,    that  the    money  for  distribution  m- 


collection  merely,  and  without  other  instructions,  and  that  the 
relation  between  plaintiff  and  the  bank  with  reference  to  the  col- 
lection was  that  of  creditor  and  debtor,  and  that,  therefore,  the 
plaintiff  was  not  entitled  to  the  relief  sought.  The  court  held 
that  the  bank  was  his  trustee,  not  his  debtor,  and  that  he  was 
entitled  to  be  paid  the  amount  of  the  collection.*  A  Nebraska 
bank  had  been  impounded  under  the  state  banking  laws  and  was 
in  the  hands  of  a  receiver  within  the  jurisdiction  of  the  Supreme 
Court  of  the  state.     The  receiver  declined  to  paj  a  certain  claim, 


eludes  any  part  of  that  belonging  to  the 
involuntary  creditor.  If  this  did  ap- 
pear, the  lien  of  such  creditor  would  at- 
tach, and  he  would  have  his  preference. 
The  fact  that  the  money  of  such  creditor 
or  cestui  que  trust  cannot  be  turned  to 
the  fund  sought  to  be  charged,  is  the 
reason  that  the  preference  is  refused. 
If  his  money  has  been  paid  out,  or  has 
otherwise  disappeared,  it  would  not  be 
just  that  he  should  take  to  the  ex- 
clusion of  the  general  creditors  of  the 
bank,  who  are  in  no  way  responsible 
for  the  bank's  delinquency,  and  whose 
deposits  may  comprise  the  entire  fund 
which  such  creditor  seeks  to  appro- 
priate to  his  exclusive  use.  His  so- 
called  right  of  preference,  in  other 
words,  cannot,  in  justice,  extend  to 
the  property  of  others.  The  theory  of 
preference  does  not  apply  in  these 
cases.  There  is  no  preference  by  reason 
of  an  unlawful  conversion.  The  so- 
called  right  to  be  preferred  in  the 
case  of  a  wrongful  conversion  is  a 
right  of  ownership  —  a  right  of  prop- 
erty ;  a  right  which  lays  hold  of  the 
property  whether  in  its  original  or  in  a 
substituted  form;  a  right  which  fol- 
lows the  property  so  long  as  it  can  be 
ascertained  to  be  the  same  property,  or 
its  product,  and  only  does  so  because 
the  property  to  be  reached  can  be  as- 
certained to  be  the  same  property,  or 
its  product.  When  the  means  of  ascer- 
tainment of  the  identity  of  property 
or  proceeds  fails,  the  right  fails." 
'  Hunt  V.  Townsend,  (Tex.  1894)  26 


S.  W.  Rep.  310.  It  was  said  by  James, 
Ch.  J.,  after  stating  the  words  of  the  in- 
struction to  the  bank:  "The  testimony 
discloses,  in  addition  to  this,  that  this 
bank  had  previously  made  similar  col- 
lections for  the  plaintiff,  and  that  in 
no  instance  was  the  collection  carried 
to  plaintiff's  credit,  as  depositor,  by 
the  bank,  but  the  entries  were  confined 
to  a  collection  register,  and  remittances 
made  promptly  without  further  com- 
munications. It  appears  that  the  pro- 
ceeds of  this  collection  were  not  re- 
mitted, and  became  mingled  with  the 
general  funds  of  the  bank,  and  that 
more  than  the  amount  thereof  was  on 
hand  of  such  funds  when  the  property 
of  the  bank  passed  into  the  hands  of 
the  receiver.  It  is  clear  to  my  mind 
from  the  discussion  of  this  subject  in 
Bank  v.  Weems,  69  Tex.  489;  s.  c, 
6  S.  W.  Rep.  802,  that  the  facts  will 
admit  of  no  other  conclusion  than  the 
one  reached  by  the  district  judge.  The 
course  of  dealing  between  these  par- 
ties and  the  acts  of  the  banks  in  refer- 
ence to  such  transactions,  necessarily 
involved  an  understanding  that  the 
collection  should  be  made  and  remit- 
ted without  unreasonable  delay.  There 
is  nothing  from  which  could  be  implied 
an  authority  for  the  bank  to  hold  the 
money,  and  treat  it  as  a  deposit.  The 
amount  of  this  collection  was  on  hand 
of  the  general  funds  of  the  bank  when 
the  receiver  took  possession,  and  plaiu> 
tiff  is  entitled  to  receive  the  same,  in- 
stead of  &pro  rata  with  creditors." 


740 


INSOLVENCY  OF  BANE. 


[§356 


§356] 


INSOLVENCY  OF  BANK. 


741 


H 


and  the  matter,  upon  his  application  to  the  court  for  direction, 
was  referred  to  a  referee.     This  referee  found  that  on  a  certain 
date  the  bank  made  and  deUvered  to  claimant  its  twelve  certifi- 
cates of  deposit  of  $375  each,  aggregating  $4,500,  due  and  pay- 
able, the  first,  one  month,  and  the   others   at  intervals  of  one 
month  each  thereafter ;  all  drawing  interest  at  six  per  centum  per 
annum.     That  the  bank  paid  tiie  first  four  of  said  certificates  of 
deposit  on  the  receipt  of  same  by  the  bank  in  the  usual  course  of 
business,  and  that  claimant  was  the  holder  and  owner  of  the 
remaining  eight  certificates  of  deposit,  and  that  the  same  were 
due  and  wholly  unpaid.     That  the  certificates  of  deposit  were 
presented  to  the  bank,  or  the  receiver,  at  their  maturity,  and  pay- 
ment demanded  and  refused  for  want  of  funds  or  from  want  of 
an  order  of  court  directing  payment.     That  the  consideration  for 
the  issuance  of  the  certificate  of  deposit  was  two  certain  notes  and 
mortgages  of  a  par  value  of  $5,000,  several  unsecured  small  notes 
of  a  par  value  of  about  $1,000,  and  a  small  balance  on  deposit 
with  the  bank.     That  the  sale  of  these  securities  ^vas  made  by  the 
claimant  in  person  and  on  the  faitb  of  the  solvency  of  the  bank 
with  whicli  he  dealt,  through  its  president.     That  these  certifi- 
cates of  deposit  were  never  entered  as  a  charge  or  liability  of  the 
bank  on  its  books,  but  of  this  claimant  had  no  knowledge  until  long 
after  the  issuance  thereof,  but  had  reason  to  believe,  and  did 
believe,  that  such  certificates  represented  a  J(?/it*/(7^  indebtedness 
of  the  bank  to  the  owner  of  such  certificates.     That  at  the  time 
the  certificates  of  deposit  were  issued,  claimant  had  no  knowledge 
of  the  insolvency  of  the  bank  issuing  them,  but  took  them  in  the 
ordinary  course  of  business,  in  good  faith,  relying  on  the  solvency 
of  the  bank  and  the  hona  fides  of  tlie  whole  transaction.     His  con- 
clusion of  law  was  that  the  amounts  due  upon  the  face  of  the 
unpaid  certificates  of  deposit  were  due  with  interest  to  the  claim- 
ant from  the  bank,  and  that  the  receiver  should  enter  for  pay- 
ment and  pay  the  same  as  other  claims  not  contested.     There  were 
exceptions  to  the  report  of  the  referee,  but  upon  a  full  considera- 
tion of  the  findings  and  other  evidence  commented  upon  as  con- 
firming the  propriety  and  justice  of  the  report  of  the  referee,  the 
Supreme  Court  overruled  the  exceptions  and  confirmed  the  report.^ 
In  a  case  where  a  Texas  bank  had  been  placed  in  the  hands  of  a 
receiver,  the  bank  being  declared  insolvent,  the  agreed  statement 

>  State  t?.  Farmers  &  Drovers'  Bank  of  Battle  Creek,  (1893)  36  Neb.  675. 


of  facts  showed  "  that  in  the  course  of  dealing  between  the  [Texaa 
bank]  and  a  [New  York  bank]  the  latter  was  in  the  habit  of  dis- 
counting notes  for  the  [former]  and  of  forwarding  the  same  on 
maturity  to  the  [former]  for  collection  and  return,  with  an  under- 
standing that  the  proceeds  of  such  discount  notes  should  be  pre- 
served by  the  [Texas  bank]  as  the  property  of  the  [New  York 
bank]  and  returned  to  it  as  such."     One  question  to  be  deter- 
mined by  the  Supreme  Court  of  Texas  was,  whether,  under  the 
agreement  and  the  course  of  dealing  between  the  two,  the  col- 
lecting bank  was  to  be  decreed  the  trustee  of  the  funds  received 
by  it  upon  the  notes  whicli  were  paid,  and  of  the  renewed  obli- 
gations  which  were   taken   in   lieu   of   those   which   were   not 
paid.     The   court,   upon   this   question,  said:    "We  think   the 
facts    stated   in    the   agreed   statement    settle   the   question  of 
trust  in   the  afiSrmative.     If   the   securities  had  been   sent   for 
collection   merely,   the   proceeds   to    be   credited    to    the   New 
York  bank,  it  is  clear  that  after  their  collection  the  relation  of 
debtor  and  creditor  would  have  subsisted,  and  the  latter  would 
have   no   claim   upon  the   funds.     But,   by   the   understanding 
between  the  banks  and  the  actual  transactions  between  the  parties, 
as  shown  by  the  agreed  evidence,  a  special  agency  was  created, 
and  the  [Texas  bank]  had  no  authority  to  hold  and  credit  the  pro- 
ceeds of  the  notes,  but  was  bound  to  remit  them  immediately  to 
its  correspondent." »     As  to  the  claim  of  the  New  York  bank  for 
full  payment  of  the  notes  renewed  and  discounted  by  it,  the  court 
said :  "  [It]  stands  upon  a  very  different  ground.     The  agreed 
evidence  shows  that  the  renewed  obligations  were  indorsed  by  the 
[Texas  bank]  and  deposited  as  collaterals  with  banking  houses  in 
the  city  of  New  York,  and  were  paid  to  the  holders  either  in 


*  Continental  National  Bank  of  New 
York  v.  Weems,  Receiver,  (1888)  69 
Tex.  439;  s.  c,  6  S.  W.  Rep.  802.  The 
court  said:  "  This  principle  was  clearly 
recognized  by  this  court  in  the  case 
of  The  City  Bank  of  Sherman  i\ 
Weiss,  67  Tex.  331,  and  is  sustained 
by  the  great  weight  of  authority,  as 
appears  from  the  citations  in  the 
opinion.  But  it  is  insisted  by  counsel 
for  the  [receiver]  that  there  is  other 
evidence  in  the  record  not  inconsistent 
with  the  agreement,  which  shows  that 


the  relation  of  debtor  and  creditor  and 
not  that  of  trustee  and  cestui  que  trust 
was  created  by  the  transaction.  We 
think,  however,  that  any  evidence  to 
show  this  fact  in  the  face  of  the  ex- 
plicit statement  in  the  admitted  proof 
would  be  inconsistent  with  the  agree- 
ment, and  should  have  been  disre- 
garded by  the  court,  whether  objected 
to  or  not.'  But  we  do  not  regard  the 
evidence  relied  on  as  being  in  conflict 
with  that  in  the  agreed  statement." 


742 


INSOLVENCY  OF  BANK. 


[§356 

whole  or  in  part.  As  to  the  one  which  was  only  partially  paid, 
the  agreement  recites  *  that  said  renewal  note  to  the  amount  of 
twelve  hundred  and  fifty  dollars  went  to  pay  the  draft  of  said 
[insolvent  bank],  and  benefited  its  estate  accordingly.'  As  to 
the  other  two,  the  language  in  reference  to  the  disposal  of  the 
proceeds  is  a  Uttle  different,  but  we  presume  it  means  the  same 
thing.  We,  therefore,  deduce  from  the  admitted  facts  that  with 
the  proceeds  of  the  notes  now  under  consideration,  obligations  of 
the  insolvent  bank  were  discharged,  and  that  no  other  benefit 
accrued  to  its  estate.  Now,  the  question  is,  has  the  [New  York 
bank]  a  lien  upon  the  general  assets  in  the  hands  of  the  receiver 
for  the  proceeds  so  appropriated  ?  We  think  not.  To  hold  the 
affirmative  of  this  proposition  would  be  to  declare  that  every  one 
who  receives  the  money  of  another  in  a  fiduciary  capacity  and 
expends  it  in  the  payment  of  his  own  debts,  thereby  creates  a  lien 
upon  his  entire  estate  in  favor  of  the  owner  of  the  money  so 
expended.  But  this  is  clearly  contrary  to  the  doctrine  of  con- 
structive trusts.  The  true  rule  is  that  the  trust  estate  must  be 
clearly  turned  into  other  specific  property  in  order  that  the  cestui 
que  trust  may  claim  either  the  property  itself  or  a  lien  upon  it. 
This  is  the  doctrine  uniformly  applied  in  the  older  cases  and  laid 
down  by  the  text  books  upon  the  law  of  trusts."  ^  In  this  same 
case  the  courts  in  which  the  proceedings  in  insolvency  of  the 
Texas  bank  were  had,  had  charged  the  New  York  bank  with  cer- 
tain notes  sent  by  the  former  to  the  latter  to  be  discounted.  The 
facts  in  the  case  were  that  the  Texas  bank  sent  the  notes  to  the 
New  York  bank  to  be  discounted  and  to  have  the  proceeds  placed 
to  its  credit,  according  to  a  previous  course  of  dealing  between 
them.  The  latter  refused  to  discount  the  paper,  and  so  notified 
its  correspondent,  but  before  the  notice  of  refusal  to  discount  was 
received  by  the  latter,  not  doubting  that  the  paper  would  be  dis- 
counted, it  drew  upon  the  New  York  bank  to  the  amount  of 
about  $5,000.  The  New  York  bank  paid  the  drafts,  relying  upon 
the  notes  for  reimbursement.     Of  the  contention  that  the  New 

*  Continental  National  Bank  of  New 
York  x).  Weems,  Receiver,  (1888)  69 
Tex.  489,  498,  499;  s.  c,  6  8.  W.  Rep. 
802;  citing  Perry  t\Phelips,  4  Ves.  107; 
Lewis  t.  Jladocks,  17  Ves.  48;  Denton 
r.  Davies,  18  Ves.  499;  Taylor  r.  Plu- 
mer,  3  Maule  &  S.  562;  Pennell  t. 


Deflfell,  4  De  G.,  M.  &  G.  373;  Knateh- 
bull  t.  Hallett,  13  Ch.  Div.  696;  Pharis 
t.  Leaehman,  20  Ala.  662;  Noble «;.  An- 
drews, 37  Conn.  346;  Roberts «?.  Broom. 
1  Harvey,  57;  2  Perry  on  Trusts,  §835 
et  acq.;  2  Story's  Eq.  .Jiir.  §  1258;  2 
Pomeroy's  Eq.  §  1051. 


§356] 


INSOLVENCY  OF  BANK. 


743 


York  bank  had  a  lien  upon  this  paper  for  the  payment  not  only 
of  the  $5,000  so  paid,  but  also  for  its  general  balance  on  account 
against  its  correspondent,  the  Texas  Supreme  Court  said  :  "  This 
proposition  cannot  be  maintained.     It  is  frequently  said  that  a 
banker  has  a  lien  upon  the  funds  in  his  hands  for  the  indebted- 
ness of  his  creditors,  and  it  is  argued  that  the  rule  applies  unless 
there  is  an  agreement  to  the  contrary.     But  we  understand  the 
rule  to  be  that  in  order  to  give  such  lien  there  must  be  a  contract 
for  that  purpose,  either  express  or  implied.     *  Tlie  credit  must 
be  given  on  the  credit  of  the  securities  or  valuables  either  in  pos- 
session or  expectancy.     Kussell  v.  Hadduck,  3  Gilm.  233.     This 
is  the  extent  of  the  banker's  lien.'     Fourth  Nat.  Bank   v.  City 
JS'at.  Bank,  68  111.  398.     See,  also,  Jarvis  v.  Eogers,  15  Mass.  389 ; 
Lucas  i;.  Dorrien,  7  Taunt.  279.     In  the  case  last  cited,  a  bond 
was  presented  to  a  banker  by  his  customer  as  collateral  for  a  loan, 
which  the  banker  declined  to  accept,  and  it  was  casually  left  with 
him.     It  was  held  that  he  had  no  lien  upon  it.     So,  in  this  case, 
the  [New  York  bank]  having  refused  the  paper,  had  no  right  to 
liold  it,  and  should  have  returned  it.     Having  failed  to  do  so  it  has 
no  lien  except  for  the  amount  of  the  drafts  paid  after  the  paper 
was  received."  ^     An  Ohio  national  bank  entered  into  a  contract 
with  a  Pennsylvania  bank  to  do  the  collection  business  of  the  lat- 
ter in  western  cities,  by  itself  or  through  its  agents,  and  to  allow 
a  percentum   upon   daily   balances,   and  to  remit  on  the  first, 
eleventh  and  twenty-first  of   each   month.     The  Pennsylvania 
bank  stamped  upon  its  paper  forwarded  for  collection,  "Pay 
to  "  the  Ohio  bank  "  or  order  for  collection  per "  the  Pennsyl- 
vania bank.     The  Ohio  bank  became  insolvent  and  was  placed 
in  the  hands  of  a  receiver.     Collections  had  been  made  on  paper 
of   the   Pennsylvania  bank   and   the   latter  brought   its   action 
against  the  receiver  to  recover,  as  special  funds  belonging  to  it  at 
the  time  of  the  insolvency  of  the  Ohio  bank,  the  various  amounts 
collected  on  its  paper  forwarded  for  collection.     There  was  an 
appeal  from  the  United  States  Circuit  Court  to  the  Supreme 
Court  of  the  United  States.     The  United  States  Supreme  Court 


'  Continental  National  Bank  of  New 
York  t.  Weems,  Receiver,  (1888)  69 
Tex.  489,  501  ;  s.  c,  6  S.  W.  Rep.  802, 
where  the  court  stated  that  the  proper 
judgment  would  have  been  to  charge 
the  New  York  bank  in  the  account 


with  the  moneys  collected  upon  the 
paper,  and  with  the  value  of  so  much 
of  it  as  remained  unpaid,  to  be  set  off 
by  the  amount  of  the  drafts  drawn 
upon  it  by  the  Texas  bank  after  the 
notes  were  forwarded  for  discount. 


744 


INSOLVENCY  OF  BANE. 


[§356 


i( 


held  that  tlie  Pennsylvania  bank  was  entitled  to  liave  the  amounts 
collected  by  the  sub-agents  of  the  Ohio  bank  and  paid  by  them  to 
the  receiver  of  the  latter,  paid  to  it  out  of  the  assets  in  his  hands.^ 
As  to  those  moneys  collected  by  the  sub-agents  to  which  the  Ohio 
bank  was  in  debt,  and  which  collections  had  been  credited  by  the 


*  Commercial  Bank  of  Pennsylvania 
«.  Annstrong,  (1893)  148  U.  S.  5().  Mr. 
Justice  Brewek,  speaking  for  the 
court,  said:  *  •  We  agree  with  the  circuit 
judge,  that  the  relation  created  between 
the  banks  as  to  uncollected  paper 
was  that  of  principal  and  agent,  and 
that  the  mere  fact  that  a  sub-agent  of 
the  [Ohio]  bank  had  collected  the 
money  due  on  such  paper,  was  not  a 
mingling  of  those  collections  with  the 
general  fund  of  the  [Ohio  bank],  and 
did  not  operate  to  relieve  them  from 
the  trust  obligation  create<l  by  the 
agency  of  the  [Ohio  bank],  or  create 
any  difficulty  in  specially  tracing  them. 
As  to  such  paper,  the  transtiction 
may  be  described  thus  :  The  plaintiff 
handed  it  to  the  [Ohio  bank],  the  [lat- 
ter] handed  it  to  a  sub-agent,  the  agent 
collected  it,  and  held  the  specific  money 
in  hand  to  be  delivered  to  the  [Ohio 
bank];  then  the  failure  of  the  [latter] 
came,  and  the  specific  money  was 
handed  to  its  receiver.  That  money 
never  became  a  part  of  the  general 
fund  of  the  [Ohio  bank];  it  was  not 
applied  by  the  sub-agent  to  reducing 
the  indebtedness  of  the  [Ohio  bank] 
to  it,  but  it  was  held  as  a  sum  col- 
lected to  be  paid  over  to  the  [latter],  or 
to  whomsoever  might  be  entitled  to  it. 
The  [Ohio  bank]  received  the  paper  as 
agent,  Jind  the  indorsement  '  for  collec- 
tion' was  notice  that  its  possession 
was  that  of  agent  and  not  of  owner.  In 
Sweeny  i>.  Easter.  1  Wall,  166.  173.  in 
which  there  was  an  indorsement  '  for 
collection,'  Mr.  Justice  MiiiLER  said: 
'  The  words  '  for  collection  '  evidently 
had  a  meaning.  That  meaning  was 
intended  to  limit  the  effect  which  would 
have  been  given  to  the  indorsement 


without  them,  and  warned  the  party 
that,  contrary  to  the  purpose  of  a  gen- 
eral or  blank  indorsement,  this  was  not 
intended  to  transfer  the  ownership  of 
the  note  or  its  proceeds.'  And  in 
White  r.  National  Bank,  102  U.  S.  658, 
661,  where  the  indorsement  was  '  for 
account,'  the  same  justice,  speaking 
of  the  indorsement,  said:  '  It  does  not 
purport  to  transfer  the  title  of  the 
paper,  or  the  ownership  of  the  money 
when  receive<l.'  The  plaintiff,  then,  as 
principal,  could  unquestionably  have 
controlled  the  paper  at  any  time  before 
its  payment,  and  this  control  extended 
to  such  time  as  the  money  was  received 
by  its  agent,  the  [Ohio  bank].  Butch- 
ers', etc..  Bank  r.  Hubbell,  117  N.  Y. 
384;  Manufacturers'  Bank  v.  Conti- 
nental Biink,  148  Mass.  553;  Freeman's 
Bank  r.  National  Tube  Works,  151 
Mass.  413;  Armstrong  v.  National  Bank 
of  Boyertown,  (Ky.)  14  S.  W.  Rep. 
411;  Crown  Point  National  Bank  v. 
Richmond  National  Bank,  76  Ind.  561 . 
In  those  cases  the  suits  were  against 
sub-agent  banks.  It  is  true  that  in 
most  of  them  the  collection  was  made 
by  the  sub-agent  after  the  avowed  in- 
solvency of  the  agent,  but  that  fact, 
we  cannot  think,  is  decisive.  If,  before 
the  sub-agent  parts  with  the  money  or 
credits  it  upon  an  indebtedness  of  the 
agent  bank  to  it,  the  insolvency  of  the 
lartiter  is  disclosed,  it  ought  not  to  place 
the  funds  which  it  has  collected,  and 
which  it  knows  belong  to  a  third  party, 
in  the  hands  of  that  insolvent  agent  or 
its  assignee;  and,  on  the  other  hand, 
such  insolvent  agent  has  no  equity  in 
claiming  that  this  money,  which  it  has 
not  yet  received,  and  which  belongs  to 
its  principal,  should  be  transferred  to 


§  350] 


INSOLVENCY  OF  BANK. 


745 


sub-agents  upon  the  debts  of  the  Ohio  bank  to  them  before  its 
insolvency  was  disclosed,  the  court  held  that  the  moneys  had  prac- 
tically passed  into  the  hands  of  the  Ohio  bank,  and  the  collection 
had  been  fully  completed ;  that  it  was  the  same  as  though  the 
money  had  actually  reached  the  vaults  of  the  latter ;  and,  so  far 
as  these  moneys  were  concerned,  there  was  no  trust  attached  to 
them ;  the  Ohio  bank  was,  as  to  them,  simply  a  debtor  to  the 
Pennsylvania  bankJ    In  a  Nebraska  case  for  the  foreclosure  of  a 


and  mixed  with  its  general  funds  in 
the  hands    of    its  assignee,    for    the 
benefit  of  its  general  creditors,  and  to 
the  exclusion  of  the  principal  for  whom 
it  was  collected.     Whether  it  be  said 
that  such  funds  are  specifically  tracea- 
ble in  the  possession  of  the  sub-agent, 
or  that  the  agent  has  never  reduced 
those  funds  to  possession,  or  put  it- 
self in  a  position  where  it  could  right- 
fully claim   that  it  has  changed   the 
relation  of  agent  to  that  of  debtor,  the 
result  is  the  same.     The  [Ohio  bank] 
received  this  paper  as  agent.     At  the 
time  of  its  insolvency,  when  its  right 
to  continue  in  business  ceased,  it  had 
not  fully  performed  its  duties  as  agent 
and  collector;  it  had  not  received  the 
moneys    collected    by  its   sub-agent. 
They  were  traceable  as  separate  and 
specific     funds,     and,    therefore,   the 
plaintiff  was  entitled   to   have    them 
paid  out  of  the  assets  in  the  hands  of 
the  receiver,  for  when  he  collected  them 
from  these  sub-agents  he  was  in  fact 
collecting  them  as  the  agent  of  the  prin- 
cipal.    No  mere  bookkeeping  between 
the  [Ohio  bank]  and  its  sub-agent  could 
change  the  actual  status  of  the  parties, 
or  destroy  rights  which  arise  out  of  the 
real  facts  of  the  transjiction. " 

*  Commercial  Bank  of  Pennsylvania 
r.  Armstrong,  (1893)  148  U.  S.  50.  Mr. 
Justice  Brewer  said:  "The  conclu- 
sions of  the  Circuit  Court  [upon  this 
branch  of  the  case]  were  based  upon 
the  idea  that  these  collections  could 
not  be  traced,  because  they  had  passed 
into  the  general  fuud  of  the  bank.    We 

94 


think,  however,  a    more  satisfactory 
reason  is  found  in  the  fact  that,  by 
the  terms  of  the  arrangement  between 
the  plaintiff  and  the  [Ohio  bank],  the 
relation   of  debtor  and  creditor   was 
created  when  the  collections  were  fully 
made.     The  agreement  was  to  collect 
at  par,  and  remit  the  first,  eleventh, 
and  twenty-first  of  each  month.     Col- 
lections intermediate  these  dates  were, 
by  the  custom  of  banks  and  the  evi- 
dent understanding  of  the  parties,  to 
be  mingled  with  the  general  funds  of 
the  [Ohio  bank]  and  used  in  its  busi- 
ness.    The  fact  that  the  intervals  be- 
tween the  dates  and   remitting    were 
brief  is  immaterial.     The  principle  is 
the  same  as  if  the  [Ohio  bank]  was  to  re- 
mit only  once  every  six  mouths.    It  was 
the  contemplation  of  the  parties,  and 
must  be  so  adjudged  according  to  the 
ordinarj^  custom  of  banking,  that  these 
collections  were  not  to  be  placed  on 
special  deposit  and  held  until  the  day 
of  remitting.     The  very  fact  that  col- 
lections were  to  be  made  at  par  shows 
that  the  compenstition  for  the  trouble 
and  expense  of  collection  was  under- 
stood to  be  the  temporary  deposit  of 
the  funds  thus  collected,  and  the  tem- 
porary use  thereof  by  the  [Ohio  bank]. 
The  case  of  Marine  Bank  v.  Fulton 
Bank,  2  Wall.  252,  is  in  point,  though 
it  may  be  conceded  that  the  facts  in 
that,  tending  to  show  the  relation  of 
debtor  and  creditor,  are  more  signifi- 
cant than  those  here.     In  the  spring  of 
1861,  the  Fulton  Bank  of  New  York 
sent  two  notes  for  collection  to  the 


i 


746 


INSOLVENCY  OF  BANK. 


[§356 


mortgage  upon  real  estate  of  a  husband  and  wife,  it  appeared  that 
the  husband  was  president  of  a  bank  to  which  the  owner  of  certain 
notes  and  mortgages  had  sent  directly  with  instructions  to  collect 
the  amounts  due  in  each  instance,  and  remit  to  him,  etc.     The 
bank  did  collect  and  remit,  as  instructed,  the  most  of  the  notes 
and  mortgages.     The  president  of  the  bank  collected  Iiimself  the 
amounts  due  on  the  others,  and  not  remitting,  afterwards,  with 
his  wife,  executed  the  mortgages  involved  in  this  action  to  secure 
the  amounts  to  the  plaintiff,  who  was  the  owner  of  the  notes  and 
mortgages.     The  bank  being  insolvent  had  passed  into  the  hands 
of  a  receiver,  and  it  was  claimed  before  the  court  that  the  mort- 
gages were  to  secure  the  debt  of  the  president  to  the  bank  for  the 
moneys  collected,  and  that  the  moneys  realized  out  of  these  mort- 
gages should  go  into  the  general  funds  of  the  bank  in  the  liands 
ol  the  receiver,  and  that  there  should  be  no  preference  of  this 
creditor  as  to  that  fund.     It  was  found  by  the  trial  court  that  the 


Marine  Bank  of  Chicago;  there  being 
some  trouble  about  currency,  the  Ful- 
ton Bank  requested  the  Marine  Bank 
to  hold  the   avails  of  the   collection 
subject  to  order,  and  advise  amount 
credited.    Afterwards  the  Murine  Bank 
sought  to  pay  in  the  currency  which  it 
had   received  on  the  collection,  then 
largely  depreciated,  but  its  claim  in 
this  respect  was  denied,  Mr.   Justice 
Miller,  speaking  for  the  court,  say- 
ing :     '  The    truth,    undoubtedly,    is 
•    *    *    that  both  parties  understood 
that  when  the  money  was  collected 
plaintiff  was  to  have  credit  with  the 
defendant  for  the  amount  of  the  collec- 
tion, and  that  defendant  would  use  the 
money  in  its  business.     Thus  the  de- 
fendant was  guilty   of  no  wrong  in 
using  the  money  because  it  had  be- 
come its  owner.     It  was  used  by  the 
bank  in  the  same  manner  that  it  used 
the  money  deposited  with  it  that  day 
by  its  city  customers;  and  the  relation 
between  the  two  banks  was  the  same 
as  that  between  the  Chicago  bank  and 
its  city  depositors.      It  would  be  a 
waste  of  argument  to  attempt  to  prove 
that  this  was  a  debtor  and  creditor  re- 
lation.    All  deposits  made  with  bank- 


ers may  be  divided  into  two  classes, 
namely,  those  in  which  the  bank  be- 
comes bailee  of  the  depositor,  the  title 
to  the  thing  deposited  remaining  with 
the  latter;  and  that  other  kind  of  de- 
posit of  money   peculiar  to  banking 
business  in  which  the  depositor,  for  his 
own  convenience,  parts  with  the  title 
to  his  money  and  loans  it  to  the  banker, 
and  the  latter,  in  consideration  of  the 
loan  of  the  money  and  the  right  to  use 
it  for  his  own  profit,  agrees  to  refund 
the  same  amount  or  any  part  thereof 
on  demand.     The  case  before  us  is  not 
of  the  former  class.     It  must  be  of  the 
latter.'     That  reasoning  is  applicable 
here.     Bearing  in  mind  the  custom  of 
banks,  it  cannot  betluit  the  parties  un- 
derstood that  the  collections  made  by 
the  [Ohio  bank]  during  the  interval 
between  the  days  of  remitting  were  to 
be  made  special  deposits,  but,  on  the 
contrary,    it    is    clear   that    they    in- 
tended that  the  moneys  thus  received 
should  pass  into  the  general  f  u  nds  of 
the  bank  and  be  used  by  it  as  other 
funds,  and  that  when  the  day  for  re- 
mitting came  the  remittance  should  be 
made  out  of  such  general  funds." 


§357] 


INSOLVENCY  OF  BANK. 


747 


Slim  claimed,  the  amount  of  plaintiff's  notes  collected,  was  due  to 
liim,  and  that  he  was  entitled  to  a  foreclosure  against  certain  of 
the  lots  of  land  mortgaged  ;  and  that,  as  to  those  lots,  the  mort- 
gage gave  a  lien  to  the  plaintiff  for  the  amount  of  tlie  mortgage 
thereon,  and  that  the  execution  of  such  mortgage  did  not  confer 
or  pass  any  right  or  title  to  said  lots  to  the  receiver  of  the  bank. 
The  Supreme  Court  affirmed  the  judgment  upon  these  iindings.^ 

§  357-  Claims  not  preferred  to  those  of  general  creditors 
--illustrations.— The  owner  of  a  note  executed  by  a  depositor 
in  a  Michigan  bank  sent  the  same  to  the  bank  for  collection. 
At  the  time  it  fell  due  the  maker  having  to  his  credit  in  the  bank, 
as  appeared  on  its  books,  more  than  sufficient  to  meet  the  note,' 
gave  his  check  for  the  amount,  and  the  note  was  delivered  to  him 
by  the  bank.  Within  ten  days  afterwards  the  bank's  insolvency 
was  declared,  and  its  affairs  placed  in  the  hands  of  a  receiver. 
It  appeared  that  there  was  not,  at  the  time  the  check  of  the 
maker  of  the  note  was  drawn,  cash  to  any  amount  in  the  bank,  it 
being  then  in  an  insolvent  condition,  and  the  receiver  had  placed 


»  Griffin  V.   Chase,   (1893)  36    Neb. 
328.     The  reasoning  and  statement  of 
law  involving  the  rights  of  the  parties 
in  the  case  were  as  follows:     "We 
think  that  the  proof  establishes  the 
fact  that  the  bank  received  the  money 
in  question  of    the  plaintiff,    as  his 
agent,  with  directions  to  remit  to  him. 
The  money  was  not  to  be  deposited  in 
the  bank  but  sent  at  once.     This  sim- 
plifies the  case  very  much.     It  is  very 
clear  that  the  bank  was  the  agent  of 
the  plaintiff,  and  that  the  relation  of 
principal  and  agent  existed  between 
them.     The  bank,  therefore,  held  the 
funds  of  the  plaintiff  as  trust  funds, 
and  they  were  never  mingled  with  the 
funds  of  the  bank  with  the  plaintiff's 
consent.     In  Peak  r.  Ellicott,  30  Kans. 
156,  where  a  party  had  paid  to  the  re- 
ceiver  of  a  bank  the   amount   of   a 
note  given  by  him  to  the  bank,  which 
the  cashier  claimed  had  been  re-dis- 
counted in  another  town,  but  would  be 
sent  for  and  canceled,  the  bank  soon 
afterwards   failed    without   canceling 


the  note.      The  court  held  that  the 
money  so  received  was  a  trust  fund 
which  must  be  applied  to  the  purposes 
indicated,  and  thai  it  did  not  become  a 
part  of  the  assets  of  the  bank.     To  the 
same    effect,    Ellicott    v.    Barnes,    31 
Kans.  170.     In   McLeotl  v.  Evans,  66 
Wis.  401;  s.  c,  28  N.  W.  Rep.  173,  it 
was  held  that  a  banker  who  accepts 
for  collection  a  draft  and,  in  fact,  col- 
lects the  money  thereon,   holds   the 
same  as  trustee  of  the  owner;  and,  af- 
ter his  assignment  for  the  benefit  of 
creditors,  tlie  trust  character  still  ad- 
heres to  the  funds  in  the  hands  of  the 
assignee  irrespective  of  other  creditors. 
Francis  v.  Evans,  69  Wis.  115;  s.  c, 
33  N.    W.  Rep.    93;    Anheuser-Busch 
Brewing  Assn.  i\  Morris,  36  Neb.  31. 
Other  cases  to  the  same  effect    can 
readily  be  cited,  but  it  is  unnecessary. 
That  the  moneys  were  held  in  trust 
there  is  no  doubt,  and  as  such  they  did 
not  belong  to  the  bank  or  become  a, 
part  of  its  assets." 


» 


748 


INSOLVENCr  OF  BANK. 


[§357 

ill  his  hands  but  a  nominal  sum  in  cash.  The  owner  of  the  note 
petitioned  tlie  court  appointing  and  controlling  this  receiver  to 
order  him  to  paj  the  amount  whicli  was  apparently  collected  for 
him  hy  the  bank.  He  insisted  that  the  acceptance  of  the  check 
by  the  cashier  in  payment  of  the  note,  as  stated,  was  the  same  in 
effect  as  though  the  money  had  been  actually  paid  into  his  hands 
by  the  maker  of  the  same,  and  by  the  cashier  put  into  the  funds 
of  the  bank  for  the  benefit  of  the  general  creditors,  or  traced 
into  the  hands  of  the  receiver,  thus  giving  the  petitioner  the 
right  to  claim  that  in  equity  the  amount  of  money  claimed  should 
he  considered  as  a  trust  fund  in  the  hands  of  the  receiver,  which 
should  be  paid  to  the  petitioner  by  him  in  full,  and  without 
regard  to  the  claims  of  the  other  creditors  of  the  bank.  The 
contention  on  behalf  of  the  receiver  was  that  the  relation  of  trus- 
tee and  cestui  que  trust  as  to  this  amount  did  not  exist,  based 
upon  the  fact  that  there  was  no  payment  of  money  for  the  note 
by  the  maker  of  the  same ;  that,  as  a  matter  of  fact,  in  conse- 
quence of  the  insolvent  condition  of  tlie  bank  on  the  day  he  gave 
his  check  in  payment  of  the  note  he  liad  no  money  on  deposit, 
but  only  a  credit  on  account  of  the  deposits  which  he  had  made 
at  different  times  before  that  date.  The  prayer  of  the  petitioner 
was  denied,  and  the  Supreme  Court  of  Michigan  affirmed  this 
judgment  on  the  appeal.^     Here  two  banks  for  several  years  had 


'  Sherwood  v.  Milford  State  Bank, 
(1892)  94  Mich.  78.  The  opinion  of  the 
court  in  the  matter  was  thus  expressed: 
"  If  the  bank  had  been  paid  the  money 
for  the  note,  or  if,  having  taken  the 
check  as  it  did,  it  had  taken  the  money 
which  it  represented,  and  in  either  case 
converted  it  into  any  other  fund  or 
other  assets,  and  it  could  have  been 
traced  into  the  hands  of  the  receiver 
by  the  petitioners,  their  right  to  the 
order  asked  for  would  be  clear  under 
the  general  rule  that,  when  property 
held  upon  trust  to  keep,  use,  disburse 
or  invest  in  any  particular  manne;*  is 
misapplied  by  the  trustee,  and  con- 
verted into  different  property  or  sold, 
and  the  proceeds  thus  misapplied,  the 
property  may  be  followed  wherever  it 
can  be  traced  through  its  transforma- 
tions, and  will  be  subject  when  found 


in  its  new  form  to  the  rights  of  the 
original  owner  or  cestui  que  trust. 
Cook??.  Tullis,  18  Wall.  341;  Neely  f . 
Rood,  54  Mich.  134;  Pierce  v.  Holzer, 
65  Mich.  263.  But  in  all  these  cases 
it  is  held  that  the  fund  must  be  clearly 
traced  into  the  hands  of  the  person 
sought  to  be  charged,  and  that  if  the 
trust  property  does  not  remain,  but 
has  been  made  way  with  by  the  trus- 
tee, cestuis  que  trustent  have  no  longer 
any  specific  remedy  against  any  part 
of  his  estate  in  his  insolvency,  butthey 
must  come  in  pari  passu  with  the  other 
creditors,  and  prove  against  the  trus- 
tee's estate  for  the  amount  due  them. 
This  rule  has  been  as  steadily  adhered 
to  by  the  courts,  both  of  this  country 
and  of  England,  as  any  rule  which  has 
ever  been  adopted  for  the  protection 
of  the  general  creditors  of  a  bankrupt 


§357] 


INSOLVENCY  OF  BANK. 


749 


acted  as  agents  for  each  other  in  the  collection  of  checks,  notes 
and  drafts,  the  practice  being  for  each  to  credit  the  other  for 
checks  when  received,  and  for  drafts  and  notes  when  advised  of 
their  payment.  When  a  check  was  returned  unpaid,  after  being 
credited,  the  amount  thereof  was  charged  back  again.  The 
amounts  thus  collected  were  mingled  with  the  general  funds  of 
the  bank.  The  plaintiff  bank  sent  to  the  bank  of  which  defend- 
ant had  been  appointed  receiver,  the  bank  becoming  insolvent,  a 
note  for  "  collection  and  credit,"  which,  on  maturity,  was  paid  by 
a  check,  and  credit  was  immediately  given  on  the  books.  The 
collecting  bank  failing,  the  check  passed  into  the  hands  of  the 
receiver.     In  this  action  against  the  receiver  to  recover  this  check 


or  of  an  insolvent.     It  is  not  seriously 
contended  that  the  claim  of  the  peti- 
tioners comes  within  the  rule  stated, 
but  it  is  insisted  that  they  have  the 
right  to  the  order  asked  for,  under  the 
principle  asserted  in  Carley  v.  Graves, 
85  Mich.  483,  in  which  Chief  Justice 
Champlin  said,  in  relation  to  the  trust 
fund   then   under  consideration,  that 
'it  cannot  be  specifically  traced,  but 
there  is  enough  in  the  proof  to  warrant 
the  inference  that  it  has  mingled  the 
trust    fund  with  its  own  individual 
means,  and  has  rendered  it  impossible 
to    be    specifically  traced   into  other 
property  in  its  hands,  and  that  it  has 
been  used  by  the  company  either  to 
pay  off  its    debts  or  to  increase  its 
assets ;  in  either  case  it  would  be  to 
the  benefit  of  its  estate,'  and  under 
those    facts  he  applied  the  principle 
laid  down  by  a  divided  court  in  Mc- 
Leod  V.  Evans,  66  Wis.  401;  s.  c,  28 
N.  W.  Rep.  173,  in  support  of  the  po- 
sition, and  held  that  the  petitioner  was 
entitled  to  the  order."    Commenting 
upon  this  expression   of  law  by  the 
chief  justice,  it  was  said:     "  Without 
discussing  the  extent  to  which  the  lan- 
guage used  in  that  case  would  seem  to 
imply  a  departure  from,  or  rather  an 
enlargement  of,  the  general  rule  first 
stated,  it  is  suflicient  to  say  that  no 
8uch  condition  exists  here.    There  was 


no  appropriation  of  the  proceeds  of  the 
check;  no  mingling  of  the  money  rea- 
lized from  it  with  the  assets  of  the  bank 
for    its  own  benefit,  as  there  was  no 
money  realized  from  it,  nor  any  use 
made  of  it  by  the  bank,  either  to  pay 
off  its  debts  or  to  increase  its  assets. 
For  these  reasons  no  possible  benefit 
could  accrue  to  the  general  creditors  of 
the  bank  on  account  of  the  transaction 
referred  to.     To  adopt  a  rule  which 
would   permit  the  petitioners,  under 
the  facts  of  this  case,  to  impose  upon 
this    transaction    the    character  of   a 
trust,  enforceable  as  such  against  the 
receiver,  without  either  tracing  any  of 
its  results  into  his  hands,  or  showing 
that  it  was  for  the  benefit  of  those  who 
have  an  interest  in  the  assets,  thus  en- 
abling   them,    with    others    similarly 
situated,  to  convert  to  the  payment  of 
their  own  debt  the  assets  of  the  bank, 
to  the  exclusion  of  the  general  deposit- 
ors, whose  money,  as  it  is  plain  to  be 
seen  from  the  record,  was  the  source 
from  which  all  the  assets  of  the  bank 
were  obtained,  would  be  grossly  in- 
equitable and  would  be  an  unwise  de- 
parture from  those  safe  rules  which  the 
courts  have  adopted  and  very  gener- 
ally adhered  to  in  relation  to  the  rights 
and  obligations  existing  between  trus- 
tees and  cestuis  que  trustent." 


I  ♦■' 


1 1 


fl 


I 


T50 


INSOLVENCY  OF  BANK. 


t§357 


or  its  proceeds,  it  was  held  by  a  federal  court  that,  in  view  of  the 
course  of  dealing,  the  two  banks  stood  in  the  relation  of  debtor 
and  creditor  with  respect  to  the  amount  of  the  clieck,  and  tliat  it 
became  a  part  of  the  assets  of  the  insolvent  bank.^  The  United 
States  Circuit  Court  for  the  northern  district  of  Alabama  has 
held  that  a  bank  which  collected  a  draft  sent  to  it  by  another 
bank  for  collection,  with  directions  to  remit  the  proceeds  to  a 
third  bank  for  the  owner's  account,  did  not  thereby  become  a 
trustee,  so  that  the  fund  could  be  followed  into  the  hands  of 
a  receiver,  although  it  had  become  mixed  with  the  other  cash 
of  the  bank  before  liis  appointment,  especially  where  it  appeared 
that  the  business  was  carried  on  and  money  paid  out  for  several 
days  after  the  collection  was  properly  made.*  In  a  case  where  a 
corporation  had  sent  to  a  bank  for  collection  a  draft  on  one  of  its 
debtors,  which  he  paid  by  a  check  on  the  bank,  and  the  bank 
remitted  in  payment  a  check  upon  which  in  the  end  the  corpora- 
tion failed  to  realize  its  money,  the  bank,  by  its  owner  in  the 
meantime,  having  made  an  assignment,  the  corporation  procured 
an  order  from  the  court  that  the  assignee  of  the  insolvent  banker 
show  cause  why  its  claim  should  not  be  declared  preferred  to 
that  of  other  creditors.  On  the  hearing  the  court  decided  it  pre- 
ferred. Upon  appeal  to  the  Supreme  Court  of  Wisconsin,  a 
majority  of  the  court  reversed  the  judgment  of  the  court  below, 
and  held  that  the  claim  was  not  a  preferred  one.^  A  receiver 
for  a  bank  had  been  appointed  in  accordance  with  the  prayer  of 


^  Franklin  County  Nat.  Bank  r. 
Beal,  Receiver,  (1892)  49  Fed.  Rep. 
606.  Cf.,  Marine  Bank  v.  Fulton 
Bank.  3  Wall.  252;  Manufacturers' 
Nat.  Bank  v.  Continental  Bank,  148 
lHass.  555;  s.  c,  20  N.  E.  Rep.  193; 
Levi  V.  Bank,  5  Dill.  104. 

'  Merchants  &  Farmers'  Bank  v. 
Austin,  (1891)  48  Fed.  Rep.  25.  See. 
on  this  rule,  Case  v.  Beauregard,  1 
Woods,  126;  Union  National  Bank  of 
Chicago  r.  Goetz,  138  111.  127;  s.  c.,27 
N.  E.  Rep.  907;  Peters  r.  Bain,  133  U. 
8.  693;  8.  c,  10  Sup.  Ct.  Rep.  361; 
McLeod  V.  Evans,  66  Wis.  401;  s.  c,  28 
N.  W.  Rep.  173;  National  Bank  v.  In- 
surance Co.,  104  U.  S.  54;  Bank  v. 
Armstrong,  42  Fed.  Rep.  193;  Bank  v. 
Dowd,  38  Fed.  Rep.  172;  Railroad  Co. 


V.  Johnston,  133  U.  S.  577;  s.  c,  10 
Sup.  Ct.  Rep.  393. 

'  Nonotuck  Silk  Co.  v.  Flanders, 
(Wis.  1894)  58  N.  W.  Rep.  383. 
Cassoday,  J.,  speaking  for  the  major- 
ity, said:  *'If  plaintiff  [was]  entitled 
to  such  preference  at  all  it  must  be  by 
virtue  of  some  established  principle  of 
equity  or  the  common  law,"  and  pro- 
ceeded to  discuss  the  question  in  these 
words:  "The  early  English  cases 
only  went  to  the  extent  of  holding,  in 
effect,  that  the  owner  of  property  in- 
trusted to  an  agent,  factor,  bailee  or 
other  trustee  could  follow  and  retake 
his  property  from  the  possession  of 
such  trustee,  or  others  in  privity  with 
him,  and  not  a  bona  fide  purchaser  for 
value,  whether  such  property  remained 


§357] 


INSOLVENCY  OF  BANK. 


751 


a  bill  filed  in  equity  by  some  of  its  creditors.  A  corporation  had 
forwarded  to  the  bank  a  draft  for  "  collection  and  returns."  Tlie 
bank  had  accepted  a  check  of  the  drawee,  one  of  its  depositors, 
and,  without  separating  the  amount  from  the  general  mass  of  its 
moneys,  charged  the  same  to  the  drawee,  and  credited  the  drawer 
on  its  books.  The  corporation  which  had  sent  the  draft,  and 
been,  as  above  stated,  credited  with  the  amount,  intervened  in  the 
suit,  and  asked  that  the  receiver  be  ordered  to  pay  the  amount  of 
its  claim.     The  contention  of  the  claimant  was  that  in  the  collec- 


in  its  original  form,  or  in  some  differ- 
ent or  substituted  form,  .so  long  as  it 
could  be  ascertained  to  be  the  same 
property,  or  the  proflnct  or  proceeds 
thereof,   but   that  such  right    ceased 
when    the    means    of    ascertainment 
failed,  or  when  the  subject  of  the  trust 
was   money,   or  had   been  converted 
into  money,  and  then  mixed  and  con- 
founded in  a  general  mass  of  money  of 
the  same  description,  so  as  to  be  no 
longer    divisible     or    distinguishable. 
This  is  apparent  from  the  opinion  of 
Ix)rd  Ellenborougii,  Ch.  J.,  written 
nearly  80  years  ago,  reviewing  the  ad- 
judic^ations  prior  to  that  date.     Taylor 
r.  Plumer,  3  Mauhi  &  S.  575.     But  tlie 
more  recent  rule  in  England  as  to  fol- 
lowing trust  moneys  is  broader,  and 
goes  to  the  extent  of  holding,  in  effect, 
that  *if  money  held  by  a  person  in  a 
fiduciary  character,  though  not  as  trus- 
tee, has  been  paid  by  him  to  his  ac- 
count at  his  bankers,  the  person  for 
whom  he  held  the  money  can  follow  it 
and  has  a  charge  on  the  balance  in  the 
banker's  hands; '  that  '  if  a  person  who 
holds    money  as    a    trustee,  or  in    a 
fiduciary    cliaracter,   pays    it    to    his 
account  at  his  banker's,  and  mixes  it 
with  his  own  money,  and  afterwards 
draws  out  sums  by  checks  in  the  ordi- 
nary   manner,     *    *    *    the    drawer 
must  be  taken  to  have  drawn  out  his 
own  money  in  Y>reference  to  the  trust 
money.'  In  re  Hallett's  Estate  (Knatch- 
bull  V.  Hallett),  13  Ch.  Div.  696,  over- 
ruling   some    former  English    cases. 
'  In  that  case  there  was  no  dispute  but 


what  the  money  received  by  the  trus- 
tee for  the  property  wrongfully  con- 
verted was  deposited  with  his  bankers 
to  the  credit  of  his  account,  and  that 
the  same   remained    at    his    bankers' 
mixed  with  his  own  money  at  the  time 
of  his  death.'    But  in  the  leading  opin- 
ion by  Jessel,  M.   R.  ,  in   that   case, 
and  by  way  of  quoting  Mr.  Justice 
Fry  approvingly,    it    is   said:     'The 
guiding  principle  is  that  a  trustee  can- 
not assert  a  title  of  his  own  to  trust 
property.     If  he  destroys  a  trust  fund 
by  dissipating  it  altogether,  there  re- 
mains nothing  to  be  the  subject  of  the 
trust.     But  so  long  as  the  trust  prop- 
erty can  be  traced  and  followed  into 
other  property  into  which  it  has  been 
converted,  that  remains  subject  to  the 
trust.     Ibid.  p.  719.'    That  case  is  as 
favorable  to  the  claim  of  the  plaintiff 
as  any  in  the  English   courts,  and  yet 
it  nowhere  questions  the  proposition 
that    the  owner  of  the   property  or 
money  intrusted  is  entitled  to  a  prefer- 
ence over  other  creditors  of  an  insol- 
vent estate  out  of  property  or  assets  to 
which  no  part  of  the  trust  fund,  or  the 
proceeds  thereof,  is  traceable.  All  such 
cases  turn  upon  the  question  of  fact 
whether  the  trust  property  or  fund, 
or  the  proceeds  thereof,  are   traceable 
into  any   specific  property  or    fund. 
Ex  parte  Hardcastle  (In  re  Mawson), 
44  Law   T.  524.     Thus,  in  Re  Cavin 
V.  Gleason,  105  N.  Y.  256;  s.  c,  11  N. 
E.  Rep.  504,  it  was  held  that,  to  en- 
title the  trust  creditor  to  such  a  prefer- 
ence, it  must,  at  least,  be  made  to 


i 


T52 


INSOLVENCY  OF  BANK. 


[§35T 


tion  of  its  draft  on  its  debtor  the  insolvent  bank  had  acted  as  its 
agent  and  trustee,  and  that  it  was  entitled,  as  against  the  other 
creditors  of  the  bank,  to  priority  of  payment  out  of  the  bank's 
assets ;  that,  notwithstanding  tlie  money  collected  from  its  debtor 
was  intenningled  with  the  general  assets  of  tlie  bank,  and  could 
not  be  identified  or  specifically  traced  into  the  hands  of  the 
receiver,  yet  a  court  of  equity  would  subtract  the  amount  due 
claimant  from  the  funds  in  the  hands  of  the  receiver,  and  would 

Eq.  Jur.  §  1058;  1   Lewin  Trusts  (1st 
Am.  ed.),  241.    "  In  speaking  of  follow- 
ing trust  moneys  into  other  property, 
it  is  stated  in  one  of  the  New  York 
cases  cited  that  '  the  right  has  its  basis 
in   the  right  of  property.'     It  never 
was  based  upon  the  theory  of  prefer- 
ence by  reason   of  an  unlawful  con- 
vei-sion.     This  is  made  clear  by  a  re- 
cent  and  well-considered  opinion  by 
the  Supreme  Court  of  Rhode  Island. 
Slater  v.  Oriental  Mills,  (R.  I.)  27  Atl. 
Rep.  443.     It  follows  that  the  mere 
fact  that  [the  insolvent's]  bank  used 
the  plaintiff's  money  towards  paying 
its  indebtedness,   before  making  the 
assignment,  did  not  authorize  a  pref- 
erence    to    the    plaintiff    over    [the 
assignor's]  other  creditors,  out  of  his 
other  property  and    assets.     This    is 
made  plain  by  an  illustration  having 
judicial  sanction  in  the  case  last  cited: 
*  Suppose  that  an  insolvent  debtor,  D., 
has  only  $1,000  of  property,  but  is  in- 
debted to  the  amount  of  $2,000,  one- 
half  of  which  is  due  to  A.,  and  the 
other  half  to  B.     In  this  condition  of 
things,  D.'s  property  can    only  pay 
fifty  per  cent  of  his  debts.     By  such 
distribution  A.  and  B.  would  each  be 
equitably  entitled    to    $oOO.      Now, 
suppose   D.,  while  in  that  condition, 
collects  $1,000  for  F.,  but,  instead  of 
remitting  the  money,  as  he  should,  he 
uses  it  in  paying  his  debt  in  full  to  A. 
By  so  doing  D.  has  not  increased  his 
assets    a    penny,    nor   decreased    his 
aggregate  indebtedness  a  penny.    The 
only  difference  is  that  he  now  owes 


appear  that  the  fund  or  property  of 
the  insolvent,  remaining  for  distribu- 
tion,  includes  proceeds  of  the  trust 
estate."    To  the  same  effect,  Atkinson 
'i\  Printing  Co.,  114N.  Y.  168;  s.  c,  21 
N.  E.  Rep.  178;  Holmes  v.  Oilman,  138 
N.  Y.  376;   8.  c,  34  N.  E.  Rep.  205. 
In  Little  v.  Chad  wick,  151  Muss.  110; 
8.  c,   23  N.  E.   Rep.  1005,  the  court, 
said:  "  When  trust  money  becomes  so 
mixed  up  with  the  trustee's  individual 
funds  that  it  is  impossible  to  trace  and 
identify  it  as  entering  into  some  spe- 
cific property,  the  trust  ceases.     The 
court  will  go  as  far  as  it  can  in  thus 
tracing  and  following   trust    money; 
but  when,  as  a  matter  of  fact,  it  can- 
not be  traced,  the  equitable  right  of 
the  cestui  que  trust  to  follow  it  fails." 
The  Michigan    court  cited  as  to  the 
same  effect  as  the  Massachusetts  and 
other  cases  above  referred  to:  Goodell 
D.  Buck,  67  Me.  514;  Steamboat  Co.  v. 
Locke,  73  Me.  370;   Englar  v.  Offutt, 
70  Md.   78;    8.  c,   16  Atl.  Rep.  497; 
Thompson's  Appeal,   22  Pa.   St.   16; 
Columbian  Bank's  Estate,  147  Pa.  St. 
440;    8.    c,    23   Atl.   Rep.   625,  626, 
628;  Appeal  of  Hopkins,  (Pa.)  9  Atl. 
Rep.  867;  Bank  v,  Goetz.  138  111.  127; 
s.  c,  27  N.   E.   Rep.   907;   Neely  v. 
Rood,  54  Mich.   134;  s.  c,  19  N.  W. 
Rep.  920;  Sherwood  v.  Bank,  94  Mich. 
78;  8.  c,  53  N.  W.  Rep.  923;  Elevator 
Co.  V.  Clark,  (N.  D.)  53  N.  W.  Rep. 
175;  National  Bank  p.  Insurance  Co., 
104  U.  S.  54,  68;  Peters  v.  Bain,  133  U. 
8.  670,  693;  8.  c,  10  Sup.  Ct.  Rep.  354; 
2  Story  Eq.  Jur.  §§  1258,  1259;  2  Pom. 


§  357] 


INSOLVENCY  OF  BANK. 


753 


compel  him  to  restore  it  to  the  claimant,  because  the  amount  had 
been  collected  by  the  bank  as  its  agent  and  trustee,  and  had 
increased  ^ro  tanto  its  general  assets.  The  United  States  Circuit 
Court  of  Appeals  for  the  fifth  circuit  held  that  the  money  was 
held  by  the  insolvent  bank  as  the  agent  of  the  claimant,  and  not 
as  trustee ;  and  that  after  the  bank  became  insolvent  the  claimant 
was  a  mere  general  creditor,  and  not  entitled  to  priority  of  pay- 
ment out  of  the  bank's  assets.^  The  Constitution  of  the  state  of 
Alabama  provides  that  "  depositors  who  have  not  stipulated  for 
interest  shall  for  such  deposits  be  entitled,  in  case  of  insolvency, 


$1,000  each  to  B.  and  F.,  whereas  he 
previously  owed  $1,000  each  to  A.  and 
B.    Now  if  F.  is  to  have  preference 
over  B.  then  his  claim  will  absorb  the 
entire  amount  of  D.'s  property,  leav- 
ing nothing  whatever  for  B.     In  other 
words,    the    $500    to    which    B.  was 
equitably  entitled  from  his  insolvent 
debtor,  upon  a  fair  distribution  of  the 
estate,  has,  without  any  fault  of  his, 
been  paid  to  another,  merely  in  con- 
sequence of  the  wrongful  act  of  the 
debtor.'      Ibid,  and  dissenting  opinion 
in  Francis  ».  Evans,  69  Wis.  115,  123. 
See,  also,  McClure  ®.  Board,  (Col.)  34 
Pac.  Rep.  763.     We  must  hold  that 
the  plaintiff  has  no  rights  to  a  prefer- 
ence over  [the  banker's]  other  credit- 
ors   in    the  distribution  of  his  estate 
in    the    hands    of    the  defendant,  as 
assignee,  and  into  which  no  part  of 
the  plaintiff's  money  has  been  issued." 
The  majority  of  the  court  said   that 
"in  so  far  as   McLeod   v.  Evans,  66 
Wis.  401;  8.  c,  28  N.  W.  Rep.  173,  214; 
Francis  v.  Evans,  69  Wis.  115;  s.  c, 
33  N.  W.  Rep.  93;  and  Bowers  ».  Evans, 
71  Wis.  133;  8.  c,  36  K  W.  Rep.  629, 
are  in  conflict  with  the  rules  above 
indicated,  they  must  be  regarded  as 
overruled."    These  cases,  Orton,  Ch. 
J.,  dissenting,  said,  ruled  this  case. 

*  Anheuser-Busch  Brewing  Assn.  v. 
Clayton,  (1893)  56  Fed.  Rep.  759. 
TouLMiN,  D.  J.,  in  the  opinion  de- 
livered, said:  "  The  relation  between 
[the  claimant]  and  [the  insolvent  bank] 
95 


as  to  the  draft  on  [its  debtor]  sent  by 
the  former  to  the  latter  for  collection 
was  that  of  principal  and  agent;  but, 
in  order  to  enforce  a  trust  in  favor  of 
[the  claimant]  as  to  any  money  col- 
lected on  said  draft,  it  must  be  specifi- 
cally traceable  into  the  hands  of  the 
'  receiver.     Commercial   Nat.  Bank  r. 
Armstrong,   39  Fed.  Rep.  684;  same 
ease  in  Supreme  Court  of  the   United 
States,  148  U.  S.  50;  13  Sup.  Ct.  Rep. 
533.     Accepting  [the  drawer's]  check 
in  payment  of  his  debt  to  [the  claim- 
ant], and  charging  the  amount  of  it  on 
[the  drawer's]  account  by  the  bank, 
was    but  a    shifting   of   its  liability, 
whereby    it  became    [the  claimant's] 
debtor  and  assumed  the  obligation  to 
pay  it  the  amount  of  the  check  less 
exchange.     There  is  nothing  to  indi- 
cate that  this  amount  was  separated  and 
kept  unraingled  with  the  bank's  own 
money;  but,  on  the  contrary,  it  is  con- 
ceded that  it  is  undistinguishable  from 
the  mass  of  the  bank's  own  money  and 
cannot  be  turned  to  and  identified  in 
the  hands  of  the  receiver.     This  being 
so  [the  claimant]  has  no  better  equity 
than  the  other  creditors  of  the  bank, 
and    is    entitled    to  no  priority  over 
them."     See,     in    line  with  the  text, 
Maury  v.  Mason,  8  Port.  (Ala.)  236; 
Goldsmith    v.    Stetson,  30    Ala.    164; 
Parker  v.  Jones,  67  Ala.   236:  Illinois 
Trust  &  Savings  Bank  v.  First  Nat. 
Bank,    15    Fed.    Rep.    858;   Bank    r. 
Dowd,  38  Fed.  Rep.  172;  Bank  v.  Rus- 


I 


754 


INSOLVENCY  OF  BANK. 


[§ 


to  preference  of  payment  over  all  other  creditors."  Another 
contention  of  claimant  in  this  case  was  that  under  this  pro- 
vision of  the  Constitution  of  Alabama  it  at  least  had  a  right  to 
be  classed  among  depositors  who  liad  not  stipulated  for  interest 
on  deposits,  and,  therefore,  entitled  as  among  that  class  to  be  pre- 
ferred to  the  other  creditors.  The  Court  of  Apjieals  fiehl 
adversely  to  this  contention.^  These  facts  appeared  in  a  case 
before  the  Supreme  Court  of  Minnesota :  A  firm  deposited  with 
a  bank  a  check  for  collection.  The  bank  sent  it  to  the  clearinir 
house,  where  it  was  used  in  balancing  the  account  of  the  bank. 
Afterwards,  on  the  siime  day,  the  bank  made  an  assiffnment  for 
the  benelit  of  its  creditors,  but  neither  the  check  nor  the  direct 
proceeds  of  the  check  came  to  the  assignee.  In  the  proceedings 
in  insolvency  the  lower  court,  upon  an  application  of  the  firm 
depositing  the  check  with  the  bank,  ordered  the  assignee  of  the 
bank  to  pay  to  the  firm  the  amount  called  for  by  the  check.  The 
Supreme  Court  reyersed  this  order,  holding  that  the  depositors 


sell.   3  Dill.  215;    First  N.nt.   Bank  /•. 
Armstrong,  42  h\%\,  Kep.  1U3. 

'Anheuser-Busch  Brewing  Assn.  r. 
Clayt.in.  (lS9:i)  50  Fid.  Rep.  759. 
TouLMiN,  I).  J.,  said  upon  this  con- 
tention: "A  bank  ile{)ositor  is  one 
who  delivers  to  or  leaves  with  a  bank 
money  subject  to  his  order.  And. 
Ijiw  Diet.  343,  344;  Newmark  Bank 
Deposits,  ^  12.  Deposits  made  with 
bankers  are  either  general  or  special. 
In  the  case  of  a  special  deposit  of 
money  the  bank  merely  assumes  the 
charge  or  control  of  it,  without  au- 
thority to  use  it,  and  the  depositor  is 
entitled  to  receive  back  the  identical 
money  deposited.  1  Morse  Banks. 
§  183.  The  relation  thus  created  is 
that  of  bailor  and  bailee.  Money  re- 
ceived by  a  bank  on  general  deposit 
becomes  the  property  of  the  bank  and 
can  be  used  by  it  as  other  moneys  be- 
longing to  it,  the  relation  between  the 
bank  and  the  depositor  being  that  of 
debtor  and  creditor;  '  that  kind  of  de- 
posit of  money  peculiar  to  banking 
business,  in  which  the  depositor,  for 
his  own  convenience,  parts  with  the 
title  to  hi*  money  and  lojins  it  to  the 


banker.'  Commercial  Nat.  Bank  r. 
Armstrong,  39  Fed.  Rep.  684;  Wray 
r.  Insurance  Co.,  34  Ala.  58;  Alston  /•. 
State,  92  Ala.  124;  s.  c,  9  So.  Rep. 
7.S2.  The  contention  of  the  learne<l 
counsel  for  [the  claimant]  is  that  his 
cjise  meets  this  definition  of  a  general 
depositor.  AVe  cannot  agree  with  this 
contention.  [Claimant]  did  not  leave 
[its]  money  with  [the  insolvent  bank] 
subject  to  its  order  or  to  be  returned 
to  it  on  call.  It  did  not  for  its  own 
convenience  part  with  the  title  to  its 
money  and  loan  it  to  the  bank.  There 
was  no  contract,  express  or  implied, 
that  the  collection  from  [its  debtor] 
on  [claimant's]  account  was  to  be  a 
deposit  of  any  kind,  but  it  is  clear  that 
it  was  intended  that  the  money  re- 
ceived from  [the  debtor]  should  be  re- 
mitted in  *a  reasonable  time'  from 
date  of  collection.  [Claimant]  in- 
closed its  draft  on  [the  debtor]  to  the 
[bank]  for  'collection  and  returns.' 
[The  debtor]  took  up  the  draft  with 
his  check  on  [the  bank],  and  on  the 
same  day  the  latter  forwarded  to 
[claimant]  exchange  on  a  New  York 
bank  for  the  amount  of  [the  debtor's] 


§.  357] 


INSOLVENCY  OF  BANK. 


755 


of  the  check  were  not  entitled  to  any  preference  over  other 
claims   against   the  insolvent.^     A  national   bank  having   been 
notified  by  the  comptroller  that  its  capital  was  impaired,  it  was 
agreed  that  it  miglit  continue  business  on  the  directors  putting  in 
$100,000  in    cash,  and   retiring   that   amount   of  objectionable 
securities.     The  directors  contributed  the  sum  required  in  cash, 
an  account  being  opened  wit?h  trustees  appointed  by  the  directoi:^ 
to  manage  the  fund,  with  full  power,  as  far  as  the  bank  was  con- 
cerned, and  to  account  therefo'r  to  the  contributors  in  such  man- 
ner as  to  protect  the  equities  of  each  individual  and  the  bank,  in 
relation  to  the  bank  and  its  legal   rights.     It  was  understood 
between  the  trustees  and  the  bank  examiner  that  the  securities 
to  be  retired  were  to  be  designated  by  the  comptroller  or  exam- 
iner, but  there  was  no  such  understanding  with  the  comptroller. 
The  full  amount  of  objectionable  securities  had  not  been  selected 
and  given  to  the  trustees  when  the  bank  was  closed,  the  receiver 
taking   and   proceeding  to  collect    the    whole   assets.      It   was 
claimed  by  the  trustees  for  the  directors  that  the  balance  was  held 
by  the  bank  as  a  special  or  trust  fund ;  that  it  did  not  form  part 
of  the  assets  of  the  bank  ;  that  the  receiver  was  chargeable  with 
notice  of  the  nature  of  the  fund ;  and  that  when  the  receiver  was 
placed  in  control  of  the  bank  this  balance  came  into  his  hands 
impressed  with  the  trust  originally  pertaining  thereto  ;  and  that 
he  must  account  therefor  for  the  use  of  the  directors.     Shibas, 
J.,  of  the  United  States  Circuit  Court,  held,  however,  that  the 
receiver  was  not  required  to  account  for  the  balance  of    the 
$100,000  as  a  special  trust  fund,  but  merely  as  a  debt.^ 


indebtedness.  The  draft  was  not  paid, 
but  this  did  not  alter  the  relation  be- 
tween [the  claimant]  and  [the  bank]. 
The  bank  still  owes  the  debt." 

'  In  re  Seven  Corners'  Bank,  (Minn 
1894)  59  N.  W.  Rep.  633.  Gilpillan, 
Ch.  J.,  said:  "  The  case  is  not  essenti- 
ally different  from  what  it  would  have 
been  had  the  bank  received  the  money 
on  the  check  from  the  bank  on  which 
it  was  drawn  and  paid  with  it  checks 
drawn  on  itself  or  used  it  in  any  other 
way  in   its  business.     *    *    »    Had 
the  check  come  to  the  hands  of  the 
assignee  an  order  to  deliver  it  to  [the 
depositors]  would  have  been  proper. 
In   such  case  the   specific   property 


would  have  been  that  of  [the  deposit- 
ors].    As  it  was,  there  existed  nothing 
but  a  cause  of  action  against   he  bank 
for  conversion  of  the  check  or  of  the 
money,  its  proceeds;  and,  as  such,  it 
stands    on  the   same  footing  as  any 
other  claim  upon  the  assigned  assets 
based  on  a  conversion  of  money  or 
other  property.     To  allow  such  claims 
to  be  paid  in  full  out  of  the  assets, 
when  all  claims  cannot  be  paid  in  full,' 
would  give  a  preference  to  such  claims! 
There  is  nothing  in  the  insolvent  law 
justifying  it." 

*  Booth  V.   Welles,   (1890)    42  Fed 
Rep.  11.      • 


h 


CHAPTER  XIY. 

LIABILITY  OF  BANK  SHAREHOLDERa 


§  358.    Rules  generally. 
359.    Rule  under  Minnesotajtatute. 

Rule  under  Michigan  statute. 

Stockholder  relieved  from  lia- 
bility by  a  sale  of  his  stock 
through  a  broker. 

Pledgee  of  stock  incurs  no 
liability. 

When  a  stockholder  is  relieved 
from  liability. 

The  rule  where  shares  are 
transferred  to  avoid  liability. 


360. 
301. 


362. 


363. 


364. 


§J365.  When  a  transfer  of  shares 
does  not  relieve  the  stock- 
fa  :>lder. 

366.  Liability  of  stockholder  sur- 
vives. 

36^  Liability  of  a  married  woman 
upon  shares  of  stock  held 
by  her  in  her  own  right. 

368.  "Rules  as  to  actions  to  enforce 
liability  of  stockholders. 


§  358.  Rules  generally. —  The  stockliolders  of  a  banking 
corporation  are  primary  debtoi-s  to  the  depositors,  and  are  co-or- 
dinately responsible  with  the  bank.  Its  liability  and  that  of  tho 
stockholders  commences  at  the  same  time.*  A  subscriber  for 
shares  of  the  stock  of  a  bank  will  be  held  responsible  as  a 
stockholder,  though  he  may  not  have  paid  for  his  stock  or 
received  certificates  therefor.'^  Persons  who  hold  stock  in  pledge, 
the  certificates  of  which  stand  on  the  books  of  the  bank  in  the 
name  of  the  pledgee,  are,  in  contemplation  of  the  National  Bank- 
ing Act,  stockholders,  and  so  long  as  they  thus  hold  the  stock  in 
pledge  are  responsible  to  the  creditors  of  the  bank  in  proportion 
to  the  amount  so  held.^  Subscription  to  the  stock  of  a  national 
bank,  and  payment  in  full  with  entry  of  name  on  its  books  as  a 
stockholder,  makes  the  subscriber  a  stockholder  without  taking 
out  a  certificate.*  The  responsibility  of  a  stockholder  in  a  national 
bank  for  further  assessments  on  the  stock  will  cease  on  his  selling 
to  the  bank,  as  agent  for  an  unknown  principal,  his  stock,  and 


» Mitchell  f.  Beckman.  (1883)  64  Cal. 
117 ;  citing  Mokelumne  Hill  Canal 
&  Mining  Co.  v.  Woodbury,  14  Cal. 

265. 

« Mitchell  V.  Beckman,  (1883)  64  Cal. 
117;  citing  Chaffin  v.  Curamiugs,  37 
Me.  83;  Spear  v.  Crawford,  14  Wend. 
20;  Chester  Glass  Co.    v.  Dewey,  16 


Mass.  94;  In  re  South  Mountain  Con- 
solidated  Mining  Co.,  7  Sawy.  30. 
3  Magruder,  etc.,  v.  Colston,  44  Md. 

349. 

"  Pacific  National  Bank  r.  Eaton,  141 
U.  S.  227;  Thayer  r.  Butler,  141  U.  S. 
234;  Butler  v.  Eaton,  141  U.  S.  240. 


§358] 


LIABILITY  OF  BANK  SHAREHOLDERS. 


757 


ilelivering  to  the  bank  his  certificate  and  power  of  attorney  for 
transfer,  in  blank,  though  no  formal  transfer  be  made.^  "Where 
shares  of  stock  in  a  national  bank  have  been  hypothecated,  and 
placed  in  the  hands  of  the  transferee,  the  transferee  will  be  sub- 
jected to  all  the  liabilities  of  ordinary  owners  of  shares.  It  is  for 
the  reason  that  the  property  is  in  his  name  and  the  legal  ownership 
appears  to  be  in  him.^  One  who  is  chargeable  as  a  shareholder 
in  a  national  bank  will  not  be  relieved  from  his  liability  by  failure 
on  the  part  of  an  officer  of  the  bank  to  comply  with  the  provis- 
ions of  the  act  as  to  these  banking  associations  requiring  a  list 
of  the  stockholders  to  be  kept,  accessible  to  all  persons,  by  reason 
of  which  he  is  not  shown  to  be  a  shareholder.^  In  an  action  based 
upon  an  assessment  made  by  the  comptroller  of  the  currency  on 
tlie  stockliolders  of  a  national  bank  the  Supreme  Court  of  the 
United  States  held  that  a  transfer  of  stock  in  a  bank  to  a  person 
without  his  or  her  knowledge  or  consent  did  not  of  itself  impose 
upon  the  transferee  the  liability  attached  by  law  to  the  position 
of  a  stockholder  in  the  association ;  but  if,  after  the  transfer,  the 
transferee  approved  or  acquiesced  in  it,  or  in  any  way  ratified  it 
(as,  for  instance,  by  joining  in  an  application  to  convert  the  bank, 
which  was  originally  a  savings  bank  in  the  District  of  Columbia, 
into  a  national  bank),  or  accepted  any  benefit  arising  from  the 
ownership  of  such  stock,  he  or  she  became  liable  to  be  treated  as 
a  stockholder  with  such  responsibility  as  the  law  imposed  in  the 
case  (ff  shareholders  of  a  national  banking  association  ;  and  this 
liability  would  be  the  same  whether  new  certificates  had  or  had 
not  been  issued  to  the  transferee  after  the  transfer.  And  the 
indorsement  by  the  payee  of  a  check  which  appeared  on  its  face 
to  be  drawn  by  the  cashier  of  the  bank  in  payment  of  a  dividend  * 
due  the  payee  as  a  stockholder,  was  held  to  estop  the  payee  from 


»  Whitbeck  v.  Mercantile  Bank,  127 

V.  S.  193. 

'Wheelock  v.  Kost,  (1875)  77  111. 
296;  citing  Morse  on  Banking,  433; 
Adderly  v.  Storm,  6  Hill,  624;  In  re 
Empire  City  Bank,  18  N.  Y.  199.  The 
facts  in  Wheelock  v.  Kost,  supra,  were 
that  the  defendant  made  a  loan  to  the 
bank,  and  made  his  promissory  note 
partly  as  an  accommodation  to  the 
bank,  to  be  held  among  tlicir  other 
assets,  and  fifty  shares  of  its  stock, 


equal  in  value  to  |5,000,  were  issued 
to  him,  as  security  for  his  loans,  and 
as  indemnity  against  liability  on  his 
note.  The  court  held  him  liable  to  the 
creditors  of  the  bank  as  a  stockholder. 
As  to  the  liability  of  shareholders  of  a 
national  bank  to  the  creditors  of  the 
bank,  see  Laing  v.  Burley,  101  111.  591. 
As  to  stockholder's  liability  on  obliga- 
tions to  a  bank,  see  Finnell  v.  Sandford, 
(1856)  17  B.  Mon.  (Ky.)  758. 
8  Hale  V.  Walker,  31  Iowa,  344. 


i 


I 


758 


LIABILITY  OF  BANK  SHAREHOLDERS. 


[§358 


denying  knowledge  of  its  contents  or  ownership  of  the  shares.' 
It  has  been  held  in  a  federal  conrt  that  one  who  subscribed  and 
paid  for  a  specified  number  of  sliares  of  a  "  proposed  increase  "  of 
tlie  capital  stock  of  a  national  l)ank,  which  increase,  in  fact,  was 
never  issued,  and  to  whom  the  bank  otiicials  transferred,  instead, 
old  stock  of  the  bank  witliout  his  knowledge  or  consent,  was  not 
a  *'  shareholder  "  within  the  meaning  of  tliat  section  of  the  Revised 
Statutes  of  the  United  States,  which  imposes  individual  liability 
on  the  shareholders  for  the  debts  of  national  banks.  And  the 
fact  that  such  a  subscriber  for  the  new  shares  received  a  dividend 
on  the  old  shares  so  transferred  to  him,  did  not  estop  him  from 
denying  his  liability  as  a  shareholder  where  such  dividend  was 
received  hi  the  belief  that  it  was  })aid  to  him  by  virtue  of  his 
subscription  to  the  proposed  new  stock.^  It  appeared  in  a  case 
before  the  United  States  Supreme  Court  tliat  some  of  the  cred- 
itors of  this  bank,  after  it  determined  to  go  into  voluntary  liqui- 
dation, made  settlements  of  their  claims  for  some  cash  and  certain 
papers  belonging  to  the  bank,  indorsed  and  guaranteed  by  the 
president  in  the  name  of  the  bank.  They  afterwards  reduced 
these  claims,  growing  out  of  the  indorsement  or  guaranty  by  the 
president,  to  judgment,  and  in  the  form  of  judgments  against  the 
bank  presented  tliem,  and  they  were  allowed  a  i^ro  rata  for  the 
sums  realized  in  this  action  of  creditors  against  stockliolders  with 
the  other  creditors  in  the  decree  made.  The  Supreme  Court  held 
that  this  was  erroneous.^  • 


»  Keyser  t.  Hitz,  (1890)  133  U.  S.  138; 
a  c,  10  Sup.  Ct.  Rep.  290. 

» Stephens  r.  FoUett,  (1890)  43  Fed. 
Rep.  843. 

» Richmond  t.  Irons,  (1887)  121  U. 
S.  27.  Mr.  Justice  Matthews,  for  the 
court,  said:  "Those  creditors  who 
made  settlements  after  the  bank  was 
put  in  liquidation,  and  received  from 
the  president  in  that  settlement  paper 
of  the  bank,  or,  as  in  some  cases,  the 
individual  notes  of  [the  president] 
himself,  indorsed  or  guaranteed  in  the 
name  of  the  bank,  are  not  to  be  con- 
sidered as  creditors  of  the  bank,  enti- 
tled to  subject  the  stockholders  to 
individual  liability.  The  individual 
liability  of  the  stockholders,   as  im- 


posed by  and  expressed  in  the  statute, 
is,  indeed,  for  all  the  contracts,  debts 
and  engagements  of  such  association, 
but  that  must  be  restricted  in  its 
meaning  to  such  contracts,  debts  and 
engagements  as  have  been  duly  con- 
tracted in  the  ordinary  course  of  its 
business.  That  business  ceased  when 
the  bank  went  into  liquidation;  after 
that  there  was  no  authority  on  the  part 
of  the  officers  of  the  bank  to  transact 
any  business  in  the  name  of  the  bank 
so  as  to  bind  its  shareholders,  except 
that  which  is  implied  in  the  duty  of 
liquidation,  unless  such  authority  had 
been  expressly  conferred  by  the  share- 
holders. No  such  express  authority 
appears  in  this  case,  and  the  power  of 


§359] 


LIABILITY  OF  BANK  SHAREHOLDERS. 


759 


I 


§  359-  Rule  under  Minnesota  statute. —  One  acquiringBtock 
in  a  banking  corporation  incurs  the  statutory  liability,  not  only  in 
respect  to  corporate  debts  contracted  after  he  became  a  stock- 
holder, but  also  in  respect  to  debts  contracted  before  that  time.^ 


the  president  or  other  officer  of  the 
bank  to  bind  it  by  transactions  after  it 
was  put  into  liquidation  is  that  which 
results  by  implication  from  the  duty 
to  wind  up  and  close  its  affairs.  That 
duty  consists  in  the  collection  and  re- 
duction to  money  of  the  assets  of  the 
bank,  and  the  payment  of  creditors 
equally  and  ratably,  so  far  as  the 
assets  prove  sufficient.  Payments,  of 
<'Ourse,  may  be  made  in  the  bills  re- 
ceivable and  Other  assets  of  tire  bank 
in  8])ecie,  and  the  title  to  such  paper 
may  be  transferred  by  the  president  or 
cashier  by  an  indorsement  suitable  to 
the  purpose  in  the  name  of  the  bank, 
but  such  indorsement  and  use  of  the 
name  of  the  bank  is  in  liquidation, 
and  merely  for  the  purpose  of  trans- 
ferring title.  It  can  have  no  other 
eflFect  as  against  the  shareholders  by 
creating  a  new  obligation.  It  does  not 
constitute  a  liability,  contract  or  en- 
gagement of  the  bank  for  which  they 
can  be  held  to  be  individually  respon- 
sible. Every  creditor  of  the  bank, 
receiving  its  assets  under  such  circum- 
stances, knows  the  fact  of  liquidation, 
and  is  chargeable  with  knowledge  of 
its  consequences;  he  takes  the  assets 
received  at  his  own  peril;  he  is  dealing 
with  officers  of  the  bank  only  for  the 
purpose  of  winding  up  its  affairs.  If 
he  accepts  something  in  lieu  of  the  ex- 
isting obligations  looking  to  future 
payment,  it  must  be  from  other  par- 
ties. It  is  not  within  the  power  of  the 
officers  of  the  bank,  without  express 
authority,  by  such  means  to  prolong 
indefinitely  an  obligation  on  the  part 
of  the  shareholders,  which  is  imposed 
by  the  statute  only  as  a  means  of 
securing  the  payment  of  debts  of  an 
insolvent  bank  when  it  is  no  longer 


able  to  continue  business,  and  for  the 
purpose  of  effectually  winding  up  its 
affairs.  This  is  the  very  meaning  of 
the  word  'liquidation/"  Mr.  Justice 
Story  said,  in  Fleckner  v.  Bank  of 
the  United  SUites,  8  Wheat.  338,  362: 
"Its  ordinary  sense,  as  given  by  lexi- 
cographers, is  to  clear  away,  to  lessen 
debt,  and  in  common  parlance,  es- 
pecially among  merchants,  to  liquidate 
the  balance  is  to  pay  it."  In  White  v. 
Knox,  111  U.  S.  784.  787,  it  was  said: 
"  The  business  of  the  bank  must  stop 
when  insolvency  is  declared."  In  Na- 
tional Bank  r.  Insurance  Co.,  104  U. 
S.  54,  the  liquidation  of  such  an  asso- 
ciation was  Sfiid  to  be  like  that 
which  follows  the  dissolution  of  a 
copartnership. 

»  Olson  V.  State  Bank,  (Minn.  1894) 
59  N.  W.  Hep.  635.  Discussing  the 
question  Gilfillan,  Ch.  J.,  said: 
"  The  decisions  of  the  courts  in  the  dif- 
ferent states  seem  at  variance,  the 
greater  number  holding  that  tho.se  who 
own  the  stocks  when  the  remedy  is 
sought  by  the  creditors  —  that  is,  when 
the  action  to  enforce  the  liabiUty  is 
brought  —  are  liable  in  respect  to  all 
the  corporate  debts,  no  matter  whether 
contracted  before  or  after  they  ac- 
quired their  stock.  The  decisions  in 
each  state  are  based  on  the  terms  of  the 
statute  in  each,  as  construed  by  the 
court;  and,  as  the  terms  of  the  statutes 
in  the  different  stjites  vary,  but  little 
aid  is  afforded  by  the  decisions  in  other 
states.  Our  statute  is  Gen.  St.  1878, 
chap.  33,  §  14:  '  Every  person  becom 
ing  a  stockholder  therein,  shall,  in  pro- 
portion to  his  interest,  succeed  to  all 
the  rights  and  be  subject  to  all  the 
liabilities  of  prior  stockholders.'  Sec- 
tion 2:  '  And  the  stockholders   in  each 


I 


i 


I  \ 


roo 


LIABILITY  OF  BANK  SHAREHOLDERS. 


[§360 


§360.  Rules  under  Michigan  statute. —  In  an  action  by 
the  receiver  of  an  insolvent  bank  to  enforce  the  liabiHty  of  a 
stockholder  under  tlie  provisions  of  the  Banking  Act  of  the 
state  of  Micliigan,  declaring  that  "  tlie  stockl  olders  of  every  bank 
shall  be  individually  liable,  equally  and  ratably,  and  not  one  for 
another,  for  the  benefit  of  the  depositors  in  said  bank  to  the 
amount  of  their  stock  at  the  par  value  thereof,  in  addition  to  the 
said  stock,  *  *  *  "  it  appeared  by  the  record  that,  al)out  the 
time  the  bank  was  organized,  the  defendant  negotiated  with  one 
wlio  became  cashier  of  the  bank  for  the  purchase  of  stock.  It 
appeared  from  the  stock  ledger  that  under  a  certain  date  there 
was  issued  to  defendant  a  certificate  of  stock,  tlie  stock  ledger 
stating  tliat  tlie  stock  was  transferred  from  a  subscription  of 
another.  It  further  appeared  that  a  certilicate  was,  in  fact,  issued 
to  the  defendant,  and  tliat  he  received  dividends  for  several  years. 
It  was  claimed  for  tlie  defendant  that  he  was  not  a  stockholder, 
and  urged  further  that,  not  being  an  original  subscriber  to  the 
capital  stock,  the  only  way  in  which  he  could  become  a  stock- 
holder was  by  securing  a  transfer  of  some  of  the  stock  sul)scribed 
for  by  others,  and  that  no  formal  transfer  appeared  upon  the  bank 
books,  and,  hence,  that  he  never  legally  became  a  stockholder. 


bank  shall  be  iiuiividually  b'able  in  an 
amount  equal  to  double  the  amount  of 
stock  owned  by  them  for  all  the  debts 
of  such  bank,  and  such  individual  lia- 
bility shall  continue  for  one  year  after 
any  transfer  or  sale  of  sttx-k  by  any 
stockholder  or  stockholders.'  The 
terras  '  all  the  debts  of  such  bank '  are 
general,  unqualified,  and  include  all 
debts,  without  regard  to  when  in- 
curred. To  exclude  from  their  meaning 
those  incurred  prior  to  becoming  a 
stockholder  we  would  have  to  add 
after  the  word  '  bank '  some  such 
words  as  'contracted  after  they  ac- 
quired the  stock,'  and  to  hold  that  the 
legislature,  while  intending  what  such 
words  would  mean,  omitted,  for  some 
reason  or  other,  to  express  such  mean- 
ing by  apt  terms.  But  the  point  was 
really  decided  in  thisstiite  thirty  years 
ago,  and  the  decision  has  been  acqui- 
esced in,  accepted  and  regarded  us  the 


law  ever  since,  till  questioned  in  this 
case.  In  Gebhanl  r.  Eastman,  7 
Minn.  56,  the  court  construes  a  statute 
somewhat  less  emphatic  in  its  terms 
than  section  21,  chapter  33.  The  terms 
in  that  case  were,  *  Each  of  the  stock- 
holders of  said  company  shall  be  per- 
sonally liable  for  the  debts  of  said 
company  to  an  amount  equal  to  the 
amount  of  capital  stock  held  by  such 
stockholder,  and  no  more. '  It  was  held 
that  the  act  created  a  personal  liability 
against  each  stockholder  at  the  time 
that  the  debt  was  contracted,  'and  all 
that  may  voluntarily  become  so  at 
any  subsequent  period  prior  to  satis- 
faction.' Noting  that  this  statute  does 
what  that  did  not,  to  wit,  limit  the 
liability  to  one  year  after  the  stock- 
holder shall  have  transferred  his  stock, 
that  decision  disposes  of  the  question 
here  in  hand. " 


§  300] 


LIABILITY  OF  BANK  EHAEEHOLDERS. 


761 


The  Supreme  Court  of  Michigan  held  adversely  to  this  conten- 
tion.^ The  court  also  held  adversely  to  the  other  contention  on 
the  part  of  the  defendant,  that,  if  he  ever  legally  assumed  the 
relation  of  stockholder,  he  was  induced  to  enter  into  the  contract 
by  fraud. ^ 


'  Bissell,  Receiver,  r.  Heath,  (1894) 
98  Mich.  472.  The  court  said:  "  The 
answer  to  this  [contention]  is  that  the 
evidence  of  the  transfer  was  sufficient 
to  satisfy  the  corporators.  The  stock 
was,  in  fact,  issued,  and  the  books  of 
the  company  showed  it  sufficiently. 
Grand  Rapids  Savings  Bank  r.  Warren, 
53  Mich.  557.  The  corporation  was 
bound  by  the  issue  of  the  stock.  It 
could  waive  the  formality  of  any  as- 
signment by  [the  original  subscriber  to 
the  stock],  and,  having  done  so,  could 
not  thereafter  deny  defendant's  rights 
on  the  ground  that  he  had  failed  to 
produce  evidence  of  an  assignment 
from  an  original  subscriber  to  the  capi- 
tal stock."  Citing  Mor.  Priv.  Corp 
§844. 

»  Bissell.  Receiver,  v.  Heath,  (1894)  98 
Mich.  472.  It  was  said  by  the  court 
that  it  was  "  conceded  by  [defend- 
ant's] counsel  that  there  are  authorities 
which  maintain  that  it  is  not  open  to  a 
stockholder,  when  the  rights  of  cred- 
itors have  intervened,  to  assert  the 
claim  that  he  was  induced  by  fraud  to 
become  a  stockholder;  but  it  is  insisted 
that  the  true  rule  is  that  asserted  by 
Lord  Cairns  in  Smith's  Case,  2  Ch. 
App.  604,  that  it  is  one  of  the  risks 
which  creditors  are  liable  to  that  it 
may  turn  out  that  some  person  whose 
name  appears  as  stockholder  on  the  list 
has  a  right  to  have  his  name  taken 
from  the  list.  In  the  case  cited,  how- 
ever," said  the  court,  "the  action  was 
taken  before  any  steps  had  been  taken 
to  wind  up  the  affairs  of  the  corpora- 
tion under  the  Winding  Up  Act." 
They  then  proceeded  to  discuss  the 
questions  involved,  as  follows:  "In 
Stone  V.  Bank,  3  C.  P.  Div.  282,  it  was 
96 


held  that  where  the  corporation  has 
gone  into  liquidation,  and  is  proceed- 
ing under  the  Winding  Up  Act,  to  make 
calls  to  satisfy  claims  of  creditors,  it  is 
too  late  for  one  who  has,  up  to  that  time, 
allowed  his  name  to  appear  as  a  stock- 
holder, to  avoid  liability  on  the  ground 
that  his  subscription  was  obtained  by 
fraud.  The  question  was  touched 
upon  by  this  court  in  Duffield  ®.  Wire 
&  Iron  Works,  64  Mich.  293.  In  that 
case  plaintiff  had  been  induced  to  be- 
come a  stockholder  by  fraud,  and,  on 
discovery  of  the  fmud,  tendered  back 
the  shares  and  dividends  received,  and 
brought  an  action  against  the  corpora- 
tion before  any  assignment  was  made 
for  the  benefit  of  creditors.  On  th<^ 
question  of  the  plaintiff's  right  to  re- 
cover, under  the  circumstances,  the 
court  was  evenly  divided.  Justices 
CnAMPLiN  and  Morse,  being  of  the 
opinion  that  the  plaintiff  could  not  re- 
scind the  contract  after  the  rights  of 
creditors  had  intervened,  even  though 
no  steps  had  actually  been  taken  to 
wind  up  the  affairs  of  the  corporation. 
Chief  Justice  Campbell  and  Mr.  Jus- 
tice SuERwoGD  were  of  the  opposite 
opinion.  We  do  not  deem  it  necessary 
to  decide  which  of  the  two  opinions 
we  would  follow  in  a  case  presenting 
the  same  state  of  facts,  as  we  think 
that,  even  under  the  doctrine  of  Jus- 
tice Campbell's  opinion,  the  defend- 
ant in  this  case  cannot  be  relieved. 
Justice  Campbell  lays  stress  upon 
the  fact  that,  under  the  statute  relat- 
ing to  manufacturing  corporations,  the 
stockholders  are  not  personally  liable 
to  contribute  beyond  what  will  pay  up 
for  their  stock,  and  that  creditors  can- 
not enforce  any  rights  against  fully- 


n 


I 


762 


LIABILITY  OF  BANK  SUAREHOLDERS. 


[§^5(51 


§  361.  Stockholder  relieved  from  liability  by  a  sale  of  his 
stock  through  a  broker. —  In  tin  action  brought  by  the  receiver 
of  a  national  bank  to  charge  defendant  as  a  stockholder,  it  appeared 
that  the  latter,  in  good  faith,  and  without  intent  to  evade  his 
responsibility  as  a  stockholder,   the  owner  of  a  nuniber  of  its 
shares,  sold  them  to  a  broker,  to  whom  he  delivered  his  stock 
certificate,  and  a  power  to  transfer  them,  leaving  blanks  for  the 
names  of  the  attorney  and  transferee.     The  broker  sold  them  to 
the  president  of  the  bank,  wlio  gave  his  individual  check  in  pay- 
ment therefor,  and  received  the  certificate  and  power.     By  the 
directions  of  the  president,  a  bookkeeper  of  the  bank  inserted 
his  own  name  as  attorney,  and  transferred  the  stock  to  the  presi- 
dent of  the  bank  as  "  trustee  "  on  the  official  stock  register.    The 
entries  in  the  stock  ledsjer  and  other  books  of  the  bank  showed 
that  the  president  purchased  the  stock  for  the  bank,  and  reim- 
bursed  himself    with    its   funds.     The   bookkeeper   had    actual 
knowledge   of  all   the   facts.     The   argument   of   the    receiver, 
before  the  Supreme  Court  of  the  United  States,  to  support  his 
action,  praying  that  the  purchase  on  the  part  of  the  bank  be  set 
aside,  and  that  the  defendant  be  compelled  to  repay  the  money 
received  to  him  and  the  president  of  the  l)ank   to  re-transfer  to 
him  the  shares  on  the  books  of  the  bank,  was  substantially  thai 
the  transfer  of  the  stock  was  not  ('omplete  until  made  on   the 
books  of  the  bank,  and  the  attornev  who  made  it  knew  that  the 
purchase  was  by  the  bank  and  with  its  funds,  and  his  knowledge 
was  the  knowledge  of  defendant.     The  court  held  that  as  the 
bookkeeper  was  the  agent  of  the   bank,  his  knowledge  of  the 
transaction  could  not  be  imputed  to  the  defendant,  and  that  the 
8uit  could  not  be  maintained.^ 


paid  stock.  But  such  is  net  the  case 
with  corporations  organized  under  the 
}^nking  Law.  It  is  apparent  that 
Justice  Campbell  recognized  the  doc- 
trine of  Stone  V.  Bank,  supra.  We 
think  that  the  defendant  in  this  case 
cannot,  after  having  permitted  the  de- 
positors of  the  bank  to  rely  upon  his 
apparent  ownership  of  this  stock,  and 
after  having  received  dividends  upon 
the  stock  for  years,  which  he  has  not 
tendered  back,  be  heard  now  to  re- 
pudiate his  liability."      Citing    Mor. 


Priv.  Corp.  §  840;  Chubb  r.  Upton,  95 
U.  8.  665;  Cook  Stock  6i  S.  §g  163, 
164. 

>  Johnson  v.  Laflin,  (1880)  103  U.  S. 
800.  Art/ lie  lido.  Mr.  Justice  Field,  in 
the  opinion,  said:  "The  general  doc- 
trine that  the  principal  in  a  transaction 
is  chargeable  with  notice  of  matters 
affecting  its  validity,  coming  to  the 
knowledge  of  his  agent  pending  the 
proceeding,  is  not  questioned.  Had 
*  *  *  the  bookkeeper  been  ap- 
pointed by  [defendant]  to  mjikc  the 


§362] 


LIABILITY  OF  BANK  SUAREHOLDERS. 


400 


§  362.  Pledgee  of  stock  incurs  no  liability.—  In  a  case 
before  the  Supreme  Court  of  the  United  States  it  was  held  that 
a  pledgee  of  shares  of  stock  in  a  national  bank,  who,  in  good  faith 
and  witii  no  fraudulent  intent,  takes  the  security  for  his  benefit 
in  the  name  of  an  irresponsible  trustee  for  the  avowed  purpose 


sale,   and  had  he,   in  negotiating  it, 
learned  the  facts  as  to  the  purchase 
and  use  of  the  funds  of  the  bank, 
there  would  be  ground  to  invoke  the 
application  of  the  doctrine.     But  such 
was  not  the  position  of   [the  book- 
keeper] to  [defendant].     The  sale  was 
consummated,   so  far  as   [defendant] 
was  concerned,  when  he  delivered  the 
certificate,  with  the  power  to  transfer 
it  to  the  broker.     The  latter  did  not 
mention  the  name  of  the  principal  for 
whom  he  was  acting.     He  declined  to 
give    it.     [Defendant]    had    a    right, 
therefore,  to  treat  him  as  the  principal, 
and  if  he  was  competent  to  make  the 
purchase  the  sale  was  valid."    As  to 
the  transfer  of  such  shares,  generally, 
it  was  then  said:  "  Shares  in  the  capi- 
tal stock  of  associations,   under  the 
National   Banking    Law,    are  salable 
and  transferable  at  the   will  of  the 
owner.     They    are,   in    that    respect, 
like    other    personal    property.     The 
statute  recognizes  this  transferability, 
although  it  authorizes  every  associa- 
tion to  prescribe  the  manner  of  their 
transfer.     Its  power  in  that  respect, 
however,  can  only  go  to  the  extent  of 
prescribing  conditions  essential  to  the 
protection   of  the  association  against 
fraudulent  transfers,  or  such  as  may 
be  designed  to  evade  the  just  respon- 
sibility of  the  stockholder.     It  is  to  be 
exercised  reasonably.     Under  the  pre- 
tense of   prescribing   the  manner  of 
the  transfer,   the    association    cannot 
clog  the  transfer  with  useless  restric- 
tions, or  make  it  dependent  upon  the 
consent  of  the  directors  or  their  stock- 
holders.    *    *     *     As  between    [de- 
fendant]  and   the  broker,    the  trans- 
action  was  consummated    when    the 
certificate  was  delivered  to  the  latter 


with  the  blank  power  of  attorney  in- 
dorsed, and  the  money  was  received 
from  him.     As  between  them  the  title 
to  the  shares  then   passed;    whether 
that  be  deemed  a  legal  or  equitable  one 
matters  not;   the  right  to  the  shares 
then  vested  in  the    purchaser.     The 
entry  of  the  transaction  on  the  books 
of  the  bank,  where  stock  is  sold,  is  re- 
quired, not  for  the  translation  of  the 
title,   but  for  the  protection  of    the 
parties  and   others  dealing  with   the 
bank,  and  to  enable  it  to  know  who 
are  its  stockholders  entitled  to  vote  at 
their  meetings  and  receive  dividends 
when  declaied.     It  is  necessary  to  pro- 
tect the  seller  against  subsequent '  lia- 
bility as  a  stockholder,  and   perhaps 
also  to  protect  the  purchaser  against 
proceedings  of   the  seller's  creditors. 
Purchasers  and  creditors,  in  the   ab- 
sence of  other  knowledge,   are   only 
bound  to  look  to  the  books  of  registry 
of   the    bank.     But,  as  between    the 
parties  to  a  sale,  it  is  enough  that  the 
certificate  is  delivered  with  authority 
to  the  purchaser,  or  any  one  he  may 
name,  to  transfer  it  on  the  books  of 
the  company  and  the  price  is  paid. 
If  a  subsequent  transfer  of  the  cer- 
tificate be  refused  by  the  bank,  it  can 
be  compelled  at  the  instance  of  either 
of  them.     Bank  v.  Lanier,  11  Wall. 
369;    Webster    v.    Upton,    91    U.    S. 
65;    Bank    of    Utica    v.    Smalley,    2 
Cow.  770;  Gilbert  v.  Manchester  Iron 
Co.,  11  Wend.  627;  Commercial  Bank 
of  Buffalo  V.  Kortright,  22  Wend.  348; 
Sargeant  t.  Franklin  lusumnce  Co.,  8 
Pick.     90.     The     transferability     of 
shares  in  the  national  banks  is  not  gov- 
erned by   different  rules  from  those 
which   are  ordinarily   applied  to  the 
transfer  of  shares  in   other  corporate 


\ 


HIM 


764 


LIABILITY  OF  BANK  SHABEH0LDEB8. 


[§362 


of  avoiding  individual  liability  as  a  sbareliolder,  and  wlio  exercises 
none  of  the  powers  or  riglits  of  a  stockholder,  incurs  no  liability 
as  such  to  creditors  of  the  bank  in  case  of  its  failure.^  A  cor- 
poration which  holds  shares  of  stock  in  a  national  bank  as  col- 
lateral security  for  a  loan,  and  is  carried  on  the  registry  of  the 


bodies.     The    power  of    attorney  in- 
dorsed in    the  certificate    is    usually 
written  or  printed,  with  a  space   in 
blank  for  the  name  of  the  attorney  to 
be  inserted  for  the  accommodation  of 
the  purchaser.     The  subsequent  fill- 
ing   up  of    the  blank  by  him  with 
another  name  instead  of  his  own,  as  it 
may  suit  his  convenience,  does  not  so 
connect  the   vendor   with   the   party 
named  as  to  charge  him  with  the  hit- 
ter's knowledge   and  thus  affect  the 
previous  transaction.     *    *    * "    The 
court  did  not  consider  that  the  further 
position  of  the  receiver  in  this  action, 
that  the  assets  of  the  bank  constituted 
ti  trust  fund  for    the  benefit  of  its 
creditors,  and,  where   wrongfully   di- 
verted, could  be  followed  in  whoseso- 
ever hands  they  could  be  traced,  had 
application  to  this  case.     It  was  said: 
*'  Here  no  assets  of  the  bank  were  re- 
ceived by  [defendant].     What  he  re- 
ceived came  from  the  broker,  the  only 
person  with  whom  he  dealt  or  whom 
lie  knew  as  principal  in  the  negotia- 
tion.    The  circumstance  that  the  pur- 
chase   was   actually  in    the   interest 
of   the   bank  — though    of  that  fact 
the  broker  was  ignorant  —  cannot  af- 
fect the  latter's  character  as  principal, 
so  far  as  [defendant]  was  concerned, 
which  he  bore  in  the  negotiation.    The 
whole  transaction  on  the  part  of  [de- 
fendant] was  free  from  any  imputa- 
tion of  fraud.     He  sold  his  shares  to  a 
person  competent  to  purchase  and  hold 
them  and  received  the  stipulated  price. 
It  would  be  a  perversion  of  justice 
and  of  the  ordinary  rules  governing 
men  in    commercial    transactions    to 
hold    the    sale,    under  such    circum- 
stances, vitiated  by  the  relations  of  the 
purchaser  to  others,  of  which  the  sel- 


ler had  no  knowledge,  or  any  grounds 
to  entertain  a  suspicion.  The  validity 
of  the  sale  of  stock  cannot  be  made  to 
depend  upon  the  accident  of  the  im- 
mediate purchaser,  or  of  the  party  to 
whom  he  mav  transfer  the  certificate, 
in  filling  up  the  blank  in  the  power  of 
attorney  with  the  name  of  a  person  to 
make  the  formal  transfer,  who  is  ac- 
quainted with  the  secret  interest  of 
others  in  the  shares  purchased.  The 
validity  of  a  sale  and  its  completeness 
must  be  determined  by  the  relation 
which  the  contracting  parties  at  the 
time  openly  bear  to  each  other." 

'  Anderson    r.   Philadelphia    Ware- 
house Company,  (1884)  111  U.  8.  479, 
Miller  and  Matthews,  JJ.,  dissent- 
ing.    Waite,  Ch.   J.,  in  his  opinion 
for  the  majority  of  the  court,  said :  "  It 
is  well  settled   that  one  who  allows 
himself  to  appear  on  the  books  of  a 
national  bank  as  an  owner  of  its  stock 
is  liable  to  creditors  as  a  shareholder, 
whether  he  be  the  absolute  owner  or  a 
pledgee  only,  and  that  if  a  registered 
owner,  acting  in  bad  faith,  transfers 
his  stock  in  a  failing  bank  to  an  irre- 
sponsible person  for  the  purpose  of 
escaping  liability,  or  if  his  transfer  is 
colorable  only,  the  transaction  is  void 
as    to    creditors.      National   Bank  t>. 
Case,  99  U    S.  628;   Bowden  v.  John- 
son,  107  U.    8.   251.     It  is  also  un- 
doubtedly  true    that    the     beneficial 
owner  of  stock  registered  in  the  name 
of  an  irresponsible  person  may,  under 
some  circumstances,  be  liable  to  cred- 
itors as  the  real  shareholder,  but  it  has 
never,   to  my  knowledge,   been  held 
that  a  mere  pledgee  of  stock  is  charge- 
able,   where  he  is  not  registered  as 
owner."      In  the    conclusion    of    the 
opinion  it  was  said:  "The  security  ol 


§362] 


LIABILITY  OF  BANK  SHAREHOLDERS. 


765 


bank  as  the  holder  of  such  stock  "  as  pledgee,"  is  not  subject,  on 
the  bank's  insolvency,  to  the  statutory  liability  of  a  stockholder.* 
One  who  is  entered  on  the  books  of  a  national  bank  as  the  owner 
of  stock,  but  wlio  is  admitted  to  hold  the  stock  for  the  true 
owner,  is  not  liable  as  a  stockliolder  for  the  debts  of  the  bank, 
when  the  true  owner  has  been  adjudged  so  liable,  though  nothing 
may  be  realized  upon  the  execution  of  the  judgment  against  tlie 
true  owner.'* 


the    warehouse    company    was    per- 
fected without  imposing  on  the  com- 
pany a  shareholder's    liability.      All 
this  was  done  in  good  faith  when  the 
bank  was  in  good  credit  and  paying 
large  dividends,  and  years  before  its 
failure,  or  even  its  embarrassment.    So 
far  as  the  company  was  concerned  the 
transfer  [to  one  of  its  employees]  was 
not    made   to  escape   an    impending 
calamity,  but    to    avoid  incurring  a 
liability  it  was  unwilling  to  assume, 
and  which  it  was  at  perfect  liberty  to 
shun."      In    the   dissenting    opinion, 
rendered  by  Miller,  J. ,  it  was  said: 
**  I    think    if    in    any    case    between 
private  persons  one  of  them  had  placed 
property    in    the    hands    of    minors, 
servants,  or    other  irresponsible  per- 
sons, for  the  purpose  of  escaping  the 
responsibility  attaching  to  the  owner- 
ship of  such  property,  while  securing 
all  the  advantages  of  such  ownership, 
it  would  be  held  to  be  a  transaction 
which  could  not  be  supported  on  any 
legal  or  equitable  principle.     It  does 
not  remove  this  case  from  the  control 
of  that  principle  that  the  parties  to  be 
injured  are  the  unknown  creditors  of 
the  bank,  who  are,  by  this  means,  de- 
prived of  the  right  which  they  have  to 
resort  to  a  responsible  shareholder  for 
the  contribution  which  the  law  gives 
for  their  benefit.      If  not  an  actual 
fraud,  it  is  a  fraud  upon  the  Banking 
Law,  and   was  so  intended  to  be  by 
both  the  original  holders  of  the  bank 
shares  and  the  officers  of  the  ware- 
house company,  by  which  the  latter 


could  control  the  shares  without  the 
responsibility  which  the  law  attaches 
to  the  owner." 

'  Pauly  V.  State  Loan  &  Trust  Co., 
(1893)  56  Fed.  Rep.  430.  It  was  said 
by  the  court :  *'  The  precise  question 
involved  was  not  presented  in  any  of 
the  numerous  cases  cited  by  counsel. 
But,  in  my  opinion,  the  doctrine  of 
the  case  of  Anderson  v.  Warehouse 
Co.,  Ill  U.  S.  479;  s.  c,  4  Sup.  Ct. 
Rep.  525,  carried  to  its  logical  conclu- 
sion, exempts  the  defendant  from  the 
liability  with  which  it  is  sought  to  be 
charged.  In  that  case  the  Supreme 
Court,  while  declaring  it  to  be  well 
settled  that  one  who  allows  himself  to 
appear  on  the  books  of  a  national 
bank  as  an  owner  of  its  stock  is  liable 
to  the  creditors  as  a  shareholder, 
whether  he  be  the  absolute  owner  or 
pledgee  only,  and  that  if  a  registered 
owner,  acting  in  bad  faith,  transfers 
his  stock  in  a  failing  bank  to  an  irre- 
sponsible person,  for  the  purpose  of 
escaping  liability,  or  if  his  transfer  is 
colomble  only,  the  transaction  is 
void  as  to  creditors,  and  that  it  is 
also  true  that  the  beneficial  owner  of 
stock  registered  in  the  name  of  an 
irresponsible  person  may,  under  some 
circumstances,  be  liable  to  creditors  as 
the  real  shareholder,  said  it  knew  of  no 
case  that  held  that  a  mere  pledgee 
of  stock  is  chargeable  where  he  is  not 
registered  as  owner." 

«  Yardley  v.  Wilgus,  (1893)  56  Fed. 
Rep.  965. 


766 


LIABILITY  OF  BANK  SHAREHOLDERS.         [§§  363-364 


§  363.  When  a  stockholder  is  relieved  from  liability.^ 
It  appeared  in  an  action  b^  a  receiver  of  a  national  bank  to 
enforce  an  assessment  under  the  Kevised  Statutes  of  the  United 
States,  section  5151,  against  a  person  credited  on  the  transfer 
books  as  a  stockholder,  that  nearly  a  year  before  the  failure  of  the 
bank  he  had  sold  this  stock  to  a  broker  for  an  indisclosed  prin- 
cipal ;  that  he  indorsed  the  same,  and  requested  the  broker  to 
inform  the  cashier  of  the  transaction,  and  to  have  the  stock  trans- 
ferred ;  that  the  broker  accordingly  handed  the  stock  to  the 
casliier,  gave  him  the  necessary  infonnation,  and  requested  him 
to  make  the  transfer.  This  the  cashier  promised  to  do,  but,  in 
fact,  the  transfer  was  never  made.  The  certificate  recited  that  it 
was  transferable  on  tlie  books  of  tlie  company  "  by  indorsement 
hereon  and  surrender  of  this  certiiicate."  It  was  held  by  the 
United  States  Circuit  Court  for  the  northern  district  of  Cali- 
fornia that,  in  requesting  the  casliier  to  make  the  transfer,  the 
broker  acted  as  the  seller's  agent,  and  that  the  latter  did  all  that 
was  required  of  him  as  a  prudent  business  man,  and  could  not  be 
held  liable  as  a  stockholder.* 

§  364.  The  rule  where  shares  are  transferred  to  avoid 
liability.— In  an  action  by  a  receiver  of  an  insolvent  national 
bank  against  the  transferrer  and  transferee  of  sliares  where  tlie 
testimony  showed  to  the  minds  of  the  Supreme  Court  of  the 
United  States  that  there  was  an  attempt  on  the  part  of  a  holder 
of  shares  of  stock  in  a  national  bank  to  escape  personal  liability 
as  a  shareholder  by  collusion  with  and  transfer  of  the  shares  to 
one  not  solvent  and  responsible,  the  court,  after  reciting  the 
section  of  Eevised  Statutes  applicable  to  the  matter,  thus  declared 
the  law  governing  in  such  case:  "As  [a]  shareholder,  [the 
transferrer]  became  subject  to  the  individual  liability  prescribed 
by  the  statute.  This  liability  attached  to  him  until,  without  fraud 
as  against  the  creditors  of  the  bank  for  whose  protection  the 
liability  was  imposed,  he  should  relieve  himself  from  it.  He 
could  do  so  by  a  hona  fide  transfer  of  the  stock.  But  where  the 
transferrer,  possessed  of  information  showing  that  there  is  good 
ground  to  apprehend  the  failure  of  the  bank,  colludes  and  com- 

•  Young  V.  McKay,  (1892)  50  Fed.  61.  The  court  distinguished  Rich- 
Rep.  394,  following  Whitney  U.Butler,  mond  «.  Irons,  121  U.  8.  27;  s.  c.,7 
118  U.  S.  655;   s.  c,  7  Sup.  Ct.  Rep.    Sup.  Ct.  Rep.  788. 


§365] 


LIABILITY  OF  BANK  SHAREHOLDERS. 


767 


bmes,  as  in  this  case,  with  an  irresponsible  transferee,  with  the 
design  of  substituting  the  latter  in  his  place,  and  of  thus  leaving 
no  one  witli   any  ability  to  respond  for  the  individual  liability 
imposed  by  the  statute,  in  respect  of  the  jhares  of  stock  trans 
ferred,  the    transaction  will  be   decreed  to  be  a  fraud  on  the 
creditors,  and  he  will  be  held  to  the  same  liability  to  the  creditors 
as  before  tlie  transfer.     He  will  be  still  regarded  as  a  shareholder 
quoad  the  creditors,  although  he  may  be  able  to  show  that  there 
was  a  full  or  a  partial  consideration  for  the  transfer,  as  between 
him  and  the  transferee.     The  appellees  contend  that  the  statute 
does  not  admit  of  such  a  rule,  because  it  declares  that  every  per- 
son becoming  a  shareholder  by  transfer  succeeds  to  all  the  liabiU- 
ties  of  the  prior  holder,  and  that,  therefore,  the  liabilities  of  the 
prior  holder,  as  a  stockholder,  are  extinguished  by  the  transfer 
iiut  It  was  held  by  this  court  in  National  Bank  v.  Case,  99  U  S 
628,  that  a  transfer  on  the  books  of  the  bank  is  not  in  all  cases 
enough  to  extinguish  liability.     The  court  in  that  case  defined 
as  one  limit  of  the  right  to  transfer  that  the  transfer  must  be 
.Kit  and  out,  or  one  really  transferring  the  ownership  as  between 
the  parties  to  it.     But  there  is  nothing  in  the  statute  excluding 
as  another  limit,  that  the  transfer  must  not  be  to  a  person  known 
to  be   irresponsible,   and  collusively   made   with    the  intent  of 
escaping  liability  and  defeating  the  rights  given  by  statute  to 
creditors.     [The  transferee  here]  might  be  liable  as  a^shareholder 
succeeding  to  the  liabilities  of  [the  transferrer],  because  he  has 
voluntarily  assumed  that  position ;    but    that  is  no  reason  why 
[the  transferrer]  should  not,  at  the  election  of  creditors,  still  be 
treated  as  a  shareholder,  he  having,  to  escape  liability,  perpetrated 
a  fraud  on  the  statute.     This  is  the  view  enforced  by  the  decision 
ot  the  chief  justice  in  Davis  v.  Stevens,  IT  Blatchf.  259."i 

§  365.  When  a  transfer  of  shares  does  not  relieve  the 
stockholder.- In  a  case  before  the  United  States  Supreme 
Court  it  appeared  that  a  stockholder  claimed  that  he  had  sold  his 
stock,  one  hundred  and  fifty  shares,  about  seven  months  before 
t^ie  resolution  of  the  directors  to  go  into  voluntary  liquidation: 
hfty  shares  about  three  months  before,  and  fifty  shares  on  or 
about  the  date  of  the  passage  of  that  resolution,  and  that  he  wa^ 
not  liable.  The  stock  books  of  the  bank  showed  a  transfer  of  the 
» Bowden  ?'.  Johnson,  (1882)  107  U.    S.  251,  261  262. 


768 


LIABILITY  OF  BANK  SHAKEH0LDEE8. 


[§366 


fihares  partly  on  the  last  date,  and  partly  afterwards.     The  conrt 
sustained  the  decree  against  him  by  the  Circuit  Court.* 

§  366.  Liability  of  stockholder  survives.— There  has  been 
a  case  before  the  Supreme  Court  of  the  United  States,  a  bill 
filed  by  the  creditors  of  a  national  bank  which  had  by  resolution 
of  its  directors  gone  into  voluntary  liquidation  to  enforce  the 
statutory  liability  of  the  stockholders,  in  which  the  court  passed 
upon  and  determined  several  questions  raised  in  the  case.  One 
question  raised  upon  the  appeal  of  one  of  the  respondents,  who 
had  been  appointed  after  the  institution  of  the  suit  an  adminis- 
trator de  bonis  non  of  one  of  the  original  defendant  stockholders, 
was  upon  the  contention  of  this  administrator  that  the  personal 
liability  of  his  intestate  did  not  survive  as  against  the  adminis- 


»  Richmond  v.  Irons.  (1887)  121 U.  S. 
27.    Mr.  Justice  Matthews,  speaking 
for  the  court,  said  :  "As  to  the  fifty 
shares  of  stock  sold  by  [appellunt]  to 
the  president  of  the  bank  [on  the  day 
of  the  adoption  of  the  resohitions  for 
liquidation],  we  think  the  conclusion 
cannot  be  resisted  that  the  transaction 
was  made  in  contemplation  of  the  in- 
solvency of  the  bank,  and  although 
both  parties  may  have  beUeved  that 
the  bank  would  ultimately  be  able  to 
pay  all  of  its  debts  notwithstanding 
this   transaction,    we    think  tliat,   as 
against  creditors,  it  was  fraudulent  in 
law,  and  to  that  extent  [appellant]  is 
chargeable  as  a  shareholder.     The  sale 
of  [the  shares  held  previously]  there 
is  no  reason  to  suppose  were  not  made 
in  entire  good  faith,  and  without  any 
expectation  on  the  part  of  the  parties 
of  the  insolvency  of  the  bank.     Not- 
withstanding that,  [appellant]  contin- 
ued to  be  upon  the  books  of  the  bank 
the  owner  of  the  shares  until  [the  date 
of  the  action  of  directors  looking  to 
liquidation  of  the  bank],  and  the  day 
after,  when  they  were    ♦    *  *   trans- 
ferred.    By  ^  5139  of   the    Revised 
Statutes,  those  persons  only  have  the 
rights  and  liabilities  of  stockholders 
who  appear  to  be  such  as  are  registered 


on  the  books  of  the  association,  the 
stock  being  transferable  only  in  that 
way.      No  person  becomes  a  share- 
holder, subject  to  such  liabilities,  and 
succeeding  to  such  rights,  except  by 
such  transfer;  until  such  transfer,  the 
prior  liolder  is  the  stockholder  for  all  the 
purposes  of  the  law.     It  follows,  there- 
fore, that  [appellant],  in  respect  to  the 
shares  [previously]  sold  by  him,  was 
the  statutory  owner  on  the  day  [of  the 
passage  of  the  resolution].     Ills  lia- 
bility as  such  stockholder  is  the  same 
as  if  he  had  that  day  sold  and  trans- 
ferred the  stock  to  [the  president],  but 
such  a  sale  and  transfer  could  only 
have  been  made  by  [appellant],   who 
was  himself  a  director,  in  contempla 
tion  and  actual  knowledge  of  the  sus- 
pension of  the  bank;  it  would  operate 
as  a  fraud  on  the  creditors,  an  effect 
which  the  law  will  not  permit.     The 
case  is  not  within  the  rule  laid  down  in 
Whitney  v.   Butler,    118    U.   8.   655. 
Here  there  is  no  proof,  as  there  was  in 
that  case,  of  the  delivery  of  the  certifi- 
cates to  the  bank,  and  a  power  of  at- 
torney authorizing  its  transfer,  with  a 
request  to  do  so,  made  at  the  time  of 
the  transaction.     The  delivery  was  to 
[the  purchaser],  not  as  president,  but 
as  vendee." 


§366] 


LIABILITY  OF  BANK  SHAREHOLDERS. 


709 


trator,  and  that,  therefore,  no  decree  could  be  rendered  against 
jiim  subjecting  the  estate  of  his  intestate  in  liis  liands  for  admin- 
istration to  the  liability  under  the  statute.     The  court  held  that 
such  a  decree  could  be  rendered.*     In  a  very  late  action  in  a  fed- 
eral court  by  a  receiver  of  an  insolvent  national  bank  against  the 
executors  of  a  deceased  shareholder,  a  portion  of  his  shares  of 
stock  having  been  redeemed  from  the  pledgee  of  the  same  by 
paying  the  debt  for  which  it  was  pledged  and  these  shares  issued 
to  them  as  executors,  to  recover  an  assessment  made  upon  share- 
holders, the  executors  took  this  among  their  positions  with  refer- 
ence to  the  right  to  recover,  that  no  claim  existed  against  the 
estate ;  that  when  testator  died,  the  bank  was  then  a  going  con- 
cern, and  his  liability  to  be  assessed  upon  the  shares  of  stock 
owned  by  him  was  merely  a  contingency,  and  that  his  estate  in 
the  hands  of  the  executors  could  only  be  subject  to  the  payment 
of  such  demands  as  were  existing  claims  at  the  time  of  the  death 
of  the  testator.     The  court  held  adversely  to  this  contention  and 
rendered  a  decree  holding  the  estate  liable.* 

'Richmond  v.  Irons,  (1887)  121   U. 
8.  27.     Mr.  Justice  ^Iatthews,  for  the 
court,   said:   "The  judicial   decisions 
more  directly  relied  upon  by  the  ap- 
pellant in  support  of  [his]  contention 
are  those  of  Dane  v.  Dane  Manufac- 
turing Co.,   14  Gray,  488;   Bacon   v. 
Pomeroy,   104  Mass.    577;    Ripley  v. 
Sampson,  10  Pick.  371;  Bangs  v.  Lin- 
coln, 10  Gray,  600;  Gray  v.  Coffin,  9 
Cush.  192.     These  cases,  however,  so 
far  as  they  are  in  point,  are  based  upon 
the  particular  language  of  the  statutes 
of  Massachusetts,  materially  differing 
from  that  contained  in  the  National 
Banking  Act.     Under  that  act  the  in- 
dividual liability  of  the  stockholders  is 
an  essential  element  in  the  contract  by 
which  the  stockholders  became  mem- 
bers of  the  corporation.     It  is  volun- 
tarily entered  into  by  subscribing  for 
and  accepting  shares  of  stock.     Its  ob- 
ligation becomes  a  part  of  every  con- 
tract, debt   and  engagement  of   the 
bank  itself,  as  much  so  as  if  they  were 
made  directly  by  the  stockholder  in- 
stead of  by  the  corporation.     There  is 

97 


nothing  in  the  statute  to  indicate  that 
the  obligation  arising  upon  these  un- 
dertakings and   promises  should  not 
have  the  same  force  and  effect,  and  be 
as  binding  in  all  respects,  as  any  other 
contracts    of    the    individual    stock- 
holder.    We  hold,  therefore,  that  the 
obligation  of  the  stockholder  survives 
as  against  his  personal  representatives. 
Flash  V.  Conn,  109  U.  S.  371;  Hobart 
V.  Johnson,  19  Blatchf.  359.    In  Mas.sa- 
chusetts,  it  was  held  in  Grew  v.  Breed, 
10  Met.  669,  that  administrators  of  de- 
ceased stockholders  were  chargeable  in 
equity,   as  for  other  debts   of    their 
intestate,      in      their     representative 
capacity." 

'Wickham  v.  Hull,  (1894)  60  Fed. 
Rep.  326.  Shiras,  D.  J.,  said:  "The 
liability  to  respond  to  assessments 
made  upon  the  capital  stock  is  purely 
statutory  in  its  origin,  and  the  extent 
and  nature  of  the  obligation  is  deter- 
mined by  the  provisions  of  the  statute 
creating  the  same.  Section  5151  of 
the  Revised  Statutes  enacts  that  '  the 
shareholders  of  every  national  banking 


III 


770 


LIABILITY  OF  BANK  8HABEHOLDEB8. 


[§3GT 


I 


§  367.  Liability  of  a  married  woman  upon  shares  of  stock 
held  by  her  in  her  own  right.—  The  shareholder  who  was  being 
sued  for  an  assessment  ordered  by  tlie  comptroller  of  the  cur- 
rency upon  tlie  shareholders  of  this  national  bank,  being  a  mar- 
ried woman,  contended  that  the  coverture,  at  the  time  of  the 
transfer  of  stock  to  her,  as  well  as  when  the  bank  failed,  pro- 
tected her  against  assessment  upon  the  stock  paid  in  her  name 


association  shall  be  held  individually 
responsible,  equally  and  ratably,  and 
not  one  for  another,  for  all  contmcts, 
debts  and  engagements  of  such  asso- 
ciation, to  the  extent  of  the  amount  of 
their  stock  therein,  at  the  par  value 
thereof,  in  addition  to  the  amount  in- 
vested  in    such  shares.'    Under   the 
provisions  of  this  section,  there  existed 
a  personal  liability  against  [the  testa- 
tor] for  all  contracts,  debts  and  en- 
gagements of  the  bank  in  force  at  the 
date  of  his  death.     After  his  death,  no 
additional  liability  could  be  created 
against  [testator]  personally  by  the 
creation  of  new  debts  or  obligations  on 
part  of  the  bank.     Provision  for  such 
rases  is  made  in  section  5153,  Revised 
Statutes,  in  which  it  is  enacted  that 
•persons  holding  stock  as  executors, 
administrators,  guardians  or  trustees, 
shall  not  be  personally  subject  to  any 
liabilities    as   stockholders,    but    the 
estates  and  funds  in  their  hands  shall 
be  liable  in  like  manner  and  to  the 
same  extent  as  the  testator,  intestate 
ward  or  person  interested  in  such  trust 
funds  would  be  if  living  and  compe- 
tent to  act  and  hold  the  stock  in  his 
own  name.'    Upon    the    death  of   a 
stockholder,    the    legal    title   of    the 
shares  may  pass  to  his  executor  or  ad- 
ministrator, but  the  liability  for  the 
debts  of  the  bank  does  not  follow  the 
transfer  of  the  title  to  the  executor  or 
administrator,  but  the  statute  declares 
that  the  liability  for  the  debts  Fhall 
attach  to  the  estate  of  the  dwcflised. 
In  other  words,  the  estate  is  put  in  the 
place  of  the  deceased  owner,  and  the 


statutory  liability  will  exist  against 
the  estate  and  not  against  the  executor 
individually.     In  Richmond  v.  Irons, 
121  U.  8.  27-55;  s.  c,  7  Sup.  Ct.  Rep. 
788,  it  was  contended  that  the  personal 
liability  of  the  intestate  for  assessments 
upon  the  capital  stock  did  not  survive 
as   against  an  administrator,   nor  as 
against  the  funds  of  the  estate  in  his 
hands;  but  this  contention  was  over- 
ruled, it  being  held  that,  under  the 
provisions  of  the  National  Bank  Act, 
•the  individual  liability  of  the  stock- 
holders is  an  essential  element  in  the 
contract    by  which  the  stockholders 
became    members  of  the  corporation. 
There  is  nothing  in  the  statute  to  indi- 
cate that  the  obligation  arising  upon 
these  undertakings  and  promises  shall 
not  have  the  same  force  and  effect  and 
be  as  binding  in  all  respects  as  any 
other  contracts  of  the  individual  stock- 
holder.    We  hold,  therefore,  that  the 
obliiration  of  the  stockholder  survives 
as  against  his  personal  representatives.' 
Under  the   ruling    of   the    Supreme 
Court  in  that  case,  if,  at  the  time  of  the 
death  of  [this  testator],  there  existed  a 
personal   liability  against  him.  under 
the  provisions  of  section  5151,  Revised 
Statutes,  such  liability  would  survive 
against  his  executors;  and  if  the  lia- 
bility was  created  after  his  death,  and 
while  the  shares  of  stock  formed  part 
of  his  estate,  then,  under  the  provis 
ions  of  section  5152.  the  estate  becanm 
responsible  for  such  liability,  and  under 
either  state  of  facts  a  claim  would 
exist  against  the  estate." 


§367] 


LIABILITY  OF  BANK  SHAREHOLDERS. 


771 


upon  the  books  of  the  bank.     The  Supreme  Court  of  the  United 
States  held  that  a  married  woman  in  the  District  of  Columbia,  of 
which  she  was  a  resident  at  the  time  of  these  transactions,  might 
become  a  holder  of  stock  in  a  national  banking  association,  and 
assume  all  the  liabilities  of  such  a  shareholder,  although  the  con- 
sideration might  have  proceeded  wholly  from  her  husband ;  also, 
that  the  coverture  of  a  married  woman  who  was  a  shareholder  in 
a  national  bank  did  not  prevent  the  receiver  of  a  bank  from 
recovering  judgment  against  her  for  the  amount  of  an  assessment 
levied    upon   the  shareholders  equally  and   ratably  under  the 
statute.^    Applying  the  provision  of  the  Code  of  North  Carolma, 
that  no  woman  during  coverture  shall  be  capable  of  making  any 
contract  to  affect  her  real  and  personal  estate  without  the  written 
consent  of  her  husband,  in  a  suit  by  a  receiver  of  a  national 
banking  association  against  a  married  woman  to  recover  an  assess- 
ment made  upon  the  stockholders  by  the  comptroller  of  currency, 
it  was  held  that  a  purchase  of  stock  in  a  bank  by  a  married 
woman  was  not  a  "  contract "  within  the  terms  of  tlie  statute,  and 


>  Keyser  v.  Hitz,  (1890)  133  U.  8. 138; 
s.  c,  10  Sup.  Ct.  Rep.  290.    The  court, 
speaking  through  Mr.   Justice  Har- 
lan, referred  to  the  case  of  the  Reci- 
procity Bank,  22  N.  Y.  9,  15,  which 
involved  the    liability  of   a   married 
woman  as  a  shareholder  in  a   state 
bank,   as  instructive.      It    was    said: 
"The   Constitution    and    statutes    of 
New  York  made  the  shareholders  in 
corporations  and  joint-stock  associa- 
tions   for  banking   purposes,  issuing 
bank  notes,  '  individually  responsible,' 
etc.     The  Court  of  Appeals  of  that 
state,  speaking  by  Chief  Justice  Com- 
8TOCK,  said:  *  It  is  also  said  that  femes 
covert  are  not  liable  to  suit  or  judg- 
ment at  the  common  law,  and  in  gen- 
eral this  is  true.     It  is  also  true  that 
the  apportionment  of  liability  among 
stockholders  in  banks,  when  duly  cod- 
firmed,  becomes  a  judgment  against 
each  stockholder,  to  be  enforced  by 
execution  as  in  other  cases.     But  it 
was  competent  for  the  legislature  to 
depart  from  this  rule  and  analogies  of 


the  common  law,  and  to  make  married 
women  and  their  estates  liable  in  this 
proceeding  as  other  stockholders    in 
banks  are  made  liable.  This,  we  think, 
has  been  done,  and  it  seems  to  us  proper 
to  add  that  we  see  no  reason  why  it 
ought  not  to  be   done,   in   order  to 
effectuate  the  policy  on  which  the  con- 
stitutional provision  and  the  statute 
are  founded.     It  might  go  far  to  de- 
feat  the    policy    if    married    women 
could  take  and  hold  stock  without  lia- 
bility  to    the    creditors.'      See,   also, 
Sayles  v.  Bates,   15  R.  I.  345.     This 
question  arose  in  Anderson  v.  Line,  in 
the  Circuit  Court  ©f  the  United  States 
for  the  eastern  district  of  Pennsylvania, 
where  it  was  held  by  Judge  McKen- 
NAN  that  a  married  woman  was  not  ex- 
empted by  reason  of    her  coverture 
from  the  liability  imposed  by  congress 
upon  shareholders  in  national  banks. 
14  Fed.  Rep.  405.    To  the  same  effect 
is  the  decision  of  Judge  Wheeler  in 
Witters  v.  Sowles,  32  Fed.  Rep.  767.'* 


! 


772 


LIABILITY  OF  BANK  SHAREHOLDERS. 


[§368 


that  the  wife  was  liable  upon  the  assessment,  although  the  stock 
was  parchased  without  the  written  consent  of  her  husband.^ 

§  368.  Rules  as  to  actions  to  enforce  liability  of  stock- 
holders.— One  becoming  a  stockliolder  in  a  national  bank  thereby 
submits  himself  to  the  provisions  of  the  National  Bank  Act,  and 
becomes  liable  to  be  assessed  to  the  extent  of  his  statutory  liability 
for  all  debts  of  the  bank  existing  while  he  holds  his  stock.'*  An 
assessment  made  upon  stockholders  of  a  national  bank  for  the  pay- 
ment of  the  debts  of  the  bank  may  be  collected  by  the  receiver  by 
an  action  at  law  against  the  stockholders ;  and  in  such  an  action 
the  stockholders  cannot  inquire  into  the  legality  of  the  receiver's 
appointment.  Furthermore,  in  such  an  action  the  complaint  need 
only  allege  that  the  comptroller  determined  that  tlie  assessment 
was  necessary  and  levied  it,  as  such  an  assessment  by  the  comp- 
troller is  conclusive  against  the  stockholders.^  In  an  action  of 
this  kind,  the  fact  that  defendant's  name  appears  on  the  sub- 
scription list  of  the  corporation,  and  that  he  paid  assessments  on 
the  stock  subscribed,  are  sufficient  evidence  that  he  was  a  stock- 
holder.* Actions  by  a  receiver  of  a  national  bank  against  stock- 
holders for  assessments  on  the  stock  are  subject  to  the  state  Stat- 
utes of  Limitations.^  A  decree  on  a  creditor's  bill  taken  against  a 
stockholder  of  a  national  bank,  on  the  basis  tliat  his  shares  of 
stock  bore  to  the  whole  stock  of  a  bank,  has  been  held  by  the 
IlHnois  Supreme  Court  not  to  be  erroneous.* 


^  Robinson  v.  Turrentine,  (1894)  59 
Fed.  Rep  554. 

•  Young  V.  Wempe,  (1891)  46  Fed. 
Rep.  354. 

'Ibid.  iSee,  as  sustaining  the  text, 
Kennedy  v.  Gibson,  8  Wall.  498;  Casey 
fj.  Galli.  94  U.  S.  673;  Bank  v.  Case,  99 
U.  S.  628;  Bailey  v.  Sawyer,  4  Dill. 
463;  Strong  v.  Southworth,  8  Ben. 
331;  Stanton  v.  Wilkeson,  8  Ben.  357; 
Welles  V.  Stout,  38  Fed.  Rep.  67; 
Richmond  v.  Irons,  121  U.  S.  27;  8.  C, 
7  Sup.  Ct.  Rep.  788. 


*  Glenn  v.  McAllister's  Exrs.,  (1891) 
46  Fed.  Rep.  883;  Turnbull  v.  Payson, 
95  U.  S.  418;  Glenn  v.  Springs,  26  Fed. 
Rep.  494;  Vanderwerken  v.  Glenn,  85 
Va.  9;  8.  c,  6  S.  E.  Rep.  806;  Glenn 
V.  Orr,  96N.C.  413;  s.  c,  2  S.  E.  Rep. 
538. 

» Butler  V.  Poole,  (1890)  44  Fed.  Rep. 
586. 

«Wheelock  v.  Kost,  (1875)  77  111. 
296.  See  Pollard  v.  Bailey,  20  Wall. 
520. 


CHAPTER  Xy. 

OFFICERS  OF  NATIONAL  BANKS  -  CRIMINAL  ACTS. 


§  369.    Misapplication   of   funds   by 
officers. 
870.    Making  "  false  entries"  in  re- 
ports, etc. 


§  371.   Improper  certification  of  check. 
372.    Restrictions  of  Banking  Law 
of  New  York  upon  banks 
and  their  officers. 


§369.    Misapplication   of   funds    by   officers.- Benedict 
V.  J.  lias  Jield,  in  the  prosecution  of  the  president  of  a  national 
bank  for  misapplication  of  its  funds,  that  the  indictment  alle?in<. 
that  he  "unlawfully  and  willfully,  and   with  intent  to   injnre 
and  defraud  the  said  association,  for  the  use,  benefit  and  advantage 
of  himself,  did  misapi^ly  certain  of  the  money  and  funds  of  said 
association,  which  he     *     *     *    then  and  there,  with  the  intent 
aforesaid,  paid,  and  caused  to  be  paid,"  to  certain  persons  named 
wa^  bad  for  failure  to  allege  the  facts  that  made  such  payment 
unlawful  or  criminal.'    And  it  is  not  essential  that  an  indictment 
m  such  a  case  should  allege  that  the  acts  charged  were  done  with- 
out the  knowledge  and  assent  of  the  directors  of  the  association 
for  such  knowledge  and  absent  would  not  relieve  the  president 
from  liability  for  an  unlawful  or  continual  misappropriation  of 
the  bank  s  funds.^    These  rules  have  been  declared  by  the  United 

Rep.  218.    I  twassaul:  "The  law  con-   And  in  Northway's  Case.   120  0   8 
trolling  on  this  occasion  has  been  set-   332;  s.  c,  7  Sup.  Ct.  Rep  580  itissafd 

.  /J:   ^T"'"'    ^™'*  "'  "■«   '>y  «"«  Supreme  Court    "iV  is  of  The 
United  States.    The  only  duty  devolv-   essence  of  the  criminality  of  he  ms^o 
.ng  upon  this  court  in  this  case  is  to    plication  .hat  there  shouM  be  a  coZ- 
apply  that  law  to  the  indictment  found   sion  of  the  funds  to  the  use  of  the 
against    the    defendant.     By  the  law   defendant,  or  of  some  pe.tonothe/tha„ 
declared   by  the   Supreme   Court  in   the  association  " 
Britton's  Case.  107  U.  S.  609;  s.  c.  2       «  United  States  ,..  Eno  (1893)  56Fed 
Sup.  C     Rep.  512,  an  indictment  for  a    Rep.  218,  220.    It  was  said     'The  ^t' 
misapphcation  of  the  funds  of  a  na-   ute  does  not  make  absence  of  authority 
.onal  bank  mast  specify  the  particu-   from  the  directors  an  ingredient  in  A^ 
ars  of  he  appropriation,  so  as  to  show  crime  of  misapplication^    I  tnceve 
theapphcaionchargedtobca  criminal   that  a  conversion  of  the  funds  o   a 
misapplication  as  distinguished  from   national  bank  by  its  president  n  ay  be 
applications  that  are  unlawful  but  not   a  criminal  misapplication  o   the  fids 
cnminal.     There  must  be  averments  to   of  the  bank,  although  done  with  the 
show  how  the  application  was  made,   knowledge  and  assent  of  tht  dirttlra 


I 


774  OFFICERS  OF  NATIONAL  BANKS  —  CRIMINAL  ACTS.        [§  370 

States  Supreme  Court  as  to  indictments  of  national  bank  officers 
under  the  Eevised  Statutes  of  tlie  United  States,  section  5209  : 
In  sucli  an  indictment,  for  willfully  misapplying  the  funds  of  a 
national  bank,  it  is  not  necessary  to  charge  that  the  moneys  and 
funds  alleged  to  have  been  misapplied  had  been  previously 
intrusted  to  the  defendant ;  since  a  willful  and  criminal  misappli- 
cation of  the  funds  of  the  association  may  be  made  by  its  officer 
or  agent  without  having  previously  received  them  into  his  per- 
sonal possession.  In  charging  in  an  indictment  the  president  of 
a  bank  with  aiding  and  abetting  its  cashier  in  the  misapplication 
of  the  funds  of  the  bank,  it  is  not  necessary  to  prove  that  he 
then  and  there  knew  that  the  person  so  aided  and  abetted  was  the 
cashier.  An  indictment  which  charges  in  substance  that  the 
defendant  was  president  and  agent  of  a  certain  national  bank 
theretofore  duly  organized  and  established,  and  then  existing  and 
doing  business,  under  the  laws  of  the  United  States,  and  that 
being  such  president  and  agent,  he  did  then  and  there  "  willfully 
and  unlawfully,  and  with  intent  to  injure  the  said  national  bank- 
ing association,  and  without  the  knowledge  and  consent  thereof, 
abstract  and  convert  to  his  own  use  certain  moneys  and  funds  of 
the  property  of  the  said  association  of  the  amount  and  value,"  etc., 
sufficiently  describes  and  identifies  the  crime  of  abstracting  the 
funds  of  the  bank  created  by  the  section  of  the  Revised  Statutes 
above  referred  to.  An  indictment  which  charges  that  the  defend- 
ant "  was  then  and  there  president  and  agent  of  a  certain  national 
banking  association,  to  wit,  [naming  the  association],  theretofore 
duly  organized  and  established  and  then  existing  and  doing  business 
at  [naming  the  place],  under  the  laws  of  the  United  States,"  suffi- 
ciently states  that  that  bank  was  organized  under  the  National 
Banking  Act,  or  to  carry  on  the  business  of  banking  under  a  law 
of  the  United  States.* 

§  370.   Making  "false  entries"    in    reports,    etc. —  The 
offense  of  making  false  entries  on  the  books  of  a  national  bank, 


of  the  bank.  The  president  of  a  na- 
tional bank  is  not  the  association,  nor 
are  the  president  and  directors  the 
association.  They  are  only  officers  of 
the  association.  The  moneys  of  the 
stockholders  and  of  the  depositors  in 
the  association  are  not  the  moneys  of 
these  offlcers,but  of  the  association,  and 
it  has  not  yet  been  held  that  a  national 


bank  may  be  pillaged  of  such  moneys 
by  its  president  with  impunity,  pro- 
vided the  act  be  done  in  pursuance  of 
a  conspiracy  between  the  president 
and  the  directors,  or  a  majority  of 
them." 

>  United  States  v.  Northway,  (1887) 
130  U.  S.  327. 


g  370]        OFFICEES  OF  NATIONAL  BANKS  —  CRIMINAL  ACTS.  775 

for  whicli  an  officer  of  the  bank  is  subject  to  indictment  for  and 
])unishment  under  the  United  States  Revised  Statutes,  section 
r>209,  it  not  being  a  crime  of  which  tlie  state  courts  have  concur- 
rent jurisdiction  under  the  United  States  Revised  Statutes,  sec- 
tion 5328,  is  exclusively  cognizable  by  the  federal  courts.*     A 
president  of  a  national  bank  was  indicted  for  aiding  and  abet- 
ting in  the  making  of  false  entries  and  also  for  making  false  entries 
in  the  books  of  the  bank  with  intent  to  injure,  deceive,  or  defraud, 
etc.,  under  Revised  Statutes  of  the   United  States,  section  5209,' 
in  the  northern  district  of  Illinois.     Blodgett,  J.,  of  the  United 
States    Circuit    Court,    held    that   such    entries   must  be  will- 
fully and  intentionally    false,    and  that  mere  clerical   mistakes 
or  an  arbitrary  exercise  of    discretion   in   keeping  the   books, 
not  amounting  to   an  abuse   thereof,  were   insufficient  to  con- 
stitute the  offense.     That,  under  charge  of  the  indictment  of 
making  false  entries  in  a  report  to  the  comi^troller  of  the  cur- 
rency, it  was  no  defense  that  such  entries  were  made  by  a  cleric 
and  verified  by  the  president  without  actual  knowledge  of  the 
truth,  it  being  his  duty  to  inform  himself,  and  especially  in  this 
cAse  as  regarded  items  showing  assets  and  liabilities.     That  under 
the  charge  of  making  false  entries  in  this  report  to  the  comptrol- 
ler of  the  currency,  with  the  intention  to  injure  and  defraud  the 
banking  association  and  the  stockholders  thereof,  and  to  deceive 
its  directors,  it  was  not  sufficient  to  prove  an  intent  to  deceive 
other  persons,  such  as  creditors,  depositors,  the  comptroller,  or  the 
public.    That  the  testimony  of  a  bank  examiner,  who  was  a  skilled 
accountant,  was  admissible  to  show  false  entries ;  but  that  it  must 
consist  of  knowledge  derived  from  his  investigation  of  the  books, 
and  not  of  conclusions  based  partly  upon  statements  of  officers 
and  clerks  of  the  bank.     The  rule  prescribed  for  the  jury  as  to 
determining  the  president's  guilty  intent  was  that  they  should 
consider  his  relation  to  the  bank  as  an  officer  and  a  shareholder 
assistance  given  the  bank  by  him  in  its  embarrassment  by  the  loan 
of  his  individual  money,  and  whether  he  had  any  motive  for 
making  false  entries,  together  with  cireuinstances  that  may  have 
induced  lum  to  do  so,  such  as  an  examination  by  the  officers  of 
the  bank's  affairs  at  the  time  the  entries  were  made ;  and,  where 
the  president's  fraudulent  intent  was  not  sufficiently  shown    evi- 
dence of  his  good  character  would  resolve  the  doubts  in  his  favor 

» In  re  Eno,  (1893)  54  Fed.  Rep.  669,  following  Bank  r.  Dearing.  91  U.  S.  29. 


\i 


77G  OFFICEKS  OF  NATIONAL  BANKS  —  CRIMINAL  ACTS.        [§  370 

but  nut  if  liis  guilt  was  conclusively  proven.*     Hammond,  J.,  of 
the  United  States    Circuit  Court    for  the   southern   district  of 
Ohio,  has   declared  the   following  rules  in   the  prosecution   of 
officers  of  a  national  hank  for  the  offense  of  making  false  entries, 
under  section  5209  of  the  Revised  Statutes  of  the  United  States, 
to  wit:  Directors  of  a  national  bank  are  "officers"  within  the 
meaning   of    this   section    which   makes   it   a  misdemeanor  for 
bank  officers  to  make  false  entries  in  any  book,  report  or  state- 
ment of  the  bank,  with  intent   to  deceive  any   of    its   officers. 
Under  the   .statute,   intention   to   deceive   any   one   director  or 
officer  is  as  criminal  as  the  intention  to  deceive  all  of  them.    A 
conviction  cannot  be   liad  under  the  statute  where  it  appears 
that  the   officers   alleged    to   have  been  deceived    were  accom- 
plices   in    the  speculation,    to    hide    which    the    false    entries 
were    math'.     If    such    false   entries    had    a   natural    tendency 
to  deceive  the  bank  officers,  the  fact  that  defendants  deny  having 
bad  any  sucli  actual  intent  cannot  rebut  the  presumptions  of 
intent  arising  from  the  nature  of  the  entries  themselves.     In  such 
case  the  fact  "that  the  officers  in  question  were  not  actually  deceived 
is  not  conclusive  proof  of  tlie  absence  of  intent  to  deceive.^    It  has 
been  held  in  the  United  States  District  Court  for  the  eastern  district 
of  Pennsylvania  that  false  entries  in  a  statement,  made  by  a  book- 
keeper of  a  national  bank  at  the  request  of  the  bank  examiner, 
purporting  to  give  the  balances  due  depositors,  which  statement 
it  was  the  duty  of  the  examiner  to  make  and  not  of  the  bookkeeper, 
would  nyt  sustain  an  indictment  for  making  "  false  entries  in 
*     *     *     a  statement  of  the  association,"  under  Revised  Statutes 
United  States,  section  5209.^   The  indictment  of  certain  of  the  offi- 
cers of  a  national  bank  fur  making  "  false  "  entries,  etc.,  in  violation 
of  United  States  Revised  Statutes,  section  5209,  charging  the  direct- 
ors with  making  false  entries  in  a  report  to  tlie  comptroller  of  the 
currency  on  the  condition  of  the  bank,  Putnam,  Circuit  Judge, 
held  could  not  be  sustained  under  that  section,  as  under  United 
States  Revised  Statutes,  section  5211,  the  sole  duty  of  the  directors 

tVllen,   (1880)  47   port  or  statement  of  such  association 

under    section  5309  of    the    Reviseii 
Statutes    of    the    United    States,   sw. 
United   States   v.    Hughitt,    (1891)  45 
Fed.  Rep.  47. 
'United  States  r.  Eqe,  (1892) 49 Fed. 

Rep.  a52. 


1  United  States   » 
Fed.  Rep.  696. 

«  United  States  r.  Means,  (1889)  42 
Fed.  Rep.  599.  As  to  what  was  a 
sufficient  indictment  against  the  presi- 
dent of  a  national  banking  as.sociation 
for  making  false  entries  in  book,  re- 


^77 


/ 


§  370]        OFFICERS  OF  NATIONAL  BANKS CRIMINAL  ACTS.  i 

in  regard  to  the  i-eports  to  the  comptroller  is  to  attest  them  by 
their  signatures  ;  and  entries  by  the  directors  would  be  mere 
spoliation  and  "  false  "  within  the  meaning  of  section  5209.  As 
to  certain  technical  objections  to  the  indictment  for  this  offense, 
it  was  held  that  the  use  in  the  indictment  of  the  words  "  them 
and  others,"  in  alleging  that  the  defendant  was  president  or 
director  of  such  bant,  and  that  he  made  alleged  false  entries,  was 
not  uncertain  or  repugnant  merely  because  in  one  place  the  words 
might  in  one  place  refer  to  the  whole  of  a  day  and  in  another  to 
only  one  instant  of  the  day  ;  also,  tliat  the  omission  of  the  signs 
for  dollars  and  cents  in  the  recitals  of  the  alleged  false  entries  in 
the  reports  to  the  comptroller,  and  misnomer  of  the  reports,  were 
immaterial  where  the  reports  were  set  out  by  their  tenor  in  the 
indictment,  so  that  those  discrepancies  were  at  the  most  mere 
"  matter  of  form  "  within  the  meaning  of  United  States  Revised 
Statutes,  section  1025,  for  which  the  indictment  is  not  "  to  be 
deemed  insufficient."  And  it  need  not  be  alleged  specifically  in 
an  indictment  for  this  offense  that  the  reports  were  transmitted 
to  the  comptroller  of  the  currency,  or  that  they  were  published.^ 
Upon  a  reargument  of  some  of  the  questions  involved  in  this  case, 
Putnam,  Circuit  Judge,  held  that  the  indictment  for  making  false 
entries  against  the  president  of  the  national  bank,  charging  that  it 
was  done  "  witli  intent  to  injure  and  defraud  the  said  association 
and  certain  persons  to  the  grand  jurors  unknown,"  was  sufficient 
so  far  as  concerned  the  allegations  of  intent.^  The  indictment 
alleging  that  the  false  entries  in  question  indicated  that  there  was 
then  in  the  paying  teller's  department  of  the  bank  a  certain 
amount  in  gold,  legal  tenders  and  gold  certificates  when  such 
amount  was  not  there  in  fact,  it  was  not  necessary  that  the  indict- 
ment should  further  allege  that  such  amount  was  not  then  in  other 
departments  of  the  bank.^  The  indictment,  in  addition  to  the 
entries  themselves,  need  set  out  the  context  only  when  it  so 
modified  the  entries  as  to  be,  in  presumption  of  law,  a  part  of 
them.  The  indictment  was  not  invalidated  by  the  fact  that  the 
note  teller's  and  paying  teller's  books,  in  which  it  was  charged 
the  president  made  the  false  entries  on  which  the  indictment  was 
based,  were  usually  kept  by  those  officers  without  interference  by 

'  United  States  v.  Potter,  (1892)  56       « Following  U.  S.  r.  Britton,  107  U. 
Fed.  Rep.  83.  S.  655;  s.  c,  2  Sup.  Ct.  Rep.  513. 

'Ibid. 

98 


778 


OFFICERS  OF  NATIONAL  BANKS  —  CRIMINAL  ACTS.        [§  370 


the  president.  The  court  held  counts  charging  false  entries  by 
the  president  in  reports  of  the  condition  of  the  bank,  whicli 
alleged  that  the  reports  were  made  in  conformity  with  the  law, 
and  then  set  them  out  by  their  tenor,  to  be  bad  for  their  failure  to 
allege  specifically  that  the  reports  were  verified  and  attested  by  the 
cashier.*  In  a  case  against  one  of  the  directors  of  this  same 
national  bank,  in  which  he  was  charged  with  a  violation  of 
United  States  Revised  Statutes,  section  5209,  relating  to  the  mak- 
ing of  false  entries,  Putnam,  Circuit  Judge,  held  that  it  was  an 
indictable  offense  under  that  section  to  make  a  false  entry  in  a 
report  to  the  comptroller  of  the  currency,  or  to  aid  and  abet  the 
making  of  such  an  entry.  He  also  declined  to  construe  an  allega- 
tion in  the  indictment  that  defendant  "  did  make  a  certain  false 
entry  in  a  certain  report  of  the  said  association,"  to  mean  that  the 
entry  was  made  after  the  report  was  completed,  and  was  in  fact 
an  alteration.  For  the  purposes  of  the  section  prescribing  the 
offense,  and  for  an  indictment  drawn  under  it,  the  preparation 
and  completion  of  the  report  to  the  comptroller,  the  making  of 
the  false  entry  therein,  its  verification,  attestation  and  delivery  to 
the  comptroller  might  be  considered  simultaneous,  and  there  was, 
consequently,  he  held,  no  repugnance  in  failing  to  allege  in  the 
indictment  that  any  or  all  of  these  things  occurred  in  consecutive 
order.  And  though  the  count  in  this  indictment,  for  aiding  and 
abetting  the  cashier  in  making  the  false  entries,  described  defend- 
ant as  **  being  then  and  there  a  director  of  the  bank  concerned," 
it  could  not  be  held  that  the  counts  charged  him  with  aiding  and 
abetting  in  his  official  character.  Counts  in  the  indictment  charg- 
ing the  defendant  with  procuring  and  counseling  the  false  entry 
before  the  fact  were  held  valid,  such  acts  being  covered  by  the 
clause  of  the  section  extending  the  penalty  to  any  one  who 
"  abets  "  an  officer  or  agent  in  the  acts  prohibited.  The  entry, 
the  tenor  of  which  was  set  forth,  contained  the  words  "see 
schedule."  It  was  held  not  to  be  a  valid  objection  to  the  indict, 
ment  that  those  words  were  not  explained,  it  being  necessary  to 
set  out  the  context  only  when  it  is  presumptively  a  part  of  what 

'  United  States  v.  Potter,  (1892)  56  Sup.  Ct.  Rep.  169;  U.  S.  ik  Eqe,  49 
Fed.  Rep.  97.  The  court  reviewed  Fed.  Rep.  852;  U.  S.  r.  Northway,  120 
the  cases  of  U.  S.  v,  Britton,  108  U.  8.  U.  S.  827;  s.  c,  7  Sup.  Ct.  Rep.  580; 
193;  8.  c,  2  Sup.  Ct.  Rep.  526;  Claiis-  Cross  v.  North  Carolina,  132  U.  S.  131; 
sen  t.  U.  S.,  142  U.  S.  140;  s.  c,  12  y.  c,  10  Sup.  Ct.  Rep.  47. 


370]        OFFICERS  OF  NATIONAL  BANKS  —  CRIMINAL  ACTS. 


*179 


is  set  out.  In  such  a  case  it  is  sufficient  for  the  indictment  to 
allege  the  substance  of  the  reports  to  the  comptroller,  for  whether 
they  are  such  reports  as  the  law  requires  can  be  determined  by  the 
court  from  the  allegations  that  they  were  made  in  response  to  the 
comptroller's  order,  and  the  allegations  touching  their  attestation, 
verification  and  other  like  matters.^  In  the  United  States  Dis- 
trict Court  for  the  northern  district  of  Iowa,  on  the  indictment  of 
an  officer  of  a  national  bank  for  making  false  entries  in  reports  to 
the  comptroller,  the  court,  in  its  instructions  to  the  jury,  declared 
these  rules :  A  "  false  entry  "  in  a  report  by  national  bank  offi- 
cers or  directors  to  the  comptroller,  within  the  meaning  of  Revised 
Statutes  United  States,  section  5209,  is  not  merely  an  incorrect 
entry  made  through  inadvertence,  negligence  or  mistake,  but  is 
an  entry  known  to  the  maker  to  be  untrue  and  incorrect,  and  by 
him  intentionally  entered,  while  so  knowing  its  false  and  untrue 
character.  A  national  bank  is  not  required  to  conform  the  head- 
ings of  the  various  accounts  on  its  books  to  any  prescribed  names, 
nor  to  the  names  stated  in  the  form  of  report  prescribed  by  the 
comptroller ;  and,  therefore,  when  a  report  is  called  for,  if  the 
person  making  it  enters  under  the  headings  in  the  prescribed  form 
a  statement  of  the  bank's  condition,  which  is  true  in  respect 
to  the  headings  in  said  form,  he  has  fulfilled  the  demands 
of  the  law.  The  entry  of  "  Loans  and  Discounts  "  in  reports  to 
the  comptroller  does  not  guarantee  the  solvency  of  the  makers  of 
the  paper,  but  is  a  statement  that  in  truth  and  fact  at  the  date 
named  in  the  report  the  bank  actually  held  and  owned  "  loans 
and  discounts  "  to  the  aggregate  so  reported.  It  is  not  making  a 
"  false  entry  "  within  the  meaning  of  the  statute,  to  enter  in  such 
report,  under  heading  of  "  Loans  and  Discounts,"  items  which, 
on  books  of  the  bank,  and  for  convenience  of  its  officers,  have 
been  temporarily  withdrawn  from  that  heading,  and  which  are, 
from  day  to  day,  carried  on  books  of  the  bank  under  heading  of 
"  Suspended  Loans,"  while  awaiting  action  of  directors  as  to  same 
being  withdrawn  from  character  of  loans,  and  entered  up  as  a  loss 
on  "  Profit  and  Loss "  account.^  In  determining  whether  the 
entry,  under  heading  of  "  Loans  and  Discounts  "  in  such  report, 
of  certain  corporation  bonds  which  were  secured  by  mortgage, 
and  owned  by  the  bank,  was  the  making  of  a  "  false  entry," 

» United  States  t.  French,  (1893)  57       « United  States  r.  Graves,  (1892)  53 
Fed.  Rep.  382.  Fed.  Rep.  634. 


i 


It 


780  OFFICERS  OF  NATIONAL  BANKS  —  CRI>nNAL  ACTS.        [§  370 

within  the  meaning  of  the  statute,  the  jury  may  consider  the  fact 
that  on  the  prescribed  form  of  report,  after  a  heading  of  "  U.  S. 
Eonds,"  there  is  a  heading  of  "  Other  Stocks,  Bonds,"  etc.,  and  that, 
in  the  report  made,  certain  other  corporation  bonds,  owned  by  the 
bank,  in  large  amounts,  were  entered  under  the  latter  heading. 
Where  the  form  of  report  as  presented  by  the  comptroller  con- 
tains  heading  of   "Loans  and  Discounts,"  and  also  of  "Over- 
drafts,'' it  is  the  duty  of  the  bank  officer  to  make  his  entries  in 
such  report  in  such  manner  that  each  of  the  headings  shall  truth- 
fully state  the  condition  of  his  bank  as  to  such  heading  ;  and  he 
is  not  justified  in  entering  overdrafts  which  are  being  carried  on 
the  books  of  the  bank  as  "  Overdrafts  "  as  "  Loans  and  Discounts," 
merely  because  he  regards  an  overdraft  as  a  temporary,  indefinite 
loan,  nor  because  those  two  headings  are  both  found  among  the 
"  Resources  "  of  the  bank  ;  but  he  should  report  the  overdrafts 
which  are  carried  on  the  books  of  the  bank  as  "  overdrafts"  in  the 
heading  of  "  Overdrafts,"  and  thereby  correctly  show  the  character 
of  the  bank's  resources  in  this  particular.    In  determining  whether 
defendant  mada  a  "false   entry,"    within  the  meaning  of  the 
statute,  when  he  included  in  such  report,  as  "  Loans  and  Dis- 
counts "  of  the  bank,  amounts  which  were  being  carried  on  the 
books  of  the  bank  as  "  Overdrafts,"  the  jury  will  not  consider 
whether  other  national  banks  followed  the  same  practice.     Such 
practice,  if  it  existed,  would  not  change  defendant's  statutory 
duty;  but   the  jury,  in  determining  whether  such  entry,  if  a 
"  false  entry,"  was  made  with  intent  to  deceive  and  defraud,  may 
consider  whatever  knowledge  defendant  is  shown  to  have  had  as 
to  the  practice  of  any  other  national  bank  in  this  respect.*     A 
director  of  a  bank  is  personally  liable  to  the  bank  on  paper  made 
to  it  by  a  firm  of  which  he  is  a  member,  ar^d  in  making  a  report 
of  the  condition  of  the  bank  to  the  comptroller,  the  amount  of 
such  paper  should  be  entered  under  the  heading  of  "  Liabilities 
of  Directors  (Individual  and  firm)  as  Payers  ; "  and,  in  determin- 
ing whether  the  omission  of  such  an  item  from  this  heading  was 
made  with  intent  to  deceive,  etc.,  the  jury  may  consider  what 
effect,  if  any,  upon  defendant's  action  in  this  respect,  was  caused 
by  the  receipt  of  a  letter  from  the  comptroller,  prior  to  the  mak- 
ing of  the  report,  calling  the  attention  of  the  bank-officials  to  the 
excessive  amount  of  the  loans  made  by  the  bank  to  its  directors, 
'  Ibid. 


§  371]        OFFICERS  OF  NATIONAL  BANKS  —  CRIMINAL  ACTS. 


781 


and  demanding  immediate  reduction  thereof.  In  determining 
whether  a  certain  false  entry,  made  by  a  national  bank  officer  in 
a  report  to  the  comptroller,  was  made  with  intent  to  deceive  or 
defraud,  etc.,  within  the  meaning  of  the  statute,  the  jury  are 
authorized  to  infer  the  intent,  if  the  natural  and  legitimate  result 
of  such  "  false  entry  "  would  be  to  deceive  any  other  officer  or 
officers  of  the  bank,  or  any  agent  appointed  to  examine  into  it.* 
affairs.  It  is  not  necessary  to  complete  the  offense  of  making  a 
"  false  entry  "  in  a  report  to  the  comptroller  of  currency  of  the 
condition  of  a  national  bank,  with  intent  to  deceive  or  defraud, 
that  any  person  should  have  been  in  fact  actually  deceived,  or 
defrauded,  for  the  making  of  such  a  "  false  entry,"  with  the  intent 
to  deceive  or  defraud,  is  sufficient.^ 

§  371.  Improper  certification  of  check. —  In  this  case  the 
officer  of  a  national  banking  association  was  indicted  for  a  viola- 
tion of  the  act  of  congress  of  July  12,  1882,  chapter  290,  section 
13,  amendatory  of  the  United  States  Ke vised  Statutes,  section 
6208,  which  makes  it  a  misdemeanor  for  any  officer,  clerk  or 
agent  of  any  national  banking  association  to  "  certify  any  check  " 
drawn  by  a  person  who  did  not  then  have  on  deposit  sufficient 
money  to  meet  the  same,  Putnam,  Circuit  Judge,  held  that 
such  indictment  need  not  allege  delivery  of  the  check  by  the 
bank  after  the  certification.  The  statute  prohibits  the  certifica- 
tion of  checks  "  before  the  amount  thereof  shall  have  been  regu- 
larly entered  to  the  credit  of  the  drawer  on  the  books  of  the 
banking  association  ; "  and  the  section  of  the  Revised  Statutes  of 
which  the  statute  was  amendatory  prohibits  the  certification 
unless  the  drawer  "  has  on  deposit  with  the  association,  at  the 
time  such  check  is  certified,  an  amount  of  money  equal  to  the 
amount  of  such  check."  There  were  counts  in  the  indictment 
simply  charging  that  the  checks  were  certified  contrary  to  the 
prohibition  of  the  statute,  and  others  charging  that  after  certifica- 
tion the  checks  were  authenticated  by  the  paying  teller.  It  was 
held  that,  inasmuch  as  the  counts  alleged  the  certification  as  an 
accomplished  act,  it  would  not  be  presumed  that  the  authentica- 
tion was  any  essential  part  of  it ;  and  it  followed  that  it  was 
not  necessary  to  allege  the  absence  of  the  required  credit  or 
deposit  at  the  time  the  authentication  was  made.     The  indict- 

»Ibid. 


783  OFFICERS  OF  NATIONAL  BANKS  —  CRIMINAL  ACTS.        [§  371 

ment  was  lieltl  sufficient,  it  having  cliarged  in  the  language  of  the 
statute  under  wliich  defendant  was  indicted  that  the  drawer  of 
the  check  had  not  on  deposit,  at  the  time  it  was  certified   "  an 
amount  of  money  equal  to  that  specified  "  in  the  check.     Neither 
did  the  indictment  charge  two  offenses  in  the  same  count  by 
alleging  in  that  count  that  the  check  was  certified  "  before  the 
amount  thereof  had  been  entered  to  the  credit  of  the  drawer  on 
the  books  of  the  bank,"  and  also  at  a  time  when  the  drawer  did 
not  "  have  on  deposit  an  amount  of  money  equal  to  "  the  amount 
of  tlie  check.     He  also  held  that  an  indictment  against  the  presi- 
dent of  the  national  bank  for  "  aiding  and  abetting  "  the  cashier 
in  certifying  checks  under  the  prohibited  circumstances  could  not 
be  sustained,  the  statutes  being  of  narrow  range  and  directed  only 
against  the  person  who  committed  the  act  directly,  or  perhaps  by 
80  intimidating  or  overpowering  another  that  the  latter  became 
the  mere  physical  instrument  of  the  former.*     Upon  appeal  of 
this  case  to  the  United   States  Supreme  Court  it  was  held  that  a 
charge  in  an  indictment  that  the  defendant  was  president  of  a 
national  bank,  and,  as  such,  on  a  day  and  at  a  place  named, 
nnlawfully,  knowingly  and  willfully  certified    a  certain  check 
(describing  it)  drawn  upon  the  bank,  and  thac  the  drawer  did  not 
then  and  there  have  on  deposit  with  the  bank  an  amount  of 
money  equal  to  the  amount  specified  in  the  check,  has  been  held 
to  sufficiently  aver  the  offense  described  in  the  United  States 
Revised   Statutes,   section  5208.2     The  United  States  Supreme 


^  United  States  v.   Potter,  (1892)  56 
Fed.  Rep.  83. 

'Potter  r.  United  States,  (1894)  155 
V.  8.  438.  Mr.  Justice  Brewer  said: 
"The  word  'certify,'  as  commonly 
understood,  implies  that  the  cheque, 
upon  which  fhe  words  of  certification 
have  been  written,  has  passed  from 
the  custody  of  the  bank  and  into  the 
hands  of  some  other  party,  and  when 
the  charge  is  that  the  defendant  did 
unlawfully,  knowingly  and  willfully 
certify  a  certain  cheque,  the  import  of 
that  accusation  is  not  simply  that  ho 
wrote  certain  words  on  the  face  of  the 
cheque,  but  that  he  did  it  in  such  a 
manner  as  to  create  an  obUgation  of 
the  bank  in  such  a  way  as  to  make 


an  instrument  which  can  properly  be 
called  a  certified  cheque.  And  the 
subsequent  recital,  'by  then  and 
there  writing,  placing  and  putting  in 
and  upon  and  over  the  face  of  said 
cheque  the  words  and  figures  follow- 
ing,' etc.,  is  not  to  be  taken  as  abso- 
lutely limiting  the  import  of  the  word 
'  certified  *  to  the  mere  act  of  so  writ- 
ing, placing,  etc.,  but  as  simply  de- 
scriptive of  the  form  of  the  certifica- 
tion of  that  which  he  personally  did. 
It  was  not  necessary  to  constitute  the 
offense  that  he  should  himself  deliver 
the  cheque  to  some  third  party  outside 
the  bank,  or  even  that  he  should  take 
any  part  in  such  delivery.  His 
offense  would  be  complete  if,  after  he 


>$  372] 


OFFICERS  OF  NATIONAL  BANKS 


CRIMINAL  ACTS. 


783 


(Jourt  held  that  as  it  is  of  the  essence  of  the  offense  against  those 
acts  that  the  criminal  act  should  have  been  done  willfully,  a  per- 
son charged  with  it  would  he  entitled  to  have  submitted  to  the 
jury,  on  the  question  of  "  willful  "  wrongdoing,  evidence  of  an 
agreement  on  the  part  of  the  officers  of  the  bank  that  it  should 
be  treated  as  a  loan  from  day  to  day  secured  by  ample  collateral, 
and  that  for  the  check  certified  each  day  there  was  deposited 
each  day  an  ample  amount  of  cash.* 

§  372.  Restrictions  of  Banking  Law  of  New  York  upon 
banks  and  their  officers. —  The  Banking  Law  of  the  state  of 
New  York,  as  amended,  has  placed  a  number  of  restrictions  upon 
banks  and  their  officers  in  this  state.  They  are  as  follows :  No 
corporation  or  banker  shall  make  any  loan  or  discount  to  any 
person,  company,  corporation  or  firm,  or  upon  paper  upon  which 
any  such  person,  company,  corporation  or  firm  may  be  liable,  to 
any  amount  exceeding  the  one-fifth  part  of  its  capital  stock 
actually  paid  in  and  surplus  ;  but  the  discount  of  bills  of  exchange 
drawn  in  good  faith  against  actually  existing  values,  or  of  com- 
mercial or  business  paper  actually  owned  by  the  person  negotia- 
ting the  same,  shall  not  be  considered  as  a  part  of  any  such  loan 
or  discount.  No  such  corporation,  nor  any  of  its  directors, 
officers,  agents  or  servants,  shall  directly  or  indirectly  purchase 
or  be  interested  in  the  purchase  of  any  promissory  note  or  other 
evidence  of  debt  issued  by  it  for  a  less  sum  than  shall  appear  on 
the  face  thereof  to  be  due.  Every  person  violating  the  pro- 
visions of  this  subdivision  shall  forfeit  to  the  people  of  the  state 
three  times  the  nominal  amount  of  the  note  or  other  evidence  of 
<lebt  so  purchased.  No  president,  director,  cashier,  clerk  or 
agent  of  any  such  corporation,  and  no  person  in  any  way  inter- 
ested or  concerned  in  the  management  of  its  affairs,  shall,  as 
individuals,  discount  or  directly  or  indirectly  make  any  loan  upon 
any  note  or  other  evidence  of  debt  which  he  shall  know  to  have 
been  offered  for  discount  to  such  corporation  and  to  have  been 
refused.  Every  person  violating  the  provisions  of  this  sub- 
division shall,  for  each  offense,  forfeit  to  the  people  of  the  state 

had  written  the  wonls  of  certification    officer  of  the  bank  without  his  actual 

as  stated,   with  the  intent  that  they    knowledge." 

should  be  used  to  create  a  contract  on       '  Potter  v.  United  States,  (18d4)  155 

the  part  of  the  bank  the  actual  delivery   U.  S.  438. 

had  been  made  by  some  clerk  or  other 


u 

I' 


h"^ 


m 


784  OFFICERS  OF  NATIONAL  BANKS  —  CRIMINAL  ACTS.         [§  372 

twice  the  amount  of  the  loan  which  Jie  shall  have  made.  Ko 
officer,  director,  clerk  or  agent  of  any  bank  or  savings  bank 
shall  borrow  from  the  corporation  with  whicli  he  is  officially  con- 
nected any  sum  of  money  without  the  consent  and  approval  of  a 
majority  of  the  board  of  directors  or  trustees  thereof.  Every 
person  violating  this  provision  shall,  for  each  offense,  forfeit  to 
the  people  of  the  state  twice  the  amount  which  he  shall  have 
borrowed.  IS'o  such  corporation  shall  make  any  loan  or  discount 
on  the  security  of  the  shares  of  its  own  capital  stock,  nor  be  the 
purchaser  or  liolder  of  any  such  shares,  unless  such  security  or 
purchase  shall  be  necessary  to  prevent  loss  upon  a  debt  previously 
contracted  in  good  faith ;  and  stock  so  purchased  or  acquired 
shall,  within  six  months  from  the  time  of  its  purchase,  be  sold  or 
disposed  of  at  public  or  private  sale.  Every  person  violating  the 
provisions  of  this  subdivision  shall  forfeit  to  the  people  of  the 
state  twice  the  nominal  amount  of  such  stock.* 

'  Laws  of  N.  y.  1806,  chap.  929,  amending  §  25,  art.  1,  chap.  «89,  Laws  of 
£%.  X .  1892. 


CHAPTEE  XYI. 

FISCAL  MANAGEMENT  — PUBLIC  CORPORATIONS. 


§  373,  The  power  of  county  commis- 
sioners under  statutes  of  Ne- 
braska as  to  purchase  of  lands 
for  a  poor  farm. 
874.  Power  of  a  building  commis- 
sion of  a  town  in  Connec- 
ticut. 

375.  For  what  purposes  a  board  of 

education  in  Connecticut  can- 
not use  the  public  funds. 

376.  Management  of  school  funds  of 

the  state  by  an  auditor  of  a 
county  under  Indiana  stat- 
utes. 

377.  Erroneous   payments  into   the 

treasury  of  a  coimty  by  a 
county  treasurer  under  Indi- 
ana statutes  —  his  right  to 
recover  the  same. 


§  378.  For  what  a  school  district  may 
settle  account  of  an  ex-as- 
sessor. 

379.  The  board  of  auditors  of  a  town 

may  be  ordered  to  pay  a 
judgment  against  the  town 
for  interest  on  its  bonds. 

380.  The  riglit  of  a  de  facto  county 

treasurer  to  salary. 

381.  Payments  to  city  official  in  ex- 

cess of  his  salary  may  be  re- 
covered of  him. 

382.  Compelling  a  ministerial  officer 

to  distribute  the  fund  in  his 
hands. 

383.  County   warrants  —  their  issue 

and  validity — rules  governing. 

384.  Statute  of  Limitations  not  ap- 

plicable to  county  wan*ants. 


§  373-  The  power  of  county  commissioners  under  statutes 
of  Nebraska  as  to  purchase  of  lands  for  a  poor  farm. —  The 
statutes  of  Nebraska  authorize  the  purchase  bj  the  county  com- 
missioners of  each  county  of  lands  for  a  poorhouse,  and  further 
empower  them  "  to  receive  donations  to  aid  in  the  establishment 
of  such  poorhouse ;    and,  also,     *     *     *     from  time  to  time,  as 
they  shall  see  fit,  to  levy  and  collect  a  tax,  not  exceeding  one  per 
cent,  on  the  taxable  property  in  the  county,  and  to  appropriate 
the  same  to  the  purchase  of  land     *     *     *."     Parties  who  had 
sold  land  to  a  county  for  this  purpose  under  a  contract  for  part 
cash,  and  upon  conveyance  of  the  land  the  commissioners,  to  exe- 
cute the  note  of  the  county  and  a  mortgage  upon  the  land  as  a 
security,  brought  action   in  the  courts  of  that  state  to  recover 
damages  from  the  county  for  its  refusal  to  accept  a  deed  and 
execute  the  note  and  mortgage  contemplated.      The  Supreme 
Court  affirmed  a  judgment  sustaining  a  demurrer  to  the  petition 
on  the  ground  that  the  contract  was  illegal  and  void,  there  being 
99 


I 


786 


FISCAL  MANAGEMENT  —  PUBLIC  COErORATIONS.  [§  373 


I 


I        i 


no  authority  under  the  statute  to  execute  a  note  and  mortgage.* 
One  who  had  made  a  similar  contract  with  the  county  commis- 
sioners of  a  county  in  Nebraska,  and  had  executed  and  deUvered 
a  deed  of  the  lands  for  a  poor  farm,  and  had  received  in  part 
payment  notes  payable  at  different  times,  with  a  mortgage  upon 
the  property  to  secure  it,  and  one  who  was  the  holder  of  these 
notes,  upon  the  county's  failure  to  pay  them,  hied  a  bill  in  the 
United  States  Circuit  Court  praying  a  rescission  of  the  contract 
and  a  reconveyance  or  a  recovery  of  the  amount  due  upon  the 
notes.  The  relief  prayed  for  was  not  granted  by  this  court.  On 
appeal  the  Supreme  C^ourt  of  the  United  States  held  that  it  was 
error  to  refuse  tlie  relief  prayed  for ;  that  the  complainants  were 
entitled  to  recover  of  the  county  the  unpaid  balance  or  to  have 
the  contract  rescinded  upon  the  return  of  the  money  they  had 
received   from  the  county  on  account  of  the  contract.^     It  was 


§373] 


FISCAL  MANAGEMENT  —  PUBLIC  CORPORATIONS. 


787 


» Stewart   r.   Otoe  County,  2  Neb. 
177.     The  court  said:    "There  is  no 
authority  of  Itiw  for  the  county  com- 
missioners to  bind  the  county  in  the 
manner  contemplnted.     They   cannot 
give  a  promissory  note,  nor  can  they 
mortgage  the  proiKMty  of  the  county. 
Should  they  formally  do  so.  their  ac- 
tion would  be  a  nullity.     In  the  pur- 
chase of  land  for  a  poor  farm  the  au- 
thority   of    the    commissioners    of    a 
county  is  very  clearly  set  forth.     The 
mode  of  raising  the  money  and  pay- 
ing it  over  are  all  definitely   stated. 
These    statutes   set   a    limit   beyond 
which  they  cannot  go.     They   are  a 
guide  not  only  to  the  commissioners, 
but  equally  so  to  all  persons  dealing 
with  them,  who  must  see  to  it  that 
their  contracts  are  within  the  bounda- 
ries  thus   described.     *    *    *     Here 
we  find  the  authority,  and.  indeed,  the 
only  authority,  for  the  purchase  and 
payment  of  money  for  a  '  poor  farm  ' 
by    the   county    commissioners;   and 
here,  too.  are  specially  designated  the 
money  that  may  be  used  for  that  pur- 
pose, together  with  the  mode  of  rais- 
ing it.     But   there   is  not  one    word 
about  mortgaging  the  property  of  the 
county  to  secure  the  payment  of  the 


purchase  money  at  a  given  time.  The 
statutes  provide  the  only  security  that 
can  be  given.  The  public  faith  is 
pledged,  and  a  tax  not  exceeding  one 
per  cent  may  be  levied  upon  all  the 
taxable  property  of  the  county  annu- 
ally, and,  when  collected,  paid  to  the 
person  entitled  thereto  by  an  order 
upon  the  treasurer  of  the  county,  pay- 
able out  of  the  special  fund." 

'^Chapman  r.   County  of   Douglas, 
(1*882)  107  U.   S.   348.     Arguendo,  Mr. 
Justice  Matthews,  for  the  court,  said: 
' '  In  the  present  case    *    *    *    it  was 
not  the  understanding  of  the  parties 
that  the  vendor  should  await  the  col- 
lection of  taxes,  as  prescribed  by  the 
statute,  for  the  payment  of  the  pur- 
chase money  ;    but,  on  the  contrary, 
there  was  an  agreement  for  payment 
in  a  definite  time,  without  regard  to 
the  condition  of  the  county  treasury, 
and  for  security  by  way  of  notes  and 
mortgages.     The    agreement,    as    we 
have  assumed,  so  far  as  it  relates  to  the 
time  and  mode  of  payment,  is  void, 
but  the  contract  for  the  sale  itself  has 
been  executed  on  the  part  of  the  ven- 
dor by  the  delivery  of  the  deed,  and 
his  title  at  law  has  actually  passed  to 
the  county.     As  the    agreement    be- 


claimed  in  this  case  that  the  Statute  of  Limitations  of  !N'ebraska 
barring  the  right  to  recover  the  title  to  real  estate  after  ten  years 
from  the  time  it  first  accrued  would  defeat  recovery  on  the  part 


tween  the  parties  has  failed  by  reason 
of  the  legal  disability  of  the  county  to 
perform  its  part,  according  to  its  con- 
ditions, the  right  of  the  vendor  to  re- 
scind the  contract  and  to  a  restitution 
of  his  title  would  seem  to  be  as  clear 
as  it  would  be  just,  unless  some  valid 
reason  to  the  contrary  can  be  shown. 
As  was  said  by  this  court  in  Marsh  v. 
Fulton  County,  10  Wall.  676,  684,  and 
repeated  in  Louisiana  v.  Wood,  102  U. 
S.  294,  'the  obligation  to  do  justice 
rests  upon  all  persons,  natural  and 
artificial,  and  if  a  county  obtains  the 
money  or  property  of  others  without 
authority,  the  law,  independent  of 
any  statute,  will  compel  restitution  or 
compensation.'  See,  also,  Miltenber- 
ger«j.  Cooke,  18  Wall.  421.  The  ille- 
gality in  the  contract  related  not  to  its 
substance,  but  only  to  a  specific  mode 
of  performance,  and  does  not  bring  it 
within  that  class  mentioned  by  Mr. 
Justice  Bradley  in  Thomas  v.  City  of 
Richmond,  12  Wall.  349.  The  pur- 
chase itself,  as  we  have  seen,  was  ex- 
pressly authorized.  The  agreement 
for  definite  times  of  payment  and  for 
security  alone  was  not  authorized.  It 
was  not  illegal  in  the  sense  of  being 
prohibited  as  an  offense;  the  power  in 
that  form  was  simply  withheld.  The 
policy  of  the  law  extends  no  farther 
than  merely  to  defeat  what  it  does  not 
permit,  and  imposes  upon  the  parties  no 
penalty.  It  thus  falls  within  the  rule, 
as  stated  by  Mr.  Pollock  in  his  Princi- 
ples of  Contract,  264:  '  Where  no  pen- 
alty is  imposed,  and  the  intention  of 
the  legislature  appears  to  be  simply 
that  the  agreement  is  not  to  be  en- 
forced, then  neither  the  agreement 
itself  nor  the  performance  of  it  is  to 
be  treated  as  unlawful  for  any  other 
purpose.'    Johnson  v.  Meeker,  1  Wis. 


436.  The  principle  was  applied  in  the 
case  of  Morville  v.  American  Tract 
Society,  123  Mass.  129,  137,  where  it 
was  said:  '  The  money  of  the  plaintiff 
was  taken  and  is  still  held  by  the  de- 
fendant under  an  agreement  which  it 
is  contended  it  had  no  power  to  make, 
and  which,  if  it  had  power  to  make,  it 
has  wholly  failed  on  its  part  to  per- 
form. It  was  money  of  the  plaintiff, 
now  in  the  possession  of  the  defend- 
ant, which  in  equity  and  good  con- 
science it  ought  now  to  pay  over,  and 
which  may  be  recovered  in  an  action 
for  money  had  and  received.  The 
illegality  is  not  that  which  arises  where 
the  contract  is  in  violation  of  public 
policy  or  of  sound  morals,  and  under 
which  the  law  will  give  no  aid  to 
either  party.  The  plaintiff  himself  is 
chargeable  with  no  illegal  act,  and 
the  corporation  is  the  only  one  at  fault 
in  exceeding  its  corporate  powers  by 
making  the  express  contract.  The 
plaintiff  is  not  seeking  to  enforce  that 
contract,  but  only  to  recover  his  own 
money  and  prevent  the  defendant 
from  unjustly  retaining  the  benefit  of 
its  own  illegal  act.  He  is  doing  noth- 
ing which  must  be  regarded  as  a 
necessary  affirmance  of  an  illegal  act.' 
The  decision  of  this  court  in  Hitch- 
cock V.  Galveston,  96  U.  S.  341,  350, 
covers  the  very  point.  There  a  re- 
covery was  allowed  for  the  value  of 
the  benefit  conferred  upon  the  munici- 
pal corporation,  notwithstanding,  and, 
indeed,  for  the  reason  that  the  con- 
tract to  pay  in  bonds  was  held  to  be 
illegal  and  void.  '  It  matters  not,'  said 
the  court,  '  that  the  promise  was  to 
pay  in  a  manner  not  authorized  by 
law.  If  payments  cannot  be  made  in 
bonds  because  their  issue  is  ultra  mreHy 
it  would  be  sanctioning  rank  injustice 


I 


I 


788  FISCAL  MANAGEMENT  —  PUBLIC  C0KPOKATI0N8.  [§  374 

of  the  complainants.      The  Supremo  Court  held  against  the 
contention.' 

8  VTA  Power  of  a  building  commission  of  a  town  in  Con- 
necticut-The  town  meeting  of  a  Connecticut  town  voted  for 
the  appointnient  of  a  commission  to  determine  upon  a  plan  tor 
an  almshouse  which  it  had  determined  to  construct,  and  to  secure 


fl 


to  hold  that    payment  need  not  be 
made  at  all.     Such  is  not  the  law.' 
This  doctrine  was  fully  recognized  by 
the  Supreme  Court  of  Nebraska  as  the 
law  of  that  state  in  the  case  of  Clark 
V.  Saline  County,  9  Neb.  516,  in  which 
it   adopts  from  the    decision  of  the 
Supreme  Court  of  California  in  Pi- 
mental  V.  City  of   San  Francisco,  21 
Cal.    362,    the    following    language: 
'The  city  is  not  exempted  from  the 
common  obligation  to  do  justice  which 
binds    individuals.     Such  obligations 
rest  upon  all  persons,  whether  natural 
or  artificial.     If  the  city  obtain  the 
money  of  another  by  mistake  or  with- 
out authority  of  law,  it  is  her  duty  to 
refund  it  from  this  general  obligation. 
If   she  obtain  other  property  which 
does  not  belong  to  her,  it  is  her  duty 
to  restore  it,  or,  if  used,  to  render  an 
equivalent  therefor  from  the  like  obli- 
gation.'   Argenti  v.  San  Francisco,  16 
Cal.  282.     The  legal  liability  springs 
from  the  moral  duty  to  make  restitu- 
tion."   The  court  further  referred  to 
Parkersburg  v.  Brown,  106  U.  S.  487, 
andCrampton  v.  Zabriskie,  101  U.  S. 
601,  as  supporting  their  ruling  in  this 

case. 

» Chapman  t.  County  of  Douglas. 

(1882)  107  U.  S.  348.    The  court  re- 
ferred to  Brewer  v.  Otoe  County,  1 
Neb.  373,  quite  at  length,  and  then 
said:      ''But    the    more   satisfactory 
answer  to  this  defense  is  that  none  of 
the  statutes  of  limitation  referred  to 
apply  to  the  case  at  all.     We  have 
already  seen  that  by  the  decision  in 
Brewer  v.  Otoe  County,  1  Neb.  373,  it 


is  the  declared  law  of  Nebraska  that 
the  claim  against  the  county  for  the 
purchase  money,  on  flie  supposition 
that  the   understanding  had   been  to 
accept  payment  according  to  the  terms 
of  the  statute,  was*not  liable  to  the  bar 
of  the  limitation  acts.    So  that  the  obli 
gation  of  the  county  to  pay  would  not 
be  extinguished  by  the  statutory  lapse 
of  time.     Now,  although  the  right  of 
[the  vendor  here]  to  rescind  the  con- 
tract and  demand  a  re-conveyance  oc- 
curred at  the  very  date  of  the  deed,  he 
was  not  bound  to  exercise  the  right, 
and  his  cause  of  action  did  not  accrue 
until  he  had  made  manifest  his  elec- 
tion.     He  had  the   right   to  treat  us 
null  that  part  of  the  contract  which 
was  illegal,  and  having  executed  it  on 
his  part,    to   waive    performance    ac- 
cording to  its  terms  on  the  part  of  the 
county,  and  wait  a  reasonable  length  of 
time  for  the  county  to  make  the  pay- 
ment in  the  mode  made  lawful  by  the 
statute  before  executing  his  power  to 
rescind  the  contract.     Until  that  time 
had  elapsed,  and  until,  after  that,  [hej 
had  elected  to  rescind,  there  was  no 
existing  cause  of  action,  and  conse- 
quently nothing  upon  which  the  Stat- 
ute of  Limitations  could  begin  to  take 
effect.     When  that  reasonable  time  ex- 
pired we  have  no  means  of  determin- 
ing.    It  would  depend  upon  circum- 
stances not  disclosed  in  the  record, 
such  as  the  sUite  of  the  county  treas- 
ury, the  extent  of  its  other  obligations, 
the  value  of  the  taxable  property,  and 
its  general  financial  condition.     There 
is  nothing  whatever  to  show  that  the 


§  375]  FISCAL  MANAGEMENT PUBLIC  CORPORATIONS. 


789 


proposals  and  let  to  the  lowest  responsible  bidders.  The  commit- 
tee, by  a  majority  vote,  awarded  the  contract  to  persons  other 
than  the  lowest  responsible  bidder,  and  a  taxpayer  sought  by 
action  to  enjoin  the  selectmen  of  the  town  and  the  commission 
from  entering  into  any  contract  for  the  construction  of  the  alms- 
house, except  with  the  lowest  responsible  bidder.  The  Supreme 
Court  held  that  it  was  error  on  the  part  of  the  lower  court  to 
make  tlie  injunction  permanent.^ 

§  375-  Foi*  what  purposes  a  board  of  education  in  Con- 
necticut cannot  use  the  public  funds. —  In  an  action  of  a  tax- 


delay  that  had  taken  place  in  filing  the 
present  bill  has  been  unreasonable.  It 
is  impossible,  therefore,  to  say  that 
any  Statute  of  Limitations  has  ever 
begun  to  run  against  the  cause  of 
action,  much  less  that  its  bar  has  be- 
come complete." 

>  Dibble  r.  Town  of  New  Haven, 
(1887)  56  Conn.  199.  Upon  the  powers 
of  municipalities  in  this  respect  it  was 
said  by  the  court:  "  In  the  expenditure 
of  money  in  the  discharge  of  a  gov- 
ernmental duty,  a  municipality  is  as  an 
individual  managing  his  private  af- 
fairs. That  is,  a  majority  of  the  voters 
therein  may  determine  whether  it  shall 
perform  its  duty  as  economically  as  it 
can,  or  with  as  large  an  outlay  as  it 
pleases,  and  the  minority,  in  the  ab- 
sence of  fraud,  must  submit  to  the 
action  of  the  majority,  finding  its  pro- 
tection against  unnecessary  expendi- 
ture in  the  law  of  self-interest,  to 
which  all  men  are  presumed  to  be  in  a 
greater  or  less  degree  obedient;  and  in 
making  expenditures  for  such  purpose 
the  will  of  the  municipality  is  a  law 
unto  itself,  as  is  that  of  an  individual 
to  himself,  and  as  little  subject  to  ju- 
dicial control;  and  if  it  appoints  an 
agent  to  make  contracts  in  its  name  for 
such  purposes,  a  court  has  no  greater 
power  to  restrain  that  agent  than  it  has 
to  restrain  the  agent  of  an  individual. 
If,  in  the  case  before  us,  we  should 


assume  that  the  committee  proposes  to 
exceed  the  powers  granted  to  it  by  the 
municipality,  there  would  yet  be  no 
foundation  for  the  injunction.  Every 
person  dealing  with  it  must  take  notice 
of  the  limitations  impo.sed  upon  it  by 
the  appointing  vote.  If  with  such 
knowledge  any  one  undertakes  to  enter 
into  a  contract  with  it  which  it  is  with- 
out power  to  make,  he  takes  nothing 
by  his  action.  The  municipality  is  not 
bound  to  him;  no  taxpayer  is  in  danger 
of  loss,  and  there  is  no  occasion  for 
judicial  intervention.  Again,  if  the 
committee  should,  in  excess  of  its  pow- 
ers, in  form  enter  into  a  contract  with 
one  not  the  lowest  bidder,  the  munici- 
pality may,  upon  knowledge,  when 
lawfully  assembled  for  that  purpose, 
ratify  and  adopt  its  acts,  against  the 
protest  of  an  individual  taxpayer,  or 
against  that  of  a  minority.  And  if,  in 
strict  execution  of  power,  the  commit- 
tee should  bind  the  town  by  a  contract, 
the  town  m;iy  break  it,  pay  the  conse- 
quent damages,  and  make  the  expendi- 
ture in  another  manner  and  to  a  larger 
amount.  These  acts  of  ratification  or 
of  change  the  minority  is  powerless 
to  prevent.  It  results,  therefore,  that, 
unless  there  should  be  an  assumption 
of  obligation  on  the  part  of  the  town  in 
due  and  legal  form,  no  person  has  any 
cause  of  action  against  it,  and  no  tax- 
payer is  in  danger  of  loss.     After  such 


i 


I 


790  FISCAL  MANAGEMENT  —  PUBLIC  CORTORATIONS.  [§  375 

payer  to  restrain  the  members  and  officers  of  the  board  of  educa- 
tion of  a  scliool  district  in  Connecticut,  from  paying  out  the 
money  of  the  district  for  the  defense  of  a  suit  brought  against 
certain  members  and  ex-members  of  the  board,  for  maUcious  and 
wrongful  acts  in  connection  with  their  duties  as  members  of  the 
board,  the  powers  of  a  school  district  of  that  state  in  respect  to 
expenditures  of  the  moneys  of  the  district  was  considered  by  the 
Supi-eme  Court.  It  was  held  in  this  case,  where  the  members  of 
the  board  were  sued  for  an  injury  to  the  business  reputation  of 
the  plaintiffs  by  their  refusal  to  entertain  a  bid  offered  by  them 
for  furnisliing  stationery  for  the  district,  on  the  ground  that  they 
had  some  time  before  dealt  dishonestly  with  the  district,  that 
the  matter  was  one  in  which  the  district  as  such  had  no  interest 
and  that  its  money  could  not  be  used  for  the  defense  of  the  suit.^ 


§376J 


FISCAL  MANAGEMENT PUBLIC  CORPORATIONS. 


791 


assumption  tlit're  will  be  a  legally 
authorized  expenditure,  and  that  no 
taxpayer  can  resist." 

*Hotchkiss    r.  Plunkett,    (1891)  60 
Conn.  230.     The  court  said,  generally  : 
•'In  order  to  justify  the  expenditure 
of  money  by  a  municipal  corporation 
in  the  indemnity  of  one  of  its  officers 
for  a  loss  incurred  in  the  discharge  of 
their  official  duty,  three  things  must 
appear :    First,  the  officer  must  have 
been  acting  in  a  matter  in  which  the 
corporation    had  an  interest.     iSecond, 
he  must  have  been  acting  in  discharge 
of  a  duty  imposed  or  authorized  by 
law.     And,  third,  he  must  have  acted 
in   good    faith.      Gregory   v.  City  of 
Bridgeport.  41   Conn.    76;    Merrill  r. 
Plainfield.  45   N.  II.   126;  Vincent  v. 
Inhab.   of  Nantucket,    12  Cush.   103; 
Dillon  on  3Iun.  Corp.  (4th  ed.)  §  219. 
School  districts  are  quasi  cor})onitions 
of    a    jkublic     nature,     with    limited 
powers,   strictly   defined    by   statute, 
and  they  have  no  right  to  raise  money 
by  assessment  and    appropriate    the 
same  to  purposes  not  within  the  scope 
of    those     powers,     even     though    a 
majority    of    their    inhabitants     ex- 
pressly  vote  so  to  raise  and  appro- 
priate it.     Berlin   r.  New  Britain,  9 
Conn.     180;    West     School     District 


V.   Merrills,  12    Conn.    438;     Bartlett 
V.      Kinsley,     15     Conn.     327,     335. 
The  powers  of  school  districts  [under 
the  Connecticut  statutes  are  thus  ex- 
pressed] :    '  Every  school  district  shall 
be  a  body  corporate  and  have  power 
*    *    *    to   purchase,    receive,    hold 
and  convey  real  and  personal  prop- 
erty for  school    purposes;     to  build, 
purchase,     hire     and     repair     school 
houses  and    supply   them  with   fuel,, 
furniture  and  other  appendages  and 
accommodations ;      *     *    *    to    pur- 
chase globes,  maps,  blackboards  and 
ether  school  apparatus;    to  establish 
and  maintain  a  school  library;  to  em- 
ploy teachers,  except  for  such  time  as 
the  town  may  direct  the  school  visitors 
to  employ  the  teachers,  and  pay  the 
wages  of  such    teachers  as  are    em- 
ployed by  the  district    committee  in 
conformity  to  law;  to  pay  taxes  and 
borrow  money    for  all  the  foregoing 
purposes    *    *    ♦. '    There  is  no  au- 
thority conferred  on  a  school  district 
to  r.iise  money  other  than  such  as  is 
conferred  by  this  statute.     The  grant 
of  power  to  raise  money  for  the  speci- 
tied  purposes  is  doubtless  a  prohibi- 
tion of  tlie  raising  of  money  for  any 
other  purposes."     The  opinion    con- 
cludes with  this  declaration  by  tho 


§  376.  Management  of  school  funds  of  the  state  by  an 
auditor  of  a  county  under  Indiana  statutes.— The  owner  of 
real  estate  borrowed  of  the  auditor  of  a  county  in  Indiana  money 
belonging  to  the  school  funds  of  the  state,  and  a  mortgage  upon 
the  land  was  given  to  secure  it.     There  were  changes  of  title  to 
the  land.     One  holding  it  paid  the  money  due  on  the  mortgage 
to  the  county  auditor.     The  auditor  thereupon  indorsed  upon  the 
mortgage  his  certificate  that  the  mortgage  had  been   fully  paid 
and  satisfied,  assigned  and  attested  it,  attached  the  seal  of  his 
office  thereto  and  surrendered  the  notes  and  mortoraore  to  the  one 
paying  it,  and  the  latter  caused  the  certificate  of  satisfaction  to 
be  duly  and  properly  entered  of  record   by  the  recorder  of  the 
county  on  the  record  of  the  mortgage  in  his  office.     On  the  same 
day  the  auditor  entered  on  the  register  of  loans  kept  by  him  as 
auditor  in  his  office,  a  statement  that  the  loan  in  question  was 
fully  paid  and  satisfied.     The  defendant  in  an  action  to  foreclose 
this  mortgage  afterwards  purchased   this  land,  relying  upon  the 
record  showing  the  satisfaction  of  the  mortgage,  and  in  good 
faith  paid  for  it  its  full  value  without  any  knowledge  whatever 
that  the  loan  had  not  been  in  fact  paid.     The  auditor,  it  appeared, 
appropriated  the  money  to  his  own  use  and  never  paid  any  part 
uf  the  same  into  the  treasury  of  the  county.     In  one  place  the 
statutes  of  Indiana  provide  that  ''All  loans  refunded  and  all  inter- 
est shall  be  paid  to  the  county  treasurer,  and  his  receipt  shall  be 
filed  with  the  county  auditor,  who  shall  give  the  payer  a  quietus 
therefor  and  make  proper  entries."     In  another,  that  "  Whenever 
the  amount  due  on  any  mortgage  shall  be  paid,  and  the  treasurer's 
receipt  therefor  filed,  the  auditor  shall  indorse  on  the  note  and 
mortgage  that  the  same  has  been  fully  satisfied,  and  surrender  the 
same  to  the  person  entitled  thereto,  and  on  production  of  the 
same  thus  indorsed  the  recorder  shall  enter  satisfaction  upon  the 
record."     The  contentions  of  the  plaintiff  were  that  the  auditor 
had  no  power  to  enter  the  mortgage  satisfied  until  the  money  was 
actually  paid  to  the  county  treasurer  and  his  receipt  therefor  filed 
with  such  auditor,  and  that  an  entry  of  satisfaction  without  the 
existence  of  such  payment  and  receipt  was  a  nullity,  and  was  the 
same  as  a  forgery,  and  that  the  office  of  the  county  treasurer  and 

court:  "In  any  case  it  would  be  a  deranity  to  one  of  its  own  officers  in 
very  grave  question  whether  a  muuic-  any  other  way  than  by  a  vote  in  a 
ipal  corporation    could    make  an  in-    meeting  duly  called  for  that  purpose." 


79a 


FISCAL  MANAGEMENT  —  PCBLIC  CX)KPORATI0N8. 


[§37C 


the  office  of  the  eounty  auditor  were  puhhc  ofteeB,  and  th*t  an 
examinatio,>  of  such  offices  would  have  d.sclosed  he  fact  ri.at  tho 
mortgage  had  not  in  fact  been  paid,  and  ina^n.uch  as  he  defend- 
ant did  not  exannnc  these  offices  he  was  gu.lty  of  neghgencc  and 
should  not  be  protected.     The  Supre.nc  Court  thought  the  entry 
of  satisfaction  upon  the  school  fund  n,ortgagc  m  <1«««"»;|  ^  <^'» 
upon  a  different  footing  from  a  forged  entry,  saying  f urtl  e  . 
"A  for.'cd  entry  would  be  without  any  authority  whatever,  while 
the  ent^y  under  consideration  is  genuine,  and  made  by  an  officer 
having'  authority  to  make  it,"  the  statute  conferring  such  author- 
ity directly  upon  the  county  auditor.     They  said  further  :  t 
is^rue  that  the  entry  of  satisfaction  before  the  W--"*  «  j^^ 
money  to  the  treasurer  was  wrongful,  but  inasmuch  a.s  the  auditor 
l»ad  the  money  in  his  hands  ready  to  hand  over  to  the  treasurer 
there  was  no  want  of  authority. 


»  Slaughter  v.  State  ex  rel.,  (1892)  132 
Ind.  465,  466,  467.     As  to  the  right  of 
the  defendant  to  rely  upon  the  records 
it  was  said:     '•  As  :i   rule  tlu-  i  vicUiue 
of  title  and  of  recorded  liens  is  to  be 
found  in  the  county  recorder's  omee. 
Judgments  rentlcred  in   court  consti- 
tute one  exception  to  the    rule.     By 
reason  of  the  sUitute,  which  declares 
that  school   fund  mortgages  shall  be 
deemed  recorded  from  the  date  of  their 
execution,    they    seem   to    constitute 
aoother  exception.     Diniing  r.   St.ite 
ex  rel.,  23  Ind.  416;  Stockwell  r.  Suite 
ex  rel..  101  Ind.  1.     The  satisfaction 
entered  by  the  auditor  upon  the  mort- 
gage was  properly  recorded   by  the 
county  reconier,  and  an  examination 
of  records  in  his  office  disclosed  an  un- 
incumbered title  to  the  land  in  dispute. 
We  think  the  [defendant]  had  the  right 
to  rely  upon  such  records.     The  gen- 
eral rule  is  that  a  public  officer  is  pre- 
sumed to  have  done  his  duty,  and  until 
the  contrary  is  shown  he  is  presumed 
to  have  acted  rightly.     Mechem  Pub- 
lic   Offices    &    Officers.    §§    579-677. 
This   author   says:     'The    law    con- 
stantly presumes  that  public  officers 
charged  with  the  performance  of  offi- 


cial duty  have  not  neglected  the  same, 
but  have  performed  it  at  the  proper 
time    and    in    the    proper     manner.' 
^  579,  supni.     Finding  the  school  fund 
mortgage    satistied    by    the     proper 
county  officers,  the  only  persons  who 
could  satisfy  th(^  same,  we  think  the 
[defendant]  had  the  right  to  presume, 
without    looking     further,    that    the 
county  auditor  liad  proceeded    regu- 
larly, and  that  the  mortgage  debt  had 
in  fact  been  paid  to  the  county  treas- 
urer before  such  satisfaction  was  en- 
tered.    The  county  auditor  in  the  most 
solemn  manner,  attested  by  the  seal  of 
his  office,  had  pubhshed  to  the  world 
that  the  debt  was  paid,  and  the  [de- 
fendant], in  our  opinion,  was  under  no 
more  obUgation  to  make  further  in- 
quiry than  he  would  have  been  had 
the  mortgage  debt  been  payable  to  a 
private  individual  who  had  entered  the 
mortgage   satisfied.     The  county  au- 
ditor was  the  agent  of  [the]  state, 
clothed  with  power  to  make  such  sat- 
isfaction, and  the  state,  we  think,  is 
bound  by  his  acts.     The  general  rule 
is  that  the  state,  as  well  as  municipal 
corporations,  is  bound   by  the  acts  of 
its  officers  when  they  act  within  the 


793 


§  377J  FISCAL  MANAGEMENT  —  PUBLIC  COEPORATIONS. 

§  377.  Erroneous  payments  into  the  treasury  of  a  county 
by  a  county  treasurer  under  Indiana  statutes  — his  right  to 
recover  the  same.—  An  Indiana  statute  provides  as  follows : 
''  Whenever  it  shall  appear  to  the  board  doing  county  business  in 
any  of  the  counties  of  this  state,  by  clear  and  sufficient  proof, 
that,  by  reason  of  erroneous  charges  in  the  tax  duplicate,  or  from 
any 'other  cause,  the   treasurer  of   such   county  has   paid   and 
accounted  to  such  board  for  more  money  than  was  justly  due 
from  liim  on  account  of  county  revenue,  said  board  doing  county 
business  shall  direct  the  auditor  to  credit  said  treasurer  with  the 
sum  or  sums  thus  improperly  paid,  and  order  the  same  to  be 
refunded  from  the  county  treasury." '     In  a  county  treasurer's 
action  against  the  county  to  recover  certain  amounts  of  money 
which  he  claimed  to  have  been  erroneously  paid  into  the  county 
treasury,  the  Supreme  Court  of  that  state  held  that  the  statute 
required  that,  before  such  an  action  could  be  brought  against  the 
county,  the  claim  should  be  presented  to  the  board  of  commis- 
sioners, proofs  of  its  correctness  be  made  to  them,  and  the  board 
determine  the  propriety   of  refunding  the  same,  and  make  a 
proper  order  in  the  matter ;  also,  that  when  clear  and  sufficient 
proofs  were  made  in  such  a  case,  the  board  would  have  no  right 
to  refuse  to  make  the  order  and  thus  end  the  claim.     In  this  par- 
ticular case,  there  being  no  evidence  in  the  record  that  the  claim 
of  the  treasurer  liad  not  been  submitted  to  the  board  for  its  action 
under  the  statute,  the  court  held  the  action   maintainable  and 
affirmed  the  judgment  in  the  treasurer's  favor  so  far  as  items  out- 
side of  what  he  claimed  to  have  erroneously  paid  into  the  county 
treasury  on  account  of  taxes  due  the  state.     As  to  those  amounts 
paid  in  on  account  of  the  state,  it  was  held  that  he  could  have  no 
recovery  from  the  county  for  them.^ 


scope  of  their  authority."     Citing  Dill. 
on  Mun.  Corp.  pp.  321,  322;  Mechem 
PubUc  Offices  &  Officers,  §  824;  Mar- 
tel  V.  City  of  East  St.  liOuis,  94  111.  67; 
Roby  T.  City  of  Chicago,  64  III.  447; 
Board,  etc.,  r.  City  of  Lincoln,  81  III. 
156;  2  Herm.  on  Est.  &  Res.  xVdj.  1264; 
Big.  on  Est.  (5th  ed.)  598;  Curnen  v. 
Mayor,  etc..  79  N.  Y.  511;  O'Leary  v. 
Board,   etc..  93  N.  Y.    1;    People  v. 
Stephens,  71  N.  Y.  527. 
>  R.  S.  Ind.  ?^  6510. 
100 


*  Board  of  Comrs.  of  Gilson  County 
r.  Tichenor,  (1891)  129  Ind.  562.  Tht; 
court  said:  "[The  statute]  relates  to 
county  revenue  only .  We  think  it  was 
the  intention  of  the  legislature  that  the 
county  should  not  profit  by  the  mis- 
takes of  its  officers,  by  which  it  re- 
ceived into  its  treasury  money  to  which 
it  was  not  entitled;  but  there  is  noth- 
ing in  the  act  from  which  it  can  be  in- 
ferred that  it  wjis  the  legislative  intent 
that  the  county  should  reimburse  the 


I 


i 


794  FISCAL  MANAGEMENT  —  rUBLIO  CORPORATIONS.    [§§  378,  o7D 

§  378.  For  what  a  school  district  may  settle  account  of 
an  ex-assessor. —  In  an  action  against  the  guarantor  of  certain 
town  orders  whicli  were  taken  in  part  settlement  of  a  claim  for 
moneys  of  a  school  district  from  an  ex-assessor,  in  accordance 
with  a  resolution  of  tlie  electors  of  the  district  at  a  legal  meeting, 
us  it  seemed,  authorizing  a  settlement  with  him  for  part  cash  and 
part  in  these  town  orders  to  be  guaranteed  by  this  defendant,  it 
was  contended  that,  if  this  settlement  was  authorized  by  the 
electors  of  the  district  at  a  legal  meeting,  still  it  was  unauthorized 
by  law ;  that  it  was  beyond  the  power  of  the  district  to  accept  a 
chose  in  action  in  such  settlement ;  that  the  only  remedy  of  the 
school  district  was  a  suit  upon  the  bond  of  the  ex-assessor  to  col- 
lect the  amount  due  from  him.  It  did  not  appear  from  the 
record  before  the  Supreme  Court  of  Michigan  whether  the 
ex-assessor  had  ever  given  a  bond,  or  whether,  in  case  he  did,  he 
or  his  sureties  were  responsible.  The  court  held  that,  in  the  case 
of  a  defaulting  assessor,  the  electors  of  the  school  district  might, 
at  a  regular  meeting,  authorize  a  settlement  of  the  matter  and 
direct  that  the  amount  due  might  be  paid  in  part  by  township 
orders  guaranteed  by  a  responsible  party,  as  was  done  in  this  case.^ 

§  379-  The  board  of  auditors  of  a  town  may  be  ordered 
to  pay  a  judgment  against  the  town  for  interest  on  its 
bonds. —  In  the  federal  court  for  the  northern  district  of 
Illinois  the  court  awarded  a  peremptory  mandanuis  to  a  town 
board   of  auditors   that  they  audit  and  certify  as  a  valid  debt 


379] 


FISCAL  MANAGEMENT  —  PUBLIC  CORPORATIONS. 


705 


treasurer  for  money  paid  to  the  state, 
or  to  the  townships,  or  to  corporations. 
In  such  funds  the  county  has  no  inter- 
est, and  to  require  it  to  reimburse  the 
treasurer  for  such  funds  would  render 
it  necessary  to  tax  the  people  of  the 
county  generally,  on  account  of  funds 
used  in  some  particular  township  or 
municipal  corpomtion  for  purely  local 
purposes.  This  would  be  unjust,  and 
to  justify  us  in  holding  that  the  legis- 
lature intended  such  an  injustice,  the 
language  of  the  statute  should  be  such 
as  to  leave  no  reasonable  doubt.  The 
court  erred  in  including  in  its  judg- 
ment money  paid  over  to  the  town- 
ships iu  various  townships  in  [defend- 


ant] county.  [Another  .statute]  ex- 
pressly provides  that  the  treasurer 
shall  be  reimbursed  out  of  the  state 
treasury,  and  not  out  of  the  county 
tretisury.  It  is  true  it  devolves  upon 
the  board  of  commissioners  to  make 
the  proper  finding  and  order,  but  this 
is  not  a  proceeding  seeking  a  finding 
and  order  of  the  kind  required,  but  is 
an  action  to  recover  a  money  judg- 
ment. The  law  does  not  contemplate 
a  money  judgment  against  the  county 
for  money  erroneously  paid  into  the 
state  treasury." 

'  School  District  2  of  Township  of 
Buckeye  r.  Clark,  (1892)  90  Mich.  435. 


against  the  town  a  judgment  rendered  in  that  court  for  interest 
upon  certain  bonds  the  town  had  issued  to  aid  in  the  construc- 
tion of  a  railroad.*  One  of  the  defenses  or  grounds  upon  which  it 
was  claimed  by  the  respondent  that  a  mandamus  should  not  issue 
in  this  case  was  that  the  judgment  was  rendered  for  interest  upon 
certain  bonds  issued  by  the  town  to  aid  in  the  construction  of  a 
railroad;  and    that    both    the  Supreme    Court   of  the  state  of 


'  United  States  ex  rel.  Portsmouth 
Savings  Bank  n.  Board  of  Auditors  of 
the  Town  of  Ottawa,  (1886)  28  Fed. 
Rep.  407.  As  to  the  duty  of  town 
boards  of  auditors  in  such  matters,  in 
his  opinion,  Blodgett,  J.,  said:  '*  The 
statutes  of  this  state  [Illinois]  provide 
that  judgment  against  towns  are  a 
town  charge,  and  when  collected  shall 
be  paid  to  the  person  or  persons  to 
whom  the  same  shall  have  been  ad- 
judged. Haines  Tps.  (ed.  1833)  66. 
The  town  board  of  auditors  have  no  dis- 
cretion to  refuse  to  audit  a  valid  judg- 
ment against  the  town,  and  have  no 
power  to  pass  in  review  upon  a  judg- 
ment recovered  against  the  town  upon 
the  solemn  adjudication  of  a  court. 
Town  of  Lyons  v.  Cooledge,  89  III. 
529;  Supervisors  v.  U.  S.,  4  Wall.  444; 
U.  S.  ».  New  Orleans,  98  U.  8.  381 ; 
City  of  Cairo  v.  Campbell,  (111.)  5  N. 
E.  Rep.  114."  There  was  a  conten- 
tion that  the  case  was  affected  by  the 
General  Statutes  of  Illinois,  requiring 
the  issue  of  an  execution  upon  a  judg- 
ment within  seven  vears.  It  was  said 
upon  this  point:  "  On  the  rendition  of 
this  judgment  against  the  town  it 
became  the  duty  of  the  town  board  of 
auditors  to  audit  it,  and  provide  for  its 
payment.  No  execution  was  needed, 
and  the  issue  of  an  execution  could 
add  nothing  to  the  plaintiff's  right; 
and  this  right  to  have  the  judgment 
audited,  and  a  tax  levied  and  collected 
for  its  payment,  seems  to  me  to  be  a 
continuing  right,  in  no  way  dependent 
on  the  question  as  to  the  lieu  of  the 
judgment,  whether  an  execution  could 
issue  upon  it.     The  issue  of  an  execu- 


tion could  do  the  plaintiff  no  gootl,  as 
he  could  make  no  levy  upon  the  prop- 
erty of  the  town,  and  collect  nothing 
by  it;  and,  hence,  the  plaintiff's  right  to 
enforce  the  payment  in  the  only  way 
in  which  a  judgment  can  be  enforced 
against  a  municipality,  that  is,  by  writ 
of  mandamus,  is  in  no  way  impaired  by 
the  lapse  of  seven  years.  The  plain- 
tiff, if  this  judgment  were  revived 
by  a  scire  facias,  would  acquire  no 
additional  right  against  the  town  to 
that  which  he  now  has;  and  the  judg- 
ment, if  revived, would  have  no  greater 
legal  or  moral  force  than  it  now  has. 
I  am,  therefore,  of  opinion  that  the 
mandamus  will  lie  to  compel  the  audit- 
ing of  this  judgment,  and  the  levy  and 
collection  of  a  tax  for  its  payment, 
although  more  than  seven  years  have 
elapsed  since  its  rendition."  In  another 
part  of  the  opinion  it  was  said  as  to 
such  judgments:  "It  has  been  re- 
peatedly held  by  the  Supreme  Court 
of  this  State  [Illinois]  that  a  judgment 
against  a  municipal  corporation  cannot 
be  collected  by  execution,  and  under 
the  township  organization  laws  of  this 
state  the  townships  are  quasi  munici- 
pal corporations  for  governmental 
purposes,  and  the  property  held  by 
them  is  held  for  public  purposes,  which 
would  seem  to  bring  them  within  the 
same  rule."  Citing  art.  9,  §  12,  Const. 
111.;  City  of  Chicago  t.  Hasley,  25  III. 
595;  Town  of  Odell  v.  Schroeder,  58 
111.  353;  City  of  Paris  v.  Cracraft.  m 
111.  294  ;  Norton  r.  Peck,  3  Wis.  714 ; 
Rumford  v.  Wood,  13  Mass.  193 ; 
Drake  i\  Phillips,  40  III.  388. 


•96 


nSCAL  MANAGEMENT PtlBLIC  CORPORATIONS. 


[§380 


I 


Illinois  and  the  Supreme  Court  of  the  United  States  had  decided 
tiiat  such  bonds  were  void  for  want  of  power  in  the  town  to  issue  the 
same.     As  to  this  objection  Blodgett,  J.,  said  :  "     *     *    *     It 
seems  to  me  sufficient  to  say  that  the  questions  as  to  the  validity  of 
this  indebtedness  were  all  raised  in  this  suit,  and  tiiis  court  held  that 
the  indebtedness  was  valid,  and  rendered  judgment  against  the 
town.     This  judgment   was  never  appealed  from,  and  remains 
unreversed,  and  no  error  lias  been  adjudged  in  reference  to  this 
particular  case.     Decisions  of  the  Supreme  Court  in  other  suits 
on  the  same  series  of  bonds  or  indebtedness  do  not  reverse  or 
affect  this  judgment.     It  is  true  that  under  the  rulings  of  the 
Supreme  Court  as  to  the  law  under  which  these  bonds  were  issued, 
it  may  be  said  that  this  court  erred  in  rendering  this  judgment, 
but  this  judgment  was  conclusive  until  reversed  for  such  error 
by  an  appellate   court.     *     *     *     Nor  do  I  think  there  is  any 
force  in  the  argument     *     *     *     that  this  judgment  cannot  be 
enforced  by  mcuidamus,  because  the  town  had  no  authority  to 
create  the  debt  in  (|uestion,  and,  therefore,  have  no  authority  to 
levy  a  tax  for  its  payment ;  because  when  the  judgment  was  ren- 
dered against  the  town  it  became  a  charge  against  it  as  com- 
pletely as  if  it  had  been  rendered  for  a  debt  which  the  town  had 
full  authority  to  contract.     After  a  judgment  has  been  rendered 
by  a  court  of  competent  jurisdiction,  even  if  the  court  erred  in 
so  rendering  it,  the  judgment  is  binding  upon  the  town  until  it 
is  reversed   by   the   appellate   court,   and   the  board   of    town 
authorities  have  no  discretion,  but  must  audit  it  as  a  town  charge. 
Town  of  Lyons  v.  Cooledge,  89  111.  529.     *     *     *     The  moment 
a  judgment  is  pronounced  that  moment  it  becomes  the  duty  of 
the  town  to  pay  it,  and  of  the  town  officers  to  see  that  it  is  paid 
by  taking  steps   for  the   levying  and  collecting   of   a   sufficient 
tax ;  and  the  town  officers  cannot,  after  judgment,  be  heard  to 
question  the  validity  of  the  indebtedness  for  which  the  judgment 
was  rendered."  ^ 

§  380.  The  right  of  a  de  facto  county  treasurer  to  salary. — 
One,  in  a  contest  as  to  whether  he  was  elected  county  treas- 
urer of  a  Nebraska  county,  a  decision  being  rendered  against  him, 
appealed  to  the  District  Court.     In  the  meantime,  pending  the 

»  United  States  ex  rel.  Portsmouth  Town  of  Ottawa.  (1886)  28  Fed.  Rep. 
Sav.   Bank  v.   Board  of  Auditors  of   407,  410. 


§  380]  FISCAL  MANAGEMENT  —  PUBLIC  COKPORATIONS. 


^9: 


appeal,  his  opponent  in  the  contest  went  into  possession  of  the 
office,  and  was  paid  the  salary  and  fees  during  his  incumbency  oy 
the  county  authorities.  This  opponent  was  finally,  by  writ  of 
ouster,  removed,  and  the  one  held  to  have  been  rightfully  elected 
placed  in  office.  On  the  expiration  of  his  term  the  latter 
retained,  in  settlement  with  his  successor,  a  sum  of  money  equal 
to  what  his  emoluments  during  the  period  for  which  his  opponent 
was  in  possession  of  the  office  would  have  amounted  to.  The 
Supreme  Court  of  Nebraska,  on  a  petition  for  a  writ  of  man- 
damus to  compel  him  to  pay  this  amount  to  his  successor  as  county 
treasurer,  ordered  the  writ  to  issue,  holding  that  the  county  was 
protected  in  the  payment  of  the  emoluments  of  the  office  to  the 
de  facto  officer  by  its  board  of  commissioners  for  the  time  he  was 
in  possession  of  the  office.* 


'  State  ex  rel.    Greeley    County  v. 
Milne.  (1893)  36  Neb.  301.     The  court 
said:  "The  question  presented  for  de- 
termination   is    whether    a    de   jure 
county  oflScer  can  recover  the  salary  or 
compensation   which  attaches  to  the 
office  while  it  is  in  the  possession  of  an 
officer  de  facto,  who,  before  any  judg- 
ment   of    ouster    has    been   rendered 
against  him,   has  been    paid  by   the 
county  the  salary  of  the  office.     The 
question  has  never  been  passed  upon 
by  this  court,  and    the  decisions  in 
other  states  are  confficting  and  irrecon- 
cilable.    In  establishing  a  precedent 
we  shall  adopt  the  rule  which  to  us 
seems  the  best  supported  by  reason 
and  in  harmony  with   judicial   prin- 
ciples.    The  doctrine  that  the  acts  of 
an  officer  de  facto  are  void  so  far  as 
they  affect  third  parties  and  the  pub- 
lic, is  so  familiar  and  well  settled  that 
no  citation  of  authorities  is  necessary 
to  show  it.     The  acts  of  such  officer  are 
sustained  upon    the    ground  that  to 
question  them  would  devolve  upon 
every  person  transacting  business  with 
the  officer  the  duty  of  determining  for 
himself,  at  his  peril,  the  right  of  the 
incumbent   to    the    office    he    holds. 
Third  parties  assume   no  such  risk. 
They  are  not  bound  to  know  that  the 


person  exercising  the  functions  of  a 
public  office  under  color  of  authority 
is  rightfully  in  possession  of  the  office, 
but    are    warranted    in    recognizing 
him  as  the    Vigal    and   valid  officer, 
and  are  justified  in  dealing  with  him 
as  such.     If  a   person    pays  to  a  rf<? 
facto  officer  the  fees  allowed  by  law 
for  his  services,  he  is  protected,  and 
will  not  be  compelled  to  pay  them 
the  second  time  to  the  officer  de  jure. 
We  think  the  same  principle  should 
govern  in  a  case  like  the  one  at  bar. 
Cashman    was    the    de   facto  county 
treasurer  of  Greeley  county,  and  per- 
formed the  duties  of  the  office  under 
color  of  title  from  January  9,  1890.  to 
October  28,    1891.  during  which  time 
he  received  all  the  emoluments  which 
attached  to  the  office.     He  took  pos- 
session of  the  office  in  good  faith  by 
virtue  of  the  decision  in  his  favor  of 
the  contest  court,    and   continued  to 
occupy  the  office  until  the  respondent 
was  declared  to  be  entitled  to  the  same 
by  virtue  of  a  judgment  of  ouster  ob- 
tained by  him  against  Cashman  on  the 
final  determination  of  the  appeal  in  the 
contest   case   by  the    District  Court. 
The  county  board,   in  settling  with 
Cashman,  and  allowing  him  the  fees 
and  salary  provided  by  law  for  the 


i98 


FISCAL  MANAGEMENT  —  PUBLIC  CORPORATIONS. 


n 


It 


[§381 

§  381.  Payments  to  city  official  in  excess  of  salary  may 
be  recovered  of  him.—  A  city  in  the  state  of  Washington,  as  it 
was  empowered  to  do,  fixed  by  ordinance  the  salary  of  members 
of  its  council.  Afterwards  tlie  council  ordered  and  there  was 
paid  to  a  member  of  the  council  additional  sums  of  money  in 
excess  of  the  salary  named  for  services.  The  city  brought  its 
action  against  him  to  recover  the  money  which  it  held  was  paid 
him  illegally  and  without  authority.  The  Supreme  Court  of  the 
state  held  that  such  an  order  by  the  council  was  unauthorized  and 
that  the  city  was  entitled  to  recover  the  money  thus  improperly 
paid  to  this  member  of  the  council*     Tlie  principle  of  law  that 


§382] 


FISCAL  MANAGEMENT  —  PUBLIC  CORPORATIONS. 


799 


period  during  which  he  performed  the 
duties  of  the  office,  the  same  having 
been  made  before  the  respondent  came 
into  possession,  had  no  right  to  rely 
upon  the  apparent  title  of  Cashman, 
and  to  treat  him  as  an  officer  (le  jure. 
The  board  was  justified  in  allowing 
him  the  emoluments  of  the  office  upon 
that  assumption,  and  the  county  can- 
not be  compelled  to  pay  them  again. 
We  are  aware  that  courts  of  high 
authority  have  sustained  the  contrary 
doctrine,  but  the  decided  preponder- 
ance of  authorities  support  the  con- 
clusion we  have  reached."  The  court 
cited:  Steubenville  t>.  Culp.  38  Ohio 
8t.  18;  Wayne  County  v.  Beuoit,  20 
^lich.  176;  Parker  r.  Supervisoi-s  of 
Dakota  County,  4  Minn.  59;  Dolan  r. 
Mkyor,  68  N.  Y.  274:  McVeany  r. 
Mayor,  80  N.  Y.  185;  Terhune  r. 
Mayor.  88  N.  Y.  247;  Hagan  v.  City  of 
Brooklyn,  126  N.  Y.  643;  Saline 
County  r.  Anderson,  20  Kans.  208; 
Gorman  «.  Boise  Cotinty,  1  Idaho,  655; 
Shaw  p.  County  of  Pima,  (Ariz.)  18 
Pac.  Rep.  273;  State  r.  Clark,  52  Mo. 
508;  Westberg  c.  aty  of  Kansas.  64 
Mo.  493;  Shannon  v.  Portsmouth,  54 
K  H.  183. 

'  City  of  Tacoma  v.  Lillis,  (1892)  4 
Wash.  St.  797.  The  court  said:  "It 
may  be  stated  as  a  general  legal  prop- 
osition that  valid  ordinances  have 
the  force  of  laws,  and  are  as  binding 
upon  the  inhabitants  of  a  municipality 


as  are  the  statutes  of  the  state  upon  its 
citizens  generally.  1  Dill.  Mun.  Corp. 
(4th  ed.)  §  308;  Milne  v.  Davidson,  5 
Mart.  (N.  S.)  409.  When  the  city 
council  passed  that  ordinance  they 
established  the  law  upon  the  subject 
of  Siilary  of  councilmen,  and  they  were 
as  firmly  bound  by  its  provisions  as  if 
it  had  been  a  law  passed  by  the  legis- 
lature of  the  territory.  And  this  being 
so  they  had  thereafter  no  right  or  au- 
thority to  pay  themselves  any  other  or 
greater  sum  for  services  rendered  in 
their  official  capacity  than  that  speci- 
fied in  the  ordinance  so  long  as  it 
remained  in  force.  But  it  is  argued 
*  *  *  for  appellant  that  the  city 
council  were  not  prohibited,  either  by 
law  or  by  the  organic  act  of  the  terri- 
tory, from  changing  an  officer's  salary 
or  fees  at  any  time  they  saw  proper 
to  do  so,  either  by  ordinance  or  resolu- 
tion, and  that  they  did  so  in  this  case. 
Undoubtedly  the  law-making  body  of 
the  corporation  had,  prior  to  the  taking 
effect  of  thQ  State  Constitution,  the 
right  and  power  to  increase  or  dimin- 
ish the  salary  of  appellant.  The  right 
to  pass  ordinances  implies  the  right  to 
repeal  them;  but  in  this  instance  we 
nowhere  find  in  the  record  that  the 
council  ever  attempted  to  change  or 
appeal  [repeal?]  the  ordinance  fixing 
the  salary  of  its  members.  It  can  hardly 
be  said  that  the  receiving  and  paying 
of  claims  for  services  alleged  to  have 


money  voluntarily  paid,  with  full  knowledge  of  the  facts  and 
without  fraud  or  duress,  could  not  be  recovered  from  him,  which 
was  invoked  by  the  one  receiving  the  money  in  excess  of  his 
salary,  the  court  considered  inapplicable  to  the  case.^ 

§  382.'  Compelling  a  ministerial  officer  to  distribute  the 
fund  in  his  hands. —  The  law  as  to  the  proper  proceeding  against 
a  ministerial  officer  holding  a  fund  in  his  hands  to  compel  a 
proper  distribution  of  it,  has  been  declared  in  a  case  before  the 
Supreme  Court  of  Indiana ;  a  petition  for  a  writ  of  mandamus 
to  compel  a  public  officer  here,  the  drainage  commissioner,  to  pay 
the  petitioner  a  sum  due  him  on  the  performance  of  his  contract 
in  construction  of  a  public  ditch,  under  the  laws  of  that  state  as 
to  drainage,  etc.  Elliott,  J.,  for  tlie  court,  said :  "  The  case  is 
that  of  a  ministerial  officer  with  money  in  his  hands  which  it  is 
his  duty  to  pay  to  tlie  party  entitled  to  it  under  the  law.  The 
fund  in  the  appellant's  hands  was  derived  from  an  assessment  for 


been  rendered  effected  a  repeal  or  even 
a  modification  of  the  ordinance,  which, 
as  we  have  already  intimated,  was  the 
measure  of  the  city's  liability  to  ap- 
pellant as  well  as  of  his  rights  to 
compensatioD." 

'  City  of  Tacoma  r.  Lillis,  (1892)  4 
Wash.  St.  797.  The  court  said:  "Ap- 
pellant was  the  agent  of  the  city  and 
was  intrusted  with  the  care  and  man- 
agement of  its  funds,  and  if  he  appro- 
I>riated  any  of  such  funds  to  his  own 
use,  contrary  to  law,  he  is  liable  there- 
for as  such  agent,  although  he  may 
have  done  it  under  a  claim  of  right 
and  with  no  dishonest  motive.  Another 
reason  why  the  doctrine  contended  for 
by  counsel  ought  not  to  be  held  ap- 
plicable to  cases  like  the  one  now  under 
consideration  is  that  it  would  enable  a 
municipal  council  to  violate  with  im- 
punity a  plain  provision  of  the  Consti- 
tution. This  question  was  before  the 
court  in  Weeks  r.  Texarkana,  50  Ark, 
81;  s.  c.  6  8.  W.  Rep,  504.  The  case 
\vas  this:  Weeks  was  city  recorder, 
and  his  salary  had  been  reduced.  He 
claimed  to  be  entitled  to  the  salary  as 
originally  fixed,  and  sued  the  city  to 


recover  it.  The  city  claimed  a  set-off 
on  account  of  overpayment  after  the 
ordinance  reducing  his  salary  took 
effect.  The  trial  court  held  that  the 
monc}',  having  been  voluntarily  paid, 
could  not  be  recovered  back.  The 
Supreme  Court  ruled  otherwise,  using 
this  language:  'But  the  court  below 
seems  to  have  considered  that  the  town, 
having  voluntarily  paid  Weeks  this 
salary  under  no  misjipprehension  of 
the  facts,  could  not  recover  it  back. 
However  true  this  may  be  as  a  general 
proposition,  it  ought  not  to  be  extended 
to  cases  where  the  officer  so  wrongfully 
receiving  payment  was  a  member  of 
the  council  or  board  which  ordered  such 
payment.  This  would  enable  every 
municipal  body  to  evade  the  salutary 
restraints  imposed  by  the  statute. 
They  might  vote  themselves  extrava- 
gant salaries  after  their  induction  into 
offi(;e,  and  when  they  had  received  the 
money  might  set  the  municipaHty  at 
defiance.'  See,  also,  Petersburgh  v. 
Mappin,  14  111.  198;  East  Nissouri  t. 
Horseman,  16  U.  C.  Q.  B.  582;  Daniels 
r.  Burford,  10  U.  C.  Q.  B.  478." 


800  FISCAL  MANAGEMENT  —  PUBLIC  CORPORATIONS.  [§  382 

a  specific  purpose,  and  the  relator,  as  the  contractor,  having  coii- 
stmcted  the  ditch  for  which  the  assessments  were  levied,  has  a  right 
to  compel  the  appellant  to  distribute  to  him  the  fund  as  the  law 
directs.    The  case  before  us  falls  within  the  rule  that  a  ministerial 
officer  who  has  in  liis  hands  a  specific  fund  may  be  compelled  by 
mandamus  to  make  lawful  distribution  of  the  fund.*     In  this 
instance  there  is  no  question  of  contract  liability  ;  the  question  is 
as  to  the  duty  of  the  appellant  to  distribute  to  the  relator  the  spe- 
cific fund  derived  from  the  assessments  levied  to  pay  for  the  con- 
struction of  the  public  ditch.    The  oflicer  has  no  right  to  the  spe- 
cific fund,  and  he  is  liable,  if  at  all,  because  he  violates  his  duty  in 
withholding  the  specific  fund  from  the  party  entitled  to  it.    He  is 
not  liable,  upon  the  facts  stated  in  the  petition,  to  an  action  for  a 
breach  of  contract  duty,  but  he  is  liable,  if  liable  at  all,  because  he 
has  violated  a  duty  imposed  upon  him  by  law.     Such  cases  as 
State  ex  rel.  v.  Trustees.  114  Ind.  380,  are  not  relevant  to  the 
point  here  in  dispute,  since  the  liability  of  the  appellant  is  not 
upon  contract,  but  his  liability  arises  out  of  a  failure  to  distribute 
a  specific  fund  in  his  hands  as  the  law  requires.     Confessing,  as 
the  appellant  does,  by  his  demurrer,  that  he  has  the  specific  fund 
in  his  hands,  and  that  the  relator  is  entitled  to  it  under  the  law, 
he  cannot  successfully  urge  as  a  reason  for  withholding  the  fund, 
that  the  landowners  who  paid  the  assessments  which  created  the 
fund  are  not  parties  to  the  action.     He  has  the  fund  —  the  assess- 
ments have  been  paid  —and  it  is  his  duty,  upon  ])roper  demand, 
to  pay  the  relator  the  money  due  him  out  of  the  specific  fund. 
There  is  no  merit  in  his  contention  that  the  landowners  should  be 
parties,  for  nothing  remains  for  him  to  do  except  to  make  proper 
distribution  of  the  specific  fund  realized  from  the  assessments." » 
As  to  the  pleadings  in  the  case,  it  was  said :  "  There  is  a  fatal 
defect  in  the  petition  and  alternative  writ.     No  demand  is  shown, 
and  in  such  a  case  as  this  a  demand  is  essential.     The  presump- 
tion is  that  an  ofiicer  will  do  his  duty  upon  request,  and  to  put 
him  in  the  wrong  a  demand  is  essential.     Jackson  School  Tp.  t>. 
Farlow,  75  Ind.  118.     A  claimant  of  a  fund  cannot  maintain 

»  Citing  Portland  Stone  Ware  Co.  v.  Board,  etc.,   28  Fed,  Rep.  407;  State 

Taylor,   (R.   I.)   19    Atl.    Rep.    1086;  ex  rel.  r>.  Board,  etc.,  4  Ind.  495. 
Board,  etc.,  p.  People  ex  rel.,  24  111.       •  Ingerman,  Drainage  Commissioner, 

App.  410;  Case  o.  Wresler,  4  Ohio  St.  v.   State  ex    rel.   Conroy,   (1891)    128 

561;  Illinois  State  Hospital  i\  Higgins,  Ind.  225,  227,  228. 
15  111.  185;   United  States  ex  rel.  v. 


I 


§  383]  FISCAL  MANAGEMENT  —  PUBLIC  CORPORATIONS.  801 

such  an  action  as  this  without  first  demanding  j^ayment  of  his 
claim.  The  authorities  are  well  agreed  that  where  the  duty  is 
owing  to  a  private  person  and  not  to  the  public,  a  demand  must 
be  alleged  witli  precision  in  the  petition  for  a  writ  of  such  an 
extraordinary  character  as  that  invoked  by  the  relator."  ^ 

§  3^Z'  County  warrants  —  their  issue  and  validity  —  rules 
governing. —  A  county  in  Illinois  issued  various  county  war- 
rants upon  its  treasurer  in  favor  of  different  parties  for  different 
considerations,  which  were  assigned  to  an  individual  by  the  origi- 
nal payees ;  the  assignee,  in  an  action  against  the  county,  had 
judgment  from  the  court,  tlie  trial  being  had  upon  a  stipulation 
of  facts.  The  appellate  court,  on  appeal,  reversed  this  judo-ment, 
and  held  that  the  warrants  were  invalid  because  the  terms  of  the 
statute  authorizing  the  issue  of  county  warrants  had  been  disre- 
garded.2     It  was  further  held  that  neither  the  assignor  nor  the 

'  Citing   State   ex   rel.  v.   Slick,  86 

Ind.  501;  Oroville,  etc..  R.  R.  Co.  «?. 

Supervisors,  etc.,  37  Cal.  354;  Board, 

etc.,   V.   Arrghi,    51   Miss.    667;   State 

ex  rel.    r.    Schaack,    28    Minn.    358; 

State  ex  rel.   v.  Davis,  17  Minn.  429; 

Lee  County  v.  State  ex  rel.,  36  Ark. 

276;    citations    in    4    Am.    &    Eug. 

Ency.  of  Law,  106. 

« County  of  Cook  v.  Lowe,  (1887)  23 

III.  App.  649.     The  court  referred  to 

the  cases.  City  of  Springfield  v.  Ed- 
wards,   84    111.    626,    and    Cliicago  v. 

Shober  &  C.  Lithographing  Co.,  6  111. 
App.  560,  as  to  the  rules  established 
in  these  cases,  and  then  said:  "The 
statute  in  a  guarded  and  precise  man- 
ner prescribes  the  conditions  under 
which  warrants  payable  on  demand, 
as  were  those  on  which  this  suit  was 
brought,  may  be  issued,  and  inhibits 
such  issue  except  under  such  condi- 
tions, and  the  stipulated  facts  show 
that  the  warrants  sued  on  were  issued 
when  the  conditions  required  by  the 
statute  did  not  exist.  The  statute  di- 
rects that  such  warrants  shall  be 
drawn  and  issued  '  only  when  at,  the 
time  of  the  drawing  and  issuing  of 
101 


such  warrants,    there    shall   be  suffi- 
cient money  in  the  appropriate  fund  in 
the  treasury  to  pay  them,'  and   the 
stipulation  admits  '  that  at  the  time  of 
the  drawing  and  issuing  of  such  war- 
rants on  the  county  treasurer  of  said 
county  there  was  not  sufficient  money 
in  the  appropriate  fund  in  said  treas- 
ury to  pay  them.'     It  was  suggested 
in  argument  that  the  warrants  were 
not  drawn  on  any  particular  fund,  but 
were  made  payable  out  of  the  treasury 
generally,  and  that  there  was  no  evi- 
dence that  there  was  no  money  at  all 
in  the  treasury.     There  is  nothing  in 
the  attempted  distinction.    The  admis- 
sion that  there  was  no  money  in  the 
appropriate  fund  is  equivalent  to  the 
statement  that  there  was  no  money  In 
the    hands  of    the    treasurer  of    the 
county  liable  to  be  drawn  against  by 
the  order  of  the  county  board  for  the 
payment  of   the  debt  for  which  the 
warrants  were  issued.     The  warrants 
were  drawn  and  issued  without  author- 
ity of    law,   and  against   the  inhibi- 
tion of  the  statute,  and  were,  there- 
fore,  clearly   invalid,   and  as  instru- 
ments absolutely  void,  whether  in  the 


i 


802  FISCAL  MANAGEMENT  —  PUBLIC  COEPORATION8.  [§  383 

assignee  of  the  warrants  could  recover  upon  tlieui,  because  tliey 
were  invalid ;  further,  that  the  assignee  was  not  entitled  to  judg- 
ment in  his  favor  on  the  void  warrants,  and,  treating  them  as  evi 
dence  of  an  assignment  of  the  original  account,  he  could  not 
recover  in  the  action  as  brought  in  his  own  name.^     In  an  action 
against  the  board  of  commissioners  of  a  Kansas  county  upon 
county  w^arrants  as  to  farm  property,  issued  by  the  board  in  pay- 
ment of  lands  purchased  for  a  poor  farm,  a  question  was  made  as 
to  whether  the  assessment  of  taxes  under  the  statute  of  that  state 
relating  to  the  subject  had  l)een  properly  authorized  by  a  vote  of 
the  people.    The  direct  cpiestion  was  whether  it  required  "  a  major- 
ity of  all  the  votes  cast  at  a  poll  opened  for  that  purpose."    It  was 
held  by  the  United  States  Circuit  Court  for  the  district  of  Kansas 
that  it  was  sufficient  if  the  proposition  received  a  majority  of  all 
the  votes  cast  on  that  particular  proposition,  and  that  it  was  not 
necessary  that  it  should  receive  a  majority  of  all  the  votes  cast  at 


§384] 


FISCAL  MANAGEMENT PUBLIC  COEPORATION8. 


803 


hands  of  the  person  to  whom  they 
were  made  payable  or  in  the  hands  of 
an  assignee/' 

» County  of  Cook  r.  Lowe.  (1887)  23 
111.  App.  649.     As  to  the  effect  of  the 
assignment  of  these  warrants  it  was 
said  by  the  court:  "Avoid  instrument, 
(^mnot  be  given  validity  by  assigning 
it,  and  while  such  assignment  may  not 
be  entirely  without  operation  between 
the  parties  to  it,  yet  the  void  instru- 
ment can  never  itself   be  made  the 
basis  of  a  recovery  at  law  or  in  equity. 
The  assignment  may  be  evidence  in 
equity  of  an  intention  to  assign  the 
claim  for  which  the  warrant  was  is- 
sued.    As  was  said  in   Goldsmith  r. 
Stewart,  45  Ark.   153,  'although   an 
instrument  may  be  void,  it  does  not 
follow   that   an    a.ssignment  of    it  is 
wholly  inoperative  in  equity.     If  it  is 
supposed  by  the  parties  to  represent  a 
claim  for  money,  and  if  assigned  for 
value  it  will  raise  an  equity  in  the  as- 
signee, not  to  recover  on  the  instru- 
ment itself,  but  to  stand  in  the  shoes 
of  the  assignor  with  regard   to   the 
original  claim  for  which  it  was  substi- 
tuted.   It  is  evidentiary  of  the  equity. 


While  it  is  true  a  party  to  whom  one 
of    these  warrants  was  issued,  if  he 
stood  in  the  place  of  appellee  as  plain- 
tiff in  this  suit,  could  have  recovered 
the  value  of  the  services  rendered  or 
material    furnished    by    him    to    tlic 
county  under  the  common  counts,  hU 
recovery  would  not  be  upon  the  void 
instrument,  but  on  the  original  claim 
or  account  for  which  the  warrant  was 
issued.     It  does  not  at  all  follow,  how- 
ever, that  the  assignee  can  so  recover; 
the  assignment  of  the  warrant  can  at 
best  be  treated  as  an  equitable  assign- 
ment of  the  account,  and  he  could  not 
sue  at  law  upon  such  assigned   ac- 
count in  his  own  name,  but  must  sue, 
if  at  all,  in  the  name  of  the  assignos 
for  his  use.     What  was  said  in  The 
People  r.  Johnson,  100  111.  537,  as  t(> 
county  orders  being  transferred  by  in 
dorsement,  and  as  to  the  right  of  ttc 
assignee  to  sue  in  his  own  name,  had 
reference  to  valid  warrants.    By  usage 
and  for  business  convenience,  the  as- 
signee of  such  an  order  may  sue  in  his 
own  name,  but  is  subject  to  all  the 
equities    and    defenses    which    exist 
against    the    original     payee.      But 


the  election.^     The  United  States  Circuit  Court  for  the  eastern 
district  of  Missouri  has  ruled  as  to  county  warrants  issued  under 
the  laws  of  that  state,  as   follows:    Mandamus  having  been 
granted  requiring  the  County  Court  to  draw  warrants  in  favor  of 
relators,  payable  out  of  "  the  general  funds  of  the  county,"  the 
warrants  being  drawn  accordingly,  but  at  relator's  request,  other 
warrants  being  drawn  on  another  fund  in  lieu  of  the  warrants 
already  drawn,  and  issued  to  the  relators,  the  latter  warrants  were 
held  to  have  been  issued  pursuant  to  the  writ  of  mandamus. 
That   under   the   general   statutes   of   Missouri,  providing  that 
county  warrants  are  receivable  in  discharge  of  "  any  county  or 
city  revenue,  license,  tax,  assessment,  fine,  penalty  or  forfeiture," 
such  warrants  were  receivable  in  payment  of  a  special  tax  levied 
for  payment  of  county  bonds,  though  the  priority  in  which  such 
warrants  were  required  by  law  to  be  paid  was  thereby  defeated. 
That  the  statute  of  Missouri,  providing  that  several  warrants  may 
he  issued  for  one  claim  against  a  county,  instead  of  issuing  a  single 
warrant,  as  was  provided  by  the  existing  law,  did  not  so  change 
the  administration  of  county  finances  as  to  impair  the  remedy  for 
the  collection  of    outstanding  warrants.     And  where  warrants 
had  been  received  from  an  assignee  thereof  in  payment  of  taxes, 
and  such  payment  had  been  approved  by  the  County  Court  on 
the  settlement  of  the  accounts  of  the  county  treasurer,  such  pay- 
ment would  be  considered  sufficient,  though  this  assignment  was 
not  in  the  form  required  by  law.^ 

§  384.  Statute  of  Limitations  not  applicable  to  county 
warrants. —  In  a  case  involving  the  question  of  whether  the 
Statute  of  Limitations  can  be  pleaded  successfully  against  county 
warrants,  the  Supreme  Court  of  Nebraska  has  said,  as  to  the 
holders  of  such :  "  Whoever  deals  with  a  county  and  takes  in 
payment  of  his  demand  a  warrant  of  the  character  of  these,  no 


here  in  law  appellee  took  nothing 
whatever  by  the  assignment  of  the 
warrant." 

'  Armour  Bros.  Bkg.  Co.  v.  Board  of 
County  Commis.  of  Finney  County, 
(1890)  41  Fed.  Rep.  321,  supported  by 
Commissioners  tj.Winkley,  29  Kans.  36; 
State  V.  Echols,  20  Pac.  Rep.  523; 
Cass  Co.  «.  Johnston,  95  U.  S.  369; 


Walker  v.  Oswald,  11  Atl.  Rep.  711; 
Gillespie  v.  Palmer,  20  Wis.  544;  San- 
ford  V.  Prentice,  28  Wis.  358. 

2  United  States  ex  rel.  Huidekoper 
V.  Macon  County  Court,  (1891)  45  Fed. 
Rep.  400.  See  State  v.  Winterbottom, 
123  U.  S.  215;  s.  c,  8  Sup.  Ct.  Rep. 
98. 


804:  FISCAL  MANAGEMENT  —  PUBLIC  COKPORATION8.  [§  384 

time  of  payment  being  fixed,  does  so  under  an  implied  agreement 
tliat  if  there  be  no  funds  in  the  treasury  out  of  which  it  can  be 
satisfied,  he  will  wait  until  the  money  can  be  raised  in  the  ordi- 
nary mode  of  collecting  such  revenues.     He  is  presumed  to  act 
with  reference  to  the  actual  condition  and  the  laws  regulatmg 
and  controlling  the  business  of  the  county.     He  cannot  be  per- 
mitted, immediately  upon  the  receipt  of  such  warrant,  to  resort 
to  the  county  to  enforce  payment  by  judgment  and  execution, 
without  regard  to  the  condition  of  the  treasury  at  the  Ume  or 
tlie  laws  by  which  the  revenues  are  raised  and  disbursed."     They 
held,  therefore,  that  the  Statute  of  Limitations  did  not  apply  to 
cases  of  such  claims  against  counties ;  that  whenever  it  can  be 
shown  that  the  funds  have  been  collected  out  of  which  the  war- 
rants can  be  paid,  or  sufficient  time  has  been  given  to  do  so  m 
the  mode  pointed  out  on  the  statute,  payment  of  them  may  be 
demanded,  and,  if  refused,  legally  coerced.^ 


affected  by  the  limitation  act  before 
referred  to  is  evident,  I  think,  from 
the  whole  course  of  legislation  respect- 
ing them.     As  late  as    the    12th   of 
February,  1866,  it  was   enacted  that 
'all  debts  heretofore  incurred  by  the 
county  commissioners  of  any  county, 
acting  in  good    faith,    and    duly  re- 
corded at  the    time    on  their  books, 
shall  be  deemed  valid,  and  the  couuty 
shall  be   held   liable    for    the  same.' 
Chap.  5,  §  1,  Rev.  Stat.  Neb." 


» Brewer    v.  Otoe  County,   1  Neb. 
373.      The  court  said:     '*But  these 
warrants  do  not,  nor  was  it  the  inten- 
tion of  the  legislature  that  they  should, 
fall  within  the  operation  of  this  act. 
*    *    *    Nor  can  any    action    right- 
fully be   brought    on    such   warrant 
until  the  fund  is  raised,  or,  at  least, 
sufficient  time  has  elapsed  to  enable 
the  county  to  levy  and  collect  it  in  the 
mode  prescribed  in  the  revenue  laws. 
That  the    legislature  never  intended 
that    county     warrants     should    be 

As  to  "Fiscal  Management -Public  Corporations"  see  further,  chapter  3, 
«•  Power  of  Agents  and  Officers— Public  Corporations.' 


CHAPTEK   XYII. 


FISCAL  MANAGEMENT  — PRIVATE  CORPORATIONS. 


§  885.  Execution  of  contracts  by  cor- 
porations. 

886.  What  would   be  conclusive  of 

the  execution  of  a  contract. 

887.  Declaring  dividends. 

888.  Rules  as  to  declaring  dividends 

by  a  mining  corporation. 
389.  Borrowing  money  to  pay  divi- 
dends. 


§  390.  Rescinding    a    declaration   of 
dividend. 

391.  Contracts  within  and    outside 

the  power  of  private  corpora- 
tions. 

392.  Rules  as  to  estoppel  to  plead 

that  contracts  are  ultra  vires. 


§  385.  Execution  of  contracts  by  corporations  —  rules 
governing. —  A  valid  written  contract  maj  be  made  by  a  private 
corporation  in  Iowa  without  the  use  of  a  seal,  even  though  such 
contract  be  one  out  of  the  ordinary  course  of  the  business  of  the 
corporation.*  There  is  a  statute  of  North  Carolina  which  pre- 
scribes that  "  Every  contract  of  every  corporation,  by  which  a 
liability  may  be  incurred  by  the  company  exceeding  one  hundred 
dollars,  shall  be  in  writing,  and  either  under  the  common  seal  of 


*  Muscatine  Water  Co.  v.  Muscatine 
Lumber  Co.,  (1892)  85  Iowa.  112.  The 
court  said;  "  Section  2112  of  the  Code 
contains  the  following:  'The  use  of 
private  seals  in  written  contracts,  ex- 
cept the  seals  of  corporations,  is 
abolished.'  It  is  argued  from  this  that 
the  use  of  private  seals  by  corporations 
is  governed  by  the  rules  of  the  common 
law,  and  that  such  seals  must  be  af- 
fixed to  all  contracts  not  covering  the 
scope  of  the  ordinary,  every -day 
functions  of  the  corporations.  That  is 
not  the  law  of  this  state.  On  the  con- 
trary, it  was  said  in  Merrick  v.  Plank 
Road  Co.,  11  Iowa,  76,  that  the  doc- 
trine is  now  well  settled  that  corpora- 
tions of  all  kinds  may  be  bound  by 
contracts  not  under  their  seals.  They 
may  make  a  binding  contract  in  writing 
without  using  the  seal,  and  so  they 
may  be  held  as  verbal  contracts;  and 
as  they  may  make,  so  they  may  ratify 


and  adopt  as  their  own,  and  without 
the  use  of  the  seal,  that  which  has  been 
done  by  another,  or  an  officer  out  of 
the  usual  line  of  his  duties."  As  to 
use  of  seal  in  corporation  contracts,  see 
Derringer's  Admr.  v.  Derringer's 
Admr.,  5  Houst.  416;  Bancroft  v.  Will. 
Conf.  Academy,  5  Houst.  577;  Van- 
degrift  «.  Delaware  R.  R.  Co.,  2 
Houst.  287.  What  is  prima  facie  evi- 
dence that  a  seal  was  properly  affixed 
to  an  instrument  executed  by  a  corpo- 
ration, see  Conine  v.  J.  &  B.  R.  R.  Co., 
3  Houst.  288.  As  to  presumptions  as 
to  seals  to  contracts  of  corporations,  see 
Blackshire  v.  Iowa  Homestead  Co.,  39 
Iowa,  624;  Chicago,  Burlington  «fc 
Quincy  R.  R.  Co.  v.  Lewis,  53  Iowa, 
101;  Morse  v.  Beale,  68  Iowa,  463;  s. 
c,  27  N.  W.  Rep.  461;  Gooduow  v. 
Oakley,  68  Iowa,  25;  s.  c,  25  N.  W. 
Rep.  912 


806 


FISCAL  MANAGEMENT  —  PRIVATE  CORPORATIONS. 


[§385 


the  corporation  or  signed  by  some  officer  of  the  company  author- 
ized thereto."     The  Supreme  Court  of  that  state  have  said  of 
this  statute :  "  This  provision  is  important  and  not  merely  direc- 
tory.    Its  purpose  is  to  protect  corporations  against  the  liasty  or 
fraudulent   acts   and   practices   of  their   incautious   or  faithless 
officers  and  agents,  and  as  well  those  persons  who  deal  with  them 
in  respect  to  contracts  involving  pecuniary  liability  of  import- 
ance.    They  must  necessarily  act  and  contract  by  and  through 
their  officers  and  agents,  and  it  is  wise  and  salutary  to  protect 
them  and  those  who  deal  with  them  in  the  way  thus  provided. 
Such  contracts  must  be  in  writing  and  under  the  common  seal  of 
the  corporation,  or  signed  by  some  one  of  its  officers  authorized 
thereto.     It  is  not  sufficient  to  simply  recognize  by  such  officer 
or  agent  a  merely  verbal  contract  to  give  it  efficiency.     It  must 
be  done  in  writing,  and  in  such  way  as  to  give  evidence  of  the 
nature,  purpose  and  substance  of  the  contract.     Otherwise,  the 
statute   would   be   practically  nugatory.     *     *     *     The  statute 
refers  to  executory  contracts  which  create  liabilities  and  obliga- 
tions of  the  corporation  —  not  to  cases  where  they  have  received 
and  availed  themselves  of  property  sold  and  actually  delivered  to 
them."^     Upon  an  issue  as  to  whether  the  execution  of  a  mort- 
gage by  the  president  and  secretary  of  a  corporation  was  author- 
ized by  a  board  of  its  directors,  in  wliom  the  control  and  manage- 
ment of  its  affairs  was   vested,  parol  evidence  is  admissible  to 
prove  the  action  of  the  board,  when  the   record  of  the  meeting 
fails  to  state  it.^    In  the  same  case  Caldwell,  J.,  said :  "  The 
omission  to  attach  the  corporate  seal  to  the  mortgages  is  not  fatal 
to  their  validity  in  equity.     The  companies  admit  their  execution 
and  assert  their  validity.     The  owners  of  all  the  stock  of  the 
companies  assert   tlieir   validity.      They  were   given   for  debts 
actually  due  from  the  companies  to  the  banks.     The  officers  and 
stockholders  of  the  milling  companies  had  no  personal  interest  in 
the  debts  secured  by  the  mortgages.     No  part  of  the   money 
belonged  to  them,  nor  were  any  of  them  sureties  for  its  payment. 
On  this  state  of  facts,  it  is  not  necessary  to  inquire  whether  these 
mortgages  are  legal  and  sufficient  securities  at  law  against  the 

'  Curtis  V.  Piedmont  Lumber  &  Min-  Anglo- Calif ornian  Bank,  104  U.  8. 192; 

ing  Co.,  (1891)  109  N.  C.  401,  403,404,  Eureka  Co.   r.   Bailey  Co.,  11  Wall. 

«Allis  V.  Jones,  (1891)  45  Fed.  Rep.  488;   Whart.  Ev.  §663;   Davidson  v. 

148,  149;  citing  U.  S.  Bank  v.  Dand-  Bridgeport,  8  Conn.   472;    Ratclifif  v. 

ridge,   12  Wheat.   72;  Mining  Co.  v.  Teters,  27  Ohio  St.  66]  Taymouth  v. 


§  385]         FISCAL  MANAGEMENT — PRIVATE  CORPORATIONS. 


807 


general  creditors  of  the  companies.  They  are  undoubtedly  good 
inequity.*  "In  Koehler  v.  Iron  Co.,  2  Black,  716,"  said  the 
court,  "  the  court  declined  to  treat  a  mortgage  of  a  corporation 
not  under  seal  as  good  in  equity,  because  it  was  declared  on  as  a 
legal,  and  not  an  equitable,  mortgage."  To  obviate  this  objec- 
tion the  banks  in  this  case  were  granted  leave  to  amend  their 
cross-bills  by  adding  a  special  prayer,  to  the  effect  that,  if  the 
court  should  hold  them  ineffectual  as  legal  mortgages,  they 
may  be  held  and  treated  as  equitable  mortgages.^  In  a  late 
Maryland  case,  an  action  upon  a  contract  to  pay  royalties  exe- 
cuted under  seal  by  a  manufacturing  corporation,  the  plaintiff,  for 
the  purpose  of  proving  the  execution  of  the  agreement,  offered  to 
prove  that  all  the  persons  whose  names  were  signed  thereto  were 
stockholders  of  the  company,  and  holders  of  all  the  capital  stock 
thereof ;  that  the  board  of  directors  consisted  of  three,  the  plain- 
tiff, who  was  the  president  of  the  company,  and  two  other  par- 
ties, one  of  whom  was  its  secretary,  treasurer,  and  custodian  of 
its  corporate  seal ;  that  at  a  meeting  of  the  directors  the  contract 
was  signed  by  those  two,  on  behalf  of  the  company ;  that  by 
authority  of  the  board  of  directors  at  this  meeting  the  corporate 
seal  of  the  company  was  there  and  then  affixed  to  the  contract 
by  the  secretary,  and  that  the  impression  of  the  seal  used  on  the 
contract  was  the  corporate  seal  of  the  company,  adopted  and 
used  as  such  by  it  at  that  time ;  that  tlie  directors  usually  held 
their  meetings  for  the  transaction  of  the  ordinary  business  of 
the  company  without  making  or  keeping  any  minutes  of  their 
proceedings;  and  that  no  minutes  of  the  meeting  at  which 
this  contract  was  signed  and  sealed  as  aforesaid  were  made  or 
kept  by  the  company  or  any  of  its  agents  or  officers.  Upon 
objection  the  evidence  was  not  allowed  to  go  the  jury.  The 
Maryland  Court  of  Appeals  lield  the  niling  to  be  erroneous.* 
Miller,  J.,  for  the  court  said  :  "  In  our  opinion  it  was  competent 
for  this  corporation  to  bind  itself  by  this  contract  under  its  cor- 
porate seal,  and  that  the  fact  that  it  did  so  may  be  proved  other- 
wise than  by  a  formal  resolution  in  writing  of  its  board  of  direct- 

Koehler,  35  Mich.  22;  Bank  r.  Kort-  sAllisiJ.  Jones,  (1891)45  Fed.  Rep. 

right,  23  Wend.  348.  148,  150. 

'  Allis  V.  Jones,  (1891)  45  Fed.  Rep.  ^ziiiiman  r.  Cumberland  Glass  Co., 

148,   149,    150;  citing  I.ove  r.  Mining  (1891)  74  Md.  303,  308.  309;  8.  c,  22 

Co.,  32  Cal.  639;  Miller  r.  Railroad  Co.,  Atl.  Rep.  271. 
86  Vt.  452,  and  others. 


808 


FISCAL  MANAGEMENT  —  PRIVATE  CORPORATIONS. 


[§385 


ore  spread  upon  its  minutes.  Sealing  was  the  essential  part  of 
the  execution  of  this  agreement  by  the  corporation,  and  the 
essential  facts  to  be  proved  are  that  the  seal  affixed  to  this  instru- 
ment was  in  fact  the  corporate  seal  of  the  company,  and  that  it 
w^as  duly  and  properly  affixed  thereto.  The  offer  to  prove  this 
by  parol  evidence  is  clear  and  satisfactory.  It  is  that  the  seal 
affixed  was  the  corporate  seal  of  the  company  then  used  and 
adopted  by  it  as  such ;  that  it  was  affixed  in  the  presence  and  by 
the  authority  of  the  full  board  of  directors  by  their  secretary, 
who  was  its  custodian  ;  and  that  it  was  also  signed  by  all  the  then 
stockholders  of  the  corporation,  and  that  it  was  signed  by  the 
[directors  outside  of  plaintiff]  for  and  on  behalf  of  the  company. 
It  is  hardly  possible  to  conceive  of  more  complete  proof  of  the  ^ 
execution  of  a  sealed  instrument  by  a  corporation  than  this,  pro- 
vided such  proof  may  be  made  by  parol  testimony.  We  have 
already  said  in  our  opinion  such  testimony  may  be  used  for  that 
purpose.  The  old  doctrine  that  a  corporation  can  bind  itself  by 
contract  only  by  a  formal  resolution  in  writing,  adopted  by  its 
board  of  directors,  has  long  since  been  repudiated  by  the  modern 
decisions,  both  in  England  and  in  this  country,  and  no  authority 
on  that  subject  need  be  cited.  We  cannot  distinguish  this  case 
from  that  of  Susquelianna  Bridge  &  Bank  Co.  v.  General  Ins. 
Co.,  3  Md.  305,  where  the  execution  of  a  mortgage  by  the  appel- 
lant corporation  was  proved  by  parol  testimony  less  strong  than 
that  embraced  in  this  offer,  and  where  the  mortgage  was  held 
valid  and  binding  upon  the  corporation."  In  an  action  upon  the 
promissory  notes  of  a  corporation  it  has  been  held  in  the  federal 
court  for  the  eastern  district  of  Pennsylvania  that  an  affidavit  of 
defense  that  "  the  notes  sued  on  do  not  purport  on  their  face  to 
have  been  signed  by  two  managers  of  the  defendant  company," 
and  that  "  there  is  no  averment  that  the  persons  who  signed  them 
are  or  were"  such  managers,  was  not  sustained  where  the  notes 
were  signed  by  the  "  chairman  "  and  the  "  treasurer  "  of  the  cor- 
poration, inasmuch  as  the  statute  of  Pennsylvania  provides  that 
the  "  chairman  "  and  the  "  treasurer  "  shall  be  managers.  It  was 
also  held  that  the  defense  that  the  payee  of  the  negotiable  notes, 
which  were  given  in  Pennsylvania,  was  a  foreign  corporation 
which  had  failed  to  comply  with  the  conditions  prescribed 
by  statute  to  entitle  it  to  do  business  in  Pennsylvania,  and  that 
the  contract  under  which  the  notes  were  given  was  in  violation 


§385] 


FISCAL  MANAGEMENT PRIVATE  CORPORATIONS. 


809 


of  that  statute,  was  not  available  against  one  who  paid  vahie  for 
the  notes  before  maturity,  and  had  no  notice  of  the  illegality 
infecting  tliem.^  The  promissory  note  sued  upon  here  recited  in 
the  body  of  it,  "  we  promise  to  pay,"  but  with  nothing  there  to 
indicate  to  whom  "  we"  referred.  It  bore  upon  its  face,  in  the 
usual  place  of  signing,  the  name  "  John  Roach,"  beneath  which 
was  written  "  Treasurer,"  and  had  in  addition  the  impression 
stamped  upon  it  of  a  large  circular  corporate  seal,  around  the 
Tipper  edge  of  which  appeared  in  print,  "  Kew  York  Skating 
Rink  Construction  Company,"  and  in  the  center  of  it,  "  Incor- 
porated 1884,"  so  i^laced  that  the  circumference  passed  through 
the  final  letter  of  "  Roach "  and  the  word  "  Treasurer."  The 
Massachusetts  Supreme  Court  held  that  the  note  was  the  note  of 

the  corporation.^ 

• 

'  City  Bank  of  Hartford  v.  Press  Co.  « Miller  r.  Roach,  (1889)  150  Mass. 
(Limited),  (1893)  56  Fed.  Rep.  260.  As  140.  Knowlton,  J.,  for  the  court, 
to  formalities  of  contracts,  see  Peter-  said:  "  The  case  is  peculiar  in  the  use 
son  «.  Mille  Lacs  Lumber  Co.,  (Minn.)  of  the  corporate  seal.  If  the  words 
52  N.  W.  Rep.  1082;  Ballard  v.  Car-  which  appear  on  the  face  of  the  seal 
michael,  83  Tex.  355;  Shaffer  v.  Hnhn,  had  been  written  in  their  place  on  the 
111  N.  C.  1;  8.  c,  15  8.  E.  Rep.  1033;  note  and  had  been  followed  by  the 
Ruffuer  r.  Coal  Co.,  36  W.  Va.  244;  words,  'John Roach,  Treasurer,' there 
r>anville  Seminary  r.  Mott,  136  111.  would  have  been  no  doubt  that  they 
289;  Cary-Halidy  Lumber  Co.  r.  were  so  written  as  the  signature  of  the 
Cain,  (Miss.)  13  So.  Rep.  239;  Teitig  r.  corporation  appended  by  its  treasurer. 
Boesmau.  12  Mont.  404;  s.  c,  31  Pac.  Draper  c.  Massachusetts  Stearn  Heat- 
Rep.  371.  What  is  a  signature  for  a  ing  Co.,  5  Allen,  338.  That  mode  of 
corporation  and  what  will  bind  it,  see  signing  is  common  among  corpora- 
Dwyer  /-.  Rath  bone,  Sard  &  Co.,  5  N.  tions.  And  if  the  words  had  been 
Y.  Supp.  505;  Davis  v.  Gemmell,  70  affixed  in  print  by  a  stamp  designed  to 
Md.  376;  s.  c,  17  Atl.  Rep.  259;  Salt-  be  used  in  signing  the  corporate 
marsh  v.  Spaulding,  147  IVIass.  224;  name,  and  a  blank  space  had  been  left 
Catlett  V.  Starr.  70  Tex.  485;  Fidelity  in  which  the  treasurer's  name  was  af- 
Ins.,  Trust  &  Safe  Deposit  Co.  r.  terwards  inserted  by  him  in  his  own 
Shenandoah  Valley  R.  Co.,  32  W.  Va.  handwriting,  the  result  would  have 
244;  8.  c,  9  S.  E.  Rep.  180;  First  Nat.  been  the  same.  We  think  it  makes  no 
Bank  v.  Salem  Capital  Flour  Mills  Co.,  difference  that  the  name  of  the  corpo- 
39  Fed.  Rep.  89.  Agents  and  officers  ration  impressed  upon  the  paper  was 
executing  notes.  Gane  r.  Loemo  so  impressed  by  the  corporate  seal, 
Printing  Co.,  46  111.  App.  456;  In  re  which  is  ordinarily  used  in  connection 
Millward-Cliff  Cracker  Co..  161  Pa.  with  a  corpomte  act  of  signing.  We 
St.  157;  8.  c,  28  Atl.  Rep.  1077;  Elwell  are  of  opinion  that  the  paper  should 
«.  Puget  Sound,  etc..  R.  Co.,  7  Wash,  be  treated  as  a  promissory  note  signed 
487;  8.  c,  35  Pac.  Rep.  376;  Edwards  with  the  signature  of  the  corporation 
V.  Carson  Water  Co.,  21  Nev.  469;  s.  affixed  by  its  treasurer,  who,  for  con- 
c,  34  Pac.  Rep.  381.  venience  in  affixing  it,  used  a  stamp, 
102 


810      FISCAL  MANAaEMENT  —  PETVATE  CORPORATIONS.       [§  386,  387 


§  386.  What  would  be  conclusive  of  the  execution  of  a 
contract. —  The  facts  disclosed  in  this  case  showed  a  contract 
made  bj  the  defendant,  a  manufacturing  corporation  of  Illinois, 
with  the  plaintiffs,  who  were  advertising  agents,  for  placing  cer- 
tain advertisements  of  the  corporation.  In  an  action  brouglit 
by  the  advertising  agents  against  the  corporation  it  was  proposed 
to  place  in  evidence  a  letter  from  the  corporation  offering  a  com- 
promise, which  was  rejected.  The  United  States  Circuit  Court 
of  Appeals  for  the  seventh  circuit  held  that  the  rejection  of  the 
testimony  was  error;  that  the  execution  of  the  contract  upon 
which  the  suit  was  based  being  denied  by  the  defendant,  the  let- 
ter offering  to  compromise  the  claim  and  making  an  express 
recognition  of  the  contract,  was  admissible  iu  evidence  as  an 
admission  of  the  execution  of  the  contract.^ 


§  387.  Declaring  dividends. — The  declaring  of  dividends 
must  ordinarily  be  left  to  the  sound  discretion  of  boards  of  direct- 
ors. Whether  a  corporation  can  safely  make  a  dividend  involves 
the  exercise  of  knowledge  and  judgment,  and  the  power  of  decid- 


cxcept  in  that  part  which  contained 
for  vcritication  his  own  name  and 
official  designation."  Sec  Mann  r. 
Chandler,  9  Mass.  335;  Fuller  r. 
Hooper,  3  Gray,  334;  Carpenter  p. 
Farnsworth,  106  Alass.  561;  Chipman 
©.  Foster,  11  &  Mass.  189. 

'  Scofield  d.  Parlin  «fc  Orendorflf  Co., 
(1894)  61  Fed.  Rep.  804.  Woods, 
Circuit  Judge,  said:  "This  letter, 
while  not  admissible  to  prove  the  offer 
of  compromise,  was  admissible  to  show 
an  independent  statement  or  admis- 
sion of  fact  pertinent  to  the  question 
in  issue.  Of  the  authenticity  of  these 
Utters  and  the  contract  transmitted 
with  one  of  them,  the  circumstances 
in  proof,  the  regular  transmission  by 
mail,  the  letter  heads  and  envelopes, 
and  the  contents  of  the  letters  them- 
selves, leave  no  reasonable  doubt. 
They  should  have  gone  to  the  jury, 
and  in  the  absence  of  contrary  evi- 
dence should  have  been  accepted  as 
conclusive  of  the  execution  of  the  con- 
tract by  the  defendant.     The  ruling  of 


the  court  to  the  contrary-,  and  presum- 
ably the  sworn  denial  of  the  execution 
of  the  contract,  proceeded  upon  the 
theory  that  in  order  to  bind  the  cor- 
poration, a  contract  must  be  shown  to 
have  been  executed  or  authorized  by  a 
formal  corporate^  act,  such  as  an  order 
or  resolution  of  a  board  of  directors. 
But  the  business  of  modem  mercantile 
and  manufacturing  corporations  is  not 
always  or  even  generally  conducted  in 
that  way,  but  is  committed  to  agents 
and  managers,  wtiose  powers  are  lim- 
ited practically  only  to  the  lines  of 
business  for  the  prosecution  of  which 
the  corporations  were  formed.  It  fol- 
lows that  correspondence,  conducted 
by  these  agents  and  contracts  made  by 
tltcm  in  the  name  of  the  principal  in 
the  due  and  ordinary  course  of  busi- 
ness, must  be  admissible  in  evidence 
as  if  the  parties  were  natural  persons. 
If  a  document  offered  agjiinst  a  cor- 
poration is  not  genuine,  or  its  execu- 
tion unauthorized,  the  corporation  will 
be  able  in  most  instances  to  show  the 


§388]  FISCAL  MANAGEMENT PRIVATE  CORPORATIONS.  811 


ing  this  question  should  not  be  taken  from  the  directors  and 
assumed  by  the  courts,  unless  it  clearly  appears  that  the  directors 
have  mistaken  their  legal  duties.  To  authorize  the  court  to  inter- 
vene and  decree  a  dividend  it  ought,  in  the  first  place,  to  appear 
clearly  that  there  are  surplus  profits  to  divide,  and  that  such 
profits  can  be  separated  from  the  necessary  working  capital  for 
the  purpose  of  a  dividend,  without  detriment  to  the  interest  of 
the  stockholders  and  the  prosperity  of  the  business  of  the  corpo- 
ration. It  ought  to  appear  that  there  is  no  good  reason  for  with- 
holding a  division  of  the  surplus  earnings  among  the  stockhold- 
ers, and  that  they  are  withheld  from  the  will  or  caprice  of  the 
directors.  If  there  is  reasonable  cause  for  withholding  the  divi- 
dend then  it  ought  not  to  be  decreed.^  When  a  board  of  direct- 
ors, made  up  of  experienced  business  men,  largely  interested  in 
the  welfare  of  the  corporation,  familiar  with  all  its  affairs  and 
influenced  by  no  improper  motive,  declare  that  a  dividend  cannot 
be  made  without  detriment  to  all  concerned,  then  the  court  ought 
to  proceed  with  great  caution  in  declaring  a  dividend,  and  the 
facts  proven  upon  the  trial  ought  clearly  to  justify  such  action.^ 

§  388.  Rules  as  to  declaring:  dividends  by  a  mining  corpo- 
ration.—  It  was  contended  in  a  California  case  that  in  declaring 


fact,  while,  on  the  other  hand,  if  direct 
proof  of  formal  or  overt  corporate 
action  or  authority  were  required  of 
the  opposite  party,  it  would  often  be, 
indeed,  it  would  be,  in  the  power  of  the 
corporation  to  make  it  difficult  or 
impossible." 

*  Hunter  v.  Roberts,  Throp  &  Co.  (a 
Corporation),  83  Mich.  63. 

'  Ibid.  In  which  case  the  so-called 
"  surplus  profits  "  appearing  to  be  tied 
up  in  bills  receivable,  etc.,  from  which 
the  current  expenses,  insurance,  taxes, 
etc.,  were  to  be  obtained,  the  court  con- 
sidered evidence  that  a  sufficient  sum 
could  not  be  got  out  of  it  to  make  any 
considerable  dividend  without  great 
sacrifice,  and  not  then  except  at  the 
necessity  of  driving  the  corporation 
to  add  Jargely  to  its  indebtedness  to 
obtain  money  to  carry  on  its  business 
and  to  pay  its  current  expenses,  and 


held  it  proper  to  refuse  to  decree  a 
dividend.  As  to  power  of  trustees  of 
a  manufacturing  corporation  to  pay 
dividends  in  New  York,  see  People  ex 
rel.  Edison  General  Electric  Co.  v. 
Barker,  (1894)  141  N.  Y.  251.  As  to 
what  may  be  distributed  as  dividends 
on  stock,  see  Gilkey  v.  Paine,  (Me.)  14 
Atl.  Rep.  205.  As  to  raising  money 
by  borrowing  on  bond  and  mortgage 
with  a  view  to  distributing  surplus 
among  stockholders,  see  Coquard  d.  St. 
Louis  Cotton  Compress  Co.,  (Mo.)  7  P. 
W.  Rep.  176.  As  to  dividends,  see  In 
re  James'  Estate,  78  Hun,  121;  s.  c, 
28  N.  Y.  Supp.  992;  Ford  v.  Rubber 
Thread  Co.,  158  Mass.  84;  Southwest- 
ern A.  &  I.  T.  Ry.  Co.  V.  Martin,  57 
Ark.  355.  As  to  dividends  upon  pre- 
ferred stock,  see  McLean  v.  Pittsburgh 
Plate-Glass  Co.,  159  Pa.  St.  112;  s.  c. 
28  Atl.  Rep.  211;  33  W.  N.  C.  459. 


I 


Ilii' 


i 


i 


I 


812 


FISCAL  MANAGEMENT  —  PIUVATE  COKPORATIONS. 


[§3S8 


dividends  the  directors  of  a  mining  corporation  liad  violated  the 
Civil  Code,  section  309,  which  provides  that :  "  The  directors  of 
corporations  must  not  make  dividends,  except  from  the  surplus 
profits  arising  from  the  business  thereof ;  nor  must  they  divide, 
withdraw,  or  pay  to  the  stockholders,  or  any  of  them,  any  part 
of  the  capital  stock.     *     *     *  "     Tlie  contention  was  more  fully 
stated  in  the  opinion  of  the   Supreme  Court,  in  these  words: 
"  That  the  payment  of  the  debts  wliich  the  plaintiff  assumed 
as  part  of  the  price  of  the  property  acquired  from  the  Excelsior 
Water  Company  and  the  Tactolus  Mining  Company,  as  well  as 
most  of  the  items  of  expenditure  for  construction  of  tunnels, 
levees,  ditches,  etc.,  should  be  rated  as  current  expenses  and 
charged  against  its  gross  earnings,  in  order  to  ascertain  the  actual 
surplus  profit  of  its  business ;  while  counsel  for  defendant  con- 
tends, on  the  contrary,  that  the  payments  of  the  principal  of  its 
indebtedness,  and  its  investments  on  wliat  are  called  betterments 
of  its  property,  should  not  be  charged  to  current  expenses  of  the 
business.     As  to  the  payment  of  the  debts  assumed  by  the  plain- 
tiff when  it  commenced  business,  or  that  incurred  in  making 
improvements,  we  do  not  understand  its  counsel  to  contend  that  it 
was  necessary  to  pay  them  off  before  any  dividends  could  be 
declared,  but  merely  that  whenever  any  part  of  its  gross  earnings 
was  applied  to  the  payment  of  a  debt  it  was  unlawful  thereafter 
to  replace  such  sum  with  the  proceeds  of  a  loan,  and  thereupon 
declare  a  dividend.     The  fact  is  not  disclosed  by  the  findings  of 
the  judge  of  the  Supreme  Court,  but  it  seems  to  have  been 
proved  that  in  several  instances  money  was  borrowed  by  the 
plaintiff  in  order  to  pay  dividends,  and  it  seems  to  have  happened 
in  this  way  :     The .  debts  assumed  by  the  plaintiff  became  due 
from  time  to  time,  and  the  permanent  improvements  on  its  prop- 
erty were  made  from  time  to  time,  so  that  large  payments  on 
both  accounts  were  constantly  occurring.     Instead  of  borrowing 
money  to  make  such  payments  at  the  time  of  making  them,  any 
money  that  happened  to  be  on  liand  in  the  company's  treasury 
was  used,  so  far  as  it  would  go,  and  afterwards  replaced  by  the 
proceeds  of  bonds,  overdrafts  or  notes  of  the  company,  which,  to 
the  extent  necessary,  were  used  to  pay  regular  dividends.     It  is 
in  this  course  of  proceeding  that  counsel  claims  that  defendant 
was  clearly  guilty  of  a  violation  of  section  309  of  the  Civil  Code 
irrespective  of  any  difference  of  views  as  to  what  are  and  what 


§  388]         FISCAL  MANAGEMENT  —  PRIVATE  C0BPQKATI0N8.  813 

are  not  current  expenses  justly  chargeable  against  the  gross 
receipts  of  a  mining  corporation  in  order  to  determine  its  net  or 
surplus  earnings  or  profits."  The  court  held  that  the  directors  of 
a  mining  corporation  which  has  become  indebted  either  by 
acquiring  its  property  incumbered  with  debt,  or  by  making  per- 
manent improvements  for  the  thorough  and  systematic  working 
of  the  mines  and  other  property,  would  not  be  guilty  of  an 
infraction  of  section  309  of  the  Civil  Code  of  California  merely 
because  they  declared  and  paid  dividends  out  of  the  net  proceeds 
of  the  mine  without  paying  the  whole  of  such  debts.  It  was  fur- 
ther held  that  if  the  directors  have  fairly  and  honestly  applied 
towards  the  payment  and  extinguislmient  of  the  debts  of  the  com- 
pany, a  share  of  the  net  earnings  satisfactory  to  its  creditors  and 
reasonably  proportioned  to  the  amount  of  its  indebtedness,  the 
extent  and  permanence  of  its  mine,  or  the  rate  at  which  it  is  being 
exhausted,  they  may  properly  and  safely  pay  out  the  remainder 
in  dividends,  because  such  remainders  may  in  such  cases  be  justly 
regarded  and  treated  as  surplus  profits  of  the  business.^ 


'  Excelsior  Water  &  Mining  Co.  v. 
Pierce,  (1891)  90  CaL  131.  Arguendo, 
the  court  said:  "The  term  'capital 
stock'  has  a  double  meaning,  as  ap- 
plied to  corporations.  In  one  sense  it 
is  the  sum  mentioned  in  the  articles 
of  incorporation  as  the  amount  of  the 
capital  stock;  in  other  words,  it  is  the 
share  capital,  or  nominal  capital,  and 
does  not  necessarily  represent  a  corre- 
sponding amount  of  actual  capital.  In 
case  of  mining  corporations  it  is  always 
arbitrary  and  generally  extravagant  in 
amount.  The  capital  stock  referred 
to  in  the  statute,  however,  is  the  actual 
property  of  thetcorporation  contributed 
by  the  shareholders  of  the  nominal 
capital.  In  this  case  the  nominal  or 
share  capital  of  the  plaintiff  was 
$5,000,000.  Its  actual  capital  was  its 
mining  and  other  property  (less  the 
debt  with  which  it  was  incumbered) 
received  in  exchange  for  the  shares 
which  it  issued,  and  this  actual  capital 
was  what  it  was  forbidden  to  divide. 
This  inhibition,  however,  did  not  ex- 
tend to  the  net  proceeds  of  its  mining 


operations,  for  a  mining  corporation, 
like  any  other  corporation  organized 
for  the  purpose  of  utilizing  a  wasting 
property,  a  property  that  can  be  used 
only  by  consuming  it,  as  a  mine,  a 
lease  or  a  patent,  is  not  deemed  to 
have  divided  its  capital  merely  because 
it  has  distributed  the  net  proceeds  of 
its  mining  operations,  although  the 
necessary  result  is  that  so  much  has 
been  subtracted  from  the  substance 
of  its  estate.  Moraw.  on  Corporations, 
§  442;  Lee  v.  Neuchatel  Asphalte  Co., 
L.  R..  41  Ch.  Div.  24.  It  may  dis- 
tribute its  net  earnings,  although  the 
value  of  its  mine  is  thereby  dimin- 
ished. But  it  may  not  sell  the  mine, 
or  any  part  of  it,  and  distribute  the 
proceeds.  In  this  sense,  and  in  this 
sense  only,  provisions  of  law  similar 
to  those  of  section  309  of  our  Civil  Code 
have  been  held  to  apply  to  mining  cor- 
porations. If  the  mine  belonging  to 
a  mining  corporation  when  it  com- 
mences operations  is  free  from  debt, 
and  furnished  with  all  necessary  open- 
ings and  appliances  for  its  convenient 


814 


FISCAL  MANAGEMENT  —  PRIVATE  CORPORATIONS.         [§  389 


§390] 


FISCAL  MANAGEMENT PRIVATE  CORPORATIONS. 


815 


m 

ll 


t 


I 


ijlfi    I 


§  389.  Borrowing  money  to  pay  dividends. —  As  to  the  bor- 
rowing of  money  to  pay  dividends  on  the  part  of  a  mining  cor- 
poration, the  Supreme  Court  of  California  has  said  :  "  We  think 
there  are  circumstances  which  do  justify  it.     A  mining  company 
is  working  its  mines  at  a  profit,  but  discovers  that  they  can  be 
worked  to  better  advantage  by  constructing  a  new  tunnel ;  that 
is  to  say,  it  will  be  wise  economy  to'  incur  an  expense  of,  say  a 
hundred  thousand  dollars  to  construct  such  a  tunnel ;  that  it  will 
in  fact  add  more  than  that  sum  to  tlie  value  of  the  property. 
Clearly,  we  think,  the  corporation  would  be  justiiied  in  incurring 
a  debt  to  that  amount  to  carry  out  the  object,  and  that  it  could 
go  on  declaring  dividends  after  providing  for  the  payment  of  the 
accruing  interest,  and  for  the  gradual  extinction  of  the  principal, 
of  such  debt.     But  suppose,  instead  of  borrowing  in  advance  to 
meet  payments  on  the  tunnel,  it  makes  some  of  the  payments  out ' 
of  the  current  profits  of  its  mining  operations  —  profits  justly 
applicable,  at  its  option,  to  the  payments  of  dividends,  but  not 
presentlv  needed  to  meet  a  declared  dividend.     Afterwards,  it 
borrows  money,  no  more  than  it  might  have  borrowed  originally 


working,  the  problem  of  ascertaining 
the  amount  of  its  surplus  profits  from 
time  to  time  would  be  very  simple, 
and  would  consist  in  merely  deducting 
the  gross  outlay  from  the  gross  re- 
ceipts, and  the  balance,  less  a  reason- 
able reserve  to   meet    contingencies, 
would  be  the  legitimate  subject  of  a 
dividend.    But  when  the  mining  prop- 
erty has  been  taken  subject  to  a  debt, 
or  when,  as  a  preliminary  operation, 
it  becomes  necessary  to  incur  a  debt 
in  running  an    expensive    tunnel  or 
sinking  an  expensive  shaft,  the  prob- 
lem becomes  complicated.     Must  the 
whole  of  such  debts  be  paid  out  of  the 
first  earnings  before  making  a  divi- 
dend, or  must  only  a  part  be  paid? 
and  if  so,  what  part?  We  do  not  think 
it  would  be  necessary  to  pay,  in  the 
first  place,  the  whole  of  such  debts, 
but  it  would  be  necessary  to  pay  ac- 
cruing interest,  and  to  provide  a  sink- 
ing fund  suflScient  to  extinguish  the 
principal   before   the    mine  was   ex- 


hausted.    There  can  be  no  doubt,  we 
think,  that  this  is  a  correct  theory; 
but  in  case  of  a  property  of  such  un- 
certain,   fluctuating    and    precarious 
value  as  a  mine,  it  would  undoubtedly 
be  extremely  difficult  in  most  cases  to 
practically   apply    it.      Fortunately, 
however,  the  rights  of  the  creditors  to 
insist  ui>on  payment  of  their  demands 
as  they  fall  due,  and  the  prudence  of 
capitalists  to  whom  the  company  would 
be  compelled  to  resort  for  loans  with 
which  to  extend  the   payment  of  its 
maturing  indebtodness,  would  always 
furnish  a  due  corrective  for  any  dispo- 
sition of  the  directors  of  a  corporation 
to  provide  an  inadequate  fund  for  the 
extinguishment  of   its    indebtedness, 
and  it  may  be  safely  assumed  that  in 
the  case  supposed,  unless  the  debts  of 
the  corporation  were  paia  at  a  rate 
satisfactory  to  its  creditors,  they  would 
put  a  stop  to  the  payment  ot  dividends 
by  the  meana  within  their  power." 


on  account  of  the  tunnel,  and,  out  of  the  money  so  borrowed, 
replenishes  the  fund  applicable  to  dividends.  In  such  a  case,  the 
result  is  precisely  the  same  as  if  the  money  had  been  borrowed 
sooner,  and  the  identical  money  borrowed  paid  out  on  the  tunnel. 
Nothing  has  been  accomplished  beyond  what  the  directors  had  a 
right  to  do,  and  surely  the  mode  in  which  it  has  been  done  can 
make  no  difference.  In  fact,  the  transaction  may  be  regarded  as 
a  temporary  borrowing  from  the  dividend  fund  of  a  sum  neces- 
sary to  meet  an  immediate  demand,  with  the  advantage  to  the 
corporation  of  keeping  its  money  employed  and  saving  in  the 
payment  of  interest."  ^ 

§  390.  Rescinding  a  declaration  of  dividend. —  A  late  case 
before  the  Supreme  Court  of  Judicature  of  Massachusetts,  it 
having  been  reported  to  that  court  from  a  judgment  of  the  trial 
court  for  their  consideration,  disclosed  the  following  facts :  That 
on  a  certain  date  a  dividend  of  twenty  per  cent  upon  the  capital 
stock  of  a  manufacturing  corporation  was  ordered  to  be  paid  on 
a  day  fixed.  On  the  same  date  the  annual  meeting  of  stock- 
holders occurred  and  a  new  board  of  directors  was  elected,  two 
only  of  the  old  board  being  re-elected.  The  new  board  on  the 
same  day,  by  resolution,  rescinded  tlie  resolution  directing  a  divi- 
dend of  twenty  per  cent  and  declared  a  dividend  of  six  per  cent 
payable  on  the  day  fixed.  It  also  apj)eared  that  no  money  was 
set  aside  or  provided  to  pay  the  dividend  declared  of  twenty  per 
cent,  but  the  company  had  ample  means  and  facilities  for  paying 
it ;  that  always  before  this  time  money  had  been  provided  to  pay 
a  dividend  before  it  was  declared  ;  that  money  to  pay  the  six  per 
cent  dividend  was  provided  after  the  meeting  and  before  it  was  to 
be  paid  by  borrowing,  and  it  was  set  aside  and  deposited  in  bank 
for  the  purpose ;  that  checks  were  sent  to  all  the  stockholders. 


'  Excelsior  Water  «fc  Mining  Co.  r. 
Pierce,  (1891)  90  Cal.  131.  148,  144. 
The  court  cited  Union  Pacific  R.  R. 
Co.  t.  United  States,  99  U.  8.  420; 
Park  r.  Grant  Locomotive  Works,  40 
N.  J.  Eq.  118,  and  Minot  r.  Paine,  99 
Mass.  101;  I*,  c,  96  Am.  Dec.  705,  as 
authority  for  the  proposition  that  the 
apportionment  of  net  earnings  to  the 
payment  of  cash  dividends,  stock  divi- 
dends, increase  of  capital,  reserve  or 


contingent  fund,  or  to  provide  for 
future  obligations,  is  largely  one  of 
policy,  intrusted  to  the  discretion  of 
the  directors,  which,  when  honestly 
and  intelligently  exercised,  will  not  be 
lightly  overruled.  See,  also,  Stringer's 
Case,  L.  R.,  4  Ch.  App.  49C;  Wil- 
liams V.  Western  Union  Tel.  Co., 
93  N.  Y.  162;  Zellerbach  v.  AUenberg, 
(1893)  99  Cal.  57;  s.  c,  33  Pac.  Rep. 
786. 


81d 


FISCAL  MANAGEMENT  —  PRIVATE  CORPORATIONS. 


[§390 


including  tlie  plaintiff  in  tliis  case,  for  this  six  per  cent  dividend 
by  tlie  treasurer  of  tlie  company ;  that  he  declined  to  accept  the 
check  and  returned  it  to  the  treasurer.  The  twenty  per  cent 
dividend  had  heen  paid  to  no  stockholder,  and  a  majority  of 
stockholders  liad  accepted  the  six  per  cent  dividend.  The  plain- 
tiff, after  demanding  the  payment  of  the  twenty  per  cent  divi- 
dend, which  was  refused,  brought  this  action  upon  contract  for 
money  had  and  received  to  recover  tlie  same  from  the  corpora- 
tion. The  trial  judge  declined  to  rule  as  requested  by  the 
corporation,  that  the  directors  elected  at  the  annual  meeting  of 
stockholders  had  a  right  on  that  day  to  rescind  the  vote  whereby 
the  twenty  per  cent  dividend  was  declared  payable  at  a  future 
day,  and  that  the  plaintiff  could  not  recover,  and  ordered  judg- 
ment for  the  plaintiff.  The  Supreme  Court  reversed  this 
judgment.^ 


'Ford  ».  Easthampton  Rubber 
Thread  Co.,  (1893)  158  Mass.  84.  The 
reasoning  of  Field,  Ch.  J.,  speaking 
for  the  court  in  support  of  this  judg- 
ment was  as  follows  :  "It  seems  to  be 
settled  that,  when  a  dividend  has  been 
fully  declared,  the  corporation  thereby 
manifests  its  intention  that  the  amount 
of  the  dividend  should  be  considered 
as  having  been  separated  from  the 
other  property  of  the  corporation,  and 
as  having  become  the  individual 
property  of  the  stockholders,  and  that, 
therefore,  when  the  dividend  becomes 
payable  according  to  the  terms  of  the 
vote  declaring  it,  each  stockholder  has 
a  right  to  demand  payment  of  the 
proportional  part  of  the  dividend 
which  belongs  to  his  shares  of  stock, 
and  to  sue  the  corporation  for  it,  if  it 
is  not  paid  on  demand.  In  some  cases 
money  or  other  property  equal  to  the 
whole  amount  of  the  dividend  de- 
clared has  been  specifically  set  apart 
as  a  fund  appropriated  to  the  payment 
of  the  dividend,  and  the  stockholders 
have  been  regarded  as  the  cestuis  que 
trust  of  this  fund,  each  entitled  to  his 
share.  In  other  cases  the  corporation 
has  credited  the  stockholders  with  the 


amount  of  their  shares  of  the  divi- 
dend, and  the  stockholders  have  as- 
sented to  this,  and  the  amount  so 
credited  has  been  regarded  as  a  debt 
of  the  corporation  to  the  stockholders; 
or  the  corporation  has  paid  to  some  of 
the  stockholders  their  shares  of  the 
dividend,  and  has  refused  to  pay  any- 
thing to  the  others,  and  it  has  been 
held  that  the  corporation  must  pay  all 
alike.  See  Beers  v.  Bridgeport  Spring 
Co.,  43  Conn.  17;  State  v.  Baltimore 
&  Ohio  Railroad,  6  Gill,  363;  I^ng  v. 
Paterson    &  Hudson  River   Railroad, 

5  Dutch.  504;  Jermain  v.   Lake   Shore 

6  Michigan  Southern  Railway,  91  N. 
Y.  483;  Hopper  v.  Sage,  112  N.  Y. 
530;  Jackson  v.  Newark  Plankroad 
Co.,  2  Vroom,  277;  Wheeler  v.  North- 
western Sleigh  Co.,  39  Fed.  Rep.  347. 
When  a  dividend  has  been  declared 
payable  at  a  definite  future  time,  but 
no  fund  has  been  set  apart  for  the 
payment  of  the  dividend,  and  the  cor- 
poration meanwhile  becomes  insol- 
vent, whether  the  stockholders  to  the 
extent  of  their  proportions  of  the 
dividend  should  share  ratably  with 
the  creditors  of  the  corporation  in  its 
property  has  not,  so  far  as  we  know, 


§391] 


FISCAL  MANAGEMENT  —  PRIVATE  CORPORATIONS. 


817 


§  391.  Contracts  within  and  outside  the  power  of  private 
corporations. —  It  is  not  ultra  vires  a  mining  corporation  to 
contract  to  advance  a  specified  sum  of  money  for  tlie  construction 


been  recently  considered,  but  the  de- 
cision in  Lowene«,  American  Ins.  Co., 
6  Paige,  482,  is  that  they  should. 
The  setting  apart  of  a  fund  to  pay  a 
dividend  has  been  held  to  give  a  Hen 
upon  it  to  the  stockholders,  which 
they  can  enforce  to  the  exclusion  of 
the  general  creditors  of  the  corpora- 
tion. In  re  LeBlanc,  14  Hun,  8,  and 
75  N.  Y.  598;  LeRoy  ^.  Globe  Ins.  Co., 
2  Edw.  Ch.  657.  The  English  Com- 
panies Act,  1862  (25  &  26  Vict.  chap. 
89  §  38,  cl.  7),  provides  that  'no 
sum  due  to  any  member  of  a  com- 
pany, in  his  character  of  a  member, 
by  way  of  dividends,  profits  or  other- 
wise shall  be  deemed  to  be  a  debt  of 
the  company,  payable  to  such  mem- 
ber in  a  case  of  competition  between 
himself  and  any  other  creditor  not 
being  a  member  of  the  company;  but 
any  such  sum  may  be  taken  into  ac- 
count, for  the  purposes  of  the  final 
adjustment  of  the  rights  of  the 
contributories  amongst  themselves.' 
Upon  these  questions,  however, 
we  desire  to  express  no  opinion. 
It  has  been  argued  that  there  is  no 
consideration  for  the  promise  of  a  cor- 
poration to  pay  a  dividend  to  its  stock- 
holders, but  we  think  that  the  doctrine 
of  consideration  applicable  to  a  simple 
contract  between  persons  having  no 
fiduciary  relations  to  each  other  is  not 
applicable  to  such  promise.  It  is  the 
object  of  a  private  business  corpora- 
tion to  make  money  for  its  stockhold- 
ers, and  under  our  laws  it  is  ordinarily 
the  duty  of  the  directors,  from  time  to 
time,  to  declare  dividends  out  of  the 
net  earnings,  if  there  are  any,  and  it 
must  be  left  largely  to  the  discretion 
of  the  directors  to  determine  when  and 
for  how  much  such  dividends  should 
be  declared.  The  whole  property  of 
the  corporation  is  held  on  a  sort  of 
103 


trust  for  the  stockholders,  and  the  di- 
rectors are,  in  a  general  sense,  the 
managers,  and  when  a  dividend  is  de- 
clared by  the  directors  the  declaration 
is  a  determination  by  a  body  author- 
ized to  make  it  that  the  amount  of  the 
dividend  should  be  taken  from  the 
property  of  the  corporation  and  paid 
over  to  the  stockholders.  The  cause 
of  action  of  each  stockholder  against 
the  corporation  for  non-payn>ent  of 
the  dividend  does  not  arise  from  any 
actual  contract  between  the  corpora- 
tion and  its  stockholders,  but  from  the 
nature  of  the  organization  and  the  re- 
lation of  the  stockholders  to  the  corpo- 
ration and  its  property.  Unless  the 
rights  of  creditors  intervene,  or  the 
corporation  is  enjoined  from  pay- 
ing the  dividend,  on  the  ground  that 
the  dividend  has  not  been  earned,  or 
on  some  other  ground,  the  amount  of 
the  dividend,  after  it  has  been  declared 
and  has  become  payable,  is  considered 
as  the  property  held  by  the  corporation 
for  the  use  of  the  stockholders  indi- 
vidually, and  the  stockholders  may  re- 
cover their  shares  as  money  or  prop- 
erty had  and  received  to  their  use." 
Upon  the  point  directly  made  here  it 
was  said:  "  We  have  been  able  to 
find  little  or  no  authority  on  the  pre- 
cise question  involved  in  this  case, 
namely,  whether,  after  a  dividend  has 
been  duly  declared  by  a  vote  of  the 
directors,  but  payable  at  a  future  time, 
the  vote  can  be  rescinded  at  a  subse- 
quent meeting  of  the  directors,  held 
before  the  time  at  which  the  dividend 
becomes  payable  according  to  the  vote, 
when  the  fact  that  a  dividend  has  been 
declared  has  not  been  mfide  public  or 
in  any  manner  communicated  to  the 
stockholders,  and  when  no  fund  has 
been  set  apart  for  the  payment  of  the 
dividend.     On  principle,  we  -do  notsee 


818 


FISCAL  MANAGEMENT  —  PEIYATE  CORPORATIONS.         [§  391 


§391] 


FISCAL  MANAGEMENT PRIVATE  CORPORATIONS. 


819 


1 


11 


of  a  tunnel  to  drain  its  mine,  etc.  Sucli  a  contract  comes  within 
the  implied  or  incidental  powers  of  such  a  corporation.*  A  con- 
tract between  two  corporations  for  consolidation,  without  express 


"Why  the  directora  may  not  rescind 
such  a  vote  under  the  circumstances 
stated.  By  the  vote  no  specific  prop- 
erty passed  to  the  stockholders.  If 
the  vote  be  regarded  as  a  declai-ation 
of  trust  in  favor  of  the  stockholders  it 
could  be  revoked  before  it  was  com- 
municated to  them  or  any  property 
was  identified  or  set  aside  for  them. 
Indeed,  cases  may  easily  be  supposed 
of  such  a  chani^re  in  the  a  flairs  of  a 
corporation,  between  the  time  when  a 
dividend  is  declared  and  the  time  when 
it  becomes  payable,  to  make  the  exer- 
cise of  such  a  power  by  the  directors 
useful,  if  not  necessary,  for  the  suc- 
cessful continuance  of  the  business  of 
the  corporation.  It  ap})ears  in  the 
present  case  that  the  meeting  of  the 
new  directors  at  which  the  vote  was 
rescinded  was  held  after  the  annual 
meeting  of  the  st(M*kholders,  but  on 
the  same  day  as  the  meeting  of  the  tli- 
rectors  at  which  tlu-  vote  Avas  passed, 
which  was  held  just  before  the  meet- 
ing of  the  stockholders,  and  that  at  the 
meeting  of  the  stockholders  '  the 
president  did  not,  as  had  for  many 
years  been  the  custom,  announce  that 
any  dividend  had  been  declared  or 
promulgate  the  same  lo  the  stockhold- 
ers.' and  it  does  not  appear  that  any 
of  the  stockholders,  except  the  direct- 
ors, knew  of  the  original  vote,  or  that 
any  of  the  stockholders  had  made  any 
contracts,  incurred  anv  liability  or 
done  anything  relying  on  the  vote. 
It  also  appears  that  no  fund  was  dis- 
tinctly set  apart  for  the  payment  of 
the  dividend  before  the  vote  was  re- 
scinded. As  the  passage  of  the  vote 
did  not  constitute  an  actual  contract 
of  the  corporation  with  its  stockhold- 
ers, but  was  merely  a  mode  of  divid- 
ing the  earnings  of  the  property  of 


the  corporation  among  the  stockhold- 
ers, we  are  of  opinion  that  before  the 
division  had  been  actually  made,  and 
before  the  position  of  the  stockholders 
had  been  changed  in  reliance  on  the 
vote  —  certainly  before  the  passage  of 
the  vote  had  been  made  public  or  com- 
municated to  the  stockholders  —  it  was 
within  the  power  of  the  directors,  at 
a  meeting  subsequent  to  that  at  which 
the  vote  was  passed,  to  rescind  it.  In 
this  action  at  law  we  cannot  supervise 
the  exerci.se  of  this  power  by  the 
directors." 

'  Sutro  Tunnel  Co.  tJ.  Segregated 
Belcher  Mining  Co.,  (1885)  19  Nev. 
121:  s.  c,  7  Pac.  Rep.  271.  ILvwley. 
J.,  lor  the  court,  distinguished  Davis 
r.  Old  Colony  R.  R.  Co.,  131  Mass. 
2.")8,  and  said:  "  It  is  apparent  that  the 
doctrines  announced  in  that  {lecision 
are  not  applicable  to  the  facts  of  this 
case.  There  the  benefits  to  the  corpo- 
rations were  wholly  disconnected,  re- 
mote and  foreign  to  the  business  in 
which  they  were  engaged.  Here  the 
benefit  to  appellant  is  direct.  The 
construction  of  the  lateml  tunnel,  if 
not  absolutely  necessary,  was  certainly 
a  convenient  and  appropriate  means  to 
drain  its  mine  and  enable  it  properly  to 
conduct  and  carry  on  its  legitimate 
business  of  mining  in  a  systematic  and 
scientific  manner.  In  Brice's  Treatise 
on  the  Doctrine  of  Ultra  Vires  it  is  said 
that  *  Corporations  may  transact,  in 
addition  to  their  main  undertaking,  all 
such  subordinate  and  connected  mat- 
ters as  are,  if  not  essential,  at  least 
very  convenient  to  the  due  pro.secution 
of  the  power,'  and  that,  under  many 
circumstances,  '  they  are  in  a  manner 
necessitated  to  engage  in  business 
which  is  not  within  the  mere  letter  of 
their    constitution.'     Green's    Brice's 


legislation  authorizing  it,  would  be  ultra  vires}  The  Tennessee 
Supreme  Court  has  held  the  guaranty  of  eight  per  cent  dividend 
upon  the  stock  of  an  elevator  company,  as  an  inducement  to  sub- 
scription to  the  capital  stock  of  the  latter,  by  a  railroad  corpora- 
tion empowered  by  its  charter  "  to  do  all  lawful  acts  properly 
incident  to  a  corporation  and  necessary  and  proper  to  the  transac- 
tion of  the  business  for  whicli  it  was  incorporated,"  with  a  decla- 
ration in  its  charter  that  it  should  "  possess  such  additional  power 
as  may  be  convenient  for  the  due  and  successful  execution  of  the 
powers  granted  in  their  charter,"  was  beyond  its  power.^  In  pro- 
ceedings to  condemn  land  for  railroad  purposes,  where  it  appeared 
that  one  of  the  subscribers  to  the  capital  stock  of  the  petitioning 


Ultra  Vires,  89.  In  applying  these 
principles  the  courts  have  held  that  a 
corporation  created  for  the  purpose  of 
mining  and  transportation  of  coal  had 
the  power  to  purchase  and  use  a  steam- 
boat for  the  purpose  of  carrying  its 
coal  to  market  (Callaway  M.  &  M.  Co. 
T>.  Clark,  32  Iklo.  305);  that  a  corpora- 
tion created  for  the  purpose  of  raising 
and  smelting  lead  ore  had  power  to 
purchase  smelting  works  and  assume  a 
a  contract  entered  into  by  their  vend- 
ors providing  means  for  the  transpor- 
tation of  their  ores,  when  smelted,  to 
market  (Moss  v.  Averell,  ION.  Y.  455); 
that  a  corporation  created  for  the  pur- 
pose of  carrying  on  an  iron  furnace  is 
authorized  to  carry  on  a  supply  store 
in  connection  with  that  business  (Sea- 
right  V.  Payne,  6  Lea.  ,[Tenn.]  283);  that 
railroad  corporations  have  the  right  to 
own  and  control  steamboats  for  the 
purpose  of  transporting  their  freight 
and  passengers  across  navigable  waters 
on  the  line  of  their  routes,  and  also  at 
the  end  of  their  roads,  separating 
them  from  the  substantial  termini  of 
their  routes  (Wheeler  v.  San  Francisco 
&  A.  R.  Co.,  31  Cal.  65);  that  where 
power  is  given  to  a  railroad  corpora- 
tion to  transport  persons  and  property 
beyond  the  termini  of  its  road,  it  has 
authority  to  purchase  and  use  a  steam- 
boat for  that  purpose  (Shawmut  Bank 
u.  Plattsburg  &  M.  R.  Co.,  31  Vt.  496); 


that  a  railroad  corporation,  authorized 
to  carry  passengers  and  transport 
freight  beyond  its  own  lines,  and  to 
run  steamboats  for  that  purpose,  may 
hire,  either  by  the  trip  or  by  the  season, 
steamboats  belonging  to  others,  or  em- 
ploy such  steamboats  to  carry  passen- 
gers and  freight  in  connection  with  its 
own  railroad  and  business,  and  guar- 
antee to  the  proprietors  that  their  gross 
earnings  for  the  season  shall  not  fall 
below  a  certain  sum.  Green  Bay  &  M. 
R.  Co.  V.  Union  Steamboat  Co.,  107  U. 
8.  101.  These  and  numerous  other 
kindred  cases  proceed  upon  the  theory 
that  if  the  contract  of  the  corporation 
is  reasonably  confined  and  connected 
with  the  business  in  which  the  corpo- 
ration is  engaged  it  comes  within  its 
implied  or  incidental  powers.  '  Cor- 
porations may  so  far  develop  and  ex- 
tend their  operations  as  to  engage  in 
matters  not  primarily  contemplated  by 
their  founders,  provided  these  matters 
come  fairly  within  their  scope,  and 
provided,  also,  that  in  so  developing 
and  extending  their  undertaking  they 
employ  direct  and  not  indirect  means.' 
Green's  Brice's  Ultra  Vires,  90." 

'  Home  Friendly  Society  v.  Tyler, 
(1890)  9  Pa.  Co.  Ct.  Rep.  617. 

*  Memphis  Grain  &  Elevator  Co.  v. 
Memphis  &  Charleston  R.  R.  Co., 
(1887,  Tenn.)  5  S.  W.  Rep.  52. 


820 


FISCAL  MANAGEMENT  —  PRIVATE  CORPORATIONS. 


[§392 


corj)oration  was  a  corporation,  and  tliat  ita  eubscription  was  essen- 
tial to  make  up  the  required  amount,  the  Kew  York  Court  of 
Appeals  held  that,  in  the  absence  ot  any  proof,  it  would  not  be 
presumed  against  the  act  of  the  corporation,  and  its  payment  of 
the  percentage  required  that  it  acted  beyond  its  powers.*  Whether 
or  not  the  purchase  of  real  property  in  another  state  by  a  Ver- 
mont corporation  was  within  its  corporate  powers,  tlie  Supreme 
Court  of  that  state  held  it  should  account  for  the  actual  value  of 
what  it  received.^  Lending  money  by  a  trading  corporation  to 
one  dealing  with  it  to  enable  him  to  carry  on  the  transactions  is 
not  idtra  vires  on  the  part  of  the  corporation.^ 

§  392.  Rules  as  to  estoppel  to  plead  that  contracts  are 
ultra  vires. —  A  corporation  giving  its  note  for  the  price  of  stock 
of  another  corporation  cannot  defend  in  a  suit  upon  it  on  the 
ground  that  the  corporation  taking  the  note  had  no  right  to 


'In  the  Matter  of,  etc.,  Rochester, 
Hornellsville  &  Lackawanna  R.  R.  Co., 
(1888)  110  N.  Y.  119;  8.  c,  17  N.  E. 
Rep.  678. 

'Moore  r.  Swanton  Tanning  Co., 
(1888)  60  Vt.  459;  s.  c,  15  Atl.  Rep. 
114.  In  Mallory  v.  Hanaur  Oil 
Works,  (1888)  2  Pickle,  (Tenn.)598;  s. 
c,  8  8.  W.  Rep.  396,  an  agreement  be- 
tween two  corporations  engaged  in 
manufacturing  the  same  article,  to  se- 
lect a  committee  composed  of  repre- 
sentatives of  each  corporation,  and  to 
turn  over  to  this  committee  the  prop- 
erties and  machinery  of  each  corpora- 
tion, to  be  managed  and  operated  for 
the  common  benefit  —  the  profits  and 
losses  to  be  shared  in  agreed  propor- 
tions —  was  held  to  be  but  a  contract  of 
partnership,  and  that  the  contract  was 
not  within  the  express  or  implied  pow- 
ers of  corporations  organized  under  the 
TcMinessee  Incorporation  Act  of  1875 
(Chap.  142),  and  was  ultra  vires  and 
void  so  far  as  it  was  unexecuted,  even 
though  authorized  by  both  sharehold- 
ers and  directors.  This  contract  was 
entered  into  for  three  years;  two  years 
had  expired.  The  court  held  it  un- 
executed as  to  the  three  years  in  the 
sense  that  it  might  be  repudiated  as 


ultra  rires,  and  the  property  delivered 
at  once  recovered  by  the  corporations, 
citing  as  authority  Thomas  v.  Railroad 
Co.,  101  U.  8.  71.  For  a  transj\ction 
on  the  part  of  a  corpomtion  which  was 
held  not  to  be  within  the  prohibition 
of  the  Code  of  West  Virginia  forbid- 
ding one  corporation  to  subscribe  for 
or  purchase  stocks,  bonds  or  securities 
of  another,  see  County  Court  of  Tay- 
lor County  V.  Baltimore  &  Ohio  R.  R. 
Co.,  (1888)  35  Fed.  Rep.  161.  When  a 
corporation  for  brewing  cannot  be- 
come a  surety,  see  Filon  v.  Miller 
Brewing  Co..  (1891)  60  Hun,  582;  s.  c, 
15  N.  Y.  Supp.  57. 

'Holmes,  Booth  &  Haydens  v.  Wil- 
lard,  (1891)  53  Hun,  629;  8.  c,  5  N.  Y. 
Supp.  610;  affirmed  in  125  N.  Y.  75; 
8.  c,  25  N.  E.  Rep.  1083.  Illustra- 
tions of  an  ultra  vires  contract: 
Simmons  r.  Trjy  Iron  Works,  (1891) 
92  Ala.  427;  s.  c,  9  So.  Rep.  160; 
Shaw  p.  Campbell  Turnpike  Road  Co., 
(1891,  Ky.)15S.W.Rep.245;  Tennessee 
River  Transportation  Co.i?.  Kavanaugh 
(1891)93  Ala.  324;  s.  c,  9  So.  Rep.  395. 
Illustration  of  when  a  contract  i» 
executory  and  the  defense  of  ultra 
virea  may  be  made:  Bowman  Dairy 
Co.   V.  Mooney,    41   Mo.    App.    665. 


§  392]         FI8CAX  MANAGEMENT  —  PRIVATE  CORPORATIONS.  821 

acquire  title  to  the  stock.*  The  receipt  of  goods  purchased  for  a 
business  outside  of  that  authorized  by  the  charter  of  a  corpora- 
tion will  not  estop  the  corporation  from  the  defense  that  it  was 
uU?'a  vires  in  an  action  to  recover  the  price.'*  In  a  case  before  the 
Court  of  Errors  and  Appeals  of  Xew  Jersey  it  appeared  that  a 


» Holmes  &  Griggs  Manufacturing 
Co.  V,  Holmes  &  Wessell  Metal  Co., 

(1889)  53  Hun,  52;  s.c,  5  N.  Y.  Supp. 
937;  affirmed  in  127  N.  Y.  252;  s.  c, 
27  N.  B.  Rep.  831. 

'Chewacra  Lime  Works  v.  Dis- 
mukes,  (1889)  87  Ala.  344;  s.  c,  6 
So.  Rep.  122.  As  to  estoppel  of  corpo- 
ration by  reception  of  benefits  to  com- 
plain of  a  contract  as  ultra  vires,  see 
Sherman  Center  Town  Co.  v.  Morris, 

(1890)  43  Kans.  282;  s.  c,  23  Pac.  Rep. 
569;  Sherman  Center  Town  Co.  v. 
Russell,  (1891)  46  Kans.  382;  s.  c,  26 
Pac.  Rep.  715;  Cunningham  v.  Mas- 
sena  Springs  &  Ft.  C.  R.  Co.,  (1892) 
63  Hun,  439;  s.  c,  18  N.  Y.  Supp. 
600;  Rio  Grande  C'attle  Co.  v.  Burns, 
(1892)  82  Tex.  50;  s.  c,  17  S.  W.  Rep. 
1043;  McNab  r.  McNab  &  Harlin 
Munufg.  Co.,  62  Hun,  18;  8.  c,  16 
N.  Y.  Supp.  448;  Dewey  v.  Toledo, 
A.  A.  &  N.  M.  Ry.  Co.,  (1891)  91 
Mich.  351;  8.  c,  51  N.  W.  Rep.  1063; 
Campbell  r.  Argenta  Gold  &  Silver 
Mining  Co..  (1891)  51  Fed.  Rep.  1; 
Bond  V.  Terrell  Cotton  &  Woolen 
Manufg.  Co.,  (1891)  82  Tex.  309;  s.  c, 
18  S.  W.  Rep.  691.  Estoppel  to  plead 
ultra  vires :  Manchester  &  L.  Railroad 
«.  Concord  Railroad,  (N.  H.  1891)  20 
Atl.  Rep.  383;  Witter  r.  Grand  Rapids 
Flouring  Mill  Co.,  (1891)  78  Wis.  543; 
8.  c,  47  N.  W.  Rep.  720;  Sherman 
Center  Town  Co.  ».  Fletcher  (1891)  46 
Kans.  524;  8.  c,  26  Pac.  Rep.  951; 
Heims  Brewing  Co.  v.  Flannery,  (1891) 
137  111.  309;  s.  c,  27  N.  E.  Rep.  286; 
First  Nat.  Bank  r.  Strang.  (111.  1891) 
27  N.  E.  Rep.  903;  Columbia  Electric 
Co.  V.  Dixon,  (1891)  46  Minn.  463;  s.  c, 
49  N.  W.  Rep.  244.  When  a  secured 
creditor  cannot  object  that  a  mortgage 
for  a  sum  in  excess  of  the  indebted- 


ness allowed  by  the  charter  of  a  cor- 
poration was  ultra  vires  and  invalid: 
Allis  V.  Jones,  (1890)  45  Fed.  Rep.  148. 
When  a  corporation  cannot  object  that 
a  purchase  of  a  certain  franchise  by  it 
"was    ultra   vires :    Starin  v.     Edson, 
(1889)  112  N.  Y.  206;  s.  c,  19  N.  E. 
Rep.  670.     Objection  that  a  contract 
was   ultra   vires   open   only    to    the 
state    or    a    stockliolder:    Baker   v. 
Northwestern    Guaranty    Loan    Co., 
(1883)  36  Minn.  185;    8.  c,  30  N.  W. 
Rep.  464.     As  to  the  rule  that  munici- 
pal corporations    are    not    estopped 
to    deny    the    validity    of    contracts 
ultra  vires    made    by    their    officers, 
see  Newbery  v.  Fox,  (1887)  37  Minn. 
141;  s.  c.  33  N.  W.  Rep.  333;  Mayor 
V.  Ray,  19  Wall.  468;  Brady  v.  Mayor, 
etc.,   of  New   York,   20  N.   Y.   312; 
Hague  V.   City  of    Philadelphia,    48 
Pa.    St.    527;    Nash    v.  City    of  St. 
Paul,   8  Minn.  172.     That  contracts 
ultra  vires  on  the  part  of  a  munici- 
pal corporation  cannot  be  legalized 
by  any  action  on  its  part  in  the  way  of 
acknowledgment,  ratification  or  other- 
wise, see  Lyddy  v.  Long  Island  City, 
(1887)  104  N.  Y.  218;  s.  c,  10  N.   E. 
Rep.  155.     As  to  enjoining  in  behalf 
of  stockholders,  as  ultra  vires,  the  pur- 
chase of  another  railroad  by  a  railroad 
corporation,  see  Mackintosh  v.  Flint  & 
Pere  Marquette  R.  R.  Co.,  (1888)  34 
Fed.  Rep.   582.     Estoppel  of  stock- 
holders to  complain  that  debt  incurred 
was  in  excess  of  the  limit  of  indebted- 
ness fixed  in  charter:     Poole  v.  West 
Point  Batter  &  Cheese  Assn.,  (1887) 
30  Fed.  Rep.  513.     That  one  who  has 
received  the  benefits  of  a  contract  is 
not  in  position  to  raise  the  question 
that  the  contract  on  the  part  of  the 
corporation  was  ultra  vires,  see  Dia- 


822 


FISCAL  MANAGEMENT  —  PRIVATE  CORPORATIONS.        [§  392 


railroad  corporation  Lad  entered  into  a  contract  with  another  that 
the  latter  would  build  a  line  of  railroad  which  was  authorized  by 
its  charter;  that  the  former  would  guarantee  the  bonds  of  the 
latter  to  cover  the  cost  of  construction  of  the  road,  and  would 
take  a  lease  for  1)99  years  of  the  road  from  the  latter, 
for  which  it  would  pay  so  much  rental  per  annum;  that 
the  road  w^as  built,  the  bonds  guaranteed,  the  lessee  went 
into  possession  of  the  road  under  the  lease,  complied  with  its 
terms  for  nine  years,  and  then  sought  to  repudiate  the  contract  as 
one  which  was  ultra  vires  on  its  part.  The  court  held  that  under 
the  statement  of  facts  it  was  an  executed  contract,  and  that  the  cor- 
poration must  be  held  to  tlie  performance  of  its  part  of  the  contract, 
the  other  having  performed  its  side  of  the  same,  and  the  plea  of 
ultra  vires  was  not  available  for  avoiding  a  specific  performance.* 


mond  Match  Co.  v.  Rocber,  (1887)  106 
N  Y.  473;  s.  c.  13  N.  E.  Rep.  419. 
When  one  contracting  with  a  corpora- 
tion cannot  set  up  as  a  defense  to  a 
suit  upon  such  contract  that  it  was 
ultra  tires  on  the  part  of  the  corpora- 
tion, see  Slater  Woolen  Co.  r.  Lamb, 
(1887)  143  Mass.  420;  s.  c.  9  N.  E. 
Rep.  833.  Estoppel  of  one  receiving 
benefits  to  plead  lack  of  power  on  the 
part  of  the  corporation:  Watts- Camp- 
bell Co.  t.  Yuengiing,  (1889)  51  Hun, 
303;  8.  c,  3  N.  Y.  Supp.  869. 

'Camden  &  Atlantic  R.  R.  Co.  t. 
May's  Landing  «fe  Egg  Harbor  City 
R.  R.  Co..  (1886)  48  N.  J.  Law,  530; 
8.  c,  7  Atl.  Rep.  523.  Van  Syckel, 
J.,  speaking  for  the  court,  after  refer- 
ring to  the  numerous  cases,  English 
and  American,  touching  this  question, 
said:  "In  the  conflict  of  judicial  de- 
cision on  this  subject,  this  court  may 
adopt  and  should  adopt  the  rule  which 
will  produce  the  best  results  in  the 
administration  of  justice.  In  my 
judgment  the  true  rule  is  that  when 
the  transaction  is  complete,  and  the 
party  seeking  relief  has  performed  on 
his  part,  the  plea  of  ultra  vires  by  the 
corporation  which  has  acquiesced  in 
it,  is  inadmissible  in  an  action  brought 
against  it  for  not  performing  its  side 
of  the  contract  in  all  those  instances 


where  the  party  who  has  performed 
cannot,  upon  rescission,  be  restored  to 
his  former  status.  In  the  cases  main- 
taining the  contrary  doctrine  the  rea- 
soning of  the  courts  has  been:  1.  That 
corporators  might,  by  ratifying  cor- 
ponite  acts,  by  their  acquiesence,  in- 
finitely extend  and  amplify  their 
granted  powers.  2.  That  consent  on 
the  ]iart  of  those  who  do  an  act  which 
they  have  no  power  to  do  cannot  make 
it  legal.  3.  That  to  hold  that  an  act 
performed  in  executing  a  void  con- 
tract makes  all  its  parts  valid,  is  to 
say  that  the  more  that  is  done  under 
an  unauthorized  contract,  the  stronger 
is  the  claim  to  its  enforcement  by  the 
courts.  To  the  first  objection  a  suf- 
ficient answer  is  that  the  state  may  in- 
terpose its  authority  at  any  time,  and 
compel  an  abandonment  of  the  act  in 
excess  of  power,  and,  if  need  be,  re- 
voke the  charter  of  the  company  for 
its  usurpation.  When  the  state  chal- 
lenges the  legality  of  the  transaction, 
tlie  paramount  and  only  question  is 
whether  it  has  bestowed  upon  the 
company  the  requisito  authority  to 
engage  in  it.  When  the  question 
arises  between  the  company  and  the 
other  party  to  the  contract,  other  legal 
principles  apply  in  determining 
whether   the   contract   shall    be   ob- 


§  392]        FISCAL  MANAGEMENT PKIVATE  CORPORATIONS.  823 

served.      It    will    be   admitted    that   able,  and  arc  pei-mitted  to  stand  as  the 
where  there  is  an  absence  of  authority    foundation  of  rights  acquired  under 
on  the  part  of  a  corporation  to  do  an   them  after  they  have  been  executed  on 
act  the  requisite  power  cannot  be  im-    both  sides?    Such  execution  imparts 
ported  into  the  transaction,  either  by    no  additional  powers  to  the  corporate 
the  consent  of  stockholders  or  by  the   body.     It  does  not  transmute  the  nega- 
execution  of  the  contract  by  the  other   tive  into  the  positive.     The  absence  of 
party  to  the  agreement.  .  The  contract    power  is  as  apparent  after  as  before 
must  necessarily  continue  to  be  ultra   performance.     Why  is  it  that  corpora- 
mres.    No  such  effect  has  been  attrib-   tions  are  compelled    to    pay  money 
uted  in  any  of  the  cases  to  acquics-    borrowed  in  excess  of  authority,  and 
cence  or  unilateral  performance.    The    to  pay  the  stipulated  rent  for  premises 
basis  upon  which  the  enforcement  of   unlawfully  leased   for  the  period  of 
the  contract  in  such  cases  rests  is  that   occupation?    The  law  does  not  imply 
the  company  is  estopped  from  setting   a  contract  to  pay  the  bondholders  the 
up  its  own  unauthorized  act,  and  its   money  they  received.     It  is  illogical  to 
own  incapacity  to  evade  performance   say  that  the  law  will  imply  a  contract 
on  its  part,  after  receiving  the  fruits   by  the  company  which  it  has  no  power 
of  the  bargain.      The  power  of  the   to  make  for  itself.     A  contract  cannot 
company  is  not  amplified,  the  agree-    be  implied  where  an  express  contract 
ment  is  none  the  more  legal,  in  the  sense   cannot  be  made.     The  law  recognizes 
thatthere  was  authority  to  execute  it;    the  obligation;  it  precludes  or  estops 
the  court  simply  refuses  to  entertain  the   the  attempt  to  evade  it.     Apply  to  it 
defense  which  common  honesty  for-    what  legal  phrase  you  may,  the  under- 
bids the  company  to  make.   A  man  may    lying  principle  is  that  the  corporation 
become  bound  by  the  act  of  an  unau-    cannot  set  up  its  own  infirmity  when 
thorized  agent,  and  be  held  liable  to   it  is  unconscionable  to  do  so.     The  law 
the  contract  made  for  him,  not  on  the   forbids  the  defense  on  account  of  the 
ground  that  the  agent  in  fact  had  any    flagrant  injustice  which  would  other- 
authority,  but  for  some  conduct  on  the    wise  be  done.     The  question  of  corpo- 
part  of  the  alleged  principal  which   rate  power  is  not  entertained.     To  en- 
precludes  him  from  raising  the  ques-    able    recompense    to  be  had  to  this 
tion  of  authority.     No  reason  is  per-    extent  the  contracts  are  respected,  not 
ceived  why  the  rules  of  fair  dealing,    that  they  rest  in  authority,  but  because 
which  are  so  rigorously   applied    to   good  conscience  requires  it.     *    *    * 
natural  persons,    shall  not  pertain  as    But  acquiescence  in  it,  upon  which 
strictly  to  private  corporations.     No   the  other  party  acts,  may,  and  does, 
instance  is  known  where  a  natural  per-    upon  settled  legal  principles,  preclude 
son  can  set  up  in  his  own  behalf,  and    the  parties  from  starting  the  question 
for  his  own  advantage,  his  want  of   of    power    as     between    themselves, 
authority  to  do  an  act  for  which  he  has   There  is,  in  fact,  a  subsisting  contract, 
received    the    consideration  from  the   actually   executed   in  due   and   legal 
other  party.     Transactions  which  are    form,  wh'ch,  under  the  rule  stated,  is 
immoral,  illegal,  forbidden  by  statute   unimpeachable,  except  at  the  instance 
or  contrary  to  public  policy,  are  not   of  the  state.     It  is  thus,  in  legal  con- 
embraced  in  this  discu.ssion;  they  can-    templation,  impressed  with  the  vigor 
not  furnish  the  basis  for  a  legal  cause   and  incidents  of  a   valid   contract  as 
of  action.     Why  is  it  that  wi^m  w><'«   between  the  parties,  and  there  is  no  dif- 
rontracts  are  recognized  as  unassail-   ficulty  in  enforcing  it  in  a  suit  of  law." 

As  to  "Fiscal  Management  —  Private  Corporations,"  see  further,  chapter  4, 
"Power  of  Agents  and  Oflicers  —  Private  Corporations." 


1 


CHAPTER  XYIII. 


COUNTY  BONDS. 


' 


§  393.  County  bonds  generally. 
394.  Bonds  issued  for  refunding  in- 
debtedness. 

895.  Bonds  not  within  the  power  of  a 

Texas  county  to  issue  for  the 
erection  of  court  houses. 

896.  Rights  of  holders  of  such  bonds, 

897.  The  effect  of  a  statute  of  Texas 

as  to  county  bonds  in  which 
school  funds  may  be  invested. 

898.  Validity  of  bonds  as  affected  by 

the  place  of  execution. 

899.  Validity  of  bonds  as  affected  by 

constitutional   requirements. 

400.  Validity  of  bonds  as  affected  by 

limitations  as  to  indebted- 
ness. 

401.  The    validity    of     judgments 

against  a  county  for  which 
the  bonds  were  issued  cannot 
be  questioned  in  actions  on 
the  bonds. 


§  402.  The  statements  of  a  county's 
agent  in  sale  of  the  bonds  not 
operative  as  an  estoppel  upon 
the  county  to  refund. 

403.  When  a  county  may  plead  an 

overissue. 

404.  When  the  defense  that  a  county 

was  not  fully  organized  when 
the  bonds  were  issued  is  not 
open  to  the  courts. 

405.  Counties     suable     in     federal 

courts. 

406.  Plea  of  Statute  of  Limitations 

on  county  bonds. 

407.  When   statute  as  to  presenta- 

tion of  claims  is  not  applicable 
to  judgments  upon  bonds 
and  coupons. 

408.  The     proper     proceeding     of 

courts  where  some  of  the 
bonds  of  a  series  are  valid 
and  others  invalid. 


§  393-  County  bonds  generally.—  The  power  of  counties  to 
issue  bonds  is  not  inlierent  or  general.*  When  municipal  bonds 
are  found  in  circulation,  it  will  be  presumed  that  the  legal  steps 
have  been  taken  to  authorize  their  issue.^  Bonds  issued  by 
county  commissioners  for  the  puq^ose  of  constructing  public  build- 
ings must  bear  interest  payable  annually.  If  bonds  were  issued 
for  interest,  payable  in  a  shorter  period,  the  Indiana  Supreme 
Court  held  their  issuance  might  be  enjoined.  The  statute  authoriz- 
ing them  should  be  strictly  complied  with.''  Municipal  bonds  are 
a  class  of  negotiable  paper.*  The  Illinois  Supreme  Court  has 
held  as  to  these  bonds  that  their  negotiable  character  would  not 
protect  the  purchaser,  before  maturity,  against  the  consequences 

»  Thayer  v.  Montgomery  County,  3       •  Maxcy  r.  Williamson  County,  72 
Dill.  389.     As  to  the  power  to  issue   111.  207. 

bonds,   see  Supervisors  of    Schuyler       ^  English  v.  Smock,  34  Ind.  115. 
County  V.  Farwell,  25  111.  181.  *  Cnllanan  r.  Brown,  31  Iowa,  333: 

Griffith  r.  Burden,  35  Iowa,  138. 


§393] 


COUNTY  BONDS. 


825 


i 


f 


i 


of  a  want  of  authority  to  issue  them  ;  also,  that  the  bonds  having 
been  issued  without  authority  and,  therefore,  void,  the  mere  levy 
of  taxes  and  payment  of  interest  on  them  by  the  county  did  not 
render  them  valid.^  A  county  will  not  be  deprived,  by  its  bonds 
having  passed  by  assignment  into  the  hands  of  bona  fide  holders, 
of  any  defense  which  it  would  have  against  parties  to  whom  the 
bonds  were  issued.^     A  municipal  corporation  will  not  be  bound 


*  Supervisors  of  Marshall  County  ©. 
Cook,  (1865)  38  111.  44.     The  court  dis- 
tinguished certain  cases  relied  upon  as 
contrary  to  its  views  in  these  words: 
'*  In  the  case  of  Mercer  County  v.  Hack- 
ctt,    1    Wall.   83,    it  was   held    that 
slight  and  immaterial  omissions  in  or- 
dering the  bonds  to  issue  will  not  ren- 
der them  invalid  in  the  hands  of  an  in- 
nocent holder.     In  that  case  the  recom- 
mendation was  by  the  grand  jury,  the 
body  authorized  by  law  to  make  it, 
but  they  did  not  make  it  in  the  precise 
language  of  the  law,  but  it  was  sub- 
stantially good.     If  the  recommenda- 
tions had  been  made  by  the  petit  jury 
it  would  have  presented  a  very  differ- 
ent question  and  one  more  like  the  one 
under  consideration  than  the  one  dis- 
cussed in  that  case.     We  do  not  see 
that  the  court  could  have  done  other- 
wise than  decide  as  tliey  did.     It  was 
not  a  question  of  power  to  act,  but 
whether  the  action,  defective  though  it 
might  be,  was  still  in  pursuance  of  the 
power.     It  is  supposed  that  the  case  of 
Gelpcke  o.  City  of  Dubuque,  1  Wall. 
175,  is  in  conflict  with  the  views  here 
expressed.     It  will  be  observed,  how- 
ever, that  so  far  as  the  record  discloses 
in  that  case,  the  law  authorizing  the 
bonds  to  issue  had  been  strictly  ob- 
served in  every  particular  before  they 
were  issued.     A  curative  act  had  been 
passed  by  the  legislature  declaring  the 
bonds  valid  and  binding.     That  case 
does  not,  like  the  present,  depend  upon 
the  power  of  the  body  issuing  them 
to   act,  but  upon  other  and  different 
questions,  the  principal  one  of  which 
was  the  constitutionality  of  the  law. 

104 


Hence,  that  case  and  this  differ  essen- 
tially in  the  questions  presented  and 
discussed.  It  is  true  the  court  use 
broad  and  comprehensive  language. 
They  say:  '  When  a  corporation  has 
the  power,  under  any  circumstances,  to 
issue  negotiable  securities,  the  hona 
fide  holder  has  a  right  to  presume  they 
were  issued  under  the  circumstances 
which  gave  the  requisite  authority, 
and  they  are  no  more  liable  to  be  im- 
peached for  any  infirmity  in  the  hands 
of  such  holder  than  any  other  commer- 
cial paper.  If  there  were  any  irregu- 
larity in  taking  the  votes  of  the  elect- 
ors, or  otherwise,  in  issuing  the  bonds, 
it  is  remedied  by  the  curative  provis- 
ions of  the  act  of  January  28,  1857.' 
The  court,  however,  do  not  intimate 
that  such  instruments,  issued  without 
power,  would  be  protected  in  the  hands 
of  any  kind  of  a  holder.  The  court 
proceed  upon  the  ground  that  the 
persons  issuing  the  bonds  did  so  in  the 
exercise  of  a  power.  And  that  if  there 
was  a  defective  exercise  of  the  power, 
the  irregularity  had  been  cured  by  the 
act  of  the  legisUture.  There  is  no  in- 
timation that  bonds  void  in  their  in- 
ception —  issued  in  direct  violation  of 
law  —  would  be  protected.  Nor  do 
we  believe  that  court  will  so  hold  if 
this  question  should  ever  be  presented 
for  their  determination." 

'  Board  of  Commissioners  of  Madi- 
son County  v.  Brown,  28  Ind.  161.  In 
Melvin  r.  Lisenby,  72  111.  63,  the  county 
was  authorized  to  issue  bonds  by  a  law 
providing  that  the  bonds  should  be  ex- 
ecuted by  certain  officers,  and  counter- 
signed by  the  county  treasurer  of  the 


826 


COUNTY  BONDS. 


[§  3!)3 


bv  an  issue  of  bonds  in  excess  of  the  constitutional  limit  ot 
niunicipal  indebtedness ;  neither  will  it  be  liable  to  pay  back  what 
has  been  received  thereon.'    In  case  bonds  purport  to  have  been 
issued  by  virtue  of  a  certain  order,  named  and  referred  to,  bat 
not  copied  or  described,  those  claimii.g  any  rights  by  virtue  of 
such  bonds  are  chargeable  with  notice  of  the  contents  of  the 
order'    Where  there  are  recitals  in  county  bonds  that  they  were 
issued  in  accordance  with  the  statute  and  authorized  by  a  vote  of 
the  people  made  by  officers  invested  by  the   statute  with  the 
power  of  deciding  whether  these  conditions  have  been  fulfilled  or 
not,  the  bonds  will  not  be  opeu  to  the  defense  of  want  of  consid- 
eration or  of  fraud  on  the  part  of  the  officers,  or  of  non-comph- 
ance  with  the  conditions  precedent  to  the  right  to  exercise  the 
power »    To  provide  a  site  for  a  state  institution  was  held  by  the 
Illinois  Supreme  Conn  not  to  be  a  corporate  purpose,  and  bonds 
issued  by  a  county  for  such  a  purpose  were  held  to  be  void  ;  and 
that  no  matter  in  whose  hands  such  bonds  might  be,  where  a  tax 
had  been  levied  and  collected  for  their  payment,  or  for  the  pay- 
ment of  the  accrued  hiterest  upon  them,  the  county   treasurer 
mi-rht  be  restrained  from  applying  the  money  collected  for  the 
payment  of  the  bonds  or  interest.*     Bonds  issued  by  a  county  in 
Lyment  of  a  judgment,  under  authority  of  statute,  have  been  held 
in  Iowa  to  be  valid  in  the  hands  of  a  purchaser  m  good  faith,  for 
valae,  without  notice  of  any  claim  that  they  were  illegal  for  any 
cause   although  the  indebtedness  for  whicli  the  judgment  was 
rendered  was  in  excess  of  the  constitutional  hm.t  of  indebtedness 
such  defense  not  having  been  interposed  in  the  suit  by  the  board 
of  supervisors  of  the  county.'     It  is  now  well  settled  that  where 
bonds  of   a  county   or  municipality   have   been   issued   under 
authority  of  law,  and  where,  at  the  same  time,  the  law  has  directed 


county. 


coantv     The  court  held  the  omission  •  Carpenter  r.  Bucim  Vista  County, 

of  th^coulTy  treasurer  to  countersign  5  Dill.  556.      The  PH-plc  ti.at  the 

the  bonds  to  be  a  mere  defect  in  the  recital  upon  the  face  of  bond   made  a 

execution  of  them  ^hicU  a  court  of  part  of  the  bonds,  must  show  tl>at  they 

lauitv  would,  in  the  absence  of  a  rem-  were  issued  for  some  authorized  pur- 

r«t  law.  ordinarily  supply,   and  pose  or  object   applied  in  Thayer  .. 

that  an  injunction  restraining  the  col-  Montgomery  County.  3  D  IK  389. 

^tion  of  Lxes  for  the  payment  of  the  •  Board  «f  S^P-"-- «' ^^'"/.f" 

bonds  issued  should  not  be  allowed.  County  ..  We.der,  (18,2)  64  I"-  4-^ 

.  McPherson  ..  Foster,  43  Iowa.  48.  '  Sioux  City  &  St-.P»"1  «■  «'  ^''■ 

t  Lewis  V.  Bourbon  County,  12  Kans.  r.  Osceola  County.  4o  Iowa.  168.  s.  c, 

-gg  again  in  52  Iowa,  26. 


♦i 


1 
1 


\ 


§394] 


COUNTY  BONDS. 


827 


a  tax  to  be  levied  for  their  protection,  or  where  there  is  a  general 
law  antlionzing  and  directing  a  tax  in  all  like  cases,  applicable  to 
said  bonds,  the  law  becomes  a  part  of  the  contract.  The  holder 
is  entitled  to  look  to  the  taxing  provisions  as  a  part  of  his  security, 
and  has  a  vested  right  to  demand,  at  the  proper  time,  that  it  shall 
be  exercised  in  his  favor.  The  measure  of  that  right  will  be  the 
constitutional  limit  of  the  power  which  the  legislature  could  grant 
to  the  municipality  when  the  contract  was  made.  Such  contracts 
are  protected  by  the  Constitution  of  the  United  States,  and  no 
subsequent  act  of  a  state  legislature  or  a  constitutional  convention 
can  impair  them.^ 

§  394.    Bonds    issued    for    refunding    indebtedness.— It 

appeared  in  a  case  before  the  United  States  Circuit  Court  of 
Appeals,  an  action  upon  refunding  bonds  of  a  county  in  Michi- 
gan, that  suits  had  been  brought  upon  the  bonds  originally  issued, 
the  holders  iiad  judgments  against  the  county  for  the  amounts 
due;  that  an  act  of  the  legislature  was  passed  authorizing  the 
county  authorities  to  refund  the  county's  indebtedness  ;  that  the 
county  authorities  did  so,  issuing  tlie  bonds  which  were  the  base 
of  this  action  and  giving  them  in  exchange  for  the  original  bonds 
and  judgments  which  constituted  the  indebtedness,  the  refunding 
of  which  the  act  authorized.  The  court  held  that,  under  the  cir- 
cumstances of  this  case,  the  bonds  issued  to  refund  the  supposed 
indebtedness  of  the  county  were  binding  obligations  upon  the 
county.^ 


>  Brodie     v.     McCabe,     Collector, 
(1878)  33  Ark.  690, 

'  Ashley  v.  Board  of  Supervisors  of 
Presque  Isle  County,  (1893)  60  Fed. 
Rep.  55.  The  court  said:  "Tlie  for- 
mer bonds  were  more  than  colorable 
obligations.  Recoveries  had  been  had  in 
the  United  States  Circuit  Court  against 
the  reorganized  county  upon  some  of 
them,  and  the  validity  of  the  remaining 
ones  was,  to  say  the  least,  a  fair  ques- 
tion for  controversy.  The  county  chose 
not  to  make  further  defense  to  the 
bonds,  and  to  avail  itself  of  the  oppor- 
tunity to  defer  the  payment  of  the  in- 
debtedness and  to  obtain  a  reduction 
of  the  interest  from  ten  to  seven  per 


cent.  It  sought  and  obtained  from  the 
legislature  authority  to  refund  its 
debt.  Jt  procured  the  surrender  of 
the  former  bonds  and  issued  in  their 
stead  and  in  consideration  of  them,  the 
new  bonds.  If  the  legislature  did  not 
assume  the  former  bonds  to  be  valid, 
it  devolved  upon  the  board  of  super- 
visors of  the  county  to  determine  what 
were  valid  obligations  of  the  county 
in  exercising  the  authority  to  issue  the 
new  bonds  conferred  by  the  act,  and 
such  determination  would  bind  the 
county.  In  the  case  of  The  City  of  Ca- 
dillac x\  Woonsocket  Institution,  58 
Fed.  Rep.  935,  bonds  had  been  issued 
under  the  guise  of  a  law  authorizing 


828 


COUNTY  BONDS. 


[§  395 


§396] 


COUNTY  BONDS. 


829 


§  395-  Bonds  not  within  the  power  of  a  Texas  county  to 
issue  for  the  erection  of  court  houses. —  Bonds  issued  by  a 
county  in  Texas  for  the  construction  of  a  building  intended  pri- 
marily for  a  jail,  to  which  use  it  was  to  be  permanently  devoted, 
though  it  was  the  purpose  of  tlie  county  commissioners  to  use  it 
also  as  a  court  house  until  a  court  house  could  be  built,  the 
Supreme  Court  of  that  state  held  were  not  authorized  l)y  the 
laws  of  that  state  providing  for  the  erection  of  court  houses.* 


public  improvements  for  the  actual 
purpose  of  aiding  a  railroad  company. 
The  bonds  were  in  the  hands  of  one 
who  knew  of  the  fraudulent  evasion  of 
the  Constitution  of  the  state,  and  no 
action  could  have  been  maintained 
upon  them  by  him.  But  they  were 
negotiable,  and  might  h^xxe  been  put 
upon  the  market  by  him.  In  this  state 
of  affairs,  the  common  council  of  the 
city,  upon  the  request  of  a  large  num- 
ber of  its  citizens,  and  upon  considera- 
tions deemed  by  the  council  to  justify 
it,  issued  new  bonds  to  take  up  the 
former  ones,  under  the  provisions  of 
the  Michigan  statute  for  refunding 
municipal  indebtedness.  The  new 
bonds  were  exchanged  for  the  old,  and 
passed  into  the  hands  of  bona  fide  hold- 
ers, who  brought  suit  upon  them. 
One  question  involved  in  the  case  was, 
whether  a  buyer  of  the  bonds  —  which 
on  their  face  were  refunding  bonds  — 
was  bound  to  go  back  of  the  issue  of  the 
new  bonds,  which  were  regular  on 
their  face  and  contained  recitals  that 
they  were  issued  in  conformity  with 
law,  and  ascertain  the  nature  of  the 
refunded  indebtedness.  The  refund- 
ing statute  did  not,  in  terms,  declare 
who  should  determine  the  fact  of  pre- 
vious indebtedness.  But,  Judge  LuR- 
TON,  in  delivering  the  opinion  of  the 
court,  said:  'Power  was  conferred 
upon  the  common  council  to  issue  new 
bonds  to  take  up  old  ones  falling  due. 
The  question  as  to  whether  there  were 
any  such  bonds  is  referred  to  the  coun- 
cil. The  old  bonds,  as  the  facts  found. 
were   at   least    colonible  obligations. 


The  council  determined  to  issue  new 
bonds  to  take  them  up.  It  seems  to 
me  that,  under  the  circumstances,  it 
did  not  devolve  upon  the  purchaser  of 
the  new  bonds  to  look  into  the  validity 
of  the  funded  old  bonds.'  Citing  Co- 
loma  r.  Eaves,  92  U.  S.  484 ;  Hackett 
r.  Ottawa,  99  U.  S.  86,  and  Chaffee 
Co.  V.  Potter,  142  U.  S.  355;  s.  c,  12 
Sup.  C^t.  Rep.  216.  In  the  present 
case,  the  force  of  these  suggestions  is 
augmented  by  the  fact  that,  by  ex- 
press provision  of  the  Constitution  of 
Michigan,  boards  of  supervisors  are 
empowered  to  adjust  all  claims  agninst 
their  respective  counties,  and  from 
their  decision  there  is  no  appeal.  This 
jurisdiction  is  not  exclusive,  but,  as 
against  the  county,  any  one  having 
demands  against  it  could  obtain  from 
the  board  a  conclusive  determination 
upon  them.  To  require  the  purchaser 
of  refunding  bonds  to  scrutinize  the 
sucessive  issues  in  which  the  debt  has 
been  refunded  to  its  root,  would  seri- 
ously impair  the  market  value  of  the 
bonds,  or  otherwise  work  injuriously 
to  the  interests  of  the  municipality 
issuing  them." 

'  Nolan  County  v.  The  State,  (1891> 
83  Tex.  182.  As  to  the  power  of  coun 
ties  in  such  cases,  it  was  said:  "  It  may 
be  considered  settled  law  in  this  state 
that  one  of  its  counties  cannot  issue 
bonds  without  an  act  of  the  legislature 
conferring  that  power.  Robertson  v. 
Breedlove,  61  Tex.  316.  The  case 
cited  is  also  authority  for  holding  that 
tlie  act  by  virtue  of  which  the  bonds 
in    question    were   issued,    conferred 


§  396.  Rights  of  holders  of  such  bonds.—  The  Texas 
Supreme  Court  considered  the  question  of  the  rights  of  the 
holder  of  certain  county  bonds  issued  by  a  county  under  the 
statute  of  that  state  authorizing  the  issuance  of  bonds  for  the 
erection  of  court  houses,  which  bonds  the  court  held  were  issued 
without  authority,  with  the  result  of  this  declaration  of  the  law 
controlling  in  this  case  :  "  [These]  bonds  are  payable  to  bearer 
and  in  all  other  respects  they  are  regular  upon  their  face.  They 
recite  that  they  were  issued  for  the  purpose  of  erecting  a  court 
house  for  [defendant]  county,  and  in  pursuance  of  the  authority 
conferred  by  the  act  of  February  11,  1881.  They  also  purport 
to  have  been  registered  by  the  treasurer  of  the  county.  The 
state  is  admitted  to  be  a  holder  for  value  of  the  four  bonds  of  this 
series  which  are  in  part  the  foundation  of  this  suit ;  and  it  is  also 
admitted  that  at  the  time  of  their  purchase  its  agents  had  no 
actual  notice  of  any  fact  which  impaired  their  validity.  The 
county  [defendant]  had  no  court  house,  and,  therefore,  the  Com- 
missioners' Court  had  power  to  issue  bonds  for  the  erection  of 
such  a  structure  containing  all  the  recitals  necessary  to  show  the 
authority  for  the  creation  of  the  debt.  If  a  purchaser  were 
bound  to  inquire  into  the  existence  of  the  facts  which  empow- 
ered the  court  to  issue  bonds  to  build  a  court  house,  and  to  know 
that  the  county  had  no  court  house,  in  view  of  the  recitals  upon 
the  face  of  the  obligations  he  was  bound  to  look  no  further.  He 
had  tlie  right  to  rely  upon  the  truth  of  such  recitals,  and  having 
paid  value  for  the  bonds  without  actual  knowledge  of  their  ille- 


authority  to  issue  bonds  upon  such 
counties  only  as  had  no  court  house  at 
their  county  seat.  We  think  it  equally 
clear  that  the  only  purpose  for  which 
the  power  could  be  exercised  was  to 
provide  the  means  for  building  a  court 
house.  The  act  of  February  2,  1884, 
which  authorizes  the  issue  of  bonds 
for  the  construction  not  only  of  court 
houses  but  also  of  jails,  tends  to  show 
that  such  is  the  legislative  construction 
of  tlie  act  under  consideration. 
*  *  *  Therefore,  at  the  threshold 
of  the  discussion  we  are  met  with  the 
question  whether  there  was  any 
authority  whatever  for  the  issue   of 


the  first  series  of  bonds.  It  is  not  to 
be  supposed  that  the  legislature  in- 
tended to  confer  the  power  upon  the 
counties  to  create  a  bonded  indebted- 
ness to  build  a  temporary  structure  to 
be  used  as  a  court  house  until  a  per- 
manent building  could  be  constructed. 
The  limitations  in  the  Constitution 
upon  the  creation  of  municipal  debts, 
and  the  great  caution  manifested  in 
conferring  power  upon  municipal  cor- 
porations to  issue  bonds,  repel  the 
idea  that  it  could  have  been  the  pur- 
pose to  authorize  counties  to  issue 
them  for  the  purpose  of  building  other 
than  permanent  court  houses." 


830 


COUNTY  BONDS. 


[§397 


gality,  tlie  county  would  be  estopped  to  set  up  that  they  were  not 
issued  for  the  purpose  for  which  they  purported  to  be  issued."  * 

§397.  The  effect  of  a  statute  of  Texas  as  to  county 
bonds  in  which  school  funds  may  be  invested. —  The  state  of 
Texas,  having  invested  certain  school  funds  in  some  of  the  bonds 
issued  by  the  county  in  this  case,  was  held  to  be  protected  by  the 
statutes  of  Texas,  wliich  provided  that :  "  In  all  cases  where  the 
proceeds  of  the  sale  of  any  bonds  have  been  received  by  the 
proper  officers  of  the  county,  or  by  a  party  acting  for  it  in  nego- 
tiating the  sale  thereof,  such  county  shall  be  thereafter  estopped 
from  denying  the  validity  of  such  bonds  so  issued,  and  the  same 
shall  be  held  to  be  valid  and  binding  obligations  of  the  county, 
and  in  any  action  upon  such  bonds  or  coupons  thereto,  judgment 
ahall  be  rendered  against  the  county  for  the  amount  of  the  bonds 
sued  on  and  interest  thereon  at  the  rate  mentioned  therein,  deduct- 
ing such  amounts,  if  any,  as  have  been  previously  paid  thereon." 
"  The  payment  of  any  interest  upon  any  bond  heretofore  pur- 
chased, or  that  may  hereafter  be  purchased,  with  public  school 
funds,  or  belonging  thereto,  shall  be  deemed  and  held  a  waiver  of 
any  supposed  error,  irregularity,  or  want  of  authority  affecting 
or  tending  to  affect  the  validity  of  any  such  bonds ;  and  the  same 
shall  thereafter  be  held  valid  and  binding  obligations  upon  the 
county  by  which  they  appear  or  purport  to  have  been  issued, 
notwithstanding  such  supposed  error,  irregularity  or  want  of 
authority  as  aforesaid."  The  court  held  the  statutes  to  be  con- 
stitutional, and  also  held  adversely  to  the  contention  on  behalf  of 
the  county  that  the  statutes  applied  only  to  such  bonds  as  may 
have  been  purchased  by  the  state  directly  from  the  counties.* 


§398] 


COUNTY  BONDS. 


831 


'  Nolan  County  r.  The  State,  (1891) 
83  Tex.  182,  194,  195,  holding  the 
bonds  valid  in  the  hands  of  the  holder, 
unless  the  entire  issue  of  the  bonds 
was  in  excess  of  the  amount  of  the 
indebtedness  which  the  county  was 
authorized  by  law  to  create.  The 
Texas  court  recognized  as  authority 
for  their  ruling  the  following  cases,  to 
wit:  Chambers  County  v.  Clews,  21 
Wall.  321;  Wilson  v.  Salamanca,  99  U. 
S.  504;  Marcy  v.  Oswego,  92  U.  S. 
640:  Humboldt  v.  Long,  92  U.  S.  644; 


Daviess  County  v.  Huidekoper,  98  U. 
S.  100. 

•Nolan  County  v.  The  State,  (1891) 
83  Tex.  182.  It  was  said  by  the  court: 
"  That  the  provisions  in  question  are 
not  repugnant  to  the  Constitution  in 
the  particulars  urged  against  them, 
we  think  too  well  settled  to  require  dis- 
cussion. Ritchie  v.  Franklin  County, 
22  Wall.  74;  New  Orleans  v.  Clark, 
95  U.  S.  644;  Cooley  Const.  Lim.  (4th 
ed. )  466,  467.  It  can  hardly  be  deemed 
an  open  question  in  this  court.    Morris 


§  398.  Validity  of  bonds  as  affected  by  the  place  of  execu- 
tion.—  A  contractor  for  the  erection  of  a  court  house  in  a  county 
of  Iowa  having  completed  his  contract,  the  county  judge  of  the 
county  delivered  to  him  county  bonds  in  payment.  It  would 
seem  that  these  bonds  proved  not  so  negotiable  as  the  contractor 
desired,  and  afterwards  the  county  judge  went  to  New  York 
with  the  contractor  and  there  made  and  issued  to  him  new  bonds 
for  the  same  amonnt,  differing  in  the  amount  of  each,  in  time  of 
payment,  and  in  amount  of  coupons,  and  in  other  particulars ; 
and  he  had  a  Kcal  made  there  which  he  called  the  seal  of  the 
county,  and  affixed  the  seal  to  them  and  then  delivered  them  to 
the  contractor.  The  bonds  were  payable  to  the  contractor  or 
bearer.  Tliey  were  afterward  sold  to  a  third  person,  and  upon 
his  death  his  son  brought  action  against  the  county  upon  them. 
The  Code  of  Iowa  at  the  time  authorized  the  county  judge,  sit- 
ting as  a  County  (^ourt,  to  provide  for  the  erection  and  repara- 
tion of  court  houses,  jails  and  other  necessary  buildings  within 
and  for  the  use  of  the  county.  Thu  question  as  to  construction 
of  the  court  house,  levy  of  the  special  tax  for  the  purpose,  etc., 
was  properly  submitted  to  the  voters  of  the  county  as  required 
by  the  Code  ;  a  majority  of  the  voters  favored  the  proposition. 
The  United  States  Supreme  Court  held  that  the  issue  of  the  bonds 
was  authorized ;  that  the  county  judge  was  clothed  with  the  duty 
of  deciding  upon  the  question,  and  his  decision,  in  the  absence  of 
fraud  or  collusion,  was  iinal,  and  neither  party  could  go  behind 

t.  The  State,  62  Tex.   741;  Blum  v.  county  to  third  parties.     The  object  of 

TiOoney,  69  Tex.  3.     Where  a  contract  the  provision  was  to  protect  the  school 

which  H  municipal  corporation  has  at-  fund,  and  we  see  no  reason  why  it  was 

tempted  to  create  is  invalid  merely  for  not  intended  to  validate  any   county 

want  of  legislative  authority  to  create  bond  held  by  the  state  for  the  benefit 

it,  it  can  be  made  valid  by  a  subse-  of    its  public  schools,    whether    pur- 

quent  law.     But  if  at  the  time  of  its  chased    directly   from  the  county   or 

attempttd     crejition    the    legislature  from    intermediate   holders."     For    a 

could   not  have  authorized  it,  it  may  case  holding  bonds  issued  by  a  county 

be    doubted    whether    the  legislature  for  the  erection  of  a  court  house  and 

could  make  it  valid,  although  in  the  jail  to  be  valid  by  force  of  an  act  of 

meantime,  by  a  change  in  the  Constitu-  the  legislature  having  the  efifect    to 

tion,  the  restriction  upon  its  own  power  make    them    valid    by  a    subsequent 

may  have  been  removed.      *      *     *  grant  of  power  to  the  county,  and  how 

There  is  nothing  in  the  language  of  the  far  a  bona  fide  purchaser  without  notice 

validating  act  which  indicates  that  it  of  any  defect  is  protected,  see  Ball  r. 

was  not  to  be  applied  to  bonds  which  Presidio  County,  (Tex.  Civ.  App.  1894) 

may  have  been  bought  by  the  state  27  S.  W.  Rep.  702. 
after  they  had  been  transferred  by  the 


i 


• 


■  I  1 


832 


COUNTY  BONDS. 


[§399 


it.*  They  further  held  that  it  was  no  valid  objection  that  the 
l)onds  were  made  payable  and  were  sold  beyond  the  limits  of  the 
county  and  of  the  state  ;  that  the  power  to  issue  them  carried 
with  it  authority  to  the  county  judge  as  to  both  these  things  — 
to  do  what  he  deemed  best  for  the  interests  of  the  county  for 
which  he  was  acting.* 

§  399-  Validity  of  bonds  as  affected  by  constitutional 
requirements. —  County  records,  when  pointed  to  by  the  laws 
or  constitutional  provisions  relating  to  the  issuance  of  county 
bonds  as  evidence  of  facts  required  to  authorize  their  issuance, 
and  not  the  recitals  in  tlie  bonds,  must  be  looked  to  by  all  persons 
purposing  to  deal  in  the  bonds.  So,  in  this  case,  county  bonds 
were  held  invalid,  even  in  the  hands  of  lonafide  purchasers,  they 
having  been  issued  without  comphance  with  the  constitutional 
requirements  that  provision  should  be  made  at  the  time  of 
incurring  any  debt  for  levying  a  sufficient  tax  to  create  a  sinking 
fund  of  two  per  cent,  in  addition  to  meeting  the  interest.'' 


'Lynde  ®.  The  County,  (1872)  16 
Wall.  6.  Mr.  Justice  Swayne,  speak- 
ing for  the  court,  referred  to  the  rul- 
ings in  Iowa  on  this  subject  in  these 
words:  "  In  Iowa  every  county  is  a 
body  corporate.  In  Clapp  t>.  The 
County  of  Cedar,  5  Iowa,  15,  it  was 
said  by  the  Supreme  Court  of  the 
state  that  the  office  of  county  judge 
being  created  and  his  powers  and 
duties  defined  by  statute,  the  principles 
of  the  law  of  agency  where  those 
powers  and  duties  arc  drawn  in  ques- 
tion, have  no  application;  tliat  'he  is 
the  living  representative  and  embodi- 
ment of  the  county,' and  that  'his  acts 
are  the  acts  of  the  corpomtion.'  In 
Hull  &  Argalto  v.  The  County  of 
Marshall,  12  Iowa,  142,  it  was  held 
that  by  virtue  of  his  general  authority 
he  might  contract  for  the  building  of 
a  court  house  to  be  paid  for  out  of  the 
revenue  of  the  county,  but  that  when 
a  debt  was  to  be  incurred  for  that  pur- 
pose special  authority  must  be  con- 
ferred by  a  popular  vote  in  the  man- 
ner provided  by  the  statute.    It  was 


further  held  that  where  a  loan  was 
thus  authorized,  the  form  of  the  securi- 
ties not  being  prescribed,  negotiable 
bonds  might  be  issued.  The  statute 
provides  that  the  judge  may  submit 
to  the  people,  at  a  regular  or  special 
election,  *  the  question  whether  money 
may  be  borrowed  to  aid  in  the  erection 
of  public  buildings,'  and  other  ques- 
tions not  necessary  to  be  mentioned; 
and  that  '  when  the  question  so  sub- 
mitted involves  the  borrowing  or  ex- 
penditure of  money,'  it '  must  be  accom- 
panied by  a  provision  to  levy  a  tax  for 
the  payment  thereof,'  and  that  'no 
vote  adopting  the  question  proposed 
will  be  of  effect  unless  it  adopt  the  tax 
also.'" 

'Lynde  v.  The  County.  (1872)  16 
Wall.  6. 

^Quaker  City  National  Bank  f>. 
Nolan  County,  (1894)  59  Fed.  Rep. 
660;  citing  Citizens'  Bank  t.  City  of 
Terrell,  78  Tex.  456;  s.  c,  14  S.  W. 
Rep.  1003;  Dixon  County  v.  Field,  111 
U.  S.  84;  s.  c,  4  Sup.  Ct.  Rep.  315; 
Lake  Co.  n,  Graham,  130  U.  S.  682 


400] 


CX)UNTY  BONDS. 


gQO. 


o»j 


§  400.  Validity  of  bonds  as  affected  by  limitations  as  to 
indebtedness. —  The  effect  of  the  constitutional  provision  of 
Texas,  which  it  had  been  lield  limited  the  amount  of  indebted- 
ness which  counties,  towns  and  cities  were  authorized  to  create 
for  the  erection  of  public  buildings,  etc.,  to  twentj-five  cents 
upon  $100  worth  of  property  as  shown  by  the  assessment  rolls  of 
the  municipality,^  was  considered  by  the  Supreme  Court  in  con- 
nection with  the  other  questions  involved  with  reference  to  the 
county  bonds  for  the  erection  of  a  court  house  issued  in  a  case 
before  that  court.^  The  court  had  also  held  in  a  previous  case 
that  the  word  "  valuation,"  as  used  in  the  constitutional  provision, 
meant  the  value  as  fixed  by  competent  authority  for  the  purposes 
of  taxation.^  The  result  of  the  decisions  in  the  case  last  cited, 
the  court  in  this  case  stated  to  be  that  the  governing  boards  of 
mimicipal  corporations  in  that  state  are  not  empowered,  when 
ascertaining  the  amount  of  an  indebtedness  to  be  created,  to 
determine  for  themselves  the  aggregate  value  of  the  property 
therein  subject  to  taxation,  but  are  to  be  governed  by  the  official 
rolls  made  out  by  the  tax  assessor.  The  power  being  limited  as 
to  the  amount  of  the  official  assessment,  it  was  held  that  the  com- 
missioners were  not  authorized  to  look  beyond  it  and  to  deter- 
mine the  extent  of  their  power  from  other  data  within  their 
reach.^     The  court  held  that  as  to  the  excess  of  these  bonds,  over 


8.  c,  9  Sup.  Ct.  Rep.  654;  Nolan  Co. 
X,.  State,  83  Tex.  183;  s.  c,  17  8.  W. 
Rep.  823;  Francis  xi.  Howard  Co..  54 
Fed.  Rep.  487;  s.  c,  50  Fed.  Rep.  60; 
4  C.  C.  A.  460.  It  was  held  further 
that  the  legislature  of  Texas  had  no 
power  to  validate  county  bonds  issued 
in  violation  of  constitutional  pro- 
visions which  were  alive  and  in  force 
at  the  date  of  the  validating  act. 
Further,  that  a  decision  of  the  Supreme 
Court  of  that  state,  sustaining  the 
statute  which  validated  certain  county 
bonds,  was  not  controlling  on  the 
federal  court,  where  it  appeared  that 
the  bonds  were  void  for  failure  to 
comply  with  a  provision  of  the  State 
Constitution,  but  that  this  point  was 
not  called  to  the  attention  of  the  state 
court,  and  its  decision  was  based  on 
other  grounds. 

105 


»See  Citizens'  Bank  v.  Terjell.  78 
Tex.  450. 

« Nolan  County  v.  The  State  of 
Texas,  (1891)  83  Tex.  183. 

3  Citizens'  Bank  «.  Terrell,  78  Tex. 
450. 

*  Nolan  County  «?.  The  State  of 
Texas,  (1891)  83  Tex.  182.  The  rule 
established  in  Dixon  County  ti.  Fields 
111  U.  S.  94,  and  acted  upon  m  Citi- 
zens' Bank  t.  Terrell,  78  Tex.  450,  was 
held  applicable  in  such  a  case.  The 
court  said:  "  If  our  Constitution  were 
silent  upon  the  subject,  then  it  might 
reasonably  be  held  that  [the  following 
section  of  the  statutes  with  reference 
to  building  court  houses,  to  wit:  '  The 
county  shall  not  issue  a  larger  amount 
of  bonds  than  a  tax  of  one-fourth  of  one 
per  cent  annually  will  liquidate  in  ten 
years,  and  said  bonds  shall  only  be 


834 


COUNTY  BONDS. 


[§400 


the  sum  authorized  under  this  construction  of  the  constitutional 
and  statutory  provisions,  the  bonds  were  void ;  but,  liaving  been 
issued  at  the  same  time,  each  would  bear  a  relative  proportion  of 
the  loss ;  and  that,  as  to  the  excessive  issue  of  these  bonds,  the 
purchasers  of  the  bonds  could  not  claim  to  be  innocent  pur- 
chasers.^ In  an  action  upon  county  bonds  issued  for  the  construc- 
tion of  bridges,  reciting  on  their  face  facts  as  to  their  issue  in 
conformity  to  the  laws  of  Colorado  upon  the  subject,  one  defense 
was  that  the  bonds  were  illegal  and  void,  because  they  increased 
the  indebtedness  of  the  countv  to  an  amount  in  excess  of  the 
limit  prescribed  by  the  Constitution  of  the  state.  The  case  came 
before  the  Supreme  Court  of  the  United  States  upon  a  certificate 
w^hich  stated  that  at  the  time  of  the  issue  of  the  bonds  in  ques- 
tion the  defendant  county  was  in  fact  indebted  beyond  the  con- 
stitutional and  statutory  limit,  and  the  issue  of  each  bond,  there- 
fore, created  a  debi;  in  excess  of  that  limit ;  and  that  the  plaintiff 
bought  the  bonds  upon  tlie  faith  of  the  recitals  therein,  and  with- 
out making  any  examination  into  the  facts  appearing  upon  tlie 
records  of  the  county.  The  statute  of  the  state  of  Colorado 
required  the  county  commissioners,  in  submitting  the  question  to 
a  vote  of  the  electors,  to  enter  of  record  an  order  specifying  the 
amounts  required  and  the  object  of  the  debt ;  and  also  made  it 

sold  at  tbeir  face  par  or  value,']  au-  that  would  be  liquidated  within  ten 

thorized  the  Commissioners'  Courts  to  years,  thougli  based  ui)on  a  valuation 

determine    the    question    as    to    the  in  excess  of  that  shown  by  the  assess- 

imount  of  bonds  *  a  tax  of  one-fourth  mcnt  rolls,  might  still  be  within  the 

of  one  per  cent  annually  will  liquidate  constitutional  limit  which  permits  the 

iu  tea  years.'    But  there  being  a  pro-  creation  of  such  a  debt  as  will  be  ulti- 

vision  iu  the  Constitution  bearing  di-  mately  paid  by  an  annual  tax  of  one- 

rectly  upon  that  subject,  we  are  of  the  half  of  one  per  cent  upon  the  taxable 

opinion  that  this  section  must  be  con-  values  of  the  county  as  shown  by  the 

stnied    in    connection   with    it.     The  official  assessment.     But  we  think  it 

limit   in    the    Constitution    being  an  more  reasonable  to  presume  that  the 

amount  upon  which  a  tax  of  one-half  legislature  intended  that  the  same  rule 

of  one  percent  would  pay  annually  should  govern   in    determining    both 

theinterestand  twoper  centasa  sink-  limits,   and   that   the  Commissioners' 

in^  fund,  and  the  statutory  require-  Courts  Phould  not  look    beyond  the 

ments  being  such  an  amount  only  as  assessment   rolls    in    ascertaining  the 

«ne-fourth    of   one    per  cent    would  amount  of  the  indebtedness  which  the 

bquidate  in  a  period  of  ten  years,  it  statute  authorizes  them  to  create." 
was  not  absolutely  necessary  that  the       » Nolan    County    v.    The    State    of 

commissioners  should  be  governed  by  Texas,  (1891)  83  Tex.  182,  following 

the  same  rule  in  determining  the  two  Russell  r.  Cage,  66  Tex.  428;  Citizens' 

limits.     An  amount  of   indebtedness  Bank  r.  Terrell,  78  Tex.  450. 


§400] 


COUNTY  BONDS. 


835 


their  duty  to  publish,  and  to  cause  to  be  entered  on  their  records, 
open  to  the  inspection  of  the  public  at  all  times,  semi-annual 
statements  exhibiting  in  detail  the  debts,  expenditures  and  receipts 
of  the  county  for  the  preceding  six  months,  and  striking  the  bal- 
ance so  as  to  show  the  amount  of  any  delicit  and  the  balance  in 
the  treasury.  The  court  held  that  the  holder  of  these  bonds, 
altliough  a  purchaser  for  value  and  before  the  maturity  of  the 
bonds,  was  charged  with  the  duty  of  examining  the  record  of 
indebtedness  provided  for  by  the  statute  of  Colorado  in  order  to 
ascertain  whether  the  bonds  increased  the  indebtedness  of  the 
county  beyond  the  constitutional  limit ;  and  that  the  recitals  did 
not  estop  the  county  to  prove  by  the  records  of  the  assessment 
and  the  indebtedness  that  the  bonds  were  issued  in  violation  of 
the  Constitution  of  the  state.'     The  county  treasurer  of  a  county 


» Sutliff  V.  Lake  County  Comrs. ,  (1893) 
147  U.  S.  230.  Mr.  Justice  Gray, 
speaking  for  the  court,  said:  "  In  those 
cases  in  which  this  court  has  held  a 
municipal  corporation  to  be  estopped 
by  recitals  in  its  bonds  to  assert  that 
they  were  issued  in  excess  of  the  limit 
imposed  by  the  Constitution  or  stat- 
utes of  the  state,  the  statutes,  as  con- 
strued by  the  court,  left  it  to  the  offi- 
cers issuing  the  bonds  to  determine 
■whether  the  facts  existed  which  con- 
stituted the  statutory  or  constitutional 
condition  precedent,  and  did  not  re- 
quire those  facts  to  be  made  a  matter 
of  public  record.  Marcy  v.  Oswego, 
92  U.  S.  637;  Humboldt  v.  Long,  92 
U.  S.  642;  Dixon  County  v.  Field,  111 
U.  8.  83;  Lake  County  v.  Graham,  130 
U.  8.  674,  682;  Chaffee  County  i\.  Pot- 
ter, 142  U.  8.  355,  363.  But  if  the 
statute  expressly  requires  those  facts 
to  be  made  a  matter  of  public  record, 
open  to  the  inspection  of  every  one, 
there  can  be  no  implication  that  it  was 
intended  to  leave  that  matter  to  be  de- 
termined and  concluded,  contrary  to 
the  facts  so  recorded,  by  the  officers 
charged  with  the  duty  of  issuing  the 
bonds.  Accordingly,  in  Dixon  County 
c.  Field,  111  U.  8.  83^  which  arose 
under  an  article  of  the  Constitution  of 


Nebraska,  limiting  the  power  of  a 
county  to  issue  bonds  to  ten  per  cent 
of  the  assessed  valuation  of  the  county, 
it  was  adjudged  that  a  county  issuing 
bonds,  each  reciting  that  it  was  one  of 
a  series  of  $87,000  issued  under 
and  by  virtue  of  this  article  of 
the  Constitution  and  the  statutes 
of  Nebraska  upon  the  subject,  was 
not  estopped  to  show  by  the  assessed 
valuation  on  the  books  of  public  re- 
cord of  the  county  that  the  bonds  were 
in  excess  of  the  constitutional  limit; 
and  Mr.  Justice  Matthews,  deliver- 
ing the  unanimous  judgment  of  the 
court,  fully  stated  the  grounds  of  the 
decision,  which  sufficiently  appear  by 
the  following  extract:  '  If  the  fact 
necessary  to  the  existence  of  the  au- 
thority was  by  law  to  be  ascertained, 
not  officially  by  the  officers  charged 
with  the  execution  of  the  power,  but 
by  reference  to  some  express  and  def- 
inite record  of  a  public  character,  then 
the  true  meaning  of  the  law  would  be 
that  the  authority  to  act  at  all  de- 
pended upon  the  actual  objective 
existence  of  the  requisite  fact,  as 
shown  by  the  record,  and  not  upon  its 
ascertainment  and  determination  by 
any  one;  and  the  consequence  would 
necessarily   follow,  that   all  persons 


pi: 


836 


COUNTY  BONDS. 


[§400 


of  the  state  of  New  York,  under  the  authority  of  a  resolution  of 
ite  board  of  supervisors,  and  certain  statutes  then  in  force,  offered 
for  sale  and  invited  bids  for  bonds  of  the  county  aggregating  a 
certain  large  amount.  The  bidder  in  one  instance,  wliose  bid 
was  accepted,  first  gave  a  check  for  the  sum  bid  for  a  certain 
amount  of  the  bonds,  and  then  stopped  payment  on  the  same,  and 
declined  to  receive  them,  claiming  that  the  issue  of  such  bonds 


claiming  under  the  exercise  of  such  a 
power  might  be  put  to  the  proof  of 
the  fact,  made  a  condition  of  its  law- 
fulness, notwithstanding  any  recitals 
in  the  instrument.'  Dixon  County  v. 
Field,  111  U.  S.  83.  93.  In  the  present 
case  there  was  no  power  at  all  con- 
ferred to  issue  bonds  in  excess  of  an 
amount  equal  to  ten  per  cent  upon  the 
assessed  valuation  of  the  taxable  prop- 
erty in  the  county.  In  determining 
the  limit  of  jiower.  there  were  neces- 
sarily two  factors:  The  amount  of  the 
bonds  to  be  issued,  and  the  afnount  of 
the  assessed  value  of  the  property  for 
purposes  of  taxation.  The  amount  of 
the  bonds  issued  was  known.  It  is 
stated  in  the  recital  itself.  It  was 
eighty-seven  thousand  dollars.  The 
holder  of  each  bond  was  apprised  of 
that  fact.  The  amount  of  the  assessetl 
value  of  the  taxable  property  in 
the  county  is  not  stated;  but,  ex  ri 
termini,  it  was  ascertainable  in  one 
way  only,  and  that  was  by  reference 
to  the  assessment  itself,  a  public  re- 
cord equally  accessible  to  all  intend- 
ing purchasers  of  bonds,  as  well  as  to 
the  county  officers.  This  being  known, 
the  ratio  between  the  two  amounts 
was  fixed  by  an  arithmetical  calcula- 
tion. No  recital  involving  the  amount 
of  the  assessed  taxable  valuation  of 
the  property  to  be  taxetl  for  the  pay- 
ment of  the  bonds  can  take  the  place 
of  the  assessment  itself,  for  it  is  the 
amount,  as  fixed  by  reference  to  that 
record,  that  is  made  by  the  Constitu- 
tion the  standard  for  measuring  the 
limit  of  the  municipal  power.  Noth- 
ing in  the  way  of  inquiry,  ascertain- 


ment or  determination  as  to  that  fact 
is  submitted  to  the  county  ofiicers. 
They  are  bound,  it  is  true,  to  leani 
from  the  assessment  what  the  limit 
upon  their  authority  is,  as  a  necessary 
preliminary  in  the  exercise  of  their 
functions,  and  the  performance  of 
their  duty;  but  the  information  is  for 
themselves  alone.  All  the  world  be- 
sides must  have  it  from  the  same 
source,  and  for  themselves.  The  fact, 
as  it  is  record etl  in  the  assessment 
itself,  is  extrinsic  and  proves  itself  by 
inspection,  and  concludes  all  determi- 
nations that  contmdict  it.  Dixon 
County  T.  P^ield.  Ill  U.  8.  83,  95." 
Mr.  Justice  Gray  then  resumed: 
"  That  decision  and  the  grounds  upon 
wiiich  it  rests  were  approved  and  af- 
firmed in  Lake  County  v.  Graham,  130 
U.  8.  674,  and  Chaffee  County  v.  Pot- 
ter, 142  U.  S.  355,  *  ♦  *  each  of 
which  arose  under  the  article  of  the 
Constitution  of  Colorado  now  in  ques- 
tion, but  under  a  different  statute, 
which  did  not  require  the  amount  of 
the  indebtedness  of  the  county  to  be 
stated  on  its  record.  In  Lake  County 
V.  Graham  each  bond  showed  on  it» 
face  the  whole  amount  of  bonds  issued, 
and  the  recorded  valuation  of  prop- 
erty showed  that  amount  to  be  in  ex- 
cess of  the  constitutional  limit;  and 
for  this  reason,  as  well  as  because  the 
bonds  contained  no  recital  upon  that 
point,  the  county  was  held  not  to  be 
estopped  to  plead  that  limit.  Lake 
County  r.  Gmham,  130  U.  S.  674,  682. 
683.  In  Chaffee  County  v.  Potter,  on 
the  other  hand,  the  bonds  contained 
an  express  recital  that  the  total  amount 


§400] 


COUNTY  BONDS. 


837 


was  prohibited  by  the  provision  of  the  State  Constitution,^  which 
provides  that  "  no  county  containing  a  city  of  over  one  hundred 
thousand  inhabitants,  or  any  such  city,  shall  be  allowed  to  become 
indebted  for  any  purpose  or  in  any  manner  to  an  amount  which, 
including  existing  indebtedness,  sliall  exceed  ten  per  centum  of 
the  assessed  valuation  of  the  real  estate  of  such  county  or  city 
subject  to  taxation,  as  it  appeared  by  the  assessment  rolls  of  6aid 
county  or  city  on  the  last  assessment  for  state  or  county  taxes 
prior  to  the  incurring  of  sucli  indebtedness  ;  and  all  indebtedness 
in  excess  of  such  limitation,  except  such  as  may  now  exist,  shall 
be  absolutely  void,  except  as  herein  otherwise  provided.  No 
such  county  or  city  whose  present  indebtedness  exceeds  ten  per 
centum  of  the  assessed  valuation  of  its  real  estate  subject  to  taxa- 
tion shall  be  allowed  to  become  indebted  in  any  further  amount 
until  such  indebtedness  shall  be  reduced  within  such  limit.  This 
section  shall  not  be  construed  to  prevent  the  issuing  of  certificates 
of  indebtedness  or  revenue  bonds  issued  in  anticipation  of  the 
collection  of  taxes  for  amounts  actually  contained,  or  to  be  con- 
tained, in  the  taxes  for  the  year  when  such  certificates  or  revenue 
bonds  are  issued  and  payable  out  of  taxes.  Nor  shall  this  section 
be  construed  to  prevent  the  issue  of  bonds  to  provide  for  the 
supply  of  water,  but  the  term  of  the  bonds  issued  to  provide  for 
the  supply  of  water  shall  not  exceed  twenty  years,  and  a  sinking 
fund  shall  be  created  on  the  issuing  of  the  said  bonds  for  their 
redemption,  by  raising  annually  a  sum  which  will  produce  an 


of  the  issue  did  not  exceed  the  consti- 
tutional limit,  and  did  not  show  on 
their  face  the  amount  of  the  issue,  and 
the  county  records  showed  only  the 
valuation  of  the  property,  so  tliat,  as 
observed  by  Mr.  Justice  Lamar,  in 
delivering  judgment:  '  The  purchaser 
might  even  know,  indeed,  it  may  be 
admitted  that  he  would  be  required  to 
know,  the  assessed  valuation  of  the 
taxable  property  of  the  county,  and 
yet  he  could  not  ascertain  by  reference 
to  one  of  the  bonds  and  the  assessment 
roll  whether  the  county  had  exceeded 
its  power,  under  the  Constitution,  in 
the  premises.'  Chaffee  County  v. 
Potter,  142  U.  S.  ^55,  363.  The  case 
at  bar  does  not  fall  within  Chaffee 
County  V.  Potter,  and  cannot  be  dis- 


tinguished in  principle  from  Dixon 
County  «.  Field  or  from  Lake  County 
V.  Graham.  The  only  difference 
worthy  of  note  is  that  in  each  of  these 
cases  the  single  fact  required  to  be 
shown  by  the  public  record  was  the 
valuation  of  the  property  of  the 
county.  Whereas,  here,  two  facts  are 
to  be  so  shown,  the  valuation  of  the 
property  and  the  amount  of  the  county 
debt.  But,  as  both  these  facts  are 
equally  required  by  the  statute  to  be 
entered  on  the  public  records  of  the 
county,  they  are  both  facts  of  which 
all  the  world  is  bound  to  take  notice, 
and  as  to  which,  therefore,  the  county 
cannot  be  concluded  by  any  recitals  in 
the  bonds." 

>  Const.  N.  Y.  art.  8,  §  11. 


838 


COUNTY  BONDS. 


[§400 


amount  equal  to  the  sura  of  the  principal  and  interest  of  said 
bonds  at  their  maturity.''  There  was  a  city  of  more  than 
100,000  inhabitants  in  this  county.  There  was  a  submission  of 
the  controversy  between  the  county  treasurer  and  the  bidder  for 
these  bonds  to  the  Supreme  Court  of  New  York  in  General 
Term  without  action.  The  contention  of  the  bidder  was  that  the 
constitutional  provision  should  be  construed  so  as  to  take  in  the 
estimate  the  indebtedness  of  the  city  as  well  as  the  county  in 
determining  the  then  present  indebtedness.  The  Supreme  Court 
held  that  under  the  provision,  a  city  and  county  in  which  it  was 
situated  might  each  incur  debt  to  the  extent  of  ten  per  cent  of 
the  assessed  value  of  all  tlie  taxable  real  estate  within  it ;  and  that 
the  restriction  provided  by  that  section  was  separate  and  distinct 
as  to  each.*  A  case  in  the  federal  court  for  tlie  western  district 
of  Iowa  involving  the  validity  of  certain  refunding  bonds  of  a 


*  Adams  v.  East  River  Savings 
Institution,  (1892)  47  N.  Y.  St.  Repr. 
175,  holding  the  bonds  valid  and  au- 
thorized and  rendering  judgment 
against  the  bidder.  Affirmed  in  136 
N.  Y.  52.  The  reasoning  of  the 
Supreii?e  Court,  as  to  the  construction 
of  this  provision  of  the  Constitution 
of  New  York  wus  approved  by  the 
Court  of  Appeals.  Cullen,  J.,  for 
the  Supreme  Court,  said  :  "The  first 
question  is,  whether  the  water  debt  is 
to  be  counted  in  determining  whether 
the  ten  per  cent  limit  of  a  <nty  has 
been  reached  or  exceeded.  We  think 
it  is.  The  constitutional  provision  is 
that  no  county  or  city  shall  for  any 
purpose  go  beyond  the  prescribed  per- 
centage. ♦  *  *  [It  is  contended] 
for  the  defendant  that  it  was  the  in- 
tent of  this  constitutional  provision  to 
restrain  the  creation  of  debt  either  by 
the  city  or  county  which,  taken 
together,  would  exceed  ten  per  cent 
of  the  assessed  value  of  the  real  estate 
lying  within  the  county  or  city;  or,  in 
other  words,  that  real  estate  should 
not  bear  the  burden  of  a  greater  debt 
both  for  city  and  county  purposes 
than  ten  per  cent  of  its  assessed  value. 
*    *    *     *If   the    language   is   un- 


ambiguous, the  words  plain  and  clear, 
conveying  a  distinct  idea,  there  is  no 
occasion  to  resort  to  other  means  of 
interpretation.  Effect  must  be  given 
to  the  intent  as  indicated  by  tlie 
language  employed.  Especially  should 
this  be  so  in  the  interpretation  of  a 
written  Constitution  frametl  deliber- 
ately and  with  care  and  adopted  by 
the  people  as  the  organic  law.' 
Settle  r.  Van  Evrea,  49  N.  Y.  280. 
This  rule  is  peculiarly  applicable  to 
the  case  in  hand,  for  the  case  is 
singularly  barren  of  external  sources 
from  which  to  draw  light.  The  limit 
prescribed  by  the  Constitution  is 
wholly  arbitrary,  and  necessarily  so. 
While  most  citizens  would  recognize 
that  excessive  debts  by  localities  is  an 
evil  to  be  checked,  the  question  of 
what  debt  is  excessive  would  produce 
the  widest  diversities  of  opinion ; 
diversities  to  be  composed  only  by 
compromise  at  an  arbitrary  figure. 
This  is  the  first  provision  oi  the  char- 
acter in  any  of  the  Constitutions  of  this 
state;  so  we  are  equally  without  tradi- 
tion or  policy  in  this  respect.  We 
must,  therefore,  decide  the  case  in  the 
very  words  of  the  Constitution.  The 
language  of  the  Constitution  is  dia- 


§400] 


COUNTY  BONDS. 


839 


county  which  had  been  purchased  in  good  faith,  and  for  a  full 
consideration,  by  the  plaintiff  and  other  purchasers,  raised  several 
questions  as  to  refunding  bonds.  There  was  abundant  evidence 
to  show  that  the  amount  received  for  the  bonds  was  applied  by 
the  county  through  its  refunding  agent  to  the  payment  of  bonds 
then  outstanding  against  the  county  ;  also,  that  the  amount  of  the 
bonds  thus  negotiated  by  its  agent  exceeded  largely  the  constitu- 
tional limitation  of  five  per  cent  upon  the  valuation  of  taxable 
property  of  the  county,  as  sliowii  by  the  last  preceding  state  and 
county  tax  lists.  The  county  resisted  recovery  against  it  in  this 
action  on  the  ground  of  the  bonds  being  in  excess  of  the  consti- 
tutional limitation-  The  court  held  that  those  of  the  series  of 
bonds  which  had  been  issued  through  the  refunding  agent  of  the 
county,  so  far  as  they  represented  then  existing  indebtedness  of 
the  county  at  the  time  they  were  issued,  were  valid ;  those  of  the 
series  which  did  not  represent  sucli  existing  indebtedness  were 
held  to  be  invalid.^ 


#  *  • 


or  any 


junctive,  *  No  county, 
such  city,  shall  be  allowed  to  become 
indebted  to  an  amount  which  shall 
exceed  ten  per  cent  of  the  assessed 
value  of  the  real  estate  of  such  county 
or  city  subject  to  taxation.'  The 
literal  and  grammatical  reading  is 
that  the  county  shall  not  be  allowed 
to  incur  debt  beyond  a  certain  per 
cent,  and  that  the  city  shall  not  be 
allowed  to  incur  debt  beyond  the  same 
per  cent.  Separate  restrictions  are 
imposed  on  each.  This  is  so  clear  to 
my  mind  as  to  forbid  elaboration." 
'  ^tna  Life  Insurance  Co.  v.  Lyon 
County,  (1890)  44  Fed.  Rep.  329, 
Shiras,  J.,  said,  generally,  as  to  the 
bonds :  "If  this  issue  of  bonds  had 
been  negotiated  in  the  purchase  of 
property  then  acquired,  or  for  the 
erection  of  county  buildings  or  other 
like  purposes,  so  that  thereby  a  new 
or  original  indebtedness  had  been 
thereby  created  against  the  county, 
there  could  then  be  no  question  that 
the  bonds  themselves  would  be  void 
by  reason  of  the  provision  of  the  Con- 
stitution of  theetate  of  Iowa,  limiting 


the  indebtedness  of  all  municipal  and 
political  corporations  within  the  state 
to  five  per  cent  upon  the  taxable  prop- 
erty within  the  limits  of  the  particular 
corporation;  and  a  recovery  thereon 
could  not  be  had,  even  in  favor  of 
parties  who  had  paid  full  value 
therefor  in  the  belief  that  the  bonds 
were  valid.  Buchanan  v.  Litchfield, 
102  U.  S.  278;  Dixon  County  v.  Field, 
111  U.  S.  83;  s.  c,  4  Sup.  Ct.  Rep.  315; 
Lake  County  v.  Rollins,  130  U.  S.  662; 
s.  c,  9  Sup.  Ct.  Rep.  651;  Lake  Co.  v. 
Graham,  130  U.  S.  674;  s.  c,  9  Sup. 
Ct.  Rep.  654.  The  bonds  in  question 
were  not  issued  for  any  such  purpose, 
but  were  issued  for  the  purpose  of 
refunding  other  outstanding  bonds  of 
the  county  ;  and  the  issuance  thereof 
did  not  in  fact  increase  the  indebted- 
ness of  the  county,  but  only  the  form 
or  evidence  of  the  indebtedness. 
Under  these  circumstances,  it  is 
broadly  claimed  on  behalf  of  plaintiff 
that  the  bonds,  being  issued  to  refund 
or  pay  other  bonds,  are  not  affected 
by  the  constitutional  limitation.  To 
the  extent  of  holding  that,  as  applied 


840 


CX)UNTY  BONDS. 


[§401 


§  401.  The  validity  of  judgments  against  a  county  for 
which  the  bonds  were  issued  cannot  be  questioned  in 
actions  on  the  bonds. —  It  was  argued  iii  behalf  of  the  county 
in  this  case  upon  coupons  of  the  bonds  that,  upon  the  issue  of 
unconstitutionality  of  the  issue  of  the  bonds,  it  was  open  to  the 
county  to  question  the  validity  of  judgments  against  the  county, 
or  of  the  bonds  issued  to  fund  or  pay  judgments  against  the 
county.  The  court  held  that  it  was  not  open  to  the  county  to 
make  such  a  defense.^ 


to  a  series  of  refunding  bonds,  the 
lucre  fact  that  the  amount  thereof 
might  exceed  five  per  cent  of  the  then 
taxable  valuation  of  the  property 
within  the  county,  as  shown  by  the 
tax  lists,  would  not  necessarily  show 
that  the  bonds  so  issued  were  invalid, 
I  can  agree  in  the  views  of  counsel 
for  plaintiff.  If  a  county  owes  a  valid 
and  enforceable  indebtedness,  refund- 
ing bonds,  issued  under  authority  of 
an  act  of  the  legislature  for  the  pur- 
pose of  taking  up  such  enforceable 
indebtedness,  are  not  invalid  because 
they  may  exceed  the  five  per  cent 
limiution.  In  such  case  the  nf iiud- 
ing  bonds  are  valid,  because  they 
represent  a  valid  indebtedness,  llsiil- 
road  Co.  v.  County  of  Osceola.  4.) 
Iowa,  168;  Austin  r.  District  Tp.  of 
Colony,  51  Iowa,  102.  In  suits, 
therefore,  upon  refunding  bonds 
representing  prior  indebtedness,  it  is 
necessary,  in  order  to  sustain  the  de- 
fense of  invalidity,  to  show  that  the 
indebtedness  merge<l  in  and  repre 
sented  by  the  refunding  bonds  was 
itself  invalid  and  non-enforceable 
either  in  whole  or  in  part  *  *  *." 
•  Mim,  Life  Ins.  Co.  r.  Lyon  County, 
(1890)  44  Fed.  liep.  329.  Shiras.  J., 
said:  "The  constitutional  limitation  is 
not  self-acting.  The  protection  of  its 
provisions  must  be  invoked  at  the 
proper  time  and  in  the  proper  mode.  If 
judgments  are  obtained  against  a 
county,  and  the  same  are  not  reversed, 
but  remain  in  full  force,  they  are  evi- 


dence of  the  highest  nature  that  the 
county  owes  the  amounts  adjudged  to 
be  due;  and  if  the  county,  having  the 
power  to  fund  its  outstanding  indebt- 
ednes.s,  issues  bonds  in  payment  of 
such  judgments,  the  validity  of  the 
bonds  cannot  be  successfully  attacked, 
when  suit  is  brought  thereon,  by  show- 
ing that,  if  the  defense  had  been  inter- 
posed in  the  original  cjise,  the  claim 
might  have  been  defeated,  and  that 
the  judgment  actiuiUy  rendered  might 
have  been  i)r3ventcd.  As  is  said  by 
the  Supreme  Court  in  Cromwell  r. 
Sac  County,  94  U.  8.  351:  'Thus,  for 
example,  a  judgment  rendered  upon  a 
promissory  note  is  conclusive  as  to  the 
vaUdity  of  the  instrument,  and  the 
amount  due  upon  it,  although  it  be 
subsequently  alleged  that  perfect  de- 
fenses actually  existed,  of  which  no 
proof  was  offered,  such  as  forgery, 
want  of  consideration  or  payment.  If 
such  defenses  were  not  presented  in 
the  action,  and  established  by  compe- 
tent evidence,  the  subsequent  allega- 
tion, if  then  in  existence,  is  of  no  legal 
consequence.  The  j  udgment  is  as  con- 
clusive, so  far  as  future  proceedings  of 
law  are  concerned,  as  though  the  de- 
fenses never  existed.'  The  argument 
of  counsel  would  have  weight  if  the 
constitutional  provision  was  to  the 
effect  that  no  Judgment  could  be 
rendered  against  a  county  under  any 
circumstances.  In  such  case,  even 
though  a  court  should  enter  upa  judg- 
ment, its   uncon^jtitutionality  and  in 


§402] 


COUNTY  BONDS. 


841 


§  402.  The  statements  of  a  county's  agent  in  sale  of  bonds 
not  operative  as  an  estoppel  upon  the  county  to  defend.-- 

It  has  been  held  in  a  case  in  the  federal  court  in  one  of  the  dis- 
tricts of  Iowa  that  the  statements  made  by  the  refunding  agent 
of  a  county  in  negotiating  the  sale  of  certain  refunding  bonds, 
which  had  been  issued  by  a  county  of  that  state,  did  not  operate 
as  an  estoppel  against  the  county ;  that  it  was  open  to  the  county 
to  show  that  the  bonds  merged  into  the  refunding  bonds  sold  by 
its  a<yent  were  in  whole  or  in  part  invalid  and  non-enforceable.^ 


validity  would  be  self -apparent,  and 
could  always  be  availed  of  when  its 
enforcement  might  be  attempted,  and 
this  for  the  reason  that  upon  its  face 
the  judgment  would  show  that  the 
court  was  without  j  urisdiction.  A  de- 
fense based  upon  the  clause  limiting 
the  amount  of  municipal  indebtedness 
to  five  per  cent  upon  the  amount  of 
taxable  property  is  of  a  wholly  dif- 
ferent nature.  It  requires  a  proper 
pleading  of  the  facts,  and  upon  the 
trial  proper  evidence  must  be  intro- 
duced or  else  the  defense  fails.  It 
makes  no  difference  in  the  validity  of 
the  judgment  whether  the  defendant 
failed  to  plead  the  defense  based  upon 
the  constitutional  limitation,  or  failed 
to  sustain  the  defense,  if  pleaded,  by 
sufficient  evidence.  In  either  case  the 
rendition  of  the  judgment  established 
the  validity  of  the  claim  against  the 
county,  and  the  judgment,  so  long  as 
it  remains  unreversed,  cannot  be  ques- 
tioned on  the  ground  that  the  amount 
thereof  exceeds  five  per  cent  of  the 
taxable  property  of  the  county." 

•jEtna  Life  Insurance  Co.  v,  Lyon 
County,  (1890)  44  Fed.  Rep.  329. 
Arguendo,  it  was  said  by  Shiras,  J.: 
• '  When  these  bonds  were  offered  to 
the  plaintiff  it  was  known  to  the 
parties  acting  for  the  plaintiff  that  the 
series  of  bonds  proposed  to  be  negoti- 
ated exceeded  in  amount  five  per  cent 
of  the  taxable  property  in  the  county, 
and,  therefore,  to  authorize  the  issu- 
ance thereof,  there  must  be  then  in 
106 


existence  a  valid  indebtedness  to  the 
amount  of  one  hundred   and   twenty 
tnousand  dollars,   which    it  was  pro- 
posed to  refund  by  the  issuance  of  the 
bonds  in   question.     The  validity  of 
the  bonds  was  asserted  upon  the  claim 
that  the  bonds  to  be  refunded  repre- 
sented claims  that  had  been  reduced  to 
judgment,   and,   therefore,    were  en- 
forceable against  the  county.   The  pur- 
chasers knew,    and    were    bound   to 
know,  that  unless  the  assertion  was 
true,  the  bonds  would  be  invalid,  be- 
cause in  excess  of  the  constitutional 
limitation,    and   the  purchasers  were 
bound  to  ascertain  what  the  fact  in  this 
particular  was.    The  bonds  themselves 
contain  no  recital  on  the  subject.    The 
certified  copy  of  the  proceedings  taken 
by  the  board  of  supervisors  in  regard 
to  the  issuance  of  the  bonds,  and  which 
copy  was  submitted  to  the  purchasers, 
does  not  contain  any  statement  show- 
ing that  the  bonds  proposed  to  be  re- 
funded were  based  wholly  upon  prior 
j  udgments.  The  statement  relied  upon 
as  an  estoppel  was  made  by  [the  re- 
funding agent]    first  orally  and  then 
in  the  form  of  an  affidavit ;  but  he  was 
not  then  acting  on  behalf  of  the  county 
in  ascertaining  or  certifying  to  a  fact 
which  the  law  required  to  be  fnen  as- 
certained and  determined  as  the  basis 
for  further  action .    He  was  the  refund  - 
ing  agent  of  the  county,  but  he  did 
not  have  the  power  to  determine  any 
question  or  matter  pertaining  to  the 
right  to  issue  the  bond^     Dixon  Co. 


1 


842 


COUNTY  BONDS. 


[§  408 


§403.  When  a  county  may  plead  an  overissue. —  The 
United  States  Circuit  Court  of  Appeals  has  held  in  a  late  case 
that  one  who  bought  municipal  bonds  at  one  time  in  such  num- 
ber as  to  exceed  in  amount  the  limit  of  the  issue  authorized  by 
law  (being  an  amount  capable  of  liquidation  in  a  certain  time  at  a 
given  rate  of  taxation,  based  on  the  assessment  rolls),  was  charge- 
able with  notice,  and  the  municipality  was  not  estopped  to  plead 


an  overissue.* 

V.  Field,  111  U.  S.  83;  s.  c,  4  Sup.  Ct. 
Rep.  315;  Daviess  Co.  r.  Dickinson, 
117 U.  S.  657;  8.  c,  6Sup.  Ct.  Rep.  897. 
The  resolution  of  the  board  of  super- 
visors appointing  [bira]  declares  the 
object  of  the  appointment  to  be  '  for  the 
purpose  of  funding  and  refunding  the 
county  indebtedness,'  and  the  resolu- 
tions adopted  by  the  board  *  •  « 
show  upon  their  fju  e  that  it  was  the 
purpose  of  the  board  to  undertake  the 
bonding  of  the  floating  indebtedness, 
as  well  as  the  refunding  the  then  out- 
standing bonded  indebtedness.  Upon 
the  question  of  what  the  bonds  pro- 
posed to  be  refunded  were  the  repre- 
sentative, and  whether  the  same  were 
based  upon  judgments  presumably 
rendered  against  the  county,  the  rec- 
ords of  the  county  constituted  the 
primary  and  best  evidence.  [The  re- 
funding agent]  had  no  charge  over  or 
connection  with  these  records,  nor  was 
he  the  one  to  whom  application  would 
naturally  be  made  by  one  seeking  to 
know  the  origin  and  purpose  of  the 
outstanding  bonded  indebtedness  of 
the  county.  If  the  effect  of  an  estop- 
pel is  given  to  statements  of  this  char- 
acter, the  protection  intended  to  be 
secured  by  the  constitutional  provision 
limiting  the  amount  of  indebtedness 
of  counties  and  other  municipal .  cor- 
porations would  be  wholly  destroyed. 
In  every  instance  it  could  be  evaded 
by  the  simple  device  of  appointing  a 
refunding  agent,  and  by  his  state- 
ments create  an  estoppel  against  the 
county   or   city,    and    thus  validate 


any  amount  of  bonds  that  might  be 
issued." 

•  Francis  t.  Howard  County,  (1893) 
54  Fed.  Rep.  487,  aiflrming  Francis 
D.  Howard  County,  (1893)  50  Fed.  Rep. 
44,  in  which  case  Maxey,  D.  J. ,  fully 
discusses  the  questions  involved. 
Arguendo,  Pabdee,  Circuit  Judge, 
sjiid:  *'It  is  contended  that  the  recital 
in  each  bond  that  '  this  bond  is  issued 
in  accordance  with  the  provisions  of 
the  act  of  the  legislature  of  Texas, 
entitled  '  An  act  to  authorize  the 
County  Commissioners'  Court  of  the 
several  counties  of  this  state  to  issue 
bonds  for  the  erection  of  a  court  house, 
and  to  levy  a  tax  to  pay  for  the  same,' 
approved  February  11,  1881,'  is  a  re- 
cital of  the  performance  of  a  condition 
precedent,  on  the  pai  t  of  the  County 
Commissioners'  Court,  to  wit,  that  the 
amount  of  the  same  was  within  the 
limits  allowed  by  the  act  of  1881,  and 
that  a  purchaser  of  the  bonds  was  not 
bound  to  inquire,  the  case  being  within 
the  principles  declared  in  Marcy  r. 
Oswego,  92  U.  S.  637 ;  School  Dist.  v. 
Stone,  106  U.  S.  183;  s.  c,  1  Sup.  Ct. 
Rep.  84,  and  cases  there  cited;  and 
particularly  in  Chaffee  County  v.  Pot- 
ter. 142  U.  S.  355;  s.  c,  12  Sup.  Ct.  Rep. 
216.  In  the  last-mentioned  case  it  was 
held:  'When  there  is  an  express  re- 
cital upon  the  face  of  a  municipal 
bond  that  the  limit  of  issue  prescribed 
by  the  State  Constitution  has  not  been 
passed,  and  the  bonds  themselves  did 
not  show  that  it  had.  the  holder  is  not 
bound  to  look  further.'    The  answer 


^i 


§404] 


COUNTY  BONDS. 


843 


§  404.    When  the  defense  that  a  county  was   not  fully 
organized  when  the  bonds  were  issued  is  not  open  to  the 
courts.— The  United  States  Supreme  Court,  in  a  case  involving 
coupons  of  bonds  issued  bj  a  Kansas  county  for  the  purpose  of 
building  a  bridge  and  court  house,  held  that  in  that  state  a  county 
had  power  to  borrow  money  for  such  purposes  and  to  issue  bonds 
.therefor.     Further,  it  was  ruled  that  when  both  the  executive  and 
legislative  departments  of  the  state  had  given  notice  to  the  world 
that  a  county  within  the  terrritorial  limits  of  that  state  had  been 
duly  organized  and  existed,  with  full  power  of  contracting,  it  was 
not  open  to  the  courts  to  dispute  those  facts  in  an  action  brought 
against  it  by  a  holder  of  its  bonds,  who  bought  them  in  good  faith 
in  open   market.     The  debts  of  a  county,  contracted  during  a 
valid  organization,  remain  the  obligations  of  the  county,  although 
for  a  time  the  organization  may  be  abandoned,  and  there  be  no 
officers  to  be  reached  by  the  process  of  the  court.     Further,  a 
recital  in  a  bond  of  a  municipal  corporation  in  Kansas  that  it  was 
issued  in  accordance  with  authority  conferred   by  the   act   of 
March  2,  1872  (Kansas  Laws,  1872,  110,  chap.  G8),  and  in  accord- 
ance with  a  vote  of  the  majority  of  the  qualified  voters,  was  held 
sufficient  to  validate  the  bonds  in  the  hands  of  a  lonafide  holder ; 
and  the  certificate  of  the  auditor  of  the  state  thereon  that  the 
bond  was  regularly  issued  ;  that  the  signatures  were  genuine,  and 
that  the  bond  had  been  duly  registered,  was  conclusive  upon  the 
municipality.     Also,  a  recital  on  a  bond  issued  by  a  county  in 
Kansas  for  the  purpose  of  building  a  bridge,  need  not  necessarily 
refer  to  the  particular  bridge  for  the  construction  of  which  it  was 


to  this  contention  of  the  plaintiff  in 
error  is  that  the  recital  in  the  bonds 
sued  on  is  not  a  recitjil  of  facts  so 
much  as  of  a  conclusion  of  law;  that 
the  bonds  contain  no  express  recital 
of  the  existence  of  any  fact,  and  that  a 
fair  construction  of  the  act  of  1881 
leaves  the  ascertainment  of  no  fact  to 
be  found  by  the  County  Commission- 
ers' Court  as  a  condition  precedent  to 
the  issue  of  bonds  themselves,  but 
practically  leaves  the  County  Commis- 
sioners' Court  and  all  purchasers  and 
holders  of  bonds  to  act  at  their  peril. 
All  of  the  decisions  of  the  Supreme 


Court  of  the  United  States,  from 
Dixon  Co.  V.  Field,  111  U.  S.  83;  s.  c, 
4  Sup.  Ct.  Rep.  315,  to  Sutliff  v.  Board, 
147  U.  S.  230;  s.  c,  13  Sup.  Ct.  Rep. 
318,  agree  that  the  purchasers  of 
bonds  issued  by  municipalities  under 
authority  of  laws  which  limit  the 
amount  of  bonds  to  be  issued  to  a 
certain  percentage  of  the  assessment 
rolls,  or  to  a  given  rate  of  taxation 
based  on  such  rolls,  are  charged  with 
notice  of  the  assessment  rolls,  and  of 
the  amount  of  bonds  which  can  be 
validly  issued,  based  on  such  assess- 
ment rolls." 


'Ottx 


COUKTT  BONDS. 


[§404 


issued.^    In  a  late  case  before  the  United  States  Circuit  Court  of 
Appeals  it  appeared  that  after  the  organization  of  a  new  county 
in  Michigan,  under  an  act  of  the  legislature  of  1871,  its  board  of 
supervisors  determined  that  it  required  a  certain  amount  of  money 
to  erect  a  court  house  and  jail,  and,  after  a  vote  of  the  citizens  in 
favor  of  it,  raised  the  amount  by  issuing  county  bonds  and  selhng 
them  to  bona  fide  purchasers  for  value.     These  bonds  were  after- 
wards paid  in  part  and  reduced  to  judgment  in  part  by  the  hold- 
ers.    The  money  raised  by  the  sale  of  these  bonds  had  been  used 
for  the  purposes  of  erecting  the  county  court  liouse  and  the  jail, 
and  the  latter  used  for  the  purposes  of  the  county.     In  1875 
another  act  was  passed  organizing  the  county.     In  1885  an  act 
was  passed  which  autliorized  the  refunding  of  outstandmg  bonds 
of  the  countv,  and  the  bonds  originally  issued  and  judgments 
upon  such  as  had  been  sued  were  surrendered  by  the  holder  and 
these  refunding  bonds  given  in  exchange.     Upon  the  latter  bonds 
this  action  was  brought,  and  the  Circuit  Court,  presumably  upon 
its  idea  of  the  effect  of  a  decision  of  the  state  Supreme  Court  m 
a  certain  case,  upon  the  defense  that  the  (county  was  not  organ- 
ized as  the  Constitution  of  the  state  required,  directed  a  judgment 
in  favor  of  the   county.     The  United  States  Court  of  Appeals 
reversed  the  Circuit  Court,  and  held  the  bonds  for  which  these 
refunding  bonds  were  exchanged  to  have  been  vahd  obligations 
of  the  county.^ 


>  Comanche  County  r.  Lewis,  (1890) 
133   U.   S.   198,    affirming    Lewis    t. 
Comanche  County,  35  Fed.  Rep.  343. 
As   supporting    the  third   point,   see 
State  ex  rel.  r.  Yoxall,  40  Kans.  323; 
Broughton  c.  Pensacola,  93  U.  S.  266; 
Mount  Pleasant  p.  Beckwith,  100  U. 
8.  514.     As  to  the  effect  of  the  recitals, 
see  School  District  v.  Stone,  106  U.  S. 
183;  Lewis  r.   Commissioners,  105  U. 
S.  739.     As  to  the   power  of  Kansas 
counties  to  l)orrow  money  and  issue 
bonds,   see  Leavenworth    County    v. 
Miller,  7  Kans.  479;   Doty  c.  Ellsbree, 
11  Kans.  209. 

*  Ashley  t.  Board  of  Supervisors  of 
Presque  Isle  County,  (1893)  60  Fed. 
Rep.  55.  It  was  said  by  the  court: 
**  We  do  not  consider  the  act  of  1875 


as  in  any  sense  a  repudiation  of  the 
original    organization.      Doubts    had 
arisen  in  regard  to  its  legality.     The 
public  interests    required  that    those 
doubts  should  be  put  at  rest,  and  the 
legislature    proceeded    to    clothe  the 
county  with  an  unquestionable  title. 
Having  regard  to  what  transpired,  it 
would  seem  that  the  statute  should  be 
regarded  as  effecting  a  reorganization 
and  giving  express  sanction   for  the 
continuance  of  a  body  whose  origin 
was  clouded  with  doubts  of  its  lawful- 
ness.    However    that    might    be,  the 
statute  could  not,  upon  any  construc- 
tion, operate  to  divest  rights  which 
had  been  acquired  while  the  county 
was   exercising    the    powers    it  had 
assumed." 


w 


%  405,  406] 


COUNTY  BONDS. 


845 


§  405.  Counties  suable  in  federal  courts. —  It  was  claimed 
in  an  action  upon  the  bond  of  a  county  in  Nevada  that  because 
a  county  was  an  integral  part  of  the  state  it  could  not,  under  the 
eleventh  amendment  of  the  Federal  Constitution,  be  sued  in  the 
United  States  Circuit  Court ;  also,  that  inasmuch  as  the  act  under 
which  the  bonds  were  issued  provided  for  litigation  concerning 
the  court,  and  named  the  court  of  the  state  in  which  such  liti- 
gation could  be  had,  that  such  jurisdiction  was  exclusive,  and 
prevented  suit  in  the  Circuit  Court.  The  United  States  Supreme 
Court  held  adversely  to  both  of  these  contentions.^ 

§  406.  Plea  of  Statute  of  Limitations  on  county  bonds. — 
In  this  action  upon  bonds  of  a  county  in  Nevada  the  county 


'Lincoln  County  v.  Luning,  (1890) 
133  U.  S.  529.  Mr.  Justice  Brewer, 
speaking  for  the  court,  said:  "  With 
regard  to  the  first  objection,  it  may  be 
observed  that  the  records  of  this  court 
for  the  last  thirty  years  are  full  of 
suits  against  counties,  and  it  would 
seem  as  though  by  general  consent  the 
jurisdiction  of  the  federal  courts  in 
such  suits  had  become  established. 
But  irrespective  of  this  geneml  acqui- 
escence, the  jurisdiction  of  the  Circuit 
Courts  is  beyond  question.  Tlie  elev- 
enth amendment  limits  the  jurisdiction 
only  as  to  suits  against  a  state.  It  was 
said  by  Chief  Justice  Marshall,  in 
Osborn  v.  Bank  of  the  United  States,  9 
Wheat.  738,  857,  that  the  'eleventh 
amendment,  while  restraining  the 
jurisdiction  granted  by  the  Constitu- 
tion over  suits  against  states,  is  of  ne- 
cessity limited  to  those  suits  in  which 
the  state  is  a  party  on  the  record. 
While  that  statement  was  held  by  this 
court  in  the  case  of  In  re  Ayers.  123  U. 
8.  443,  to  be  too  narrow,  yet  by  that 
decision  the  jurisdiction  was  limited 
only  in  respect  to  those  cases  in  which 
the  state  is  a  real,  if  not  a  nominal  de- 
fendant; and  while  the  county  is  ter- 
ritorially a  part  of  the  state,  yet  po- 
litically it  is  also  a  corporation  created 
by  and  with  such  powers  as  are  given 
to  it  by  the  state.    In  this  respect  it  is 


a  part  of  the  state  only  in  that  remote 
sense  in  which  any  city,  town,  or  other 
municipal  corporation  may  be  said  to 
be  a  part  of  the  state.  Metropolitan 
Railroad  Co.  v.  District  of  Columbia, 
132  U.  S.  1.  *  *  *  With  regard  to 
the  other  objection,  the  case  of  Cowles 
V.  Mercer  County,  7  Wall.  118,  122,  is 
decisive.  In  that  case  the  court,  by 
the  chief  justice,  expressed  its  opinion, 
on  the  very  question  in  these  words: 
'  But  it  was  argued  that  counties  in 
Illinois,  by  the  law  of  their  organiza- 
tion, were  exempted  from  suit  else- 
where than  in  the  Circuit  Courts  of 
the  county.  And  this  seems  to  be  the 
construction  given  to  the  statutes  con- 
cerning counties  by  the  Supreme 
Court  of  Illinois.  But  that  court  has 
never  decided  that  a  county  in  Illinois 
is  exempted  from  liability  to  suit  in 
national  courts.  It  is  unnecessary, 
therefore,  to  consider  what  would  be 
the  effect  of  such  a  decision.  It  is 
enough  for  this  case  that  we  find  the 
board  of  supervisors  to  be  a  corpora- 
tion authorized  to  contract  for  the 
county.  The  power  to  contract  with 
citizens  of  other  states  implies  liability 
to  suits  by  citizens  of  other  states,  and 
no  statute  limitation  of  suability  can 
defeat  a  jurisdiction  given  by  the 
Constitution.'" 


S^G 


COUNTY  BONDS. 


[§4or 


attempted  to  avail  itself  of  the  Statute  of  Limitations.  The 
United  States  Supreme  Court  held  that  when,  after  default  by  a 
municipal  corporation  in  the  payment  of  interest  upon  ita  bonds, 
the  legislature  provides  for  the  creation  of  a  special  fund  by  the 
debtor  out  of  which  the  creditor  is  to  be  paid,  the  debtor  cannot 
set  up  the  Statute  of  Limitations  to  an  action  on  the  bonds  and 
coupons  without  showing  that  the  fund  had  been  provided.* 

§  407.  When  statute  as  to  presentation  of  claims  is  not 
applicable  to  judgments  upon  bonds  and   coupons.— The 

statute  of  Nevada  requiring  presentation  of  claims  and  accounts 
at^ainst  counties  to  the  county  commissioners  and  county  auditor 


'Lincoln  County  r.  Lnning.  (1890) 
133  U.  S.  529.     The  bonds  in  this  case 
had  been  issued  in  1873.     In  1877  the 
county  was  delinquent  in  its  interest, 
and    there    was   an    amendatory    act 
passed  providing  for  the  registmtion 
of    overdue    coupons    and    imposing 
upon  the  treasurer  the  duty  of  there- 
after paying  the  company  as  money 
came    into    his   possession  applicable 
thereto.     It  was  said  by    the    court: 
"  The  coupons,  which  by  the  General 
Limitation     Law    would    have    been 
barred,  were  presented  as  they  fell  due 
to  the  treasurer  for  payment  and  pay- 
ment demanded  and  refused  because 
the    interest     fund     was     exhausted. 
Thereupon    the    treasurer    registered 
them  as  presented  in  accordance  with 
the  act  of  1877,  and  from  the  time  of 
their  registration  to  the  commencement 
of  this  suit  there  was  no  money  in  the 
treasury  applicable  to  their  payment. 
This  act,  providing  for  registration  and 
for  payment  in  a  particular  order,  was 
a  new  provision  for  the  payment  of 
these  bonds,  which  was  accepted  by 
the  creditor  and  created  a  new  right 
upon  which  he  might  rely.     It  pro- 
vided, as  it  were,  a  special  trust  fund 
to  which  the  coupon  holder  might,  in 
the  order  of  registration,  look  for  pay- 
ment and  for  payment  through  which 
he  might  safely  wait.    It  amounted  to 


a  promise  on  the  part  of  the  county  to 
pay  such  coupons  as  were  registered  in 
the  order  of  their  registration  as  fast  as 
money   came  into   the  interest  fund; 
and  sucli  promise  was  by  the  creditor 
accepted.      »     *     *     The    cases   of 
Underbill  v.  Sonora,  17  Cal.   173,  and 
Freehill  v.  Chamberlain,  65  Cal.  603, 
are  in  point.     In  the  former  case  the 
court   observes   that   'the   legislative 
acts    then    recognized  the   debt    and 
made  provision  for  its  payment.     This 
is  enough  to  withdraw  the  case  from 
the    operation    of    the   statute;    it  is 
equivalent  to  a  trust  deed  by  the  state 
setting  apart  property  out  of  which 
the  money  due  was  to  be  paid  at  a 
given  time,  if  not  sooner  paid  upon  a 
claim  acknowledged  to  be  an  outstand- 
ing debt;  and  we  cannot  conceive  of 
any  principle  of  law  or  justice  which 
would  hold  the  claim  to  be  barred  by 
the  statute  simply  because  the  creditor 
waited  after  this  for  his  money.'    In 
the  other  case  it  was  held  that  '  where 
a  statute  provides  for  the  issuing  of 
bondS'Of  a  city  with  interest  coupons 
payable  as  fast  as  money  should  come 
into  the  treasury  from  special  sources 
designated  by  the  act,  the  Statute  of 
Limitations  does  not  commence  to  run 
against  the  coupons  until  the  money  is 
received  in  the  treasury  in  accordance 
with  the  terms  of  the  act.' " 


H08J 


COUNTY  BONDS. 


i 


847 


for  allowance  and  approval  has  been  held  by  the  federal  court 
for  that  district  to  apply  only  to  unliquidated  claims  and  accounts, 
not  to  bonds  and  coupons,  nor  to  a  judgment  upon  bonds  and 
coupons.  Neither  is  such  presentation  necessary  before  an  action 
on  such  a  judgment.  It  was  further  held  that  where  the  statute 
authorizing  bonds  to  be  issued  provides  for  their  payment  by  levy- 
ing a  special  tax  and  creating  a  special  fund,  an  allowance  by  a 
county  board  and  audit  of  a  claim  on  a  judgment  on  such  bonds 
as  payable  out  of  the  general  fund,  would  not  be  an  allowance  m 
the  manner  and  form  to  which  the  holder  would  be  entitled  ;  nor 
w^ould  he  be  precluded  from  maintaining  an  action  on  the  judg- 
ment because  of  another  remedy  prescribed  by  statute  to  enforce 
payment  of  claims  allowed  and  audited.^ 

§  40&  The  proper  proceeding  of  courts  where  some  of 
the  bonds  of  a  series  are  valid  and  other?  invalid.— A  cor- 
poration holding  certain  of  a  series  of  refunding  bonds  issued  by 
a  county  in  Iowa,  having  brouglit  its  action  at  law  in  the  federal 
court  of  one  of  the  districts  of  that  state,  and  the  court  holding 
some  of  tlie  bonds  of  the  series  valid  and  some  invalid,  the  court 
was  compelled  to  order  judgiiRMit  in  favor  of  the  county  because 
it  was  not  possible  in  the  action  to  settle  the  equities  of  the  dif- 
ferent  holders  of    these   bonds.     The  judgment  was,  however, 


'Vincent  r.   Lincoln  Co..  (1894)   62 
Fed.  Rep.  705.     The  court  sai«l:  "  The 
judgment  originally  obtained  in  this 
i-ase   and  upon   which    this   action   is 
brought  is  conclusive  that  the  bonds 
and   coupons  upon  which  the  judg- 
ment was  rendered  were  binding  obli- 
gations,   which    entitled    plaintiff    to 
payment  of  the  same  out  of  the  fund 
created  by  law  for  that  purpose  or  out 
of   any  fund  that  could  be  lawfully 
created  for  the  payment  of  the  same. 
And  it  is  not  within  the  power  of  the 
board  to  limit  this  right  so  as  to  de- 
prive plaintiff  of  the  remedy  to  which 
he  is  entitled  under  the   law.     Ralls 
Co.  Court  V.  U.  8.,  105  U.  8.  733,  and 
note;  Lincoln  Co.  Court  v.  U.  8.,  105 
V.  S.  739,  note."    That  the  complaint 
on  coupons  and  bonds  of  a  county  is 
not    defective   for  not  showing   that 


they  had  been  presented  to  the  county 
(  ommissioners  and  county  auditor  for 
allowance  and  approval  as  provided  in 
statutes  of   the   state,  see  County  of 
Greene  r.   Daniel.  102  U.  8.  187,  194, 
in  which  the  court  observed,  speaking 
of  bond  and  coupons,  that  "the  claim 
was,  to  all  intents  and   purposes,  au- 
dited by   the  court  when  the   bonds 
were    issued.     The   validity  and    the 
amount  of  the  liability  were  then  defi- 
nitely fixed  and  warrants  on  the  treas- 
ury given,  payable  at  a  future  day." 
As  to  the  constitutionality  of  the  stat- 
ute of  Nevada  authorizing  the  issue 
of  certain  county  bonds,  see  Odd  Fel- 
lows' Bank  v.  Quillen,   11  Nev.   109, 
following  Youngs   r.  Hall,  9  Nev.  212; 
approved   and    followed    in    Lincoln 
County  r.  Luning,  (1890)  133  U.  8.  529. 
532. 


848 


OOtTNTY  BONDS. 


[§408 


without  prejudice  to  the  plaintiff,  leaving  it  in  its  power  to  hnng 
an  action  of  equity  to  settle  the  equities  of  the  holders,  which 
the  court  recognized.     As  to  the  inability  of  the  court  at  law 
SHIRA8,  J,  said :  "It  is  argued  that  the  bonds  would  )>«  valid 
until  the  amount  needed  to  refund  the  enforceable  debt  had  been 
reached,  and  that  it  will  be  presumed  that  the  bonds  were  sold  m 
the  order  of    their   number.     Such  a  presumption   cannot   be 
indul-ed  in  under  the  facts  of  this  case.     To  settle  the  equities 
and  rights  of  the  bondholders  against  the  county  and  their  nghts 
as  between  themselves  would  seem  to  require  the  institution  of  a 
suit  in  equity.     In  this  action  at  law  between  one  owner  of  part 
of  the  bonds  and  the  county,  it  is  beyond  the  power  of  the  court 
to  hear  and  determine  the  question  of  the  order  in  which  the 
series  of   bonds  were  sold  or  the  application   of  the   proceeds 
realized  from  the  sales  thereof,  and  whether  the  facts  are  such 
that  a  certain  number  of  the  bonds  can  be  held  valid  at  law  or 
whether  it  should  not  be  held  that  each  owner  of  a  bond  is  equita- 
blv  entitled  to  demand  his  share  of  the  total  sum  which  may  be 
adiud(?ed  to  be  collectible  from  the  county."     He  suggested  the 
following  as  a  proceeding  proper  in  such  a  case:  "It  seems  tx> 
me  that  the  only  means  of  solving  the  difficulties  of  the  situation 
is  for  the  plaintiff  and  the  other  non-resident  bondholders  to  unite 
in  a  proper  proceeding  in  equity  against  the  county  and  such 
other  bondholders  as  may  refuse  to  act  as  complamants,  and    n 
such  suit  it  can  finallv  be  determined  for  what  amount  the  county 
can  be  held  liable  and  the  rights  of  the  respective  bondholders 
in  and  to  this  sum  can  be  decreed."  ^ 
1  ^tna  Life  Insurance  Co.  «.  Lyon  County,  (1890)  44  Fed.  Hep.  329,  345. 


i 


CHAPTER  XIX. 


CITY  BONDS. 


§  409.    City  bonds  generally. 

410.  Extension  of  a  bonded  debt  of 

a  city. 

411.  Bonds  for  funding  indebted- 

ness. 

412.  Effect  of  a  statutory  limita- 

tion on  bonds. 

413.  Bonds  in  compromise  of  out- 

standing indebtedness. 

414.  The  effect  of  a  statute  legal- 

izing an  issue  of  bonds. 

415.  Bonds    for    public   improve- 


§416. 


417. 


418. 


mcfnts — limitations  on 
power  to  issue. 

Effect  of  an  order  by  resolu- 
tion of  council  of  a  city  for 
an  election  to  authorize  the 
issue  of  bonds. 

Bonds  valid  when  issued  as  a 
part  of  the  general  in- 
debtedness of  a  city. 

Validity  of  bonds  as  affected 
by  a  restriction  in  the 
charter  of  a  city. 


§  409.  City  bonds^enerally.—  The  weight  of  authority  upon 
the  power  of  a  municipal  corporation  to  execute  bonds,  to  be 
placed  on  the  market  for  the  purpose  of  raising  money  to  be 
expended  by  the  agents  of  the  corporation,  or  for  tlie  purpose  of 
funding  outstanding  indebtedness,  seems  to  be  generally  against 
the  exercise  of  the  power  except  in  cases  where  the  power  is 
derived  from  legislative  authority,  expressed  or  implied.     The 
reason  for  the  ruling  is  well  known  to  be  in  the  fact  that  munici- 
pal corporations  are  established  to  enable  the  people  residing  in 
towns   and   cities   to   have   the   benefits   of    local   government. 
Unlike   trading   or  business  corporations,  their   powers,  unless 
otherwise  directed  by  express  or  implied  grant,  should  be,  and 
are,  in  law  as  well  as  in  public  policy,  limited  to  such  as  are  gov- 
ernmental or  administrative  in  their  nature  and  scope,  to  such  as 
are  necessary  to  conserve  the  purposes  of  their  organism.^     Where 
a  city  had  power  to  borrow  money  to  assist  in  construction  of  cer- 
tain improvements,  and  did  so  borrow,  but  a  portion  of  the  sum 
was  misappropriated,  the  Indiana  Supreme  Court  held  that  the 
city  had  power  to  borrow  an  additional  amount  by  issuance  of 
bonds  to  pay  the  residue  of  the  debts  unpaid.^     Municipal  bonds, 
in  the  absence  of  statutory  authority,  can  only  be  payable  at  the 
municipal  treasury .»     The  Indiana  statute  conferring  on  cities  the 

»  Holmes    v.    aty    of    Shreveport,       «  Sheriock  v.  Village  of  Winnetka 
(1887)  31  Fed.  Rep.  113.  68  111.  530. 

«  Daily  v.  City  of  Columbus,  49  Ind. 
169. 

107 


850 


CIIY  BONDS. 


t§  409 


general  power,  without  restriction,  to  piircliase  real  estate  for  the 
I)urpo8e  of  constructing  buildings  thereon,  has  been  held  to  give 
by  inipUcatiou  the  exclusive  right  to  determine  tlie  expediency  of 
the  purpose,  tlie  power  to  purchase  on  credit  and  to  issue  neces- 
sary bonds  for  the  purchase  money.*  A  city  will  not  be  pre- 
vented from  issuing  new  bojids  with  coupons  for  future  interest, 
for  the  purpose  of  funding  debts,  with  accrued  interest,  existing 
prior  to  the  adoption  of  a  constitutional  provision  prohibiting 
municipal  corporations  from  becommg  indebted  to  an  amount  in 
the  aggregate  exceeding  two  per  centum  on  the  value  of  their 
taxable  property  by  such  provision.'*  A  citizen  and  taxpayer  of 
a  city  may  by  injunction  prevent  the  issue  of  negotiable  bonds 
which  honafide  holders  might  enforce,  and,  where  they  have  been 
issued,  but  remain  in  the  hands  of  one  who  received  them  with 
notice,  may  maintain  a  suit  to  restrain  their  transfer,  and  for 
their  surrender  and  cancellation.^  A  city  authorized  to  issue  a 
bond  for  its  indebtedness,  the  Supreme  Court  of  Illinois  held  was 
authorized  to  issue  another  bond  upon  terms  as  to  interest  .within 
the  limitations  of  its  charter  in  that  respect,  upon  the  coming 
due  of  the  first  bond  issued,  for  the  time  extended,  and  take  uj) 
tlie  old  one  therewith.*  The  onus  of  showing  that  bonds  issued 
by  a  municipal  corporation  are  illegal  is  on  the  one  who  seeks  to 
impeach  them.'*  A  hona  fide  holder  of  bonds  of  a  municipal 
corporation,  where  the  corporation  has  power  under  any  circum- 
stances to  issue  negotiable  securities,  has  a  right  to  presume  that 
they  were  issued  under  circumstances  giving  the  requisite  author- 
ity, and  such  bonds  are  no  more  liable  to  be  impeached  in  the 
hands  of  such  a  holder  than  any  other  commercial  paper.®  An 
innocent  holder,  acquiring  municipal  bonds,  without  collusion,  for 
a  valuable  consideration,  will  not  be  prejudiced  by  irregularities 
in  their  issue  where  he  had  no  knowledge  of  such  irregularities.'^ 
The  defense  that  one  is  the  honafide  holder  may  be  set  up  when 
bonds  are  made  negotiable,  or  when  coupons  are  detached  from 


'  City  of  Hichmond  v.  McGirr,  78 
Ind.  192. 

« Powell  t.  City  of  Madison,  107 
Ind.  106. 

3  City  of  Madison  id.  Smith,  83  Ind. 
502.  As  to  the  power  of  Kanisas  cities 
to  issue  bonds  iu  payment  of  the  build- 
ing of  sidewalks,  see  Wyandotte  v. 
Zeitz.  21  Eans.  649. 


*  City  of  Quincy  t.  Warfield,  (1861) 
25  111.  320. 

» Ibid. 

•  Gelpcke  r.  Dubuque,  1  Wall.  175. 
'  State  V.  City  Council,  74  Ala.  226; 

Burr  v.  City  of  Carbondale.  76  111.  455; 
Town  of  Douglas  v.  Niantic  Savings 
Bank,  97  Bl.  228. 


: 


I 


a  * 


.¥ 


tf^. 


§409] 


CITY  BONDS. 


851 


the  bonds,  the  coupons  being  negotiable.^  An  act  authorizing 
the  issue  of  bonds  of  a  city  in  Alabama  for  the  construction  of  a 
canal,  etc.,  declared  that  "  No  bond  shall  be  issued  but  upon  an 
entire  concurrence  of  the  board  of  mayor  and  aldermen,  upon  a 
full  attendance  of  all  the  members  of  the  board,  and  when  there 
is  no  vacancy,  which  shall  be  made  manifest  only  by  an  entry  of 
the  order  for  issuing  being  made  on  the  minutes  of  the  board, 
and  signed  by  each  member  thereof;  nor  shall  any  contract 
amounting  to  one  hundred  dollars,  made  under  any  of  the  pro- 
visions of  this  act,  be  valid,  which  is  not  made  under  all  the 
restrictions  in  this  section  recited."  This  restriction  was  held  to 
continue  under  an  act  subsequently  passed  extending  the  amount 
and  authorizing  the  money  to  be  appropriated  under  the  super- 
vision of  the  mayor  and  aldermen  "  for  any  purpose  of  internal 
improvement  for  the  benefit  of  the  citizens  of  [the  city]."  And 
a  purchaser  of  a  bond  issued  under  this  last  act,  and  reciting  on 
its  face  that  it  was  so  issued,  was  held  chargeable  with  notice  of 
the  restrictions  and  conditions  and  not  entitled  to  claim  protec- 
tion as  an  innocent  holder,  although  the  bond  also  recited  that  it 
was  issued  in  conformity  with  the  statute.^  A  clause  in  the 
charter  of  an  Illinois  city  empowering  the  city  council  to  bor- 
row money  not  exceeding  $100,000,  and  issue  bonds  there- 
for, has  been  held  to  apply  to  the  incurring  of  liabilities 
by  borrowing  money  and  not  to  those  incurred  as  a  part  of 
the  current  expenses  of  the  city.^  A  third  person  liable  to  pay 
to  a  municipal  corporation  the  indebtedness,  for  instance,  a  judg- 
ment for  which  the  corporation  has  issued  bonds  in  payment  of 
in  favor  of  the  judgment  creditor,  cannot  set  up  the  fact  that  the 
bonds  were  invalid  by  reason  of  being  in  excess  of  the  constitu- 
tional limit  of  indebtedness.*  The  existing  legal  power  or  author- 
ity to  issue  municipal  bonds  being  defectively  or  irregularly 
executed,   makes   the  bonds  only   voidable.^     Municipal  bonds 


'  Atchison  v.  Butcher,  3  Kans.  121. 

•  Mayor  v.  Wetumpka  Wharf  Co., 
63  Ala.  611.  An  illustration  of  when 
the  holder  of  coupons  of  bonds  void 
as  vltra  tires  the  corporation  to  issue, 
cannot  maintain  a  suit  against  a  city 
treasurer  for  taxes  levied  for  the  pay- 
ment of  these  coupons  under  an  ordi- 
nance of  the  council  of  the  city  and 
coming  into  the  hands  of  the  treas- 


urer.    McConnell  v.  Hamm,  16  Kans. 
228. 

3  Barrett  v.  City  of  East  St.  Louis, 
89  ni.  175,  holding  a  bond  issued  in 
payment  of  a  current  liability  valid, 
although  the  bonded  indebtedness  of 
the  city  exceeded  the  limitation  stated 
in  the  text. 
*  Sioux  City  v.  Weare,  59  Iowa,  95, 
»  Ryan  v.  Lynch,  68  111.  160. 


852 


CITY  BONDS. 


[§4ia 


§410] 


CITY  BONDS. 


853 


! 


merely  voidable  may  be  enforced  in  the  bands  of  an  innocent 
purchaser  for  value,  but  if  they  are  absolutely  void,  they  cannot 
be  enforced,  either  by  the  original  holder  or  a  purchaser  for 
value.*  Even  in  the  hands  of  an  innocent  liolder,  bonds  of  a 
municipal  corporation  issued  without  authority,  are  void.^ 

§  410.  Extension  of  a  bonded  debt  of  a  city. —  The  ques- 
tion raised  in  a  New  York  case  was  over  an  apparent  collision 
between  the  terms  of  the  charter  of  a  city  and  the  Refunding 
Act  of  1878.  The  charter  had  in  it  these  words  of  restraint 
upon  the  city :  "  The  common  council  shall  not  have  power  to 
borrow,  and  is  hereby  expressly  prohibited  from  borrowing,  any 
money  on  account  of  the  city,  except  as  herein  provided.  The 
said  council  shall  not  create  any  pecuniary  obligations  what- 
ever on  tlie  part  of  the  city  wliich  shall  not  be  payable  in  the 
current  year,  and  which  cannot  be  discharged  from  the  income 
of  the  same  year."  Nevertheless  a  bonded  debt  was  lawfully 
created  to  supply  the  city  with  water ;  not  by  an  amendment 
of  the  charter,  but  by  express  legislative  permission  outside  of 
it,  granting  authority  to  borrow  money  for  such  purpose,  and  that 
permission  was  given  without  notice  of  or  reference  to  the  sec- 
tion of  the  charter  prohibiting  a  loan.  Finch,  J.,  for  the  Court 
of  Appeals,  said  of  it :  "  It  operated  as  a  spccilic  exception  to  an 
established  general  rule,  and,  so  construed,  the  two  acts  could  be 
read  together  without  collision  or  contradiction."  The  Refund- 
ing Act,  passed  afterwards,  authorized  in  two  forms  the  extension 
of  a  bonded  debt  for  a  period  not  exceeding  thirty  years,  but  at 
a  lower  rate  of  interest.  This  act  applied  to  every  village,  city 
or  county  owing  such  debt  and  desiring  to  extend  it  through  an 
added  period  of  credit.     It  applied  to  all  of  them  without  refer- 


*  Barnes  v.  Town  of  Lacon,  84  111. 
461. 

'  Williamson  v.  Keokuk,  44  Iowa, 
88.  That  bonds  of  municipal  corpo- 
rations issued  without  legal  authority, 
arc  void  even  in  the'hands  of  innocent 
purchasers  without  actual  notice  of 
the  want  of  power  in  the  corporation 
to  issue  Ihem,  see  Bissell  v.  City  of  Kan- 
kakee, 64  111.  249;  Livingston  County 
«,  Weider,  64  III  427;  Town  of  Big 
Grove  v.  Wells,  65  HI.  263;  Ryan  v. 


Lynch,  68  111.  160.  As  to  the  power 
of  a  city  in  Michigan  to  issue  bonda 
without  a  vote  of  the  electors,  see 
Common  Council  of  City  of  Muskegon 
r.  Gow,  (1892)  94  Mich.  453;  s.  c,  54 
N.  W.  Rep.  170.  As  to  authority  to 
issue,  see  TiUotson  v.  City  of  Sagi- 
naw, (1892)  94  Mich.  240;  s.  c,  54  N. 
W.  Rep.  162.  As  to  city  revenue 
bonds,  see  People  v.  Myers,  (1893)  138 
N.  Y.  590. 


ence  to  their  charters  or  the  acts  under  which-  the  indebtedness 
was  created,  and  was  an  enabhng  act  of  which  any  city  might  avail 
itself.  The  two  forms  of  extension  authorized  were,  first,  an 
exchange  of  old  for  new  bonds,  securing  the  new  credit  at  the 
lower  rate  of  interest,  and,  second,  to  meet  the  emergency  of  a 
refusal  by  holders  to  make  the  exchange  bond  for  bond,  the  issue 
and  sale  of  new  bonds,  applying  the  proceeds  to  the  cancellation 
of  the  old  ones.  The  city  involved  in  this  case  chose  the  second 
form  of  extension,  and  the  purchaser  refused  to  take  the  new 
bonds,  upon  the  ground  that  it  was  a  borrowing  of  money  pro- 
hibited by  the  charter,  and  the  issue  of  the  bonds  by  the  city  was 
unauthorized.  The  Court  of  Appeals  affirmed  the  decree  of  the 
court  below  that  the  purchaser  should  specifically  perform  his 
part  of  the  contract  to  purchase  these  bonds,  holding  the  bonds 
valid  and  authorized.^ 


'  City  of  Poughkcepsie  i\  Quintard, 
(1892)   136  N.   Y.    275.     FI^X'H,    J., 
speaking  for  the  court,  said:  "  It  must 
be  conceded   that  the  transaction  in 
form  may  be  a  borrowing  of  money, 
but  in  substance  it  is  the  very  different 
case  of   refunding  an  existing  debt. 
There  is  a  new  creditor  and  a  new  rate 
of  interest,   but  the  same   old  debt. 
The    municipal    liability  is    not    in- 
creased, but  merely  suffered  to  remain, 
and  not  a  dollar  of  new  or  added  debt 
results.     The  transaction  is  no  differ- 
ent from  what  it  would  have  been  if 
there  had  been  an  exchange  of  bonds. 
There  it  is  conceded  there  would  have 
been    no  borrowing    of    money,  and 
merely  an  extension  of  credit.     But 
the  actual  result  and  the  contemplated 
purpose  are  exactly  the  same  under 
the  second  form  of  refunding  as  under 
the  first,  and  I  do  not  think  the  per- 
mission  of    the  Enabling   Act  comes 
into  collision  with  the  prohibition  of 
the  charter.     That  prohibition  had  an 
obvious  purpose  and  meaning.     It  was 
to  restrain  the  creation  of  a  debt,  not 
the  extension  of  one  already  existing; 
to  prevent  a  new  liability,  not  to  post- 
pone payment  of  an  old  one;  to  shield 
the    taxpayers    from    the   waste    and 


danger  of  extravagant  and  needless 
appropriations,  and  not  to  obstruct  the 
convenient  and  beneficial  extension  of 
a  proper  debt  lawfully  incurred.  Full 
force  and  effect  can  be  given  to  each 
statute  by  reading  them  together,  and 
construing  them  as  if  they  were  con- 
tained in  one  and  the  same  act  of  legis- 
lation. It  is  our  duty  to  harmonize 
them  if  possible,  and  I  can  see  no 
more  reason  for  deeming  them  incon- 
sistent and  repugnant  than  the  pro- 
vision of  the  charter  and  the  original 
act  authorizing  the  water  debt.  It  is 
true  that  the  Refunding  Act  is  a  gen- 
eral act,  applying  to  all  the  municipah- 
ties,  and  that  circumstance  is  urged 
to  show  that  it  worked  no  repeal  of 
the  debt  provision  of  the  charter^  but 
no  repeal  was  necessary  or  intended. 
Here  was  in  the  Refunding  Act  a 
specific  permission  to  do  one  particular 
thing  granted  to  all  cities  and  so  given 
to  [the  one  here],  and  that  particular 
intention  to  allow  the  refunding  of  its 
maturing  debt  is  met  by  the  general 
intention  manifested  in  the  charter,  not 
to  permit  any  debt  to  be  contracted  at 
all,  and  in  such  a  case,  if  there  be  in- 
consistency, the  particular  iutentiou 
takes  effect  as  an  exception.     Hoey  «>. 


854 


CITY  BONDS. 


[§411 


§  411.  Bonds  for  funding  indebtedness.—  A  city  of  Missouri 
had  authority  in  law  to  borrow  money  within  a  certain  Hmitation 
as  to  interest,  and  to  provide  for  the  payment  of  its  debts.  An 
ordinance  was  passed  by  the  council  creating  the  office  of  "  city 
fund  commissioner,"  and  it  was  made  his  duty  to  sell  the  bonds 
of  the  city  for  the  purpose  of  funding  or  paying  the  indebtedness 
of  the  city,  and  apply  the  proceeds  to  the  purchase  of  outstand- 
ing warrants  and  bonds  past  due,  or  not  having  more  than  three 
years  to  run.  By  this  ordinance  he  was  limited  in  his  sales  to  a 
price  not  less  than  ninety-live  cents  on  the  dollar  of  the  par  value 
of  five-year  bonds,  and  ninety  cents  for  those  running  ten  years. 
Upon  his  report  of  the  amount  of  the  city's  indebtedness  at  a  cer- 
tain date,  and  how  much  of  it  was  about  to  mature,  an  ordinance 
was  passed  authorizing  him  "  to  negotiate  the  bonds  of  the  city 
for  the  purpose  of  raising  money  to  liquidate  the  city  debt,  for  a 
period  not  exceeding  fifteen  years,  and  at  a  rate  of  discount  not 
exceeding  fifteen  per  cent."  On  the  2Sth  of  March,  1872,  the 
general  assembly  of  Missouri  passed  an  act  providing  for  the  reg- 
istration of  bonds  issued  by  counties,  cities  and  incorporated 
towns.  The  city,  after  the  passage  of  tliis  act,  issued  bonds  for 
the  purpose  of  raising  money  to  pay  its  interest-bearing  debts  and 
the  expenses  of  its  government,  containing  recitals  that  they  were 
issued  under  the  authority  of  the  charter  and  the  ordinance  above 
referred  to.  These  bonds  were  executed  after  the  act  of  March 
28,  1872,  went  into  effect,  but  were  antedated  for  the  purpose  of 
evading  the  provisions  of  that  statute.  Without  being  registered 
these  bonds  were  placed  by  the  city  fund  commissioner  in  the 
hands  of  a  stock  and  bondbroker  of  character  for  sale.    This  broker 


Gilroy,  129  N.  Y.  132.  But  I  do  uot 
think  that  the  refunding  provision  is 
within  the  spirit  or  intent  of  the 
charter  prohibition.  The  object  and 
purpose  of  the  latter  was  to  prevent 
something  entirely  different  in  sub- 
stance and  effect  from  that  which  the 
Refunding  Act  permitted,  and  the  two 
statutes  may  be  read  together,  and 
each  perform  its  proper  office  and  ac- 
complish its  appropriate  duty  without 
necessary  collision  or  inconsistency. 
Nor  do  we  encounter  difficulty  in  the 
provisions  of  the  charter,  which  point 
out  the  mode  of  payment,  and  provide 


for  the  payment  itself  of  a  matured 
debt.  They  operate  only  when  ulti- 
mate payment  is  required,  and  have 
no  application  when,  by  the  extension 
of  the  debt,  its  payment  is  postponed 
in  fact.  What  may  seem  payment  in 
form  is  not  so  in  truth,  but  a  mode  of 
substituting  extended  bonds  for  those 
miitured,  taking  the  form  of  payment 
solely  to  compel  the  substitution  in- 
tended. I  think  substance  would  be 
sjicrificed  to  form,  the  intention  of  one 
statute  be  defeated,  and  of  the  other 
perverted,  if  we  should  construe  them 
as  hostile  and  inconsistent." 


§A11] 


CITY  BONDS. 


855 


sold  certain  of  the  bonds  to  persons  who  paid  to  the  broker  ninety 
per  cent  of  their  face  value,  the  price  in  money,  the  purchasers 
being  ignorant  of  the  fact  that  the  bonds  were  actually  executed 
after  the  registration  law  went  into  effect,  or  that  the  recitals 
were  not  in  all  respects  true.     They  bought  and  paid  for  them 
in  good  faith,  believing  them  to  be  what  on  their  face  the  bonds 
purported  to  be  and  obligatory  on  the  city.     The  broker,  by  his 
agreement  with  the  fund  commissioner,  retained  from  the  money 
realized  on  the  sales  live  per  cent  on  the  par  value  of  the  bonds 
sold  for  his  services,  and  paid  the  residue  to  the  f imd  commis- 
sioner, who,  with  the  sanction  of  the  city  council,  used  part  in 
the  payment  and  redemption  of  matured  bonds,  coupons  and  war- 
rants of  the  city,  and  handed  over  the  rest  to  the  city  treasurer. 
The  fund  commissioner  charged  himself  with  eighty-five  per  cent 
of  the  par  value  of  these  bonds,  as  the  sum  realized  by  him,  and 
it  was  used  for  city  purposes.     The  city  met  the  interest  for  a 
while    and    then    repudiated   the    bonds.     The    United    States 
Supreme  Court  held  that  the  holder  of  the  bonds  could  recover 
the  money  which  had  been  paid   for  them ;  that  the  right  of 
action,  though  the  bonds  were  invalid,  could  be  sustained  as  an 
action  for  money  paid  by  mistake,  or  upon  a  consideration  which 
happens  to  fail,  or  for  money  got  through   imposition.^     A  late 
case  in  the  United  States  Circuit  Court  for  the   district  of  Indi- 
ana shows  the  folio  whig  facts  :     The  city  advertised  for  bids  for 
a  whole  or  a  part  of  a  certain  amount  of  its  "  refunding  bonds  of 
1893."     A  firm  which  was  tlie  successful  bidder  for  the  whole 
amount  deposited  a  sum  of  money  in  a  bank  and  took  a  certifi- 
cate of  deposit,  payable  to  the  city  ofticials.     The  money  was  to 
be  returned  on  the  completion  of  the  purchase,  and  to  be  for- 
feited in  case  the  bidders  failed  to  complete  it.     The  firm,  dis- 
covering that  a  portion  of  the  bonds  were  invalid,  brought  their 
action  against  the  city  and  the  bank  to  obtain  a  return  of  the 


'  Louisiana  r.  Wood,  (1880)  102  U.  S. 
294.  The  court  said:  "The  money 
was  paid  for  bonds  apparently  well 
executed,  when  in  fact  they  were  not. 
because  of  the  false  date  they  bore. 
This  was  clearly  money  paid  by  mis- 
take. The  consideration  on  which  the 
payment  was  made  has  failed,  because 
the  bonds  were  not  in  fact  a  alid  obli- 


gations of  the  city.  And  the  money 
was  got  through  imposition,  because 
the  city,  with  intent  to  deceive,  pre- 
tended that  the  false  date  the  bonds 
bore  was  the  true  one.  While,  there- 
fore, the  bonds  cannot  be  enforced  be- 
cause defectively  executed,  the  money 
paid  for  them  may  be  recovered  back." 


f 
« 


856 


CITY  BONDS. 


[§412 


certificate  of  deposit  and  a  decree  entitling  them  to  the  money.  A 
section  of  the  charter  was  in  these  words :  "  Tlie  common  council 
shall  have  power  to  authorize  the  issue  and  sale  of  refunding  bonds 
in  order  to  raise  money  to  take  up  any  outstanding  bonds  of  said 
city,  or  to  exchange  with  the  holders  of  such  outstanding  bonds. 
The  same  shall  be  governed  by  the  provisions  of  the  second  pre- 
ceding section,  so  far  as  the  same  are  applicable."  "  In  view  of 
the  language  of  section  33,"  said  the  court,  "  there  is  no  room  for 
doubt  in  regard  to  the  securities  embraced  in  the  words  *  refund- 
ing bonds.'  Tlie  language  of  the  statute  contains  its  own  inter- 
pretation. Eefunding  bonds  are  of  two  sorts  :  I^irst,  those  which 
are  issued  and  sold  to  raise  money  to  take  up  outstanding  bonds 
of  the  city,  or,  secoruf^  those  which  are  issued  by  the  city  to  the 
holders  of  its  outstanding  bonds  in  exchange  therefor.  By  the 
express  terms  of  the  statute  refunding  bonds  cannot  lawfully  be 
issued  for  any  other  purpose.  Six  hundred  of  the  bonds  *  *  * 
awarded  to  the  complainants  were  to  be  issued  and  sold  to  raise 
money  to  pay  oif  and  take  up  a  like  amount  of  the  outstanding 
bonds  of  the  city.  To  this  extent  and  for  this  purpose  the  city 
had  the  undoubted  autliority  to  issue  and  sell  its  bonds.''  ^  It 
was  held,  however,  that  the  bonds  to  the  amount  of  $21,000 
included  in  tlie  issue  over  and  above  the  $000,000  whicli  were 
issued  for  the  purpose  of  replacing  in  the  general  treasury  of  the 
city,  which  had  been  long  before  paid  out  in  extinguishment  of  a 
series  of  bonds  issued  for  the  purchase  of  a  farm,  were  not 
refunding  bonds,  and,  therefore,  not  within  the  terms  of  the  com- 
plainants' bid  nor  the  city's  award ;  that  these  bonds,  as  refund- 
ing bonds,  were  ultra  vires  and  void,  and  a  decree  was  ordered 
in  favor  of  the  complainants  on  the  ground  that  they  were  enti- 
tled to  stand  upon  the  terms  of  their  bid  and  entitled  to  a  series 
of  bonds  issued  solely  as  refunding  bonds.^ 

§  412.  Effect  of  a  statutory  limitation  on  bonds. —  A  city  of 
New  York  of  more  than  100,000  inhabitants  was  authorized  by  the 
legislature  to  issue  bonds  not  to  exceed  a  certain  amount  at  a  rate 
of  interest  not  greater  than  four  per  cent  and  payable  in  not  more 
than  fifty  years,  in  order  witli  the  proceeds  to  improve  and  extend 
its  water  supply.  The  city  issued  a  part  of  the  authorized  bonds 
and  put  them  on  the  market  at  public  sale  to  the  highest  bidder. 


§412] 


CITY  BONDS. 


85' 


One  purchaser  refused  to  accept  and  pay  for  the  bonds  he  had 
bid  for,  upon  the  ground  that  the  city  could  not,  under  the  con- 
stitutionaf  restrictions,  issue  the  bonds  redeemable  in  fifty  years, 
which  was  the  term  of  credit  stipulated,  but  was  confined  to  an 
issue  running  but  twenty  years  and  accompanied  by  a  sinking 
fund  sufficient  to  extinguish  the  debt  at  its  maturity.  In  an 
action  by  the  city  against  the  purchaser,  the  New  York  Court  of 
Appeals  afl^rmed  the  judgment  in  favor  of  the  city,  sustaining 
the  vahdity  of  the  bonds  as  issued.' 


'  Coffin  r.  City  of  Indianapolis,  (1894) 
59  Fed.  Rep.  221. 


Ibid. 


»  City    of    Rocliester    r.    Quintard, 

(1892)  136  N.  Y.  221,  affirming  65 
IIuii,  460;  See,  also.  Sweet  v.  City  of 
Syracuse,  129  N.  Y.  316.  Cases  hold- 
ing the  bonds  of  the  city  valid  com- 
mercial securities:  Holmes  r.  City  of 
Shreveport,  31  Fed.  Rep.  113;  Dorian 
T.  City  of  Shreveport,  28  Fed,  Rep. 
287;  Oubre  v.  Donaldsoiiville,  33  La. 
Ann,  386;  Reynolds  v.  Shreveport,  13 
Ija.  Ann.  426;  City  of  Austin  v.  Nalle, 

(1893)  85  Tex.  520;  s.  c.  22  S.  W. 
Rep.  668;  De  Mattos  t.  City  of  New 
Whatcom,  (1892)  4  Wash.  St.  127.  In 
Portsmouth  Savings  Bank  v.  Village 
of  Ashley,  (1892)  91  Mich.  670,  steps 
had  been  taken  under  the  statute 
authorizing  the  issue  of  water  worlcs 
bonds  for  such  an  issue;  after  the  vote 
of  the  citizens  upon  the  question  a 
series  of  bonds  were  .signed  by  the 
president  and  clerk  of  the  village,  and 
placed  in  the  hands  of  the  president  of 
a  railroad  company,  as  appeared  in 
the  action,  for  sale  by  him,  the  proceeds 
to  be  used  for  the  benefit  of  the  rail- 
road company  in  consideration  of  an 
agreement  to  complete  the  road  to  the 
village.  The  bonds  not  being  of  a 
good  appearance,  another  set  of  bonds 
were  issued  in  their  stead,  the  interest 
being  made  payable  at  a  bank,  so  as  to 
render  them  more  salable.  They 
were  then  sold  to  a  bank  which 
brought  this  action  upon  coupons  of 
the  bonds,  claiming  to  be  a  hoim  fide 
purchaser.  The  Supreme  Court  of 
the  state  held  that  the  statute  of  Michi- 

108 


gan,  with  reference  to  the  issue  of 
water  works  bonds,  vested  the  power 
in  the  village  council,  and  until  that 
bod}''  had  met  in  a  legal  meeting  and 
voted  to  issue  the  bonds,  or  authorized 
their  issuance,  one  of  the  essential  re- 
quirements of  the  statute  had  not  been 
complied  with;  and  that  a  resolution 
of  the  village  council,  authorizing  the 
president  and  clerk  to  sign  water  works 
bonds,  conferred  no  authority  upon 
those  officers  to  issue  and  dispose  of 
the  bonds,  and  if  issued  and  disposed 
of  without  such  authority,  they  were 
not  binding  on  the  village.  See,  on 
the  subject  of  the  right  of  holders  of 
bonds  in  such  cases,  Brown  v.  Bon 
Homme  County,  (S.  D.)46  N.  W.  Rep. 
173;  Coler  v.  Cleburne,  131  U.  S.  162; 
Bank  v.  Bergen  County,  115  U.  S.  384; 
Ledwich  r.  McKim,  53  N.  Y.  315; 
McGarrahan  v.  Mining  Co.,  96  U.  S. 
316.  As  to  the  rights  of  a  holder  of 
bonds  to  stand  in  the  place  of  the 
party  to  whom  they  were  issued  and 
recover,  though  the  security  may  be 
invalid  upon  a  count  for  money  had 
and  received  or  for  money  paid  by 
mistake,  see  People  v.  Supervisors,  11 
Cal.  170;  Sturtevant  v.  Liberty,  46  ISIe. 
457;  Smith  v.  Cheshire,  13  Gmy,  318; 
Brewster  v.  Hyde.  7  N.  H.  208;  Moore 
«.  Sinks,  2  Ind.  257;  Inhabitants,  etc., 
T.  Weir,  9  Ind.  224;  Willim  t).  Beni- 
heimer,  5  Minn.  290;  Simms  c.  Hervey, 
19  Iowa,  288;  Wood  r.  Louisiana.  2 
Dill.  122;  Cause  v.  Clarksville,  5  Dill. 
180;  Paul  /•.  Citvof  Kenosha,  22  Wis. 


v: 


858 


CITY  BONDS. 


§  413.  Bonds  in  compromise  of  outstanding  indebtedness. 
—  Upon  the  bonds  issued  by  a  Kansas  citj  of  the  second  clasr* 
there  were  recitals  to  tliis  effect :  "  That  tliey  wore  executed  and 
issued  by  the  city  to  compromise  and  refund  its  matured  and 
maturing  indebtedness  heretofore  legally  created  by  said  city  and 
in  accordance  with  the  above-named  act  of  1870  [the  act  which 
authorized  a  refunding  of  the  city's  indebtedness]."  ''And  it  is 
hereby  certified  tliat  the  total  amount  of  this  issue  of  bonds  does 
not  exceed  the  actual  amount  of  the  outstanding  indebtedness  of 
said  city,  and  that  all  the  requirements  of  the  ])rovisions  of  the 
foregoing  act  have  been  strictly  complied  with  in  issuing  this 
bond."  They  were  signed  by  the  mayor,  and  attested  by  the 
city  clerk  under  the  seal  of  the  city.  The  federal  court  for  the 
district  of  Kansas,  in  an  action  upon  the  bonds,  held  that  under 
the  provisions  of  the  Kansas  statute,  that  the  powers  granted  to 
such  cities  "  shall  be  exercised  by  the  mayor  and  council  of  such 
cities,"  and  which  directs  that  funding  bonds  shall  be  duly  issued 
only  after  an  ordinance  therefor  shall  be  duly  passed,  these  bonds 
which  had  been  issued  without  any  ordinance  or  resolution  of  the 
mayor  and  council,  were  void.  ;N"either  was  the  city  estopped 
by  the  recital  in  the  bonds  to  the  effect  that  all  the  recpiirementa 
of  the  statutes  had  been  strictly  complied  with  from  denying 
their  validity.* 


266;  Wilkinson  t.  Babbitt,  4  DiTl.  208; 
Oneida  Bank  v.  Ontario  Bank,  21  N. 
Y.  490. 

*Swan  V.  City  of  Arkansas  Citj, 
(1894)  61  Fed.  Rep.  478.  In  the  opin- 
ion, the  holders  were  considered  inno- 
cent holders  of  the  bonds,  with  all  the 
rights  of  such,  under  the  authority  of 
Porter  f>.  Steel  Co.,  122  U.  8.  267;  s. 
c,  7  Sup.  Ct.  Rep.  1206:  Scotland  Co. 
u.  Hill,  132  U.  S.  107;  s.  c,  10  Sup. 
Ct.  Rep.  26,  and  it  was  said:  "  Plain- 
tiffs are,  therefore,  entitled  to  all  the 
protection  which  the  law  gives  to 
holders  of  this  class  of  securities,  who 
purchased  them  without  notice  and 
for  value.  Since  the  decision  of  the 
Supreme  Court  in  the  Knox  Co.  Case, 
21  How.  539,  it  is  the  settled  doctrine 
of  the  United  States  courts  that,  in  an 
action  on  municipal  bonds  by  an  inno- 


cent holder,  the  municipality  will  Im» 
estopped  to  deny  the  truth  of  all 
recittils  contained  in  the  bonds  which 
the  oflicers  issuing  them  were,  by  law, 
to  determine  before  issuing  the  bonds. 
But  this  does  not  affect  the  power  of 
the  corporation  or  its  officers  to  issue 
the  bonds.  No  recitals  can  estop  the 
municipality  from  pleading  a  want  of 
power  to  issue  the  bonds,  for  the  reason 
that  municipalities  and  the  officers 
thereof  are  but  agents  with  limited 
powers,  and  their  authority  to  act  must 
be  found  in  the  public  acts,  and  will 
not  be  presumed  to  exist.  *  *  *" 
The  plaintiffs  urged  that  the  recitals, 
"that  all  the  requirements  of  the  pro- 
visions of  the  act  have  been  strictly 
complied  with  in  issuing  them,"  makes 
it  unnecessary  for  a  purchaser  to  ex- 
amine  the  public  records  of  the  city 


§414] 


CITY  BONDS. 


859 


§  414.  The  effect  of  a  statute  legalizing  an  issue  of 
bonds. —  The  bonds  of  a  city  of  Nebraska  issued  to  raise  money 
to  erect  a  high  school  building,  being  in  excess  of  the  amount 
which  the  city,  by  the  then  existing  legislation,  was  authorized  to 
issue,  were  legalized  by  an  act  of  the  legislature  subsequently 
passed.  In  an  action  by  a  holder,  upon  coupons  detached  from 
the  bonds  due  and  unpaid,  it  was  contended  that  the  act  legaliz- 
ing the  bonds,  by  legalizing  bonds  void  because  the  city  had  no 
power  to  issue  them,  was,  in  law,  equivalent  to  an  act  conferring 
upon  the  city  power  to  issue  bonds,  which  was  conferring  corpo- 
rate power,  and  being  a  special  act  was,  therefore,  imconstitutional. 
The  United  States  Supreme  Court  held  the  bonds  to  be  valid 
obligations  of  the  city  through  the  operations  of  the  act  legalizing 
them,  sustaining  its  constitutionality.^ 


for  the  purpose  of  ascertaining 
whether  the  mayor  had  been  duly  au- 
thorized to  issue  the  bonds;  that  it  is 
within  the  power  of  the  mayor  to  pass 
upon  that  fact,  and  the  issuance  of  the 
bonds  by  him  is  conclusive  that  the 
power  existed.  To  this  the  judge 
said:  "  I  cannot  give  my  assent  to  this 
proposition,  nor  do  any  of  the  cases 
cited  by  the  diligent  counsel  go  to  that 
extent.  The  decisions  of  United  States 
Circuit  Court  of  Appeals  for  the  eighth 
circuit  are  conclusive  on  this  court, 
and  National  Bank  of  Commerce  v. 
Town  of  Granada,  10  U.  S.  App.  692; 
4  C.  C.  A.  212;  54  Fed.  Rep.  100,  is 
decisive  of  this  case.  In  that  case  the 
court  says:  '  The  plaintiff  was  bound 
to  know,  independently  of  the  recitals 
in  the  bond,  that  there  was  such  an 
ordinance  in  existence.  If  the  officers 
authorized  to  issue  the  bonds  upon  a 
<'ondition  are  not  the  appointed  tri- 
bunal to  decide  the  fact  which  consti- 
tutes the  condition,  their  recital  will 
not  be  accepted  as  a  substitute  for 
proof.  The  very  ground  of  the  estop- 
pel is  that  the  recitals  are  the  official 
statement  of  those  to  whom  the  law 
refers  the  public  for  authentic  informa- 
tion on  the  subject.'" 


»  Read  v.  Plattsmouth,  (1882)  107  U. 
S.  568,  Mr.  Justice  Matthews, 
speaking  for  the  court,  said:  *'The 
act  in  question,  so  far  as  it  relates  to 
the  bonds  in  suit,  does  not  confer  any 
corporate  power  upon  the  city  in  the 
sense  of  the  Constitution  of  the  state. 
The  statute  operates  upon  the  transac- 
tion itself,  which  had  already  previ- 
ously been  consummated,  and  seeks  to 
give  it  a  character  different  in  its  legal 
aspect  from  that  which  it  had  when  it 
was  in  fieri.  Whether  such  an  effect 
may  be  given  by  a  legitimate  exercise 
of  legislative  power,  depends  upon 
those  considerations  which  draw  the 
line  beyond  which  ratroactive  laws 
cannot  pass,  and  is  not  affected  by  the 
supposed  form  of  the  contract  as  a 
special  or  general  act  conferring  cor- 
porate power.  For  it  operates  upon 
the  rights  of  the  parties  as  determined 
by  the  equity  of  their  circumstances 
and  relations,  and  gives  to  them  the 
sanction  derived  from  subsequent  con- 
firmation by  clothing  them  with  pow- 
ers which  are  essential  to  their  enferce- 
ment  but  not  to  their  existence. 
Within  the  usual  limitations  prescribed 
by  our  written  Constitutions,  such  as 
have  been  quoted  from   that  of  Ne- 


860 


CITY  BONDS. 


[§415 

§415.  Bonds  for  public  improvements  —  limitations  on 
power  to  issue. —  As  to  the  power  of  a  city  of  Texas,  the  Con- 
stitution of  which  state  contains  a  provision  that  no  city  shall 
ever  incur  a  debt  for  any  purpose,  or  in  any  manner,  unless  at 
the  same  time  provision  is  made  for  levying  and  collecting  a  tax 
sufficient  to  pay  the  interest,  and  a  sinking  fund  of  at  least  two 
per  cent  per  annum,  and  another  that  the  tax  to  be  levied  for 
the  erection  of  pubhc  buildings  and  other  permanent  improve- 
ments shall  not  exceed  twenty-five  cents  of  the  $100  in  any  one 
year,  has  been  considered  by  the  United  States  Circuit  Court  of 
Appeals  for  the  fifth  circuit  in  an  action  against  it  upon  bonds 
issued  for  public  improvements.  The  court  held  that  the  power 
to  create  debts  for  this  purpose  was  limited  to  a  sum,  upon  which 
the  interest,  together  with  two  per  cent  for  the  sinking  fund 
would  not  exceed  the  revenue  derived  from  a  tax  of  twenty-five 
cents  on  the  $100.  After  this  city  had  issued  bonds  to  such  an 
amount  that  the  interest  and  sinking  fund  absorbed  the  whole  of 
the  tax  of  twenty-five  cents  upon  the  $100,  there  was  issued 
another  series,  and  it  was  provided  that  the  interest  and  sinking 
fund  for  this  second  series  should  be  appropriated  out  of  the 
general  revenue  of  the  city.  The  first  issue  of  bonds,  to  the  full 
amount  authorized  by  the  Constitution  of  the  state,  the  court  held, 
exhausted  the  power  of  the  city  to  contract  debts  of  this  kind, 
and  the  additional  series  of  bonds  was  held  to  be  void,  with- 
out regard  to  the  authority  of  the  city  to  apply  its  general 
revenue  to  the  payment  of  interest  and  sinking  fund  of  a  bonded 
debt.i 


braska,  this  may  be  done,  provided  it 
can  be  done  without  the  destruction  of 
rights  recognized  by  the  law  as  vested. 
In  the  present  case  the  statute  in  ques- 
tion does  not  impose  upon  the  [de- 
fendant city],  by  an  arbitrary  act,  a 
burden  without  consent  and  considera- 
tion. On  the  contrary,  upon  the  sup- 
position that  the  bonds  issued,  as  to 
the  excess  over  fifteen  thousand  dol- 
lars, were  void,  because  unauthorized, 
the  city  *  *  *  received  the  money 
of  the  plaintiff  in  error,  and  applied  it 
to  the  purpose  intended,  of  building  a 
school  house  on  property,  the  title  to 
which  is  confirmed  to  it  by  the  very 


statute  now  claimed  to  be  unconstitu- 
tional, and  an  obligation  to  restore  the 
value  thus  received,  kept  and  used, 
immediately  arose.  This  obligation, 
according  to  general  principles  of  law 
accepted  in  Nebraska,  was  capable  of 
judicial  enforcement.  Clark  v.  Saline 
County,  9  Neb.  516;  Louisiana  v. 
Wootl,  102  U.  8.  294;  New  Orleans  d. 
Clark,  95  U.  S.  644;  Hitchcock  r.  Gal- 
veston, 96  U.  S.  341;  Parkersburg  r. 
Brown,  106  U.  S.  487;  Chapman  «. 
Douglas,  107  U.  S.  348." 

» Millsaps  V.  City  of  TerreU,  (1894) 
60  Fed.  Rep.  193. 


§416] 


CITY  BONDS. 


861 


§  416.  Effect  of  an  order  by  resolution  of  council  of  a  city 
for  an  election  to  authorize  the  issue  of  bonds.  —  A  city  of 
Kansas  having  issued  its  bonds  upon  which  this  action  was  founded 
under  the  general  law  of  that  state  declaring  that  cities  may 
"  borrow  money  and  issue  bonds  therefor "  whenever  "  the  city 
council  shall  be  instructed  so  to  do  "  by  vote  of  the  inhabitants 
the  United  States  Circuit  Court  of  Appeals  for  the  eighth 
circuit  held  it  to  be  no  objection  to  the  validity  of  the  bonds 
that  the  council  submitted  the  matter  to  the  electors  by  means  of 
a  resolution,  rather  than  an  ordinance,  there  being  nothing  in  the 
statutes  expressly  requiring  an  ordinance  in  such  case.^ 


*  City    of  Alma  v.   Guaranty    Sav- 
ings Bank,  (1894)  60  Fed.  Rep.  203. 
Thayer,  D.  J.,  speaking  for  the  court, 
said,  arfjiiendo:    "The  law  is  well  set- 
tled that  a  municipal  corporation  may 
declare  its  will  as  to  matters  within  the 
scope  of  its  corporate  powers,  either 
by  a  resolution  or  an  ordinance,  unless 
its  charter  requires  it  to  act  by  ordi- 
nance; and  generally  it  is  of  little  sig- 
nificance whether  a  legislative  measure 
is  couched  in  the  language  of  an  ordi- 
nance or  of  a  resolution,  where  it  is 
enacted     with    the    same    formalities 
which  usually  attend  the  adoption  of 
ordinances.     If  the  action  taken  by  a 
municipality  amounts  to  prescribing  a 
permanent  rule  of  conduct,  which  is  to 
be  thereafter  observed  by  the  inhabit- 
ants  of    the    municipality,  or  by   its 
officers  in  the  transaction  of  the  corpo- 
rate business,  then,  no  doubt,  the  rule 
prescribed  may  be  more  properly  ex- 
pressed in  the  form  of  an  ordinance; 
but  it  is  eminently  proper  to  act  by 
resolution  if  the  action  taken  is  merely 
declaratory  of  the  will  of  the  corpora- 
tion in  a  given  matter,  and  is  in  the 
nature  of  a  ministerial  act.    Beach  Pub. 
Corp.  §  484,  and  cases  there  cited;  City 
of  Lincoln  v.  Sun  Vapor  Street-Light 
Co.,  59  Fed.  Rep.  756.     In  the  present 
case  the  resolutions  in  question  appear 
to  have  been  passed  and   entered  at 
large  upon  the  journal  of  the  council, 


in  the  same  manner  that  the  council 
record  also  discloses  that  the  vote  was 
taken  by  yeas  and  nays,  and  that  the 
resolution  of  March  18,  1889,  directing 
an  election  to  be  held  was  published  in 
substantial  compliance  with  the  provis- 
ions of  the  charter  touching  the  pub- 
lication of  ordinances,  and  that  after 
the  council  had  been  instructed  by  the 
inhabitants  of  the  city   to  issue  the 
bonds,  at  an  election  held  for  that  pur- 
pose, the  council  did  not  publish  its 
final   resolution   to  issue    the    bonds, 
which  had  been  passed  in  obedience  to 
the  popular  mandate.     It  is  also  note- 
worthy that  all   of    the    proceedings 
taken  to  secure  the  issue  of  the  bonds 
were  conducted  with  the  greatest  pub- 
licity and  apparent  fairness.     It  is  not 
charged    that     the     resolutions    were 
rushed  through  the  council  secretly,  or 
with  indecent  haste,  or  that  any  one 
has  been  defrauded,  or  that  the  city 
did  not  receive  full  value  for  its  bonds. 
Moreover,  it  is  apparent,  from  an  in- 
spection of  the  first  resolution,  that, 
before  the  council  took  any  action,  the 
project  of  issuing  the  bonds  had  been 
discussed  at  a  public  meeting  of  the 
inhabitants  of  the  city,  and  that  the 
council  had  been  requested  to  order  an 
election."      The    court    distinguished 
National  Bank  of  Commerce  v.  Town 
of  Granada,   54  Fed.   Rep.   100;  s.  c, 
4  C.  C.  A.  312;  10  U.  S.  App.  693. 


8C2 


CITT  BONDS. 


[§417 


§418] 


CITY  BONDS. 


863 


§  417.  Bonds  valid  when  issued  as  a  part  of  the  general 
indebtedness  of  the  city. —  In  an  action  by  citizens  to  restrain 
the  issuing  by  a  Minnesota  city  of  certain  "  water  and  light 
bonds  "  it  was  contended  by  those  bringing  the  action  that  it  was 
the  purpose  of  the  legislature,  in  its  amendment  to  the  charter  of 
the  city,  manifested  by  the  wording  of  the  law,  to  make  the 
water  and  light  bonds  a  special  indebtedness,  not  enforceable 
against  the  cit^  as  were  other  bonds,  but  solely  and  exclusively 
by  resort  to  the  water  and  light  franchises,  structures  and  appli- 
ances. The  Supreme  Court  of  that  state,  however,  affirmed  the 
order  of  the  court  below  sustaining  a  demurrer  to  the  complaint, 
holding  that  under  the  amendment  such  bonds  might  be  issued 
by  the  authorities  of  the  city,  the  requisite  preliminaries  having 
been  observed,  as  a  part  of  the  general  indebtedness  of  the  city, 
notwithstanding  sucli  bonded  indebtedness  already  exceeded  live 
per  cent  of  the  assessed  valuation  of  the  taxable  property  in  the 
city,  according  to  their  then  last  assessment.^ 

» Woodbridge  r.   City    of    Duluth.    part  of  the  general  indebtedness  of  the 
(Minn.  1894)  59  N.  W.  Rep.  290.     The   city  all  reference  to  the  five  per  cent 
court  said:    "It  seems  to  be  claimed    clause  was  superfluous  and  unneces- 
that,  because  these  bonds  were  made   sjiry.      There  can  be  no    doubt  but 
a  special  and  exclusive  lien  upon  the   that,  while  these  bonds,  undoubtedly 
water  and  light  plant  or  plants,  it  in     for  better  security,  are  made  a  special 
evitably   follows,    without  regard   to   and  exclusive  lien  upon  the  plants, 
other  language  found  in  the  law,  that   they  were  a  part  of  the  bonded  indebt- 
they  cannot  be  a  part  of  the  general   edness  of   the  city  as  much  as  any 
indebtedness  of  the  city.  or.  if  they   other  bonds.     This  leads  up  to  the  im- 
are,  that  they  fall  within  the  inhibitory    portant  inquiry  already  stated,  and  we 
clause  of  the  charter.     It  would  be  a   are  of  the  opinion  that  there  is  no  am- 
forced  and  unnatural  construction  of   biguity  or  doubt  about  the  legislative 
the  enactment,  probably  operating  to   intent  and  purpose,  as  expressed  in 
wholly  defeat  its  purpose,  to  hold  that   the  amendment.     It  will  be  noticed, 
the  holders  of  the  bonds  could  only   and  we  have  already  referred  to  this, 
look  to  the  franchises,  structures  and   that    by    the  first  paragraph  of  the 
appliances  for  payment.     We  arc  not   amendment  to  section  9  the  council 
inclined  to  presume  that  the  legishi-   was    authorized   to  make  temporary 
ture  simply  intended  to  confer  upon    loans,  issuing  coupon  notes  therefor, 
the  city  the  worthless  privilege  of  put-   and,  that  there  might  be  no  question 
ting  bonds  on  the  market,  in  the  hope   as  to  these  notes,  it  was  expressly  pro- 
of their  being  purchased  by  capitalists   vided  that  the  indebtedness  incurred 
who    would    be    willing    to  advance   iu  this  way  should  be  taken  and  held 
money,  that  the  city,  without  incurr-   as  part  of  the  total  indebtedness  re- 
ing  any  liability  itself,  might  experi-   ferred   to  in  a    preceding   and    pro- 
ment  in  furnishing  water  and  light  to   hibitory  clause  of  the  section.     Then 
its  citizens.  Not  only  this,  but  if  these   comes    that  part  of  the  amendment 
bonds  were  not  to  be  considered  as  a  which  covers  and  authorizes  the  issu- 


§  418.  Validity  of  bonds  as  affected  by  a  restriction  in  the 
charter  of  a  city.— A  section  of  the  charter  of  a  city  in  Indiana 
provided  for  making  "  original  loans "  on  the  part  of  the  city 
with  this  limitation  :  "  Such  loans  may  be  made  only  for  the  pur- 
pose of  procuring  money  to  be  used  in  the  legitimate  exercise  of 
the  corporate  powers  ot  such  city  and  for  the  payment  of  legiti- 
mate corporate  debts."  The  validity  of  certain  bonds  which  had 
been  issued  by  the  city  as  part  of  a  series  of  bonds  for  which  the 
city  had  received  bids  was  in  question  in  an  action  in  the  federal 
court  for  that  district,  brought  by  the  bidders  for  their  relief 
from  the  bid  and  a  recovery  of  money  they  had  deposited  as  an 
earnest  of  their  good  faith.  These  bonds  were  for  an  amount  to 
cover  the  amount  of  certain  bonds  of  the  city  previously  issued  in 
payment  for  a  farm,  and  wliicli  had  been  paid  out  of  the  treasury 
of  the  city  and  extinguished,  tlie  intention  of  their  issue  being 
with  tlic  proceeds  to  replace  that  money.  The  court  held  that  as 
original  loans  these  bonds  were  void  and  beyond  the  power  of  the 
city  to  issue.^ 


ance  of  the  bonds  in  question,  and 
again  did  the  legislature  express  itself 
in  plain  language,  by  declaring  that 
the  bonds  so  issued  should  not  be 
deemed  a  part  of  the  general  indebted- 
ness already  referred  to  as  not  to  ex- 
ceed five  i)cr  cent  of  the  assessed 
valuation.  Putting  the  language  in  a 
different  form,  it  is  that  in  cstimjitinsi: 
the  bonded  indebtedness  of  the  city, 
for  the  purpose  of  ascert;nning  whether 
the  limit  had  been  reached,  the  water 
and  light  bonds  should  not  be  taken 
into  consideration.  No  other  effect 
can  be  given  the  language,  and  if  it 
does  not  mean  this  it  means  nothing  at 
all.  The  entire  structure  of  the 
amendment  indicates,  unmistakably, 
that  it  was  well  appreciated  by  the 
legislature  that  water  and  light  bonds 
which  would  serve  the  purposes  of 
the  city,  and  enable  it  to  buy  or  build 
the  necessary  experiment,  would  have 
to  be  issued  in  a  large  amount  far  ex- 
ceeding that  already  authorized.  The 
office  of  the  amendatory  legislation 
was  to  empower  the  city  to  proceed 


without  limitation  or  restriction  as  to 
the  amount  of  the  issuance  of  the 
bonds  for  the  particularly  specified 
object." 

'  Coffin  r.  City  of  Indianapolis.  (1894) 
r)9  Fed.  Rep.  221.  Baker,  D.  J.,  said: 
"This  limitation  [in  the  charter  J  evi- 
dently means  that  when  the  city  pro- 
poses to  borrow  money  the  ordinance 
shall  state  the  purpose  of  the  loan,  in 
order  that  it  may  appear  that  the  money 
procured  is  to  be  used  in  the  legiti- 
mate exercise  of  corporate  powers,  or 
for  the  payment  of  legitimate  corpo- 
rate debts.  If  the  city  may  issue  and 
.sell  its  bonds  to  raise  money  without 
stating  any  lawful  purpose  for  which 
the  money  is  to  be  used,  the  bonds 
would  be  valid  if  the  money  was  used 
for  a  legitimate  corporate  purpose, 
and  invalid  if  the  money  •  was  illegiti- 
mately used.  Such  a  construction 
would  place  upon  the  purchaser  of 
bonds  the  burden  of  seeing  to  the 
rightful  application  of  the  money  if  he 
would  maintain  their  validity.  The 
city,  in  the  present  case,  has  rightfully 


8G4 


CITY  BONDS. 


[§418 


recognized  the  necessity  of  stating  the 
purpose  of  the  issue  and  sale  of  the 
bonds.     Is  the  purpose  stated  as  to 
twenty -one  thousand   dollars    of    the 
bonds  a  legitimate  one?    As  we  have 
already  said,  these  bonds  were  not  to 
be  issued  and  sold  for  the  payment  of 
a   legitimate  corporate    debt,   because 
there  was  no  debt  to  be  paid.     The 
Sellers  farm  debt  had  been  paid,  and 
the  bonds  evidencing  the  same  had 
been  canceled  and  discharged.    There- 
after the  debt  ceased  to  exist.     Is  the 
raising  of  money,  the  issue  and  sale  of 
bonds  for  the  purpose  of  putting  back 
into  the  treasury  a  sum  equal  to  what 
had  been  used  in  the  payment   of  a 
debt  of  the  city  '  a  legitimate  exercise 
of  the  corporate  powers  of  such  city  ? ' 
If  the  city  may  issue  and  sell  its  bonds 
to  replace  in  the  treasury  the  money 
paid    out   on  account  of  the    Sellers 
farm  debt,  it  may  issue  and  sell  its 
bonds  to  replace  in  the  treasury  all  the 
moneys  ever  paid  out  by  it  on  account 
of  its  debts   and    liabilities.     In  my 
judgment  the  issuance  and    sale    of 
bonds  for  such  a  purpose  is  not  within 


the  scope  of  its  legitimate  corporate 
powers.     The  city  cannot  issue  or  sell 
its  original  bonds  except  for  the  pur- 
pose of  raising  money   to  pay   some 
legitimate  debt  or  hability,  or  to  meet 
some  future  liability  or  obligations  in- 
curred, or  to  be  incurred,  in  the  legiti- 
mate exercise  of  its  corporate  powers." 
In  the  same  opinion,  in  another  place, 
it  was  said:    "It  is  the  settled  law  of 
Indiana  that  a  city  organized   under 
the  laws  of  the  state  cannot  issue  and 
sell  its  bonds,  to  raise  money  by  way 
of  loan,  unless  expressly  authorized  so 
to  do.     City  of  Aurora  v.  West,  23  Ind. 
88;  State  v.  Ilauser,  63  Ind.  155;  Rush- 
ville  Gas  Co.  v.  City  of  Rushville,  121 
Ind.   206;    s.   c,   23  N.   E.    Rep.   72. 
Such  is  also  the  settled  doctrine  of  the 
Supreme  Court  of  the  United  States. 
Brenham  v.  Bank,  144  U.  8.  173;  B.  c, 
12  Sup.  Ct.  Rep.  559.     And  in  case  of 
doubt  touching  the  existence  of  the 
power  on  the  part  of  a  city  to  issue 
and  sell  its  bonds  to  raise  money  by 
way  of  loan,  such  doubt  must  be  re- 
solved against    the   existence  of  the 
power." 


CHAPTER  XX. 


TOWNSHIP  BONDS. 


§  419.  Effect  of  ordinance  of  town 
council  not  being  published 
upon  the  validity  of  the 
bonds. 

430.  Bonds  for  purchase  of  gravel 
road  under  Indiana  statute 
—  statute  held  to  be  con- 
stitutional. 

^1.  The  duty  and  power  of  county 
authorities  where  the  vote 
of  the  towns  is  favorable  in 
such  cases. 

422.  Effect  upon  bonds  of  a  con- 
stitutional  limitation    upon 


the  indebtedness  to  be  in- 
curred by  towns. 
§  423.  Town  bonds  for  improvement 
of  public  park  under  resolu- 
tion of  the  Connecticut  legis- 
lature —  when  authorized 
and  to  what  extent. 

424.  The  effect  of  recitals  in  town 

bonds  as  to  estoppel  of  the 
town  to  claim  they  were 
issued  without  authority. 

425.  What  is  required  of  a  bona 

fide  purchaser. 


§  419.  Effect  of  ordinance  not  being  published  upon  the 
validity  of  bonds. —  A  town  of  Colorado  issued  certain  fifteen-year 
bonds  to  a  contractor  for  building  a  reservoir  for  water  purposes 
under  circumstances  which  indicated  fraudulent  collusion  between 
liim  and  the  town  authorities.  Some  of  these  bonds  passed  in  regu- 
lar course  of  trade  to  a  bank  which  brought  an  action  upon  coupons 
for  interest  thereon  in  the  federal  court  for  that  district.  The 
question  decided  was  between  the  bank,  a  purchaser  of  the  bonds 
for  valuable  consideration,  before  maturity,  and  in  good  faith, 
and  the  defendant  corporation,  the  ofliicers  and  agents  of  which 
permitted  the  bonds  to  be  placed  upon  the  market  as  commercial 
paper.  The  bonds  as  offered  for  sale  were  in  due  form  and 
properly  executed.  They  had  been  registered  with  the  state 
auditor  and  recorded  by  the  town  treasurer,  as  certified  on  their 
face.  It  was  recited  in  the  bonds  that  they  had  been  issued 
under  the  sanction  of  an  ordinance  providing  therefor,  for  fund- 
ing and  paying  the  existing  debts  of  the  city  of  Grenada.  The 
United  States  Circuit  Court  held  that  it  was  open  to  the  town  to 
defend  in  this  action  even  against  the  bona  fide  holder  and  pur- 
chaser for  value,  notwithstanding  the  recital  in  the  bonds ;  that 
there  was  no  authority  for  the  issue  of  the  bonds,  and  they  were 
109 


/ 


866 


TOWNSHIP  B0ND8. 


[§419 


invalid  obligations  even  in  the  liands  of  the  holder  suing  upon 
them.^  In  the  United  States  Circuit  Court  for  the  district,  by  the 
court,  upon  an  agreed  statement  of  facts  upon  tlie  new  trial  which 
had  been  ordered,  in  the  same  case,  the  judgment  was  similar  to 
that  in  the  District  Court.^     This  judgment  was  appealed  from, 


'  National  Bank  of  Commerce  t. 
TowD  of  Graoada,  (1890)  44  Fed.  Rep. 
263. 

'National  Bank  of  Commence  r. 
Town  of  Granada,  (1891)  48  Fed.  Kep. 
278.  Parkeii,  J.,  in  rendering  his 
judgment  finding  the  bonds  to  be  in- 
valid, Siiid:  "  It  is  my  conclusion  that 
under  the  luws  of  Colorado  there  must 
have  been  an  ordinance  of  the  town  of 
Grenada  to  authorize  the  issuance  of 
the  bonds,  the  coupons  of  which  are 
the  basis  of  the  suit  in  this  case."  He 
then  quoted  th*j  genenil  statute  of  the 
state  as  to  ordinances  of  municipal  cor- 
porations, and  Siiid:  "By  the  terras 
of  this  section  of  the  statute  law 
of  the  state,  when  the  same  is  given  a 
reasonable  construction,  all  by  laws  of 
a  gcueml  or  permanent  nature  must 
be  published  as  rotiuired  by  the  above- 
named  section.  This  ordinance  of  the 
town  of  Grenada  passed  by  its  council, 
purporting  to  authorize  the  issue  of 
the  bonds  to  which  the  coupons  in 
suit  were  attached,  is  of  a  general  or 
permanent  nature,  and  all  by  laws  or 
ordinances  of  a  general  or  permanent 
nature  do  not  take  effect  or  be  in  force 
until  the  expiration  of  five  days  after 
they  have  been  published  or  posted. 
It  appears  from  the  agreed  statement 
of  facts  in  this  case  that  there  never 
was  any  publication  of  the  ordinance 
in  a  newspaper,  or  in  any  manner  or 
form  whatever.  The  statute  requiring 
the  publication  of  the  ordinance  is 
mandatory,  and  the  ordinance,  without 
the  requisite  publication,  is  a  nullity. 
and  consequently  of  no  force  or 
validity.  There  is,  then,  no  authority 
for  the  issue  of  the  bonds  to  which  the 


coupons  in  suit  belong.  The  recital  in 
the  bond,  that  it  was  issued  under  an 
ordinance  of  the  city  of  Grenada  passed 
by  the  council  of  said  city,  will  not 
make  the  bond  valid  in  the  hands  of 
plaintiff  as  an  innocent  holder,  if  it, 
under  the  law,  was  bound  to  take  notice 
of  the  legal  authority  of  the  town  of 
Grenada  to  issue  the  bond.  The  legal 
authority  of  the  officers  of  the  town 
must  be  found  in  some  ordinance 
authorizing  them  to  act.  The  recita- 
tion on  the  face  of  the  bond  that  it  was 
issued  under  an  ordinance  referred  the 
purchaser  to  the  law  requiring  the 
publication  of  the  ordinance.  The 
ordinance  conferred  no  legal  authority 
upon  the  town  officers  to  execute  and 
issue  the  bonds  until  the  expiration  of 
five  days  after  it  had  been  published. 
The  corporation  of  Grenada  must  have 
had  legislative  authority  to  issue  the 
bonds  issued  by  it.  Although  the 
plaintiff  is  a  holder  for  value  and  be- 
fore maturity,  it  must,  at  its  peril, 
take  notice  of  the  existence  and  terms 
of  the  law  by  which  it  is  claimed  the 
power  to  issue  such  bonds  is  conferred. 
The  holder  of  a  municipal  bond  is 
chargeable  with  notice  of  the  statutory 
provisions  under  which  it  was  issued." 
The  court  cited  in  support  of  the  last 
point  Bank  r.  City  of  St.  Joseph,  31 
Fed.  Rep.  216;  Anthony  v.  Jasper 
County,  101  U.  S.  693;  Ogden  r. 
Daviess  County,  103  U.  S.  634;  Bank 
i\  Porter  Township,  110  U.  S.  608;  s. 
c,  4  Sup.  Ct.  Rep.  254;  McClure  v. 
Township  of  Oxford,  94  U.  S.  429. 
This  last  case  was  regarded  by  the 
court  as  especially  relevant  to  the 
present  one. 


§420] 


TOWNSHIP  BONDS. 


867 


and  the  United  States  Circuit  Court  of  Appeals  affirmed  the 
judgments  already  rendered  in  the  courts  below.^ 

§  420.  Bonds  for  purchase  of  gravel  road  under  Indiana 
statute  —  statute  held  to  be  constitutional. — The  statute  of 
Indiana  which  provides  for  the  purchase  of  gravel  roads  upon  an 


*  National  Bank  of  Commerce  v. 
Town  of  Granada,  (1893)  54  Fed.  Rep. 
100.  As  to  the  questions  involved  and 
the  views  of  this  court  upon  them, 
Caldwell,  Circuit  Judge,  said:  "  We 
think  the  principal  and  vital  question 
in  this  case  is  whether  the  powers  con- 
ferred on  the  board  of  trustees  may  be 
exercised  without  an  ordinance  con- 
taining the  usual  and  necessary  pro- 
visions to  guide,  control  and  bind  the 
town  and  its  officers  and  the  public  in 
the  execution  of  the  funding  scheme, 
and  to  protect  all  persons  in  their 
rights  acquired  thereunder.  We  enter- 
tain no  doubt  but  that  the  appropriate 
mode  for  the  town  to  proceed  under 
the  act  in  question  is  by  ordinance  of 
its  board  of  trustees.  The  proceed- 
ing involves  the  appointment  and  hold- 
ing of  an  election,  and  the  conversion 
of  a  non-negotiable  floating  debt  into 
the  form  of  negotiable  bonds  drawing 
a  high  rate  of  interest  payable  semi- 
annually, and  which  must  run  five, 
and  may  run  fifteen,  years.  A  measure 
requiring  an  expression  of  opinion 
from  the  voters  of  the  town  at  the  bal- 
lot box  and  involving  such  large  values 
and  of  so  much  interest  to  the  tax- 
payers of  the  town  and  the  holders  of 
its  securities  through  so  many  years, 
ought  not  to  be  carried  into  effect  ex- 
cept by  the  most  solemn  and  deliber- 
ate mode  of  proceeding  known  to  the 
law  for  giving  expression  to  the  cor- 
porate will.  That  mode  is  by  ordi- 
nance. *  *  *  I'he  statutes  of  the 
state  [of  Colorado]  which  authorize 
the  issue  of  refunding  bonds,  *  *  * 
the  creation  of  new  indebtedness, 
*    *    *    and  the  appropriation  of  aid 


to  public  libraries,  *  *  *  require 
in  terms  that  the  same  shall  be  done 
by  ordinances.  We  think  the  board  of 
trustees  of  the  town  had  a  correct  con- 
ception of  the  proper  mode  of  pro- 
ceeding when  they  passed  the  ordi- 
nance in  question."  The  statute  pre- 
scribing the  regulations  as  to  ordi- 
nances is  then  referred  to,  and  then 
the  court  resumed:  "It  is  admitted 
that  the  ordinance  in  question  was  not 
'  recorded  in  the  book  kept  for  that 
purpose,' and  was  not 'authenticated 
by  the  signature  of  the  presiding 
officer  of  the  *  *  *  board  of 
trustees  and  the  clerk,'  and  'was 
never  published  in  any  paper  or 
in  any  form  or  manner  whatever.' 
It  is  obvious  to  our  minds  that  the 
ordinance  in  this  case  was  of  a  'gen- 
eral or  permanent  nature '  [the  words 
of  the  statute],  and  as  such  could  '  not 
take  effect  and  be  in  force  until  the 
expiration  of  five  days '  after  its  pub- 
lication. It  provided  for  an  election, 
and,  therefore,  concerned  every  legal 
voter  of  the  town.  It  affected  every 
taxpayer,  whether  a  voter  or  not.  It 
affected  the  creditors  of  the  town, 
present  and  future.  It  involved  the 
making  and  execution  of  contracts, 
and  various  other  matters  relating  to 
funding  the  floating  indebtedness  of 
the  town.  If  such  an  ordinance  is 
not  of  a  '  general  or  permanent  na- 
ture '  it  would  be  extremely  difficult 
to  suggest  one  that  is.  The  provision 
of  the  act,  that  such  ordinances  shall 
not  take  effect  or  be  in  force  until 
they  are  published  in  the  mode  pro- 
vided by  the  act,  is  mandatory.  The 
ordinance,   never  having   been   pub- 


868 


TOWNSHIP  BONDS. 


[§420 


if 


election  of  tlie  voters  of  the  township  or  townships  through 
which  they  pass,  ordered  upon  petition  of  a  certain  number  of  the 
freeholders  thereof,  and  the  finding  of  certain  facts  as  to  the 
number  of  voters,  etc.,  by  the  board  of  county  commissioners, 
the  purchase  money  to  be  provided  by  tlie  issuing  of  county 
bonds  of  a  certain  kind,  which  are  to  be  paid  by  a  levy  of  taxes 
annually  upon  the  property  of  the  citizens  of  such  townships, 
was  attacked  as  unconstitutional  in  an  action  by  taxpayers  of  one 


lished,  never  went  into  effect.     Not 
being  in  force,  it  conferred  no  author- 
ity on  the    board  of  trustees,  or  any 
officer    of    the  town,   to  do  any  act 
under  it;  and  no  one  could  acquire  any 
right  based  on  it,  or  on  any  act  of  the 
officers  of  the  town  assuming  to  act 
under  it.     It  had  no  more  legal  effect 
than  if  it  had  never  been  passed  by 
the  board   of  trustees.     1  Dill.  Mun. 
Corp.  §§  331-334,  and  notes.     But  the 
learned  counsel    for   the  plaintiff  in 
error  contends  that  the  recital  in  the 
bonds,  that  they  '  are  issued  under  an 
ordinance'  of  the  town   relieves  the 
plaintiff  from  the  burden  of  showing 
that  the  ordinance  was  published,  and 
c&tops  the  defendant  from  showing 
that  it  was  not.     It  has  never  yet  been 
held  that  a  false  recital  in  a  bond  can 
make  that  a  law  which  never  was  a 
law.     When  an  ordinance  has  been 
duly  enacted,  and  has  taken  effect, 
authorizing  the  officers  of  a  town  to 
issue  its  negotiable  bonds  upon  certain 
precedent  requirements  or  conditions, 
such  as  a  petition  of  a  given  number 
of  taxpayers,  or  a  majority  vote  or 
other  like  conditions,  and  the  officers 
issuing  the  bonds  are  the  appointed 
tribunal  to  decide  whether  there  has 
been  a  compliance  with  such  prece- 
dent conditions,  and  the  bonds  issued 
recite  that  they  are   issued  in   pur- 
suance of  such  ordinance,  it  is  prob- 
ably true  that  such  recital,  in  favor  of 
bona  fide  purchasers  for  value,  would 
import  a  full  compliance  with  the  re- 
quirements of  the  ordinance,  and  pre- 


clude inquiry  as  to  whether  the  prec- 
edent    conditions    were      performed 
before  the  bonds  were  issued.     But 
that  doctrine    has  no  application  to 
this  case.     Here  there  was  no  ordi- 
nance in  force  under  wliich  the  board 
of  trustees,  or  any  officer  of  the  town, 
could  perform  any  act.     The  authority 
to  issue  the  bonds  never  attached,  on 
any  terms  or  conditions.     The  action 
of  the  mayor  and  clerk  was  not  simply 
irregular,  but  was  without  the  sanc- 
tion of  any  law.     The  point  was  never 
reached  at  which  they  could  lawfully 
do  any  act  under  the  supposed  or- 
dinance.    It  is  a  case  of  a  total  want 
of  authority  to  do  the  act  upon  any 
conditions,  and  not  a  case  where  the 
authority  to  do  the  act  existed,  but  the 
conditions  precedent  to  the  exercise  of 
the  authority  were  not  observed.    The 
statute  which  provides  that  ordinances 
shall  not  take  effect    until    they  are 
publi.shed  is  a  public  st;itute,  of  which 
all  persons  are  bound  to  take  notice. 
The  statute  makes  the  recording  of  an 
ordinance  in  the  ordinance  book  prima 
facie  evidence  that  it  has  been  pub- 
lished according    to  law.      But  this 
ordinance     was     not     recorded,     nor 
authenticated  as  an  ordinance  bv  the 
signatures  of  the  mayor  and  clerk,  as 
required  by  law.     Moreover,  it  is  not 
shown  that  the  mayor  and  clerk,  or 
either  of  them,  had  any  duty  or  func* 
tion  to  perform  in  relation  to  publish- 
ing  ordinances,  or  determining  when 
they  had  been  published  according  to 
law.    The  determination  of  this  fact. 


§420] 


TOWNSHIP  BONDS. 


869 


of  three  townships  upon  the  property  of  which  such  a  levy  of 
taxes  was  made,  to  restrain  the  collection  of  such  tax.  The  con- 
tention on  belialf  of  the  taxpayers  was  that  the  statute  was  void 
as  violative  of  these  constitutional  provisions,  to  wit :  "  The 
general  assembly  shall  not  pass  local  or  special  laws  in  any  of  the 
following  enumerated  cases,  that  is  to  say :  For  the  assessment 
and  collection  of  taxes  for  state,  county,  township  or  road  pur- 
poses;" also,  the  following :  "The  general  assembly  shall  pro- 
vide, by  law,  for  a  uniform  and  equal  rate  of  assessment  and  tax- 
ation, and  shall  prescribe  such  regulations  as  shall  secure  a  just 
valuation  for  taxation  of  all  property,  both  real  and  personal, 
excepting  such  only  for  municipal,  educational,  literary,  scientific, 
religious  or  charitable  purposes,  as  may  be  specially  exempted  by 
law.  Tlie  Supreme  Court  of  the  state  upheld  the  statute  as 
constitutional.^ 


when  it  becomes  material,  and  is  con- 
tested, and  the  ordinance  has  not  been 
recorded,    is,    under    the    statute,    a 
matter    for    judicial    inquiry.      The 
statute  itself  provides  that  it  shall  be 
a  sufficient  defense  to  any  suit  or  pros- 
ecution for  a  fine,  penalty  or  forfeit- 
ure to  show  that  the  ordinance  im- 
posing it  was  not   published  as  re- 
quired by  the  statute,  and  it  is  obvious 
that   the  same  defense   must   prevail 
against  any  civil  right  grounded  upon 
an  ordinance  which  was  never  pub- 
lished, no  matter  by  or  against  whom 
such  right  is  asserted.     The  plaintiff 
was  bound  to  know,  independently  of 
the  recital  in  the  bond,  that  there  was 
such  an  ordinance  in  existence.     This 
fact   once  estiblished,  it   might  well 
assume  that  the  recital  was  sufficient 
evidence  that  the  conditions  prescribed 
by  the  ordinance  for  issuing  the  bonds 
had  been  complied  with.     It  was  as 
much  the  right  and  duty  of  the  plain- 
tiff to  determine  this   question  as  it 
was  the  clerk  and  themayor,  and  the 
determination  of  either,  in  any  form, 
would  not  bind  or  conclude  the  town. 
It  is  only  when   officers  are   invested 
by  law  with  the  authority  to  deter- 
mine or  adjudicate  upon  the  fact  that 


their  recital  operates  as  an  estoppel. 
If  the  recital  in  this  case  had  stated, 
in  terms,  that  the  ordinance  had  been 
duly  published,  it  could  not  have 
estopped  the  town,  because  neither 
the  mayor  nor  the  clerk,  nor  both  to- 
gether, are  invested  with  the  authority 
to  determine  that  question,  and  any- 
thing they  might  say  or  certify  to  on 
the  subject,  save  as  witnesses  in  court, 
would  not  be  evidence  anywhere,  or 
bind  any  one.  Dixon  Co.  v.  Field,  111 
U.  8.  83,  94;  s.  c,  4  Sup.  Ct.  Rep. 
315;  Sutliff  V.  Lake  County  Commis., 
(1892)  13  Sup.  Ct.  Rep.  318.  *  *  * 
The  law  does  not  refer  the  public  to 
these  officers,  or  to  either  of  them,  for 
information  as  to  the  publication  of 
town  ordinances;  and  their  statements 
upon  that  subject  have  no  more  sig- 
nificance or  binding  force  than  those 
of  any  other  citizen  of  the  town." 

'  Gilson  V.  Board  of  Commissioners 
of  Rush  County,  (1891)  128  Ind.  65. 
Arguendo,  the  court  said,  upon  the 
point  made  as  to  the  first  quoted  sec- 
tion: •'  It  is  held  that  a  statute  which 
is  of  general  and  uniform  operation 
throughout  the  state,  and  operates 
alike  upon  all  persons,  under  the  same 
circumstances,   is  not  subject  to  the 


870 


TOWNSHIP  BONDS. 


[§421 


§  421.  The  duty  and  power  of  county  authorities  where 
the  vote  of  the  towns  is  favorable  in  such  cases. —  The 

court,  in  construing  the  statute  of  Indiana  as  to  purchase 
of  a  gravel  road  running  through  several  townships,  held 
that  when  tlie  election  is  held  in  a  number  of  townships,  it  hav- 


objection  that  it  is  special  or  local  leg- 
islation.    State  ex  rel.  v.  Reitz,  «2  Ind. 
159;     McLaughlin    v.   Citizens',    etc., 
Assn.,  62  Ind.  264;  Ilcanley  v.  State, 
74  Ind.  99;  Elder  c.  State,  96  Ind.  162. 
The  statute  we  are  now  considering  is 
of  uniform  operation  throughout  the 
state  of  Indiana,  and  applies  alike  to 
all  persons  coming  within  its  opera- 
tion, and  is  not  in   conflict  with  the 
provisions  of    [the  first   section   quo- 
ted]."    Whether  it  was  in  conflict  with 
the  last  section  quoted,  the  court  con- 
sidered a  more  serious  question  and 
fully  discussed  it,  as  follows:  "This 
provision  of  our  Constitution  received 
a  construction  in  the  case  of  Bright  r. 
McCullough,  27  lud.  223.     It  was  said 
in  that  case:  'The  section  does  not  re- 
quire that  the  rate  of  assessment  shall 
be  uniform  and  equal  for  all  purposes 
throughout  the  state,  and  we  think  its 
meaning  clearly  is  that  the  rate  of 
assessment  and  taxation  must  be  uni- 
r  form  and  equal  throughout  the  locality 
in  which  the  tax  is  levied.'    So,  again, 
it  received  a  construction  in  the  case  of 
LaFayette,  etc.,  R.  R.  Co.  v.  Geiger, 
34  Ind.  185.     That  was  a  suit  to  en- 
join the  levy  and  collection  of  a  tax 
in  aid  of  the  construction  of  a  railroad. 
It  was  contended  that  inasmuch  as  the 
railrotid  ran  through  the  counties  of 
Madison,  Tipton,  Clinton,  Tippecanoe 
and  Benton  in  this  state,  it  was  neces- 
sary that  each  and  all  of  the  counties 
must  vote  for  an  appropriation  and 
assess  the  same  amount  of  tax  in  each 
county  to  make  it  uniform,  and  equal. 
In  answer  to  this  contention,  the  court 
said:  '  If  the  tax  assessed  is  equal  and 
uniform  in  the  county  where  assessed, 
it  will  be  in  strict  accordance  with  the 
requirements    of    the    Constitution.' 


See,  also,  John  v.  Cincinnati,  etc.,  R. 
R.  Co.,  35  Ind.  539.     It  is  not  unusual 
for  the  legislatures  of  the  several  states 
in  the  Union,  in  the  exercise  of  the 
general  power  of  taxation,  as  well  as 
in  the  power  of  local  assessments,  to 
create  a  special  taxing  district  without 
regard  to  municipal  or  political  subdi- 
visions of  the  states,  and  to  levy  a  tax 
on  all  property  within  such  district  by 
a  uniform  rule,  according  to  its  value, 
for  the  purpose  of  aiding  in  the  con- 
struction   of    public    improvements. 
Our  laws  providing  for  street  improve- 
ments, for    the  construction  of  free 
gravel  roads,  for  the  construction  of 
ditches  and  drains,  and  for  aid  in  the 
construction  of  niilroads,  are  examples 
of  this  kind  of  legislation.     True,  in 
most  cases,   such    improvements  are 
paid  for  by  local  assessments  against 
real    property,    which,  in    theory,   is 
benefited  to  an  amount  equal  to  the 
assessment.     But  it  is  by  no  means 
universally  true  that  such  improve- 
ments are  paid   for    by    assessments 
agiiinst  real  estate    supposed    to    be 
benefited;    but,  on  the  contrary,  they 
are  often  paid  for  by  the  assessment  of 
a  tax  on  all  property  found  within  the 
taxing    district.     The    doctrine    an- 
nounced   in    Bright  v.    McCullough, 
supra,  that  the  requirements  of  [the 
last  section  of  the  Constitution  referred 
to]  are  fulfilled  when  the  rate  of  as- 
sessment and  taxation  is  uniform  and 
equal  throughout  the  taxing  locahty, 
has  often  been  aflirmed  by  this  court. 
Palmer  v.  Stumph,  29  Ind.   329;  An- 
derson V.  Kerns  Draining  Co.,  14  Ind, 
199;  Goodrich  v.  Winchester,   etc.,  T. 
P.  Co.,  26  Ind.  119.     In  the  case  of 
Bowles  r.  State,  37  Ohio  St.  35,  the 
question  now  under  consideration  was 


'1 


f 


§421] 


TOWNSHIP  BONDS. 


871 


ing  been  ordered  in  response  to  the  petition  signed  by  voters  of 
all  the  townships,  and  the  majority  of  the  voters  is  in  favor  of 
making  the  purchase  of  the  gravel  road  running  tlirough  the 
townships,  with  a  view  to  its  becoming  a  free  gravel  road,  it 
becomes  the  duty  of  the  county  commissioners  of  the  county  in 
which  the  townshijjs  are  situated  to  make  the  purchase.  And 
they  then  are  authorized  to  issue  bonds  for  the  purpose  and  levy 
a  tax  upon  the  citizens  of  the  townships  interested  for  their  pay- 
ment.^ The  Supreme  Court  of  the  United  States  has  held  that  the 
requirement  of  a  charter,  that  the  bonds  issued  by  a  municipal  cor- 


discussed  at  some  length  by  the  Ohio 
court.  The  case  involved  the  consti- 
tutionality of  a  statute  passed  by  the 
general  assembly  of  that  ntate  author- 
izing the  assessment  of  all  property, 
both  real  and  personal,  within  a  given 
district,  to  pay  for  the  construction  of 
a  free  turnpike  road.  It  was  con- 
tended that  the  legislature  had  no 
power  to  create  a  taxing  district  with- 
out regard  to  the  boundaries  of  the 
l)olitical  or  municipal  subdivisions  of 
the  state,  and  in  answer  to  this  objec- 
tion the  court  said:  '  That  the  power 
is  not  expressly  inhibited  is  clear,  and 
we  are  persuaded  there  is  no  implica- 
tion against  it  from  the  fact  that  it  has 
always  been  exercised  without  chal- 
lenge in  divers  ways  for  the  purpose 
of  promoting  local  advantages,  not 
only  in  the  exercise  of  the  power  of 
local  assessments,  where  the  burden  of 
local  improvements  has  been  placed 
upon  property  specially  benefited  and 
in  proportion  to  the  benefit,  but  by 
general  taxation  upon  local  districts 
other  than  municipal  or  political  sub- 
divisions Notably,  special  taxing  dis- 
tricts have  been  created  for  the  pur- 
pose of  supporting  and  maintaining 
schools  and  highways  by  the  subdi- 
visions of  townships;  and  we  can  see 
no  difference  in  principle  between 
such  legislation  and  the  statute  under 
consideration.'  These  several  adjudi- 
cations seem  to  be  in  exact  accord  with 


the  elementary  books  upon  the  same 
subject.  Cooley  Taxation  (ed.  1876), 
p.  113;  see,  also,  pp.  110,  111,  112; 
Elliott  Roads  &  Streets,  392,  393." 
See,  also,  to  the  same  effect,  People  v. 
Central  Pacific  R.  R.  Co.,  43  Cal.  398; 
County  Judge  v.  Shelby  R.  R.  Co.,  5 
Bush,  225;  Challiss^.  Parker,  11  Kans. 
394;  People  ex  rel.  r.  Draper,  15  N.  Y. 
532;  Buffalo,  etc.,  R.  R.  Co.  r.  Board, 
etc.,  48  N.  Y.  93;  Litchfield  «.  Mc- 
Comber,  42 Barb.  288;  Sangamon,  etc., 
R.  R.  Co.  V.  County  of  Morgan,  14111. 
163;  Bakewell  v.  Police  Jury,  20  La. 
Ann.  334;  Inhabitants  of  Norwich  r. 
County  Commissioners,  13  Pick.  60; 
Inhabitants  of  Brighton  v.  Wilkinson, 
2  Allen,  27;  Salem  Turnpike  «.  County 
of  Essex,  100  Mass.  282;  Missouri 
River,  etc.,  R.  R.  Co.  v.  Morris,  7 
Kans.  210. 

•  '  Gilson  V.  Board  of  Comrs.  of  Rush 
County,  (1891)  128  Ind.  65.  The  court 
said :  "  In  our  opinion,  it  was  the  inten- 
tion of  the  legislature,  in  passing  the 
act  under  consideration,  that  where 
two  or  more  townships  joined  in  a  pe- 
tition to  the  board  of  county  commis- 
sioners to  purchase  a  particular  toll- 
road,  all  the  townships  joining  in  such 
petition  should  be  taxed  to  pay  for  the 
same,  in  the  event  a  majority  of  the 
votes  cast  was  in  favor  of  such  pur- 
chase, though  there  may  have  been  a 
failure  to  obtain  a  majority  in  one  of 
the  townships.    Where  the  townships 


'ill 


872 


TOWNSHIP  BONDS, 


[§421 


poration  sliall  specify  for  what  purpose  they  are  issued,  was  not  so 
far  satisfied  by  a  bond  which  purported  on  its  face  to  be  issued  by 
virtue  of  an  ordinance,  the  date  of  which  was  given,  but  not  its 
title  or  contents,  as  to  cut  off  defenses  which  might  otherwise  be 
made.* 


have  joineil  in  such  petition,  aud  the 
vote  is  in  favor  of  the  purchase,  the 
townships  thus  voting  may  well  be 
said  to  have  voted  in  favor  of  such 
purchase.  The  result  of  holding  other- 
wise might  be  that  two  townships 
would  purchase  the  two  ends  of  a  toll- 
road  while  a  majority  of  one  vote  in  a 
township  between  the  two  would 
defeat  the  purchase  of  the  center,  and 
thus  destroy  the  value  of  the  road  as 
a  free  thoroughfare.  We  do  not  think 
it  was  the  intention  of  the  legislature 
to  permit  such  a  result.  The  conten- 
tion that  the  elections,  in  all  cases 
under  this  law,  are  to  be  several,  is 
destroyed  by  the  provision  made  for  a 
joint  petition.  Had  it  been  the  inten- 
tion of  the  legislature  that  the  purchase 
should  depend  on  the  result  of  the 
election  in  each  township,  it  is  reason- 
able to  assume  that  the  legislature 
would  have  provided  for  several  elec- 
tions, and  would  have  made  no  pro- 
vision for  joint  petitions  and  a  joint 
election." 

'  Bamett  r.  Denison.  (1892)  145  U. 
S.  135.  The  state  of  the  law  in  such  a 
case  was  declared  by  Mr.  Justice 
Brown,  speaking  for  the  court,  to  be 
as  follows:  "It  is  the  settled  doctrine 
of  this  court  that  municipal  corpora- 
tions are  merely  agents  of  the  state 
government  for  local  purposes,  and 
possess  only  such  powers  as  are  ex- 
pressly given,  or  implied,  because  es- 
sential to  carry  into  effect  such  as  are 
expressly  granted  (1  Dill.  Mun.  Corp. 
§  89;  Ottawa  r.  Carey,  108  U.  S.  110); 
that  the  bonds  of  such  corporations  are 
void  unless  there  be  express  or  implied 
authority  to  issue  them  (Wells  r.  Super- 
visors, 102  U.  8.  625;  Claiborne  County 


V.  Brooks.   Ill  U.  S.  400;  Concord  v. 
Robinson,  121   U.   8.   165;   Kelley  r. 
Milan,  127  U.  S.  139);  that  the  provis- 
ions of  the  statute  authorizing  them 
must  be  strictly  pursued,  and  that  the 
purchaser  or  holder  of  such  bonds  is 
chargeable  with  notice  of  the  require- 
ments of  the  law  under  which  they  are 
issued.     Ogden  v.  County  of  Daviess, 
102  U.  S.  634;  Marsh  i\  Fulton  County, 
10  Wall.  676;  South  Ottawa?).  Perkins, 
94  U.  S.  260;  Northern  Bank  v.  Porter 
Township,  110  U.S.  608;  Hayes  v.  Holly 
Springs,    114   U.    S.    120;   Merchants' 
Bjink  r.  Bergen  County,  115  U.  S.  384; 
Harshraau  i\  Knox  County,  122  U.  S. 
306;  Coler  r.  Cleburne,  131  U.  S.  162; 
Lake  County  i\  Graham,  130  U.  S.  674. 
It  is  certainly  a  very  reasonable  re- 
quirement that  the  bonds  issued  shall 
express  upon  their  face  the  purpose  for 
which  they  were  issued.    In  any  event, 
it   was  a  requirement  of  which  the 
purchaser  was  bound  to  take  notice, 
and  if  it  appeared  upon  their  face  that 
they  were  issued  for  an  illegal  purpose 
they   would  be  void.     If    they  were 
issued  without  any  purpose  appearing 
at  all  upon  their  face,  the  purchaser 
took  the  risk  of  their  being  issued  for 
an  illegal  purpose,  and  if  that  proved 
to  be  the  case  they  are  as  void  in  his 
hands  as  if  he  had  received  them  with 
express  notice  of  their  illegality.     Or- 
dinarily the  recital  of  the  fact  that  the 
bonds  were  issued  in  pursuance  of  a 
certain  ordinance,  would  be  notice  that 
they  were  issued  for  a  purpose  specified 
in  such  ordinance  (Hackett  v.  Ottawa, 
99  U.   S.  86),  and  the  city  would  be 
estopped  to  show  the  fact  to  be  other- 
wise.    Ottawa  V.  National  Bank,  105 
U.  S.  342.    But  where  the  statute  re- 


I 


f 


§422] 


TOWNSHIP  BONDS. 


873 


§  422.  Effect  upon  bonds  of  a  constitutional  restriction 
upon  the  indebtedness  to  be  incurred  by  towns. —  The  board 
of  trustees  of  a  town  in  Indiana  adopted  an  ordinance  directing 
that  bonds  of  the  town  be  issued  to  procure  funds  with  which  to 
rebuild  a  school  house  which  had  been  destroyed  by  fire.  The 
Supreme  Court  of  that  state  held  that  such  proposed  bonds  were 
within  the  constitutional  provision  of  that  state  restricting  the 
power  of  public  corporations  to  incur  indebtedness,  which  is  in 
these  words :  "  No  political  or  municipal  corporation  in  this  state 
shall  ever  become  indebted,  in  any  manner  or  for  any  purpose,  to 
an  amount  in  the  aggregate  exceeding  two  per  centum  on  the 


quires  such  purpose  to  be  stated 
upon  the  face  of  the  bonds,  it  is  no 
answer  to  say  that  the  ordinance 
authorized  them  for  a  legal  purpose, 
if  in  fact  they  were  issued  without 
consideration  and  for  a  different  pur- 
pose. In  this  Ciise  the  bonds  were  not 
only  issued  for  a  purpose  not  named 
in  the  ordinance,  viz.,  in  aid  of  the 
Texas  and  Atlantic  Refrigerator  Car 
Company,  which  had  agreed  to  erect 
at  Denison  slaughter  houses,  tanks, 
machinery  and  other  material  of  the 
value  of  fifteen  thousand  dollars,  but 
upon  a  consideration  which  had  wholly 
failed,  the  company  having  failed  to 
comply  with  the  terms  of  the  contract; 
and  the  bonds,  so  far  as  they  were 
known  to  exist,  were  canceled."  The 
court  then  commented  upon  certain 
caees  to  which  their  attention  had  been 
called  in  these  words:  "  In  Kansas  v. 
School  District  No.  3,  34  Kans.  237, 
relied  upon  by  the  plaintiff,  the  state 
sued  a  school  district  upon  certain 
school-district  bonds  and  their  cou- 
pons. Upon  the  trial  the  defendant 
objected  to  the  introduction  of  any 
evidence  upon  the  petition,  upon  the 
ground  that  the  same  did  not  state 
facts  sufficient  to  constitute  a  cause  of 
action,  and  the  court  sustained  the  ob- 
jection and  dismissed  the  action.  One 
of  the  objections  urged  by  the  defend- 
ant against  the  petition  was  that  the 
110 


bonds  did  not  state,  as  required  by 
statute,  the  purpose  for  which  they 
were  issued.  The  court  held  that  the 
bonds  were  not  void  for  that  reason, 
because  under  the  allegations  of  the 
petition  they  must  be  considered  as 
issued  in  good  faith;  'that  the  school 
district  received  ample  consideration 
for  them,  and  that  the  state  of  Kansas 
is  an  innocent  and  bojm  fide  purchaser 
of  them,  for  nothing  appears  to  the 
contrary  in  the  petition,  and  all  the 
allegations  of  the  petition  would  tend 
to  indicate  this.'  This  ruling,  how- 
ever, is  not  inconsistent  with  the  idea 
that  if  they  had  been  issued  for  au 
illegal  purpose  the  purchaser  would 
have  been  chargeable  with  notice  of 
such  illegality  by  reason  of  the  omis- 
sion to  state  on  the  face  of  the  bonds 
the  purpose  for  which  they  were 
issued.  In  Young  r.  Camden  County, 
19  Mo.  309,  the  act  required  that 
county  warrants  should  be  written  or 
printed  in  Roman  letters  without  orna- 
ment, in  order  to  prevent  the  issuing 
of  paper  by  County  Courts  which 
could  be  used  as  a  circulating  medium. 
This  was  held  to  be  merely  directory; 
but  this  case,  though  cited  by  the 
plaintiff  here,  is  not  in  point.  The 
court  held  expressly  that  all  the  words 
prescribed  by  the  statute  were  in  the 
warrants,  and  that  the  introduction  of 
other  words  did  not  vitiate  them." 


su 


TOWNSHIP  BONDS. 


[§423 


value  of  tlie  taxable  property  within  such  corporation,  to  be 
ascertained  by  tlie  last  assessment  for  state  and  county  taxes 
previous  to  tlie  incurring  of  such  indebtedness ;  and  all  bonds  or 
obligations  in  excess  of  such  amount  given  by  such  corporation 
shall  be  void."  Also,  that  because  there  was  a  provision  or 
promise  to  levy  taxes  to  pay  the  bonds  did  not  prevent  the  appli- 
cation of  the  constitutional  provision  to  the  bonds.^  The  court 
further  sustained  the  right  of  a  taxpayer  to  maintain  an  action 
for  injunction  to  prevent  the  issue  of  these  town  bonds  as  with- 
out authority.* 

§  423.  Town  bonds  for  improvement  of  public  park 
under  resolution  of  the  Connecticut  legislature — when 
authorized  and  to  what  extent. —  A  Connecticut  town  was 
empowered  by  a  resolution  of  the  general  assembly  to  issue 
its  bonds  to  an  amount  not  exceeding  $200,000,  to  be  used 
exclusively  for  the  extension  and  improvement  of  the  public 
park  system  of  the  town;  the  act  to  take  effect  when 
accepted  at  a  special  town  meeting  to  be  called  by  the  selectmen ; 
and  the  meeting  to  have  power  to  take  action  with  respect  to  the 
issuing  of  the  bonds,  and  their  form  and  terms.  A  later  section 
provided  that  the  park  commission  created  by  the  act  should 
not  make  any  expenditure,  or  contract  for  any,  exceeding  the 
amount  which  shall  have  been  previously  appropriated  by  the 


*  Town  of  Winamac  v.  Huddleston, 
1892)  132  Ind.  217. 

'  Ibid.  It  was  said  by  the  court : 
"There  can  be  no  doubt  that  if  the 
bonds  are  executed  as  proposed,  and 
are  of  any  validity,  they  will  create  a 
debt  against  the  public  corporation. 
In  this  particular,  as  in  others,  this 
case  is  radically  different  from  that  of 
The  City  of  Valparaiso  r.  Gardner,  97 
Ind.  1.  The  debt  created  by  a  bond 
executed  by  a  public  corporation  is 
not  an  obligation  payable  out  of 
specific  funds,  but  is  a  contract  to  pay 
money  generally,  and,  hence,  this  case 
is  not  within  the  doctrine  of  such  cases 
as  Quill  V.  City  of  Indianapolis,  124 
Ind.  292;  Strieb  v.  Cox,  111  Ind.  299; 
Board,  etc.,  v.  Hill,  115  Ind.  316.  A 
valid    bond    binds    the    corporation 


directly  and  unconditionally  unless  it 
is  otherwise  expressly  stipulated  in  the 
instrument  as  provided  by  law.  If 
the  bonds  to  be  issued  are  not  valid 
because  of  want  of  authority,  then,  no 
matter  what  may  be  the  cause  of  the 
invalidity,  they  should  not  be  issued, 
so  that  if  counsel  are  right  in  saying 
that  the  town  has  no  authority  to  issue 
the  bonds  the  judgment  below  must 
be  sustained."  As  to  the  remedy  in 
such  a  case  it  was  said:  ''There  is  no 
other  remed}*^  of  equal  power  and 
efficiency,  and  the  case  here  comes 
within  the  rule  declared  in  such  cases 
as  Watson  r.  Sutherland,  5  Wall.  74; 
Denny  v.  Denny,  113  Ind.  22;  Bishop 
r.  Moorman,  98  Ind.  l,and  other  cases 
there  cited." 


1 
i 


fl 


§423] 


TOWNSHIP  BONDS. 


875 


town  for  its  use.  At  a  meeting  warned  and  held  for  the  purpose 
the  town  accepted  the  resolution  of  the  general  assembly  and 
voted  "  that  the  selectmen  and  treasurer  are  hereby  directed  to 
prepare  suitable  bonds  as  authorized  by  said  act,  not  exceeding 
two  hundred  thousand  dollars,  of  the  tenor,  character  and  terms 
hereinafter  provided,  and  are  authorized  to  dispose  of  them  in 
such  amounts  and  at  such  times  as  shall  be  required  by  the  park 
commission,  to  provide  the  sums  made  necessary  by  said  commis- 
sion in  its  proceedings  under  said  act."  Parties  from  whom  the 
park  commissioners  had  purchased  lands  for  a  public  park,  with 
the  proper  officials  of  the  town,  agreed  upon  a  submission  to  the 
Supreme  Court  of  the  question  of  the  right  and  duty  of  the* 
officials  of  the  town  to  issue  bonds  in  payment  of  the  land  so  pur- 
chased. The  court  held  that  it  was  the  duty  of  the  selectmen 
and  treasurer  of  the  town  to  issue  bonds  within  the  limit  pre- 
scribed, to  an  amount  sufficient  to  pay  for  the  lands. ^ 


» Woodward  v.  Reynolds,  (1890)  58 
Conn.  486.     Arguendo,  it  was  said  by 
the  court :    "At  the  meeting  held  in 
pursuance  of    [the]    warning    [above 
referred  to],  in  connection  with  a  vote 
prescribing  what  the  tenor,  character 
and  terms  of  the  bonds  should  be,  the 
following   vote  was  passed  :    '  Voted, 
that  the  selectmen  and  town  treasurer 
be  and  are  hereby  directed  to  prepare 
and  procure  suitable  engrossed  bonds, 
as  authorized  by  said  act,  not  exceed- 
ing two  hundred  thousand  dollars  in 
total  amount,  bearing  interest  at  a  rate 
not    exceeding  three  and  a  half  per 
cent  per    annum,  and   of  the  tenor, 
character  and  terms  hereinafter  pro- 
vided; and  are  further  authorized  to 
dispose  of  said  bonds  from   time  to 
time  at  not  less  than  par  and  accrued 
interest,  in  such  amounts  and  at  such 
times  as  sliall  be  required  by  the  park 
commission  to  be   constituted    under 
the  provisions  of  said  act,  in  order  to 
provide  the  sums  made  necessary  by 
said   commission   in    its    proceedings 
under  said   act.'     Whatever   opinion 
may  be  held  as  to  the  effect  of  these 
votes,  no  question,  so  far  as  we  know, 


has  been  or  indeed  can  be  raised  as  to 
the  power  conferred  by  the  resolution, 
and  the  warning  of  the  meeting  con- 
tained a  sufficient  notice  that  the  town 
would    or    might     take     the    action 
indicated   by  the    votes.      The    only 
question  then  is,  whether  these  votes 
constitute    an    appropriation    by   the 
town  within  the   meaning  of  section 
four  of  the  resolution."     Referring  to 
definitions  of  "to  appropriate"  it  is 
said:    "In  the  case  at  bar,  after  the 
bonds  are    issued  by  the  town,   the 
resolution  itself   provides    that    they 
shall  be  used  solely  for  the  extension 
and  improvement  of  the  public  park 
system  in  the  manner  provided  in  the 
resolution.     This  is  in  itself  an  appro- 
priation of  the   bonds    by  legislative 
provision,  but  it  is  claimed  that  it  is 
not  the  appropriation   referred  to  in 
the  fourth  section  of  the  resolution, 
and  obviously  it  is  not.     Did  the  town 
then  by  the  votes  aforesaid  make  an 
appropriation  within  the  meaning  of 
section  four  ?    We  think  it  did.     Its 
agents,  appointed  for  such  purpose  by 
the  resolution  itself,  are  directed  and 
empowered  by    the  town  to  procure 


876 


TOWNSHIP  BONDS. 


[§424 


§  424.  The  effect  of  recitals  in  town  bonds  as  to  estoppel 
of  the  town  to  claim  they  were  issued  without  authority. — 

The  recitals  of  those  invested  with  the  ministerial  duty  of  issuing 
municipal  bonds  in  such  bonds,  where  there  is  an  entire  absence 
of  power  to  issue  them,  will  afford  no  protection  to  even  bona 
fide  holders  for  value,  and  the  holders  are  bound  to  take  notice 
of  the  want  of  authority  to  issue  them.*  The  recitals  in  certain 
school  bonds  were  that  they  were  issued  by  the  board  of  directors 
by  authority  of  an  election  of  the  voters  of  the  district  in  con- 
formity with  the  provisions  of  tlie  statute  authorizing  them. 
The  United  States  Supreme  Court  held  that  it  was  not  to  be 
implied  from  these  recitals  that  the  bonds  had  been  issued  in  con- 
formity with  the  constitutional  provision  in  regard  to  limit  of 
indebtedness  of  such  a  corporation,  and  that,  as  to  this  defense, 
the  holders  took  the  bonds  at  their  peril.  In  order  to  estop  the 
municipality,  in  the  name  of  which  they  have  been  issued,  from 
showing  that  bonds  were  issued  in  violation  of,  or  without  author: 
ity  of,  law,  the  recitals  on  the  face  of  the  bonds  should  be  clear 
and  unambiguous.^ 

the  bonds  provided  for  in  the  resolu- 
tion; the  number  and  amount  to  be  so 
procured  and  issued  are  specified; 
ample  provision  is  made  for  their 
proper  execution,  authentication,  and 
custody  until  they  shall  be  issued  and 
used;  it  is  further  provided  that  they 
shall  be  disposed  of  for  the  purposes 
of  providing  a  fund  for  the  use  of  the 
commission  under  the  resolution;  and, 
finally,  these  agents  are  fully  em- 
powered and  directed  to  issue  them 
from  time  to  time  as  required  for  the 
needs  of  the  commission.  In  this 
action  of  the  town  it  is  difficult  to  see 
what  element  or  essential  of  a  com- 
plete appropriation  is  wanting.  There 
remained  nothing  more  for  the  town  to 
do.  If  the  town  had  been  called 
together  prior  to  the  purchase  here  in 
question,  and  after  the  passage  of  the 
votes,  to  make  an  appropriation  with 
reference  to  the  purchase  of  the  land, 
it  could  only  have  instructed  its 
agents  to  do  what  it  had  already  em- 
powered and  directed  them  to  do. 
The    resolution     itself     provides   in 


§425] 


TOWNSHIP  BONDS. 


877 


section  six  as  follows:  'The  bonds 
authorized  in  the  first  section  of  this 
act  shall  be  prepared  by  the  selectmen 
and  town  treasurer  of  New  Haven, 
and*  shall  be  issued  by  them  from  time 
to  time  in  such  amounts  as  the  park 
commission  shall  require.  Such  bonds 
shall  in  no  case  be  sold  or  disposed  of 
for  less  than  par,  and  the  avails  of 
such  as  shall  be  issued  shall  be  kept 
by  the  town  treasurer  as  a  special 
fund  subject  to  the  orders  of  the  park 
commission,  and  shall  be  paid  by  him 
only  on  such  orders.'  Construing  the 
votes  in  the  light  of  this  language  of 
the  resolution,  we  think  they  clearly 
make  an  appropriation,  even  within 
the  meaning  of  section  four  of  the 
resolution.  To  construe  them  other- 
wise would,  we  think,  defeat  the 
manifest  intent  and  purpose  of  the 
town  in  passing  them." 

'Lippincott  v.  Town  of  Pana,  92 
111.  24;  Williams  r.  Town  of  Roberts, 
88  111.  11. 

« School  District  r.  Stone,  106  U.  S. 
183.    An  illustration  of  bonds  void  by 


§  425.  What  is  required  of  a  bona  fide  purchaser  of  bonds. 

—  The  United  States  Supreme  Court  having  ordered  this  case 
remanded  upon  its  reversal  of  the  judgment  of  the  Circuit  Court, 
upon  the  trial  the  Circuit  Court  made  special  findings  sustaining 
the  answers  of  the  township  and  rendered  judgment  in  its  favor. 
The  plaintiff's  contention  before  the  United  States  Circuit  Court 
of  Appeals  for  the  sixth  circuit  was  that,  as  it  was  a  bona  fide  pur- 
chaser for  value  of  the  bonds  in  suit,  it  was  not  charged  with 
notice  of  anything  but  the  text  of  the  statute  itself,  and  was  not 
bound  to  inquire  into  the  motives  or  intent  of  the  legislature,  as 
inferred  from  other  acts  passed  at  the  same  time,  and  from  facts 
extraneous  to  the  act  under  which  the  bonds  were  issued,  the 
existence  or  significance  of  which  it  could  not  know ;  that,  on  the 
face  of  the  act,  it  raised  exactly  the  same  question  of  constitu- 
tionality which  was  considered  in  the  case  of  Walker  v.  Cincm- 
nati,   21   Ohio  St.   14.     The   counsel   for   the   plaintiff  further 
attempted  to  explain  away  the  decision  of  the  Supreme  Court  of 
the  United  States  by  insisting  that  the  hearing  before  that  court 
[when  it  declared  the  act  under  which  the  bonds  were  issued  to 
be  unconstitutional]  was  on  the  averments  of  the  answer  with 
respect  to  the  surrounding  circumstances  under  which  the  bonds 
had  been  issued,  and  that  no  question  was  then  before  the  court 
as  to  the  right  to  use  such  evidence,  in  attacking  the  constitu- 
tionality of  the  law,  against  a  hona  fide  purchaser  of  the  bonds 
for  value,  without  notice.     To  this  the  appellate  court  said  :  "  We 
do  not  find  it  necessary  to  consider  the  objection  that  hona  fide 
holders  of  bonds  are  not  charged  with  a  knowledge  of  surround- 
ing circumstances  which  render  the  Enabling  Act  invalid,  because 
while  the  Supreme  Court  did  refer  to  such  circumstances  in  the 
discussion  of  the  act's  validity,  still  the  court  held  that,  even  if 
all  the  surrounding  circumstances   were   ignored,  the  act  was 
invalid,  and  was  plainly  distinguishable  from  the  Walker  case."  ^ 

« 

reason  of  the  notices  of  election  in  poses,"  see  State  ex  rel.  «.  Osawkee 

favor  of  them  not  being  sufficient,  and  Township,  14  Kans.  418. 

that  no  person  could  be  an  innocent  »JEtna    Life    Ins.   Co.    v.   Pleasant 

purchaser  of  them.     George  v.  Oxford  Township,  (1894)  62  Fed.  Rep.  718 

Township.   16  Kans.  72.     As  to  the  following  Pleasant  Township  «j.  ^^Ctna 

unconstitutionality  of  an  act  of  the  Life  Ins.  Co.,  138  U.  8.  67-   s  c    11 

Kansas  legislature  '♦authorizing  town-  Sup.  Ct.  Rep.  215,  holding  the  Ei^b- 

ships  to  issue  bonds  for  relief  pur-  ling  Act  to  be  unconstitutional. 


M 


§426] 


SCHOOL  DISTRICT  BONDS. 


879 


I 


CHAPTER  XXL 


SCHOOL  DISTRICT  BONDS. 


§  426.  School  district  bonds  generally. 

427.  Bonds  executed  by  a  de  facto 

board  of  education. 

428.  The  power  of  a  city  in  Califor- 

nia to  issue  bonds  for  building 
school  houses. 

429.  Tho  power  to  issue  bonds  under 

Nebraska  statutes. 

430.  When    such    bonds   are    void 

under  Nebraska  statutes. 

431.  Validity  of  bonds  as  affected  by 

constitutional  restriction 
upon  indebtedness  of  munic- 
ipal corporations. 

432.  Bonds  secured  by  a  pledge  of 

school  fund  and  property. 

433.  Conditions    precedent    to    the 

issue  of  bonds. 
484.  The  adoption  of  a  statute  to 
obtain    authority    to     issue 


bonds  —  mode  of  calling  elec- 
tion. 
§  435.  When  non-compliance  with  the 
requirements  of  the  Constitu- 
tion of  the  state  is  not  a  de- 
fense against  bona  fide  pur- 
chasers. 

436.  When  the  defense  that  the  site 

of  the  school  house  was  not 
owned  by  the  district  is  not 
open  in  a  bona  fide  holder's 
action  on  the  bonds. 

437.  When  the  defense  that  the  pro- 

ceeds of  the  bonds  were  used 
for  another  purpose  is  not 
open  in  such  an  action. 

438.  What  does  not  create  an  estop- 

pel of  the  district  to  defend. 

439.  One  of  the  latest  decision  on 

the  effect  of  recitals  in  bonds. 


§  426.  School  district  bonds  generally. —  Municipal  corpo- 
rations, unless  authorized  by  their  charters,  have  no  power  to 
make  and  place  in  the  market  commercial  paper,  and  persons 
dealing  in  municipal  bonds  issued  by  the  officers  of  a  school  dis- 
trict must  see  that  the  power  to  issue  them  exists.  There  is  no 
presumption  that  such  paper  has  been  issued  wathin  the  scope  of 
their  power,  as  is  the  case  with  corporations  created  for  business 
purposes.^  Common  councils  of  cities  and  boards  of  trustees  of 
towns  in  Indiana  are  authorized  to  issue  bonds  of  their  munici- 
palities, without  petition  of  citizen  owners  of  property  therein, 
for  the  purpose  of  constniction  of  school  buildings.*  Bonds  issued 
and  sold  by  a  board  of  education  for  the  purpose  of  building  a 
dormitory  and  boarding  house  have  been  held  to  be  illegal  where 
such  buildings  were  in  no  sense  necessary  for  a  public  free  school, 
and  the  power  denied  to  levy  taxes  to  pay  interest  on  such 
bonds.*    Bonds  issued  by  a  school  district  in  excess  of  the  consti- 

» Hewitt  V.  Board  of  Education,  94      *  Clark  v.  Town  of  Noblesville,  44 
m.  528.  Ind.  83. 

» Sherlock  v.  Winnetka,  68  IlL  53a 


tutional  limit  of  the  indebtedness  of  such  a  corporation  have  been 
held  to  be  void  even  without  regard  to  the  good  faith  with  which 
they  were  purchased  and  the  want  of  notice  of  their  invalidity.^ 
School  bonds,  under  the  laws  of  Ohio,  reciting  upon  their  face 
conformity  with  the  statute  in  the  matter  of  their  execution,  have 
been  held  to  be  promissory  notes  negotiable  by  the  law  mer- 
chant.^ Their  qualities  and  incidents  as  commercial  securities 
are  not  taken  away  by  recitals  on  the  face  of  the  bonds  that  they 
were  issued  conformably  to  statute ;  neither  is  their  negotiable 
character  destroyed  by  the  fact  that  option  was  reserved  to  the 
county  to  pay  at  any  time  before  maturity.^  The  purchaser  of  a 
municipal  bond  issued  without  authority,  or  in  violation  of  law, 
is  not  an  innocent  purchaser.  The  law  makes  it  his  duty  to  look 
to  the  authority  under  whicli  the  officers  of  the  municipality 
acted.  He  may  rely  upon  tlie  recitals  in  tlie  bonds  for  some  pur- 
poses, but  for  proof  of  tlie  authority  of  the  officers  of  the  corpo- 
ration, such  recitals  are  not  binding  on  the  principal  where  there 
is  a  want  of  authority.^  If  bonds  purporting  to  be  school  bonds 
negotiable  on  their  face  be  false  and  forged  when  delivered,  the 
vendor  of  them,  by  the  mere  act  of  sale,  will  be  held  to  impliedly 
warrant  tlie  genuineness  of  the  bonds  and  liable  to  the  vendee  or 
his  assignee  for  what  the  latter  paid  for  them,  with  interest.^  But 
a  return  or  an  offer  to  return  the  bonds  is  necessary  to  entitle  the 
vendee  to  maintain  a  suit  against  the  vendor  for  the  amount  he 
may  have  paid  for  such  bonds. *^ 


'  Mosher  v.  Independent  School  Dis- 
trict, 44  Iowa,  122.  In  Sherlock  v. 
Winnetka,  68  111.  530,  it  was  held  that 
although  the  bonds  issued  in  the  case 
by  a  board  of  education,  under  a  law 
for  a  proper  purpose,  may  have  been 
valid  in  the  hands  of  innocent  holders 
for  value,  notwithstanding  a  perver- 
sion of  the  uses  for  which  they  were 
intended,  yet  if  a  bill  had  been  filed 
showing  an  intended  perversion,  or 
that  the  buildings  to  be  erected  with 
the  proceeds  of  the  bonds  would  be 
perverted,  the  board  would  have  been 
enjoined  from  issuing  them. 

•  Ackley  School  District  v.  Hall,  113 
U.  8.  135. 

« Ibid. 


*Town  of  Pana  v.  Lippincott,  2 
Bradw.  (111.)  466.  An  illustration  of 
the  estoppel  of  a  municipal  corpora- 
tion by  the  recitals  in  a  bond  issued  by 
it.  Bolton  V.  Board  of  Education,  1 
Bradw.  (111.)  193.  As  to  recitals  in 
bonds  not  estopping  the  municipality 
to  set  up  the  defense  of  violation  of 
the  constitutional  limitation  upon  its 
indebtedness  in  their  issue,  see  Bates 
^.  Independent  School  District,  25  Fed. 
Rep.  192;  Geneva  National  Bank  v. 
Independent  School  District,  25  Fed. 
Rep.  629;  Nesbit  r.  Independent 
School  District,  25  Fed.  Rep.  635. 

5  Smith  V.  McNair,  19  Kans.  330. 

•Ibid.  Under  the  statute  of  Cali- 
fornia providing  that   trustees   of  a 


880 


SCHOOL  DISTRICT  BONDS. 


[§§  427, 428 


§  427.  Bonds  executed  by  a  de  facto  board  of  education. 

— Where  a  de  facto  board  of  education,  exercising  all  tlie  powers 
and  functions  of  such  a  corporation  legally  organized,  is  recog- 
nized and  its  action  acquiesced  in  by  the  state  and  the  citizens, 
bonds  issued  by  it,  within  the  powers  granted  to  a  board  legally 
organized,  are  binding  in  the  hands  of  honafde  purchasers.* 

§  428,  The  power  of  a  city  in  California  to  issue  bonds 
for  building  school  houses. — In  a  controversy  between  a  tax- 
payer and  a  city  in  California  holding  a  freeholder's  charter  the 
power  of  the  city  to  issue  certain  bonds  for  the  purpose  of  build- 
ing school  houses  was  denied.  There  had  been  enacted  by  the 
legislature  of  California  an  act  authorizing  the  incurring  of 
indebtedness  for  municipal  improvements,  and  issuing  bonds  there- 
for by  cities,  towns  and  municipal  corporations.  One  provision 
of  this  act  was  that  "  Any  city,  town  or  municipal  corporation, 
incorporated  under  the  laws  of  this  state,  may,  as  hereafter  pro- 
vided, incur  an  indebtedness  to  pay  the  cost  of  any  municipal 
improvement,  or  for  any  purpose  whatever  requiring  an  expen- 
diture greater  than  the  amount  allowed  for  such  improvement  by 
the  annual  tax  levy."     The  next  provision  in  the  act  prescribed 


school  district  may  submit  to  the 
electors  thereof  the  questions  whether 
bonds  shall  be  issued  for  purchasing  a 
school  lot  and  for  building  school 
houses,  the  Supreme  Court  held  that 
the  question  of  buying  a  lot  and  build- 
ing a  school  house  may  be  submitted 
jointly  with  the  question  of  issuance 
of  bonds.  People  ex  rel.  Hart,  Atty.- 
Gen.,  u.  Caruthers  School  Dist..  (Cal. 
1894)  36  Pac.  Rep.  396.  As  to  the 
holding  of  elections  in  the  state  of 
Washington  for  issuance  of  school 
bonds  by  school  districts,  and  what  is 
required  by  law,  see  Luzader  t.  Sar- 
geant,  (1892)  4  Wash.  St.  299. 

»  National  Life  Ins.  Co.  of  Montpelier 
f>.  Board  of  Education  of  City  of 
Huron,  (1894)  62  Fed.  Rep.  788.  The 
court  said:  *'  It  is  the  province  of  the 
state  to  question,  by  proper  judicial 
proceedings,  [the]  incorporation  [of 
the  board  of  education];  not  that  of  a 


defendant  in  a  private  suit  when  it  has 
asserted  its  corporate  existence  and  in- 
curred liabilities  to  innocent  parties  on 
the  faith  of  it.  When  a  municipal 
body  has  assumed,  under  color  of  au- 
thority, and  exercised  for  any  consid- 
erable period  of  time,  with  the  consent 
of  the  state,  the  power  of  a  public  cor- 
poration, of  a  kind  recognized  by  the 
organic  law,  neither  the  corporation 
nor  any  private  party  can,  in  private 
litigation,  question  the  legality  of  its 
existence."  Ashley  v.  Board,  60  Fed, 
Rep.  55,  63;  8.  c,  8  C.  C.  A.  455; 
County  of  Ralls  v.  Douglas.  105  U.  S. 
728,  730;  Coler  v.  School  Tp..  (N.  D.) 
55N.W.  Rep.  587;  Clement  i^.  Everest, 
29  Mich.  19;  Burt  v.  Railroad  Co.,  31 
Minn.  472;  s.  c,  18  N.  W.  Rep.  285, 
289;  People  v.  Maynard,  15  Mich.  463; 
Fractional  School  Dist.  No.  1  v.  Joint 
Board  of  School  Inspectors,  27  Mich.  8. 


§428] 


SCHOOL  DISTRICT  BONDS. 


881 


the  steps  to  be  taken,  a  vote  by  the  citizens,  etc.  All  of  the 
requirements  of  the  statute  had  in  the  case  of  these  bonds  been 
complied  with.  It  was  claimed  that  the  city  had  no  power  to 
issue  its  bonds  for  the  construction  of  school  houses,  for  the  rea- 
son that  the  management  of  its  schools  was  vested  in  a  board  of 
education,  and  that  any  bonds  to  be  issued  for  school  purposes 
must  be  authorized  by  that  body.  The  Supreme  Court  of  the 
btate  sustained  the  validity  of  these  bonds.^ 

»  In  re  Wetmore,  (1893)  99  Cal.  146.    the  public  interest  demands  the  im- 
Arguendo,  it  v^m  said:     "  The  provis-    provement,    but  whether  it  has  any 
ions  of  the  [statute  quoted  iu  the  text]    power  to  issue  the  bonds  after  it  has  so 
are  general  in  their  character,  and  give   determined,  irrespective  of  the  mode 
to  every  municipal  corporation  incor-   of    ascertaining    it.      Although    the 
porated  under  the  laws  of  this  state  the   board  of  education  has  been  intrusted 
power  to  create  a  bonded  indebtedness   with  the  management  of  the  schools 
for  any  of  the  purposes  authorized  by   and  it  is  the  body  designated  in  the 
the  act.     Theindebtednessisnottobe   charter  to  build    the  school  houses 
mcurred.  nor  are  the  bonds  to  be  issued,    there  is  nothing  inconsistent  with  this 
until  after  the  voters  of  the  municipal-    provision  for  the  legislature  to  desig- 
ity  have  so  directed,  but  as  it  is  the    nate  the  council  as  the  body  to  give  in- 
vote  of  the  electors  which  determines   ception  to  the  indebtedness  and  issue 
that  they  shall  be  issued,  it  is  imma-    the    bonds    therefor.     The   power  to 
tenal  to  them  what  officers  of  the  city    build  or  improve  the  school  houses 
carry  out   this   vote.     The  act  itself   which  is  vested  in  that  board  is  dis- 
(lesignates  the  legislative  branch  of  the   tinct  from  the  power  to  borrow  money 
mumcipality  as  the  body  to  determine   with  which  to  build  or  improve  them 
iti  the  first  instance  whether  the  public    The  board  of  education,  as  such    is 
interest  or  necessity  demands  the  con-    forbidden  by  the  charter 'from  incur- 
struction  or  completion  of  the  building   ring  any  indebtedness  beyond  the  an- 
or  maprovement,  and  also  designates   nual  income  for  school  purposes  and 
that  body  as  the  agency  of  the  corpo-    as  the  Constitution   permits  such  in- 
ratioa  through  whose  acts  the  indebt-    debtedness  by  any  municipal  corpora- 
edness  IS  to  be  created  and  evidenced,    tion  only  after  a  vote  of  the  electors 
Ihere  is  no  particular  mode  provided   therefor,  it  is  competent  for  the  le<-is- 
by  which  the  council  shall  ascertain   lature  to  designate  the  agent  or  body 
this  fact,  but  in  a  matter  which  per-    of  the  municipal   government  which 
tains  to  the  public  schools  the  fact   shall  act  for  it  in  carrying  out  the  will 
would    naturally  be   ascertained    by    of  its  electors,  and  for  this  purpose  the 
direct  communication  with  the  board   legislative  branch  of  that  government 
of  education,  or  bj^  a  request  from  that    would    most    naturally    be    selected 
board,  and  inasmuch  as  that  board  has   That  the  education  of  the  youth  is 
no  power  to  issue  the  bonds  of  the   properly  included  within  the  functions 
city  It  ,s  but  natural  to  assume  that  it   of  a  municipal  government  cannot  be 
would  mamfest  Its  wishes  to  the  coun-   denied    *    *    -     As    school    houses 

howth^irTrii  '''   ''    "^^   are  essential  aids  in  the  promotion  of 

how  the  council  shall  ascertain  whether   education,  their  erection  is  but  inci- 

<4L  JL  Jb 


SCHOOL  DISTRICT  R0ND8. 


[§429 


§430] 


SCHOOL  DISTRICT  BONDS. 


883 


§  429.  The  power  to  issue  bonds  under  Nebraska  stat- 
utes.—  The  Supreme  Court  of  Nebraska  reversed  the  lower  court 
and  ordered  an  injunction  to  issue  in  this  action  of  a  taxpayer  to 
restrain  the  issuing,  registering  and  selling  of  certain  school  dis- 
trict bonds  by  the  board  of  education.  They  held  as  to  the  power 
of  the  school  district  to  issue  these  bonds  that  under  the  law  as  it 
stood  prior  to  April  5,  1893,  a  district  school  board,  except  in 
cities  of  the  metropolitan  class,  had  no  power  to  call  an  election 
on  the  question  of  issuing  bonds  for  purchasing  sites  or  erecting 
school  houses  until  a  petition  had  been  presented  to  the  board 
suffgestinjr  that  such  a  vote  be  taken  and  signed  bv  at  least  one- 
third  of  the  qualified  voters  of  the  district.  The  presenting  of 
such  a  petition  was  a  condition  precedent  to  a  valid  election. 
They  f  urtlier  held  that  wliere  the  law  requires  a  petition  of  a  cer- 
tain character  in  order  to  confer  power  upon  a  board  to  call  an 
election  for  the  purpose  of  issuing  bonds  or  authorizing  a  tax,  the 
determination  of  that  board  is  not  conclusive  of  the  sufficiency  of 


dental    to    the    maintenance    of    the 
schools,  and  fulls  as  completely  within 
the  functions  of  a  municipal  govern- 
ment as  does  the  erection  of  a  hospital 
for  its  indigent  poor  or  buildings  for 
its  fire  engines;  and  the  school  houses, 
when  so  erected,  areas  fully  municipal 
buildings  as  are  its  engine  houses  and 
hospital    buildings.     Danielly   n.    Ca- 
bannis.  52  Ga.  222;  Horton  v.  Mobile 
School   Comrs.,    43    Ala.    598.     See, 
also,  Board  of  Education  v.  Fowler,  19 
Cal.  24;  Board  of  Education  p.  Martin, 
92  Cal.  209.     *    *    *    The  provisions 
of  sections  1880-1887  of  the  Political 
Code  for  the  issuance  by  the  supervis- 
ors of  the  county  of  school  district 
bonds,   whenever  the  electors  of   the 
district  shall  vote  therefor,  to  pay  for 
the  building  of  school  houses  in  the 
district,   do  not  limit  or  qualify  the 
power  conferred  by  [the  statute  first 
mentioned]  upon  an  incorporated  city 
to  issue  its  own  bonds  for  the  same 
purpose,  notwithstanding  the  provis- 
ions of  section  1576  of  the  same  code, 
making  such  incorporated  city  a  school 
district.     Each  of  these  acts  is  a  gen- 


eral law  upon  a  subject  within  legisla- 
tive power,  and  if  there  is  any  incon- 
sistency between  them   that  which  is 
later  in   date  must   prevail   over  the 
earlier  act.     *    *    *    A  school  district 
has  not,  like  an  incorporated  city,  any 
financial  officers,  nor  has  it  been  in 
trusted  with  the  power  of  assessment 
and  taxation  which  is  conferred  upon 
an  incorporated   city,   and   for   these 
reasons,  as  well  as  others,  tho  legisla 
ture  would  naturally  intrust  to  the  su- 
pervisors of  the  county,  as  being  the 
body  having  the  financial  supervision 
of  the  school  district,  the  function  of 
issuing  and  providing  for  the  payment 
of  school  district  bonds;  and  as  by  the 
Constitution  bonds  cannot  in  any  case 
be  issued  except  upon  a  vote  of  two- 
thirds  of  the  qualified  electors  of  the 
district  voting  upon  the  question  of 
their  issuance,  the  agency  by  which 
they  might  be  executed  would  seem 
immaterial,  and  there  would  be  little 
likelihood  of  an  issuance  being  author- 
ized to  be  made  for  the  same  purpose 
by  each  agency." 


the  petition  or  the  qualifications  of  the  petitioners.  These  sub- 
jects are  open  to  inquiry  in  judicial  proceedings  to  nullify  the 
action  where  the  parties  complaining  have  not  by  acquiescence  or 
laches  estopped  themselves  from  contesting  the  question.^ 

§  430.  When  bonds  are  void  under  Nebraska  statutes.— 

Certain   school  district  bonds  of  a  district  in   Nebraska  were 
involved  in  this  action.     The  statutes  under  which  they  were 
issued  were  in  these  words :  The  act  of  February  15,  1869,  pro- 
vided that  "  Any  school  district  shall  have  power  and  authority 
to  borrow  money  to  pay  for  the  sites  of  school  houses,  and  to 
erect  buildings  thereon,  and  to  furnish  the  same,  by  a  vote  of  a 
majority  of  the  qualified  voters  of  said  district  present  at  any 
annual  meeting  or  special  meeting  ;  provided,  that  a  special  meet- 
ing for  such  purpose  shall  be  upon  a  notice  given  by  the  director 
of  such  district  at  least  twenty  days  prior  to  the  day  of  such 
meeting,  and  that  the  whole  debt  of  any  such  district  at  any 
time,  for  money  thus  borrowed,  shall  not  exceed  f[.\Q  thousand 
dollars."     Tlie  act  of  February  27,  1873,  to  provide  for  the  regis- 
tration of  certain  municipal  bonds,  provides  that  "  *     *  it 
fihall  be  the  duty  of  the  president  or  township  and  school  district 
boards  or  officers,     *     *     *     to  register  with  the  county  clerk 
all  precinct  or  township  and  school  district  bonds  voted  and  issued 
pursuant  to     *     *     *     [certain  sections  of  the  act  to  establish  a 
system  of  public  instruction  for  the  state]."     And  the  section 
prescribes  the  duty  of  the  county  clerk  as  to  the  registry  of  such 
bonds.     On  each  of  the  bonds  sued  on  there  was  a  recital  that  it 
was  issued  "in  pursuance  of  an  act  of  the  legislature  of  the 
state  of  :N'ebraska,  entitled  '  An  act  to  establish  a  system  of  pub- 
lic instruction  for  the  state  of  Nebraska,'  approved  February  15, 
1869,  and  acts  amendatory  and  supplemental  thereto."     In  the 
lower  court  there  was  a  judgment  for  the  school  district.     The 
United  States  Circuit  Court  of  Appeals  for  the  eighth  circuit 
affirmed  the  judgment,  holding  that  these  acts  did  not  confer 

» Fullerton  v.  School  District  of  Lin-  12  N.  W.  Rep.  812;  Orchard  v.  School 

coin,  (Neb.  1894)  59  N.  W.  Rep.  896.  Dist.,   14  Neb.   378;    s.  c,  15  N    W 

In  support  of  the  first  point  the  court  Rep.  730;  State  t.  Babcock    21  Neb 

cited  and  quoted  from  State  ex  rel.  187;  s.  c,  31  N.  W  .Rep.  682;  WuUen- 

i'hjllips  V.  School  Dist.  No.  9,  10  Neb.  \vaber  «).  Dunigan,  30  Neb  877-  s  c 

544;  8.  c.  7  N.  W.  Rep.  315;  Kimball  47  N.  W.  Rep.  420.  '    '    ** 

«.  School  Dist.  No.  4. 13  Neb,  82;  s.  c, 


• 


884 


SCHOOL  DISTRICT  BONOS. 


[§431 


§431] 


SCHOOL  DISTRICT  BONDS. 


885 


authority  to  issue  negotiable  securities,  and  that  the  negotiable 
l)onds  issued  by  the  school  district  here  were  void  even  in  the 
hands  of  an  innocent  purchaser.* 

§  431.    Validity  of  bonds  as  affected  by  constitutional 
restriction  upon  indebtedness  of  municipal  corporations. — 

The  Constitution  of  Iowa  provides  as  follows :  "  No  county,  or 


'  Ashuelot  Nat.  Bank  of  Keenc  v. 
School  Dist.   No.   7,  Valley  County, 
(1893)  56  Fed.  Rep.    197,  affirming  41 
Fed.    Rep.     514.     Tkayer,     D.     J., 
speaking  for  the  court  in  support  of 
the  ruling,  said:  "  In  the  case  of  Mer- 
rill d.  Monticello,  138  U.   8.  673,  681; 
B.  c,  11  Sup.  Ct.  Rep.  441,  it  was  held 
that  although  a  municipal  corpomtion 
has  an  implied  power  to  borrow  money 
and  to  give  written  evidence  of  the  in- 
debtedness in  the  form  of  a  note  or 
bond,  yet  that  it  has  no  authority,  as 
an  incident  of  such  power,  to  issue  a 
negotiable  security.     It  was  further 
held  that  the  power  to  borrow  money 
and  the  power  to   give  a  negotiable 
bond   which   may    circulate    in    the 
market  freeil  from  all   equitable  de- 
lenses,  are  essentially  different  powers, 
and  that  the  latter  power  will  not  be 
implied  from  the  former.    In  a  later 
case  (Brenham  v.  Bank,  144  U.  S.  173; 
».  c,  12  Sup.  Ct.  Rep.  559)  it  was  held 
that  a  city  which    had    an    express 
power  under  its  charter   'to  borrow 
for   general  purposes  not    exceeding 
fifteen  thousand  dollars  on  the  credit 
of  the  city,'  had  no  authority,  as  an 
incident  of  such  power,  to  Lssue  nego- 
tiable securities.     In  accordance  with 
that  view  certain  negotiable  bonds,  in 
tho  hands  of  an  innocent  purchaser, 
were  declared  to  be  void,  although 
another  provision  of  the  charter  of  the 
city  declared  that  '  bonds  of  the  cor- 
poration of  the  city  of  Brenham  shall 
not  be  subject  to  tax  under  this  act,' 
and  although  the  latter  clause  could 
only  have   had   reference    to   bonds 
issued  in  pursuance  of  the  power  to 


borrow  money  for  general  purposes  on 
the  credit  of  the  city.     In  speaking  of 
the  scope  of  the  decision  in  Brenham 
r.  Bank,  Mr.  Justice  Harlan,  in  the 
dissenting  opinion,  sjiys:  '  It  seems  to 
us  that  the  court  in  the  i)resent  case 
announces  for  the  first  time  that  an 
express  power  in  a  municipal  corpora- 
tion to  borrow  money  for  corporate  or 
general  purposes  does  not,  under  any 
circurastjinces,  carry  with  it  by  impli- 
cation, authority  to  execute  a  negoti- 
able promissory  note  or  bond  for  the 
money  so  borrowed.     *    *    *    a  dec- 
lamtiou  by  this  court  that  such  notes 
and  bonds  are  void  because  of  the  ab- 
sence of  express  legislative  authority  to 
execute  negotiable  instruments  for  the 
money  lK>rrowed  will,  we  fear,  produce 
incalculable  mischief.'    144  U.  S.    196. 
197:  8.  c,  12  Sup.  Ct.  Rep.  568.     It  is 
unnecessary  for  us  to  assert  that  the 
decision  last  referred  to  goes  to  the 
full  extent  last  indicated,   of  holding 
that  a  municipal  corporation  can  only 
acquire  authority  to  Issue  negotiable 
securities,  by  a  statute  which  confers 
such  power  in  express  language,  and 
that  the  power  will  not  be  implied 
under  any  circumstances.     We  think, 
however,   that  we  may   fairly  affirm 
that  the    two    authorities    heretofore 
cited  do  establish  the  following  propo- 
sitions: Hrst,  that  an  express  power 
conferred  upon  a  municipal  corpora- 
tion to  borrow  money  for  corporate 
purposes  does  not  in  itself  carry  with 
it  an  authority  to  issue  negotiable  se- 
curities; second,  that  the  latter  power 
will  never  be  implied,  in  favor  of  a 
municipal    corporation,    unless    such 


other  political  or  municipal  corporation,  shall  be  allowed  to 
become  indebted  in  any  manner,  or  for  any  purpose,  to  an  amount 
in  the  aggregate  exceeding  live  per  centum  on  the  value  of  the 
taxable  property  within  such  county  or  corporation,  to  be  ascer- 
tained by  the  last  state  and  county  tax  lists  previous  to  the  incur- 
ring of  such  indebtedness."  A  school  district  in  that  state,  already 
indebted  in  a  sum  exceeding  the  limit  named  here  at  the  time  of 
the  date  of  their  issue,  issued  certain  bonds  in  themselves  aggregat- 
ing a  sum  nearly  $500  in  excess  of  the  limit.  The  bonds  were  issued 
at  the  same  time  and  in  one  transaction.  The  whole  issue  were 
purchased  in  one  purcliase  by  the  holder,  who  brought  an  action 
in  the  federal  court  upon  them  against  the  district.  The  United 
States  Supreme  Court  held  that  the  bonds  were  invalid  by  reason 
of  the  violation  of  the  constitutional  provision  in  their  issue; 
and,  further,  it  was  held  that  the  holder  could  not  claim  to  be  a 
honafide  purchaser  no  matter  what  recitals  appeared  on  the  face 
of  the  bonds.*     The  directors  of  a  school  district,,  the  indebted- 


implication  is  necessary  to  prevent 
some  express  corporate  power  from 
becoming  utterly  nugatory;  and, 
third,  that  in  every  case  where  a  doubt 
arises  as  to  the  right  of  a  municipal 
corporation  to  execute  negotiable  se- 
curities the  doubt  should  be  resolved 
against  the  existence  of  any  such 
right.  The  application  of  these  prin- 
ciples to  the  case  at  bar  satisfies  us  that 
the  judgment  of  the  Circuit  Court  was 
for  the  right  party  and  should  not  be 
disturbed." 

*  Nesbit  Xi.  Riverside  Independent 
District,  (1892)  144  U.  S.  610.  Mr. 
Justice  Bkewer,  speaking  for  the  ma- 
jority of  the  court,  said:  "If  not 
charged  with  knowledge  of  the  prior 
indebtedness,  [the  holder  of  the  bonds] 
was  with  the  fact  that,  independent  of 
«uch  indebtedness,  these  bonds  alone 
were  an  overissue  and  beyond  the 
power  of  the  district;  for  she  was 
bound  to  take  notice  of  the  value  of 
taxable  property  within  the  district  as 
shown  by  the  tax  list.  Buchanan  «?. 
Litchfield,  103  U.  S.  278;  Northern 
Bank  v.  Porter  Township,  110  U.  8. 


608;  Dixon  County  «?.  Field,  111  U.  8. 
83.     In  the  first  of  these  cases,  on  page 
289,  it  is  said  tliat  '  the  purchaser  of 
the  bonds  was  certainly  bound  to  take 
notice,  not  only  of  the  constitutional 
limitation  upon    municipal  indebted- 
ness, but  of  such  facts  as  the  author- 
ized oflicial  assessments  disclosed  con- 
cerning the  valuation  of  taxable  prop- 
erty within  the  city  for  the  year  1873; ' 
and  in  the  last,  on  page  95,  that  '  the 
amount  of  the  T)onds  was  known.     It 
is  stated  in  the  recital  itself.     It  was 
eighty-seven    thousand  dollars.    The 
holder  of  each  bond  was  apprised  of 
that  fact.    The  amount  of  the  assessed 
value  of  the  taxable  property  is  not 
stated,  but,  ex  vi  termini,  it  was  ascer- 
tainable in  one  way  only,  and  that  was 
by  reference  to  the  assessment  itself,  a 
public  record  equally  accessible  to  all 
intending  purchasers  of  bonds,  as  well 
as  to  the  county  ofllcers.'    80  when 
the  plaintiff  purchased  these  bonds  she 
knew,  or  at  least  was  chargeable  with 
knowledge  of  the  fact,  that  they  were 
unlawfully  issued  and  created  no  obli- 
gation against  the  district." 


886 


SCHOOL  DISTRICT  BONDS. 


[§431 

ness  of  which  ah-eadj  exceeded  that  allowed  by  the  constitutional 
limitation,  having  contracted  an  indebtedness  with  certain  parties, 
and  afterwards,  through  collusion,  permitted  them  to  obtain 
judgment  for  the  same  against  the  school  district  upon  proceed- 
ings to  compel  the  authorities  of  the  school  district  to  levy  taxes 
for  tlie  payment  of  this  judgment,  it  was  held  by  the  Supreme 
Court  of  Iowa  tliat  the  judgment  was  of  no  validity  against  the 
district  and  could  not  be  enforced.*  In  an  action  upon  certain 
bonds  issued  by  a  school  district  of  Iowa  in  the  federal  court, 
which  were  held  to  be  invalid,  as  in  violation  of  the  constitutional 
provision  of  that  state  limiting  the  indebtedness  to  be  incurred 
by  such  a  corporation,  it  was  pressed  upon  the  United  States 
Supreme  Court  that  a  judgment  obtained  by  the  holder  of  these 
bonds,  the  plaintiff  here,  in  tlie  state  court  upon  two  coupons 
detached  from  these  bonds  operated  as  an  estoppel  of  the  district 
to  contest  tlie  validity  of  tlie  bonds  in  tlie  federal  court.  The 
court  held  that  the  defense  was  open  to  the  district.'* 


*  Kane  &  Co.  v.  Independent  School 
District  of  Rock  Rapids,  (1891)  82 
Iowa,  5.  See  as  to  incurring  indebt- 
edness in  excess  of  the  limitation  upon 
municipalities,  the  duty  of  creditors, 
the  right  to  attack  such  indebtedness 
on  the  part  of  the  municipaUtj,  etc., 
French  v.  City  of  Burlington,  42  Iowa, 
614;  Independent  District  v.  Schreiner, 
46  Iowa,  172;  Kelley  tJ.Town  of  Milan, 
127  U.  8.  139;  s.  c,  8  Sup.  Ct.  Rep. 
1101. 

'  Nesbit  V.  Riverside  Independent 
District,  (1892)  144  U.  8.  610. 
Arguendo,  it  was  said  by  the  court: 
"  The  law  in  respect  to  such  estoppel 
was  fully  considered  and  determined 
by  this  court  in  the  case  of  Cromwell 
V.  County  of  Sac,  94  U.  S.  351.  It  was 
there  decided  that  when  the  second 
suit  is  upon  the  same  cause  of  action, 
and  between  the  same  parties  as  the 
first,  the  judgment  in  the  former  is 
conclusive  in  the  latter  as  to  every 
question  which  was  or  might  have 
been  presented  and  determined  in  the 
first  action  ;  but  when  the  second  suit 
is  upon  a  different  cause  of  action, 


though  between  the  same  parties,  the 
judgment  in  the  former  action  operates 
as  an  estoppel  only  as  to  the  point  or 
question  actually  litigated  and  de- 
termined, and  not  as  to  other  mat- 
ters which  might  have  been  liti- 
gated and  determined.  ♦  *  »  Each 
matured  bond  is  a  separable  promise, 
and  gives  rise  to  a  separate  cause  of 
action.  It  may  be  detached  from  the 
bond  and  sold  by  itself.  Indeed,  the 
title  to  several  matured  coupons  of  the 
same  bond  may  be  in  as  many  differ- 
ent persons,  and  upon  each  a  distinct 
and  sepamte  action  be  maintained. 
So,  while  the  promises  of  the  bond  and 
of  the  coupons  in  the  first  instance  are 
upon  the  same  paper,  and  the  coupons 
are  for  the  interest  due  upon  the  bond, 
yet  the  promise  to  pay  the  coupon  is 
as  distinct  from  that  to  pay  the  bond 
as  though  the  two  promises  were 
placed  in  different  instruments  upon 
different  paper.  By  the  rule  laid 
down  in  Cromwell  r.  Sac  County  the 
judgment  in  the  suit  [in  Iowa]  is  con- 
clusive in  this  case  onlv  as  to  the  mat- 
ters  litigated  and  determined.     What 


1432] 


SCHOOL  DISTRICT  BONDS. 


887 


§  432.  Bonds  secured  by  a  pledge  of  school  fund  and 
property. —  The  bonds  of  a  city  of  Kansas  issued  by  the  board 
of  education  of  the  city,  secured  by  a  pledge  of  the  sciiool  fund 
and  property  of  the  city  with  couoons  attached,  have  been  held 


were  they  ?    The  defense  pleaded  was 
this:  That  at  the  time  the  bonds  were 
issued  the  indebtedness  exceeded  five 
per  cent,  and  the  bonds  were,  there- 
fore, void;    that  the  district  received 
no  consideration,  and  that  the  plaintiff 
was  not  a  bona  fide  holder.     The  judg 
ment   entry  shows  that  it  appeared 
from  the  evidence  that  the  indebted- 
ness at  the  time  the  bonds  were  issued 
exceeded  the  constitutional  limitation 
of  five  per  cent,  but  that  it  was  ad- 
judged that  the  recitals  in  the  bonds 
estopped  the  defendant  from  showing 
this  fact    against    the    plaintiff.      In 
other  words,  that  which   was  deter- 
mined was  the  effect  of  the  recitals. 
But  this  case  does  not  turn  upon  that 
question  at  all,  and  nothing  was  de- 
termined   here    antagonistic     to    the 
adjudication    there.      An    additional 
fact,  that  of  notice  from  the  amount 
of  the  bonds  purchased,  was  proved. 
The  effect  of   recitals    in    municipal 
bonds  is  like  that  given  to  words  of 
negotiabilty    in    a    promissory    note. 
They  simply  relieve  the  paper  in  the 
hands  of  a  bona  fide  holder  from  the 
burden  of  defenses  other  than  the  lack 
of  power,  growing  out  of  the  original 
issue    of    the   paper,    and    available 
as  against  the  immediate  payee.  *  *  * 
In  the  suit  [in  Iowa]  no  notice  to  the 
holder  was  shown.     The  recitals  cut 
off  the  defense  pleaded  of  original  in- 
validity.     In    this    action    notice    is 
proved,  and  an  additional  fact  is  put 
into  the  case    which    makes    a    new 
question.     The  effect  of  recitals  is  one 
thing;    that  of  recitals  coupled    with 
notice  is  another.     The  one  question 
was  litigated  and  determined  in  [the 
Iowa]  suit;     the    other   is   presented 
here.     Surely  an  adjudication  as  to 


the  effect  of  one  fact  alone  does  not 
preclude  in  the  second  suit  an  inquiry 
and  determination  as  to  the  effect  of 
that  fact  in  conjunction  with  others. 
*    *    *    It  was  well  said  in  Cromwell 
v.   County    of    Sac,    page    356,   that 
'  Various    considerations    other   than 
the  actual  merits  may  govern  a  part,y 
in  bringing  forward  grounds    of   re- 
covery or  defense  in  one  action  which 
may  not  exist  in  another  action  upon 
a  different  demand,  such  as  the  small- 
ness  of  the  amount,  or  the  value  of  the 
property  in  controversy,  the  difficulty 
of  obtaining  the  necessary  evidence, 
the  expense  of  the  litigation  and  his 
own  situation  at  the   time.     A  party 
acting  upon  considerations  like  these 
ought  not  to  be  precluded  from  con- 
testing in  a  subsequent   action  other 
demands  arising  out  of  the  same  trans- 
action.'    This  case  may  be  looked  at  in 
another  light.      The  defense  pleaded 
in  [the  Iowa]  suit  was,  that  at  the  time 
of  the  issue  of  the  two   bonds  then 
disclosed,  there  was  a  prior  indebted- 
ness of  the  district  exceeding  the  con- 
stitutional limitation;  and  that  defense 
was  the  one  adjudged  to  be  precluded 
by  the  recitals.     Here  are  additional 
defenses,   that  the  five  bonds  in  suit 
themselves  created  an  overissue.    That 
question  was  not    presented  in    [the 
Iowa]  suit,  and  could  not  have  been 
adjudicated.     It  is  presented  for  the 
first  time  in  this  case.     It  is  of  itself 
a  valid  defense,  irrespective  ot  prior 
indebtedness.     So* we  have  in  this  case 
a  new  question  not  presented  in  [the 
Iowa]  suit,  the  existence  of  facts  never 
called  to  the  attention  of  the  court  in 
that  case,  which  of  themselves  create 
a  perfect  defense." 


888 


SCHOOL  DISTRICT  BONDS. 


[§  433 


by  the  United  States  Supreme  Court  to  be  valid  obligations  of  the 
municipal  corporation.* 

§  433.  Conditions  precedent  to  the  issue  of  bonds. —  In  a 
case  from  Kansas  involving  the  validity  of  certain  bonds  issued 
by  the  board  of  education  of  the  city,  whicii  required  the  consent 


SCHOOL  DISTRICT  BONDS. 


889 


*  Atchison  Board  of  Education  r. 
De  Kay,  (1893)  148  U.  S.  591.  Mr. 
Justice  Brewer,  speaking  for  tlie 
court,  after  reviewing  the  Kansas  leg- 
islation as  to  cities,  stated  the  objec- 
tions to  the  validity  of  the  bonds  and 
replied  to  them  as  follows:  "First, 
it  is  objected  that  the  bond  purports 
to  be  issued  under  authority  of  an  act 
entitled,  'An  act  to  organize  cities,' 
etc.,  approved  February  28, 1868;  that 
no  such  act  is  to  be  found  in  the  stat- 
utes of  that  year,  and  that,  therefore, 
the  bonds  were  issued  without  author- 
ity of  law,  and  are  not  valid  obliga- 
tions. This  is  trifling.  There  was  an 
act  giving  authority  to  the  board  of 
education  to  borrow  money  and  issue 
bonds,  and  whose  title  was  exactly  as 
described  in  this  bond,  except  in  place 
of  the  word  '  organize'  the  word  •  incor- 
porate '  was  used.  Falsa  demonstmtio 
mm  nocet.  Commissioners  r.  January, 
94  U.  8.  202.  An  error  in  copying 
into  an  instrument  a  single  word  in 
the  title  of  a  statute  does  not  vitiate 
the  deliberate  acts  of  the  proper  offi- 
cers of  a  municipality  as  expressed  in 
the  promise  to  pay,  which  they  have 
issued  for  money  borrowed.  Again, 
it  is  insisted  that  the  board  of  educa- 
tion had  no  power  to  bind  the  city  of 
Atchison  as  a  municipal  corporation, 
but  only  that  other  and  quam  corpora- 
tion known  as  school  district  No.  1, 
Atchison  county.  Jhe  argument  is 
that  there  were  two  corporations:  Mrst, 
a  school  district  corporation  whose 
name  and  corporate  existence  were 
prescribed  by  the  Laws  of  1858;  and 
another,  a  strictly  municipal  corpora- 
tion, known  as  the  city  of  Atchison, 


with  the  ordinary  powers  attached  to 
such  a  municipality;  that  though  they 
embraced  within  their  limits  the  same 
territory  and  population,  they  were  in 
fact  distinct  corporate  entities,  and 
that  the  board  of  education,  having 
control  of  the  affairs  of  the  corpora- 
tion, had  no  power  to  bind  the  other 
by  its  promise  to  pay."  The  court 
said:  **It  may  well  be  doubted 
whether  there  were  two  distinct  corpo- 
rations. Section  14  of  the  acts  of  1867 
and  1868,  incorporating  cities  of  the 
second  class,  provided  that  '  each  city 
shall  constitute  at  least  one  school  dis- 
trict.' There  is  no  pretense,  under  the 
power  reserved  in  that  section,  that 
the  city  of  Atchison  was  ever  divided 
into  districts;  so,  by  that  section.  At 
chison  city  constituted  a  school  dis- 
trict. The  members  of  the  board  of 
education  were  to  be  elected  at  the  an- 
nual city  election,  and  to  the  board 
was  given  full  control  of  the  school 
affairs  of  the  city.  Section  57.  In 
other  words,  it  was  the  city's  schools 
and  the  city's  school  property,  which 
were  placed  under  the  management 
of  the  board  of  education.  Upon 
the  report  of  the  board  of  educa- 
tion the  city  council  levied  and  col- 
lected the  school  taxes  (section  67), 
and  when  they  were  collected  they 
were  retained  by  the  city  treasurer  in 
his  custody.  Section  68,  The  title  to 
all  school  property  was  vested  in  the 
city.  Section  70.  No  bonds  could  be 
issued  without  the  consent  of  the  city 
council.  Section  76.  And  the  school 
fund  and  property  of  such  city  is 
pledged  to  the  payment  of  the  bonds. 
Section  81.     The  whole  idea  of  the 


§  433] 

of  the  city  council,  the  record  showed  a  number  of  meetings  of  a 
part  of  the  council,  and  adjournments  to  subsequent  dates,  one  of 
these  adjournments  when  only  the  clerk  of  the  council  was  present. 
At  a  final  meeting  the  mayor  and  five  councihnen,  being  a  major- 
ity of  the  council,  were  present,  and  a  resolution  was  passed  giv- 
ing the  consent  of  the  council  to  the  issue  of  these  bonds.  It  was 
insisted  before  the  United  States  Supreme  Court  that  consent 
could  only  be  given  by  an  ordinance,  and  not  by  resolution.^ 
Further,  it  was  contended  that  even  if  a  resolution  were  suffi- 
cient, there  was  no  legal  meeting  of  the  council,  because  all  the 
members  were  not  present,  and  it  did  not  appear  that  all  were 
notified,  or  that  a  special  meeting  had  been  called ;  that  it  was 
not  a  regular,  but  apparently  an  adjourned  meeting ;  and  that 
the  first  adjournment  was  without  validity  because  none  of  the 
councihnen  were  present,  and  the  adjournment  was  ordered  by 
the  clerk  alone.^  The  Supreme  Court  held  these  bonds  to  be 
valid.'* 


statute  seems  to  have  been  the  min- 
gling of  the  schools  and  the  school  in- 
terest with  the  ordinary  municipal 
functions  of  the  city  of  Atchison,  giv- 
ing to  the  board  of  education,  as  an 
administrative  body  of  the  city,  the 
management  of  the  schools  and  the 
school  property.  Further,  when  in 
1872  a  new  act  was  passed  in  respect 
to  the  incorporation  of  cities  of  the 
second  class,  *  *  *  it  was  ex- 
pressly provided  that  '  the  public 
schools  of  such  city  organized  in  pur- 
suance of  this  act,  shall  be  a  body  cor- 
porate, and  shall  possess  the  usual 
powers  of  a  corporation  for  public 
purposes  by  the  name  and  style  of 
'  The  Board  of  Education  of  the  city 

of ,  of  the  state  of  Kansas,'  and 

in  that  name  may  sue,'  etc.  The  legis- 
lation seems  to  imply  that  up  to  that 
time  there  was  in  cities  of  the  second 
class  no  separate  school  corporation. 
But  even  if  this  be  a  misconstruction 
of  the  statute,  it  is  clear  that  the 
school  district  and  the  city  were  coter- 
minous; that,  by  the  act  of  1868,  the 
board  of  education  was  authorized  to 

112 


borrow  on  the  credit  of  the  school 
property,  with  the  consent  of  the  city 
council,  and  to  issue  bonds  in  pay- 
ment therefor.  They  did  proceed,  as 
appears  from  the  recital  in  the  bonds, 
under  authority  given  by  that  act,  and 
if  there  were  a  misrecital  of  the  name 
of  the  obligor,  such  mere  misrecital 
would  not  vitiate  the  obhgations. 
Proceeding  strictly  under  that  act, 
they  bound  the  corporation  whose  offi- 
cers they  were  and  for  which  they  as- 
sumed to  act,  and  whether  the  name 
of  that  corporation  was  technically 
'  The  City  of  Atchison '  or  '  School 
District  No.  1,  Atchison  County,'  by 
the  issue  of  bonds  they  bound  that 
corporation." 

'  In  support  of  this  position  the  case 
of  Newman  v.  Emporia.  32  Kans.  456, 
was  cited. 

2  In  support  of  these  last  positions 
the  cases  of  Paola  &  Fall  River  liail- 
road  V.  Anderson  County  Comrs.,  16 
Kans.  302,  and  Aikman  r.  School  Dis- 
trict, 27  Kans.  129,  were  cited. 

3  Atchison  Board  of  Education  v. 
De  Kay,   (1893)  148  U.  S.  598.     Mr. 


li! 


890 


SCHOOL  DISTRICT  BONDS. 


[§  43+ 


1 1 


I 


§  434.  The  adoption  of  a  statute  to  obtain  authority  to 
issue  bonds  —  mode  of  calling  election.— The  adoption,  by  a 
vote  of  the  electors  of  a  city,  at  an  election  duly  called  in  accord- 
ance with  the  provisions  of  the  city  charter,  of  an  act  relating  to 
schools  pursuant  to  the  provisions  of  that  act,  the  United  States 

thereof — 'that  council  met  pursuant 
to  adjournment.'    The  first  adjourn- 
ment was   made    by  the   city  clerk 
alone,  no  member  of  the  city  council 
being  present.     We  are  not  advised  by 
the  testimony  as  to  what  rules,  if  any, 
had  been  prescribed  by  the  city  coun- 
cil in  respect  to  such  matter.     It  is 
not  an  uncommon  thing  for  legislative 
bodies,  such  as  a  city  council,  to  pro- 
vide by  rules  that,  in  the  absence  of  all 
members,  the  clerk  or  secretary  shall 
have  power  to  adjourn.     That  prob- 
ably such  a  rule  as  that  was  in  exist- 
ence is  evidenced  by  the  fact  that  at 
succeeding  meetings,   which,    giving 
full  weight  to  the  language  used  at 
the  commencement  of  the  record,  were 
simply  adjourned  meetings,  the  coun- 
cil, all  but  one  of  whom  were  present 
at  one  of  the  meetings,  approved  the 
records.     All  these  entries  of  meetings 
appear  to  have  been  kept  upon   the 
regular  record  of  the  city  council,  and 
it  is  obvious  that  either  because  an 
adjournment  by  the  clerk  in  the  ab- 
sence of  the  council  was  authorized 
by  rule,  or  because  the  days  of  the 
subsequent  meetings  were,  in  fact,  th<; 
regular  days  therefor,  such  meetings 
were  accepted  and  recognized  by  the 
council  as  legal.      Certain  it  is  that 
when  bonds  have  been  issued  in  re- 
liance upon  a  consent  thus  evidenced, 
and  when  for  years  thereafter  interest 
has  been  duly  paid  upon  such  Iwnds. 
the    court  will    not,   after  the  lapse 
of  twenty  yeai's,   in   a   suit   on  the 
bonds,    pronounce    them    invalid    on 
such  technical  and   trivial  grounds." 
The  court  then  distinguished  the  cases 
relied  on  on  behalf  of  the  city  (Paola 
&   Fall  River  Railroad  v.  Andersou 


Justice   Bbeweb,  speaking   for   the 
court,  said:  '*  In  respect  to  the  first  of 
these  contentious  the  general  rule  is 
that  where  the  charter   commits  the 
decision  of  a  matter  to  the  council, 
and  is  silent  as  to  the  mode,  the  decis- 
ion may  be  evidenced  by  a  resolution, 
and  need  not  necessarily  be  an  ordi- 
nance.    State  r.  Jersey  City,  27  N.  J. 
L.  493;  Butler  r.  Passaic,  44  N.  J.  L. 
171;  Barb  Wire  Co.  v.  Chicago,  Bur- 
lington, etc..  Railway,   70  Iowa,  105; 
Sower  p.  Philadelphia,  35  Pa.  St.  231; 
Gas  Company  t.  San  Francisco,  6  Cal. 
190;  First  Municipality  v.  Cutting,  4 
I^.  Ann.  335;  Green  Bay  r.  Brauns, 
50  Wis.  304;    1  Dill.  Mun.  Corp.  (4th 
cd.)  ^  307  and  notes.      Nor  is  there 
anything  in  [Newman  r.  Emporia,  32 
Kans.  456]  in  conflict  with  this.    That 
simply  holds  that  where  a  charter  re- 
quires that  certain  things  be  done  by 
ordinance  they  cannot  be  done  by  reso- 
lution.    In  this  act  incorporating  cities 
of  the  second  class  there  is  nothing 
which  either  in  terms  or  by  implica- 
tion requires  that  the  consent  of  the 
city  council  shall  be  given  only  by 
ordinance.     A  resolution  was,  there- 
fore,  sufficient."     As  to  the  conten- 
tions as  to  the  meetings  of  the  coun- 
cil and  the  adjournment  by  the  cicrk 
of  one  of  them,  it  was  said:  "The  act 
of  1868,  section  13,  provides  that  regu- 
lar meetings  of  the  city  council  shall 
be  held  .at  such  times  as  the  council 
may  provide  by  ordinance.     No  evi- 
dence was  offered  showing  what  were 
the  dates  of  regular  meetings,  as  pro- 
vided by  ordinance.     We  are  led  to 
infer    that  these  meetings  were   not 
regular  meetings  from  the  language 
at  the  commencement  of  the  records 


§434] 


SCHOOL  DISTRICT  BONDS. 


891 


Circuit  Court  of  Appeals  for  the  eighth  circuit  held  was  not  void 
because  a  resolution  of  the  city  council  calUng  the  election,  which 
was  not  required  by  any  provision  of  tlie  statute  or  the  charter,  never 
took  effect  because  it  was  not  legally  published.  The  bonds  sued 
upon  in  this  action  were  issued  under  the  act  referred  to  above 
relating  to  schools,  and  it  was  contended  that  it  was  never  legally 
adopted  by  the  city,  and  the  bonds  were,  therefore,  void.* 


County  Comrs.,  16  Kans.  302,  and  Aik- 
man  v.  School  District,  27  Kans.  129) 
to  show  that   they  did  not  militate 
against  the  views  of  the  court,  before 
given,  as  follows:  "  In  the  case  in  10 
Kansas,  which  was  an  action  by  the 
county  against  the  railway  company 
to  cancel  a  subscription  for  stock,  and 
for   the    return    and  cancellation    of 
bonds  of  the  county  on  deposit  with 
the  state  treasurer,   the    matter  was 
submitted  on  demurrer  to  the  peti- 
tion and  that  petition  averred  that  the 
subscription  was  ordered  at  a  special 
session  of  the  board,  at  which  only 
two  of  the  three  commissioners  were 
present;  that  no  call  for  such  session 
was  made,  nor  anything  done  to  au- 
thorize a  call;  that  B.  M.  Lingo,  the 
absent    commissioner,     was    in    the 
county,  at  his  residence,  but  had  no 
knowledge  or  notice  of  such  intended 
special  session;  'that  knowledge  and 
notice  of  such  intended  special  session 
was    intentionally    and    fmudulently 
concealed  and  kept  from  said  B.  M. 
Lingo  by  the  said  railway  company 
and  its  agents;  and  said  session  was 
not  a  regular  session  of  said  board,  nor 
was  it  an  adjourned  session  from  any 
regular  session  thereof,  nor  from  any 
duly   called    special   session    of    said 
board.'     The  court  held  that  the  sub- 
scription ordered  under  those  circum- 
stances was    not    binding    upon    the 
county.      In  that  case   the    contract 
was    executory,    and    the  bonds  had 
not    been    delivered,    but    were    still 
within  the  control  of  the  county.    The 
special  session,  with  only  a  fraction  of 
the  board   present,   was  fraudulently 


intended  and  fraudulently  brought 
about,  and  the  railway  company  was 
the  wrongdoer.  The  illegality  of  the 
session  was  not  a  matter  of  inference, 
but  a  fact  alleged  and  admitted.  The 
case  in  27  Kansas  is  even  stronger. 
That  was  a  suit  on  a  written  contract, 
signed  by  two  members  of  a  school  dis- 
trict board,  the  board  consisting  of 
three.  Such  a  contract  could  only  be 
made  by  the  district  board  as  a  board. 
It  appeared  affirmatively  that  there 
was  no  meeting  of  the  board;  that  it 
was  signed  by  the  two  members,  not 
after  consultation,  but  by  each  sep- 
arately, and  at  a  different  time  from 
the  other."' 

'  National  Life  Ins.  Co.  of  Montpelier 
V.  Board  of  Education  of  City  of  Hu- 
ron, (1894)  62  Fed.  Rep.  778.  The  court 
distinguished  National  Bank  of  Com- 
merce V.  Town  of  Granada,  54  Fed. 
Rep.  100;  8.  c,  4  C.  C.  A.  212,  cited 
in  support  of  the  contention,  in  these 
words:  "  In  that  case  the  bonds  were 
issued  under  [a  statute]  of  Colorado 
which  expressly  provides  that  the  city 
council  or  board  of  trustees  shall  call 
the  election  and  shall  publish  the  no- 
tice of  the  election  to  determine 
whether  or  not  the  bonds  shall  issue, 
aiia  shall  then  issue  the  bonds  if  the 
vote  is  favorable.  The  board  of  trus- 
tees of  the  town  of  Granada  passed 
an  ordinance  which  in  itself  called  the 
election,  presented  the  notice  and  au- 
thorized the  mayor  and  clerk  to  issue 
the  bonds  if  the  vote  was  favorable. 
A  general  statute  of  the  state  provided 
that  such  an  ordinance  should  be  pub- 
lished and  that  it  should  not  take  effect 


'm 


SCHOOL  DISTKICT  BONDS. 


[§  435 


II 


|i: 


§  435-  When  non-compliance  with  the  requirements  of 
the  Constitution  of  the  state  is  not  a  defense  against  bona 
fide  purchasers. —  In  a  late  case  before  the  United  States  Cir- 
cuit Court  of  Appeals  for  the  eighth  circuit,  the  board  of  educa- 
tion, autliorized  to  issue  bonds,  issued  them  without  complying 
with  a  constitutional  requirement  of  South  Dakota  that,  at  or 
before  the  time  of  incurring  such  indebtedness,  provision  should 
be  made  for  the  collection  of  an  annual  tax  to  pay  interest  and 
principal,  although  the  board  had  full  power  to  make  such  pro- 
vision. The  bonds  recited  '*  that  all  conditions  and  things  required 
to  be  done  precedent  to  and  in  the  issuing  of  said  bonds  have 
duly  happened  and  been  performed  in  regular  and  due  form  as 
required  by  law."  The  court  held  that  the  non-compliance  with 
such  requirement  was  not  available  to  the  board  as  a  defense 
against  hona  fide  purchasers  of  the  bonds.  This  board  were 
authorized  to  issue  bonds  for  certain  purposes  and  to  sell  them  for 
not  less  than  ninety-eight  cents  on  the  dollar.  They  issued  bonds 
purporting  to  be  for  such  purposes,  but,  in  fact,  for  an  unautlior- 
ized  purpose,  accepted  a  bid  from  an  individual  for  the  bonds  at 
par,  and  delivered  them  to  him,  received  part  of  the  price,  and 


Hi! 


I 


'   I 

n  \. 


';!■ 


m 


until  five  days  after  its  publication. 
The  ordinance  never  was  published, 
and  the  court  held  that  it  was  never 
in  force,  and  that  the  mayor  and  clerk 
never  had  any  authority  to  issue  the 
bonds;  that  it  was  a  case  of  total  want 
of  authority  on  their  part  to  act  upon 
any  conditions.  McClure  r.  Township 
of  Oxford,  94  U.  S.  429,  is  a  similar 
case  of  want  of  authority,  because  in 
that  case  the  statute  had  not  taken 
effect  before  the  notice  of  election  was 
given,  so  that  there  was  no  authority 
to  give  it.  But  these  cases  have  no 
relevancy  to  the  question  presented 
here.  In  the  case  of  the  Town  of 
Qranada  the  statute  required  the  board 
of  trustees  to  call  the  election  and  to 
publish  the  notice  of  it.  There  is  no 
such  provision  relative  to  the  election 
for  the  adoption  of  article  3  in  any  of 
the  statutes  under  which  the  bonds 
were  issued.  That  article  provides 
that  any  organized  city  may  at  any 


time  adopt  the  provisions  of  the  act  by 
a  majority  vote  of  the  electors.  It  is 
silent  as  to  the  person  or  body  that 
shall  call  the  election  and  as  to  the 
notice  of  it.''  The  facts  are  then 
statetl  as  to  the  election  called  here, 
and  it  is  said:  "At  that  election  the 
electors  voted,  the  city  council  subse- 
quently canvassed  and  declared  the 
vote,  and  all  parties  treated  it  as  a 
valid  election  until  they  came  to  pay 
these  coupons.  In  that  election  every 
requirement  of  the  charter  and  of  the 
statute  was  complied  with,  and  in  our 
opinion  the  election  was  valid  and  arti- 
cle 3  was  duly  adopted.  If  the  city 
council  had  passed  no  resolution  call- 
ing the  election,  it  would  yet  have 
been  called  and  held  in  strict  accord- 
ance with  the  charter,  and  that  elec- 
tion cannot  be  invalidated  by  the  fact 
that  the  city  council  passed  a  futile 
resolution  that  never  took  effect." 


Ill 


SCHOOL  DISTRICT  BONDS. 


893 


§436] 

transferred  its  right  to  the  balance  to  the  city,  receiving  a  city 
warrant  for  the  amount.  This  individual,  whose  bid  was  accepted 
by  the  board,  sold  the  bonds  for  ninety-seven  and  a  half  cents  on 
the  dollar.  The  court  held  that  this  constituted  an  executed  sale 
of  the  bonds  to  this  individual  at  par,  and  purchasers  from  him, 
who  were  strangers  to  his  purchase  from  the  board,  were  not 
chargeable  with  notice  of  the  invalidity  of  the  bonds,  because  they 
supposed  they  were  buying  from  the  board.  And,  as  against 
innocent  purchasers  for  value,  before  maturity,  of  bonds  issued 
by  a  city  board  of  education,  it  was  no  defense  that  the  board 
loaned  nearly  the  entire  proceeds  of  their  sale  to  the  city  for  city 
warrants  that  were  never  paid,  and  that  could  not  be  legally 
enforced.^ 

§  436.  When  the  defense  that  the  site  of  the  school  house 
was  not  owned  by  the  district  is  not  open  in  a  bona  fide 
holder's  action  on  the  bonds. —  One  of  the  most  recent  cases 
involving  the  question  of  what  defenses  are  open  in  actions  upon 
municipal  bonds  by  hona  fide  purchasers  and  owners  was  one 
involving  the  liability  of  a  school  district  in  North  Dakota  upon 
l)onds  issued  under  a  special  act  of  the  legislature  authorizing  the 
issuance  of  bonds.  The  Supreme  Court  of  that  state  held  that 
there  was  no  error  in  rejecting  the  offer  on  the  part  of  the 
defendant  to  prove  that  the  land  on  which  the  school  building 
for  which  the  bonds  in  suit  were  issued  was  situated  was  not 
owned  by  the  defendant  or  its  school  board,  which  was  a  con- 
dition prescribed  in  the  statute  to  the  issuing  of  bonds ;  that  it 
had  never  been  conveyed  to  the  district  or  its  school  board  ;  that 
proceedings  to  condemn  it  as  a  school  site  had  never  been  insti- 
tuted ;  and  that  it  was  in  fact  the  property  of  a  third  person. 
There  was  an  express  provision  in  an  amendment  to  the  special 
act  that  the  indebtedness  of  no  school  district  mentioned  in  the 
original  act  should  be  bonded  until  the  land  on  which  the  school 


*  National  Life  Ins.  Co.  of  Montpe- 
lier  t!.  Board  of  Education  of  the  City 
of  Huron,  (1894)  62  Fed.  Rep.  778. 
Sanborn,  Circuit  Judge,  further  said: 
"That  a  municipal  corporation  has 
given  away  or  squandered  the  pro- 
ceeds of  negotiable  securities  which  it 
placed  upon  the  market,  cannot  affect 
the  rights  of  }x>na  fide  purchasers  who 


had  no  knowledge  of,  nor  part  in,  the 
gift  or  waste.  They  are  in  no  way 
responsible  for  the  wise  and  economi- 
cal use  by  the  corporation  of  the  funds 
it  borrows.  County  Comrs.  r.  Beal, 
113  U.  8.  227,  240;  s.  c,  5  Sup.  Ct. 
Rep.  433;  Cairo  «.  Zane,  149  U.  S. 
122,  137;  8.  c,  13  Sup.  Ct.  Rep.  803; 
Maxcy  «.  WilUamson  Co.,  72  111.  207." 


I 


894 


SCHOOL  DISTRICT  BONDS. 


[§437 


ji  438] 


SCHOOL  DISTRICT  BONDS. 


895 


II 


i 

^  - 1 

1 

1 

1 

1 

! 

1      i 

:      i 

1 

1 

i 
i   1 

1 
1 

<      1 

1 

building  was  located  should  have  been  conveyed  by  good  and 
sufficient  warranty  deed  to  the  school  board  of  such  district,  or 
the  title  to  it  should  have  been  obtained  by  the  school  board  by 
proper  condemnation  in  the  manner  prescribed  by  law.     The 
Supreme   Court  said  of  this :  "  The  existence  of  this  fact  of 
ownership  of  the  site  on  which  the  school  building  was  situated 
was  a  condition  precedent  to  the  existence  of  any  power  to  issue 
bonds.     Until  this  fact  existed,  the  district  was  as  powerless  to 
bond  as  if  no  statute  on  the  subject  had  been  passed."     Then  it 
was  said :  *'  The  only  possible  escape  of  the  plaintiff  from  this 
conclusion   is  by   invoking  another  doctrine  —  the  doctrine   of 
estoppel  from  recitals  in  the  bonds  or  in  a  certificate  attached  to 
it."     Upon  each  bond  was  indorsed  a  certificate  signed  by  the 
county  clerk,  certifying  that  such  bond  "  is  issued  in  accordance 
with  law  and  by  autliority  of  a  majority  of  the  legal  voters  of 
said  district  present  and  voting  at  an  election  duly  held  May  11, 
1885,  for  that  purpose,  and  is  duly  registered  in  this  office."     The 
court  held  that  the  school  district  was  estopped  by  this  recital  to 
make  the  defense  suggested.* 

§  437.  When  the  defense  that  the  proceeds  of  bonds  were 
used  for  another  purpose  is  not  open  in  such  an  action. — 

It  was  held  in  this  case  that  it  was  not  a  defense  to  the  bonds,  as 
against  Jo^^a^^  purchasers  of  them,  that  the  citizens  and  officers 
of  the  municipal  corporation,  with  intention  to  use  the  proceeds 
of  the  bonds  for  an  unlawful  purpose,  took  the  necessary  steps 
to  issue  them  for  a  lawful  purpose,  certified  on  the  face  of  .them 
that  they  were  issued  for  such  lawful  purpose,  and  then  appro- 
priated the  proceeds  to  an  unlawful  purpose.^ 


Flagg  V.  School  District  No.  70. 
(N.  D.  1894)  58  N.  W.  Rep.  499.  The 
doctrine  of  estoppel  is  very  fully  dis- 
cussed in  the  opinion  rendered  by  the 
court. 

•National  Life  Ins.  Co.  of  Mont- 
pelier  v.  Board  of  Directors  of  City  of 
Huron,  (1894)  63  Fed.  Rep.  778.  The 
court  said:  "Corporations  are  as 
strongly  bound  to  an  adherence  to 
truth  in  their  dealings  with  mankind 
as  are  individuals,  and  they  cannot,  by 
their  representations  or  silence,  induce 
others  to  part  with  their  money  or 


property  and  then  repudiate  the  obli- 
gations for  which  the  money  was  ex- 
pended, and  which  their  statements 
represented  to  be  valid.     The  defend- 
ant, in  its  resolutions  and  records,  in  all 
the  resolutions  and  records  of  the  city 
council  of  Huron,  in  the  call  for  and 
vote  at  the  election  which  authorized 
the  issue  of  the  bonds,   and  in  the 
bonds  themselves,  declared  that  they 
were  issued  for  a  lawful  purpose,  viz., 
'To  raise  funds  for  the  purchase  of 
a  school  site  and  for  the  erection  of  a 
school  building  thereon.'   The  present 


§  438.  What  does  not  create  an  estoppel  of  the  district  to 
defend. —  In  case  the  officers  of  a  school  district,  without  lawful 
«authority,  borrow  and  expend  money  for  the  completion  of  a 
school  honse,  the  Supreme  Court  of  Minnesota  has  held  that  no 
liability  attaches  to  the  district  tlierefor,  notwithstanding  the 
benefit  received  from  the  expenditure,  and  that  no  estoppel  or 
ratification  can  be  inferred  from  the  retention  or  enjoyment  of 
the  improvement  by  the  school  district,  as  it  had  no  option  to 
reject  the  improvement.^  In  an  action  upon  certain  school  district 
bonds  received  in  exchange  for  bonds,  which  were  void  under  the 
provisions  of  tlie  Constitution  of  Iowa  limiting  the  amount  of 
indebtedness  of  counties  and  municipal  corporations  to  five  per 
cent  of  the  value  of  taxable  property  therein,  it  appeared  that 
the  bonds  were  issued  to  tlie  owner  of  the  old  bonds,  not  a  ho7ia 
fide  liolder,  under  an  act  of  the  legislature  of  that  state  empower- 
ing school  districts  to  issue  refunding  bonds.  The  federal  court 
held  that  no  estoppel  arose,  from  recitals  in  the  refunding  bonds, 
to   prevent   a   showing   that   tlic   constitutional    limitation   was 


holders  purchased  them  and  paid  for 
them  with  no  notice  or  knowledge 
that  they  were  issued  for  any  other 
purpose,  and  in  the  full  belief  that 
these  declarations  were  true.  It  is  no 
defense,  as  against  these  bona  Jide 
purchasers,  that  this  corporation, 
during  all  this  time,  intended  to  use, 
and  has  since  used,  the  money  it  raised 
from  these  bonds  for  the  unlawful 
purpose  of  conducting  a  campaign 
for  the  stiite  capitol.  It  is  no  defense 
that  it  knew  at  the  time  it  was  taking 
these  proceedings  and  making  these 
declarations  that  they  were  false,  and 
that  during  all  this  time  it  intended, 
Jtrtft,  to  deprive  itself  of  the  school  site 
and  building;  and,  mcond,  to  deprive 
the  purchasers  of  the  bonds  of  the 
moneys  they  paid  for  them  on  the 
faith  of  its  representations,  and  that  it 
has  accomplished  the  former  pur- 
pose, and  now  seeks,  with  the  aid 
of  the  courts,  to  accomplish  the 
latter.  Such  a  plea  cannot  be  enter- 
tained in  a  court  of  justice.  The  cor- 
poration is  estopped  to  deny  that  these 


bonds  were  issued  to  raise  money  for 
a  school  site  and  school  buildings. 
Moran  r.  Commissioners,  2  Black,  722; 
Ilackett  r.  Ottawa.  99  U.  S.  86,  90; 
Ottawa  r.  National  Bank,  105  U.  S.  342, 
845;  Zabriskie  i\  Railroad  Co.,  28 How. 
381;  Omaha  Bridge  Cases,  10  U.  S. 
App.  101,  189;  8.  c,  2  C.  C.  A.  174; 
51  Fed.  Rep.  309;  Paxson  r.  Brown, 
61  Fed.  Rep.  874,  and  cases  cited." 

*  Young  V.  Board  of  Education  of 
Independent  School  District  No.  47, 
(Minn.)55N.W.  Rep.  1112.  Itwassaid 
by  the  court:  "It  would  be  a  very 
imsafe  rule  to  establish  to  hold  that 
school  officers  might  borrow  money  at 
their  pleasure,  and  bond  the  district 
because  the  same  is  expended  by  them 
in  improving  the  property  of  the  dis- 
trict. The  case  is  to  be  distinguished 
from  Borough  of  Henderson  r.  County 
of  Sibley,  28  Minn.  515;  s.  c,  11  N. 
W.  Rep.  91.  There  the  money  claimed 
had  been  deposited  in  the  county 
treasury,  and  was  used  and  expended 
by  the  county  in  the  erection  of  a 
court  house,  which  it  had  authority  to 


896 


SCHOOL  DISTRICT  BONDS. 


[§430 


exceeded  in  the  prior  issue.  Further,  the  purchaser  of  snch 
refunding  bonds  was  lK>und  to  take  notice  of  the  hsted  value  of 
the  property  of  the  school  district.* 

§  439.  One  of  the  latest  decisions  on  the  effect  of  recitals 
in  bonds. — In  a  very  late  case  as  to  the  effect  of  recitals  upon 
the  face  of  bonds  issued  by  municipal  corporations  upon  the  rights 
of  bona  fide  holders  of  such  bonds,  the  United  States  Circuit 
Court  of  Appeals  for  the  eighth  circuit,  as  their  conclusion  after 
a  review  of  many  of  the  leading  cases  upon  this  subject,  declared 
these  rules :  Where  a  municipal  body  has  lawful  authority  to 
issue  bonds  or  negotiate  securities,  dependent  only  upon  the 
adoption  of  certain  preliminary  proceedings,  and  the  adoption  of 
those  preliminary  proceedings  is  certilied  on  the  face  of  )the  bonds 
by  the  body  to  which  the  law  intrusts  the  power  and  upon  which 
it  imposes  the  duty  to  ascertain,  determine  and  certify  this  fact 
before  or  at  the  time  of  the  issuing  of  the  bonds,  snch  a  certifi- 
cate will  estop  tlie  municipality,  as  against  a  })onn  fide  purchaser 
of  the  bonds,  from  proving  its  falsity  in  order  to  defeat  them. 
Such  an  estoppel  may  arise  in  a  proper  case,  upon  a  recital  that 
an  act  required  by  a  Constitution  has  been  performed,  as  well  as 
upon  a  recital  of  the  performance  of  an  act  rci^uired  by  statute. 
Recitals  in  municipal  bonds  may  constitute  an  estoppel  in  favor 
of  a  hona  jlde  purchaser,  even  where  the  body  that  issued  the 
bonds  liad  no  power  to  issue  them,  and  could  not,  by  any  act  of 
its  own  or  of  its  constituent  body,  make  a  lawful  issue  of  the 
bonds,  if  the  fact  of  this  want  of  power  does  not  appear  from  the 
bonds  the  purchaser  buys,  the  Constitution  and  statutes  under 
which  they  are  issued  nor  the  public  records  referred  to  therein. 
But  recitals  in  municipal  bonds  by  the  representative  body  that 
issues  them,  to  the  effect  that  all  the  requirements  of  the  laws 
with  reference  to  their  issue  have  been  complied  with,  will  not 
estop  the  municipality  from  proving,  as  against  a  hmia  fide  pur- 
chaser, that  the  representative  body  had  no  power  to  issue  them 
where  no  act  of  the  representative  or  constituent  body  could  make 


build.  It  was  expended  for  a  lawful 
purpose  by  the  proper  authorities, 
and  the  county  could  not  deny  that  it 
had,  or  had  used  for  its  benefit,  plain- 
tiff's money  received  without  con- 
sideration, and  was  bound  to  refund." 


*  Shaw  V.  Independent  School  Dist. 
of  Riverside,  (1894)  62  Fed.  Rep.  911, 
following  Doon  Township  v.  Cum- 
mins, 142  U.  S.  366;  8.  c,  12  Sup.  Ct. 
Rep.  220,  reversing  Cummins  ^.  Dis- 
trict of  Doon,  42  Fed.  Rep.  644. 


§439] 


SCHOOL  DISTRICT  BONDS. 


897 


the  issue  lawful  at  the  time  it  was  made,  and  this  fact  appears 
from  the  Constitution  and  statute  under  which  the  bonds  are 
issued,  the  pubhc  records  referred  to  therein  and  the  bonds  the 
purchaser  buys.^ 


*  National  Life  Ins.  Co.  of  Montpe- 
lier  tj.  Board  of  Education  of  City  of 
Huron,  (1894)  62  Fed.  Rep.  778.    The 
cases  reviewed  and  cited  by  the  court 
from  which  they  drew  their  deduc- 
tions were:     Dixon  Co.  «.  Field,  111 
U.  S.  83;  8.  c,  4  Sup.   Ct.  Rep.  315; 
Sutliff  v.    Commissioners,   147  U.   S. 
230;     8.    c,    13    Sup.    Ct.    Rep.    318; 
Northern  Bank  of  Toledo  v.  Porter  Tp. 
Trustees,  110  U.  S  608;  s.  c,  4  Sup. 
Ct.    Rep.   254;  McClure  v.   Township 
of  Oxford,  94  U.  S.  429;  Lake  Co.  v. 
Graham,  130  U.  S.  674;  s.   c,  9  Sup. 
Ct.  Rep.   654;  Nesbit  v.   Independent 
District,  144  U.  S.  610;  s.  c,  12  Sup. 
Ct.   Rep.   746;  Hedges  «).   Dixon  Co., 
150  U.  S.  182;  8.  c,  14  Sup.  Ct.  Rep. 
71;  Marsh  v.  Fulton  Co.,  10  Wall.  676; 
Buchanan  v.  Litchfield,  102  U.  S.  278; 
Pana  «.  Bowler,  107  U.  S.  529;  s,  c,  2 
Sup.   Ct.   Rep.  704;    Oregon  «.  Jen- 


nings, 119  U.  S.  74;  8.  c,  7  Sup.  Ct. 
Rep.  124;  Chaflfee  Co.  «.  Potter,  142  U. 
S.  355;  8.  c,   12  Sup.   Ct.    Rep.   216; 
Commissioners  'o.  Aspinwall,  21  How. 
539;  Bissell  ».  City  of  Jeffersonville,  24 
How.  287;  Moran  «.  Commissioners,  2 
Black,  722;  Meyer  11.  City  of  Musca- 
tine, 1  Wall.  384,  393;  Lee  Co.  v.  Rog- 
ers, 7  Wall.    181;    Pendleton  Co.   «j. 
Amy,  13  Wall.  297,  305;  City  of  Lex- 
ington 1).  Butler,  14  Wall.  282;  Grand 
Chute  I?.  Winegar,  15  Wall.  355;  Lynde 
?).  Winnebago  Co.,  16  Wall.  6;  Marcy 
«j.  Township  of  Oswego,  92  U.  S.  637; 
Town  of  Coloma  w  Eaves,  92  U.  S. 
482;  County  of  Moultrie  «.  Rocking- 
ham Ten  Cent  Sav.  Bank,  92  U.  S.  631; 
Commissioners  t.  Bolles,  94  U.  S.  104; 
Commissioners    'o.    Clark,    94    U.    S. 
278;  Commissioners  «?.  January,  94  U. 
S.  202;  County  of  Warren  t?.  Marcy, 
97  U.  S.  96. 


113 


I 


CHAPTER  XXIL 

MUNICIPAL  AID  BONDS  -  COUNTY. 


§440. 
441. 


442. 
448. 

444. 
445. 

446. 


447, 

448. 


County  aid  bonds,   generally. 

Elections  to  authorize  aid  bonds 
—  how  called  — how  ques- 
tions must  be  submitted  to 
voters  — how  result  deter- 
mined, etc. 

Conditions  to  subscription  — 
the  right  to  prescribe,  etc. 

When  authority  to  subscribe  to 
stock  gives  no  power  to  issue 
bonds  in  payment. 

When  a  donation  of  bonds  is 
authorized. 

When  county  bonds  donated  to 
a  railroad  company  cannot  be 
scaled  down. 

Bonds  of  an  Illinois  county 
secured  by  mortgage  on  its 
swamp  lands. 

Precinct  aid  bonds. 

The  denomination  of  bonds 
changed  from  those  named 
in  the  proposal  under  Ala- 


§  449. 

450. 

451. 

452. 
453. 

454. 

455. 


456 
457 

458 


bama  statutes — their  validity 

not  affected  thereby. 
What    amounts    to  a    gift   of 

bonds  in  aid  not  authorized. 
Consolidation     of    railroads- 
effect  as  to  county  aid. 
Constitutionality  of  a  Tennessee 

aid  statute. 
Ratification  of  bonds. 
Rules  as  to  statutes  legalizing 

a  prior  issue  of  bonds. 
Recitals  on  face  of  aid  bonds— 

their  effect. 
Bonds  and  coupons  not  claims 

which  require  presentation  to 

county     authorities     before 

suit. 
Coupons  —  rules  governing. 
A  county  suable  on   precinct 

bonds. 
Rules  as  to  pleading  in  such 


§  440.  County  aid  bonds,  generally.—  The  governing  boards 
of  counties,  where  the  authority  has  not  been  conferred  upon  them 
to  issue  bonds  in  payment  of  a  subscription  to  stock  of  a  railroad 
company  by  an  election  properly  called,  will  not  be  compelled  to 
issue  such  bonds.^  Under  authority  for  the  issue  of  bonds  of 
municipal  corporations  and  apply  their  proceeds  as  subscription 
to  railroad  stock,  the  railroad  company  to  be  aided  thereby  may 
take  the  bonds  themselves  at  par  in  exchange  for  stock.*    When 


» Schuyler  County  v.  People,  25  HI. 
181;  Clarke  ».  Supervisors  of  Hancock 
County,  27  111.  305;  Fulton  County  v. 
Mississippi  &  Wabash  Railroad,  21  111. 
373;  People  r.  Tazewell  County,  22 
111.  147.  The  Court  of  Appeals  of  Vir- 
ginia upheld  the  power  of  a  county  to 
subscribe  for  stock  to  a  rjiilroad  com- 
pany under  the  provisions  of  the  char- 
ter of  the  company  and  its  amended 


charter,  and  affirmed  a  judgment  dis- 
missing the  bill  praying  to  enjoin  the 
issue  and  sale  of  bonds  for  the  purpose 
of  paying  the  subscription  in  Powell  r. 
Supervisors  of  Brunswick  County, 
(1892)  88  Va.  707.  See,  also,  Taylor  v. 
Board  of  Supervisors,  86  Va.  506. 

»  Decker  r.  Hughes,  68  111.  33.  Sub- 
scriptions to  stock  of  railroad  or  other 
corporations  entitled  thereto  under  au- 


MUNICIPAL  AID  BONDS COUNTY. 


899 


1 


§440] 

the  steps  have   been   taken   required  by  a  statute  authorizing 
an  issue  of  bonds  by  a  county  in  payment  of  a  subscription  to  the 
stock  of  a  railroad  company,  the  provisions  of  the  statute  being 
fully  compHed  with,  and  the  denomination  of  the   bonds  not 
specified  in  the  statute,  a  county  may  issue  one  bond  or  more,  as 
the  authorities  may  find  convenient  or  deem  proper.     Should  the 
authorities  afterwards  take  up  one  bond  which  they  may  have 
issued  covering  the  whole  amount,  and  in  exchange  for  it  issue  a 
greater  number  in  smaller  denominations  covering  the  subscrip- 
tion, and  the  county,  by  its  action,  subsequently  recognize  the 
issuance  of  the  bonds  in  smaller  denominations  given  in  exchano-e, 
this  will  be  deemed  a  satisfaction  of  the  bonds.^     The  stipulation 
between  a  railroad  company  and  a  county  issuing  its  bonds  to  the 
company,  upon  delivering  them  to  the  bankers  of  the  company, 
that  the  bonds  were  to  be  applied  in  payment  for  work  done 
within  the  county  and  not  elsewhere,  has  been  construed  to  mean, 
in  view  of  this  purpose,  not  that  these  identical  bonds  should  pay 
for  work  done  in  that  county,  but  that  if  work  was  done  in  the 
county  the  bonds  should  be  delivered  to  the  company .^     Should 
a  county  receive  stock  in  a  railroad  company  to  the  full  amount 
of  its  subscription,  and  vote  its  stock  and  pay  interest  on  the 
bonds  issued  in  payment  of  its  subscription,  the  county  cannot  be 
heard  to  say  that  it  was  not  liable  to  pay  accruing  interest  on  the 
bonds.^     The  Supreme  Court  of  Tennessee  has  held  that  the  fact 


thority  of  the  legislature  by  municipal 
corporations  must  conform  to  the  mode 
prescribed  in  the  law.  W.  &  Mt.  S. 
P.  R.  Co.  ?).  Clarke  County  Ct.,  3  Mete. 
(Ky.)  143;  Mercer  Co.  Ct.  v.  Ky.  River 
Navigation  Co.,  8  Bush  (Ky.),  307. 

'  Johnson  r.  County  of  Stark,  (1860) 
24  111.  75. 

'  Thomas  v.  Morgan  County,  59  111 
479. 

'Board  of  Supervisors  of  Mercer 
County  V.  Hubbard,  (1867)  45  111.  139. 
As  to  what  will  not  operate  to  estop  a 
county  from  denying  that  an  election 
in  favor  of  aid  to  a  railroad  company 
was  property  held,  or  to  relieve  the 
company  claiming  the  benefit  of  the 
subscription  from  the  burden  of  show- 
ing that  the  election  was  properly  held, 
see  People  v.  Jackson  County,  92  111. 


441 .     An  act  of  Kansas  authorizing  the 
issue  of  bonds   held  unconstitutional 
and  the  bonds  held  void.     C.  B.  U.  P. 
R.  R.  Co.  V.  Smith,  23  Kans.  745.  When 
a  corporation  is  qualified  to  accept  the 
benefits  of  the  Kansas  statute  enabling 
municipal  townships  to  subscribe  to 
stock,    etc.,    of    railroad    companies. 
Atchison,Topeka&  Santa  Fe  R.  R.  Co. 
V.   Jefferson    County,  21    Kans.    309. 
When  an  action  can  be  maintained  by 
a  county  to  have  bonds  surrendered 
for  cancellation  as  not  being  legal  and 
binding  upon  the  county.     Anderson 
County  V.  Paola  &Fall  River  Ry.  Co., 
20  Kans.  534;  P.  &  F.  R.  Ry.  Co.   v. 
Anderson  County,  16  Kans.  302.  Dona- 
tion of  land  by  a  county  to  a  railroad 
company  in  aid  of   its  construction 
held  absolutely  void,  though  author- 


900 


MUNICIPAL  AID  BONDS  —  COUNTY. 


[§440 


that  the  act  of  the  legislature  authorized  the  bonds  to  be  issued  m 
aid  of  a  railroad  company,  bearing  interest  at  the  legal  rate  where 
they  were  payable,  in  another  state  w^here  the  rate  of  interest 
allowed  was  larger  than  in  Tennessee,  did  not  render  the  bonds 
void  for  usury.*  A  railroad  company  receiving  bonds  of  a  county 
on  a  subscription  to  its  preferred  stock,  and  agreeing  to  pay  the 
interest  on  the  same  until  the  road  sliould  be  completed  into  the 
county,  will  not  be  bound  for  the  interest  after  the  county 
has  received  and  become  entitled  to  interest  on  its  preferred 
stock,  though  the  stock  may  have  been  received  before  the 
completion  of  the  road  into  the  county.*  And  the  county 
having  received  the  stock,  in  an  action  to  recover  such 
interest  from  the  company,  will  be  estopped  to  set  up 
that  the  road  had  not  been  completed,  or  that  the  act  of 
the  county  authorities  in  receiving  the  stock  was  ultra  mres.^ 


ized  by  the  legislature,  in  Ellis  v. 
Northern  Pac.  R.  R.  Co.,  77  Wis.  114; 
8.  c,  45  N.  W.  Rep.  811.  As  to  the  con- 
stitutionality of  the  act  of  the  legisla- 
ture of  Kansas  authorizing  aid  to  rail- 
road companies  by  subscription  to  stock 
of,  and  issue  of  bonds  to,  such  com- 
panies, see  Morris  v.  Morris  County,  7 
Kans.  576.  That  the  preliminary  steps 
to  a  subscription  and  issue  of  bonds  pre- 
scribed by  the  act  authorizing  it  must 
be  strictly  taken,  see  Lewis  t.  Bourbon 
Co.,  13  Kans.  186. 

>  Nelson    v.    Haywood    County,    3 

Pickle,  781;  s.  c,  11  S.  W,  Rep.  885. 

*  County  of  Lancaster  «.  Cheraw  & 

C.  R  R.  Co.,  28  8.  C.  134;  s.  c.  5  S. 

E.  Rep.  338. 

•Ibid.  As  to  the  authority  of 
municipal  corporations  to  make  dona- 
tions in  aid  of  railroads,  see  Madry 
ff.  Cox,  73  Tex.  538;  s.  c,  11  8. 
W.  Rep.  541 ;  MacKenzie  t.  Wooley, 
39  La.  Ann.  944.  As  to  the  right 
of  taxation  and  the  duty  of  the  au- 
thorities for  the  payment  of  sub- 
scriptions to  stock  of  railroads  by 
municipal  corporations,  see  Meri- 
wether «.  Muhlenburg  Co.  Ct.,  120  U. 
8.  354;  s.  c,  7  Sup.  Ct.  Rep.  563; 
Bartemeyer  «j.  Rohlfs,  71  Iowa,  582; 


8.  c.  33  N.  W.  Rep.  673;   Chicago, 
M.  &  St.  Paul  Ry.  Co.  t?.  Hartshorn, 
30  Fed.  Rep.  541.     Where  it  was  held 
that  an  agreement  by  the  railroad  com- 
pany to  which  aid  was  voted  under 
the  Kansas  statutes,    executed    after 
the  subscription  of  the  county,  to  sell 
and  transfer  its  road  after  it  was  com- 
pleted, in  order  to  obtain  money  for 
its  construction,  did  not  discharge  or 
release  the  county  from  the  payment  of 
its  subscription,  see  Southern  Kansas 
&  P.  R.  R.  Co.  v.  Towner,  41  Kans.  72; 
s.  c,  21  Pac.  Rep.  221.     That  taxpay- 
ers may  be  estopped  to  deny  the  valid- 
ity of  a  tax  voted  in  aid  of  a  railway 
corporation  by  a  municipal   corpora- 
tion by  an  expenditure  on  the  part  of 
the  railroad  corporation  of  large  sums 
in  the  construction  of  its  road,  and  the 
taxpayers    making  no    objection,  see 
Johnson  tJ.  Kessler,  76  Iowa,  411;  s.  c, 
41  N.  W.  Rep.  57.     Aid  bonds  were  is- 
sued by  a  county  in  West  Virginia,  and 
placed  in  the  hands  of  three  citizens 
of  the  county  as  a  committee,  to  be 
delivered  in  such  amounts  as  in  their 
judgment  would  be  a  fair  compensa- 
tion for  work  done  in  the  county  upon 
the  road,  on  which  work  these  bonds 
were  to  be  expended.    The  Supreme 


§440] 


MUNICirAL  AID  BONDS  —  COUNTY. 


901 


Where  an  nnconditional  subscription  has  been  made  by  a  county 
to  stock  of  a  railroad  company,  under  legal  authority,  the  con- 
tract will  be  complete,  and  creditors  of  the  company  may  rely 
upon  it  for  payment  of  their  debts  as  implicitly  as  upon  any  otiier 
assets  of  the  company,  although  the  company  may  subsequently 
abandon  all  proceedings  under  its  charter  on  account  of  its  insol- 
vency.^    And  the  president  of  the  railroad  company,  while  he 
might  bind  himself,  and  the  creditors  and  stockholders  of  the  com- 
pany might  bind  themselves,  by  an  agreement  to  treat  a  subscrip- 
tion of  this  sort  as  conditional,  so  far  as  their  respective  rigfits  are 
concerned,  the  president  has  no  right  or  authority  to  make  such 
an  agreement  so  as  to  prejudice  the  company  or  its  creditors.^ 
The  Supreme  Court  of  Alabama,  one  justice,  however,  dissenting, 
has  held  that  under  the  Constitution  of  that  state,  the  legislature 
has  power  to  authorize  a  county,  as  a  body  corporate,  to  subscribe 
for  stock  in  a  railroad  company,  if  the  peoj^le  chose  to  do  so,  by 
a  popular  vote  to  that  effect.     Also,  they  held  that  for  the  pay- 
ment for  the  stock  so  subscribed,  the  county,  as  a  corporation, 
might  be  authorized  and  required  to  issue  bonds  of  the  county 
and  deliver  them  to  the  railroad  company,  to  the  stock  of  which 
the  county  might  subscribe,  in  the  manner  prescribed  by  law.^ 
All  reasonable  presumptions  will  be  indulged   in  favor  of  the 
regularity  of  county  bonds  issued  and  put  into  circulation  upon 
subscription  to  the  stock  of  a  railroad  company,  until  overcome 
and  rebutted.     Even  if  irregularities  are  shown,  the  bonds  will 


Court  held  that  tlie  contract  of  the 
county  was  not  impaired  by  the 
County  Courts'  adopting  an  ordinance 
requiring  the  bonds  still  undelivered 
to  be  countersigned  by  the  president  of 
the  County  Courts,  who  should  concur 
in  and  approve  their  delivery,  the 
committee  being  mere  agents  of  the 
county.  Satterlee  v.  Strider,  31  W. 
Va.  781;  s.  c,  8  S.  E.  Rep.  552. 

'  Morgan  County  v.  Thomas,  76  111. 
120. 

•Ibid. 

•  Ex  parte  Selma  &  Gulf  Railroad 
Co.,  (1871)  45  Ala.  696.  That  a  legis- 
lature has  the  constitutional  right  to 
authorize  counties  and  cities  to  become 
shareholders  in  railroad  companies,  see 
Johnson  v.  County  of  Stark,  (1860)  24 


111.  75;  followed  in  Perkins  v.  Lewis, 
(1860)  24  111.  208.  That  the  building 
of  a  railroad  is  a  corporate  purpose  for 
which  subscription  may  be  made  to 
the  stock  of  and  bonds  issued  to  a  rail- 
road corporation,  see  Nichol  v.  Mayor 
&  Aldermen  of  Nashville,  9  Humph. 
(Tenn.)  252;  Louisville  &  Nashville 
R.  R.  Co.  V.  County  Court,  etc., 
1  Sneed  (Tenn.),  637;  Goddin??.  Crump, 
8  Leigh  (Va.),  120;  Talbot  v.  Dent,  9 
B.  Mon.  (Ky.)  526;  Thomas  v.  Leland, 
24  Wend.  65;  Slack  v.  Maysville  & 
Lexington  R.  R.  Co.,  13  B.  Mon.  (Ky.) 
1;  Commonwealth  v.  Mc Williams,  1 
Jones  (Pa.),  61;  People  «?.  Mayor  of 
Brooklyn,  4  Comst.  419;  Shaw  v.  Den- 
nis, 5  Gihn.  (111.)  405. 


I 


903 


MUNICIPAL  AID  BONDS  —  COUNTY. 


[§440 


not  be  invalidated  thereby  unless  they  go  to  the  power  of  the 
authorities  of  tlie  county  to  issue  them.^  In  an  Alabama  case 
the  Supreme  Court  held  that  mere  irregularities,  not  fraudulent, 
which  may  have  intervened  in  the  exercise  of  the  authority  to 
make  the  subscription  and  issue  the  bonds  for  its  payment,  must 
be  held  to  be  waived,  if  not  objected  to  prior  to  the  issuance  of 
the  bonds  and  the  performance  by  the  railroad  corporation  of 
its  part  of  the  duty  imposed,  in  consideration  of  the  aid  thus 
afforded.^    A  bond  purporting  upon  its  face  to  be  issued  under 


*Maxcy  v.  Williamson  County,  72 
111.  207. 

•Fielder  ®.  Montgomery  «fc  Eufaua 
R.  R  Co.,  (1874)51  Ala.  178,  affirming 
a  dismissal  of  the  bill  praying  an  in- 
junction in  this  case.  Arguendo,  the 
court  said:  "  It  seems  now  to  be  the 
settled  law  that  whore  the  power  to 
make  the  subscription  and  to  issue  the 
bonds,  or  to  impose  a  tax  necessary  for 
its  payment,  is  once  shown  to  exist, 
the  obligation  to  pay  cannot  be  denied 
or  repudiated.  The  consent  to  the 
'subscription.'  is  a  consent  to  the 
issuance  of  the  bonds,  and  an  obli- 
gation to  pay  them,  and  it  is  a  con- 
sent also  to  the  tax  necessary  for 
this  purpose,  if  that  is  the  mode 
allowed  by  law  for  raising  the  funds 
required  for  their  payment.  Ex  parte 
Selma  &  Gulf  R.  R.  Co.,  4."5  Ala.  G96, 
730,  731.  Here  the  corporations  were 
fully  organized  on  both  sides,  and 
capable  of  contracting  to  the  full 
extent  of  the  obligations  each  under- 
took to  perform;  and  they  subsUm- 
tially  pursued  the  mode  authorized  by 
law  for  this  purpose.  Speaking  upon 
this  important  question  the  Supreme 
Court  of  the  United  States,  quoting 
the  language  of  the  Supreme  Court 
of  Wisconsin,  says:  '  The  power  of 
municipal  corporations  when  author- 
ized by  the  legislature  to  engage  in 
works  of  internal  improvement,  such 
as  the  building  of  railroads,  canals, 
harbors,  and  the  like,  or  to  loan  their 
credit  in  aid  thereof,  and  to  defray 
the  expenses  of  .such  improvements, 


and  make  good  their  pledges  by  an 
exercise  of  the  power  of  taxing  the 
persons  and  property  of  their  citizens, 
has  (tltntz/s  been  sustained,  on  the 
ground  that  such  works,  although 
they  are  in  general  operated  and  con- 
trolled by  private  corporations,  are, 
nevertheless,  by  reason  of  the  facilities 
which  they  afford  for  trade,  commerce, 
and  intercommunication  between  dif- 
ferent and  distant  portions  of  the 
country,  indispensable  to  the  public  in- 
terests and  public  functions.  It  was 
originally  supposed  that  they  would 
add,  and  subsequent  experience  de- 
monstrated that  they  have  added, 
vastly  and  almost  immeasurably,  to 
the  general  business,  commercial  pros- 
perity, and  pecuniary  resources  of  the 
inhabitants  of  cities,  towns,  villages, 
and  rural  districts  through  which 
they  pass  and  with  which  they  are 
connected.  It  is  in  view  of  these  re- 
sults, the  public  good  thus  produced, 
or  other  benefits  thus  conferred  upon 
the  persons  and  property  of  all  the  in- 
habitants composing  the  community, 
that  courts  have  been  able  to  pro- 
nounce them  matters  of  public  con- 
cern, for  the  accomplishment  of  which 
the  taxing  power  might  lawfully  be 
called  into  action.'  Olcott  i).  The 
Supervisors,  16  Wall.  678.  691.  692; 
Ilasbrouck  v.  Milwaukee,  13  Wis.  37. 
In  this  important  case,  the  highest 
judicial  tribunal  in  the  nation  declares, 
in  effect,  that  if  the  power  to  make  the 
subscription,  and  to  issue  the  bonds 
for  its  payment,  exists  at  t/ie  time  of 


§440] 


MUNICIPAL  AID  BONDS  —  COUNTY. 


903 


authority  of  a  special  act  of  the  legislature,  will,  as  a  rule,  be 
invalid  if  that  act  is  unconstitutional,  and  should  it  be  sought  to 
uphold  the  bond  by  virtue  of  authority  given  in  some  other  act 
of  the  legislature,  to  sustain  the  bond  even  in  the  hands  of  a 
bona  fide  purchaser,  it  must  appear  that  the  tenns  of  the  act 
relied  upon  have  in  fact  been  complied  with,  and  that  the  bond 
is  in  fact  legal  and  valid,  as  issued   in   aid  of  some  public  and 
authorized  purpose.*     Bonds  of  a  county  in  Kansas  had  been 
properly  issued  under  authority  in  aid  of  a  raih'oad  company,  and 
afterwards,  under  authority  of  legislative  act,  the  county  took  up 
these  bonds  and  issued  funding    bonds  in  exchange  for  them, 
changes  beneficial  to  the  county  being  made  in  their  terms.     A 
portion  of  the  county  had  in  the  meantime  been  detached  from 
the  county.     The  Supreme  Court  held  that  though  the  funding 
bonds  were  technically  both  authorized    and    issued   after  the 
detachment  of  this  portion  of  its  territory,  yet,  within  the  spirit 
of  the  law,  and  legally,  the  funding  bonds  were  a  charge  against 
the  detached    territory  the  same  as  the  railroad  aid  bonds  for 
which  they  were  exchanged  had  been.^     The  Supreme  Court  of 
Illinois  refused  a  niandaraus  to  compel  a  county  to  issue  $20,000 
in  bonds  of  the  county  to  a  railroad  company  for  $20,000  in  its 
shares  of  stock  to  be  immediately  returned  to  the  company  upon 
payment  of  two  dollars  on  its  part,  according  to  the  terms  upon 
which  this  subscription  of  the  county  was  entered  upon  the  sub- 
scription books  of  the  company,  upon  the  ground  that  such  an 
agreement  to  sell  and  transfer  that  amount  of  stock  for  two 
dollars  was  fraud  per  se  and  the  court  could  not  recognize  or 
enforce  it  as  valid  or  obligatory.^     A  county  subscribing  to  the 
stock  of,  and  issuing  bonds  in  payment  to,  a  railroad  corporation, 
existing  at  the  time  as  a  matter  of  fact,  the  question  whether  the 
corporation  had  then  a  legal  existence  cannot  be  raised  in  an 
action  on  the  bonds,  this  being  a  question  between  the  railroad 
and  the  state.*     It  is  no  defense  against  a  third  person  who  is  an 


the  subscription  and  issuance  of  the 
bonds,  their  obligation  must  be  com- 
plied with,  and  this  obligation  will  be 
enforced  by  the  national  power." 

•  C.  B.  U.  P.  R.  R.  Co.  V.  Smith,  23 
Kans.  745. 

'  Marion  County  t>.  Harvey  County, 
26  Kans.  181. 


'  County  Court  of  Macoupin  County 
V.  People  ex  rel.,  etc..  (1871)  58  111.  191. 

*  Dallas  County  v.  Huidekoper, 
(1880)  14  Sup.  Ct.  Rep.  1190,  follow- 
ing Smith  V.  County  of  Clark,  54  Mo. 
59.  The  same  question  is  considered 
in  County  of  Macon  r.  Shores,  97  U. 
S.  272,  276. 


904 


MITNICIPAL  AID  BONDS  —  COUlfry. 


[§441 


innocent  purchaser  for  value  that  there  was  fraud  in  the  issue  of 
bonds  given  bj  a  county  in  aid  of  a  railroad.*  Even  when  allow- 
able such  defense  must  be  set  up  before  judgment ;  it  cannot  be 
interposed  to  an  action  to  enforce  the  judgment.^  The  fact  that 
a  railroad  company,  which  has  received  tlie  bonds  of  a  county 
issued  to  it  under  a  law  authorizing  the  same,  but  requiring  that 
the  railroad  company  shall  not  sell  them  for  less  than  par,  docs 
sell  such  bonds  below  par  will  not  aifect  the  right  of  the  holder 
of  the  bonds  to  recover  principal  and  interest  at  par.^ 

§  441.  Elections  to  authorize  aid  bonds  —  how  called 

how  questions  must  be  submitted  to  voters  —  how  result 
determined,  etc.—  The  particular  county  authorities  upon  whom 
is  conferred  the  power  to  call  an  election  upon  the  question  of 
subscriptions  to  the  stock  of  a  railroad  company,  must  call  the 
election.  If  called  by  any  other  authority  their  action  will  be 
simply  void  for  want  of  power.*  Where  an  election  on  the  ques- 
tion of  a  subscription  by  a  county  to  the  stock  of  a  railroad  com- 
pany, and  issuance  of  bonds  in  payment  of  the  subscription,  is 
called  by  the  wrong  public  authority,  the  bonds  issued  under  such 
an  election,  though  issued  by  the  proper  public  authority,  would 
be  absolutely  void.  The  fact  that  a  majority  of  the  votes  at  such 
an  election  may  have  been  in  favor  of  the  subscription  would  not 
relieve  the  election  and  subsequent  issue  of  the  bonds  from  their 
illegality .5  Where  the  power  of  counties  to  contract  with  a 
railway  corporation  to  subscribe  to  its  capital  stock  is 
dependent  upon  its  being  authorized  by  a  vote  of  the  people,  the 
county  authorities  cannot  hold  out  any  offer  to  the  railway  corpo- 
ration prior  to  a  vote  upon  which  the  corporation  has  a  right  to 
rely.«    As  a  rule,  where  there  is  fraud  and  illegality  in  the  elec- 


^  Muscatine  v.  Mississippi  &  M.  R. 
R.  Co.,  1  Dill.  536. 

'  Ibid. 

•Richardson  v.  Lawrence  County, 
(1864)  14  Sup.  Ct.  Rep.  1157.  See. 
also.  Woods  V.  Lawrence  County,  1 
Black.  386. 

*  (Jaddis  V.  Richland  County,  93  111. 
119;  Jacksonville,  N.  W.  &  S.  E.  R. 
R  Co.  «.Virden,  104111.  339.  As  to  steps 
preliminary  to  an  election,  see  People 
V.  Town  of  Oldtown,  88  111.  202;  Ful- 


ton County  V.  Mississippi  &  Wabash 
R.  R.  Co.,  31  111.  338;  Lippincott  v. 
Town  of  Pana,  92  111.  24. 

*  Supervisors  of  Marshall  County  v 
Cook,  (1865)  38  111.  44.  In  which  case 
the  board  of  supervisors  were  the 
proper  authorities  to  order  the  election 
under  the  law  as  it  then  stood,  and  the 
election  was  ordered  by  the  County 
Court,  and  the  bonds  were  issued  by 
the  board  of  supervisors. 

•  People  p,  Cass  County,  77  HI.  438. 


§^1] 


MUNICIPAL  AID  BONDS  —  COUNTY. 


905 


tion,  the  officers  of  the  municipal  corporation  have  no  power  to 
validate  sucli  election  by  acts  and  admissions.*     In  an  Indiana 
case  the  county  attempted  to  evade  its  liability  upon  the  bonds 
issued  by  the  county  authorities  upon  the  ground  that  informali- 
ties had  occurred  in  giving  the  notice  and  in  conducting  the  elec- 
tion to  determine  whether  the  county  would,  or  not,  authorize  a  sub- 
scription to  the  stock  of  the  railroad  company,  contending  that 
these  irregularities  rendered  the  bonds  and  coupons  void.     The 
Supreme  Court  held  the  county  liable  upon  the  bonds  and  cou- 
pons.2    Where  tlie  act  authorizing  a  subscription  of  this  kind 
requires  the  name  of  the  railroad  company  to  be  specified  as  the 
recipient  of  the  aid,  a  vote  to  aid  in  the  construction  of  a  railroad 
along  a  certain  route  would  give  no  authority  to  the  commission- 
ers of  a  county  to  subscribe  to  stock  of,  or  issue  bonds  to,  any 
corporation.^      The  modus   of    procuring    a  subscription    by  a 
county  to  the  stock  of  a  railroad  corporation,  payable  in  the  bonds 
of  the  county,  under  the  provisions  of  the  Alabama  statute  author- 
izing such   subscriptions,  was   as  follows:   "The   said   railroad 
companies,  by  their  president  and  a  majority  of  their  directors, 
may,  in  writing,  propose  to  any  such  county  that  it  shall  subscribe 
for  and  take  an  amount  of  their  capital  stock,  to  be  named  in  said 
proposal,  at  a  certain  price  per  share,  and  pay  for  the  same  in  the 

'People   r.   Logan   County,   63  111.  officers,   to  procure  money,  labor  or 

374;  People  t.  Cline,  63  111.  394.  materials  upon  bonds  of  the  county 

*  Johnson  v.  County  of  Stark,  (1860)  issued  on  an  affirmative  vote  of   the 
24  111.  75.     The  court  said:  *' In  the  citizens  at  an  election  held  in  a  case 
case  of  Prettyman  v.  Tazewell  County,  authorized  by  the  law  to  escape  all  lia- 
19  111.  406,  it  was  held  that  if  such  bility  because  of  some  slight    infor- 
irregularities    had     occurred    it    was  mality  in  conducting  the  election  which 
necessary,  for  the  purpose  of  prevent-  was,    or    at  least  might  have   been, 
ing  the  officers    from   proceeding  to  readily   known  to  any  citizen  of  the 
make  the  subscription  and  to  issue  the  county  before  the  bonds  were  issued 
bonds,  that  steps  must  be  promptly  Counties  have  no  right  to  procure  all 
taken  by  an   appropriate  remedy  to  the  benefits  of  an  act  which  they  are 
contest  the  election  and  restrain  them  authorized  to  perform,  recognized  and 
from  proceeding;  and  that  we  must  voted  upon  by  them  as  legaf,  and  then 
not  inquire  after  any  considerable  de-  escape  liability  any   more  than  have 
lay   whether    fraudulent   means    had  private  individuals.     They    must  re- 
been  resorted  to  for  the  purpose  of  spond  to  their  legal  engagements  to 
procuring  a  favorable  result  to  the  the  same  extent  as  individuals  " 
election  of  subscription.     It  would  be  «  Q^lf  Railroad  Co.  v.  Miami  County 
mamfestly  against  every  principle  of  12    Kans.    230;    Lewis    t.    Bourbon 
justice  to  permit  the  taxpayers  and  County,  12  Kans.  186. 
citizens  of   a  county,   through  their 
114 


MUNICIPAL  AID  BONDS  —  COCNTT. 


[§441 


MUNICIPAL  AID  BONDS COUNTY. 


907 


JJ 


906 

bonds  of  the  county,  as  shall  be  set  forth  in  said  proposal. 
«  That  upon  the  application  of  the  president  a^ul  directors  of  any 
ofTZlroad  Hl>anies  of  Alala.na,  to  tl.e  Comn^^^r. 
Court  of   any  county  of  the  same,  submitting  proposals  for  a 
Sun^y  subscription  tl  the  capital  stock  of  said  -ilroad  company, 
the  CommissionerB'  Court  of  said  county  in  which  appUca  -n  « 
made    is  hereby  authorized  and  required  to  order  an  elect  on 
^mn  Lty  da^s  after  the  meeting  of  said  court  to  suWtl. 
proposition  of  said  railroad  company  to  he  qualAed  electors  o 
Ld  county,  for  their  acceptance  or  rejection.       In  a  case  wUerc 
Tpropoiwas  made  for  a  subscription  ^y  ^he  corporators  o^ 
Jlroad  company,  in  which  the  signers  were  styled,  one  as  presi 
^„7and  the  others  as  directors,  but  there  had  been  no  election  of 
officers  by  the  stockholders  of  the  corporation,  as  required  by  the 
jXve^ing  Buch  corporations,  and  the  -nty  commissioner 
had  ordered  an  election  and  declared  the  vote  in  favor  of  the  sub- 
citbitby  the  county,  and  were  about  to  issue  county  bonds  to 
the  rS  oad  corporatiii  in  conformity  with  the  vote,  the  Supreme 
Sourt  S that'such  proposal  by  t^e  corporators  not  s^^^^^^ 
the  statute  contemplated  and  provided,  and   that  the   election 
!^^erS  and  held  Z  void,  and  that  there  was  no  power  m  the 
:ounty  commissioners  either  to  make  the  subscription  or  to  issue 
lids  of  the  county  in  payment  of  such  -bscnp^-n^  a  d 
reversed  the  decree  of  the  chancellor  disimssmg  the  bill  pniju.t, 
r LTunetion  and  remanding  the  same  for  further  Foceeding^. 
They  also  held  that  the  proceedings  for  the  «'^^f«"Pt'°"'7^'f;;;. 
Ws  in  this  case  were  not  in  substantial  c^Pl^f  J*^  '^^^^^^^^^ 
authorizmg  subscriptions  by  counties,  and,  therefore,  the  later 
rXVVingtoy  izesubscrip^o^^^^^^^^^^^^^^^  on  1. 

part  of  counties,  had  no  curative  effect  in  tli«  «»««•    ." 
u^sLry,  under  the  General  Railroad  Law  of  Missouri,  that  the 

«      »     ♦  «   /1«71^il'i   Illustrations  of  notices  of  elections  for  a 
.TrammeU  t.  Pennington.  (1871)  45   f~^^^^^i^^^,^Mu> satisfy  ib. 

Ala.  673.  voniiirpments  of  the  statutes.    Yarisb 

»Ibid     Rules  as  to  a  majority  of  requirtments  oi  x.nv        «    vr  ^    r.. 

,ote^  under  ^^^:^^:^  ^:^^^Z^Mt^.lS>. 

to  railroad    corporations.    McDowell  ix)_,  '         ^                     jj^^in,  27  N. 

,.  Rutherford  Ky.  Construction  Co  *"•  ^"""^g""  Bartemeyer  ..   Rohlfs. 

96  N.  C.  514;  s.  c,  2  8.  E.  Rep.  351;  ^.  Kep.  W,  ««          3 

Kentucky  U^onRy.C^.  ..  County  of  ^^^^^^i^^^^^'^^r^-'' 
Bourbon.85Ky.98;  8  c.aS.W^Kep.    ^  ^^^  ^^^  ^^^^^ 

^^^C-l^zfrTrrLTaS:   Xot  necessary  under  the  constUu- 


§441] 

order  submitting  to  the  voters  of  the  county  a  proposition  to  sub- 
scribe to  stock  in  a  railroad  company  should  specify  the  name  of 
the  corporation,  where  the  proposition  describes  the  proposed 
route  of  the  road  with  the  requisite  certainty.*  An  election  upon 
the  question  of  granting  aid  to  railroad  corporations  may  be  con- 
tested, and  its  validity  determined  in  a  proceeding  directly  for 
that  purpose,  notwithstanding  the  facts  that  the  county  commis- 
sioners may  have  subscribed  for  shares  of  the  capital  stock  of  the 
railroad  corporations,  and  the  latter  may  have  made  contracts 
based  upon  such  subscription.^  AVhere  a  charter  for  a  railroad 
company  provided  that  the  County  Court  of  a  comity  in  Ken- 


tional  provisions  of  North  Carolina  in 
Blanton  v.  Board  of  County  Commis- 
sioners, 101  N.  C.  533;  s.  c,  8  S.  E. 
Rep.  163. 

» Ninth  National  Bank  v.  Knox 
County,  37  Fed.  Rep.  75.  See,  also, 
Kentucky  Union  Ry.  Co.  v.  County  of 
Bourbon,  85  Ky.  98;  MacKenzie  v. 
Wooley,  39  La.  Ann.  944;  Young  v. 
Railroad  Co.,  75  Iowa,  140;  State  v. 
Harris,  96  Mo.  29;  Onstott  v.  People, 
123  111.  439.  In  Nelson  v.  Haywood 
County,  3  Pickle,  781;  s.  c,  11  S.  W. 
Rep,  885,  an  election  ordered  by  the 
County  Court  on  the  question  of 
"bonds"  or  "no  bonds,"  and  the  re- 
turn of  the  officer  holding  the  election 
showed  that  this  was  the  proposition 
actually  voted  on,  was  held  to  be  in 
accordance  with  the  statute  of  Tennes- 
see, though  it  might  be  inferred  from 
the  officer's  return  that  the  election 
was  on  bonds  to  be  given  in  subscrip- 
tion for  the  stock.  Where,  under  a 
statute  of  Iowa,  notice  by  publication 
in  a  newspaper  of  an  election  for  a  tax 
in  aid  of  a  railroad  corporation  was 
held  not  to  be  required.  Johnson  v. 
Kessler,  76  Iowa,  411;  s.  c,  41  N.  W. 
Rep.  57.  In  Christian  County  Court 
«.  Smith,  (Ky.)  12  S.  W.  Rep.  134,  an 
election  at  which  the  question  of 
subscribing  to  the  capital  stock  of  two 
different  railroad  companies  was  sub- 
mitted, was  held  to  be  null  and  void 
under  the   statute  of  Kentucky  pro- 


hibiting more  than  one  question  of 
taxation  to  be  submitted  to  the  voters 
at  one  election. 

^Goforth  V.  Rutherford  Ry.  Con- 
struction Co.,  96  N.  C.  535;  s.  c,  2  S.  E. 
Rep.  361.  That  taxpayers  of  a  county 
may  maintain  an  action  in  the  proper 
court  to  declare  a  subscription  on  the 
part  of  a  county  to  stock  of  a  railroad 
corporation  void,  and  to  enjoin  the  col- 
lection of  a  tax  to  pay  it  on  the  ground 
of  the  illegality  of  the  election  authoriz- 
ing the  subscription,  see  Kentucky 
Union  Ry.  Co.  v.  County  of  Bourbon, 
85  Ky.  98;  s.  c,  2  8.  W.  Rep.  687.  In 
State  ex  rel.  v.  Nemaha  County,  10 
Kans.  569,  where  there  had  been  an  elec- 
tion authorizing  a  subscription  to  the 
stock  of  a  railroad  company,  but 
before  the  subscription  had  been 
actually  made  under  authority 
granted  in  the  general  law  in  force 
at  the  time  of  the  election  the 
company  had  consolidated  with  an- 
other, the  authority  to  make  the  sub- 
scription was  held  to  have  been  ter- 
minated and  that  the  county  was  not 
bound  by  an  attempted  subscription  to 
the  stock  of  the  consolidated  company 
by  the  commissioners,  their  action 
being  ultra  vires.  Bonds  of  a  county 
in  Tennessee  containing  a  recital  that 
they  were  issued  under  the  act  author- 
izing them,  having  been  delivered  to  a 
railroad  company  and  interest  paid  on 
them  for  fifteen  years,  the  Supreme 


908 


MUNICIPAL  AID  BONDS  —  COUNTY. 


[§441 


§441] 


MUNICIPAL  AID  BONDS  —  COUNTY. 


909 


tucky  miglit  snbmit  the  question  whether  the  court  should  sub- 
scribe to  tlie  capital  stock  of  the  railroad  company  on  behalf  of 
the  county,  eitlier  absolutely  or  upon  conditions,  the  Court  of 
Appeals  held  that  the  County  Court  was  the  judge  of  the  charac- 
ter of  the  proposition  it  would  present,  and  had  discretionary  power 
to  submit  or  not  the  question  to  the  voters  of  the  county,  who  had 
the  ultimate  power  of   adoption   or  rejection.*      But  if,   after 
the  County  Court  had  prepared  the  conditions  of  the  contem- 
plated subscription,  and  submitted  them  to  the  people,  and  the 
vote  taken  had  resulted  in  favor  of  the  adoption  of  the  condi- 
tions, the  County  Court  could  not  revoke  its  action  and  order  a 
second  vote,  as  it  would  be  assuming  legislative  functions  for  it  so 
to  do.»     And  where  the  terms  of  the  order  of  the  County  Court 
submitting  the  proposition  provided  that  if  the  vote  was  favor- 
able the  county  judge  should,  upon  proof  that  the  conditions 
precedent  liad  been  complied  with,  order  the  clerk  to  make  the 
subscription,  the  action  of  the  county  judge  would  be  conclusive, 
if  he  had  not  acted  fraudulently  or  in  bad  faith.»    A  county  in 
Kentucky  was  authorized  by  statute  to  subscribe  to  the  stock  of  a 
railroad  company  upon  condition  that  the  holders  of  real  estate 
in  the  county  should,  by  a  majority,  vote  for  such  subscription, 
and  the  question  was  submitted  by  the  County  Court  to  all  the 
voters  of  the  county.     The  Court  of  Appeals  held  this  submission 
to  have  been  not  such  as  the  statute  required,  and  a  levy  of  tax 
to  pay  such  subscription  to  be  invalid.*     The  statute  in  this  ca^ 
also  provided  "  that  before  subscription  should  be  made  and  the 
tax  levied,  the  question  of  levying  the  tax  should  be  submitted  to 
the  voters  of  the  county,  and  if  a  majority  of  the  votes  cast 
should  be  in  favor  of  the  tax  it  should  be  levied."     The  Court  of 
Appeals  held  that  the  submission  of  the  question  of  making  a 
subscription  to  the  stock  of  railroad  company  alone,  without  sub- 
mitting the  question  of  levying  the  tax,  did  not  authorize  the 
levying  of  the  tax.«    The  Supreme  Court  of  Alabama  held  that 


Ck)urt  of  that  state  held  that  th&county 
could  not  set  up  an  irregularity  in  the 
election  as  against  an  innocent  pur- 
chaser of  the  bonds.  Nelson  t>.  Hay- 
wood County,  3  Pickle,  781;  8.  c,  11 
8.  W.  Rep.  885. 

» Madison  County  Court  v.  Rich- 
mond, Irvine  &  T.  F.  R.  R  Co.,  80 
Ky.  16. 


» Ibid. 
»Ibid. 
*  Bullock  V.  Curry,  2  Mete.    (Ky.) 

174. 
'Ibid.    Validating  subscriptions  by 

legislative  action.     Shelby  County  Ct. 

V.  C.  &  O.  R.  R.  Co.,  8  Bush  (Ky.), 

218.    Power  of  the  legislature  after  a 

vote  is  taken.    C.  &  O.  R  R.  Co.  «. 


a  writ  of  mandamus  should  be  granted  to  enforce  the  subscrip- 
tion of  a  county  to  stock  in  a  railroad  company,  and  the  issuance 
of  the  bonds  of  the  county  in  payment  of  the  subscription  to 
the  stock,  which  had  been  voted  in  pursuance  of  the  act  of  Ala- 
bama, authorizing  such  subscriptions,  by  the  people  of  counties, 
where  tlie  Court  of  County  Commissioners  refused  to  comply  with 
the  requirements  of  the  act,  upon  the  ground  that  the  act  was 
void  for  want  of  conformity  to  the  Constitution  of  the  state.* 
The  charter  of  an  Illinois  railroad  company  authorized  certain 
counties  through  which  the  road  was  to  pass  to  subscribe  to  stock 
therein,  making  it  the  duty  of  the  board  of  supervisors  of  the 
several  counties,  upon  the  application  in  writing  of  the  board  of 
directors  of  the  road,  to  order  an  election  in  the  counties  upon 
the  question  of  making  the  subscription,  etc.  It  also  provided 
"  that,  should  the  voters  of  such  county  refuse  to  vote  such  sub- 
scription, the  board  of  directors,  by  a  petition  signed  by  at  least 
two  hundred  legal  voters  of  such  county,  presented  to  the  board 
of  supervisors  thereof,  may  require  them  to  submit  the  same 
proposition  to  the  voters  of  such  county  at  any  subsequent  gen- 
eral or  county  election."  The  board  of  directors  acted  under  the 
provisions  of  the  charter,  and  applied  to  the  county  authorities 
for  a  subscription  to  a  certain  amount ;  an  election  was  held  and 
the  county  refused  to  vote  the  subscription.  The  board  of  directors 
then  presented  a  petition  with  the  requisite  number  of  voters, 
as  required  by  the  last  provision,  requesting  a  submission  of  the 
same  question  at  the  next  election.  The  Supreme  Court  held 
that  the  board  of  supervisors  were  not  warranted  in  refusing  the 
petition  on  the  ground  that  the  president  of  the  railway  company 
having  alone  acted  in  the  matter,  therefore,  the  petition  had  not 
been  regularly  presented,  it  appearing  that  his  action  was  author- 
ized by  a  resolution  of  the  board  of  directors.  And,  it  having 
also  been  objected  by  the  supervisors  that  no  evidence  existed  of 
the  fact  of  the  genuineness  of  the  petition,  and  the  board  of 
directors  of  the  company,  therefore,  having  offered  to  make  the 
necessary  proof  thereof,  which  was  refused,  the  court  held  that, 


Barren  County  Ct.,   10  Bush  (Ky.), 
610. 

>  Ex  parte  Selma  &  Gulf  R.  R.  Co., 
(1871)  45  Ala.  696.  As  to  the  power 
of  the  legislature  in  such  cases,  see 
Stein  V.  Mayor  of  Mobile,  24  Ala.  591; 
Stein  V.  Mayor  of  Mobile,  17  Ala.  234. 


See,  also.  Von  Hoflfman  v.  City  of 
Quincy,  4  Wall.  535;  Mitchell  v.  Bur- 
lington, 4  Wall.  270,  274;  Thompson 
tj.  Lee  County,  3  Wall.  330;  Meyer  v. 
aty  of  Muscatine,  1  Wall.  385;  Gel- 
pcke  V.  City  of  Dubuque,  1  WalL 
202. 


910 


MUNICirAL  AID  BONDS  —  COUNTY. 


[§441 


§441] 


MUNICIPAL  AID  BONDS 


COUNTY. 


911 


while  the  board  of  supervisors  of  the  county  might  have  acted 
upon  it  as  genuine,  without  proof,  or  might  have  required  proof 
that  the  petitioners  were  legal  voters  of  the  county ;  yet,  by  their 
refusal  to  hear  such  proof  they  would  be  regarded  as  having 
waived  it.     The  court  also  construed  the  provisions  of  the  char- 
ter upon  this  subject,  and  held  that,  when  the  request  was  made 
as  directed,  the  board  of  supervisoi-s  were  bound  to  submit  the 
proposition  to  a  vote  of  the  county ;  that  they  had  no  discretion 
in  the  matter  nor  as  to  the  amount  so  asked  to  be  subscribed,  the 
power  to  fix  the  amount  having  been  conferred  upon  the  directors 
of  the  company  ;  that  the  board  of  supervisors  had  the  power 
only  in  case  the  subscription  was  voted  to  withhold  it  so  long  as 
any  two  of  the  counties  named  in  the  act  should  fail  or  refuse  to 
vote  for  such  subscription,  as  also  the  power  to  fix  the  interest 
upon  the  bonds  issued,  and  the  time  of  their  payment  witjiin  the 
limits  fixed  by  the  act.^     Should  a  county  pay  interest  on  bonds 
issued  by  it  in  payment  of  subscription  to  the  stock  of  a  railroad 
company,  and  vote  on  the  stock  it  may  have  received  for  the 
bonds,  and  the  bonds  have  passed   into  the  hands  of  innocent 
purchasers  without  notice,  the  county  will  not  be  allowed  to  urge 
any  mere  irregularities  in  the  election  on  the  question  of  issuing 
the  l)onds,  so  as  to  defeat  a  recovery  upon  the  bonds  or  the  cou- 
pons thereto  attached.'^     An  act  authorizing  the  subscription  to 
stock  of,  and  issue  of  bonds  to,  a  railroad  company,  provided  for 
bonds  "  drawing  interest  at  the  rate  of  ten  per  cent  per  annum." 
The  question  submitted  to  the  voters  at  the  election  was  as  to 
subscribing  for  stock  and  issuing  bonds  therefor,  to  bear  not  to 
exceed  ten  per  cent  interest.    The  action  of  the  voters  in  voting  in 
favor  of  this  proposition  was  construed  as  an  assent  to  the  issue  of 
bonds  bearing  the  rate  prescribed  by  the  act.^     It  would  be  a  good 
defense  on  the  part  of  a  county  to  an  application  for  mcmdamua 
to  compel  the  issuing  of  bonds  to  a  railroad  company  that  the 
majority  of  the  votes  at  the  election  held  to  authorize   it  was 
made  up  of  illegal  votes ;  that  a  majority  of  the  legal  votes  cast  at 
the  election  was  against  the  subscription,  and  that  the  company  had 
notice,  before  entering  into  liabilities,  of  the  character  of  the  vote.* 

*  People  ex  rel.  Prettyman  v.  Board       ^pgople  v.  Board  of  Supervisors  of 
of  Supervisors  of  Logan  County,  (1867)   Ford  County,  (1872)  63  111.  143. 

45  111.  162.  *  People  v.  Board     of     Supervisors 

*  Board  of   Supervisors  of  Mercer   of  Logan  County,  63  111.  374.    When 
County  f.  Hubbard,  (1867)  45  Dl.  139.   elections  authorizing  aid  bonds  by  a 


This  was  an  action  in  the  federal  court  by  a  holder  of  overdue 
interest  coupons,  upon  municipal  bonds  issued  by  a  county  in  Mis- 
sissippi in  payment  of  a  subscription  by  the  county  to  the  capital 
stock  of  a  railroad  company.  The  Constitution  of  that  state  pro- 
vides that :  "  The  legislature  shall  not  authorize  any  county,  city 
or  town  to  become  a  stockholder  in,  or  to  lend  its  credit  to,  any 
company,  association  or  corporation,  unless  two-thirds  of  the 
qualified  voters  of  such  county,  city  or  town,  at  a  special  election 
or  regular  election  to  be  held  therein,  shall  assent  thereto."  It 
was  claimed  before  the  Supreme  Court  of  the  United  States,  on 
behalf  of  the  county,  that  the  qualified  voters  referred  to  in  the 
Constitution  and  the  charter  of  the  railroad  company  were  those 
who  had  been  determined  by  the  registrars  to  have  the  requisite 
qualifications  of  electors,  and  who  have  been  enrolled  by  them  as 
such,  and  that  it  required  a  vote  of  two-thirds  of  the  whole  num- 
ber enrolled  as  qualified  voters,  and  not  merely  two-thirds  of  such 
actually  voting  at  an  election  for  that  purpose.  The  question 
presented,  therefore,  by  this  claim  to  the  Supreme  Court,  under 
the  plea  of  the  county,  that  "  the  board  of  supervisors  fraudu- 
lently and  illegally  issued  and  delivered  the  bonds  and  coupons," 
had  reference,  as  viewed  by  the  court,  merely  to  the  bonds  being 
issued  without  the  alleged  requisite  assent  of  two-thirds  of  the  reg- 
istered vote.  It  was  held  that  the  assent  of  two-thirds  of  the  quali- 
fied voters  at  an  election  lawfully  held  for  that  purpose,  to  a  pro- 
posed issue  of  municipal  bonds,  intended  by  the  Constitution  of 
the  state,  meant  two-thirds  of  the  qualified  voters  present  and 
voting  at  such  election  in  its  favor,  as  determined  by  the  ofiacial 
return  of  the  result ;  that  the  words  "  qualified  voters,"  as  used 
in  the  Constitution,  must  be  taken  to  mean  not  those  qualified 
and  entitled  to  vote,  but  those  qualified  and  actually  voting.^ 
It  has  been  held  in  the  federal  court  that,  under  the  provision 
of  the  Constitution  of  Mississippi,  which  declares  that  the  legisla- 


county  under  Kentucky  statutes  were 
held  to  have  been  void.  Christian 
County  Court  v.  Smith,  (Ky.)13  8.  W. 
Rep,  276.  An  election  for  such  bonds 
under  Kansas  laws  held  void  because 
of  want  of  a  sufficient  petition. 
Chicago,  K.  &  W.  R.  R.  Co.  r.Comrs., 
43  Kans.  760;  s.  c,  23  Pac.  Rep. 
1064.  The  submission  of  a  proposition 
to  the  voters  which  was  held  not  to 


invalidate  the  bonds  in  the  hands  of 
innocent  purchasers.  Williams  v. 
People,  (111.)  24  N.  E.  Rep.  647. 

'  Carroll  County  u.  Smith,  (1884)  111 
U.  S.  556,  following  St.  Joseph  Town- 
ship V.  Rogers,  16  Wall.  644,  and 
County  of  Cass  v.  Johnston,  95  U.  S. 
360,  and  declining  to  accept  the  rule 
declared  in  Hawkins  v.  Carroll  County, 
50  Miss.  735. 


912 


IfUmCIPAL  AID  BONDS  —  COUNTT. 


[§441 


§441] 


MUNICIPAL  AID  BONDS  —  COUNTY. 


913 


tare  shall  not  authorize  any  county,  city  or  town  to  aid  any 
corporation,  unless  two-thirds   of  the   qualified  voters   of  such 
municipality  shall  assent  thereto  at  a  special  election,  railroad 
aid  bonds  were  not  invalidated  in  the  hands  of  innocent  pur- 
chasers by  the  fact  that  less  than  such  majority  voted  for  them, 
where  more  than  two-thirds  of  the  votes  cast  were  in  favor  of 
issuing  the  bonds.*     The  gravamen  of  a  bill  filed  by  the  super- 
visors of  a  county  in  Mississippi  to  enjoin  the  further  payment  of 
certain  bonds  issued  by  the  county  in  aid  of  a  railroad  company, 
is  thus  stated  in  the  opinion  of  the  Supreme  Court  of  that  state, 
rendered  by  Woods,  Ch.  J. :  "  The  gravamen  of  complainant's 
bill  is  that  these  bonds  are  invalid,  because  the  subscription  to  the 
capital  stock  of  said  railroad  company  and  the  issuing  of  the 
bonds  were  not  made  after  two-thirds  of  the  qualified  voters  had 
signified  their  assent  thereto,  as  required  by  the  Constitution  of 
the  state  and  the  act  of  the  legislature  passed  in  that  behalf.     The 
hill  does  not  deny  that  the  respondents  are  hona  fide  holders  of 
the  bonds  and  without  notice  of  the  alleged  irregularity  com- 
plained of  as  rendering  the  bonds  invalid ;  but  the  ground  relied 
upon  is,  that  the  respondents,  though  purchasers  without  notice 
in  the   usual  acceptation  of  that  term,  are  yet  not  to  be  pro- 
tected, fur  the  reason  that  their  innocence  in  this  case  is  only  and 
really  their  ignorance  of  the  essential  facts,  as  is  alleged,  that  less 
than  two-thirds  of  the  qualified  voters  of  the  county  assented  to 
the  subscription  to  the  capital  stock  of  said  railroad  company, 
and  that  this  essential  fact  was  and  is  a  matter  of  public  record 
equally  accessible  to  all  persons,  being  contained  in  the  registra- 
tion lists  of  the  voters  of  the  county.     In  other  words,  this  is 
the  underlying  proposition  on  which  the  contention  of  the  bill  of 
complaint  rests,  namely,  that  though  an  election  was  conducted 
under  the  forms  and  in  accordance  with  the  provisions  of  the  act 
of  the  legislature  ;  though  the  board  of  supervisors  examined  the 
returns  made  to  it  by  the  officers  who  managed  the  election,  and, 
as  the  result  of  such  examination,  determined  that  two-thirds  of 
the  qualified  voters  had  cast  their  ballots  in  favor  of  such  sub- 
scription, nevertheless  the  bonds  are  invalid  even  in  the  hands  of 
lona  fi^ds  holders,  for  the  reason  that  the  board  of  supervisors 
had  no  authority  or  power  to  ascertain,  determine  and  declare 

» Madison  County  u.  Priestly,  Treas-   ing  Carroll  Co.  v.  Smith,  111  U.  S. 
urer,  (1890)  43  Fed.  Rep.  817,  follow-   556;  s.  c,  4  Sup.  Ct.  Rep.  539. 


the  essential  fact  that  the  requisite  two-thirds  of  the  qualified 
voters  had  assented  to  the  subscription,  this  essential  fact  being 
referable  to  and  determinable  alone  by  a  fixed  standard,  to  wit, 
the  registration  lists  of  the  voters  of  the  county."  The  court 
held  that  whether  the  required  vote  had  been  cast  to  authorize 
these  bonds,  was  a  question  determinable  by  the  board  of  com- 
missioners of  the  county,  and  was  conclusive ;  that  the  county 
was  estopped  in  this  action  by  hona  fide  holders  of  the  bonds  to 
claim  that  they  were  invalid  because  they  had  not  been  authorized 
by  a  proper  vote  at  the  election  held  with  reference  to  their  issue.^ 


*  Board  of  Supervisors  of  Madison 
County  V.  Brown.  (1890)  67  Miss.  684. 
The  court  summed  up  its  conclusions 
as  follows:    "Beginning  with  Knox 
County  ©.   Aspinwali,  21   How.   539, 
and  running  through  n  long  Hne  of 
cases,  ending  with  Township  of  Ber- 
nards r.  Morrison,   133  U.  S.  523,  in 
which  Mr.  Justice  Brewer  delivered 
the  opinion  of  the  court,  the  Supreme 
Court  of  the  United  States  has  uni- 
formly held   that    the   ascertainment 
and  determination  of  the  essential  fact 
of  the  assents  of  the  required  num- 
ber of  voters   requisite  to  authorize 
subscriptions  for  stock  and  the  issue 
of  bonds,    belong  to  the  tribunal   to 
which  was  confided  the  control  of  the 
matter.      In  the  last-named  case  Mr. 
Justice  Brewer  observes:  'While  it 
is  true  that  the  act  does  not  in  terms 
say  that  these  commissioners  are  to  de- 
cide that  all   preliminary    conditions 
have  been  complied  with,  yet  such  ex- 
press direction  and  authority  is   sel- 
dom found  in  acts  providing  for  the 
issuing  of  bonds.     It  is  enough  that 
full  control  in  the  matter  is  given  to 
the  ofl3cers  named.'      And  this  con- 
ducts us  to  the  conclusion  that  there 
is  no  foundation  upon  which  to  plant 
the  contention  of  [the  county's]  coun- 
sel, that  the    Supreme   Court  of  the 
United  States  has  either  overruled  or 
modified  any  former  decision,  made  in 
that  form,  along  the  line  of  kindred 
adjudication.    There  can  be  no  room 
115 


for  skepticism  as  to  the  true  doctrine 
in  this  state.     In  Vicksburg  v.  Lom- 
bard, 51  Miss.   Ill,  it  was   said  that 
'if  the  constituted  authorities  of  the 
city  put  the  bonds  on  the  market,  or 
deliver  them  to  the  railroad  company 
for   sale    on    the   assertion    that   the 
proper  vote  was  given,  the  city  ought 
to  be  estopped  from  setting  up  against 
the  bona  fide  holder  the  plea  that  the 
assertion    is     untrue.'    In    Cutler    v. 
Madison  County,  56  Miss.  115,  Chief 
Justice    SiMRALL,  speaking   for    the 
court,  said:    '  The  statute  under  which 
these  bonds  were  executed  made  it  the 
duty  of  the  board   of  supervisors  to 
canvass  the  votes,  and  declare  the  re- 
sult of  the  election.     Their  decision  is 
conclusive  on  the  county,  in  a  contro- 
versy between  it  and  a  bona  fide  pur- 
chaser   of    the  bonds.'     In   Madison 
County  V.  Paxton,  57  Miss.  701,  Chief 
Justice  George,  in  speaking  of  a  part 
of  the  series  of  bonds  involved  in  the 
present  htigation,   said:     'It  will  be 
noticed  that  there  is  no  attempt  to 
shelter  Paxton's  purchase   under  the 
rights  which  a  purchaser  from    the 
company   may  have   had,  in  case  his 
purchase  was  bona  fide.    The  over- 
whelming force  of  the  two  cases  last 
cited  as  authority  in  the  case  at  bar, 
will    be  acknowledged    by  any    one 
when  it  is  remembered  that  the  bonds 
whose  vahdity  was  there  assailed,  and 
in  the  case  before  us,  are  parts  of  the 
same  issue.' " 


914 


MUNICIPAL  AID  BONDS  —  COUNTY. 


[§M1 


§441] 


MUNICIPAL  AID  BONDS  —  COUNTY. 


915 


The  bonds  involved  liere  were  county  bonds,  issued  by  a  county 
in  Missouri,  in  payment  of  a  subscription  to  the  stock  of  a  rail- 
road, which  was  to  run  through  that  county.     There  were  a  num- 
ber of  questions  considered  and  adjudicated  by  the  United  States 
Supreme  Court,  bearing  upon  the  election  ordered  and  held  m 
tlie  county  to  authorize  such  bonds.     The  order  for  the  election 
directed  that  notice  thereof  "  be  given,  through  the  [local  news- 
paper] for  live  weeks,  and  by  printed  handbills  publicly  exposed 
throughout  the  county."     It  also  named  the  second  Monday  m 
March  as  the  day  for  the  election.     No  evidence  was  offered  on 
the  trial  of  anv  printed  handbills,  or  of  the  publication  of  the 
notice  in  the  newspaper.    It  was  insisted  that,  in  the  absence  of  evi- 
dence, there  could  be  no  presumption  that  notice  was  given  either 
by  handbills  or  in  the  newspaper.     Another  insistment  was  that 
between  the  date  of  the  order,  February  sixth,  and  the  date  of  the 
election,  March  twelfth,  it  was  not  possible  to  make  the  prescribed 
pubhcation  because,  excluding  the  day  of  the  order  and  includ- 
incr  the  day  of  the  election,  there  would  be  only  thirty-four  days, 
or'^one  day  lacking  the  five  full  weeks.     The  statutes  of  Mis- 
souri at  that  time  in  force  provided,  in  accordance  with  the  gen- 
eral rule  in  respect  to  such  matters,  that  "  the  time  within  which 
an  act  is  to  be  done  shall  be  computed  by  excluding  the  first  day 
and  including  the  last."^    Mr.  Justice  Brewer,  speaking  for  the 
court,  said,  upon  the  objections:  "But  the  notice  required  for 
this  election  was  not  prescribed  by  statute.     It  was  fixed  by  order 
of  the  Countv  Court,  and  there  being  but  thirty-four  days  between 
the  day  of  the  order  and  that  named  for  the  election,  it  must  be 
presumed  that  what  was  intended  was  not  a  pubhcation  for  five 
full  weeks  of  seven  days  each,  but  a  publication  in  each  of  the 
five  weeks,  which  could  easily  be  made  in  the  thirty-four  days. 
It  cannot  be  supposed  that  the  County  Court  directed  a  notice 
which  it  was  impossible  to  give,  or  that  it  was  putting  the  people 
to  the  annoyance  and  the  county  to  the  expense  of  an  election 
which  was  necessarily  void  by  reason  of  an  inability  to  comply 
with  the  terms  of  the  order.     The  order  must  be  construed  so  as 
to  make  possible  a  valid  election,  and  that  is  accomplished  by 
construing  it,  and  in  a  reasonable  way,  as  requiring  advertise- 
ment in  five  successive  weekly  issues  of  the  paper  named.'    The 

» Gen.  Stat.  Mo.  1866.  p.  84,  §  6. 

*  Knox  County  v.  Ninth  National  Bank,  (1893)  147  U.  S.  91,  96.  97. 


provisions  of  the  Constitution  of  Missouri  adopted  in  1865,  that 
"  the  general  assembly  shall  not  authorize  any  county,  city  or 
town  to  become  a  stockholder  in,  or  to  loan  its  credit  to,  any  com- 
pany, association  or  corporation,  unless  two-thirds  of  the  qualified 
voters  of  such  county,  city  or  town,  at  a  regular  or  special  elec- 
tion to  be  held  therein,  shall  assent  thereto,"  was  invoked  in 
behalf  of  the  county  issuing  these  bonds  in  aid  of  the  Missouri 
and  Mississippi  Railroad  Company  resisting  a  recovery.  The 
Supreme  Court  held  that  the  validity  of  the  bonds  was  not 
affected  by  that  provision  of  the  Constitution.*  As  to  the  objec- 
tion made  to  the  use  of  the  words  "  bonus  "  in  the  submission  of 
a  proposition  to  the  voters  of  a  county  in  Illinois  whether  or  not 


'Knox    County  v.    Ninth   National 
Bank  0893).  147  U.  S.  91.     The  court 
said:  "  At  the  October  term,   1867,  of 
the  Supreme  Court  of  Missouri   the 
case  of  State  r.  Macon  County  Court, 
41  Mo.  453,  was  decided,  in  which  it 
was  held  that  the  Constitution  had  no 
retroactive  effect  upon  statutes  passed 
before  its  adoption,  and   that,   there- 
fore,  under  the  Missouri  and  Missis- 
sippi Kailroad  Company  Act,  passed 
February  20,  1865,  a  few  months  be- 
fore the  adoption  of  the  Constitution, 
there  was  power  in   the  county  au- 
thorities to  subscribe  without  the  assent 
of  the  voters.    It  may  well  be  believed, 
as  asserted  by  counsel  for  defendant 
in  error,  that,  until  that  decision  was 
announced,    the    understanding    that 
the   prohibition    in    the    Constitution 
superseded  all   unexecuted  authority 
given  by  prior  charters  was  so  general 
that  no   County  Court    would    have 
dared  to    subscribe   stock   and  issue 
bonds  without  the  assent  of  two-thirds 
of  the  qualified  voters.     The  subscrip- 
tion was    made,  some  of    the  bonds 
issued,  as  well  as  the  vote  held,  before 
the  decision  in  the  Macon  County  case, 
and  it  is  difficult  to  believe  that  the 
County    Court   did   not   issue    these 
bonds  in  reliance  upon  the  authority 
given  them  by  the  vote  of  the  people, 
in  pursuance  of  the  general  laws  of 
the  state,  although  referring  on  the 


face  of  the  bonds  to  the  Missouri  and 
Mississippi    Kailroad    Company   Act, 
which  specially  authorized  the  com- 
pany   to    receive,    and   the    counties 
through  which  it  ran  to  make,   sub- 
scriptions.    It  is  very  likely  that  the 
County  Court  had  in  mind  the  special 
act  creating  the  Missouri  and  Missis- 
sippi Railroad  Company,   as  well  as 
the  general  law,  and  the  vote  of  the 
people  under  it,  and  that  it  meant  to 
exercise  all  the  authority  conferred  by 
both.     It  is  enough  for  this  case  that 
the  vote  of  the  people  authorizing  the 
issue  of  bonds  was  given,  and  that  the 
County      Court     acted     in     reUance 
thereon,  for,  by  assent,  through  theur 
vote,  to  such  issue  of  bonds,  the  people, 
in  the  way  prescribed  by  the  statutes 
of  the  state,  in  effect  consented  that 
the  levy  beyond  the  meagre  one  pro- 
vided  for  by  the  Missouri  and  Mis- 
sissippi Railroad  Company  Act  might 
be  resorted  to  for  the  payment  of  these 
bonds."    As  to  the  validity  of  an  elec- 
tion authorizing  county  aid  bonds  to 
be  issued  to  a  railroad  company,  though 
no   particular  corporation  as  the  re- 
cipient of  the  aid  be  designated,  and 
that  it  is  sufficient  simply  to  designate 
the  route,  see  Knox  County  v.  Ninth 
National  Bank.   (1893)  147  U.   8.  91; 
Commissioners  v.   Thayer.  94  U.    8. 
631;  ScipiotJ.  Wright,  101  U.  8.  665. 


916 


MUNICIPAL  AID  BONDS COUNTY. 


[§441 


its  swamp  lands  sliould  be  appropriated  in  aid  of  the  construc- 
tion of  a  certain  railroad  run  through  the  county,  the  Supreme 
Court  of  the  United  States  said,  in  this  case :  "  The  objection  to 
the  word  'bonus'  in  the  proposition  submitted  to  the  voters  of 
Wayne  county  is  not  valid.     This  submission,  in  connection  with 
'the  general  subject  of  a  failure  to  comply  with  the  requisites 
prescribed  by  the  statute,  has  been  already  discussed.     Upon  its 
individual  merits  we  are  also  of  the  opinion  that  the  objection  is 
not  valid.     It  is  a  verbal  criticism  merely  —  an  objection  to  the 
words  and  not  to  the  substance  of  the  submission.    A  proposition 
was  submitted  to  the  voters,  of  which  the  affirmative  was  in 
these  words:  *  For  appropriating  the  swamp  lands  of  "Wayne  as 
a  bonus  to  any  company,  for  building  a  railroad  through  said 
county.'     It  is  said  that  tlie  word  '  bonus '  condemns   the'  sub- 
mission ;  that  this  means  a  gratuity,  a  voluntary  donation,  a  gift, 
and  that  a  town  or  county  cannot,  although  it  have  the  direct 
authority  of  the  legislature,  give  away  its  property.     When  this 
question  is  properly  before  us  it  will  be  disposed  of.     It  does  not, 
however,  arise  in  this  case.     In  the  first  place,  if  it  be  assumed  that 
the  word  is  correctly  defined  as  a  gift  or  gratuity,  that  meaning  is 
controlled  and  limited  by  the  connection  in  which  it  is  here  used, 
to  wit,  that  in  consideration  of   it  the  company  receiving  the 
lands  will  undertake  to  build  a  railway  through  the  county.     It 
is  not  simply  a  hofius,  but  a  bonus  to  any  company  who  shall  under- 
take the  great  task  of  building  a  railroad  through  the  county,  a  task 
which  it  is  loudly  complained  has  not  yet  been  performed  by  any 
one."  ^     The  bonds,  in  a  case  before  the  United  States  Supreme 
Court,  stated  that  they  were  issued  under  the  statute  of  Nebraska 
relating  to  the  subject,  to  aid  the  company  in  improving  the  water 
power  of  the  river  for  the  purpose  of  propelling  public  grist 
mills,  "and  other  works   of   public   improvement   of  a   public 
nature  "  in  the  precinct.     It  was  objected  that  the  latter  part  of 
the  statement  was  indefinite,  and  the  other  works  to  be  aided  or 
improved,  or  propelled,  should  have  been  decided  or  identified,  so 
that  it  might  be  seen  they  were  works  of  internal  improvement, 
within  the  Nebraska  statute,  and  also   because  the  proposition 
voted  on  must,  in  order  to  be  a  lawful  one,  have  stated  what  the 
specific  "  other  works  "  were.     To  this  the  court  said :  "  It  is  a 
sufficient  answer  to  this  question  to  say  that  the  petition  states,  and 

» Kenicott  v.  Supervisors,  (1872)  16  WaU.  453,  470.  471. 


§441] 


MUNICIPAL  AID  BONDS  —  COUNTY. 


917 


the  demurrer  admits,  that  the  only  work  of  internal  improvement 
of  a  public  nature  for  which  the  bonds  were  issued  to  the  com- 
pany, was  the  improvement  of  the  water  power  of  the  Elkorn  river 
for  the  purpose  of  propelling  public  grist  mills  in  the  precinct ;  that 
the  improving  of  such  water  power  for  that  j^urpose  rendered  it 
available  and  useful  for  propelling  other  works  of  internal 
improvement  of  a  public  nature,  which  were,  or  thereafter  might 
be,  constructed  and  located  on  that  river  in  that  precinct ;  that 
the  improvement  of  the  water  power  of  that  river,  to  aid  which 
the  bonds  were  issued  and  negotiated,  consisted  in  constructing  a 
canal  for  water  power  purposes  in  the  precinct ;  and  that  the  bonds 
and  their  attached  coupons  were  issued  and  negotiated  under  and 
by  virtue  of  a  majority  vote  of  the  qualified  voters  of  the  precinct, 
and  in  pursuance  of  the  act.  Thus,  there  is  a  distinct  statement, 
as  well  as  an  admission,  that  no  work  of  internal  improvement 
was  covered  by  the  vote  or  the  issue  of  the  bonds,  other  than  the 
one  of  improving  such  water  power  for  the  purpose  of  propelling 
public  grist  mills  in  the  precinct.  The  statement  in  the  bonds  in 
regard  to  propelling  other  works  of  an  internal  improvement  of 
a  public  nature  in  the  precinct,  is  explained  by  the  allegation  in 
the  petition  that  the  improving  of  the  water  power  for  the  purpose 
stated  rendered  it  available  to  propel  other  works  of  internal 
improvement  of  a  pubHc  nature,  then  existing  or  which  might  be 
constructed  on  the  river  within  the  bounds  of  the  precinct.  But 
this  was  an  incidental  result,  and  aside  from  the  only  work  in  aid 
of  which,  or  as  notified  to,  or  known  by,  the  plaintiff,  at  the  time 
of  the  sale  and  delivery  of  the  bonds  to  him."  ^ 


» Blair  v.  Cuming  County,  (1884) 
111  U.  S.  363,  368,  369.  The  follow- 
ing cases,  referring  to  bonds  issued  in 
aid  of  "  public  improvements"  under 
the  Nebraska  statutes  and  the  power 
to  issue  them,  were  reviewed  by  the 
court:  Osborne  v.  County  of  Adams, 
106  U.  S.  181;  Traver  r.  Merrick 
County,  14  Neb.  327;  Osborne  v. 
Adams  County,  109  U.  S.  1;  Union 
Pacific  Railroad  v.  Commissioners,  4 
Neb.  450;  United  States  v.  Dodge 
County,  110  U.  S.  156;  State  v. 
Thome,  9  Neb.  458;  Dawson  County 
9.  McNamar,    10  Neb.  276;  Nosser  v. 


Seeley,  10  Neb.  460;  Seeley  ??.  Bridges, 
13  Neb.  547;  Township  of  Burlington 
V.  Beasley,  94  U.  S.  310.  As  to  enter- 
prises which  are  so  far  of  a  public 
nature  tliat  private  property  may  be 
appropriated  to  carry  them  on,  they 
cited:  Boston  &  Roxbury  Mill  Corp. 
D.  Newman,  12  Pick.  467;  Common- 
wealth t).  Essex  Company,  13  Gray, 
239;  Lowell  v.  Boston,  111  Mass.  454; 
Scudder  v.  Trenton  Delaware  Falls 
Co.,  1  Saxt.  (N.  J.  Ch.)  694;  Beekmau 
T.  Saratoga  &  Schenectady  R.  R.  Co., 
3  Paige,  45. 


f 


t*: 


918 


MUNICIPAL  AID  BONDS  —  CX)TTNTY. 


[§442 


§442.  Conditions   to    subscriptions   -  the   right  to  pre- 
scribe, etc.—  Though  the  law  authorizing  aid  hy  a  county,  by 
way  of  subscription  to  stock  of,  and  issue  of  bonds  to,  a  raHroad 
company  may  be  silent  as  to  conditions  of  subscription,  the 
municipaUty  voting  aid  may  lawfully  impose  conditions  upon 
which  the  subscription  will  be  made,  and,  until  a  compliance  with 
such  conditions,  the  county   cannot  be  compelled  to  issue  and 
dehver   the    bonds    by   mandamus.^     AVhere    conditions^  have 
been  imposed  by  the  vote  of  the  people  upon  such  a  subscription, 
the  county  authorities  cannot  delegate  to  others  the  determination 
of  the  question  whether  or  not  the  conditions  have  been  complied 
with.      They    must    determine    that    fact    themselves,   as  the 
authorized  agents  of  the  people.^    Where  the  subscription  and 
issue  of  bonds  is  subject  to  conditions  before  the  bonds  can  be 
delivered,  the  county  authorities  would  have  no  lawful  power  to 
issue  the  bonds  in  blank  as  to  date,  and  place  them  in  the  hands 
of  trustees,  to  be  dated  and  delivered  when  the  conditions  may 
be  performed.^      A  county   having  submitted   the   question   of 
taking  stock  in  a  railroad  company  subject  to  conditions,  the  condi- 
tions may  be  removed  by  a  second  submission  of  the  entire  ques- 
tion to  the  electors.*     Where  a  vote  of  a  county  in  favor  of  bonds 
in  aid  of  a  railroad  company  in  Illinois  had  been  coupled  with 
conditions  that  the  road  should  be  located  at  a  designated  place, 
and  that  the  subscription  should  not  be  paid  until  the  road  was 
constructed,  it  was  held  that  this  did  not  amount  to  a  contract  to 
subscribe  when  the  conditions  were  performed  ;  also,  that  if  the 
county  authorities  had  a  discretion  to  subscribe  on  a  vote  without 
conditions,  the  annexing  of  conditions  would  not  deprive  them  of 
its  exercise.^     A  county  having  voted  aid  to  a  railroad  company 
in  building  its  road  by  a  certain  route,  without  any  other  condi- 
tions, it  appearing  that  the  company,  by  its  charter,  was  not  bound 
to  locate  its  road  on  that  route,  but  had  a  large  discretion  as  to 
the  route  to  be  selected,  the  Illinois  Supreme  Court  held  that  the 
board  of  supervisors  had  the  right  to  impose  conditions  as  to  the 
permanent  location  of  the  road  upon  the  route  contemplated,  and 

» People  V.  Glann.  70  111.  232;  Peo-  » People  t.  Cass  County,  77  111.  438. 

pie  '»  Holden.  91  111.  446.  The  right  to  subscribe  upon  conditions. 

«  Jackson  County  t.  Brush.  77  111.  59.  Laud  Grant  Ry.  &  Trust  Co.  v.  Davia 

s  Ibid  County,  6  Kans.  256. 

*  Board  of   Supervisors  of   Mercer 
County  u.  Hubbard.  (1867)  45  111.  139. 


§442] 


MUNICIPAL  AID  BONDS COUNTY. 


919 


to  make  any  delivery  of  the  county  bonds  to  depend  upon  the  same, 
and  that  the  company,  by  accepting  such  conditions,  was  bound 
by  them  in  respect  to  its  rights  under  the  vote  and  subscription.^ 
It  was  provided  in  the  statute  authorizing  an  issue  of  bonds  by  a 
municipality  in  aid  of  a  railroad  company  that  the  proceeds  be 
expended  in  the  county,  and  the  specific  proposition  submitted 
to  the  vote  of  the  people  was  based  upon  this  condition,  and  the 
railroad  company  agreed  to  expend  the  money  raised  in  the 
county.  It  was  held  in  a  federal  court  that  this  agreement  con- 
templated the  negotiation  of  the  bonds  in  the  regular  and  ordi- 
nary way,  and  the  keeping  of  the  proceeds  of  the  bonds  separate 
from  the  other  assets  of  the  company,  and  that  the  proceeds 
should  be  expended  in  the  county ;  that  it  followed  from  this 
that  such  bonds  were  not  covered  by  a  mortgage  of  the  railway 
company  in  favor  of  which  they  were  issued,  covering  all  its  real 
and  personal  property  then  owned  or  thereafter  to  be  acquired 
by  the  company.^  Though  the  authority  of  a  board  of  county 
commissioners  to  issue  bonds  in  aid  of  a  railway  company  upon 
compliance  with  certain  conditions  carries  with  it  no  authority  to 
waive  the  conditions,  where  there  is  a  failure  of  the  railway  com- 
pany to  comply  with  one  of  the  conditions  in  some  minor  respect, 
and  notwithstanding  the  failure  the  commissioners  acting  in  good 
faith  issue  the  bonds,  and  the  failure  is  a  matter  which  is  of 
public  knowledge,  a  failure  by  the  county  to  make  any  objections 
or  take  any  proceedings,  and  payment  of  the  interest  on  the  bonds 
for  a  series  of  years,  will  work  a  ratification  of  the  action  of  the 
commissioners,  and  the  county  will  thereby  be  prevented  from 
recovering  of  the  railroad  company  the  bonds  or  their  value.s 
The  statute  of  Kentucky  providing  that,  before  county  bonds 
issued  in  the  aid  of  a  railroad  are  delivered,  the  president  of 
railroad  company  shall  give  bond  for  the  faithful  application  of 


^  Alley  V.  Adams  County.  76  111.  101. 
What  was  not  a  compliance  with,  a 
condition  as  to  the  location  of  a  road, 
and  the  bonds  invalidated  thereby, 
though  in  the  hands  of  innocent  hold- 
ers, see  Parker  v.  Smith,  3Bradw.  (111.) 
356. 

•  Foote  V.  Mt.  Pleasant,  1  McCrary, 
101. 

'Leavenworth,  L.  &  G.  Ry.  Co.  v. 
Douglas  Co.,  18  Kans.  169.    As  to  pre- 


scribing conditions  of  subscription  and 
the  effect  upon  the  railroad  company, 
sec  People?'.  Ilolden,  91  111.  446.  Where 
the  mere  fact  that  a  track  was  laid  and 
trains  run  over  it  was  not  a  compliance 
with  the  conditions  upon  which  a  sub- 
scription in  aid  of  a  railroad  company 
was  voted,  as  to  its  substantial  comple- 
tion before  the  bonds  should  be  issued 
to  it,  see  Memphis.  Kansas  &  Colorado 
Ry.  Co.  V.  Thompson,  24  Kans.  170. 


■i«iil|l|f  ■■iijji^iijiijilliig^^ 


020 


MUNICIPAL  AID  BONDS COOMTT. 


[§443 


§443] 


MUNICIPAL  AID  BONDS  —  COUNTY. 


921 


'■■ 


tlic  proceeds  of  the  bouds  to  the  construction  of  the  road,  has 
been  held  to  liave  no  application  where  the  road  had  been  com- 
pleted before  the  bonds  were  delivered.^ 

§  443.  When  authority  to  subscribe  to  stock  gives  no 
power  to  issue  bonds  in  payment. —  The  effect  of  the  statutes 
of  Mississippi  as  to  rendering  aid  to  railroad  companies  by  couTities 
through  which  tlie  railroads  were  to  be  built  has  been  fully  con- 
sidered by  the  United  States  Supreme  Court  in  a  case  coming 
before  it.  The  court  held  that,  under  those  statutes,  there  was 
no  power  in  the  county  authorities  to  issue  bonds  in  payment  of 
subscriptions  made  by  the  county  to  the  stock  of  such  roads ;  that 
they  could  subscribe  to  the  stock,  but  were  limited,  in  payment 
of  the  same,  to  taxation  as  directed  by  the  terms  of  the  statute.' 


'  Breckenridije  County  r.McCmckcn, 
<1894)  61  Fod.  Hep.  101.  Bonds  of  an 
Illinois  county  held  invalid  for  non- 
compliance with  the  conditions  on 
which  they  were  voted  and  issued  in 
aid  of  a  railroad  company  as  to  the 
time  the  road  was  to  be  completed, 
notwithstanding  an  extension  of  time 
for  its  completion  had  been  granted  by 
the  County  Court  and  boanl  of  super- 
visors, in  German  Sav.  Bank  r.  Frank- 
Hn  County,  1*2S  U.  S.  526:  h.  c,  9  Sup. 
Ct.  Rep.  159.  See,  also,  Onstott  r. 
People,  12:1  111.  489;  Young  i\  Rail- 
road Co.,  75  Iowa.  140;  Crane  r.  Rail- 
way Co.,  74  Iowa,  3:iO;  Livingston 
County  V.  Bank,  128  U.  ?^.  102. 

«  Wells  V.  Supervisors,  (1880)  102  U. 
S.  625.  Chief  Justice  Waite,  in  de- 
livering the  opinion  of  the  court,  re- 
ferred first  to  the  powers  of  the  county 
authorities  under  the  statutes  of  the 
state  generally,  and  the  rulings  in 
Beamano.  Leake  County,  42  Miss.  247, 
and  Hawkins  r.  Carroll  Coimty,  50  Miss. 
763,  and  then  said:  "  Undoubtedlv 
section  17  authorized  a  subscription  to 
the  stock  of  the  railroad  company  for 
the  tounty,  after  a  majority* of  the 
electors  of  the  county  had  in  the 
proper  way  given  their  consent,  and  it 
is  possible,  if  there  had  been  nothing 


more,  that,  under  the  rule  of  construc- 
tion stated  in  Lynde  r.  The  County,  16 
Wall.  6,  the  subscription  might  have 
l)«  (  n  paid  in  l)onds.  It  seems  to  us, 
however,  that  the  provisions  of  section 
18  arc  such  as  to  exclude  any  such  pre- 
sumption. By  tliat  section  the  boards 
of  i)oli(e  (supervisors)  were  authorized 
to  assess  and  collect  a  tax  on  the  tax- 
able i^roperty  or  the  real  property  of 
the  county,  at  their  election,  '  for  the 
payment  of  the  capital  stock  sub- 
scribed.' No  other  mode  of  payment 
was  provided  for.  This,  of  itself, 
when  considered  in  the  light  of  the 
settled  policy  of  the  state,  to  require 
the  current  liabilities  of  counties  to  be 
discharged  by  current  taxation,  would 
seem  to  indicate  an  intention  not  to 
confer  upon  the  counties  the  power  of 
funding  thi:?  kind  of  liability.  But 
when  it  is  taken  in  connection  with  the 
further  provisions  of  the  same  section, 
which  authorize  the  boards  of  police 
to  direct  that  the  railroad  company 
issue  to  the  taxpayers,  in  lieu  of  the 
county,  stock  to  the  amount  of  the 
taxes  paid,  the  intention  is  even  raon* 
apparent.  As  stock  was  to  be  issued 
by  the  county  to  an  amount  equal  to 
the  taxes  paid,  it  would  seem  as 
though  it  could  not  have  been  sup- 


A  Missouri  railroad  company  had  a  cliarter  in  which  it  was  pro- 
vided that,  "  upon  the  presentation  of  a  petitiou  of  the  president 
and  directors  of  said  company  to  the  County  Court  of  any  county 
through  which  said  road  may  be  located,  praying  that  a  vote  may 
be  taken  in  any  strip  of  country  through  which  it  may  pass,  not 
to  exceed  ten  miles  on  either  side  of  said  road ;  that  the  inhab- 
itants thereof  are  desirous  of  taking  stock  in  said  road  and  of 
voting  upon  themselves  a  tax  for  the  payment  of  the  same,  it 
shall  be  the  duty  of  said  County  Court  to  order  an  election  therein, 


posed  that  before  the  tax  was  collected 
any  payment  of  the  subscription  was 
to  be  made,  or  any  stock  issued,  that 
could   in   any   manner  interfere  with 
this  privilege  of  the  taxpayers.     So, 
too,    the  company   could   not  be   re- 
quired to  issue  stock  up  and  to  the 
amount  of  the  subscription.     As  the 
taxpayer  was  to  be  entitled  to  stock  to 
the  full  amount  of  his  payment,  it  fol- 
lows that  the  tax  must  have  been  in- 
tended to  pay  the  subscription  and  not 
bond.s.     We  are  not  unmindful  of  the 
fact  that  the  language  of  this  part  of 
the  section  is  such  as  to  leave  it  op- 
tional with  the  board  to  give  thisdirec 
lion  or  not;  that  it  may,  nevertheless, 
be    referred     to,    as     we    think,    to 
strengthen   the    presumption    arising 
from   the  other    provisions,   that  the 
subscription     was     not     to    be    paid 
through   taxation,    directly    or    indi- 
rectly, until  the  money  to  be  raised  in 
that  way  had  actually  been  collected. 
This  statute   conferred  an   extraordi- 
nary power  on  the  boards  of  police. 
It  authorized   them  to  create  a  new 
liability  for  their  respective  counties, 
and  provided   a  special  way  of    dis- 
charging that  liability.     The  liability 
and    the     mode    of    discharge    were 
provided  for  in  the  same  statute.    This 
being  so,  the  mode  prescribed  is  exclu- 
sive of  all  others.     This  case  differs 
materially  from  Lynde  v.  The  County, 
16  Wall.  6.     There  the  tax  voted  was 
to  be  levied  annually  during  a  period 
not    exceeding    ten    years,    and    the 
•mount  for  each  year  definitely  fixed 
116 


As  this  was  done  for  the  purpose  of 
building  a  court  house,  the  court  very 
properly  held  the  vote  implied  permis- 
sion to  borrow  money  to  accomplish 
the  object  in  anticipation  of  the  col- 
lection of  the  tax,  which  must  neces- 
sarily be  delayed  a  con.siderable  num- 
ber of  years.     Here  the  tax  was  to  be 
levied  to  pay  the  subscription,  that  is 
to  say,  to  pay  the  company  the  amount 
subscribed,  when,  by  the  terms  of  the 
subscription,   that  obligation  was  to 
be  met.     As   the  statute  on  its  face 
contemplated    no    delay    in    raising 
the  money  by   taxation,    no  implica- 
tion of  a   power  to  borrow  in  antici- 
tion  of  the  tax  can  arise.      The  sub- 
scription   might    be   made,    but    the 
money  must  be  raised  by  taxation  to 
meet  it.     The  railroad  company  can- 
not complain;    for  when  it  receive<l 
the  subscription  it  knew,  or  ought  to 
have  known,   from   what  source  the 
money  was  to  come  to  meet  the  pay- 
ment, and  it  impliedly  gave  its  con- 
sent to  such  delays  as  were  neces.sarily 
incident  to    the    mode  of  collection. 
The  other  provisions  of  the  charter  as 
to  calls  on  subscribers  to  meet  their 
subscriptions  were  not  necessarily  ap- 
plicable to  counties       Counties  were 
to  pay  as  they  agreed,  and  when  the 
tax  was  collected.     *     *     »     From 
the  supplemental  act  it  is  apparent 
that  the  object  of  the  legislature  was 
to  raise  money  by  taxation  to  aid  in 
the  construction  of  the  road  and  re- 
quire the  company  to  give  the  tax- 
payers stock  for  the  money  they  paid. 


922 


MUNICIPAL  AID  BONDS  —  COUNTY. 


[§44.4 


I 


and  sliall  prescribe  the  time,  place  and  maimer  of  holding  said 
election  ;  and  if  a  majority  of  the  taxable  inhabitants  shall  deter- 
mine in  favor  of  the  tax,  it  shall  be  the  duty  of  siiid  court  to  levy 
and  collect  from  them  a  special  tax  whicli  shall  be  kept  separate 
from  all  other  funds  and  appropriated  to  no  other  purposes,  and 
as  fast  as  collected  sliall  cause  the  same  to  be  i)aid  to  the  treas- 
urer of  said  company."  An  election  was  held  in  a  strip  of  a 
county  properly  called  by  the  County  Court,  and  the  vote  was  in 
favor  of  the  subscription.  The  County  Court  subscribed  to  the 
stock  of  the  company  in  obedience  to  the  will  of  the  people,  and 
issued  bonds  in  payment  of  the  subscription.  In  an  action  upon 
the  coupons  of  some  of  these  bonds  the  Supreme  Court  held  the 
bonds  to  be  void,  notwithstanding  the  suit  was  by  a  lo7ia  fide 
holder  of  the  bonds,  for  lack  of  authority  in  the  County  Court  to 
issue  the  bonds.^ 

§  444.  When  a  donation  of  bonds  is  authorized.—  It  was 
urged,  against  the  validity  of  a  particular  statute  of  Nebraska, 


This  is  entirely  inconsistent  with  any 
idea  of  the  payment  of  interest.     As 
the  special  tax  on  adjoining  lands  was 
large,  it  was  extended  over  a  period 
of  years.    This  amount  was  fixed  and 
not  left  to  the  discretion  of  any  one. 
In  respect  to  the  country  at  large  the 
plan  adopted  was  different.     There  it 
was  left  for  the  people  to  determine 
for  themselves   how  much  the  sub- 
scription should  be,  and  for  the  county 
and  the  company   to  agree  when  it 
should  be  paid.     In  this  way  the  tax 
might  be  extended   over  a  series  of 
years;  but  as  stock  was  to  be  issued 
by    the    company    for  all    payments 
made,  it  could  not  have  been  intended 
to  tax  beyond  the  actual  amount  of 
the   subscription.      Consequently,    if 
time  was  given  by  the  company  to 
make  the  payment,  it  must  be  with- 
out interest." 

'  Ogden  t).  County  of  Daviess,  (1883) 
103  U.  8.  634;  followed  in  Deland  r. 
Platte  County.  (1890)  54  Fed.  Rep.  823. 
in  which  case  this  question  and  others 
pertinent  to  it  are  fully  discussed  by 
Philmps,  D.  J.    In  Ogden  v.  County 


of  Daviess,  mpra,  Teferring  to  the  pro- 
vision of  the  charter  above  referred  to, 
Waite,  Chief  Justice,  for  the  United 
States  Supreme  Court,  said:    "With- 
out   doubt    [this    provision    of    the 
charter]  authorized    the    taxable    in- 
habitants of  the   'strip  of   country' 
designated  to  vote  a  tax  upon  them- 
selves to  take  stock,  and  required  the 
County  Court  to  levy  and  collect  such 
a  tax,  if  voted,  and  pay  over  the  money 
as  fast  as  collected  to  the  treasurer  of 
the  company;   but  in  this  we  find  no 
authority  for  the  coimty  to  issue  bonds 
in  anticipation  of  the  tax.     The  tax- 
able inhabiUmts  of  the  strip  of  country 
could  not  themselves  make  a  bond, 
and  all  the  County  Court  could  do  was 
to  collect  and  pay  over  the  tax  voted. 
The  inhabitants  were  not  even  organ- 
ized by  themselves,  much  less  made  a 
body  politic  for  any  purpose.     They 
could  vote  the  tax  if  called  upon  to  do 
so  by  the  County  Court,  but  that  was 
all.     The  effect  of  the  vote  was  noth- 
ing more  than  to  authorize  the  County 
Court  to  levy,  collect  and  pay  over  to 
the    treasurer    of    the    company    the 


MUNICIPAL  AID  BONDS  —  COUNTY. 


923 


§444] 

that  it  authorized  the  donation  of  the  county  bonds  to  the  rail- 
road company,  and  it  was  insisted  that  if  even  the  legislature 
could  empower  the  county  to  subscribe  to  the  stock  of  such  a 
corporation,  it  could  not  constitutionally  authorize  a  donation. 
The  United  States  Supreme  Court  sustained  the  constitutionality 
of  the  statute.^     The  Nebraska  Supreme  Court  has  held  that 


special    tax    they    had    determined 
upon." 

» llivilroad   Company  v.   County  of 
Otoe,  (1872)  16  Wall.  667;  cited  and 
applied  in  Otoe  County  v.  Baldwin, 
(1884)  111  U.  S.  1.    Mr.  Justice  Strong, 
arguendo,   said:    "There  is  no    solid 
ground  of  distinction  between  a  sub- 
scription to  stock  and  an  appropriation 
of  money  or  credit.     Both  are  for  the 
purpose  of  aiding  in  the  construction 
of  the  road;    both  are  aimed  at   the 
same  object,  securing  a  public  advan- 
tage,   obtaining    a    highway    or    an 
avenue  to  the  markets  of  the  country; 
both  may  be  equally  burdensome  to 
the  taxpayers  of   the  county.      The 
stock  subscribed  for  may  be  worth- 
less, and  known  to  be  so.     That  the 
legislature  of  the  state  might   have 
granted  aid  directly  to  any  railroad 
company  by  actual  donation  of  money 
from  the  treasury  will  not  be  contro- 
verted.    No  one  questions  that  in  the 
absence  of  some  constitutional  inhibi- 
tion the  power  of  a  state  to  appropri- 
ate  its    money,    however    raised,    is 
limited  only  by  the  sense  of  justice 
and  by  the  sound  discretion  of   its 
legislature.     If  the  power  to  tax  be 
unrestricted,  the  power  to  appropriate 
the  taxes   is    necessarily  equally   so. 
Accordingly,  nothing  has  been  more 
common  in  the  state  and  federal  gov- 
ernments than  appropriations  of  public 
money  raised  by  taxation  to  objects, 
in  regard  to  which  no  legal  liability 
has  existed.     State  legislatures  have 
made  donations  to  numerous  purposes 
whenever,  in  their  judgment,  the  pub- 
lic well-being  required  them,  and  the 
right  to  make  such   gifts  has  never 


been  seriously  questioned.     But  if  a 
state  can  directly  levy  taxes  to  make 
donations  to  improvement  companies, 
or  to  other  objects  which,  in  the  judg- 
ment of  its  legislature,  it  may  be  well 
to  aid,  it  will   be  found  difficult  to 
maintain  that  it  may  not  confer  upon 
its  municipal  divisions    power  to  do 
the  same  thing.     Counties,  cities  and 
towns  exist  only  for  the  convenient 
administration    of    the    government. 
Such  organizations  are  instruments  of 
the  state,  created  to  carry  out  its  will. 
When  they  are  authorized  or  directed 
to  levy  a  tax,  or  to  appropriate  its 
proceeds,  the  state,  through  them,  is 
doing  indirectly  what  it  might  do  di- 
rectly.    It  is  true  the  burden  of  the 
duty  may  thus  rest  upon  only  a  sin- 
gle political  division,  but  the  legisla- 
ture has  an  undoubted  power  to  ap- 
portion a  public  burden  among  all  the 
taxpayers  of  the  state,  or  among  those 
of  a  particular  section.     In  its  judg- 
ment, those  of  a  single  section  may 
reap  the  principal  benefit  from  a  pro- 
posed expenditure,, as  from  the  con- 
struction of  a  road,  a  bridge,  an  alms- 
house or  a  hospital.     It  is  not  unjust, 
therefore,  that  they  should  alone  bear 
the  burden.     This  subject  has  been  so 
often  discussed,  and  the  principles  we 
have  asserted  have  been  so  thoroughly 
indicated,  tliat  it  seems  to  be  needless 
to  say  more,  or  even  to  refer  at  large 
to  the  decisions."     These   few  cases 
were  cited:  Blanding  n.  Burr,  13  Cal. 
343;  Town  of  Guilford  v.  Supervisory 
of    Chenango  County,   3  Kern.    149; 
Stuart    t.    Supervisors,   30    Iowa,   9; 
Augusta   Bank   v.    Augusta,   49  Me. 
r.07.     As  to  the  objection  that  the  road 


I 


924 


MUNICIPAL  AID  BONDS COUNTY. 


[§445 


bonds  issued  by  a  county  as  a  donation  to  a  railroad  company 
were  invalid  unless  they  had  indorsed  upon  them  a  certificate 
jsigned  by  the  secretary  and  auditor  of  state,  showing  that  they 
were  issued  pursuant  to  law.* 

§  445.  When  county  bonds  donated  to  a  railroad  com- 
pany cannot  be  scaled  down. —  The  holders  of  some  of  the 
bonds  of  Dixon  county,  Nebraska,  issued  as  a  donation  to  a  rail- 
road company,  brought  their  bill  in  equity  in  the  United  States 
Circuit  Court  for  that  district  for  relief.  Tlie  court  held  that 
these  bonds  having  been  held  void  in  a  court  of  law  as  in  excess 
of  the  constitutional  limit  of  indebtedness,  equity  had  no  power 
to  scale  down  the  issue  to  the  limit  and  enforce  it  against  the 
countv,  the  contract  beiu":  indivisible  and  void  iti  toto,  and  there 
being  no  executed  consideration  to  support  an  implied  promise.' 
There  was  an  appeal  from  this  judgment  rendered  by  Brewer, 
Circuit  Judge,  to  the  United  Stiites  Supreme  Court,  where  the 
judgment  was  affirmed.'' 


aided  lay  outside  the  limits  of  the 
county,  and  outside  the  state,  it  ■vvus 
sjiid:  "  There  is  nothing  in  this  objec- 
tion. It  was  for  the  legislature  to  de- 
termine whether  the  object  to  be  aided 
was  one  in  which  the  people  of  the 
state  had  an  interest,  and  it  is  very 
obvious  that  the  interests  of  the  people 
of  Otoe  county  may  been  more  in- 
volved in  the  construction  of  a  road 
giving  them  a  connection  with  an 
eastern  market  than  they  could  be  in 
the  construction  of  any  road  wholly 
within  the  county.  But  that  the  ob- 
jection has  no  weight  may  be  seen  in 
Gelpcke  r.Dubuque,  1  Wall.  175,  and  in 
Walker  v.  Cincinnati,  21  Ohio  St.  14." 

»  State  V.  Roggen,  23  Neb.  118;  s.  c, 
34  N.  W.  Rep.  108. 

«  Hedges  v.  Dixon  County,  (1889)  37 
Fed.  Rep.  304. 

» Hedges  r.  Dixon  County,  (1893) 
150  U.  S.  182.  The  subject  is  so  fully 
discussed  by  the  majority  of  the  Su- 
preme Court  that  the  opinion  is  deemed 
worthy  of  reproduction  here.  Iklr. 
Justice  Jackson,  for  the  majority  of 


the  court  (Harlaij,  J.,  only  dissent- 
ing), said:  "The  bonds  in  question 
were  made  payable  to  the  [railroad 
company,  the  donee],  or  bearer,  and 
were  put  in  circulation  by  that  com- 
pany with  its  indorsement  thereon, 
guaranteeing  to  the  holders  the  pay- 
ment of  the  principal  and  interest  of 
the  bonds,  according  to  the  tenor 
thereof,  at  the  place  where,  and  as 
they  became  due  and  payable.  The 
only  consideration  received  by  the 
county  in  the  transaction  was  the  inci- 
dental benefit  derived  from  the  con- 
struction of  the  railroad  —  the  pro- 
ceeds of  the  bonds,  when  negotiated, 
being  received  directly  by  the  railroad 
company.  The  theory  of  the  bill  is 
that  the  bonds  are  void  only  to  the  ex- 
tent that  they  exceed  ten  per  cent  of 
the  assessed  valuation  of  the  property 
of  the  county  at  the  time  of  their  issu- 
ance, and  upon  the  abatement  of  that 
excess  the  holders  are  entitled  to  have 
the  residue  thereof  —  which  the  county 
could  have  lawfully  issued  —  treated 
as  valid  because  of  the  incidental  ben- 


MUNICIPAL  AID  BONDS COUNTY. 


925 


I 


§446] 

§  446.  Bonds  of  an  Illinois  county  secured  by  mortgage  of 
its  swamp  lands.— The  charter  of  an  IlHiiois  railroad  company 
provided  in  one  section  that  "  The  corporation  may  borrow  such 
sums  of  money  as  they  deem  advisable,  and  upon  such  terms  as 
they  may  agree,  for  the  carrying  out  of  the  objects  of  this  act, 
and  may  provide  any  security  therefor  they  think  best  by  bond 
and  mortgage."  In  another  section  it  empowered  the  County 
Court  of  the  county  in  which  was  its  starting  point  to  subscribe 
for  its  stock,  to  issue  bonds  of  the  county  and  provide  for  the 
payment  of  the  principal  and  interest  thereof  by  sale  or  mort- 


efits  derived  from  the  construction  of 
the  road  which  was  sought  to  be  se- 
cured by  the  donation  of  bonds.     The 
complainants,  by  their  bill  and  exhibit 
thereto,  have  presented  the  same  state 
of  facts    which    were    considered  in 
Dixon  County  ».  Field,  111  U.  S.  83, 
where  the  bonds  in  question  were  di- 
rectly involved,  and  were  held  by  this 
court  to  be  void  because  they  exceeded 
in  the  aggregate  the  sum  of  ten  per 
cent  of  the  assessed  valuation  of  the 
property  of  the  county  at  the  time  of 
their  issue.     This  decision  was  based 
upon  [that  section]  of  the  Constitution 
of  flie  state  of  Nebraska  which  pro- 
vides as  follows:    'No  city,   county, 
town,  precinct,  municipality,  or  other 
subdivision  of  the  state,    shall    ever 
make    donations    to   any   railroad   or 
other  work  of  internal  improvement, 
unless  a  proposition  shall  have  been 
first  submitted  to  the  qualified  electors 
thereof  at  an  election  by  authority  of 
law;  Provided,  that  such  donations  of 
a  county,  with  the  donations  of  such 
subdivisions,  in  the  aggregate  shall  not 
exceed  ten  per  cent  of  the  assessed  val- 
uation of  such  county.'     While  the 
complainants  concede  that  the  issue 
of  bonds  was  in  excess  of  what  the 
county  was  authorized  to  donate  un- 
der the  provision  of  the  Constitution, 
and   for  that  reason  were  invalid  at 
law,  they  insist  that  a  promise  to  pay 
so  much  thereof  as  could  have  been 
lawfully  issued  shall  be  implied  and 


enforced  against  the  county,  under  the 
principle  applied  in  Louisiana  v.  Wood, 
102  U.  8.  294,  and  in  Read  v.  Platts- 
mouth,  107  U.  S.   568.     Those  cases 
are  clearly   distinguishable  from  the 
present.     In  Louisiana  v.    Wood,  by 
the  act  of  the  city,  the  bonds  bore  a 
false  date  which,    apparently,   made 
them    obligatory   and   binding;   they 
were  sold  by  the  city  and  purchased 
by  the  holders  in  good  faith,  and  the 
money   paid  for  them   went  directly 
into  the  city's  treasury.     This  court 
held  that  the  city  was  in  the  market 
as    a    borrower    and    received    the 
money    in    that    character,    notwith- 
standing the  transaction  assumed  the 
form  of  a  sale  of  her  securities,  which, 
being  defectively  executed,  a  suit  could 
not  be  maintained  thereon,  and  that 
the  holder  was  entitled  to  recover  the 
money  paid  with  interest  thereon  from 
the  time  the  obligation  of  the  city  to 
pay  was  denied.     In  Read  i\  Platts- 
raouth  the  bonds  were  issued  by  a  city 
for  the    purpose    of    raising    money 
wherewith  to  construct  a  high  school 
building  within  her  limits.     The  bonds 
were  sold  and  the  proceeds  applied  to 
that  purpose.     The  legislature  subse- 
quently legalized  the  proceedings  of 
the  city  in  the  premises,  but  this  act 
of  the  legislature  was  passed  after  the 
Constitution  of   the  state  went  into 
effect  declaring  that  the  'legislature 
shall  pass  no   special  act  conferring 
corporate  powers,'  and  that  'no  bill 


926 


MUNICIPAL  AID  BONDS  —  €X)UNTT. 


[§440 


gage,  mie  or  bothy  of  the  swamp  and  overflowed  lands  of  such 
eouiitj,  and  dispose  of  such  bonds  for  money  to  pay  or  in  pay- 
ment of  tlieir  subscript  ion  to  said  stock,  all  and  eacli  to  be  upon 
such  time,  terms  and  in  such  mode  as  they  may  deem  best ;  or 
they  wmy  make  such  other  disposition  of  said  swanij)  and  over- 
flowed lands  in  aid  of  the  construction  and  maintenance  of  said 
railroad  as  they  deem  best  for  the  public  interest  of  said  county. 
Another  section  i)rovided  for  the  submission  to  the  voters  of  the 
county  propositions  looking  to  the  carrying  out  of  the  purposes 
of  the  charter  provisions.     There   was  an  additional  section  in 


shall  contain  more  than  one  subject, 
which  shall  Ik?  clearly  expressed  in  its 
title.*    A  i)urehaser  of  the  bonds  for 
ralne,  without  notice  of  any  infirmity 
in  thoir  issue,  brought  suit  to  recover 
the  amount  of  the  coupons  then  due 
ami  unpaiii.     It  was  held  that  as.  by 
force  of  the  trausiiction.  the  city  was 
bound  to  refund  the  moneys  paid  it  in 
consideration  of  its  void  bonds,  and  as 
the  act,  by  confirming  them,  merely 
recogni/x's  the  existence  of  that  obliga- 
tion and  provides  a  medium  for  en- 
forcing it  according  to  the  original  in- 
tention  of  the  parties,   no  new  cor- 
porate powers  were  thereby  conferred. 
In  this  case,  as  in  Louisiana  «?.  Woml, 
the  city  got  the  full  pecuniary  consid- 
eration for  the  bonds  and  applied  the 
money  for  the  very  purpose  for  which 
they  were  issued;  and,  upon  well-set- 
tled principles,  if  the  securities  given 
for  the  money  »o  obtained  proved  in- 
valid   or    defective   for  any    reason, 
there  was  a  clear  legal  as  well   as 
moral  obligation  to  refund  the  money 
which  had  been  so  advanced  to  and 
received    by  the  city.     The  circum- 
stances  and    conditions   which   gave 
the  holders  of  the  bonds  an  equitable 
right  in  those  cases  to  recover  from 
the  municipahty  the  money  which  the 
bonds  represented  do  not  exist  in  the 
case    under  consideration,  where  the 
county  received  no  part  of  the  pro- 
ceeds of    the    bonds   and    no   direct 
money  benefit,  but  merely  derived  an 


incidental  advantage  arising  from  the 
construction    of    the    railroad,    upon 
which  advantage  it  would  be  impossi- 
ble for  the  court  to  place  a  pecuniary 
estimate  or  to  say  that  it  would   be 
equal  to  such  portion  of  the  bonds  in 
question  as  the  county  could  lawfully 
h.iNc  issued.     Moreover,   by  the  pro- 
visions of  the  Constitution  of  the  state 
of    Nebmska,    and    by    the    express 
terms  of  the  proposition  submitted  to 
the    vota    of    the    people    of    Dixon 
county,  the  bonds    in  question  were 
issued  (U  a  donation   to  the  railroad 
compunif,  and,  being  intended  as  a  do- 
nation, it  cannot  properly  be  said  that 
the  purchasers  of  these  bonds  from 
the  railroad  company  paid  any  consid- 
eration therefor  to  the  county  so  as  to 
raise  any  equity  as  against  it  for  the 
amount  represented  by  the  bonds  or 
any  part  thereof.     Any  equitable  de- 
mand which  might  under  the  circum- 
stances have  existed  against  the  county 
on  the  theory  of  consideration  received, 
was  in  favor  of  the  railroad  company 
which  constructed  the   railroad,  and 
thereby  conferred  all  the  incidental 
benefits    which   the    county    derived 
from  the  transaction.    If  any  equitable 
claim  arises  in  favor  of  the  holders  of 
the  bonds,  it  must  be  against  the  rail- 
road company  from  whom  the  bonds 
were  purchased  and  by  whom  their 
payment  was  guaranteed,  as  that  com- 
pany was   the  recipient  of  the  legal 
consideration  realized  upon  the  nego- 


g446] 


MUNICIPAL  AID  BONDS  —  COUNTY. 


927 


these  words :  "  Any  county  through  which  said  road  may  run, 
and  every  county  through  which  any  other  railroad  mxiy  run 
with  which  this  road  maybe  joined^  connected  or  interested  may, 
and  are  hereby  authorized  and  empowered  to,  aid  in  the  con- 
struction of  the  samCy  or  of  such  other  road  with  which  it  may 
so  connect ;  and  for  this  purpose  tlie  provisions  [above  referred 
to]  shall  extend,  include  and  be  applicable  to  every  such  county 
and  every  such  railroad."  A  county  through  which  this  road 
finally  was  to  run,  itself  or  by  connection  with  another,  through 
its  county  officials,  executed  a  mortgage  of  its  swamp  lands  to  a 


tiation  of  the  bonds.     Again,  the  Con- 
stitution of  the  state  having  prescribed 
the  amount  which  the  county  might 
donate    to  a   railroad   company,  that 
provision    operated    as    an    absolute 
limitation    upon    the    power    of    the 
county  to  exceed  that  amount,  and  it 
is  well  settled  that  no  recitals  in  the 
bonds  or  indorsed  thereon  could  estop 
the  county  from  setting  up  their  inva- 
lidity based  upon  the  want  of  consti- 
tutional authority  to  issue  the  same. 
Recitals  in  bonds  issued  under  legisla- 
tive authority  may  estop  the  munici- 
pality from  disputing  their  authority 
as  against  a  txjnafde  holder  for  value; 
but   when  the    municipal   bonds   are 
issued  in  violation  of  a  constitutional 
provision,  no  such  estoppel  can  arise 
by  reason  of  any  recitals  contained  in 
the  bonds.     Lake  Coimty  v.  Rollins. 
130  U.  S.  662;  LakeC^ounty  v.  Graham, 
130  U.  S.  674;  SutlifE  v.  Lake  County 
Commissioners,  147   U.S.   230.     But, 
aside  from  this  view  of  the  subject, 
the  bill  proceeds  upon  the  false  as- 
sumption that  the  bonds  in  question 
were  partly  vahd  and  partly  void,  and 
that  the  case  is  brought  within  the 
principle  announced  in  Daviess  County 
r.  Dickinson,  117  U.  S.  657.     In  that 
case,   under    authority  conferred   by 
statute,  the  county  voted  a  subscrip- 
tion of  two  hundred  and  fifty  thousand 
dollars  to  a  railroad  company,  which 
was  made,  and,  by  order  of  the  County 
Court,    bonds  of  the  county  to  that 
amount  were  ordered  to  be  sold  and 


disposed  of  by  a  committee  for  the 
purpose  of  paying  such  subscription. 
The  oflicers  of  the  county,  without  au- 
thority, executed  and  issued  bonds  in 
the  nmount  of  three  hundred  thousand 
dollars.     The  bonds,  as  they  were  de- 
livered,   were     separately    numbered 
and  entered  upon  the  county  register. 
The   court  held    that  the    power  to 
issue  bonds  was  limited  to  two  hun- 
dred  and  fifty  thousand  dollars,  and 
that  the  bonds  issued  in  excess  of  that 
amount  were  unlawful  and  void.     It 
was  further  held  that  bonds  to  the 
amount  authorized,  which  were  first 
issued  and  delivered,  were  valid  and 
entitled    to    payment.     In    that  case 
there  was  a  clear  and  well  defined  line 
between   the  legal  and  illegal  issues 
which  enabled  the  court  to  declare  in- 
valid such  of  the  bonds  as  exceeded 
the  amount   authorized   and   to  hold 
that  the  illegal  excess  did  not  vitiate 
the  bonds  which  were  authorized  and 
legally  issued.     There  was  no  scaling 
of  the  entire  issue  in  that  case  so  as 
to  bring  it  within  the  limits  of  the 
county's    authority.     The    two   hun- 
dred   and     fifty    thousand     dollars, 
which   the  court    pronounced    valid, 
had  been  expressly  authorized  by  the 
county,  and  the  bonds  for  that  amount 
were  readily  separated  from  the  fifty 
thousand  dollar  excess  which  had  not 
been  authorized.    It  did  not,  therefore, 
involve  any  investigation  on  the  part 
of  the  court  to   ascertain  what   the 
county  could  lawfully  issue,  but  waa 


928 


MXTNICIPAL  AID  BONDS  —  COUNTY. 


[§  44(> 


trustee,  as  a  security  for  bonds  of  the  railroad  company  which  it 
had  resolved  to  issue  to  a  certain  amount  upon  which  to  borrow 
money  to  construct  its  road  under  the  authority  given  in  the 
above  provisions  of  the  charter  of  the  railroad  company  in  aid  of 
its  construction.  In  an  action  to  foreclose  the  mortgage  upon 
these  lands  in  behalf  of  the  bondliolders,  the  county  resisted  and 
the  bill  for  foreclosure  was  dismissed  upon  the  ground  that  the 
proofs  failed  to  show  that  at  the  date  of  the  mortgage  and  deed 
of  trust  for  securing  the  payment  of  the  bonds  there  was  any  line 
of  railroad  constructed,  or  authorized  to  be  constructed,  through 


merely  the  identification  of  the  bonds 
which  it  intendai  to  issue.  Apiin,  the 
amount  of  the  bonds  issued  was  not 
based  upon  the  assessed  valuation  of 
the  property  of  the  county,  but  was 
limited  to  the  amount  which  the  people 
of  the  county,  by  an  election  held,  had 
determined  should  be  issued.  There 
is  a  radical  difference  in  these  respects 
between  that  case  and  the  one  under 
consideration.  What  the  county  au- 
thorized and  carried  into  execution  in 
the  present  case,  both  by  the  vote  and 
by  the  donation,  was  one  entire  trans- 
action, and  if  it  should  be  so  reformed 
as  to  curtail  the  entire  issue  of 
bonds  to  such  an  amount  as  was 
within  the  constitutional  limits  of  the 
county  to  donate,  it  would  be  some- 
thing different  from  that  which  was 
voted  by  the  county  and  carried  into 
effect  by  the  issue  of  the  bonds.  This 
would  involve  the  making  of  a  differ- 
ent donation  from  what  the  county 
voted  and  intended  to  make  to  the 
railroad  company.  It  is  urged  that  the 
vote  and  the  issue  of  the  bonds  consti- 
tuted a  contract  between  the  railroad 
company  and  the  county,  and  that  the 
bonds  issued  in  pursuance  thereof 
should  be  scaled,  as  sought  by  the  bill, 
to  bring  the  contract  within  the  au- 
thority of  the  county;  that  as  the 
county  intended  to  make  a  valid  dona- 
tion such  reduction  of  the  amount  of 
the  issue  which  the  complainants  offer 
to  make  should  be  sanctioned  by  the 


court  and  the  residue  declared  valid. 
But  the  difficulty  in  the  way  of  this 
suggestion  is  that,  treating  the  trans- 
action as  a  contract,  it  is  not  within 
the  power  of  a  court  of  equity  t(» 
change  its  terms  and  provisions.  Be- 
sides, it  is  not  shown  that  the  county 
would  have  voted  a  different  amount 
from  what  was  issued,  or  that  it  in- 
tended to  issue  a  less  amount.  It  is 
too  well  settled  to  need  citation  of  au- 
thorities that  a  court  of  equity,  in  the 
absence  of  fraud,  accident  or  mistake, 
cannot  change  the  terms  of  a  contract. 
Again,  if  a  right  to  the  equitable  re- 
lief sought  by  the  complainants  could 
be  worked  out  on  the  theory  of  a  con- 
tract between  the  county  and  the  rail- 
road company,  it  would  be  necessary 
to  estabhsh  that  such  a  contract  actu- 
ally existed  and  was  valid.  In  the 
present  case,  however,  the  county  had 
no  authority  to  vote  the  donation.  In 
Reineman  v.  Covington,  Columbus  & 
Black  Hills  Railroad,  7  Neb.  310, 
where  an  excessive  issue  of  bonds  had 
been  voted  by  the  county  in  aid  of  in- 
ternal improvements,  it  was  held  by 
the  Supreme  Court  of  Nebraska  that 
the  vote  was  simply  a  void  act,  and 
conferred  no  authority  on  the  county 
officials  to  issue  the  bonds  of  the 
county,  either  to  the  amount  voted  or 
for  any  amount.  It  was  urged  in  that 
case,  as  in  this,  that  even  if  it  should  be 
held  that  the  proposition  submitted  to 
the  electors  was  in  excess  of  the  amount 


§446] 


MUNICIPAL  AID  BONDS  —  COUNTY. 


920 


the  county  defendant  with  which  the  bonded  railroad  was  joined, 
connected  or  interested.  Upon  appeal,  the  Supreme  Court  of 
the  United  States  held  that  the  section  of  the  cliarter  last  referred 
to,  upon  the  authority  of  which  the  mortgage  was  executed,  did 
not  require  that  the  road  to  be  aided  should  be  actually  built 
before  a  county  was  autliorized  to  mortgage  its  lands,  but  contrari- 
wise, that  the  aid  was  intended  to  be  given  before  the  road  was 
built,  and  that  the  counties  giving  the  aid  were  expected  to  take 
the  ordinary  risk  of  the  success  of  the  undertaking  in  which  they 
embarked  their  property.     Further,  they  held  that  where  another 


authorized  to  be  voted,  still,  to  the  ex- 
tent that  the  county  could  have  law- 
fully voted  and   issued  such    bonds, 
they  should  be  treated  as  constituting 
a  contract  between  the  county  and  the 
railroad  company,  and  to  that  extent 
be  upheld.     The  Supreme  Court  of  the 
state  declined  to  accede  to  this  view 
of  the    subject,  and   ruled   that  'the 
proposition  submitted  to  the  electors 
was  an   entirety  and  indivisible.     It 
exceeded    the    statutory    limit,     and 
was,  therefore,  wholly  unauthorized. 
The  election  was  simply  a  void  act, 
conferring  no  authority  whatever  upon 
the    county    commissioners    to    issue 
bonds  of  the  county  in  any  manner 
whatever.'      Several    state    decisions 
have  been  cited  in  support  of  the  bill: 
Johnson  v.  County  of  Stark,  24  111.  75; 
City  of  Quincy  v.  Warfield.  25  111.  317; 
Briscoe  v.  Allison,  43  111.  291;  State  v. 
Allen,  43  111.  4.56;    Stockdale  v.  Way- 
land    School   District,  47  Mich.  226. 
But  they  mostly  relate  to  taxes  im- 
posed   beyond  authority,  and    stand 
upon  a  different  doctrine  from    that 
involved  in  the  present  case.     We  do 
not,  however,  deem  it  necessary  to  re 
view   them,  for  if  they  can  be  con- 
strued to  support  a  bill  like  the  one 
under  consideration,  we  think  thev  are 
not  founded   upon  correct  principles, 
and   are    not  in    harmony    with    the 
decisions  of  this  court."    Then  there 
was  the  following  comment  upon  cer- 
tain of  the  cases  adjudicated  in  this 

117 


court:    "In  Buchanan  v.   Litchfield, 
102  U.   S.  278,  bonds  were  issued  by 
the  city  of  Litchfield,  under  authority 
of  a  statute  of  Illinois  and  an  ordinance 
of  the  city,  for  the  construction  of  a 
system  of  water  works  for  the  use  of 
the  municipality.     Neither  the  statute 
nor  the  ordinance  contained  any  refer- 
ence to  the  provisions  of  the  Constitu- 
tion   prohibiting    any    county,    city, 
township  or  school  district  from  be- 
coming indebted  in  any  manner,  or  for 
any  purpose,  to  an  amount,  including 
exisiting  indebtedness,  in   the  aggre- 
gate exceeding  five  per  cent  of  the  tax- 
able property  therein.     The  ordinance 
of  the  city  made  no  reference   to  or 
mention  of    the  indebtedness  of    the 
city,  although  at  that  time  it  exceeded 
the  constitutional  limit.     A  fjona  fde 
holder  of  the  bonds  brought  suit  upon 
the  unpaid  coupons  thereto  attached, 
and  it  was  held  that  they  were  void 
and  could  not  be  recovered.     In  this 
case  the  city  was  directly  benefited  by 
the  issue  of  the  bonds,  which   were 
negotiated  for    the  sole   purpose    of 
erecting  a   system  of   public   works. 
The  holders  of  the  bonds  thereafter 
sought  relief  by  a  bill  in  equity  against 
the  city  of  Litchfield  to  enforce  the 
payment    of    the    money    loaned,   or 
which  the  city  had  received  upon  the 
bonds  and  used  in  the  construction  of 
its  public  works.      The    question  of 
their  right  to  recover  on  the  equitable 
consideration  came  before  this  court 


930 


MUNICIPAL  AID  BONDS  —  COUNTY. 


[§440 


company  was  subsequently  cliartered  to  build  a  road,  the  course 
of  which  ran  up  to  one  terminus  of  the  road  of  the  company  pre- 
viously chartered,  and  thence  onward  completely  through  another 
county  adjoining  the  county  in  which  the  former  road  lay,  and 
the  railroad  company  first  chartered  undertook  the  construction 
of  the  new  road  from  the  terminus  above  mentioned  onwards, 
completely  through  the  other  and  adjoining  counties,  that  tiic 
authority  to  construct  the  connecting  road  and  the  entermg  mto 
a  contract  for  its  construction  formed  a  "connection"  withm  the 
meaning  of  tliis  provision  of  the  charter.^ 


in  Litchfield  r.  Ballou.  114  U.  S.  190. 
and  it  was  held  that  a  provision  in  a 
State  Constitution  that    a  raiinicipal 
corporation  shall  not  become  indebted 
in  any  manner,  and  for  any  purpose, 
to  an  amount  exceeding  five  percent 
of  its  taxable  i»roperty  therein,  forbids 
implied  as  well  as  express  liability  for 
the  amount    or  amounts  received  on 
bonds   issued    contrary  to  such  pro- 
vision, and    that   a  court   of  equity 
could  not  afford  relief  in  such  a  case 
either  as  an  express  or  implied  obliga- 
tion; that    the  transaction  being   in- 
valid at  law  was  equally  invalid  in 
equity.     This  conclusion  was  reached 
after  a  free  review  of  the  authorities 
on  the  question,  and  the  court  denied 
the  rehef  sought.     In  ^tna  Life  In- 
surance Co.  u.  Middleport,  124  U.  8. 
534,  the  town  of  Middleport  made  an 
appropriation  to  a  railroad  company, 
to  be  raised  by  tax  on  the  property  of 
the  town,  and  bonds  of  the  town  for 
a  sum  large  enough  to  include  interest 
and  discount  for  which  they  could  be 
sold  and  delivered  were  issued  to  the 
railroad  company,  by  whom  they  were 
put  in  circulation.     These  bonds  were 
declared  void,  and  the  insurance  com- 
pany, as  a  purchaser  and  holder  for 
value  and  without  notice,  of  a  por- 
tion thereof,  sought  by  a  proceeding  in 
equity  to  be  subrogated  to  the  rights 
of  the  railroad  company  to  enforce 


payment  of  the  amount  of  the  appro- 
priation voted  by  the  town;  but  it  was 
held  that  the  purchase  of  these  bonds 
by  the  holder  was  no  payment  of  the 
appropriation  voted  by  the  town,  and 
that  the  holder  was    not  entitled    to 
claim  the  benefit  of  such  appropria- 
tion, nor  that  the  advantages  confer- 
red by  the  railroad  company  upon  the 
town    inured    to    the    benefit    of  the 
holder,  or  constituted  the  basis  of  a 
consideration  on  which  it  could  claim 
to  be  paid  the  sum  appropriated  for 
the  railroad    company.     The    propo- 
sition contended  for  in  that  case  by 
the  complainant  was  that  by  its  pur- 
chase of  the  bonds,  which  were  sup- 
poseil  to  represent  the  benefit  confer- 
red upon  the  town  by  the  appropria- 
tion to  the  railroad  company,  it  be- 
came entitled  in  equity  to  claim  the 
payment  of  the  amount   represented 
by  the    bonds    on  the    basis  of    the 
original  consideration.      This  conten- 
tion was  not  sustained,  and  the  com 
plainant    was    denied    the    equitable 
relief  sought.     The  principle  running 
through  these  decisions   controls   the 
case  under  consideration,  and  clearly 
establishes  that  the  complainants  arc 
not  entitled  to  the  relief  they  seek. 
The  fact  that  the  complainants  have 
no  remedy  at  law,  arising  from  the 
invalidity   of  the  bonds,   confers  no 
jurisdiction  upon  a  court  of  equity  to 


»  Kenicott  t>.  Supervisors,  (1872)  16  Wall.  452. 


MUNICIPAL  AID  BONDS  —  COUNTY. 


931 


§447] 

§  447.  Precinct  aid  bonds.—  The  charter  of  a  railroad  com- 
pany of  Kentucky  provided  that  any  county  through  which  it 
might  pass,  or  any  magisterial  precinct  or  precincts  of  such  county, 
might  subscribe  to  its  capital  stock ;  that,  wlien  any  precinct  or 
precincts  made  such  subscription,  bonds  of  the  county  should  be 
issued,  showing  on  their  face  the  precincts  making  the  subscrip- 
tion, which  alone  should  be  bound  to  pay  the  bonds.     A  defined 
portion  of  a  certain  precinct  in  a  county  named  was  excepted 
from  the  provisions  of  the  act.     The  residue  of  that  precinct 
joined  with  another  precinct  of  the  county  in  making  a  subscrip- 
tion, and  the  bonds  issued  by  the  county  for  these  subdivisions 
were  the  ones  involved  in  this  action.     The  United  States  Circuit 
Court  of  Appeals  for  the  sixth  circuit  held  that  there  was  power 
in  the  residue  of  that  precinct  not  excepted  to  join  with  another 
in  making  this  subscription  and  the  joint  bonds  were  properly 
issued  therefor.     The  same  charter  provided  that  such  subscrip- 
tions should  be  paid  by  taxes  levied  in  such  precincts  alone. 
The  appellate  court  held  that  the  assessor  for  the  payment  of  the 
bonds  involved  in  the  suit  might  be  required  to  Hst  separately 
the  property  of  the  district  making  such  subscription,  and  liable 
to  a  tax  therefor  under  the  statutes  of  Kentucky  which  require 
him  to  make  separate  books  for   each  "taxing  district  of  his 
county,   by  wards   or  other  subdivisions,  as  convenience  may 
require."* 

afford  them  relief.  The  established  the  bonds  or  subscribe  for  the  stock 
rule,  though  not  of  universal  applica-  had  been  conferred.  Lurton,  Circuit 
tion,  is  that  equity  follows  the  law,  Judge,  upon  this  objection,  said:  "To 
or,  as  stated  in  Magniac  v.  Thomson,  support  this  proposition  counsel  rely 
15  How.  281,  291,  *  that  whenever  the  upon  a  doctrine  to  that  effect  in  Ken- 
rights  or  the  situation  of  parties  are  tucky  Union  R.  Co.  v.  Bourbon  Co., 
cleariy  defined  and  established  by  law  85  Ky.  Ill;  s.  c,  2  S.  W.  Rep.  687. 
equity  has  no  power  to  change  or  un-  The  same  principle  was  laid  down  by 
settle  those  rights  or  that  situation.  Justice  Miller  in  Citizens'  Savings  & 
but  in  all  such  instances  the  maxim  Loan  Assn.  v.  City  of  Topeka,  20  Wall. 
equitiis  sequitur  legem  is  strictly  660,  where  it  was  said  that '  the  validity 
applicable.' "  of  a  contract  which  can  only  be  ful- 

•Breckenridge  County  «?.McCracken,  filled  by  a  resort  to  taxation  depends 
(1894)  61  Fed.  Rep,  191.  There  was  on  the  power  to  levy  the  tax  for  that 
an  objection  on  the  part  of  the  county  purpose.'  The  language  was  applied 
that  no  power  was  conferred  to  assess  in  a  case  where  the  validity  of  bonds 
a  tax  upon  either  the  interest  or  prin-  issued  by  the  city  of  Topeka  to  aid  a 
cipal  of  the  bonds  to  be  issued,  and  private  manufacturing  establishment 
that,  therefore,  no  authority  to  issue  was  in  question.    The  court  said,  as 


9S2 


MUNICIPAL  AID  BONDS  —  COUNTY. 


[§448 


ij 


§  448.  The  denomination  of  bonds  changed  from  those 
named  in  the  proposal  under  Alabama  statutes  —  their 
validity  not  affected  thereby.— The  bonds  from  wliich  the  cou- 
pons upon  which  these  actions  were  brought  were  detached,  were 
issued  in  Alabama  in  sums  of  a  different  denomination  from  those 
named  in  the  proposal  of  a  railroad  company  receiving  them, 
made  to  the  county  authorities  under  the  statutes  of  that  state 
relating  to  aid  bonds.  The  validity  of  the  bonds  was  questioned 
before  the  United  States  Supreme  Court  on  account  of  this  vari- 
ance. Section  11  of  the  act  under  which  the  bonds  were  issued 
provided  *'  that  the  bonds  shall  be  of  such  denomination  as  the 
Court  of  County  Commissioners  and  said  railroad  company  may 
agree  upon,  but  not  to  be  for  less  than  one  hundred  dollars  nor 
more  tlian  one  thousand  dollars."  In  the  proposition  of  the  com- 
pany to  Greene  county  it  was  suggested  that  the  bonds  to  be 
issued  in  payment  of  the  subscription  should  be  "  in  the  sum  of 


§449] 


MUNICIPAL  AID  BONDS  —  COUNTY. 


933 


such  bonds  could  only  be  paid  by  taxa- 
tion tbey  were  void  unless  taxes  might 
be  constitutionally  levied  for  the  pur- 
l)Ose  of  aiding  a  purely  private  enter- 
prise.    Here  we  have  no  such  question, 
for,  under  the  Constitution  of  Ken- 
tucky, taxes  may  be  levied  to  aid  a 
railway  line,  it  being  deemed  a  public 
enterprise.     There  can  be  in  this  case 
no  serious  doubt  but  that  the  power  to 
assess  a  special  tax  upon  the  prop- 
erty of  the  affected  district  has  been 
conferred   on    the    County    Court  of 
Breckenridge  county  for  the  purpose 
of  paying  off  the  interest  and  princi- 
pal of  these  bonds.     Section  14  of  the 
charter  provides  that  *  an  annual  tax 
sufficient  to  pay  the  semi-annual  in- 
stallments of  interest  on  such  bonds, 
and  the  principal  when  it  shall  become 
due,  shall  be  collected  and  paid  out  by 
the  officers  of  such  counties,  cities  or 
towns,  as  provided  in  the  case  of  other 
county,  city  or  town  taxes.'    The  crit- 
icisms on  this  provision  are  (1)  that  no 
means  are  provided,  and  none  existed 
before,  for  ascertaining  the  amount  of 
taxable  property  in  the  unorganized 
district;  (2)  that  in  attempting  to  con- 


fer the  taxing  power  it  does  so  by 
referring  to  a  criterion  which  has  no 
existence  in  law.     We  think  these  ob- 
jections quite  untenable.     The  power 
to  assess,  levy  and  collect  a  tax  would 
be  necessarily  implied  from  the  power 
to  create  the  debt,  there  being  nothing 
in  the  act  indicating  an  expectation 
that  payment  should  be  made  in  any 
other  way,  and  no  constitutional  ob- 
stacle, either  in  the  character  of  the 
debt  or  to  tbe  granting  of  such  power 
by   the  legislature,   being  suggested. 
Citizens'  Savings  &  Loan  Assn.  v.  City 
of  Topeka,  20  Wall.  656;  llalls  Co.  t). 
U.  S.,  105  U.  S.  735;  Quincy  v.  Jack- 
son, 118  U.  S.  335;  s  c,   5  Sup.   Ct. 
Rep.  544.     The  purpose  that  this  debt 
shall  be  paid  by  taxation  is  made  clear. 
That  no  general  autliority  exists  to  levy 
an  ad  valorem  tax  for  general  county 
purposes  is  not  iniport.int.    The  power 
to  assess  and  levy  a  special  ad  mlorem 
tax  is  by  implication  cleariy  conferred 
in  section  14,  to  say  nothing  of  the  im- 
plication which  results  from  the  grant 
of  power  to  create  the  debt  and  then 
the  bonds." 


one  and  five  hundred  thousand  dollars  each."  In  the  records  of 
the  court  ordering  the  election  the  proposition,  as  recorded,  was 
that  the  bonds  be  "  in  the  sum  of  one  thousand  five  hundred  dol- 
lars each."  The  final  action  of  the  court  was  to  issue  bonds  of 
$600.  In  the  Pickens  County  case  the  proposition  was  that 
the  bonds  be  in  the  sum  of  $1,000  each,  but  after  the  elec- 
tion, with  the  consent  of  the  company,  it  was  ordered  by  the 
court  that  one-half  the  amount  should  be  in  the  sum  of  $250, 
and  the  other  half  $1,000,  and  the  bonds  actually  put  out  were 
of  these  denominations.  The  court  sustained  the  validity  of  the 
bonds  over  this  objection.* 

§  449.  What  amounts  to  a  gift  of  bonds  in  aid  not  author- 
ized.— A  statute  of  Illinois  incorporating  a  railroad  company 
empowered  municipal  corporations,  when  authorized  by  popular 
vote,  to  subscribe  for  stock  in  the  company  and  issue  bonds  in 
payment  therefor.  A  county  agreed,  by  popular  vote,  to  sub- 
scribe for  $100,000  of  stock  and  issue  bonds  therefor,  but  before 
issuance  of  the  bonds  the  county  authorities  agreed  to  sell  the 
stock  back  to  the  company  in  exchange  for  $5,000  in  bonds.  In 
fact,  only  $95,000  of  bonds  were  issued  and  delivered  to  the  com- 
pany and  no  stock  received  by  tlie  county.  The  United  States 
Circuit  Court  of  Appeals  for  the  severth  circuit  held  that  the 
bonds  were  void,  as  the  transaction,  being  a  gift  and  not  a  sub- 
scription, was  not  authorized  by  the  statute  nor  assented  to  by 
the  popular  vote.^ 


»  County  of  Greene  v.  Daniel,  (1880) 
102  U.  8.  187;  County  of  Pickens  v. 
Daniel,  (1880)  102  U.  S.  187.  Chief 
Justice  Waite,  for  the  court,  said: 
"As  to  the  Greene  County  case,  it  is 
apparent  that  there  was  a  clerical  mis- 
take, either  in  the  proposal  or  the 
record,  as  to  the  description  of  the 
bonds  to  be  issued,  and  it  is  easy  to 
see  that  the  intention  was  to  have 
bonds  of  a  thousand  dollars  and  five 
hundred  dollars  each,  but  in  the  Pick- 
ens County  case  the  proposition  was 
distinctly  that  they  should  be  for  one 
thousand  dollars.  This,  however,  we 
consider  unimportant,  for  section  11 
expressly  provides  for  bonds  of  such 
denomination  as  the  Commissioners' 


Court  and  the  company  should  agree 
on.  From  this  it  is  clear  that  the 
parties  were  not  bound  in  this  particu- 
lar by  the  sums  specified  in  the  pro- 
posal. They  were  limited  by  the 
proposition  as  accepted  in  respect  to 
the  total  amount  of  the  issue,  but  not 
the  denomination.  The  bonds  as  is- 
sued were  of  such  denominations  as 
the  law  allowed  the  court  and  the 
company  to  agree  on,  and  that,  in  our 
opinion,  is  enough." 

«  Post  v.  Pulaski  County,  (1892)  49 
Fed.  Rep.  628.  Blodgett,  D.  J., 
said:  "  No  special  or  general  statute 
of  the  stat6  then  in  force  authorized 
the  county  to  make  a  donation  of  its 
money  or  bonds  in  aid  of  this  railroad 


934 


MUNICIPAL  AID  BONDS  —  COUNTY. 


[§450 


§  450.  Consolidation  of  railways  —  effect  as  to  county  aid. 
—  In  an  action  by  a  railroad  company  against  the  county  com- 
missioners of  an  Indiana  county,  praying  that  there  be  awarded 
to  them,  by  way  of  subrogation,  a  sum  of  money  which  had  been, 
as  alleged,  awarded  in  aid  of  certain  railroad  companies,  these 
rules  were  declared  :  A  general  statute  authorizing  the  consolida- 
tion of  railroad  companies  must-be  considered  a  silent  factor  in  a 
subsequent  contract  of  subscription  made  by  a  township  to  the 
stock  of  a  milroad  company,  and  a  consolidation  of  such  company 
with  another  company  will  not  release  the  township,  but  will 
transfer  its  obligation  to  the  new  company.  In  Indiana  a  mere 
vote  by  a  township  of  a  given  sum  in  aid  of  a  railroad  gives  the 
company  no  legal  right  to  or  interest  in  the  tax  until  the  same 
has  been  levied  and  collected,  and  a  valid  contract  of  subscription 
made  in  behalf  of  the  township.     And  if  it  be  conceded  that  such 


company.     That  there  is  an  essential 
difference  between  a    proposition  to 
subscribe  for  stock  in  a  railroad  com- 
pany, and  thereby  become  a  stock- 
holder, with  a  right  to  share  in  the 
profits  of  its  business  and  have  a  voice 
in  the  management  and  policy  of  the 
company,  and  a  proposition  to  make  a 
donation  of  bonds   or  money  to  the 
railroad  company  is  too  plain  to  re- 
quire argument  or  the  citation  of  au- 
thority.    The    order  of    the   County 
Court,  making  the  subscription  to  the 
stock  and  directing  the  issue  of  the 
bonds,  and  which  must  be  read  into 
each  bond  and  coupon,  shows  in  un- 
mistakable   language,    so    plain    that 
it  requires  no  technical  skill  to  con- 
strutj  or  apply  it,  that  the  bonds  were 
issued  as  a  donation  to  the  railroad 
company  and  not  in  payment  of  a  sub- 
scription to  its  stock.     The  case  of 
Choisser  v.  People,  140  111.  21;  s.  c,  29 
N.  E.  Rep.  546,  lately  decided  by  the 
Supreme  Court  of  Illinois,    *    *    *   is 
almost  identical  in  its  facts,  as  far  as  the 
questions  now  under  consideration  are 
concerned,  with  this  case.     It  involved 
an  issue  of  bonds  by  another  county 
(Saline)  in  aid  of  the  construction  of 
the  same  railroad,  and  in  pursuance  of 


the  same  section  of  the  charter  of  the 
railroad  company.     An  agreement  be- 
tween that  county   and   the  railroad 
company  was  made  after  the  vote  au- 
thorizing the  subscription,  in  substan- 
tially the  same  terms  as  was  made  in 
the    case    now    under    consideration. 
And  in  that  case  the  court,  speaking 
by  Mr.  Justice  Bailey,  said,  in  regard 
to  this  contract:     *  That  in  its  consum- 
mation,  if  not  in  its  inception,    the 
transaction  was  a  donation,  pure  and 
simple,  is  too  plain  to  admit  of  serious 
controversy.     In  the  beginning,   and 
until  the  election  was  had,  the  guise 
of  a  subscription  was  resorted  to  so  as 
t3  bring  the  municipal  aid  sought  to 
be  obtained  apparently  at  least  within 
the  power  conferred  upon  the  county 
by  the  tenth  section  of  the  railroad 
company's  charter.    But,  when  viewed 
in  the  light  of  the  interpretation  put 
tipon  the  transaction  by  the  subsequent 
acts  of  the  parties,  it  appears  too  trans- 
parent to  mislead.     The   bonds  being 
essentially    a    donation,    it    was    not 
within  the  power  of  the  County  Court 
to  issue  them,  and  they  must,  there- 
fore, be  held  to  be  tUtra   vires  and 
void.' " 


§  450] 


MUNICIPAL  AH)  BONDS  —  COUNTY. 


035 


a  vote  gives  a  contingent  interest  which  will  pass  to  a  new  com- 
pany by  consolidation,  such  new  company  cannot  assert  any  claim 
to  the  fund  when  it  has  not  tendered  the  stock  therefor,  and  has 
no  stock  which  it  may  legally  tender.*  A  township  of  Missouri 
having  subscribed  in  aid  of  a  railroad  company,  a  Missouri  corpo- 
ration, under  the  laws  of  that  state,  by  a  vote,  which  railroad 
company,  under  a  statute  authorizing  it,  was  afterwards  consoli- 
dated with  a  railroad  company  which  was  an  Iowa  corporation, 
and  the  bonds  were  subsequently  issued  to  the  latter,  upon  the 
question  of  the  effect  of  the  consolidation  and  the  rights  of  the 
parties  involved,  the  Supreme  Court  of  the  United  States  sus- 
tained the  validity  of  the  county  bonds  issued  on  behalf  of  the 
township.  They  held  that  the  consolidation  was  authorized,  and 
the  right  to  receive  the  subscription  passed  to  the  consolidated 
company ;  further,  that  the  vote  on  the  subject  of  the  subscrip- 
tion contemplating  the  construction  of  the  railroad  which  the  con- 
solidated company  built,  there  w^as  no  diversion  from  the  purpose 
contemplated  by  the  vote,  in  the  fact  that  the  stock  was  sub- 
scribed and  the  bonds  issued  to  the  consolidated  company.*  In  a 
case  where  the  Supreme  Court  of  the  United  States  held  that  a 
subscription  of  stock  and  issue  of  county  bonds,  authorized  upon 
a  vote  of  the  people  of  the  county  to  the  original  corporation, 
could  not  be  legally  made  to  one  of  the  three  new  corporations 
into  which,  by  an  amendatory  act,  the  legislature  of  Illinois  had 
divided  the  original  corporatioii,  it  was  contended  that  the  plain- 


*  Pope  f>.  Board  of  Comrs.  of  Lake 
County,  (1892)  51  Fed.  Rep.  769,  in 
which  the  court  overruled  the  de- 
murrer to  the  intervening  petition  of 
the  townships  and  a  taxpayer  assert- 
ing their  rights  to  the  fund.  See 
Board  Comrs.  Hamilton  Co.  v.  State, 
115  Ind.  64;  8.  c,  4  N.  E.  Rep.  589, 
and  17  N.  E.  Rep.  855;  Centre  Town- 
ship V.  Board,  etc.,  70  Ind.  562,  as  to 
the  rights  of  the  township  where  the 
right  of  the  railroad  to  aid  has  never 
existed,  or  has  ceased  to  exist. 

'  Livingston  County  v.  First  Na- 
tional Bank  of  Portsmouth,  (1888)  128 
V.  S.  102.  Mr.  Justice  Blatciiford, 
in  the  opinion  rendered  in  this  case, 
reviews  at  length  the  following  cases 


involving  consolidation  of  the  compa- 
nies to  which  aid  is  voted  with  other 
companies,  and  under  other  names: 
County  of  Scotland  v.  Thomas,  94  U. 
S.  682:  Town  of  East  Lincoln  v.  Da- 
venport, 94  U.  S.  801;  Wilson  v.  Sala- 
manca, 99  U.  S.  499;  Menasha  v.  Haz- 
ard, 102  U.  S.  81;  Harter  v.  Kernochan, 
103  U.  S.  562;  New  Buffalo  v.  Iron 
Company,  105  U.  S.  73;  Nugent  v.  The 
Supervisors,  19  Wall.  241;  Empire  t. 
Darlington,  101  U.  8.  87;  County  of 
Tipton  V.  Locomotive  Works,  103  U. 
S.  523.  He  commented,  also,  upon 
County  of  Bates  v.  Winters,  97  U.  S. 
83;  Bates  County  v.  Winters,  112  U. 
S.  325;  Harshman  v.  Bates  County,  92 
U.  S.  569. 


936 


MUNICIPAL  AH)  BONDS — COUNTY. 


[§  450 


§451] 


MUNICIPAL  AID  BONDS  —  COUNTY. 


937 


tifE  was  an  innocent  purchaser  of  the  bonds  without  notice  of  their 
invalidity.     Mr.  Justice  Field,  speaking  for  the  court,  said  :  "  If 
such  were  the  fact  we  do  not  perceive  how  it  could  affect  the 
liability  of  tlie  [county  issuing  the  bonds].     This  is  not  a  case 
where  the  party  executing  the  instruments  possessed  a  general 
capacity  to  contract,  and  where  tlie  instruments  might,  for  such 
reason,  be  taken  without  special  inquiry  into  their  validity.     It 
is  a  case  where  the  power  to  contract  never  existed  —  where  the 
instruments  might,  with  equal  authority,  have  been  issued  by  any 
other  citizen  of  the  county.     It  is  a  case,  too,  where  the  holder 
was  bound  to  look  to  the  action  of  the  officers  of  the  county  and 
ascertain  whether  the  law  had  been  so  far  followed  by  them  as  to 
justify  the  issue  of  the  bonds.     The  authority  to  contract  must 
exist  before  any  protection,  as  an  innocent  purchaser,  can  bo 
claimed    by   the    holder.     This   is   the    law    even    as    respects 
commercial  paper,  alleged   to   have  been  issued  under  a  dele- 
gated authority,  and  is  stated  in  the  case  of  Floyd  Acceptances, 
1   Wall.  676.  "     In  speaking  of  notes  and  bills  issued  or  accepted 
by  an  agent,  acting  under  a  general  or  special  power,  the  court 
says :  "  In  each  case  the  person  dealing  with  the  agent,  knowing 
that  he  acts  only  by  virtue  of  a  delegated  power,  must,  at  his 
peril,  see  that  the  paper  on  which  he  relies  comes  within  the 
power  under  which  the  agent  acts.     And  this  applies  to  every 
person  who  takes   the  paper  afterwards ;  for  it  is  to  be  kept  in 
mind  that  the  protection  which  connnercial  usage  throws  around 
negotiable  paper  cannot  be  used  to  establish  the  authority  by 
which  it  was  originally  issued."^     A  county  of  Tennessee,  law- 
fully authorized  to  issue  its  bonds  in  payment  of  a  subscription 
to  a  railroad  corporation  of  that  state,  through  its  County  Court 
subscribed  to  the  stock  and  issued  its  bonds  and  delivered  them 
to  the  corporation.     Between  the  Tennessee  railroad  company 
and  another,  a  Kentucky  corporation,  a  consolidation  was  about 
to  take  place.     Before  this  step  was  taken  the  Kentucky  com- 
pany, through  its  agent,  submitted  the  following  proposition  to 
the  County  Court,  which   represented   the  county  issuing   the 
bonds,  to  wit :  "  That  this  company  will  grant  an  extension  of 
time  for  the  payment  of  said  bonds  and  interest,  so  that  the  said 
payments  shall  be  extended  to  the  period  of  ten  years  from  the 
date  of  the  bonds,  in  ten  aimual  installments,  instead  of  the  time 

»  Marsh  r.  Fulton  County,  (1870)  10  Wall.  676.  683. 


they  now  have  to  run ;  this  extension  to  apply  to  all  bonds  which 
this  company  owns  or  controls.  But  this  proposition  should  be 
made  a  condition  that  the  County  Court  of  [the  county  issuing 
the  bonds]  shall  immediately  levy  a  tax  and  proceed  to  its  col- 
lection, for  the  amount  now  due  under  this  offer,  and  that  they 
shall  each  year  levy,  collect  and  promptly  pay  over  the  amount 
to  fall  due  each  year,  as  the  same  falls  due,  during  the  whole 
period  of  this  proposed  extension ;  and  in  case  of  failure  to  levy, 
collect,  or  promptly  pay  over  said  annual  amount,  then  the 
remaining  bonds  to  become  due,  according  to  their  original 
terms.-'  The  County  Court,  it  appeared,  accepted  this  proposi- 
tion and  the  two  roads  were  consolidated  under  another  name,  and 
under  the  control  of  the  Kentucky  corporation  the  road  was  con- 
structed through  the  Tennessee  county  and  to  its  iinal  terminal 
point  in  that  state.  These  bonds  were  used  by  the  consolidated 
company  for  the  purposes  of  this  construction  and  the  equipment 
of  the  road,  and  in  due  course  of  trade,  for  value,  and  in  good 
faith,  passed  to  the  holder  who  brought  an  action  upon  them, 
the  county  claiming  as  a  defense  that  there  was  fraud  and  col- 
lusion in  the  procuration  of  and  issue  of  the  bonds  originally  to 
the  Tennessee  company  and  that  they  were  void  for  that  reason. 
The  United  States  Supreme  Court  held  that  there  was  no  error 
in  the  instructions  of  the  Circuit  Court  to  the  jury  on  the  trial 
of  the  case,  and  that  the  county  was  estopped  from  denying  the 
validity  of  the  bonds  in  the  hands  of  a  honajide  holder,  to  whom 
they  were  transferred  for  value  by  the  consolidated  company.* 
The  line  of  a  consolidated  railroad  corporation,  when  completed 
according  to  its  charter,  must  form  a  continuous  track  with  those 
of  the  other  constituents  of  the  consolidated  corporation,  so  as  to 
admit  of  the  passage  of  trains  without  break  or  interruption 
before  the  power  of  one  of  the  constituent  corporations  to 
acquire  land  in  aid  of  the  construction  of  its  road  will  pass  to  the 
consolidated  corporation.' 

§  451.  Constitutionality  of  a  Tennessee  aid  statute. — 
The  general  statute  of  Tennessee  required  the  County  Courts, 
when  thereunto  authorized  by  a  popular  vote  at  an  election  held 
for  the  purpose,  to  subscribe  for  stock  in  a  railroad  company.     A 

'  County  of   Tipton  r.   Locomotive  Ala.  377;  b.  c,  7  So.  Rep.  382,  foUow- 

Works,  (1880)  103  U.  S.  523.  ing  Railway  Co.  v.  Wilkes,  (Ala.)  6  So. 

«  Georgia  Pac.  Ry.  Co.  v,  Gaines,  88  Rep.  34. 
118 


038 


MUNICIPAL  AID  BONDS  —  COUNTY. 


[§452 


fe^ 


special  statute  was  subsequently  passed,  which,  without  requirin 
the  submission  of  the  question  of  subscription  to  a  popular  vote, 
conferred  power  on  the  County  Courts  of  the  counties  on  the  line 
of  a  particular  railroad  to  make,  and  on  the  company  to  receive,  a 
subscription  of  its  stock.  In  an  action  upon  bonds  issued  under 
this  last  act,  it  was  contended  that  the  last-mentioned  statute  was 
in  violation  of  the  Constitution  of  the  state  of  Tennessee.  The 
United  States  Supreme  Court  sustained  the  constitutionahty  of 
the  statute.* 

§  452.  Ratification  of  bonds.— There  was  in  a  case  before 
the  United  States  Supreme  Court  also  this  contention,  that  if  the 
bonds  in  suit  were  issued  without  authority  their  issue  was  subse 
quently  ratified,  and  various  acts  of  the  supervisors  of  the  county 
were  cited  in  support  of  the  supposed  ratification.     To  this  it 
was  said  by  the  court :  "  These  acts  fall  very  far  short  of  show- 
ing anv  attempted  ratification  even  by  the  supervisors.     But  the 
answer  to  them  all  is  that  the  power  of  ratification  did  not  lie 
with  the  supervisors.     A  ratification  is,  in  its  effect  upon  the  act 
of  an  a^^ent,  equivalent  to  the  possession  by  him  of  a  previous 
authorit°y.     It  operates  upon  the  act  ratified  in  the  same  manner 
as  though  the  authority  of  the  agent  to  do  the  act  existed  origin- 
ally.    It  follows  that  a  ratification  can  only  be  made  when  the 
party  ratifying  possesses  the  power  to  perform  the  act  ratified. 
The  supervisors  possessed  no  authority  to  make  the  subscription 
or  issue  the  bonds  in  the  first  instance  without  previous  sanction 


» County  of  Tipton  v.   Locomotive 
Works.   (1880)  103  U.   S.   523.     The 
court   considered    the    effect    of    the 
rulings    in    all  the  cases  before  the 
Tennessee  court,  with  an  elaborate  dis- 
cussion of  the  principal  cases,  and  Mr. 
Justice  Harlan,    speaking    for    the 
court,  said:  "Looking,  then,  as  well 
at  the  language  of  the   Constitution 
[of  Tennessee,  1834]  as  at  the  course  of 
decision  in  the  Supreme  Court  of  Ten- 
nessee up  to  the  time  the  acts  of  1867 
and  1869  were  passed,  and  giving  full 
effect  to  its  latest  utterance,  to  which 
our  attention  has  been  called,  and  re- 
membering, also,  that  the  power  given 
to  a  municipal  corporation  to  subscribe 


to  the  stock  of  a  railroad  company  may 
be,  also,  a  right  and  privilege  of  that 
company    (County     of     Scotland    r. 
Thomas,   94   U.   S.    682;    Wilson  r. 
Salamanca,   99  U.   8.  499;  Empire  r. 
Darlington,  101  U.  8.  87,  91),  our  con- 
clusion is  that  those  acts  were  not  re- 
pugnant to  the   Constitution    of  the 
state,  by  reason  of  the  authority  they 
confer  on  a  limited  number  of  counties 
to  make,  and  on  a  particular  railroad 
corporation  to  receive,  a  subscription 
of  stock,  nor  because  they  dispensed 
with  the  previous  assent  of  the  people 
of  such  counties  expressed  at  a  popu- 
lar election." 


H53] 


MUNICIPAL  AID  BONDS  —  COUNTY. 


y3i> 


of  the  quahfied  voters  of  the  county.     The  supervisors  in  that 
particular  were  the  mere  agents  of  the  county.     They  could  not, 
therefore,  ratify  a  subscription  without  a  vote  of  the  county, 
because  they  could  not  make  a  subscription  in  the  first  instance 
without  such  authorization.     It  would  be  absurd  to  say  that  they 
could,  without  such  vote,  by  simple  expressions  of  approval  or  in 
some  other  indirect  way  give  validity  to  acts  when  they  were 
directly  in  terms  prohibited  by  statute  from  doing  those  acts  until 
after  such  vote  was  had.     That  would  be  equivalent  to  saying 
that  an  agent,  not  having  tlie  power  to  do  a  particular  act  for  his 
principal,  could  give  validity  to  such  act  by  its  indirect  recogni- 
tion." ^     The  court  took  occasion,  however,  to  say :  "  We  do  not 
mean  to  intimate  that  liabilities  may  not  be  incurred  by  counties 
independent  of  the  statute.     Undoubtedly  they  may  be.     The 
obligation  to  do  justice  rests  upon  all  persons,  natural  and  arti- 
ficial, and  if  a  county  obtains  the  money  or  property  of  others 
without  authority,  the  law,  independent  of  any  statute,  will  com- 
pel restitution  or  compensation.     But  this  is  a  very  different 
thing  from  enforcing  an  obligation  attempted  to  be  created  in  one 
way  when  the  statute  declares  that  it  shall  be  created  in  another 
and  different  way."  ^ 

§  ^SZ'  Rules  as  to  statutes  legalizing  a  prior  issue  of 
bonds.—  Where  an  election  authorizing  aid  bonds  was  absolutely 
void,  because  called  and  ordered  by  persons  not  authorized,  the 
legislature  of  Illinois  was  held  to  be  powerless  under  the  State 
•  Constitution  to  validate  bonds  issued  under  the  vote  by  subse- 
quent enactment  and  require  the  issuing  of  the  bonds  peremp- 
torily.^ The  United  States  Supreme  Court  has  sustained  the 
validity  of  certain  statutes  legalizing  municipal  subscriptions 
where  the  subscription  to  stock  and  issue  of  bonds  in  aid  of  rail- 
roads have  been  effected  by  not  strictly  complying  with  the  laws 
in  the  matter  of  election  of  the  voters  upon  the  subject  or  other- 
wise, as  only  giving  effect  to  the  wishes  of  the  corporate  authori- 
ties.*    A  statute  subsequently  passed  by  the  IlUnois  legislature 

»  Citing  McCracken   «?.  City  of  San  *  Bolles  t\  Brimfield,  (1887)  120  U.  8. 

Francisco,  16  Cal.  624.  759;  Anderson  v.  Santa  Anna,  116  U. 

« Marsh  v.  Fulton  County,  (1870)  10  S.   356;  Grenada  County  Supervisors 

Wall.  676,  683,  684.  'O-  Brogden,  112  U.  S.  261.     Municipal 

«  Gaddis  v,  Richland  County,  92  111.  aid  bonds  held  not  validated  by  an  act 

jjQ^  of  the  legislature  ratifying  them  in 


■J 


040 


MUNICIPAL  AID  BONDS  —  COUNTY. 


[§  453 


amended  tlie  charter  of  this  railroad  coinpany  and  attempted  in 
such  amendments  to  validate  all  contracts  between  the  company 
and  municipalities,  whereby  the  nnmicipalities  agreed  to  sell  to 
the  railroad  company  at  a  nominal  price  the  stock  for  which  they 
had  subscribed.  The  curative  effect  of  this  statute  was  urged 
upon  the  United  States  Circuit  Court  of  Appeals  for  the  seventh 
circuit,  but  the  court  held  the  statute  had  no  effect  where  the  con- 
tract was  made  by  the  municipal  authorities  without  being  admit- 
ted to  popular  vote,  as  required  by  law,  the  legislature  not  having 
the  power  to  impose  an  obligation  upon  a  municipality  without 
its  consent  legally  expressed.* 


Williams «J.  People,  133  111.  574:  s.  c,  24 
N.  E.  Rep.  647;  disapproviii|j;  Jones- 
boro  City  v.  Ilailroad  Co.,  110  U.  8. 
192;  8.  c,  4  Sup.  Ct.  Rep.  67.  The 
effect  of  a  curative  act  of  the  legisla- 
ture. Atchison.  Texas  &  Santa  Fe  R. 
R.  Co.  ».  Jefferson  County,  17  Kans. 
29. 

» Post  r.  Pulaski  County,  (1892)  49 
Fed.  Rep.  628.  Blodgett,  D.  J., 
said:  "In  reference  to  the  validity  of 
the  statute,  we  cannot  express  our  own 
views  more  clearly  or  forcibly  than  by 
quoting  from  the  opinion  of  [Mr.  Jus- 
tice Bailey]  in  the  case  [of  Choisser 
f).  People,  140  111.  21;  s.  c.  29  N.  E. 
Rep.  546]  in  which  he  sjiys:  '  The  only 
proposition  which  had  been  submit- 
ted to  the  vote  of  the  people  of  the 
county,  and  the  only  proposition 
which,  under  existing  laws,  the  County 
Court  had  power  to  submit  to  them, 
was  that  of  making  a  subscription  to 
the  capital  stock  of  the  railroad  com- 
pany, the  stock  to  be  received  as  the 
consideration,  and,  presumably,  the 
equivalent,  for  the  county  bonds  to  be 
issued  in  pursuance  of  the  subscrip- 
tion. The  proposition  to  donate  ninety- 
five  thousand  dollars  in  county  bonds 
to  said  railroad  company  was  never 
submitted  to  the  people  of  said  county, 
was  never  voted  upon  by  them,  and 
could  not,  under  the  existing  laws, 
bave  been  submitted  to  such  vote. 
The  subsequent  contract  entered  into 


by  the  County  Court,  to  sell  back  the 
stock  subscribed  for,  for  a  nominal 
consideration,  so  as  to  effectually 
terminate  the  proposition  to  subscribe 
one  hundred  thousand  dollars  to  the 
capital  stock  of  said  company,  to 
which  the  people  of  the  county  had 
given  their  assent,  into  a  proposition 
to  donate  to  the  railroad  company 
ninety-five  thousand  dollars  of  county 
bonds,  to  which  the  people  of  the 
county  had  not,  and  could  not  have, 
given  their  assent,  was  clearly  void,  so 
as  to  confer  no  rights  and  impose  no 
obligations.  *  *  *  In  the  present 
case  the  amendatory  act  of  1869,  if 
effectual  at  all,  can  be  held  to  operate 
only  by  way  of  validating  a  contract 
for  a  donation  which,  by  reason  of 
want  of  power,  as  well  as  the  absence 
of  either  an  intention  or  opportunity 
on  the  part  of  the  legal  voters  of  the 
county  to  give  their  assent  to  it,  was 
tiltra  vires  and  void.  Declaring  such 
void  contract  to  be  valid  and  binding, 
and  providmg  that  it  should  be  carried 
into  effect  in  good  faith,  as  said  amend- 
atory act  undertook  to  do,  was  an  at- 
tempt to  impose  upon  the  county  an 
obligation  in  aid  of  the  railroad  with- 
out its  own  consent,  expressed  in  any 
legal  form."  Where  a  subsequent  act 
legalizing  the  proceedings  of  a  county 
in  subscribing  to,  and  paying  for, 
stock  of  a  railroad  company  was  held 
to  have  cured  all  defects,  see  Hall  v. 


§454] 


MUNICIPAL  AID  BONDS  —  COUNTY. 


941 


§  454.  Recitals  on  face  of  aid  bonds  —  their  effect. — 
A  recital  in  county  bonds,  that  they  are  issued  "  pursuant 
to  an  order  of  the  County  Court,"  puts  all  persons  dealing 
in  the  bonds  upon  inquiry  as  to  the  terms  of  the  order.* 
Where  there  was  a  recital  in  a  municipal  bond  that  it  was 
issued  in  payment  of  a  subscription  made  in  pursuance  of  a 
vote  of  the  people  at  an  election  specified  in  the  recital,  and 
there  was  no  law  authorizing  such  election  and  subscription, 
the  holder  of  the  bond  was  held  to  have  notice  by  the  recital 
of  the  illegality  of  the  subscription.*  Should  bonds  purport- 
ing to  have  been  issued  by  a  county  contain  no  recitals  of  an 
election,  or  of  proceedings  and  orders  of  the  county  authorities, 
being  mere  promises  to  pay,  purchasers  or  holders  of  the  bonds 
will  be  chargeable  with  notice  of  whatever  appears  upon  the  face 
of  the  county  records.^  A  purchaser  of  county  bonds  issued  in 
aid  of  a  railroad  company  is  not  bound  to  go  behind  the  records, 
and  where  such  records  show  enough  upon  the  matter  of  authority 
to  issue  the  bonds  to  justify  him  in  taking  them,  he  cannot  be 
required  to  go  behind  them  and  show  that  the  record  is  true. 
lie  may  rely  upon  the  records  for  the  facts  stated  in  relation  to 
he  vote  of  the  county  authorizing  the  subscription  to  the  stock. 
And  the  county  cannot  afterwards  question  the  regularity  of  its 
own  proceedings.^     Under  its  general  powers  to  lend  its  credit  in 


Baker,  74  Wis.  118;  s.  c,  42  N.  W. 
Rep.  104. 

'  Post  V.  Pulaski  County,  (1892)  49 
Fed.  Rep.  628. 

'  Barnes  v.  Town  of  Lacon,  84  111. 
461. 

'  Lewis  V.  Bourbon  County,  12  Kans. 
186. 

*  Clapp  V.  County  of  Cedar,  5  Iowa, 
15;  Meyer  v.  Muscatine,  1  Wall.  384; 
Lynde  v.  Winnebago  County,  16  Wall. 
6.  See  Livingston  County  v.  First 
National  Bank  of  Portsmouth,  (1888) 
128  U.  S.  102,  as  to  what  recitals  and 
under  what  statement  of  facts,  a 
county  would  be  estopped  from  urging 
as  against  a  bona  fide  holder  of  the 
bonds  of  the  county  issued  in  aid  of  a 
railroad  company,  the  existence  of  any 
mere  irregularity  in  the  making  of 
the  subscription  or  the  issuing  of  the 


bonds.  In  Kimball  v.  Town  of  Lake- 
land, (1890)  41  Fed.  Rep.  289,  it  ap- 
peared that  the  Grenernl  Statutes  of 
Minnesota  authorized  municipal  cor- 
porations to  issue  railroad  aid  bonds, 
provided  an  agreement  is  reached  be- 
tween the  railroad  company  and  the 
municipality  in  either  one  of  two 
modes.  In  1879  this  act  was  amended 
so  as  to  allow  but  one  mode  of  making 
such  agreement.  In  1880  the  bonds  of 
this  town  were  issued  in  pursuance  of 
the  act,  upon  an  agreement  entered 
into  in  the  mode  which  had  been  re- 
pealed. The  bonds  recited  that  they 
were  issued  under  the  act,  and  that  all 
the  conditions  of  the  act  had  been 
complied  with.  The  federal  court 
held  that  the  recital  in  the  bonds  es- 
topped the  town  from  denj'ing  the 
validity  of  the  bonds  as  against  a  bona 


U2 


MUNICIPAL  AID  BONDS  —  COUNTY. 


[§454 


aid  of  railroads,  a  county  in  Kansas  issued  bonds  in  exchange  for 
the  stock  of  a  railroad  company  on  condition  that  the  company 
build  a  railroad  of  standard  gauge  through  the  county.     In  issu- 
ing the  bonds  all  the  formalities  required  by  the  law,  on  the  part 
of  the  county,  were  complied  with.     The  United  States  Circuit 
Court  of  Appeals  for  the  eightli  circuit  held  tliat  the  county 
could  not  set  up  the  defense  of  ultj'a  vires  to  the  action  on  the 
bonds,  because  the  railroad  company  was  authorized  to  build  only 
a  narrow-gauge  railroad.     These  bonds  bore  on  their  face  recitals 
that  tliey  were  issued  to  the  railroad  company  in  payment  of  a 
subscription  for  stock,  made  by  virtue  of  an  act  of  the  legislature 
(the  title  and  date  of  which  were  given),  and  acts  amendatory  of 
the  same,  with  this  further  statement  on  each  bond,  •*  the  pro- 
visions and  requirements  of  said  acts,  and  the  conditions  pre- 
scribed necessary  to  the  subscription  aforesaid,  and  the  lawful 
issue  of  this  bond,  having  been  in  all  respects  fully  and  com- 
pletely complied  with  and  performed."     The  defense  of  ultra 
vires  was  held  not  to  be  available  in  the  action  as  against  a  hona 
fide  purchaser  for  value  on  the  faith  of  the  recitals,  and  without 
notice  that  the  company  was  authorized  to  construct  onl}^  a  nar- 
row-gauge road,  and  that  the  bonds  were  issued  on  condition  that 
the  road  should  be,  as  it  in  fact  was,  of  standard  gauge.^ 


§465] 


MUNICIPAL  AID  BONDS  —  COUNTT. 


943 


/(fo  holder  for  value.  Citing  Fulton 
f).  Town  of  Riverton,  42  Minn.  395;  s. 
c.  44  N.  W.  Rep.  257. 

» Board  of  Comrs.  of  Kingman 
County  V.  Cornell  University,  (1893)  57 
Fed.  Rep.  149.  It  was  said  in  the 
opinion:  "  The  general  doctrine  is  that 
where  a  contract  or  undertaking 
which  has  been  entered  into  by  a  cor- 
poration is  simply  in  excess  of  its 
charter  powers,  and  the  same  has  been 
fully  executed,  the  defense  of  ultra 
vires  cannot  be  successfully  pleaded  in 
a  suit  to  enforce  negotiable  securities 
or  other  obligations  which  have  issued 
out  of  the  original  transaction.  In 
such  cases  the  state  is  entitled  to  re- 
strain the  offending  corporation  from 
exercising  powers  that  do  not  belong 
to  it,  or  to  oust  it  of  its  franchises,  in 
a  proper  proceeding  brought  for  that 
purpose,  but  it  is  ordinarily  held  that 


in  collateral  suits  between  private  liti- 
gants the   plea  of  ultra  vires  is  not 
available  as  a  defense.     Bank  «.  North, 
4  Johns.  Ch.  370;  Bank  v.  Matthews, 
98  U.   S.   621;   Gold    Mining    Co.   n. 
National  Bank,  96  U.  S.  640;  Whitney 
Arms  Co.   v.   Barlow,  63  N.    Y.    62- 
Bradley  t.  BcUlard,  55  111.  417;  Ditch 
Co.  T.  Zellerbach,  37  Cal.  543;  Argenti 
r.  City  of  San  Francisco,  16  Cal.  255; 
Allegheny  City  v.  McClurkan,  14  Pa. 
St.  81.    *    *   *    In  the  case  of  County 
of  Macon  t.  Shores,  97  U.  8.   272,  it 
appeared  that  county  aid   had  been 
granted  to  a  railroad  company  in  the 
form  of  a  stock  subscription  and  by  an 
issuance  of  bonds,  although  the  com- 
pany had  not  accepted  its  charter  and 
become  organized    as    a    corporation 
within  the  time   limited   by   law  for 
such  acceptance  of  the  charter  and  for 
organization  thereunder.     In   a   suit 


§  455.  Bonds  and  coupons  not  claims  which  require  pre- 
sentation to  county  authorities  before  suit. — In  a  case  involv- 
ing county  bonds  issued  in  Alabama  in  aid  of  a  railroad  company, 
before  the  United  States  Supreme  Court,  the  question  of  whether 
or  not  an  action  could  be  maintained  upon  bonds  or  coupons 
which  had  been  attached  to  such  bonds  where  they  had  not  been 
presented  to  tlie  Court  of  County  Commissioners  for  allowance 
before  the  suit  was  brought,  was  fully  discussed  by  that  court. 
The  result  of  the  consideration  by  the  court  of  the  statutes  of 
Alabama  and  the  cases  determined  by  the  Supreme  Court  of  that 
state,  was  a  holding  that  the  action  was  maintainable,  and  that 
the  bonds  and  coupons  did  not  constitute  such  claims  as  should 
be  presented  for  action  to  the  county  authorities  before  suit  could 
be  brought  upon  them.^ 


against  the  county  upon  the  bonds,  it 
was  held  that  a  plea  that  the  company 
had  not  become  organized  within  the 
time  limited  by  law  constituted  no  de- 
fense as  against  an  innocent  purchaser 
of. the  securities.  The  sjime  ruling  was 
repeated  in  the  case  of  County  of  Ralls 
fj.  Douglass.  105  U.  S.  728,  and  in  the 
latter  case  it  was  also  held  that  it  was 
not  competent  for  the  county  to  show 
by  way  of  defense,  as  against  an  in- 
nocent purchaser  of  its  bonds,  tliat 
when  they  were  executed  a  person  was 
acting  as  presiding  judge  of  the 
County  Court  who  was  not  de  jure  a 
member  of  the  court.  It  seems  to  be 
settled  by  these  decisions  that  a  pur- 
chaser for  value  of  railroad  aid  bonds 
is  not  required  to  asr-ertain  [ind  to  de- 
termine at  his  peril  whether  the  rail 
way  corporation  to  whom  they  \v(;r«' 
voted  and  issued  was  at  the  time  duly 
and  regularly  constituted  *  *  *." 
•  County  of  Greene  r.  Daniel,  (1880) 
102  U.  S.  187;  County  of  Pickens  r. 
Daniel,  (1880)  102  U.  S.  187.  Chief 
Justice  Waite  referred  to  the  statutes 
of  Alabama  relating  to  granting  aid  to 
railroads,  and  to  the  cases  of  Shinbone 
V.  Randolph  County,  56  Ala.  183;  Com- 
missioners'  Court  of  Limestone  County 
r.  Rather.  48  Ala.  433.     Then  he  said: 


"The  bonds  and  coupons  in  these 
cases  were  signed  by  the  judge  of  pro- 
bate of  the  county,  as  the  presiding 
officer  of  the  Commissioners'  Court, 
and  'it  seems  to  us  that  they  are,  in 
legal  effect,  themselves  warrants  on 
the  tnasurer,  given  by  the  judge  of 
probate  after  an  allowance  by  the 
court  of  the  claim  of  the  railroad  com- 
pany for  the  payment  of  the  county 
subscription  in  accordance  with  the 
terms  of  the  accepted  proposal.  The 
claim  was,  to  all  intents  and  purposes, 
audited  by  the  court  when  the  bonds 
Avere  issued.  The  vaUdity  and  amount 
of  the  liability  were  then  definitely 
fixed,  and  warrants  on  the  treasury 
given  payable  at  a  future  day.  The 
treasurer  could  pay  them  when  due  on 
presentation  without  further  action  of 
the  court,  if  he  had  funds  in  his  hands 
applicable  to  that  purpose.  In  his 
hands  they  would  be  good  vouchers 
for  money  disbursed  from  that  fund. 
The  provision  that  the  coupons  should 
be  received  in  payment  of  taxes  levied 
to  meet  them  is  entirely  consistent 
with  any  idea  of  an  unliquidated  claim 
which  required  further  auditing." 
Then,  addressing  himself  to  the  remedy 
if  such  bonds  or  coupons  were  unpaid 
when    due,    the    chief    justice   said: 


I  r\ 


9M 


MUNICIPAL  AED  BONDS  —  COUNTY. 


[§456 


§456] 


MUNICIPAL  AID  BONDS COUNTY. 


945 


§  456.  Coupons  —  rules  governing. —  A  coupon  attached  to 
a  bond  issued  by  a  county  in  payment  of  its  subscription  to  the 
stock  of  a  railroad  corporation,  under  the  authority  given  it  by 
the  legislature,  will  not  be  invalidated  by  the  fact  that  the  coupon 
is  made  payable  in  New  York  or  elsewliere  than  at  the  treasury 
of  the  county  issuing  it.*     Coupons  for  the  payment  of  interest, 


"In  the  state  courts,  under  the  rule  as 
stated  in  Shiubonc  r.  Randolph  Co.,  56 
Ala.  183,  and  other  cases,  a  mandaimis 
would  lie  without  reducing  the 
coupons  to  judgment,  to  compel  the 
Commissioners'  Court  to  levy  and  col- 
lect the  taxes  necessary  to  pay  what 
was  due.  The  rule  is  diiferent,  how- 
ever, in  the  courts  of  the  United 
States,  where  such  a  writ  can  only  be 
granted  in  aid  of  an  existing  jurisdic- 
tion. There  a  judgment  at  Law  on  the 
coupons  is  necessary  to  support  such 
a  writ.  The  r/mndamus  is  in  the 
nature  of  an  execution  to  carry  the 
judgment  into  effect.  Bath  County 
«.  Amy,  13  Wall.  244;  Graham  v. 
Norton,  15  Wall.  427.  A  suit,  there- 
fore, to  get  judgment  on  the  bonds  or 
coupons  is  part  of  the  necessary 
machinery  which  the  courts  of  the 
United  States  must  use  in  enforcing 
the  claim,  and  the  jurisdiction  of 
those  courts  is  not  to  be  ousted  simply 
because  in  the  courts  of  the  state  a 
remedy  may  be  afforded  in  another 
way." 

*  Johnson  v.  County  of  Stark,  (1860) 
24  III.  75.  It  was  said  by  the  court : 
"  It  was  held  by  this  court,  in  the  case 
of  The  People  ex  rel.  v.  Tazewell 
County,  22  111.  147,  that  counties 
and  municipal  corporations,  unless 
specially  authorized  by  legislative 
enactment,  have  no  power  to  make 
their  indebtedness  payable  at  any 
other  place  than  at  their  treasury. 
That  proceeding  was  an  application 
for  a  writ  of  mandamus,  to  compel  the 
board  of  supervisors  to  issue  bonds 
and  coupons,  payable  in  the  city  of 
New   York.     The    application    was 


based  upon  a  demand  of  such  bonds 
and  coupons;  and  as  there  had  been 
no  demand  of  such  securities  payable 
at  the  county  treasury,  the  question 
now  under  consideration  was  not  then 
before  the  court,  and  was  not  deter- 
mined. The  board  of  supervisors 
could  not  be  in  default  until  they  had 
refused  to  issue  bonds  and  coupons, 
authorized  by  law,  upon  a  proper  de- 
mand. No  such  demand  was  made  in 
that  case,  and,  therefore,  the  court 
could  not  compel  them  to  proceed  to 
issue  such  securities.  This  case  pre- 
sents the  question,  whether  instru- 
ments evidencing  their  indebtedness 
payable  specifically  at  any  other  place 
are  void,  or  whether  they  may  be  up- 
held as  payable  at  their  treasury. 
Tliis  coupon  on  its  face  purports  to  be 
payable  at  the  city  of  New  York. 
The  doctrine  is  well  recognized  that 
in  exercising  a  power,  all  acts  per- 
formed in  excess  of.  or  beyond,  the 
power  delegated,  must  be  rejected  as 
unwarranted;  and  if,  after  their  rejec- 
tion, there  has  been  enough  done  to 
show  a  proper  execution  of  the  power, 
the  act  will  be  sustained,  irrespective 
of  the  acts  beyond  the  power  dele- 
gated. But,  on  the  contrary,  if  the 
acts  performed  beyond  the  authority 
conferred,  are  so  inseparably  con- 
nected with  the  acts  properly  per- 
formed, that,  by  their  rejection,  the 
power  remains  unexecuted,  then  the 
whole  transaction  must  be  rejected  as 
void.  When  tested  by  this  rule,  it  will 
be  perceived  that  this  coupon  may  be 
sustained  as  valid,  and  payable  at  the 
treasury  of  the  county.  The  law  au- 
thorized the  county  to  issue  it,  and 


executed  at  the  same  time  and  attached  to  municipal  bonds  and 
referred  to  therein,  when  detached  are  negotiable,  and  when 
matured,  action  may  be  brought  upon  the  coupons  against  the 
corporation  issuing  them,  provided  it  had  power  to  issue  the 
bonds.*  Coupons  attached  to  municipal  bonds,  payable  to  bearer, 
for  a  sum  certain,  assimilate  to  bank  bills.  They  pass  by  delivery 
only,  and  may  be  offered  in  evidence  under  the  common  money 
counts  appropriate  to  an  action  upon  them.^  The  holder  of  an 
unindorsed  coupon  detached  from  a  bond  of  a  municipality  is 
entitled  to  demand  payment  of  the  same,  and,  if  refused,  to  sue 
for  and  recover  the  money  in  his  own  name.^  Municipal  bonds 
with  coupons  payable  to  bearer,  being  negotiable  securities,  and 
liaving  all  the  qualities  and  incidents  of  negotiable  paper,  and  the 
coupons  negotiable  like  the  bonds,  it  is  not  necessary  that  the 
holder  of  the   coupon,  in    order   to    recover,    should    own  the 


requires  no  place  of  payment  to  be 
named.  And  where  none  is  specitied, 
it,  by  operation  of  law,  is  payable  at 
the  treasury.  If  this  coupon  had  not 
contained  the  langiiuge,  '  at  the  city 
of  New  York,'  it  would  have  been  a 
legal  instrument,  strictly  conforming 
to  all  the  requirements  of  the  law  au- 
thorizing counties  to  issue  evidences 
of  indebtedness.  If  then  this  unau- 
thorized portion  of  the  coupon  were 
rejected,  it  would  be  in  conformity  to 
the  law,  and,  for  the  purpose  of  up- 
holding it,  the  law  will  reject  that 
portion  as  surplusage.  This  doctrine 
was  announced  by  the  very  able  dis- 
trict judge  of  United  States  District 
Court  for  Wisconsin  in  the  case  of 
Mygatt  V.  City  of  Green  Bay.  1  Biss. 
292,  which  was  precisely  similar  to 
this  case." 

>  Town  of  Cicero  v.  Clifford,  53  Ind. 
191. 

•Board  of  Supervisors  of  Mercer 
County  V.  Hubbard,  (1867)  45  111.  139. 

3  Johnson  v.  County  of  Stark,  (1860) 

24  III.  75.     It  was  contended  in  this 

case  that  the  plaintiff  had    no  legal 

title  to  the  coupon  sued  on.     The  bond 

119 


to  which  it  was  annexed  was  duly 
assigned  to  him,  but  there  was  no 
indorsement  on  the  coupon.  The 
court  said:  "It  seems  to  be  the  well- 
settled  doctrine  that  state,  county, 
city  and  other  bonds,  and  public 
securities  of  this  character,  are  nego- 
tiable by  delivery  only,  without  in- 
dorsement, in  the  same  manner  as 
bank  bills,  especially  when  they  are 
payable  to  bearer.  Redf.  on  Rys. 
595,  and  authorities  cited.  It  is  true 
that  this  coupon  names  no  person  as 
payee,  nor  is  it  specifically  payable 
to  bearer.  But  the  promise  is  'to 
pay  sixty  dollars  on  this  coupon.* 
The  promise  is  to  pay  the  s  um  named 
in  the  instrument,  and  it  can  only  be 
demanded  by  the  person  holding  it, 
and  precisely  as  if  it  was  payable  in 
terms  to  bearer.  There  is  no  room  to 
doubt  that  the  specified  amount,  by 
the  terms  of  the  agreement,  is  payable 
to,  and  may  be  demanded  by,  the 
holder  after  its  maturity.  Its  legal 
effect  is,  that  the  money  is  to  be  paid 
on  the  coupon,  and  to  the  holder  pre- 
senting it  for  that  purpose." 


k\ 


946 


MUNICIPAL  AID  BONDS  —  COUNTY. 


[§457 


§458] 


MUNICIPAL  AID  BONDS  —  COUNTY. 


947 


bonds  from  wliicli  they  are  detached.*  The  defense  cannot  be 
made  in  an  action  upon  coupons  detached  from  municipal  bonds 
that  they  are  signed  by  only  one  of  the  county  officers,  where  the 
bonds  to  which  they  were  attached  are  properly  signed  and 
sealed  by  the  officers  of  the  county.' 

§  457.  A  county  suable  on  precinct  bonds. —  The  charter 
of  this  Kentucky  railroad  company  authorized  magisterial  pre- 
cincts of  any  county  through  which  it  passed  to  subscribe  to  its 
capital  stock,  and  provided  that  the  bonds  of  the  county  should 
be  issued  in  payment  of  such  a  subscription  in  every  respect  as  if 
such  subscription  was  made  by  the  county,  but  that  such  precincts 
should  be  alone  bound  to  pay  such  l)onds.  Before  the  United 
States  Circuit  Court  of  Appeals  for  the  sixth  circuit  it  was 
objected  that  the  county  was  not  liable  on  the  bonds,  and  that  it 
was  error  in  the  action  thereon  to  have  rendered  judgment  against 
the  county.  The  court  lield  that  the  county  was  liable  to  actions 
on  such  bonds,  but  judgment  against  it  was  to  be  satisfied  out  of 
a  tax  levied  on  the  precincts  alone.^ 


1  Thompson  r.  Lee  County,  3  Wall. 
327. 

5  Thayer  r.  3Iontgomery  County,  3 
Dill.  389.  That  interest  is  recoverable 
upon  overdue  coupons,  see  Genoa  v. 
Woodruff.  93  U.  8.  502;  Walnut  v. 
Wade,  108  U.  S.  683;  Koshkonongr. 
Burton,  104  U.  8.  668;  Aurora  City  r. 
West,  7  Wall.  82;  Cromwell  r.  County 
of  Sac,  96  U.  8.  51;  Hollingsworth  v. 
Detroit.  3  McLean,  472;  Beaver  r. 
Armstrong,  44  Pa.  St.  6:3;  Mills  r. 
Jefferson,  20  Wis.  50;  Burroughs  r. 
Richmond  County,  65  N.  C.  234;  Mc- 
Lendon  r.  Anson  County,  71  N.  C.  38; 
Davis  r.  Yubji,  75  Cal.  452. 

'  Breckinridge  County  v.  McCracken, 
(1894)  61  Fed.  Rep.  191.  The  court 
said:  "  The  districts  subscribing  were 
not  corporations,  and  could  not,  with- 
out further  legislation,  execute  and 
deliver  bonds.  Some  one  could  be 
authorized  to  become  the  obligor. 
This  duty  was  imposed  on  the  county. 
This  was  authorized  under  the  [fol- 
lowing Kentucky  decisions:   City  of 


Lexington  r.  McQuillan's  Heirs,  9 
Dana,  513;  County  Judge  of  Shelby 
County  r.  Shelby  R.  Co.,  5  Bush,  226; 
Kreiger  r.  I^ilroad  Co.,  84  Ky.  66; 
Allison  r.  Railway  Co.,  10  Bush,  1. 
See,  also,  Carter  Co.  v.  Sinton,  120  U. 
S  518;  s.  c,  7  Sup.  Ct.  Rep.  650; 
Hancock  r.  Railroad  Co.,  145  U.  8. 
414;  8.  c.  12  Sup.  Ct.  Rep.  969].  *  *  ♦ 
While  the  district  subscribing  is  the 
debtor,  yet  in  form  the  county  is  the 
obligor.  Through  the  county  the  in- 
debted district  is  to  act,  and  through 
the  same  agency  the  indebted  district 
is  to  be  coerced  by  the  asses.sment  of 
the  tax  essential  to  meet  its  obliga- 
tions. Such  a  district  becomes,  for 
the  purposes  of  the  subscription,  a 
corporation  quoad  fioc.  Kreiger  v. 
Railroad  Co.,  84  Ky.  66;  Hancock  v. 
Railroad  Co.,  145  U.  S.  409.  It  is 
suable  only  through  the  county  which, 
in  respect  to  the  subscription,  the  issu- 
ance of  the  bonds,  and  the  assessment 
of  a  special  levy  stands  for  and  repre- 
sents the  debtor.     The  judgment  was 


§  458.  Rules  as  to  pleading  in  such  cases.— A  simple  alle- 
gation in  tlie  petition  in  an  action  on  railroad  aid  bonds  that  "an 
election  was  duly  held  "  to  determine  whether  the  subscription 
should  be  made,  has  been  held  to  be  sufficient.^     And  the  plain- 

properiy  rendered  against  the  county,    caused  the  bond  to  be  signed  in  behalf 
collectible  only   from    tax  levied  on   of   the  precinct,  by  the  chairman  of 
property    in    the    indebted    district,    the  board,  and  to  be  attested  by  the 
The  chtirter,  in  this  respect,  is  substan-    clerk  of  the  board  (who  appears  by 
tially  like  the  provision  construed  in    the  petition  to  have  been  the  clerk  of 
Davenport  i".  Dodge  Co.,  105  U.S.  237."   the  county),  and  that  such  clerk  has 
In  Blair  v.  Cuming  County,  111  U.  8.    affixed  thereto  the  seal  of  the  county. 
363,  a  case  of  bonds  issued  under  a   This  was  a  sufficient  compliance  with 
vote  of  a  precinct  in  aid  of  a  public   the  statute.     The  commissioners  by 
improvement,  a  case  from  the  district   statute  constituted   a  'board.'     That 
of  Nebraska,  Mr.  Justice  Blatchford,    was    their    official  designation  when 
for  the  United  States  Supreme  Court   meeting  to  perform  any  duties  with 
discussed  this  same  question  in  these    which  they  were  charged.     See  Gen. 
words:     "  This    question     was     de-    Stats.  Neb.  (1873)  chap.  13,  §§  7,  14, 
cided     by    this     court     in     Daven-    pp.  233,  234.     The  attestation  of  the 
port  V.    County  of  Dodge,  105  U.  8.    bonds  by  the  signatures  of  the  chair- 
237,  in  regard  to  precinct  bonds  issued   man  and  clerk  of  the  board  and  the 
uuderthe  same  statute,  audit  was  held   county  seal,  was  proper.     It  was  not 
that    a    suit    against    the  county  on    necessary  that   all  the  commissioners 
coupons  cut  from    special   bonds    is-    should  sign  the  bond.q.    What  was  done 
sued  by  the  county  commissioners  for   was  not  an  issuing  of  the  bonds  by  the 
the  precinct,  was  a  proper  suit."    It   chairman  and  clerk.     The  coupons  in 
was  also  contended  that  the    statute   the  form  in  which  they  were  issued, 
required  that  precinct  bonds  should  be   annexed  to  the  bond,  were  adopted  as 
issued  as  special  county  bonds  for  the    coupons  by  the  statement  in  the  body 
precinct  by  the  county  commissioners,    of  the  bond,  and  the  question  as  to 
and  did  not  authorize  the  chairman  of  any  one  of  them,  when   detached,  is 
the  board  and  its  clerk  to  issue  the   only  one  of  genuineness  and  identity, 
bonds  ;  that  the  county  commissioners   The  bonds  are  special  bonds  for  the 
could  not  delegate  their  authority  to   precinct,  and  contain  a  sufficient  state- 
sign  and  issue  the  bonds  to  any  one   ment    showing    their  special  nature, 
else,  or  to  one  of  their  number;  and    that  is,  that  they  are  special  bonds  for 
that  precinct  bonds  signed  by  one  of   the  precinct." 

the  county  commissioners  as  chairman,  'Breckenridge  County  v.  Mc- 
and  attested  by  the  clerk  of  the  board,  Cracken.  (1894)  61  Fed.  Rep.  191.  It 
and  coupons  signed  by  some  one  as  was  said  by  the  court:  "  This  is  sub- 
clerk,  had  no.  validity.  To  this  it  was  stautially  an  averment  that  the  election 
said:  "We  see  no  force  in  these  ob-  was  held  according  to  the  requirements 
jections.  The  bonds  bear  the  seal  of  the  law.  It  was  not,  however,  im- 
of  the  county,  and  purport  to  be  is-  portant  that  the  pleader  should  aver 
sued  by  the  board  of  county  commis-  the  preliminary  facts  requisite  to  the 
sioners  on  behalf  of  the  precinct.  The  exercise  of  the  power  granted  by  the 
bond  states  that  the  board,  in  testimony  legislature  to  subscribe  for  the  stock 
of  the  statements  in  the  bond,   has  and  issue  bonds  in    payment.     The 


us 


MUNICIPAL  AID  BONDS  —  COUNTY. 


[§458 


tiff  in  sucli  an  action  need  not  allege  a  reservation  made  in  tlie 
bonds  by  the  county  as  to  the  time  of  payment,  where  there  wa» 
no  Bucli  reservation  in  the  act  authorizing  the  subscription,  or  the 
power  to  restore  the  bonds  was  in  no  wise  affected  thereby.^  In 
Edwards  v.  Bates  County,  55  Fed.  Eep.  43G,  it  was  held  that  an 
ofter  by  the  county,  within  the  statutory  period  of  limitation,  to 
compromise  its  bonds  at  a  specihed  percentage,  which  offer  was 
declined  by  the  holders  of  the  bonds  in  suit,  although  accepted 
by  the  holders  of  all  of  its  other  bonds,  was  not  a  promise  to  pay 
or  an  acknowledgment  of  tlie  debt,  which  would  interrupt  the 
running  of  the  Statute  of  Limitations.' 

power  to  hold  an  election,  subscribe   ant  to  show  it.    A  bond,  especially  a 
for  stock,    and  issue    the    bonds   is   negotiable  bond,  is  a />/•»/«« /«c*d  obli- 
averred     If  there  was  any  defect  in  the   gation  of  the  obligor,  if  he  has  capacity 
steps  preliminary  to  the  exercise  of   to  make  it.  and  is  binding  according 
that  power  it  is  for  the  defendant  to   to  the  terms  and  conditions  apparent 
plead  and  show  such  irregularity.   The   on  its  face,  until  the  contrary  be  shown, 
performance    or    non-performance  of   Whether  an  allegcKi  defense,  when  set 
acts  requisite  to  the  valid  exercise  of   up,  is  or  is  not  good  against  the  par- 
the  power  are  matters  of  defense.    This   ticular  holder,  is  to  be  determined  by 
precise  question  arose  in  Lincoln  Tp.r.    the  court  in  each  case.'     103  U.   8. 
Cambria  Iron  Co.,  103  U.S.  412.    The   416.     The  case  of  Hopper  ij.  Town  of 
declaration  in  a  suit  upon  certain  bonds   Covington,  118  U.  8.  148;  s.  c,  6  Sup. 
issued   by  a  Michigan  township,  did    Ct.   Rep.  1025,  is  relied  upon  by  the 
not  aver  that  an  election  was  held  to   appellant.     It  is  not  in  point.     The  de- 
authorize  the  issuance  of  the  bonds,  as   feet  in  the  declamtion  went    to  the 
required  by  law,  and  did  not  aver  cer-    power  of  the  corporation.    In  that  very 
tain  other  prerequisites  to  such  issue,    case  the  court  drew  a  distinction  be- 
After  considering  the  effect  of  a  ver-   tween  the  want  of  power  and  an  ir- 
dict  for  the  plaintiff  as  a  waiver  of   regularity  in  the  exercise  of  the  power, 
such  objection  to  the  pleading,  the    See,  also.  County  of  Clay  t».  Society  for 
court  said:  '  But  we  do  not  think  that    Savings,  104  U.  S.  58C." 
there  was  any  defect  in  the  declaration       »  Breckenridge      County    «.      Mc- 
tobe  cured.     We  think  that  it  would   Cracken,  (1894)  61  Fed.  Rep.  191. 
have  been  good  on  demurrer.     The       'As  to  liability  of  a  county  on  pre- 
township  had  authority  by  law  to  issue   cinct  bonds,  see  Blair  r.  Cuming  County, 
its  bonds  by  way  of  a  donation  to  a    111   U.    S.    363;    Nemaha   County   v. 
railroad.    It  did  issue  its  bonds.    They    Frank,  120  U.   S.  41.     Cases  in  which 
got  into  circulation  as  commercial  se-   the  bonds  were  held  valid,  Lewis  v. 
curities  and  were  purchased  by  the   Pima  County,  15  Sup.   Ct.  Rep.  22; 
pkintiff.     All  the  plaintiff  had  to  do   Wilmington,  O.  4&  E.   C.  R.  R.  Co.  v. 
in  case  of  non-payment  was  simply  to   Board  of  Comrs.  Onslow  County,  (N. 
Bue  on  the  bonds.    If  there  was  any   C.)21  S.E.  Rep.  205.  Where  they  were 
defense  to  them  by  reason  of  want  of   held  to  be  invalid.   Citizens'  Sav.  & 
performance  of  any  of  the  requisites   Loan  Assn.  t.  Perry  County,  15  Sup. 
necessary  to  give  them  validity,  or  for   Ct.  Rep.  547;  German  Savings  Bank©, 
any  other  cause,  it  was  for  the  defend-   Franklin  County,  128  U.  S.  526. 


CHAPTER  XXIII. 

MUNICIPAL  AID  BONDS  — CITY. 


§459. 

City  aid  bonds,  generally. 

§465 

460. 

Rules  as  to  such  bonds  settled 

in  United   States  Supreme 

466 

Court. 

461. 

Why  state  decisions  should 
not  control  United  States 
Supreme  Court. 

467 

462. 

When  the  issue  of  aid  bonds 
by  a  city  is  authorized. 

468 

463. 

When  the  right  to  municipal 
aid  is  lost  by  delay  in  con- 
structing road. 

469 

464. 

The  election  as  to  aid  and  the 
effect  of  curative  legislation. 

This  case  distinguished  from 

others. 
Aid  to  railroads  outside  the 

state. 
Estoppel  of  a  city  to  claim 

that  bonds  were  wrongfully 

issued. 
What  will  not  affect  the  rights 

of  bona  fide  bondholders. 
When  a    purchaser    of   void 

municipal     bonds     cannot 

maintain     an     action     for 

money  had  and  received. 


§  459.  City  aid  bonds,  generally. —  The  constitutionality  of 
the  general  law  of  Indiana  authorizing  the  donation  and  issue  of 
bonds  in  aid  of  railroad  companies,  has  been  regarded  as  settled 
by  tlie  Indiana  Supreme  Court.^  And  bonds  regularly  issued  and 
deUvered  by  the  authority  of  that  law,  in  the  hands  of  a  bona 
fide  holder,  for  a  valuable  consideration,  the  court  held  must  be 
regarded  as  public  securities,  and  placed  on  a  footing  with  bills 
of  exchange.^  The  power  to  issue  bonds  as  a  simple  donation  is 
not  included  in  the  general  power  incident  to  municipal  corpora- 
tions to  issue  their  bonds  for  existing  indebtedness  or  for  money 
borrowed  for  municipal  purposes.^  Witliout  express  power  in 
its  charter,  a  city  cannot  issue  bonds  in  aid  of  a  railroad  company 


» City  of  Mt.  Vernon  t.  Hovey,  (1876) 
62  Ind.  563;  citing  Sankey  «.  Terre 
Haute  &  S.  W.  R.  R.  Co.,  42  Ind.  402. 

*  City  of  Mt.  Vernon  v.  Hovey,  (1876) 
62  Ind.  563;  citing  City  of  Aurora  t\ 
West,  22  Ind.  88;  Nugent  «.  The  Su- 
pervisors, 19  Wall.  241;  Moran  r.  The 
Commissioners  of  Miami  County,  2 
Black,  722;  Lee  County  ®.  Rogers,  7 
Wall.  181;  Mercer  County  «.  Hacket, 
1  Wall.  83;  Rogers  v.  Burlington,  3 
Wall.  654;  Clark  v.  City  of  Janesville, 


10  Wis.  136;  State  ex  rel.  Treadwell  i). 
Commissioners,  12  Ohio  St.  596;  New 
Albany,  etc.,  Plank  Road  Co.  t.  Smith, 
23  Ind.  353;  Board  of  Commissioners 
V.  Bright,  18  Ind.  93.  That  a  munici- 
pality may  be  compelled  by  mandamus 
to  issue  its  bonds  in  aid  of  a  railroad 
company,  see  Mayor,  etc.,  Kokomo  d. 
State,  57  Ind.  152. 

•Bissell  '€.  City  of  Kankakee,  64  III 
249. 


960 


MUNICIPAL  AID  BONDS  —  CITY. 


[§459 


as  a  gratuity,  as,  for  instance,  in  order  to  drain  swamps,  or  to 
secure  the  location  of  the  workshops  of  the  company  in  such 
city.*     A  city  being  expressly  authorized  to  borrow  money  to  pay 
for  stock  subscribed  in  aid  of  a  railroad  company,  the  power  to 
determine  time  of  payment,  and  to  issue  bonds  and  other  evi- 
dences of  indebtedness,  would  be  implied.^     Wher^  the  propo- 
sition submitted  to  the  electors  of  a  city  was  whether  it  should 
issue  its  bonds  in  aid  of  a  railroad  ''  to  an  amount  not  exceeding 
one  million  dollars,''  and  the  election  resulted  in  favor  of  the 
proposition,  the  city  council  would  have  a  discretionary  power  as 
to  the  amount  of  the  bonds  to  be  issued,  not  exceeding  $1,000,000, 
and  may  confine  the  issue  to  $500,000.*    Where  the  petition  for 
a  donation  of  bonds  to  a  railroad  company  by  a  city,  asks  a  dona- 
tion of  bonds  in  a  certain  amount  without  interest,  the  city  can- 
not issue  bonds  bearing  interest.*     The  fact  that  some  members 
of  the  council  of  a  city  wlio  voted  in  favor  of  a  donation  of  its 
bonds  upon  a  petition  in  aid  of  a  railroad  company,  were  also 
officers  of  the  railroad  company,  has  been  held  not  to  have  dis- 
qualified them  from  acting,  or  the  council  from  passing  an  ordi- 
nance makhig  the  donation.^     The  donation  of  bonds  by  a  city  in 
aid  of  a  railroad  is  an  absolute  grant,  and,  after  it  is  made,  col- 
lection of  a  tax  levied  to  pay  interest  on,  or  create  a  sinking  fund 
to  pay  the  principal  of,  such  bonds  can  be  enjoined  only  on 
grounds  constituting  a  valid  defense  to  payment  of  the  bonds  in  the 
hands  of  present  holders.^     Under  the  General  Statutes  of  Indiana 
a  city  might  subscribe  to  stock  of  a  railroad  company  without 
petition,  and  might  issue  and  sell  its  bonds  to  borrow  money  to 
pay    the   subscription.     A    petition    from   freeholders  is    only 

»New  Orleans,  M.  &  C.  R.  Co.  v.  .'order  of  the  common  council  making 
Bunn,  51  Ala.  128.     In  City  of  Mt.    the    donation    being   shown,   and   no 
Vernon  r.  Hovey,  (1876)  53  Ind.  563,    irregularity  in  the  consolidation  of  the 
where  the  bonds  donated  in  aid  of  a   companies  being  claimed, 
railroad  company  by  the  city  had  been       'E.,  I.  &  C.  R.  R.  Co.  v.  City  of 
issued  to  it  after  its  consolidation  with   Evansville,  15  Ind.  395. 
another   railroad   company,   the    Su-       » Winter  v.  City  Council  of  Mont- 
preme  Court  held  that  an  injunction    goraery,  (1880)  65  Ala.  403. 
would  not  lie  in  the  action  of  a  taxpayer       *  Mayor,  etc.,  Kokomo  r.  State,  57 
for  an  injunction  to  restrain  the  col-   Ind.  152.     As  to  interest  on  coupons 
lection  of  a  tax  assessed  against  him   of  railroad  aid  bonds,  see  City  of  Pekin 
for  the  payment  of  the  interest  on   t.  Reynolds,  31  111.  529. 
these  bonds  and  to  create  a  sinking       *  Mayor,  etc.,  Kokomo  v.  State,  67 
fund  for  the  payment  of  the  principal   Ind.  152. 

of  the  bonds,  no  irregularity  in  the       « Wilkinson  ».  City  of  Peru,  61  Ind,  1. 
petition  of  the  freeholders  or  in  the 


MUNICIPAL  AID  BONDS CITY. 


051 


§459] 

required  in  case  of  donation  of  city  bonds  in  aid  of  railroads.* 
Petitioners  for  aid  by  way  of  donation  of  bonds  by  the  city  coun- 
cil of  a  city  in  Indiana  have  been  held  to  liave  the  right  to  with- 
draw their  names  from  the  petition,  by  signing  a  remonstrance, 
after  the  petition  has  reached  the  council  and  been  referred  to  a 
committee.     The  withdrawal  would  have  the  same  effect  as  if 
they  had  not  signed.^      Such  petitions  must  accord  with  the  pro- 
visions of  the  statute  authorizing  them,  otherwise  they  will  be 
invalid.^      Donation  under  the  act  under  which  the  bonds  of  this 
city  were  donated  was  held  to  mean  an  absolute  gift  or  grant 
without  any  condition  or  consideration."      AVhen  a  power  to  sub- 
scribe to  stock  of  a  railroad  company  has  been  conferred  by  a 
petition  in  the  terms  of  the  Indiana  statute  upon  the  common 
council  of  a  city,  the  mode  in  which  the  power  should  be  exer- 
cised, in  a  measure,  would  be  necessarily  left  to  the  discretion  and 
judgment  of  the  common  council.^      Where,  by   its  charter,  an 
Indiana  city  was  empowered  to  subscribe  to  stock  "  in  any  char- 
tered company,  for  making  roads  to  said  city,"  the  Supreme 
Court  of  that  state  held  tliat  a  road  through  that  city  was  a  road 
to  it  within  the  meaning  of  its  charter. «      It  was  held  in  another 
case  that  a  "  railroad "  was  such  a  "  road  "  within  the  meaning 
of  such  a  provision  in  the  charter  of  a  city.''      The  receipt  of 
bonds  by  the  railroad  company,  as  cash  in  payment  of  such  a 
subscription,  would  not  be  beyond  the  power  of  either  the  city 
or  railroad  company .«      Where  the  charter  of  an   Indiana  city 
provided  that  the  city  might,  upon  compliance  with  certain  for- 
malites,  create  a  debt,  and  restrained  the  authorities,  in  general, 
to  a  certain  rate  of  taxation,  but  at  the  same  time  authorized  the 
corporation  to  construct  wharves,  docks,  piers,  water  works,  works 
for  lighting  city,  etc.,  undertakhigs,  the  expense  of  which  might 
far  exceed  the  revenues  of  the  city  at  the  general  rate  of  taxation, 
the  Supreme  Court  held  that  the  authority  to  create  a  debt  in 
that  provision  of  its  charter  empowered  it  to  create  a  debt  only 

'Thompson  r.  City  of  Peru,  29  Ind.        *E.,  T.  &  C  R.  R.  Co.  v.  City  of 
305.     See,  also,  City  of  Aurora  v.  West,    Evansville,  15  Ind.  395. 

*City  of   Aurora   r.   West,  9    Ind. 


9  Ind.  74. 

2  Noble 
Ind.  125. 

8  1.,  N.  &  S.  Ry.  Co. 
Attica,  56  Ind.  476. 

*  Wilkinson    v.   City   of   Peru,   61 
Ind.  1. 


V.   City   of  Vineennes,    42 
V.   City    of 


74. 

'E.,  I.  ifc  C.  R.  R.  Co.  r.  aty   of 
Evansville,  15  Ind.  395. 

8  Ibid. 


952 


MUNICIPAL  AID  BONDS  —  CITY. 


[§459 


for  these  undertakings,  and  would  not  authorize  an  issue  of  bonds 
in  aid  of  a  railroad  company.^      A  city  cannot  defeat  a  subscrip- 
tion in  aid  of  a  railroad  company  by  setting  up  a  parol  condition 
inconsistent  with  the  terms  of  contract  of  subscription. =»      The 
ordinary  coupon  bonds  of  a  municipal  corporation  having  author- 
ity to  issue  them  payable  to  bearer  or  to  the  order  of  a  person 
named,  though  under  seal,  are  commercial  or  negotiable  instru- 
ments on  an  equality  with  bank  bills  or  bills  of  exchange,  if,  m 
other  respects,  they  have  the  essential  requisites  of  negotiable 
paper.'      Bonds  issued  by  a  city  in  Alabama,  in  aid  of  a  railroad 
corporation,  under  statutory  authority,  were  held  not  to  be  negoti- 
able paper,  because  on  their  face  they  were  made  payable  on  a 
contingency  which  might  never  happen,  to  wit,  the  completion 
of  the  railroad  to  that  city,  and  also  because  they  were  payable 
to  bearer  only.*      The  title  to  these  bonds,  therefore,  it  was  held 
could  not  pass  by  delivery,  nor,  as  against  the  real  owner,  except 
by  his  indorsement  and  assignment.^      Under  an  Alabama  act 
authorizing  a  city  to  issue  aid  bonds  which  was  silent  a^  to  the 
kind  of  currency  in  which  the  bonds  were  to  be  paid,  the  Supreme 
Court  lield  that  the  city  had  power  to  make  them  payable  "  in 
gold  coin  of  the  United  States  of  the  present  standand,  weight 
and  fineness;*  ••      A  complaint  of  fraud  in  the  election  on  the  ques- 

iCity  of  La  Payette  r.  Cox.  5  Tnd.    issue  of  negotiable  bonds  in  payment 
38      As  to  a  limiUUion  upon  the  mto   of  the  subscription,  see  Hill  v.  City  of 
of' taxation  by  a  city  to  pay  its  bonds   Memphis,  134  U.  S   198;  b  c,  10  Sup 
issued  in  aid  of  a  railroad  company    Ct.   Rep.   562.     What  defense  is  not 
under  power  granted  in  the  city's  char-    open  to  a  city  in  an  action  by  a  rail - 
ter    see  Burnes  r.  Atchison,  2  Kans.    road  company  to  recover  money  voted 
45i     As  to  the  right  of  a  purchaser  of   to  it  by  the  city  and  payable  when  the 
city  bonds  to  presume  that  the  neces-    road  is  completed  for  use,  see  Man. 
sary  steps  had  been  taken  for  the  legal   Chester  &  kcene  Kailroad  v.  City  of 
issuance  of  the  bonds  of  a  city  in  aid    Keene,  62  N   IT.  81. 
of  a  railroad  company,  see  Atchison  v.       *  Evansville,  etc  ,  R.  R.  Co.  v.  aty 
Butcher.  3  Kans.  104.     That  the  col-   of  Evansville,  15  Ind.  39o. 
lection  of  taxes  and  paying  interest  on       » Blackman  ..  Lebma^-  ^^  Al|.  547; 
bonds  of  a  city  in  aid  of  a  r^ulroad   Colt  ..  Barnes,  64  Ala.  108;  State  v 
company  will  not  amount  to  a  ratifica-   Cobb.  64  Ala.  127;    Reid  v.  Bank  of 
tion  of  bonds  issued  without  authority.    Mobile,  70  Ala.  199;  Gilman  t,.  N.  O. 
in  the  absence  of  legislative  authority   &  8.  R.  R.  Co.,  72  Ala.  566. 
to  ratify,  see  Atchison  r.  Butcher,  3       *  Blackman  ^.  Lehman.  63  Ala.  547. 
Kans.  104.     When  a  vote  under  article       "^Ibid.  ^.         ,  „  a, 

11.  section  14,  of  the  Constitution  of  « Judson  r.  City  of  Bessemer  87 
Missouri  of  1865.  would  authorize  a  Ala.  240;  8.  c  6  So.  Rep.  m.  A  to 
subscription  to  the  stock  of  a  railroad  the  power  of  cities  to  extend  aid  to 
company,  but  would  not  validate  the   railroad  corporations,  see  Bard  v.  City 


§459] 


MUNICIPAL  AID  BONDS  —  CITY. 


963 


tion  of  taking  stock  or  issuing  bonds  must  be  made  in  proper 
time  and  l)efore  any  right  has  accrued  under  the  election.^      The 
issuing  of  the  bonds  of  a  municipal  corporation  to  a  railroad 
company  being  dependent  upon  the  condition  that  the  road  of 
the  company  should  be  completed  to  a  certain  city  within  a  given 
time,  the  Illinois  Supreme  Court  held  that  the  completion  of  the 
road  to  about  a  mile  from  the  city  and  an  arrangement  with 
another  company,  the  road  of  which  it  intersected,  that  it  should 
nm  its  trains  ov'er  that  other  road,  should  be  regarded  as  a  sub- 
stantial compliance  with  the  condition.^     Where  bonds  have  been 
issued  by  a  municipal  corporation,  regular  on  their  face,  negoti- 
able in  form,  and  have  passed  into  the  hands  of  third  persons  as 
purchasers  for  value,  who  are  not  charged  with  knowledge  or 
notice  of  any  iregnlarity  in  their  issue,  taxpayers  cannot  enjoin 
the  collection  of  a  municipal  tax  levied  to  pay  the  interest  on 
them.»      A  city  in  Illinois  was  authorized  to  subscribe  to  the  capi- 
tal stock  of  a  railway  company  upon  an  affirmative  vote  of  the 
people,  to  be  paid  for  in  corporate  bonds  to  run  not  exceeding 
ten  years,  and  to  bear  not  exceeding  ten  per  cent  interest.     The 
proposition  submitted  and  voted  was  that  the  bonds  to  be  issued 
should  be  made  payable  in  not  less  than  twenty  years  and  bear 
interest  at  the  rate  of  eight  per  cent  per  annum.     This  propo- 
sition was  held  to  be  materially  variant  from  the  one  authorized 
by  law  in  respect  to  the  time  tlie  bonds  had  to  run  before  due, 
and  the  submission  was  held  to  be  in  excess  of  the  power  con- 
ferred, and  the  vote  upon  it  without  any  binding  authority ;  it 


of  Augusta,  30  Fed.  Rep.  906;  Barte- 
meyer  v.   Rohlfs,   (Iowa)  32    N.   W. 
Rep.    673;    Perriii    r.    City   of    New 
London,  (Wis.)   30  N.  W.  Rep.  623. 
City    bonds    in    payment   of    a    sub- 
scription to  stock  of  a  railroad  com- 
pany  held   unauthorized   in   Katzen- 
berger  v.  City  of   Aberdeen,  7   Sup. 
Ct.  Rep.  947.     As  t6  the  effect  of  non- 
compliance on  the  part  of  a  railroad 
corporation  with  the  conditions  con- 
nectetl  with  its  use  of  part  of  the  pub- 
lic domain  of  a  city  under  a  grant  of 
the  same  by  statute,  and  the  assent  of 
the  city  authorities,  see  City  of  Macon 
«.  East  Tennessee,  Virginia  &  Georgia 
120 


Ry.  Co.,  82  Ga.  501;  s.  c,  9  S.  E.  Rep. 

1127. 

'  Robertson  r.  City  of  Rockford,  21 
111.  451;  Johnson  v.  Stark  County,  24 
111.  75;  Perkins  r.  Lewis,  24  111.  208; 
Butler  r.  Dunham,  27  III.  474. 

2  People  r.  Holden,  82  111.  93. 

•'  State  ex  rel.  Stow  «7.  aty  Council 
of  Montgomery,  (1883)  74  Ala.  226. 
In  Hunt  r.  Fawcett  et  al.,  County  Com- 
missioners, (Wash.  1894)  36  Pac.  Rep. 
318,  the  Supreme  Court  held,  in  a  tax- 
payer's action  against  the  commission- 
ers, that  he  was  entitled  to  an  injunc- 
tion to  restrain  them  from  issuing 
certain  bonds,  as  the  debt  proposed  to 


954 


MUNICIPAL  AID  BONDS—  CITY. 


[§459 


MUNICIPAL  AID  BONDS  —  CITY. 


955 


11 
Vm 


II 


was  also  held  that  the  issue  of  the  bonds  voted  could  not  be  com- 
pelled by  the  courts.'  A  municipal  coqwration  that  1"«  'aw- 
fully contracted  a  debt  for  legitimate  purposes  has  been  held,  by 
a  majority  of  the  Pennsylvania  Supreme  Court,  to  have  power, 
nnlei  restricted  by  its  charter,  or  prohibited  by  statute,  to  issue 
its  bonds  in  payment  of  the  debt;  further,  that  such  power  was 
not  restricted  by  a  special  statute  authorizing  the  corporation  to 
borrow  money  from  time  to  time,  for  city  purposes,  as  might  be 
required,  not  exceeding  a  certain  amount,  and  issue  bonds  there- 
for »  There  is  included  in  the  power  to  subscribe  to  the  stock  ot 
a  railroad  company  a  power  to  contract  a  debt  for  that  purpose  ; 
a  city  may,  therefore,  issue  its  bonds  for  such  a  subscription.      A 


" 


be  incurred  was  beyond  the  limitation 
of  indebtedness  allowed  the  corpora- 
tion to  incur  and  had  not  been  properly 
Tsitified  or  validated,  and  further  the 
arrangement  with  a  trust  company  for 
the  sale  of  the  bonds  by  which  the 
latter  was  to  be  allowed  commissions, 
etc.,  of  a  large  amount,  violated  the 
requirement  of  law  that  they  should 
not  sell  them  below  par. 

>  Cairo  &  St.  Louis  R.  R.  Co.  v.  City 
of  Sparta.  77  111.  505.     Where  a  stat- 
ute of  Tennessee  was  held  not  to  au- 
thorize an  election  for  l)onds  in  aid  of 
a  railrmid  corporation,  or  the  issue  of 
the  bonds  by  the  city,  and  the  bonds 
were  held  not  enforceable  by  the  hold- 
ers.   Norton    v.    Taxing    District   of 
Brownsville,  129  U.  S.  479:  s.  c.  9 
Sup.  Ct.  Rep.  322.     Where  it  was  held 
that  a  judgment  by  the  holder  upon 
some  of  the  bonds  did  not  estop  the 
city  from  claiming  that  the  statute 
authorizing  them  had  been  abrogated 
by  the   constitutional  amendment  of 
1870     Taxing  District  of  Brownsville 
r.  Wue,  129  U.  S.  493.  s.  c,  9  Sup. 
Ct.  Rep.  327.  holding  thtit  the  bond- 
holder was  not  entitled  to  a  mandamus 
to  compel  a  levy  of  taxes  to  pay  his 
judgments.     Bonds  of  a  city  in  Ilh- 
nois  held  to  be  invalid  by  reason  of 
non-completion  of  the  road  of  the  rail- 
road company,  in  aid  of  which  they 


were  voted  and  issued,  in  time,  in 
Eddy  t.  People,  127  111.  428;  s.  c.  20 
N.    E.    Rep.    83.     Where    municipal 
bonds  in  aid  of  a  railroad  have  been 
held  void  under  the   Constitution  of 
Illinois    of    1870.     Casey    r.    People, 
(111.)  24  N.  E.   Rep.  570.     Where  a 
statute  of  Missouri  providing  for  the 
funding  of  debts  of  incorporated  towns 
and*empowering  them  to  issue  their 
bonds  in  payment  of  such  indebted- 
ness, but  providing  for  no  vote  as  a 
prerequisite  to  their  issue,  was  held  in 
contravention  of  the  Constitution  of 
the  state  of  ISQT),  article  11,  section  14. 
Hill  r.  City  of  Memphis,  134  U.  S.  198; 
8.  c,  10  Sup.  Ct.  Rep.  562. 

« City  r.  Commonwealth,  84  Pa.  St. 
487;  s.  c  ,  4  W.  N.  C.  (Pa.)  385. 

3  Commonwealth  r.    Pittsburgh,   41 
Pa.      St.      278;      Commonwealth     r. 
Corars.  of  Allegheny.  43  Pa.  St.  400. 
As  to  power  in  municipal  corporations 
to  borrow  money,  implying  power  to 
issue  its  bonds  therefor,  see  Bunch's 
Exr.    r.    Fluvann^  County,  (1890)  86 
Va.    452:    Rogers    p.    Burlington,    3 
Wall.    654;    Seybert    r.    Pittsburg,   1 
Wall.    272;  Middleton    v.    Allegheny 
County,  37  Pa.  St.  241.     See,  as  to  the 
power  of  the  legislature  of   Iowa  to 
authorize  a  city  to  subscribe  for  and 
take  stock  in  a  railway  company,  to 
issue  its  bonds  therefor,  and  to  lay  a 


§460] 

municipal  subscription  to  the  stock  of  a  railroad  company  would 
not  be  invalidated  by  a  change  of  termini  of  the  road  in  the 
power  of  the  railroad  company  to  niake.^  Should  a  subscription 
in  aid  of  a  railroad  company  be  authorized,  on  conditions  subse- 
quent, the  issuing  of  bonds  in  payment  of  the  subscription  by 
the  municipality  would  be  evidence  either  of  performance  of  the 
conditions  by  the  railroad  company  or  a  waiver  of  the  conditions 
by  the  municipality. ^  Where  a  municipaHty  has  provided  funds 
to  meet  the  interest  on  its  bonds  at  maturity,  it  will  not  be  liable 
for  interest  on  the  bonds,  after  maturity .^  City  officers  have 
been  held  to  have  been  properly  enjoined  from  selhng  bonds  of 
the  city  below  par,  under  the  guise  of  allowing  commissions  upon 
the  sales,  in  Pennsylvania.* 

§  460.  Rules  as  to  such  bonds  settled  in  United  States 
Supreme  Court. — "The  following  propositions,"  Mr.  Justice 
Hunt  of  the  Supreme  Court  of  the  United  States,  in  an 
opinion  rendered  by  him,  has  said,  "may  be  considered  as 
settled  in  this  court :  (1)  If  an  election  or  other  fact  is  required 
to  authorize  the  issue  of  the  bonds  of  a  municipal  corporation, 
and  if  the  result  of  that  election  or  the  existence  of  that 
fact  is  by  law  to  be  ascertained  and  declared  by  any  judge,  officer 
or  tribunal,  and  that  judge,  officer  or  tribunal,  on  behalf  of  the 

'Friend  v.  City,  131  Pa.  St.  305. 
That  interest  is  recoverable  on  coupons 
after  payment  of  the  coupons  is  un- 
justly rejected  and  refused,  see  Mills 
r.  Jefferson,  20  Wis.  50;  Aurora  City 
r.  West,  7  Wall.  82;  North  Penn.  Rail- 
road V.  Adams,  54  Pa.  St.  94;  San 
Antonio  v.  Lane,  32  Tex.  405;  Brainerd 
V.  New  York  &  Harlem  R.  R.  Co.,  25 
N.  Y.  496;  Connecticut  Mut.  Life  Ins. 
Co.  V.  Cleveland,  etc.,  R.  R.  Co.,  41 
Barb.  9;  New  Albany  Plank  Road  Co. 
V.  Smith,  23  Ind.  353;  Morris  Canal  & 
Bkg.  Co.  r.  Lewis,  12  N.  J.  Eq.  323. 
As  to  the  power  of  municipalities  to 
contract  to  pay  interest  on  their  bonds, 
free  from  taxes,  see  Trust  Co.  p.  City, 
102  Pa.  St.  387. 

MVhelen's    Appeal,     108    Pa.     St. 
162. 


tax  to  pay  the  interest  thereon,  as  also 
its  power  to  give  validity  to  bonds  as 
formally  issued  for  such  purposes, 
Rogers  v.  Keokuk,  154  U.  S.  546,  fol- 
lowing Gelpcke  v.  Dubuque,  1  Wall. 
175.  See  Rogers  v.  Lee  County,  154 
U.  S.  547.  See  a  note,  1  Atl.  Rep. 
109,  as  to  power  to  issue  municipal 
bonds  and  the    rights    of    bona  fide 

holders. 

»  Commonwealth    v.  Pittsburgh,  41 

Pa.  St.  278. 

'Commonwealth  v.  Pittsburgh,  43 
Pa.  St.  391.  That  the  holders  of  old 
bonds  of  a  municipal  corporation  can- 
not be  compelled  to  receive  the  new 
bonds  authorized  by  a  statute  to  be 
issued  for  the  redemption  of  the  old 
ones,  at  a  premium  which  the  new 
bonds  may  command  in  the  market, 
see  Lloyd  r.  City,  134  Pa.  St.  545. 


956 


MUNICIPAL  AID  BONDS CITY. 


[§461 


corporation,  executes  or  issues  tlie  bonds,  with  a  recital  that  the 
election  has  been  held,  or  that  the  fact  exists,  or  has  taken  place, 
this  will  be  sufficient  evidence  of  the  fact  to  all  lona  fide  holders 
of  the  bonds.     (2)  If  there  be  lawful  authority  for  the  mumci- 
pahty  to  issue  its  bonds,  the  omission  of  formalities  and  ceremo- 
nies or  the  existence  of  fraud  on  the  part  of  the  agents  of  the 
municipality  issuing  the  bonds,  cannot  be  urged  agamst  a  lona 
fde  holder  seeking  to  enforce  them.^     (3)  There  must,  however, 
be  an  origmal  authority  by  statute  to  tlie  municipality  to  issue 
the  bonds.     Municipal  corporations  have  not  the  power,  except 
through  the  special  authority  of  the  legislature,  to  issue  corporate 
bonds  which  will  bind  their  towns ;  neither  have  they  the  ^ower 
to  sell  or  mortgage  the  lands  belonging  to  such  towns  without 
special  authority.^ 

s  461     Why  state  decisions  should  not  control  United 
States  Supreme  Court.— There  was  testimony  on  the  trial  of 
this  case  tending  to  prove  that  a  registration  had  been  made  of 
the  qualiiied  voters  of  the  county,  and  that  it  showed  over  1,000 
such  voters.     The  vote  cast  at  the  election,  upon  the  question  of 
subscription  of  bonds  in  aid  of  the  railroad  company  was  for 
the  subscription,  510,  and  against,  98  ;  that  is,  more  than  two- 
thirds  of  those  who  actually  voted  assented  to  the  subscription, 
but  not  two-thirds  of  the  qualified  voters  as  shown  by  the  regis- 
tration.    Several  decisions  of  the  Supreme  Court  of  Missoun 
the  state  in  which  was  the  county  making  the  subscription  and 
issuing  the  bonds,  were  cited  to  the  Supreme  Court  of  the  United 
States!  the  latest  being  that  of  State  v.  Harris,  96  Mo.  29  m 
which  that  court  had  held  that  two-thirds  of  those  actually  voting 
was  not  sufficient,  and  that  it  must  appear  that  two-thirds  of  the 
qualiiied  voters,  as  ascertained  by  the  registration,  assented  to  the 
subscription,  and  it  was  said   that  the   Supreme   Court   of  the 
United  States  should  follow  the  settled  construction  placed  upon  its 
statutes  by  the  Supreme  Court  of  the  state.     To  this  Mr.  Justice 
Brewer,  for  the  United   States  Supreme   Court,  said:      This 
question  has  been  thoroughly  discussed  in  this  court,  and  it  is 

r  Citing  Grand  Chute  ..  Winegar.  15       «  Kenicott  ..   Supervisors.  (1872)  16 
Wall    3^;    Commissioners  of    Knox   Wall.  452,  464,  465;    citing,  on  last 
County  .:  Aspinwall,  21  How.  539;    proposition.  Marsh..  Fulton  County. 
Gelpcke    V.    Dubuque,    1  Wall.   203;    10  WaU.  676. 
Moran  t.  Miami  County,  2  Black,  722. 


MUNICIPAL  AID  BONDS  —  CITY. 


957 


§  461] 

unnecessary  to  enter  into  a  re-examination  of  it.     These  decisions 
[from  Missouri]  were  made  after  the  issue  of  the  bonds,  and  can- 
not be  deemed  controlUng.''^     The  Supreme  Court  of  the  United 
States,  in  a  case  before  it  involving  the  vaUdity  of  an  act  of  the 
legislature  of  Wisconsin,  were  urged  that  the  court  was  bound  by 
a  decision  of  the  state  Supreme  Court  that  this  act  was  unconsti- 
tutional, reported  asWhitingv.FondduLacCompany,25  Wis.  188. 
The  court  declared  these  general  principles  that  it  would  follow, 
as  of  obligation,  the  decisions  of  the  state  courts  only  on  local 
questions  peculiar  to  themselves,  or  on  questions  respecting  the 
construction  of  their  own  Constitution  and  laws ;  that  whether  or 
not  the  construction  and  maintenance  of  a  railroad  owned  by  a 
corporation,  and  constructed  and  maintained  under  a  statute  of 
a  state  authorizing  such  construction  and  maintenance,  is  a  matter 
in  which  the  public  has  any  interest  of  such  a  nature  as  to  warrant 
taxation  by  a  municipal  division  of  the  state  in  aid  of  it,  is  not 
such  a  question.     It  is  one  of  general  law.     If  a  contract  when 
made  was  valid  under  the  Constitution  and  laws  of  a  state,  as 
they  had  been  previously  expounded  by  its  judicial  tribunals,  and 
as  they  were  understood  at  the  time,  no  subsequent  action  by  the 
legislature  or  the  judiciary  will  be  regarded  by  this  court  as  estab- 
lishing its  invalidity.     A  railroad  is  a  public  highway.     Being  so, 
and  thus  a  road  of  public  use,  a  state  may  impose  a  tax  in  fur- 
therance of  that  use,  even  though  the  road  itself  be  built  and 
owned  by  a  private   corporation.     These   principles   they  then 
applied  to  the  case  at  bar,  and  held  the  act  of  the  legislature  of 
Wisconsin,  authorizing  a  vote  of  the  people  of  this   particular 
county  upon  the  question  whether  they  would  aid  the  building  of 
a  certain  railroad,  and  if  they  voted  in  favor  of  aiding,  authoriz- 
ing the  issue  of  county  orders  for  money  to  aid  in  the  building,  to 
have  been  a  proper  exercise  of   legislative  authority,  and  the 
county  charged  on  orders  issued  by  it  and  given  to  the  road  by 
way  of  donation.^ 

»Knox  County  v.  Ninth  National  of  them  reviewed  were:  Havemeyerv. 
Bank,  (1893)  147  U.  S.  91,  99;  citing  Iowa  City,  3  Wall.  294;  Gelpcke  x. 
Cass  County  v.  Johnston,  95  U.S.  360;  City  of  Dubuque,  1  Wall.  175;  Ohio 
Daviess  County  v.  Huidekoper.  98  U.  Life  &  Trust  Company  ^^  Debolt,  16 
S  98;  Douglass  v.  Pike  County,  101  How.  432;  Pratt  v.  Brown.  3  Wis. 
U.  8.  677;  Carroll  County  t\  Smith,  111  612;  Bobbins  «.  Railroad  Company,  6 
U   s   556  Wis.  641;    Hasbrouck  v.   Milwaukee, 

•  Olcott  V.  Supervisors,  (1872)  16  13  Wis.  37;  Soens  v.  Racine,  10  Wis. 
Wall  678.    The  cases  cited  and  most   280;  Brodhead  v.  Milwaukee,  19  Wis. 


05S 


MUNICIPAL  AID  BONDS  —  CITY. 


[§462 


iil 


I 


r 

§462.  When  the  issue  of  aid  bonds  by  a  city  is  authorized. 
—The  city  council  of  an  Illinois  city,  in  conformity  with  a  vote 
of  the  people  at  an  election  which  had  been  authorized  by  a  reso- 
lution  of  that  body  previously,  passed  an  ordinance  erapowerinff 
and  directnig  the  mayor  to  subscribe  a  specified  amount,  payable 
in  city  bonds,  to  the  capital  stock  of  a  railroad  company,  a  Mis- 
souri corporation,  which  was  to  run  its  road  into  the  Illinois  city 
the  issue  and  payment  of  the  bonds  conditioned  upon  a  certain 
expenditure  m  a  certain  way  by  the  corporation,  with  a  guaranty 
that  the  proceeds  of  the  bonds  should  be  expended  in  that  man- 
ner.    The  next  day  the  subscription  was  made  by  the  mayor 
Afterwards,  the  general  assembly  of  Illinois,  by  act,  legalized  and 
confirmed  the  action  of  the  city  council  in  ordering  the  vote  and 
m  all  respects  whatever  relating  to  this  transaction.     A  part  of 
the  bonds  were  delivered  at  one  time  and  the  balance  later  after 
a  change  of  the  Constitution  of  the  state,  negotiable  in  form  and 
payable  to  the  order  of  the  railroad  company  or  bearer,  at  a  cer- 
tain bank  in  New  York  city,  they  purporting  to  have  been  issued 
under  and  by  virtue  of  the  ordinance  first  passed  and  of  the  act 
of  the  legislature  legalizing  and  confirming  the  action  of  the  coun- 
cil.    In  an  action  upon  coupons  taken  from  some  of  the  bonds 
first  delivered,  to  recover  the  amount  due  upon  the  coupons,  the 
findings  of  the  court  were  that  all  the  bonds  from  which  the 
coupons  were  detached    had  been  purchased  for  value  before 
maturity,  in  open  market  in  the  usual  course  of  business  and  with- 
out  notice  of  any  infirmity  therein  ;  that  the  conditions  on  the 
part  of  the  railroad  company  had  been  complied  with,  and  that 
the  city,  for  six  years  after  issuing  the  bonds,  had  paid  the  inter- 
est  upon  the  bonds,  and  by  its  agent  in  meetings  of  the  corporar 
tion  had  voted  upon  its  stock.     In  the  action  the  validity  of  the 
bonds  was  brought  in  question.     The   Supreme   Court  of  the 
United  States  held  that  the  authority  of  the  city  to  issue  these 
bonds  was  not  determinable  by  the  provisions  of  the  Constitution 
of  1870,  which  — saving  municipal   subscriptions  made  under 
existmg  laws  by  a  popular  vote  prior  to  its  adoption  —  declared 

662;  Clark  ..  Janesville,  10  Wis.  136;  Worcester  ..Railroad  Company.  4 Met 

Bushnell ..  Beloit.  10  Wis.  195;  Beek-  564;  Charles  River  Bridge  /waVren 

man  ..Saratoga  &  Schenectady  R.  R.  Bridge.  7  Pick.  495;  Gibbons  ..  Mobile 

Co    3P&,ge,45;  Bloodgoodi^.Mohawk  &  Great  Northern  R.  R.  Co.,  86  Ala 

&  Hudson  R.   R.   Co.,   18  Wend.  1;  410. 


§402] 


MUNICIPAL  AID  BONDS  —  CITY. 


959 


that  "  No  county,  city,  town,  township  or  other  municipality  shall 
ever  become  subscriber  to  the  capital  stock  of  any  railroad  or 
private  corporation  or  make  donation  to  or  loan  its  credit  in  aid 
of  such  corporation  :     Provided,  however,  that  the  adoption  of 
this  article  shall  not  be  construed  as  affecting  the  rights  of  any 
such  municipality  to  make  such  subscriptions  when  the  same  have 
been  autliorized,  undei-  existing  laws,  by  a  vote  of  the  people  of 
such   municipalities   prior   to   such   adoption."     "  This  is  quite 
clear,"  it  is  said  in  the  opinion  rendered,  "  in  view  of  section  24 
of  the  schedule  of  that  Constitution,  which  provides :     '  :N"othin2: 
contained  in  this  Constitution  shall  be  so  construed  as  to  deprive 
the  general  assembly  of  the  power  to  authorize  the  city  of  Qnincy 
to  create  any  indebtedness  for  railroad  or  municipal  purposes  for 
which  the  people  of  said  city  shall  have  voted,  and  to  which  they 
shall  have  given  by  sucli  vote  their  assent  prior  to  [a  certain 
date] '  "  with  some  provisions.' 

•Quincy..  Cooke.  (1882)  107  U.  S.    act  further  provided:     'Any  election 
.549.     Mr     Justice    Haklan.    in    the    held  in  said  city  prior  to  said  day,  for 
opinion,  then  referred  to  an  Illinois  de-    the  purpose  of  such  vote  being  token 
cision    a«    follows:      "The    Supreme   and  any  contract  or  subscription  made,' 
Court  of  IlhncHs  in  Q.,  M.  &P.  R.  R.    or  to  be  made,  by  said  city  to  th; 
Co.  r.  Morns.  84  111.  410.  had  occasion    capital  stock  of  said  railroad  company 
to  consider  the  scope  and  effect  of  that   in  pursuance  thereof,  and  an v  bonds 
section.     In  that  case  an  election  was    or  other  evidences  of  such  indebted- 
held  August  7,  1869.  under  the  author-    ness  issued  or  to  be  issued  by  said  city 
ity  of  a  resolution  of  the  city  council,    are    hereby    declared    valid'     Under 
to  take  the  sense  of  the  people  upon  a   that  act   the  subscription   was  made 
subscription  to  the  capital  stock  of  the   and  bonds  issued,  and  the  controlling 
Qumcy.  Missouri  and  Pacific  Railroad    question  was  as  to  their  validity     The 
Company,  also  a  Missouri  corporation,    court,  waiving  any  expression  of  opin- 
whose  road    lay   wholly  within  that    ion  as  to  the  validity  of  that  part  of 
state.     That  election  was  held  without    the  act  which  in   terms  purported  to 
any   law  authorizing  a  vote   on   the    legalize  the  election,  decided:    That 
question,  or  empowering  the  city  to   the  obvious  effect   and   intent  of  the 
become  a  stockholder  in  that  company,    twenty-fourth  section  of  the  schedule 
But.  by  an  act  passed  July  1,  1871,    of  the  Constitution  were  to  leave  the 
after  the  Constitution  of  1870    went   action  of  the  city  of  Quincy  in  assum- 
mto  operation,   the  city    of    Quincy.    ing  by  vote  prior  to  December  13,  1869. 
subject  to  the  terms  and  requirements   to  create  indebtedness  for  a  railroad 
embodied  in  the  proposition  submitted    subscription  and  the  power  of  the  leg- 
to  the  people,  was  authorized  to  make,    islature    over  it,    'unaffected  by  the 
upon  such  conditions  as  the  city  coun-    Constitution  of  1870;  in  other  words, 
oil  deemed  best,  a  subscription  to  the   to  leave  the  vote  and  the  power  of  the 
stock  of  that  company,  for  which  the   legislature  to  confer  the  right  to  take 
people  may  have  voted  prior  to  the   stock  precisely  as  they  would  have 
thirteenth  day  of  December,  1869.  The   been  under  the  Constitution  of  1848- ' 


960 


MUNICIPAL  AID  BONDS  —  CITY. 


[§463 


§  463.  When  the  right  to  municipal  aid  is  lost  by  delay 
in  constructing  road. —  A  special  law  empowering  a  municipal 
corporation  of  Minnesota  to  issue  its  bonds  in  aid  of  the  construc- 
tion of  a  railroad  provided  for  a  popular  vote  upon  the  proposi- 
tion to  issue  bonds ;  that  the  proposal  to  be  voted  on  should  desig- 
nate the  period  withm  which  the  road  must  he  built  in  order  to 
entitle  it  to  tfie  benefit  of  the  bonds  ;  that  the  bonds  when  voted 
should  be  delivered  "  in  escrow  "  to  designated  persons  as  com- 
missioners, to  be  by  them  delivered  to  the  railroad  company  upon 
full  and  complete  compliance  with  the  terms  of  the  act ;  and 
that  if  the  company  should  fail  to  comply  with  such  conditions  it 
should  be  the 'duty  of  such  commissioners  to /brMwu^A  return 
the  bonds  to  the  city  council.     Such  a  proposal,  fixing  the  first  of 
November  as  the  time  within  which  a  railroad  should  be  com- 
pleted into  the  city  ready  for  operation,  was  submitted  to  the 
people,  and  the  vote  was  in  favor  of  issuing  the  bonds.     The 
road  was  to  be  built  partly  across  the  right  of  way  of  another 
company,  and  the  latter  had  it  enjoined  from  crossing.     From 
this  came  delay,  and  the  road  of  the  company  which  was  to  be 
aided  by  the  bonds  was  not  completed  and  in  full  operation  until 
the   fifteenth   of    November.      Certain   taxpayers   of    the    city 
brought  an  action  to  restrain  the  commissioners  holding  the  bonds 
from  delivering  them  to  the  railroad  company,  and  they  were  by 
judgment  of  the  court  perpetually  enjoined.     The   case   was 
appealed  to  the  Supreme  Court  of  the  state,  and  that  court  held 
that  the  completion  of  the  road  by  the  time  specified  was  a  con- 
dition precedent,  and  that  by  reason  of  the  failure  of  the  company 
to  comply  therewith  it  was  not  entitled  to  the  bonds.* 


that  the  city  council  were  the  corpo- 
rate authorities  of  Quincy,  upon  whom, 
within  the  meaning  of  the  Constitution 
of  1&48.  the  legislature  could  confer, 
without  the  intervention  of  a  popular 
vote,  authority  to  make  the  subscrip- 
tion and  issue  the  bonds;  that  section 
24  of  that  schedule  embraced  a  vote 
taken  without  authority  of  law  prior 
to  December  13, 1869,  because,  had  the 
vote  been  legal,  the  language  *  for 
which  the  people  of  said  city  shall 
have  voted,  and  to  which  they  shall 
have  given,  by  such  vote,  their  as- 
■exit/  would  have  been  unnecessary 


in  view  of  the  proviso  in  the  general 
section  forbidding  municipal  subscrip- 
tions in  aid  of  railroad  corporations; 
lastly,  that  the  construction  of  the 
Quincy,  Missouri  and  Pacific  railroad, 
although  no  part  of  it  lay  in  Illinois, 
was  a  corporate  purpose  of  the  city  of 
Quincy,  because  thereby  its  trade  and 
commerce  were  increased,  its  property 
enhanced  in  value  and  its  welfare 
promoted." 

'  McManus  v.  Duluth,  Crookston  & 
Northern  R.  Co.,  (1892)  51  Minn.  80; 
8.  c,  52  N.  W.  Rep.  980.  Arguendo, 
the  court  said :  "  While  the  provisioDd 


§464] 


MUNICIPAL  AID  BONDS  —  CrFY. 


901 


§  464.  The  election  as  to  aid  and  the  effect  of  curative 
legislation.— The  power  of  the  city  to  issue  the  bonds  involved 
in  this  case  was  denied  upon  these  principal  grounds :  1.  That 
the  election  held  under  the  sanction  of  tlie  city  council,  and  the 
action  of  that  body  in  directing  the  subscription  to  be  made  were 
of  no  legal  effect,  since  the  election  was  held  without  authority 
of  law,  and  otlier  subscriptions  were  made  when  there  was  no 
legislative  authority  to  create  such  indebtedness.     2.  That  with- 


of  the  special  act  constituted  a  part  of 
the  proposal  of  the  railroad  company, 
and  of  the   petition   upon   which   the 
vote  was  taken,  it  was  more  than  a 
mere  term  or  element  in  a  contract. 
It  was  a  law  controlling  the  action  of 
the  city.     The  municipality  had  only 
such  power  as  was  conferred  by  this 
act  to  issue  bonds  in  aid  of  this  under- 
taking.    Whatever  conditions  the  law 
imposed,   relating  to  the  exercise  of 
this  power,  must  be  complied  with. 
The  power  conferred   by  the  legisla- 
ture is  not  to  be  extended,  nor  the  ex- 
press conditions  restricted,  by  doubt- 
ful construction.      Dill.    Mun.   Corp. 
90,   91."    The    court,  construing  the 
act,    further  said:    "The  period   for 
construction,  under  the  act  referred 
to,  cannot  be  regarded  as  unessential 
and  as  not  intended    to    be    strictly 
complied  with   without  disregarding 
language,  the  plain,  natural  import  of 
which  is  to  the  contrary,  or  at  least 
without  a  free,  liberal  construction  in 
favor  of  those    claiming    under    the 
power,  contmry  to  the  rule  of  con- 
struction in  such  cases.     In  the  sig 


nificant  language  which  we  have  re- 
cited there  is  little  room  for  construc- 
tion or  for  doubt  as  to  the  meaning. 
'  The  period  within  which  said  road 
must  he  built,  *  *  *  in  order  to  en- 
title said  railroad  to  tlie  benefit  of  the 
bonds'  was  required  to  be  and  was 
stated  in  the  petition  or  proposal  upon 
which  the  people  voted.  It  was  re- 
quired to  be,  and  was.  one  of  the  con- 
ditions of  the  contract  thus  entered 
121 


into.     The  ordinary,  natural  import  of 
the  language  is  that  '  in  wder  to  en- 
title   said  railroad    company'   to   the 
bonds   voted  it  '  must '    construct  the 
road  within  the  period  of  time  stated. 
Further  provisions  of  the  law,  above 
recited,   make  even    more    clear  the 
correctness  of  this  construction.     As 
has  just  been  said,  this  provision  as  to 
the  time    for    construction    was   cer- 
tainly  one  of  the  conditions  or  terms 
upon  which  the  bonds  were  to  be,  and 
were  voted.     It  is  one  of  the    '  condi- 
ditions '  afterwards   referred  to  in  the 
act,  where  it  is  said  that  if  the  com- 
pany shall    '  fail  to  comply  with  such 
conditions '  it  shall  be  the  duty  of  the 
commissioners    to    'forthwith*  return 
the  bonds  to  the  city  council,  which  is 
as  much  as  to  sjiy  that  they  are  not  to 
be  delivered  to  the  railroad  company. 
It  may  be  added  that  the  proposal  of 
the  railroad  company,  which  was  in- 
corporated in  the  petition  for  the  elec- 
tion, and  upon  which  the  bonds  were 
voted,   was   'to  build  and   complete 
ready    for    operation,    by    or    before 
November  1,  1889.'    In  support  of  the 
conclusion  that  the   provision  in   the 
law  and  in  the  contract,  as  to  the  time 
within  which  the  road  should  be  con- 
structed, was  in  the  nature  of  a  condi- 
tion precedent,  and  that  by  reason  of 
its  failure  to  comply  with  that  require- 
ment the  railroad  is  not  entitled  to  the 
bonds,  may  be  cited  Bohn  Mfg.  Co.  r. 
Lewis,  45  Minn.   164;   s.  c,  47  N.  W. 
Rep.  652;  Winona  v.   Minnesota   Ry. 
Const.  Co.,  27  Minn.  415;  s.  c,  6  N. 


* 


r! 


D62 


MUNICIPAL.  AID  BONDS  —  CITT. 


[§  404 


§405] 


MUNICIPAL  AID  BONDS CITY. 


963 


out  such  authority  no  subscription  could  be  legally  made.  3. 
That  the  curative  act  of  March  27,  1869  [legalizing  the  bonds, 
etc.],  was  invalid,  because  it  assumed  to  impose  indebtedness  upon 
the  city  without  the  consent  of  its  corporate  authorities.  The 
Supreme  Court  of  tlie  United  States  held  that  the  corporate 
authorities  of  the  city,  after  the  passage  of  the  act  legalizing  the 
bonds,  had  authoritv  to  issue  thcm.^ 


W.  Rep.  795,  and  8  N.  W.  liop.  148; 
Hodgmau  r.  Chicago  vfe  St.  P.  Ky.  Co., 
20  Minn.  48;  Memphis,  K.  &  C  iJ}. 
Co.  i\  Thompson,  '.U  Kans.  170;  Fal- 
coner r.  Buffalo  &  J.  H.  Co..  69  N.  Y. 
491;  Portland  &  O.  C.  R.  Co.  r.  In- 
habitants. it<'..  of  Hartford,  o^  Mo.  23; 
Eddy  r.  People,  127  111.  428;  s.  c,  20 
N.  E.  Rep.  83." 

»  Quincy  r.   Cooke,  107  IT.  S.  549. 
It  was  said  by  the  court:  "  In  support 
of   the  position  taken  by    the   city, 
counsel  reftr  to  numerous  decisions  of 
the   Supreme  Court  of  Illinois,   con- 
struing the  [section]  of  the  Constitu- 
tion of  1848  which  provides  that  *  the 
corporate     authorities     of     counties, 
townships,     school     districts,     cities, 
towns    and  villages  may    be    vested 
with  power  to  assess  and  collect  taxes 
for  corporate  purposes.'     From  those 
decisions  the  following  propositions, 
among  others,  may  be  deduced:  That 
the  clause  was  intended  to  define  as 
well  the  class  of    municipal  officers 
upon  whom  the  power  of  taxation,  for 
local  purposes,  might  be  conferred,  as 
the  purposes  for  which  such  power 
could  be    constitutionally    exercised; 
that  by  the  phrase  '  corporate  authori- 
ties '  must  be  understood  those  munici- 
pal officers  who  were  selected  with 
some    reference    to    the     creation    of 
municipal  indebtedness,  and  who  were 
either  directly  elected  by  the  popula- 
tion to  be  taxed,  or  appointed  in  some 
mode  to  which  they  have  given  their 
assent;  that  the  construction  of  a  rail- 
road, at  least  one  within  or  near  a 
county,   township,   town,   village    or 


city,  was  a  corporate  purpose  of  such 
municipality,   and   that  a  debt  for  a 
subscription  to  the  stock  of  a  railroad 
corporation,  or  for  bonds  in  payment 
thereof,  could  not  be  imposed  upon  a 
municipal     corporation    without    tlir 
consent  or  against  the  will  of  its  cor 
porate  authorities.     But   it  has  been 
quite  as  distinctly  ruled  by  the  Su- 
preme Ctmrt  of  Illinois  that  the  city 
council,  and  not  the  voters  of  an  in- 
corporated   city,   were   its    corporate 
authorities  within  the  meaning  of  the 
Constitution    of    1848.    and    if    em- 
powered    by     legislative    enactment 
could,    under    that    instrument,   sub- 
scribe to  the  stock  of  a  railroad  corpo- 
ration, and   issue  bonds  in   payment 
thereof,  without  submitting  the  mat- 
ter to  popular  vote.     Such  was  the 
decision  in  Q..  M.  &  P.   R.  R    Co.  f>. 
Morris,  84  111.  410,  where  the  court 
reaffirmed  the  ruling  upon  this  point 
in  Keithsburg   v.    Frick,   34  111.  405, 
421.     In  the  latter  case  a  subscription 
made  by  a  town  to  the  capital  stock  of 
a  railroad   corporation  —  without  au 
thority  of  law,  as  was  alleged  — was, 
by  an  act  passed  after  the  town  was  in- 
corporated under  a  special  charter,  de- 
clared to  be  legal,  and  bonds  author- 
ized to  be  issued  therefor.     The  court 
said:  '  It  is  by  no  means  a  necessary 
element  in  these    subscriptions    that 
there  should  be  a  vote  of  the  inhabit- 
ants of  the  town  or  city  authorizing 
them.     It  is  competent  for  the  legisla- 
ture to  bestow  the  power  directly  on 
the  corporation    without    any    inter- 
mediary, as  they  did  in  this  case.'    In 


§465.  This  case*  distinguished   from  others.— The  court 
distinguished  this  case  as  follows :  "  This  case  is  clearly  distin- 
giiishahle  from  those  in  which  the  legislature  has  attempted  to 
impose  upon  a  municipal  corporation,  without  the  consent  of  its 
corporate  authorities,  an  indebtedness  for  subscription  to  the  cor- 
porate stock  of  a  railroad  corporation.     The  cases  mainly  relied 
on  by  counsel  for  the  city  are  those  in  which  certain  officers  of 
limited  authority  were,  in   terms  or  in  effect,  required  by  legis- 
lative enactment  to  issue  bonds  or  incur  indebtedness  in  the  name 
of  a  municipality,  without  the  consent,  expressed  in  legal  form, 
of  those  who   were,  in   the   constitutional   sense,   its   corporate 
authorities.     Here  tliere   can  be  no  question  but  that  the  city 
council  are  the  corj^orate  authorities  of  Quincy.     And  there  is  no 
ground  whatever   upon  which   to   rest   the  suggestion  that  the 
indebtedness  was  created  without  their  consent.     In  no  just  sense 
were  they  compelled  to  issue  bonds  in  exchange  for  stock  in  the 
railroad  company.     If,  as  claimed  by  the  city,  the  act  of  March 
27,  1860,  was  inoperative  in  so  far  as  it  assumed  to  legalize  and 
confirm  what  had  been  previously  done  without  the  sanction  of 
law,  nevertheless  by  that  act  it  was  intended  to  confer  upon  the 
city   council   power,  in   execution  of  the  expressed  will  of  the 


Marshall  r.  Silliman,  61  111.  218,  225, 
the  right  of  the  legislature  to  grant 
such  an  authority  to  the  trustees  of 
an  incorporated  town  was  conceded. 
And  in  AYilliams  v.  Town  of  Roberts, 
88  III.  11,  21,  the  court,  speaking  by 
ScHOLPiELD,  Ch.  J.,  said:  'County 
boards,  such  as  boards  of  supervisors, 
county  commissioners,  etc.,  and  the 
municipal  authorities  of  incorporated 
cities,  towns  and  villages,  may,  when 
empowered  so  to  do  by  proper  legisla- 
tion, subscribe  for  the  stock  of  rail- 
road corporations  without  first  submit- 
ting the  question  to  the  electors  of  the 
municipality.  They  are  elected  as 
representatives  of  the  electors,  and 
theoretically,  in  appropriate  cases,  their 
acts  are  the  acts  of  those  they  repre- 
sent. Hence  it  has  been  held  where  a 
vote  of  the  electors  has  been  required 
as  a  precedent  condition  to  the  making 
of  a  subscription  for  stock  in  a  rail- 


road company,  and  the  law  prescribing 
the  mode  of  calling  and  holding  the 
election  has  not  been  observed,  inas- 
much as  the  legislature  might  have 
empowered  the  municipal  authorities 
to  make  the  subscription  without  first 
submitting  the  question  to  the  electors, 
it  may,  by  a  subsequent  enactment, 
declare  the  non-compliance  with  the 
law  in  the  holding  of  the  election  of 
no  consequence,  and  validate  the  sub- 
scription, in  other  words,  validate  the 
subscription  without  reference  to  the 
election.  This,  however,  it  will  be 
observed,  is  upon  the  theory  that 
power  to  make  the  subscription  does 
not  in  any  degree  necessarily  depend 
upon  a  vote  of  the  electors  of  the 
municipality  upon  that  question,  but 
solely  upon  the  will  of  the  legislature.' 
The  authorities  to  which  we  have  re- 
ferred sustain  the  judgment  against 
the  city." 


Ii 


,1 


964 


MUNICIPAL  AID  BONDS CITY. 


460, 407 


n 


II 


voters,  to  issue  bonds  to  the  amount  of  $10c%000  for  stock  in  this 
railroad  company.  The  vote  of  tlie  electors,  we  have  seen,  was 
not  essential  to  the  validity  of  bonds  issued,  under  legislative 
sanction,  by  the  corporate  authorities  of  the  city.  The  city  coun- 
cil was  not  required  and  directed,  but  only  empowered,  to  proceed 
as  if  they  had  l)een  originally  invested  with  authority  to  make  the 
subscription.  The  legislature,  in  substance,  declared,  as  it  might 
constitutionally  have  done,  that  the  corporate  authorities  of  the 
city  had  its  consent  to  issue  bonds  to  be  exchanged  for  stock  in 
the  railroad  company.  If  the  corporate  authorities  could  have 
been  compelled  by  legal  proceedings  to  issue  the  bonds,  that  is 
only  another  form  of  saying  that  the  curative  act  was  constitu- 
tional, and,  consequently,  that  the  bonds  are  valid.  If,  however, 
they  could  not  have  been  so  compelled,  then  the  execution  and 
delivery  of  tlie  bonds,  under  the  authority  of  the  act  of  March 
27,  1809,  was  a  voluntary  creation  of  indebtedness  for  a  corporate 
purpose  by  the  corporate  authorities  of  the  city."^ 

§  466.  Aid  to  railroad  outside  the  state. —  The  question  was 
raised  in  an  Illinois  case  wdiether  a  subscription  by  a  city  of  that 
state  to  the  stock  of  a  railroad  lyinsc  wholly  in  the  state  of  Mis- 
souri,  was  authorized  as  being  for  a  corporate  purpose.  The 
Supreme  Court  held  that  the  debt  was  legally  created  for  a  cor- 
porate purpose.'* 

§  467.  Estoppel  of  a  city  to  claim  that  bonds  were  improp- 
erly issued. — Bonds  of  a  city  of  Mississippi,  which  had  been 
donated  to  a  consolidated  railroad  company  l)y  authority  of  an 
act  of    the  legislature   of   that   state,   the    preliminary  vote  as 


» Quincy  r.  Cooke,  (1882)  107  U.  S. 
549,  555,  556. 

*  Quincy,  Missouri  &  Pacific  R  R. 
Co.  r.  MoVris,  (1877)  84  111.  411.  That 
cities  or  counties  of  one  state  may  aid 
in  the  construction  of  a  railroad  that 
lies  in  another  state,  see  Railroad  Com- 
pany V.  County  of  Otoe,  10  AVall.  667; 
Walker  v.  Cincinnati,  21  Ohio  St.  14; 
McCallie  v.  Mayor,  etc.,  3  Head,  317; 
St.  Joseph  &  Denver  R.  R.  Co.  f.  Bu- 
chanan County,  39  Mo.  485;  Bell  v. 
Railroad  Co.,  4  Wall.  598;  Copes  r. 
Charleston,  10  Rich.  (S.  C.)491;  Stein 
V.  Mobile,   24  Ala.   591.     The  same 


principle  recoijnized  in  Sharpless  v. 
Mayor,  etc.,  21  Pa.  St.  147;  Gelpcke??. 
Dubuque,  1  Wall.  175;  Goddin  v. 
Crump.  8  Leigh,  120.  That  subscrip- 
tions to  stock  of  railroads  on  the  part 
of  cities  or  other  municipal  corpora- 
tions, may  be  authorized  by  the  legis- 
lature, and  that  such  subscriptions  are 
for  a  "corporate  purpose,"  as  con- 
strued in  Illinois,  see  Prettyman  v. 
Tazewell  County,  19  III.  406;  Johnson 
r.  Stark  County,  24  111.  88;  Taylor  v. 
Thompson,  42  111.  9;  Chicago,  Dan- 
ville &  Vincenncs  R.  R.  Co.  r.  Smith, 
62  111.  368. 


4G8] 


MUNICIPAL  AID  BONDS CITY. 


965 


required  by  statute  and  other  conditions  having  been  complied 
with  as  determined  by  the  city  authorities  for  another  company, 
which  became  a  part  of  the  consolidated  company,  a  federal  court 
held  were  legally  issued  to  the  latter.  The  city  authorities,  in  an 
action  upon  overdue  coupons  upon  some  of  tlie  bonds,  were  held 
to  be  estopped,  as  against  an  innocent  purchaser,  having  issued 
and  delivered  the  bonds  with  proper  recitals,  from  alleging  that 
they  acted  wrongfully.*  Neither  could  they  set  up  as  a  defense 
that  the  consolidated  company  was  authorized  to  build  a  different 
road  from  the  one  originally  chartered,  and  to  leave  such  city  off 
its  line  entirely.^ 

§  468.  What  will  not  affect  the  rights  of  bona  fide  bond- 
holders.—In  one  of  tlie  most  recent  cases  before  the  Supreme 
Court  of  tlie  United  States,  involving  the  right  of  hana  Jide  hold- 
ers of  the  bonds  of  a  municipal  corporation,  a  city,  which  bonds 
were  issued  in  payment  of  a  subscription  to  stock  of  a  railroad 
company  in  accordance  with   the  laws  of  Illinois  prior  to   the 
adoption  of  the  Constitution  of  1870,  the  restrictions  of  this  Con- 
stitution as  to  donations  of  municipal  corporations  was  invoked  to 
prevent  a  recovery  upon  the  coupons  attached  to  some  of  those 
bonds  upon  which  an  action  was  brought  by  such  a  holder.     It 
appeared  that  the  l)onds,  in  accordance  with  regular  proceedings 
of  the  city  council,  were  executed  and  delivered  after  certain 
agreements  had  been  entered  into  between  the  city  and  the  rail- 
road company,  in  exchange  for  the  same  amount  of  its  shares  of 
stock  which  had  been  subscribed  for  by  the  city,  and  that  after- 
wards the  city  had  sold  this  stock  to  the  company,  the  company 
returning  as  a  consideration  for  the  same  $5,000  of  the  bonds  of 
the  city.     This,  it  was  contended,  made,  as  a  resultant  fact,  the 
transaction  a  donation  of  $95,000  of  the  bonds  to  the  companv, 
such  a  donation  as  was  prohibited  by  the  State  Constitution  of 
1870.     The  court  held  that  if  the  disposition  of  the  stock  made 


'  Denison  r.  Mayor,  etc.,  of  City  of 
Columbus.  (1894)  62  Fed.  Rep.  775; 
citing  Block  v.  Commissioners,  99  U. 
S.  686;  Commissioners  v.  January,  94 
U.  S.  202;  Commissioners  v.  Clark,  94 
U.  8.  278;  Brooklyn  v.  Insurance  Co., 
99  U.  S.  362;  Moran  v.  Commission- 
ers, 2  Black,  722. 

*  Denison  r.  Mayor,  etc.,  of  Ciiy  of 
Columbus,  (1894)  62  Fed.  Rep.   775. 


The  court  said:  "  The  rule  is  that,  if 
bonds  are  voted  to  a  railroad  company 
which  at  that  time  is  authorized  to  con- 
soHdate  with  other  railroads,  then  the 
bonds  may  properly  be  delivered  to  the 
consohdated  company."  Citing  Liv- 
ingston County  V.  First  Nat.  Bank,  128 
U.  8.  102;  s.  c,  9  8up.  Ct.  Rep.  18,  as 
announcing  the  doctrine  and  reviewing 
the  authorities. 


1. 


(• 


066  MUNICIPAL  AID  BONDS  —  CITY.  [§  400 

hj  the  eitj  authorities  was  even  wrong  the  vahdity  of  the  bonds 
was  not  affected  tliereby ;  neitlier  could  such  wrong,  if  it  was  a 
wrong,  he  ]>resented  as  a  defense  against  one  who  had  purchased 
ill  good  faith  the  bonds  thus  issued.^ 

§  469.  When  a  purchaser  of  void  municipal  bond  cannot 
maintain  an  action  for  money  had  and  received. —  The  bonds 


h 


«  Cairo  r.  Zanc,  (1893)  149  U.  S.  122. 
Mr.  Justice  Buewkr,  speaking  for  the 
court,  said:  "  In  the  case  of  Anderson 
County  Commissioners  v.  Beul.  113  U. 
8.  227,  it  appeared  that  after  tlie  bonds 
had  been  voted  by  the  county,  at  an 
election  held  on  September  13,  18C0, 
the  county  board,  on  November  5, 
passed  an  order  directing  a  subscrip- 
tion in  accordance  with  the  terms  of 
the  vote,  and  also  *  that  the  stock  above 
subscribed  for  by  this  board  in  behalf 
of  Anderson  county  is  hereby  sold  and 
transferred  for  and  in  consideration  of 
the  sum  of  one  dollar,  the  receipt 
whereof  is  hereby  acknowledged,  to 
James  F.  Joy,  president  of  said  rail- 
road company,  and  the  chairman  of 
this  board  is  authorized  to  sign  a  trans- 
fer of  ssiid  stock  tosiud  James  F.  Joy. 
and  to  assign  the  ccrtiticate  for  said 
stock  issued  to  Anderson  county  by 
said  railroad  company,  and  to  author- 
ize in  such  assignment  the  ne<'essjiry 
transfer  of  said  stock  on  the  books  of 
said  company.'  And  it  was  averred 
that  the  transfer  thus  ordered  was  for 
the  benefit  of  the  railroad  company. 
In  reference  to  this,  Mr.  Justice 
Blatchford,  speaking  for  the  court, 
observed  (p.  240):  '  When  the  bonds 
were  dehvered  to  the  company  the 
transiiction  was  complete,  and  the 
l>onds,  as  they  afterwards  passed  to 
hjiiafide  holders,  passed  free  from  any 
impairment  by  reason  of  any  dealing 
by  the  l)oard  with  the  stock  subscribed 
for  to  which  the  county  became  enti- 
tled by  the  issuing  and  delivering  of 
the  bonds.  The  boanl  may  have  com- 
mitted an  improper  act  in  parting  with 
the  stock,  but  that  is  no  concern  of  a 


bonajiile  holder  of  the  bonds  or  cou- 
pons.' And  in  IMaxcy  v.  Williamson 
County,  72  111.  207,  it  appeared,  as 
here,  that  after  an  election  authorizing 
a  subscription  of  cno  hundred  thou- 
sand dollars  to  the  .vtock  of  a  railroad 
company,  the  County  Court  entered 
into  an  agreement  to  sell  the  one  hun- 
dred thousand  dollars  of  stock  to  the 
railroad  company  for  five  thousand 
dollars,  a  transaction,  it  will  be  per- 
ceived, precisely  like  the  one  before 
us.  The  validity  of  the  bonds  tiius 
issued  in  payment  of  this  subscription 
was  thereafter  challenged  in  a  suit  by 
taxpayers  to  restrain  the  collection  of 
taxes  levied  to  pay  the  interest  thereon. 
Their  validity  was  sustained,  and  in 
resjiect  to  this  transfer  of  the  stock  the 
court,  on  page  212,  says:  '  We  fail  to 
perceive  how  the  sale  of  the  certificate 
of  stock  to  the  company  for  five  thou- 
sand dollars  can  in  any  manner  affect 
the  rights  of  the  holders  of  the  bonds 
of  the  county.  It  surely  is  not  in- 
tended to  be  insisted  that  because  the 
county  has,  by  any  means,  lost  the 
consideration  it  received  for  the  bonds 
innocent  holders  who  had  nothing 
whatever  to  do  with  the  sale  of  the 
certificate  must  lose  their  bonds.'  It 
is  sjud  that  a  different  rule  has  since 
been  established  in  Illinois,  and  the 
cases  of  Choisser  r.  The  People,  140  111. 
21,  and  of  Post  t.  Pulaski  County,  de- 
cided by  the  Circuit  Court  of  Appeals 
for  the  seventh  circuit  (9U.  S.  App.  1), 
are  cited.  But  even  if  this  were  so,  it 
was  not  established  until  long  after  the 
plaintiff  had  purchasetl  these  bonds,and 
he  would  doubtless  be  entitled  to  claim 
the  benefit  of  the  rule  existing  when 


§  4C9] 


MUNICIPAL  AID  BONDS CITY. 


9G7 


of  the  city  sued  liere  being  void  because  issued  under  an  act 
whicli  violated  the  constitutional  provision  in  Missouri  declaring 
that  the  general  assembly  shall  not  authorize  any  city  to  loan  its 
credit  to  any  corporation  unless  two-thirds  of  the  qualified  voters 
assent  thereto,  it  was  held  by  the  federal  court  that  the  purchaser 


he  made  his  purchase;  and  the  facts  as 
they  appear  in  these  two  cases  are  sub- 
stantially unlike  those  in  the  case  be- 
fore us.     Thus,  in  Choisser  r.  The  Peo- 
])le,  the  vote  to  subscribe  one  hundred 
thousand  dollars  of  stock  was  on  Oc- 
tober 5,  1867,  and  on  November  28,  fol- 
lowing,   an    agreement    was    entered 
into  between    the  company  and   the 
County  Court,  acting  on  behalf  of  the 
rounty,    that    one   hundred  thousand 
dollars  in  stock  should  be  issued,  but 
that  the  stock  should  be  returned  back 
to  the  company  for  the  sum  of  five 
thousand  dollars,  payable  on  the  re- 
delivery to  the  city  of  that  amount  of 
county  bonds.     When  the  bonds  came 
to  be  issued  the  record  made  by  the 
County  Court  recited  that  the  one  hun- 
dred thousand  dollars  of  the  ca])ital 
stock  should  be  sold  back  to  the  county 
for  five  thousand    dollars  of  county 
bonds,  '  thereby  making  a  payment  of 
ninety-five  thousand  dollars  of  Saline 
county  bonds  to  said   company  as  a 
donation.'    And  no  stock  was  in  fact 
issued  by  the  company,  or  received  by 
the  county,  or  delivered  to  the  com- 
pany.    In    short,   the    parties   to  the 
transaction  treated  it  as  though  it  was 
a   donation    of   ninety-five    thousand 
dollars  of  bonds,  and  it  was  this  trans 
action  which  was  condemned  as   un- 
authorized   by  a   vote    prior    to   the 
Constitution.     Yet,  even  in  that  case, 
the  court  was  careful  to  limit  its  de- 
cision to  a  case  in  which  only  the  rights 
of  the  railroad  company,   the   party 
receiving    the     ninety-five    thousand 
dollars  of  bonds,  were  concerned,  for 
it  says:  '  The  only  presumption  arising 
from  these  facts  is  that  said  bonds  are 
still  in  the  hands  of  the  railroad  com- 
pany, and  no  question,   therefore,  is 


presented  as  to  how  far  the  alleged 
invalidity  of  said  bonds  would  be  af- 
fected by  those  conclusive  presump- 
tions which  the  law  raises  for  the  pro- 
tection of  bona  fide  holders  of  com- 
mercial  paper,     *     *     *    nothing  is 
before  us  except  the  mere  question  of 
the  legality  of  these  bonds  as  between 
the  county  and  the  railroad  company, 
the  original  parties  thereto.'    And  the 
ca.se  in  the  Circuit  Court  of  Appeals  is 
simply  a  counterpart  of  the  casein  the 
Supreme  Court.     But  the  case  before 
us  is  entirely  different.     The  parties 
did  not  treat  it  as  a  donation.     The 
city   issued   the   full  amount  of    one 
hundred   thousand  dollars  in  bonds, 
and  the  company  issued  a  certificate 
for  one  hundred  thousand  dollars  of 
stock,  and  until  the  receipt  of  this  cer- 
tificate no  sale  had  been  made  of  it. 
All  tluit  the  record  shows  was  an  agree- 
ment on  tlic  i)art  of  the  city  to  sell  at  a 
named   price.     Nowhere  is  it  shown 
that  the  company  agreed  absolutely  to 
purcha.se.     It  was,  until  after  the  re- 
ceipt of  the  stock,  an  unaccepted  offer 
on  the  part  of  the  city.     No  contract 
was  signed  by  the  company.     *    *    * 
So  far  as  is  disclosed,  when  the  trustee 
delivered  the  one  hundred   thousand 
dollars  in  bonds  and  received  the  one 
hundred  thousand    dollars    in   stock, 
there  was  nothing  creating  any  obli- 
gation on  the  company  to  repurchase 
its  stock,  or  to  return  to  the  city  any 
portion  of  the  bonds.     The  city  had 
offered  to  sell,  but  it  had  not  agreed  to 
buy.     It  could  have  stopped  with  the 
receipt  of  the  one  hundred  thousand 
dollars  of  bonds,  and  kft  the  city  to  do 
what  it  pleased  with  the  stock.     There 
is,  therefore,  not  presented  the  case  of 
an  ignoring  of  the  fact  or  terms  of  a 


968 


MUNICIPAL  AID  BONDS CITY. 


L§  461) 


MUNICIPAL  AID  BONDS  —  CITY. 


could  not  maintain  an  action  for  money  had  and  received  to 
recover  the  amount  paid  to  tlie  city  for  such  l)ond8,  as  the  city 
having  no  power  to  create  the  debt,  no  iinpUed  promise  could  arise 
for  its  payment,  notwithstanding  the  general  statute  of  Missouri 
which  gives  the  board  of  trustees  power  "  to  borrow  money  for  tlic 
improvement"  of  the  town,  the  money  having  been  borrowed  in 
violation  of  the  Constitution,  and  not  for  the  improvement  of  tlie 
town,  but  to  buy  a  right  of  way  and  depot  grounds  for  a  railroad.* 


969 


substription.     Everything  authorized 
by  the  vote  of  tlie  people  was  done, 
and  fully  done,  and  whatever  wrong 
may  have  been  committed  by  the  city 
council  in  its  proffer  of  sale  and  subse- 
quent siile  of  the  stock  could  not  vitiate 
the  bonds  after  they  had  passed  into 
the  hands  of  a  bona  Jidi  holder.     But, 
further,  the  bonds  on  their  face  show 
that   they  were  issuwi  in  payment  of 
stock  in  the  railroad    company,  and 
recite  that  they  were  issued  in  pursu- 
ance of  an  ordinance  of  the  city  coun- 
cil, and  authorized  by  a  vote  of  the 
citizens  and    in  accordance  with  the 
laws  of  the  state;  and  these  were  dulv 
registered  by  the  auditor  of  the  state, 
and  his  certificate  of  registry  was  in- 
dorsed on  the  bick.     It  i^  true  that  the 
recitals  do   not  show  when   the  ordi- 
nance was  passed  or  tl»e  election  held, 
and  do  not  refer  by  title  or  otherwise 
to  the  particular  statute  granting  the 
authority,   and  the  bonds  were  dated 
and  issued  after  the   Constitution  of 
1870  had  come  into  force.     It  is  also 
true  that  the  certificate  of  registry  is 
not  conclusive  that   the  bonds  were 
issued  in  full    compliance   with    the 
terms  and  conditions  of  a  subscription. 
German    Savings    Bank    r.    Franklin 
County.    128  U.    S.    526,    540.      But 
surely  these  recitals  and  this  certificate 
have  significance.     It  is  unnecessary  to 
affirm  that  the  certificates  are  so  '  clear 
and  unambiguous '  (School  District  r. 
Stone,  106  U.  S.  183.  187)  as  to  estop 
the  city  from  showing  that  the  bonds 
were  issued  in   violation  or  without 
authority  of  law,  or  that  they,  in  con- 
junction with  the  certificate,  foreclose 


all  possible  defenses.     But  when  the 
law  of  the  stivte  provides  for  registry 
of   municipal  bonds  and  a  certificate 
thereof,  such  certificate  should  be  held 
as  sufficient  evidence  to  a  purchaser  of 
the  existence  of  those  facts  upon  which 
alone  bonds  can  be  registered.     If  the 
plaintiff  in  this  case,  not  resting  upon 
the  mere  terms  of  the  certificate,  had 
examined  the  records  of  the  auditor's 
office,  he  would  have  found  there  the 
certificate,  under  ojith,  of  the  mnyof  of 
the  city,  of  the  election,  its  date,  and 
facts  necessary  to  warrant  the  issue  of 
the  bonds,  such  officer  being  the  one 
named  in  the  statute  as  the  one  to  fur- 
nish to  the  auditor  the  evidence  neces 
s;iry  to  justify  the  registry.      Can  it 
be  that  a  purchaser,  with  this  evidence 
before   him,   is  not   protected  by  the 
statement  upon  the  face  of  the  bonds 
that  they  were  issued  in  payment  of  a 
subscription?    Is  it  his  duty   to  ex- 
amine   all    the    proceedings,    to    see 
whether  that  which  was  a  subscription 
in  the  first  instance  was  called  a  sub- 
scription all  the  way  through,  and  was 
named  as  a  subscription  in  the  bonds, 
had  not  been  transformed  by  some  ac- 
tion of  the  city  council  into  a  donation? 
It  will  be  borne  in  mind  that  it  is  not 
a  matter  of  law,  but  of  fact,  in  reject 
to  which  an  estoppel  is  urged  against 
the  city  by  virtue  of  the  recitals  and 
the  fact  of  registry." 

» Morton  r.  City  of  Nevada,  (1890)  41 
Fed.  Rep.  582.  See  Jarrolt  r.  Moberiy, 
103  U.  S.  586;  Litchfield  v.  Ballou,  114 
U.  S.  190;  s.  c,  5  Sup.  Ct.  Rep.  820; 
Buchanan  v.  Litchfield,  102  U.  8.  278. 


§470] 

§  470.  Miscellaneous  rules  as  to  city  aid  bonds.  —  Though 
properly  a  city,  bonds  issued  by  it  under  the  name  of  a  village 
will  not  be  rendered  invalid  as  against  a  hoiia  fide  purchaser 
where  the  legislature  has  recognized  the  corporation  as  a  village, 
and  it  had  acted  as  such.^    Where  an  ordinance  of  a  city  regidarly 
passed  submitted  to  a  vote  of  the  inhabitants  the  question  of 
issuing  bonds  to  aid  in  the  construction  of  a  railroad,  and  the  vote 
taken  favoring  the  proposed  aid,  the  road  was  constructed  accord- 
ing to  the  terms  of  the  ordinance,  the  Kentucky  Court  of  Appeals 
held  that  the  ordinance,  without  a  subsequent  contract  of  subscrij)- 
tion,  bound  the  city  to  issue  the  bonds.^     Where  an  issue  of 
bonds  of  a  municipal  corporation  had  been  described  in  a  notice  of 
an  election  for  their  issue  as  "  payable  in  gold  or  lawful  money," 
as  provided  by  the  statute  and  with  interest  payable  "  annually'," 
a  subsequent  ordinance  of  the  corporate  authorities  making  the 
bonds  payable  in  gold  coin  "  of  the  present  standard  of  weight 
and  fineness"  with  interest  "semi-annually"  has  been  held  to 
have  rendered  the  bonds  invalid,  when  questioned  before  delivery 
to  a  purchaser/^     A  statute  of  Nebraska  providing  that  the  auditor 
shall  detach  coupons  of  municipal  bonds  presented  to  him  for 
registration  which  mature  before  the  first  taxes  levied  to  meet 
the  coupons,  has  been  held  to  apply  to  bonds  issued  by  a  city  to 
aid  a  work  of  internal  improvement.*     The  acceptance  of  bonds 
in  payment  of  a  subscription  of  a  city  to  the  stock  of  a  corpora- 
tion which  is  invalid  because  unauthorized,  will  not  render  the 
city  a  stockholder  in  the  cori^oration.-^ 

'Cornell   University  r.  Maumee,  68       ^dty  of  Geneseo  v.  Geneseo Natural 

Fed  Rep.  418.  Qas,  Coal,  Oil,   Salt  &   Mineral  Co. 

Board  of  Trustees  of  Augusta   r.  (Kans.)  40  Pac.   Rep.  655.     As  to  es- 

Maysville  &  B.  S.  R.  Co.,  (Ky.)  30  S.  toppel  of  municipal  corporation  to  as- 

W.  Rep.  1.  gert  lack  of  authority  on  the  part  of  its 

'  Skinner    v.   City  of    Santa  Rosa,  officers  in  issuing  aid  bonds  as  against 

(Cal)  40  Pac.  Rep.  742.  horn  fide  purchasers,  see  City  of  Co- 

Bnnkworth  v.  Grable.  (Neb.)  63  N.  lumbus  v.   Dennison    69   Fed     Reo 

W.  Rep.  953.  53  '        *^* 

122 


IP 


CHAPTER  XXIV. 

MUNICIPAL  AID  BONDS -TOWNS. 


§  471.    Aid  by  towns,  generally. 

472.  Bonds    invalid  unless  condi- 

tions are  complied  with. 

473.  How  irregularity  of  elections 

affect  the  validity  of  bonds. 

474.  Effect  of  recitals  on  face  of 

bond. 

475.  The  power  of  commissioners  of 

towns  for  issuing  aid  bonds 
under  New  York  statutes. 

476.  The  sealing  of  such  bonds. 

477.  Proceedings  under  New  York 

statutes  preliminary  to  issue 
of  bonds. 

478.  Bonds  issued  after  the  passage 

of  an  act  authorizing  a 
change  in  their  terms. 

479.  Rules  as  to  the  (axes  collected 

for  payment  of  aid  bonds 
issued  under  New  York 
statutes. 

480.  Power  of  town  authorities  as 

to  aid  bonds  under  Kansas 
statutes — for  what  time 
they  may  run. 


§481. 


483. 

483. 

484. 
48o. 

486. 

487. 


488. 
489. 


Power  of  towns  in  Massa- 
chusetts as  to  aid  bonds  — 
their  power  in  the  sale  of 
them. 

Power  of  towns  in  Mississippi 
as  to  aid  bonds  —  for  what 
time  they  may  run. 

Actions  by  bona  fide  holders 
on  such  bonds  —  what  they 
need  not  show. 

Bonds  absolutely  void  —  effect 
upon  holders. 

When  a  curative  act  of  the 
legislature  will  not  validate 
them. 

Effect  of  curative  act  of  New 
York. 

Township  aid  bonds  under 
South  Carolina  laws  made 
a  legal  indebtedness  by  sub- 
sequent legislrition. 

An  Ohio  statute  as  to  town 
aid  held  unconstitutional. 

Miscellaneous  rules  as  to  town 
aid  bonds. 


;'i 


§  471.  Aid  by  towns,  generally.—  It  was  held  in  an  Illinois 
case  that  it  was  in  the  power  of  the  legislature  to  bestow  the 
power  upon  a  town  to  subscribe  for  and  take  stock  in  a  railroad 
directly,  without  requiring  tlie  subject  to  be  submitted  to  a  vote 
of  the  people.^  Authority  cannot  be  implied  in  municipal  cor- 
porations to  incur  debts  or  borrow  money  in  order  to  purchase 
stock  or  subscribe  for  shares  of  stock  in  railroad  corporations ;  it 
must  be  conferred  by  express  grant.^  The  power  of  municipal 
corporations  to  subscribe  to  the  stock  of  railroad  corporations  and 
to  issue  bonds  in  payment  of  such  subscription  in  aid  of  the  enter- 
prise must  not  onfy  be  clearly  conferred,  but  the  mode  prescribed 

'Keithsburg  v.  Frick,  34  111.  405. 

•  Pitzman  v.  Village  of  Freeburg,  92  111.  111. 


§471] 


MUNICIPAL  AID  BONDS TOWNS. 


971 


by  the  statute  conferring  the  power  must  be  strictly  pursued.^     A 
clause  in  a  railroad  charter  to  this  effect :  "  It  shall  be  lawful  for 
all  persons  of  lawful  age,  or  for  the  agent  of  any  corporate  body, 
to  subscribe  to  the  capital  stock  of  said  company,"  would  confer 
no  power  upon  municipal  corporations  to  subscribe  for  such  stock.^ 
The  rights  of  the  holders  of  bonds  of  a  town  in  aid  of  railroads 
depend  upon  Nvliether  there  has  in  fact  been  a  substantial  compli- 
a,nce  with  the  requirements  of  the  law  authorizing  an  election  to 
be  held  upon  the  question  of  subscription  and  bonds  for  sucli 
purpose.^     Bonds  issued  by  a  township  in  Kansas  by  the  General 
Statutes  are  required  to  be  "  signed  by  the  township  trustee  and 
attested  by  the  town  clerk."     It  was  held  in  the  federal  court  for 
that  district  that  the  township  bonds  sued  on  were  not  invalidated 
by  the  fact  that  the  name  of  the  township  trustee  was  signed  for 
liiin  by  a  third  person  in  his  presence  and  at  his  request,  the 
bonds  being  subsequently  duly  delivered  and  certified  and  the 
interest  paid  thereon  by  the  township  for  ten  years.*     A  town- 
ship having  voted  aid  by  taking  stock  in  a  railroad  company, 
under  the  Indiana  statutes,  the  company  would  have  no  right  to 
demand  the  money  as  a  donation.^     The  law  of  Minnesota  as  to 
the  issuance  of  bonds  by  towns  in  aid  of  railroads  makes  the  limit 
of  the  indebtedness  Avhich  may  be  created  five  per  cent  of  the 
assessed  valuation  as  determined  by  the  last  assessment.     A  case 
before  the  Supreme  Court  of  that  state  involved  the  validity  of 
certain  town  bonds  of  this  description,  it  being  claimed  that  the 
amount  of  the  bonds  issued  was  in  excess  of  this  limitation.    The 
court  declared  that,  in  determining  the  amount  of  such  indebted- 
ness, the  par  value  of  the  bonds  was  alone  to  be  considered,  and 
not  the  interest  which  might  subsequently  become  due  thereon 

» Harding  v.  Rockford,  Rock  Island  'Jacksonville,  N.  W.  &  S.  E.  R.  R. 

&  St.  Louis  R.  R.  Co.,  65  111.  90.  That  Co.  r.  Town  of  Virden,  104  111.  339. 

legislative  authority  is  necessary  for  *  Montgomery  v.  Township  of  St. 

the  legal  issuance  of  municipal  bonds  Mary's,  (1890)  43  Fed.  Rep.  362.     The 

in  aid  of  railroads,  see  People  ex  rel.  v,  court  cited,  as  pertinent  to  their  rul- 

Jackson  County,  92111.  441;  Gaddis  n  ing:  Ring  v.   County  of  Johnson,   6 

Richland  County,  92  111.  119;  Town  of  Iowa,   272;    Railroad    Co.    v.   Marion 

Pana    v.    Lippincott,   2  Bradw.   466;  County,    36  Mo.   303;    Just  r.   Wise 

Lippincott  ?5.  Town  of  Pana,  92  111.  24;  Township,  42  Mich.    575;  s.  c,  4  N". 

Hewitt  V.  Board  of  Education,  94  111.  W.  Rep.  298;  Town  of  Weyauwega  v. 

528;  Schaeffer  v.    Bonham,  95  111.  368;  Ay  ling,  99  U.  S.  112,  118. 


Pitzman  v.  Freeburg,  92  111.  111. 


•Board  of  Commissioners  v.  State 


ii 


W 


« Campbell  r.  Paris  &  Decatur  R.  R.    115  Ind.  64;  s.  c,  17  N.  E.  Rep.  855. 
Co.,  (1874)  71  111.  611. 


073 


MUNICIPAL  AID  BONDS  —  TOWNS. 


[§471 


§  471] 


MUNICIPAL  AID  BONDS TOWNS. 


973 


hj  the  terms  of  the  bonds.*  In  an  action  by  an  innocent  pur- 
chaser against  a  township  on  railway  aid  bonds,  which,  on  their 
face,  refer  to  the  act  authorizing  their  issuance,  and  specifically 
recite  the  taking  of  each  step  required  thereby,  the  township  is 
estopped  to  allege  invalidity  of  the  bonds  on  any  ground  except 
that  they  were  issued  in  violation  of  some  constitutional  or  statu- 
tory requirement.^  In  a  case  in  Illinois  where  a  notice  was  given 
that  an  election  would  be  had  on  a  certain  day  to  vote  for  and 
against  subscribing  an  amount  authorized  by  the  statutes  to  the 
stock  of  a  railroad  corporation  by  the  township,  and  subsequently 
another  notice  was  given  for  an  election  on  the  same  day  for 
another  subscription  to  the  same  corporation  for  another  sum,  the 
Supreme  Court  held  that  both  elections  were  legal,  and  that  one 
did  not  invafidate  the  other.''  But,  as  the  law  authorizing  a  sub- 
scription by  the  township  limited  the  amount  of  the  subscription 
to  the  larger  amount  voted,  the  vote  of  the  smaller  amount,  with- 
out any  authority,  was  void  and  conferred  upon  the  township 
authorities  no  power  to  issue  bonds  to  the  railroad  corporation. 
They  also  held  that  the  proceeding  for  this  additional  issue  of 
bonds  to  the  railroad  corporation  being  void,  the  legislature  had 
no  power,  under  the  Constitution,  to  pass  a  law  rendering  the 
election  and  subscription  valid.^  Where  the  power  to  subscribe 
to  stock  on  the  part  of  a  town  is  to  a  particular  division  of  a  rail- 
road, it  would  not  be  authorized  to  subscribe  to  the  stock  of  the 
whole  road.^  The  conditions  of  subscription  and  bonds  or  call 
for  an  election  to  authorize  the  same  must  be  shown  to  have  been 
complied  with  in  mandamus  proceedings  to  compel  the  town 
authorities  to  issue  bonds  voted  by  the  town.*  A  suit  in  equity' 
to  restrain  the  payment  of  interest  upon  railroad  aid  bonds,  and 
to  require  the  bonds  to  be  delivered  up  and  canceled,  may  bo 
brought  by  a  town  without  awaiting  an  action  at  law  upon  the 
bonds,  and  setting  up  a  defense  to  the  action  of  the  invalidity  of 

>  Finlayson    v.     Vaughn,  (1893)  54  >  Marshall  v.  Silllman,  (1891)  61  111. 

Minn.  331;   s.  c,  56  N.  W.   Rep.   49;  218. 

Durant  t.  Iowa  County,  Woolw.  71.  **  Ibid.;  adhered  to  in  Wiley  v,  Silli- 

'  Township  of  Washington  v.  Coler,  man,  62  111.  170. 

(1892)  51  Fed.  Rep.  362;  citing  Chaflfee  » Town   of  Big  Grove  p.  Wells,  65 

Co.  V.  Potter,  142  U.  8.  355-364;  s.  c,  HI.  263;  McWhorter  v.  People,  66  HI 

12  Sup.  Ct.  Rep.  216;  Town  of  Coloma  290. 

«.  Eaves,  92  U.   S.   491;  Lake  Co.  t.  •Peoples.  Chapman,  66111.  187. 
Graham,  130  U.  S.  674-681:   s.  c,  9 
Sup.  Ct.  Rep.  654. 


the  bonds.^  Where  a  township  had,  upon  an  election  ordered  by 
the  public  authorities  under  a  mistaken  idea  of  their  power,  voted 
for  the  subscription  to  the  stock  of  a  railroad  company  and  the 
issuance  of  bonds  in  payment  of  the  same,  the  Supreme  Court 
of  Illinois  held  that  taxpayers  were  entitled  to  a  perpetual  injunc- 
tion restraining  the  supervisors  from  issuing  such  bonds  and  the 
railroad  company  from  receiving  them.^  Where  the  proposition 
submitted  to  the  voters  of  a  Kansas  township  containing  a  con- 
dition that  if  the  county  became  a  stockholder  in  the  corporation, 
or  issued  bonds  to  it  under  any  subscription,  the  subscription  of 
the  township  was  to  be  null  and  void,  was  adopted  by  the  voters 
of  the  township  at  an  election  properly  held  under  the  statute  of 
that  state,  the  Supreme  Court  held  that  the  subscription  by  the 
township  was  not  avoided  by  the  action  of  the  railroad  corpora- 
tion to  enforce  a  pretended  subscription  of  the  county  and  obtain 
the  county  bonds  therefor,  where,  on  final  hearing  of  the  action, 
the  so-called  subscription  of  the  county  was  held  invalid  for  want 
of  power  on  the  part  of  the  county  to  make  it,  and  no  bonds 
were  obtained  thereunder.^  Where  the  donation  of  money  by  a 
municipal  corporation  to  aid  in  the  construction  of  a  railroad  was 
authorized  by  law,  and  it  was  provided  that  a  tax  should  be  levied 
to  raise  the  amount  to  be  donated,  it  was  held  that  the  officers  of 
the  corporation  could  not  adopt  any  other  mode  of  paying  the 
same,  and  that  bonds  issued  by  them  for  the  purpose  of  paying 
such  indebtedness  were  void."*  A  vote  of  the  people  of  a  town 
to  subscribe  to  tlie  stock  of  a  railroad  company,  in  the  absence  of 
a  law  authorizing  such  vote  or  subscription,  will  not  be  binding 
upon  the  town.^  Where  a  town  has  authorized  the  issue  of 
bonds,  the  signing  of  the  bonds  in  blank,  and  leaving  them  with 


*  Town  of  Cherry  Creek  v.  Becker, 
2  N.  Y.  Supp.  514. 

*  Campbell  v.  Paris  &  Decatur  R. 
R.  Co.,  (1874)  71  111.  611. 

'  Atchison,  Topeka  &  Santa  Fe  R. 
R.  Co.  V.  Jefferson  County,  21  Kans. 
309.  As  to  the  burden  of  showins: 
that  bonds  were  authorized  by  a 
proper  vote  of  the  corporation  at  an 
election  legally  ordered  and  held, 
being  upon  those  seeking  to  compel 
their  issue  or  asserting  their  validity, 
see  People  «.  Town  of  Bishop,  111  111. 


124.  That  the  issue  of  bonds  or  dona- 
tions in  aid  of  railroads  will  not  be  sus- 
tained under  the  power  given  them  by 
legislative  authority  without  a  strict 
observance  of  the  requirements  as  to 
the  steps  preliminary  to  an  election,  see 
Lippincott  v  Town  of  Pana,  92  111.  24. 

*Town  of  Middleport  v.  ^tna  Life 
Ins.  Co.,  82  111.  562;  Lippincott  v. 
Town  of  Pana,  92  111.  24. 

**  Barnes  v.  Town  of  Lacon,  84  111. 
461. 


074 


MUNICIPAL  AID  BONDS  —  TOWNS. 


[§471 


'I* 


others  to  hold  until  the  conditions  upon  which  they  were  voted 
are  complied  with  by  the  railroad  company,  and  afterward  filling 
up  the  blanks,  have  been  held  were  irregularities  which  could  not 
prejudice  the  rights  of  innocent  holders  of  the  bonds.^  Where 
the  condition  of  the  subscription  of  a  town  to  the  capital  stock  of 
a  railroad  company  was  that  it  should  be  paid  upon  the  comple- 
tion of  the  proposed  railroad,  and  at  the  time  the  company  should 
run  over  their  track  the  first  locomotive  through  that  township, 
it  was  held  that  the  leasing,  temporarily,  of  the  road  of  another 
company,  and  running  a  locomotive  over  that  line  through  the 
township  w;i8  not  a  compliance  with  the  condition.^  The  law  of 
the  state,  both  constitutional  and  statutory,  bearing  upon  the 
power  of  a  municipality  to  issue  bonds,  is  conclusively  presumed 
to  be  known  to  the  purchasers  of  municipal  bonds,  and  the 
municipality  cannot  be  estopped,  by  recitals  in  the  bonds,  to  deny, 
even  as  against  hona  jiiJe  purchasei's,  the  powers  of  commissioners 
appointed  bv  the  legislature  to  issue  them.^     In  case  a  statute 


'  Niaiitir  Saving's  Bjink  r.  Town  of 
Douglas..-)  Bradw.  (111.)  570.  That  a 
consolidation  of  a  road  to  which  ai<l 
has  been  votcil  by  a  town  with 
another  will  not  defeat  the  donation, 
see  Niantic  Savinirs  Bank  i\  Town  of 
Douglas.  5  Bnvdw.  (111.)  ."iTO. 

'People  r.  Town  of  Clayton,  88 
111.  45.  That  the  consolidation  of  the 
road  of  a  company  which  was  to  be 
aided  by  subscription  to  stock  and 
issue  of  bonds,  with  another,  would 
not  release  the  subscription,  see  Ed- 
wards V.  People,  88  111.  340;  Town  of 
Pana  v.  Lippincott,  2  Bradw.  (Bl.)  466. 
As  to  the  effect  upon  the  subscription 
of  a  change  of  the  route  of  railroad,  see 
Town  of  Reading  r.  Wedder,  66  Bl.  80; 
Alley  r.  Adams  County,  76  Bl.  101. 

•  Travelers'  Insurance  Co.  v.  Town- 
ship of  Oswego.  (1893)  55  Fed.  Rep. 
361.  That  recitals  in  bonds  as  to  the 
authority  of  officers  to  issue  them 
where  the  authority  was  lacking  are 
not  binding  upon  the  municipality 
issuing  them,  see  Town  of  Pana  r. 
Lippincott,  2  Bradw.  (Ill)  466.  As  to 
the  power  of  towns  to  extend  aid  to 


milnmd    corporations,    sec    Wootl   v. 
Commissioners  of  Oxford,  97  N.  C.  227; 
s.  c,  2  S.  E.  Hep.  653;  Town  of  Enfield 
r.  Jordan,  7  Sup.  Ct.  Rep.  358.    For  a 
statute  that  did  not  authorize  aid  by  a 
town  to  a  railroad  company  out  of  the 
town's  revenue,  see  Macon  &  Birming- 
ham R.   R.   Co.    )\  Gibson,  85  Ga.  1; 
8.  c,   11  S.   E.   Rep.  442.     Town  aid 
bonds  held  not  recoverable  in  Gilson  r. 
Town  of  Dayton,  8  Sup.  Ct.  Rep.  66. 
The  issue    of    such  bonds  held   not 
authorized    in    Town  of   Concord  ». 
Robinson,  7   Sup.    Ct.   Rep.  937.     A 
contract   for  bonds,   under  a  Kansas 
statute,    limiting    the   amount  to  be 
issued,  duly  made  and  accepted  by  a 
railroad  company,  held  binding  on  the 
township,  and  upon  the  performance 
of  the  conditions  on  its  part  the  com- 
pany held  entitled  to  the  bonds,  in 
Chicago,  K.  &  W.  Ry.  Co.  t?.  Comrs., 
38Kans.  597;  s.  c,  16  Pac.  Rep.  828. 
The  bonds  issued   under    what    was 
known  as  the  ' '  Township  Aid  Act " 
of  Missouri,  though  the  act  was  held 
to  be  unconstitutional,    it  has    been 
held  were   proper  subjects   of  com- 


§*T1] 


MUNICIPAL  AID  BONDS TOWNS. 


97;> 


authorizing  subscriptions  in  aid  of  a  railroad  is  silent  as  to  what 
the  petition  for  and  notice  of  the  election  shall  contain  as  to  the 
length  of  time  the  corporate  bonds  shall  run  before  their  maturity, 
and  tlie  election  is  called  according  to  law,  it  will  not  be  essential 
to  the  validity  of  the  election  that  the  time  when  the  bonds  shall 
mature  should  be  fixed  in  the  petition  for  or  notice  of  the  election 
and  the  vote  of  the  people. ^     Where,  in  a  town  meeting  attended 
by  a  majority  of  its  legal  voters,  the  question  of  calling  an  elec- 
tion for  the  purpose  of  voting  on  the  proposition  of  donating  the 
bonds  of  the  town   to  a  railroad  company  was  before  it,  and  the 
names  of  freeholders  wlio  were  willing  to  sign  a  petition  for  such 
election  were  called  for  and  publicly  announced,  and  a  committee 
appointed  to  prepare  tlio  petition,  which  they  did,  and  signed  the 
names  of  those  freeholders  to  it,  it  was  held  that  the  freeholders 
having  made  no  objection  when  their  names  were  so  announced, 
their  silence  must  be  CMtnstrued  as  an  express  assent  that  their 
names  should  be  signed  to  tlie  petition  1)y  the  committee.^     Where 
the  law  under  which  a  vote  was  taken  on  the  question  of  a  sub- 
scription by  the  municipal  corporation  to  stock  of  a  railroad  cor- 
poration did  not  require  the  vote  to  be  taken  in  reference  to  the 
stock  of  any  particular  company,  but  was  in  general  terms  to  any 
railroad  corporation  leading  to  or  from  the  town,  a  vote  of  a  cer- 
tain sum  for  railroad  subscription,  without  designating  any  par- 
ticular company,  has  been  held  to  authorize  a  corporate  subscrip- 
tion to  the  stock  of  a  company  whose  road   passed  through  the 
town.^     It  has   been   iield  bv  Gresham,  United  States  Circuit 

promise,  and  under  the  statute  author-    the  road  in  a  certain  township  by  a 
izing  the  issue  of  compromise  bonds    specitied  time  was  held  to  be  insuffi- 
subsc(iuently  passed,  the  ta.x  levied  to    cient,  and  the  tax  voted  at  the  election 
pay  them  was  held  to  be  valid.     State    held  to  be  void. 
r.  Hannibal  &  St.  Joseph  R.  R.  Co., 
(Mo.)  11  S.  W.   Rep.   746.     The  Iowa 
statute   requires  that    the    notice    of 
an  election  to  raise  a  t;ix  for  a  rail- 


'  People  V.  Town  of  Harp,  67  111.  62. 
2  Chicago,  D.  &    V.   R.   R.   Co.   r. 


Coyer,     79  111.  373. 
^  Decker     r.    Hughes, 


68    111.    33. 


road  shall  show  to  what  point  the  road  When  there  is  no  power  to  compel  the 

shall  be  fully  completed  before  the  tax  issue  of  bonds,  see  Springfield  &  I.  S. 

shall  become  due.     Klcise  r.  Galusha,  E.  Ry.  Co.  i\  Cold  Spring  Township, 

78  Iowa,  310;  s.  c,  43  N.  W.  Rep.  217,  72  Bl.  603.     An  election  for  town  aid 

following  Allard  r.  Gaston,  70  Iowa,  bonds  held  invalid  and  not  to  have 

731;  s.  c.,29X.  W.  Rep.  752.     Notice,  conferred    authority   for  their   issue, 

simply  stating  that  the  tax  shall  be-  Harmon    r.    Auditor    of    Public   Ac- 

<;ome  due  on  the  completion  of  a  cer-  counts,  22  111.  App.  129;  affirmed  in  123 

tain  number  of  consecutive  miles  of  III.  122;  s.  c,  13 N.  E.  Rep.  161.   When 


\ 


I 


II 


;|ii 


976 


MUNICIPAL  AID  BONDS 


TOWNS. 


[§471 


« 


\¥ 


Judge,  that,  iiiuler  the  Illinois  decisions  denying  interest  on  the 
overdue  interest  coupons  of  railroad  aid  honds,  such  interest  was 
not  recoverable  in  the  federal  courts.*  There  was  a  provision  in 
a  charter  of  a  railroad  company  in  Illinois  authorizing  the  voting 
of  municipal  subscriptions  for  its  stock,  that  the  bonds  should  not 
be  issued,  nor  any  jmyment  made  on  the  subscription,  until  an 
amount  of  work  shall  be  done  on  the  railroad  in  the  town,  or  on 
8iich  part  of  the  line  of  the  road,  as  the  authorities  of  the  town 
shall  designate,  equal  in  value  to  the  amount  of  the  bonds  to  be 
issued.  It  was  held  that  the  charter  required  any  deviation  from 
the  conditions  therein  prescribed  to  be  submitted  to  the  voters, 


an  election  was  held  illegal  and  not  to 
confer  authority  to  make  a  subscrip- 
tion. People  r.  Town  of  Santn  Anna, 
(JT  111.  57;  People  r.  Town  of  Lueniia, 
07  111.  65;  Town  of  Pana  r.  Lippin- 
cott,  2  Bradw.  (111.)  466;  Lippincott  t. 
Town  of  Pana,  92  III.  24.  That  the 
legislature  may  legalize  and  declare 
valid  bonds  issued  by  a  town  in  aid  of 
railroads  without  authority  to  do  so, 
see  Town  of  Keithsburg  r.  Frick,  JU 
111.  405. 

'Bolles  r.  Town  of  Amboy,  (1891) 
45  Fed.  Rep,  168.  Issue  of  town  aid 
bonds  held  unconstitutional  in  People 
t.  Town  of  Bishoi>,  111  III.  124.  Town 
aid  bonds  held  unauthorized  by  reason 
of  defective  petition.  Rich  v.  Town 
of  Mentz,  134  U.  S.  632;  s.  c,  10  Sup. 
Ct.  Rep.  610.  That  bonds  were  issued 
upon  the  condition  that  the  railroad 
company  should  build  its  shops  in  a 
town,  held  not  to  invalidate  them  in 
Casey  r.  People,  132111.  546;  s.  c,  24  N. 
E.  Rep.  570.  Where  a  clerk  of  a  town 
failed  to  record  a  provision  of  the  vote 
of  the  town  gr:inting  aid  to  a  railroad, 
that  the  road  should  be  completed  by 
a  certain  date,  an  amendment  of  the 
record  subsequently  to  the  completion 
of  the  road,  though  the  completion 
was  after  the  date  named  in  the  condi- 
tion, was  not  allowed  to  defeat  the 
claim  of  the  railroad  company  to  the 
aid  voted,  in  Sawyer  t.  IVIanchester  & 
Keene  R.  R.  Co.,  62  N.  II.  135.    In 


Punly  r.  I^nsing.  (1888)  128  U.  S.  557, 
the  bonds  of  this  New  York  town, 
issued  in  aid  of  a  certain  railroad  com- 
pany, were  held  to  have  been  issued 
without  authority  of  law,  and  to  be 
invalid  on  the  ground  that  they  had 
been  issued  without  a  previous  desig- 
nation by  the  company  of  all  the  coun- 
ties through  which  the  extension,  au- 
thorized by  the  statute  of  New  York 
relating  to  it,  would  pass.  As  to  what 
was  required  by  the  statutes  of  New 
York,  as  to  aid  by  towns  preliminary 
to  its  being  granted,  see  People  r.  Van 
Valkenburgh,  6;3  Barb.  105.  Bonds  of 
a  town  in  aid  of  a  railroad  under  New 
York  statutes  held  void  because  of  the 
omission  of  certain  statements  in  the 
petition  of  taxpayers  to  the  county 
judge,  in  Stmug  v.  Cook,  47  Hun,  46. 
When  a  suit  to  cancel  such  bonds  is 
not  barred.  Ibid.  When  a  town  was 
held  entitled  to  a  decree  for  the  sur- 
render and  cancellation  of  its  bonds  in 
excess  of  the  amount  of  aid  authorized, 
obtained  from  the  state  treasurer  on  a 
false  certificate  of  a  town  trustee  that 
the  conditions  on  which  they  were 
issued  had  been  complied  with,  see 
Wilson  V.  Union  Savings  Assn.,  42 
Fed.  Rep.  421.  Payment  of  a  tax 
voted  in  aid  of  a  railroad  by  a  town- 
ship held  not  enforceable  in  Cantillon 
r.  Dubuque  &  N.  W.  R.  R.  Co., 
(Iowa)  35  N.  W.  Rep.  620. 


§472] 


MUNICIPAL  AID  BONDS  —  TOWNS. 


977 


and  at  the  election  at  which  the  subscription  was  voted,  and  that 
tlie  town  authorities  could  not,  at  pleasure,  make  any  change  as 
to  the  part  of  the  road  upon  which  the  requisite  amount  of  work 
should  be  expended.^     The  town  in  this  case  having  voted  a  sub- 
scription to  be  paid  in  bonds  to  the  amount  of  $50,000,  the  court 
held  that  the  building  of  the  road  through  the  town  at  a  cost  of 
only  $30,000  or  even  $41,000  was  not  a  substantial  compliance 
with  the  conditions,  and  that  the  court  would  not  by  rnandmnus 
compel  the  issue  of  the  bonds  voted.^     Where  the  voters  of  an 
Illinois  town  had  voted  in  favor  of  a  proposition  to  make  a  dona- 
tion in  aid  of  a  railroad,  for  which  a  tax  was  to  be  levied  and  the 
money  paid  to  the  railroad  company,  the  Supreme  Court  of  that 
state   held   that   the   proposition    upon   which   they   voted   was 
entirely  distinct  from  one  to  create  a  debt  in  respect  to  such 
donation,  and  a  vote  of  that  character  would  not  be  construed  to 
authorize  the  issue  of  the  bonds  of  the  town  for  the  amount  so 
stated.^     The  words  of  a  statute  giving  the  right  to  prescribe  the 
conditions  upon  which  such  subscriptions   sliould  be  made  or 
l)onds  issued,  and  declaring  tliat   such   subscriptions   or  bonds 
should  not  be  valid  and  binding  until  sucli  conditions  shall  have 
been  comi^lied  with,  it  has  been  held,  by  their  natural    force, 
extended  to  bonds  under  all  circumstances,  in  whosesoever  hands 
they  might  be.'*     Where  a  town  has  imposed  conditions  upon  its 
subscription  to  stock,  etc.,  of  a  railroad  company,  the  supervisor 
of  the  town,  on  making  the  subscription,  would  have  no  power  to 
disregard  such  conditions,  nor  would  the  railroad  company  have 
any  right  to  demand  that  he  should  disregard  them.^     The  con- 
ditions upon  which  a  municipal  subscription  may  have  been  valid 
in  aid  of  a  railroad,  without  express  legislative  authority,  cannot 
be  changed  by  a  subsequent  vote,  either  directly  upon  the  propo- 
sition or  indirectly  upon  a  proposition  to  make  a  donation  of  a 
small  sum  with  new  conditions  as  to  the  donation  and  the  issu- 
ing of  bonds  under  the  prior  vote.* 

§  472.  Bonds  invalid  unless  conditions  are  complied  with. 
—  It  was  provided  in  the  act  passed  April  16, 1869,  in  Illinois,  that 


*  People  V.  Town  of  Waynesville,  88 
ni.  469. 

«Ibid. 

'SchaefferD.Bonham,  95  111.  368. 

*  Town  of  Eagle «?.  Kohn,  84  111.  292; 
Parker  v.  Smith,  3  Bradw.  (111.)  356. 

123 


"People  v.  Butcher,  56  111.  144; 
People  r.  Holden,  91  111.  446. 

« People  V.  Town  of  Waynesville, 
88  111.  469. 


I' 


D78 


MUNICIPAL  AID  BONDS  —  TOWNS. 


[§472 


.ill 


'"  any  county,  township,  city  or  town  shall  have  the  right,  upon 
making  any  subscription  or  donation  to  any  railroad  company,  to 
l)rescribe  the  conditions  upon  which  such  bonds,  subscriptions  or 
donations  shall  be  made,  and  such  bonds,  subscriptions  or  donations 
shall  not  be  valid  and  binding  until  such  conditions  precedent  shall 
have  been  complied  with."  In  an  action  upon  interest  warrants 
attached  to  bonds  issued  under  this  act  in  aid  of  a  railroad,  the 
defense  of  the  town  was  a  failure  on  the  part  of  the  railroad  com- 
pany to  comply  with  some  of  the  conditions  upon  which  the  bonds 
were  issued.  The  trial  court  sustained  a  demurrer  to  the  plea  of 
the  town.  The  Supreme  Court  of  the  state  reversed  the  lower 
court,  holding  that  the  demurrer  should  have  been  sustained ; 
that  by  virtue  of  the  express  declaration  of  the  statute  the  bonds 
in  question  were  not  valid  and  binding  until  the  conditions  named 
had  been  couiphed  with,  even  in  the  hands  of  innocent  holders 
without  notice.^ 


1  Town  of  Eagle  r.  Kohn,  (1876)  84 
111.  292.     Arguendo,  it  was  said:  "We 
do  not  tbiuk  it  is  to  be  regarded  that 
the  conditions  named  were  prerequisite 
to  the  making  of  the  subscription  and 
issuing  of  the  bonds,  and  that  they 
were  to  be  complied  with  before  the 
subscription   could  be    made   or  the 
bonds  issued;  but  only  that  the  sub- 
scription and   the  bonds  were  to  be 
subject     to    the    conditions.       There 
would  then  be  no  want  of  power  to 
make  the  subscription  and  issue  the 
bonds.     As  between  the  town  and  the 
railroad     company,     non-compliance 
with  the  conditions  would  be  a  good 
defense  against  the  railroad  company. 
But,  irrespectively  of  the  [provision  of 
the  act  referred  to  above]  w^e  consider 
that  it  would  be  otherwise  as  against 
innocent  holders  for  value,  as  are  these 
appellees.     It  is  the  well-settled  doc- 
trine that  bonds  of  this  character  are 
to  be  treated  as  commercial  paper,  and 
this  court  has  held  the  coupons  at- 
tached to  them  to  be  negotiable  by 
delivery  only,  without   indorsement. 
Johnson  r.  County  of  Stark,  24  III. 
75.     And,  aside  from  the  provision  of 


the  statute,  we  do  not  consider  that  bona 
fide  holders  for  value  would  be  required 
to  take  notice  of  such  conditions,  or  the 
resolution  upon  the  records  of  the  rail- 
road company,  but  they  would  enjoy 
the  protection  of  bona  fide  holders  of 
negotiable  i)apcr;  and  want  of  compli- 
ance with  such  conditions  or  resolution 
would     not    constitute    any    defense 
against  them.     *    *    *    The  words  of 
the  statute,  by  their  natural  force,  ap- 
ply to  bonds  under  all  circumstances,  in 
whosesoever    hands    they    may    be. 
Courts  are  wont  to  allow  to  such  per- 
emptory language  of  a  statute  full 
force  and  effect,  and  where  a  statute  ex- 
pressly declares  that  negotiable  secu- 
rities,  given    under    certain    circum- 
stances, shall  be  void,  to  hold   them 
void,  even  in  the  hands  of  a  bona  fide 
indorsee.     Thus,   upon    the    English 
Statutes  of  Anne,  declaring  that  prom- 
issory ^notes    and   bills  of    exchange, 
given  for  an  usurious  consideration,  or 
for  a   gaming    consideration,    should 
be  void,  the  English  courts  put  the 
construction  that  the  securities  were 
void  in  the  hands  of  a  bona  fide  in- 
dorsee without  notice.     And  so  this 


§473] 


MUNICIPAL  AID  BONDS TOWNS. 


979 


§  473.  How  irregularity  of  election  affects  the  validity  of 
bonds. —  It  was  insisted  in  a  case  before  the  United  States 
Supreme  Court  that  the  township  bonds  upon  which  the  suit  was 
brought  were  invalid  because  of  the  irregularity  of  the  election 
to  ascertain  the  will  of  the  legal  voters  in  the  matter  of  a  sub- 
scription to  the  stock  of  the  railroad  company,  in  two  respects : 
(1)  Because  a  majority  of  the  legal  voters  of  the  township  did 
not  vote  at  the  meeting  notified  and  held  for  that  purpose;  (2) 
because  the  meeting  was  notiiied  and  held  before  the  act  was 
passed  providing  for  such  an  election.  The  court  held  that  the 
true  intent  of  the  legislature  in  adopting  the  phrase  "  a  majority 
of  the  legal  voters  of  the  township,"  intended  to  require  only  a 
majority  of  the  legal  voters  of  the  township  voting  at  the  elec- 
tion notified  and  held  to  ascertain  whether  tlie  proposition  to 
subscribe  for  the  stock  of  the  company  should  be  adopted  or 
rejected.^  The  court  also  held  that  the  second  objection  was 
not  a  good  one  for  the  reason  that  the  statute  by  its  terms  cured 


court  has  held,  under  our  statute  in 
respect  to  a  bill  of  exchange  for  a  gam- 
ing consideration.  Chapin  et  al.  t. 
Dake,  57  111.  296.  And  the  doctrine 
is  laid  down  generally  that  in  those 
cases  in  which  the  legislature  has  de- 
clared that  the  illegality  of  the  contract 
shall  make  the  security,  whether  bill 
or  note,  void,  the  defendant  may  insist 
on  such  illegality,  though  the  plaintiff 
took  the  bill  or  note  bona  fide,  and  gave 
a  valuable  consideration  for  it.  Chit, 
on  Bills,  115,  and  cases  cited  in  note. 
But,  unless  it  has  been  so  expressly  de- 
clared by  the  legislature,  illegality  of 
consideration  will  be  no  defense  in  an 
action  at  the  suit  of  a  bona  fide  holder, 
without  notice  of  the  illegality,  unless 
he  obtained  the  bill  or  note  after  it  be- 
came due.  Chit,  on  Bills,  116.  True, 
there  is  nothing  of  illegality  in  the 
bonds  in  question,  nor  does  the  stat- 
ute declare  them  void.  But  illegality 
is  not  the  circumstance  which  avoids 
negotiable  securities  in  the  hands  of  a 
bona  fide  holder,  as  it  is  seen  that  ille- 
gality of  consideration,  in  the  absence 
of  express  declaration  by  the  legisla- 


ture that  the  securities  shall  be  void, 
will  be  no  defense  against  a  bona  fide 
holder  without  notice  of  the  illegality. 
It  is  by  force  of  the  peremptory  words 
of  the  statute  declaring  them  void, 
that  they  are  to  be  held  to  be  void  in 
the  hands  of  an  innocent  indorsee  with- 
out notice.  The  words  of  the  statute 
in  question,  though  not  that  the  bonds 
shall  be  void,  are  that  they  shall  not 
be  valid  and  binding  until  the  condi- 
tions are  complied  with.  They  are 
equally  imperative  to  the  degree 
named  as  language  declaring  securities 
void.  The  bonds  are  not  declared  to 
be,  to  their  whole  extent,  not  valid  and 
binding,  but  are  declared  to  be  to  a 
certain  extent,  not  valid  and  binding; 
that  is,  until  the  conditions  are  com- 
plied with." 

'  See  on  this  point.  People  v.  War- 
field,  20  111.  163;  People  v.  Gamer,  47 
111.  246;  People  v.  Wiant,  48  LI.  263; 
Railroad  v.  Davidson  County,  1  Sneed, 
692;  Bridgeport  t).  Railroad,  15  Conn. 
475;  Talbot  v.  Dent,  9  B.  Mon.  526; 
State  V.  The  Mayor,  37  Mo.  272. 


980 


MTTNICIPAI.  AID  BONDS  —  TOWNS. 


[§47S 

all  defects  growing  out  of  any  irregularities  as  to  the  election, 
and,  if  not,  that  tlie  act  in  one  of  its  sections  made  it  the  duty  of 
the  supervisor  wlio  executed  the  bonds  to  determine  the  question 
whether  an  election  was  held,  and  wliether  a  majority  of  the 
votes  cast  were  in  favor  of  the  subscription,  and  inasmuch  as  he 
passed  ujx>n  that  question  and  subscribed  for  the  stock  and  sub- 
sequently executed  and  delivered  the  bonds,  it  was  too  late  to 
question  the  validity  where  it  appeared,  as  in  this  case,  that  the 
bonds  were  in  the  hands  of  an  innocent  holder.^  The  United 
States  Supreme  Court  held  in  a  case  that  an  irregularity  in 
conducting  the  election  would  not  defeat  a  recovery  on  the  bonds 
or  on  the  coupons  thereto  attached,  nor  ovoreume  the  presuni])- 
tion  that  the  plaintiff,  in  the  usual  course  of  business,  became  at 
their  date  the  holder  of  them  for  value  ;  that  the  burden  of  prov- 
ing that  he  was  an  innocent  holder  of  the  bonds  for  value  was 
not  cast  upon  him  by  such  an  irregularity  in  conducting  the 
election.^ 


*  St.  Joseph  Township  r.  Rogers, 
(1872)  16  Wall.  644.  See  Knox  County 
V.  Aspinwall,  21  How.  544 ;  Super- 
visors r.  Schenck,  5  Wall.  783.  The 
same  principles  were  applied  in  Royal 
British  Bank  r.  Turquand,  5  Ell.  6c 
Bl.  259;  s.  c,  6  Ell.  &  Bl.  331. 

•Pana  v.  Bowler,  (1882)  107  U.  S. 
529.  It  was  said:  "It  is  a  general 
mle  that  when  the  holder  of  a  negoti- 
able instrument,  regular  on  its  face 
and  payable  to  bearer,  produces  it  in 
a  suit  to  recover  its  contents,  and  the 
same  has  been  received  in  evidence, 
there  is  a  pHina  facie  presumption 
that  he  became  the  holder  of  it,  for 
value  at  its  date,  in  the  usual  course 
of  business.  Murniy  v.  Lardner,  2 
Wall.  110;  Bank  of  Pittsburg  v.  Neal, 
22  How.  96;  Collins  v.  Gilbert,  94  U. 
S.  753;  Brown  t.  Spofford.  95  U.  S. 
474.  And  municipal  bonds,  payable 
to  bearer,  are  subject  to  the  same  rules 
as  other  negotiable  paper.  Cromwell 
tj.  Sac  County,  96  U.  S.  51.  But  the 
plaintiff  in  error  insists  that  this  case 
falls  within  an  exception  to  that  rule, 
and  cites  to  sustain  his  j^osition  Smith 


r.  Sac  County,  11  Wall.  139,  and  Stew- 
art V.  Lansing,  104  U.  8.  505.  The 
exception  relied  on  by  the  plaintiff  in 
error  is  well  settled,  and  is  this:  If,  in 
a  suit  brought  by  the  indorsee  or 
transferee  of  a  negotiable  instrument, 
the  maker  or  acceptor,  or  any  party 
who  is  primarily  bound  by  the  origi- 
nal consideration,  proves  that  there 
was  fr.uid  or  illegality  in  tlie  inception 
of  the  instrument,  the  burden  of  proof 
is  thrown  on  the  plaintiff  to  show  that 
he  is  a  holder  for  value.  Smith  r. 
Sac  County  11  Wall.  139,  and  Stew- 
art T.  Lansing,  104  U.  S.  505;  Commis- 
sioners r.  Clark,  94  U.  S.  278  [and 
many  others].  In  most  of  the  cases 
above  cited  the  defense  relied  on  was 
fniud  in  the  inception  of  the  instru- 
ment. Thus,  in  Smith  r.  Sac  County, 
11  Wall.  139,  the  report  shows  that  the 
bonds  were  issued  to  a  contractor  to 
pay  for  the  building  of  a  court  house; 
that  the  county  judge  who  executed 
and  delivered  them  was  bribed  to  do 
so,  and  that  the  court  house  never  was 
built.  In  Stewart  r.  Lansing,  104  U. 
S.  505,  the  county  judge  rendered  a 


§474] 


MUNICIPAL  AID  BONDS TOWNS. 


981 


§  474.  Effect  of  recitals  on  face  of  bonds.— In  an  action 
upon  coui^ons  of  townsliip  bonds,  issued  by  a  township  in  Illinois 
in  i)ayment  of  a  subscription  to  the  capital  stock  of  a  railroad 
company  under  certain  acts  of  the  legislature  incorporating  this 
railroad  company,  the  Supreme  Court  of  the  United  States 
reaffirmed  its  ruling  in  Ilarter  v.  Kernochan,  103  U.  S.  502,  that 
the  duly  signed  and  countersigned  township  bonds,  payable  to 
the  company  or  bearer,  which  recited  that  they  were  duly  issued 
in  compliance  with  the  vote  of  the  legal  voters  of  the  township, 
cast  at  an  election  held  by  virtue  of  those  acts  of  the  legislature, 
were  valid  in  the  hands  of  a  lonafide  holder.* 


judgment  appointing    commissioners 
to  execute  bonds  of  the  town  of  Lan- 
sing.    This  judgment  was  carried  by 
certiorari  to  the  Supreme  Court  and 
there  reversed.     The  county    judge, 
the   commissioners    and    the   railroad 
company  to  which   the  bonds    were 
ordered  to  be  issued,  all  had  notice  of 
the  certiorari  and  the  subsequent  pro- 
ceedings under  it.     Before  the  judg- 
ment of  reversal,  however,  the  com- 
missioners, notwithstanding  the  pen- 
dency of  the  writ,  issued  the  bonds  in 
suit  in  the  case,  taking  from  the  com- 
pany an  obligation  for  their  personal 
indemnity.     Tlie    court    held   that  as 
between  the  company  and   the  town 
the  judgment  of  reversal  was  equiva- 
lent to  a  refusal  by  the  county  judge 
to  make  the  original  order  and  invali- 
dated the  bonds.     There  is  no  pretense 
of  any  fraud  in  the  inception  of  the 
bonds  in  this  case.     It  is  not  denied 
that  they  were  issued  in  good  faith 
and  for  a  valuable  consideration.     The 
question   then  arises:    Is  the  irregu- 
larity in  the  conduct  of  the  election 
such  an  illegality  as  throws  on  the 
plaintiff  the  burden  to  show  that  he 
paid  full  value  for  the  coupons?    We 
are  clearly  of  opinion  that  it  is  not. 
It  will  appear  from  an  examination  of 
the  cases  above  cited,  in  which  the  de- 
fense was  illegaUty  in  the  inception  of 
the    instrument,   that    the    illegality 


which  shifts  the  burden  of  proof  on 
the  holder  to  prove  that  he  paid  value 
must  be  something  which  relates  to 
the  consideration  of  the  paper  sued  on. 
It  must  appear  that  the  consideration 
arose  out  of  a  tmnsaction  contrary  to 
law,  or  against  public  policy."  The 
court  then  commented  upon  certain  of 
the  cases  and  summed  up,  on  this 
point,  in  the  following  words:  "  The 
authorities  illustrate  the  rule  and  show 
that  it  does  not  apply  to  this  case. 
There  was  no  illegality  whatever  in 
the  consideration  of  the  bonds  in  ques- 
tion in  this  suit.  The  mere  irregu- 
larity in  the  conduct  of  the  election 
was  not  such  an  illegality  as  is  con- 
templated'by  the  rule,  and  does  not 
deprive  the  holder  of  the  coupons  of 
the  presumption  that  he  acquired  them 
for  value." 

»  Pana  «.  Bowler,  (1882)  107  U.  S. 
529.  Mr.  Jastice  Woods,  speaking 
for  the  court,  said:  "This  court  has 
again  and  again  decided  that  if  a  mu- 
nicipal body  has  lawful  power  to  issue 
bonds  or  other  negotiable  securities, 
dependent  only  upon  the  adoption  of 
certain  preliminary  proceedings,  such 
as  a  popular  election  of  the  constituent 
body,  the  holder  in  good  faith  has  the 
right  to  assume  that  such  preliminary 
proceedings  have  taken  place  if  the 
fact  be  certified  on  the  face  of  the 
bonds  by  the  authorities  whose  pri- 


I'  • 


982 


MUNICIPAL  AID  BONDS  —  TOWNS, 


[§475 


MUNICIPAL  AID  BONDS  —  TOWNS. 


983 


m 


I 


1 475.  The  power  of  commissioners  of  towns  for  issuing 
aid  bonds  under  New  York  statutes.— The  Court  of  Appeals 
of  New  York  lias  held  that  the  acts  of  commissioners  appointed 
to  execute  and  issue  the  bonds  in  the  proceedings  under  the  stat- 
utes of  that  state  authorizing  the  issuing  of  bonds  by  towns  in 
aid  of  railroads,  as  to  all  matters  within  the  scope  of  the  autliority 


mary  duty  it  is  to  ascertain  it.    Lynde 
V.  The  County,  16  Wall.  6;  Town  of 
Coloma  «.  Eaves,  92  U.  S.  484;  Com- 
missioners V.  January,  94  U.  8.   202; 
Commissioners  v.  BoUes,  94  U.  S.  104; 
County  of  Warren  v.  Marcy,  97  U.  S. 
96.     The  authority  to  issue  the  bonds 
in  question  in  this  cxise,  resting  upon 
the  fact  that  an  election  was  held  in 
pursuance  of  law  before  a  certain  date, 
namely,  the  date  when  the  Constitu- 
tion of  1870   was  adopted,  and  the 
bonds  reciting  on  their  face  the  fact 
that  the  election  was  so  held  before  the 
date  mentioned,  the  circumstance  that 
the  election  was  irregularly  conducted 
can  be  of  no  avail  as  a  defense  to  the 
bonds  in  a  suit  brought  by  a  bonajUie 
holder."    The    court's   attention  was 
called  to  several  Illinois  decisions  (Lip- 
pincott  V.  Town  of  Pana,  92  111.  24), 
in  which  it  was  held  that  the  election 
relied  on  in  this  case  as  the  authority 
for  the  issue  of  the  bonds- was  abso- 
lutelv  void,  and  the  issue  of  the  bonds 
was,    therefore,    without    authority. 
People  V.  Town  of  Santa  Anna,  67  111. 
57,  and  People  v.  Town  of  Laenna,  67 
111.  65,  where  similar  elections  under  a 
like   statute   were    held    void.     The 
court  said  of  these  cases:     "The  last 
two   cases  were  decided    before  the 
bonds  in  this  case  were  issued.     They 
were,  however,  suits  brought  to  re- 
strain the  issue  of  bonds  by  the  town- 
ship officers,  on  account  of  the  irregu- 
larities in  the  election.    The  rights  of 
bona  fide  holders  could  not,  therefore., 
arise  and  were  not  passed  on  in  those 
cases.     But  in  the  case  first  mentioned 
the  bonds  had  been  issued  and  were 
presumptively  in  the  hands  of  hana 


fide   holders.     Nevertheless,   the    Su- 
preme Court  of  Illinois  held  the  bonds 
to  be  void  in  whosesoever  hands  they 
might  be.     It  is  insisted  that  this  court 
is  bound  to  follow  this  decision  of  the 
Supreme  Court  of  Illinois  and  hold  the 
bonds  in  question  void.     We  do  not  so 
understand  our  duty.     Where  the  con- 
struction of  a  State  Constitution  or  law 
has  become  settled  by  the  decision  of 
the  state  courts,   the  courts    of    the 
United  States  will,  as  a  general  rule, 
accept  it  as  evidence  of  what  the  local 
law  is.     Thus,  we  may  be  required  to 
yield  against  our  own  judgment  to  the 
proposition  that,  under  the  charter  of 
the  railway  company,  the  election  in 
this  case,  which  was  held  under  the 
supervision  of  a  moderator  chosen  by 
the  electors  present,  was  irregular  and, 
therefore,  void.     But  we  are  not  bound 
to  accept  the  inference  dmwn  by  the 
Supreme  Court  of  Illinois,  that  in  con- 
sequence of  such  irregularity  in  the 
election  the  bonds  issued  in  pursuance 
of  it  by  the  officers  of  the  township, 
which  recite  on  their  face  that  the 
election  was  held  in  accordance  with 
the  statute,  are  void  in  the  hands  of 
bona  ikU  holders.     This  latter  proposi- 
tion is  one  which  falls  among  the  gen- 
eral principles  and  doctrines  of  com- 
mercial jurisprudence,  upon  which  it 
is  our  duty  to  form  an  independent 
judgment,  and  in  respect  of  which  we 
are  under  no  obligation  to  follow  im- 
plicitly the  conclusions  of  any  other 
court,  however  learned  or  able  it  may 
be.     Swift  V.  Tyson,  16  Pet.  1;  Rus- 
sell r.  Southard.  12  How.  139;  Watson 
V.   Tarpley,   18   How.    517;   Butz  v. 
City  of  Muscatine,  8  Wall.  575;  Boyce 


§475] 

conferred  upon  them  by  the  statutes,  are  the  acts  of  the  town.^ 
Further,  it  was  held  that  irregularities  in  the  manner  in  which 
such  commissioners  may  have  performed  their  duties  could  not 
affect  the  validity  of  the  bonds  in  the  hands  of  an  innocent 
holder  for  value.'  The  court  further  held  that  the  employment 
by  the  commissioners  of  the  president  of  the  railroad  company, 
to  the  stock  of  which  the  town  had  subscribed  and  was  to  issue 
its  bonds  in  payment  of  the  subscription,  who  was  a  banker,  as  a 
broker  to  sell  the  bonds  and  invest  the  proceeds  according  to  their 
instructions,  was  allowable  imder  the  law.^  The  lawfully 
appointed  broker  for  the  commissioners  who  issued  the  town 
bonds  in  this  case  sold  bonds  to  an  amount  less  than  ten  per  cent 
of  the  amount  authorized  to  a  purchaser,  who  brought  his  action 
against  the  town.  The  original  act  authorizing  these  railroad  aid 
bonds  by  towns  provided  for  bonds  running  thirty  years.  This 
portion  of  the  act  was  afterwards  amended,  as  follows :  "  The 
said  commissioners  may  issue  the  said  bonds,  payable  at  any  time 
they  may  elect,  less  than  thirty  years,  *  *  *  but  they  shall  not 
so  issue  the  bonds  that  more  than  ten  per  cent  of  the  principal  of 
the  bonds  shall  become  due  and  payable  in  one  year."  The  bonds 
sued  on  were  twenty-year  bonds.  The  town  objected  to  a  recov- 
ery upon  these  bonds,  claiming  that  there  was  no  authority  when 
they  were  issued  to  issue  bonds  for  twenty  years,  they  being  of 
date  prior  to  the  passage  of  the  amendatory  act,  and  that  if  the 


V.  Tabb,  18  Wall.  546;  Gates  v.  Na 
tional  Bank,  100  U.  S.  239;  Railroad 
Company  t.  National  Bank,  102  U.  S. 
14.  See,  also,  Burgess  ??.  Seligman, 
107  U.  8.  20,  where  the  question  how 
far  the  courts  of  the  United  States  are 
bound  by  the  decisions  of  the  state 
courts  is  carefully  re-examined  and  the 
rule  on  the  subject  stated  with  precis- 
ion," It  was  further  said:  "We  can- 
not follow  the  decision  of  the  Supreme 
Court  of  Illinois  in  Lippincott  t.  Town 
of  Pana,  92  111.  24,  without  overruling 
a  uniform  current  of  the  decisions  of 
this  court  beginning  with  Commission- 
ers of  Knox  County  v.  Aspinwall,  21 
How.  539,  and  continuing  down  to  the 
present  time.  The  rights  of  the  bona 
fide  holders  of  negotiable  municipal 


bonds,  as  we  have  stated  them  in  this 
opinion,  are  too  firmly  settled  by  the 
decisions  of  this  court  to  be  shaken." 

'Brownell  r.  Town  of  Greenwich, 
(1889)  114  N.  y.  518;  citing  Gould  r. 
Town  of  Oneonta,  71  N.  Y.  298. 

'Brownell  v.  Town  of  Greenwich, 
(1889)  114  N.  Y.  518;  citing  Town  of 
Solon  V.  Williamsburgh  Savings  Bank, 
114  N.Y.  122. 

^Browncll  r.  Town  of  Greenwich, 
(1889)  114  N.  Y.  518.  The  court  said: 
' '  It  was  not  necessary  that  merely 
executive  acts,  not  involving  the  exer- 
cise of  discretion,  should  be  done  by  the 
commissioners  personally,  but  such 
acts  might  be  done  by  another  under 
their  direction.  Mayor  v.  Sands,  105 
N.  Y.  210,  217.     When  a  statute  com- 


984 


MUNICIPAL  AID  BONDS  —  TOWNS. 


[§475 


amendatory  act  was  operative  tlien  there  was  a  violation  of  the 
limitation  of  that  act  with  reference  to  the  amount  of  bonds 
which  can  be  made  payable  in  one  year.  The  Court  of  Appeals 
of  New  York  held  that  the  bonds  were  valid  obligations  of  the 
town,  and  enforceable  by  the  owner  or  bona  fide  purchaser  for 
value.'     A  certain  amount  of  the  bonds  of  this  town  which  had 


raands  an  act  to  be  done  it  author- 
izes all  that  is  necessary  for  its 
performance." 

»Brownell  r.   Town  of  Greenwich. 
(1889)  114  N.  Y.  518.     The  court  said: 
"  [The  bonds]  bear  the  date  [prior  to 
the  passage  of  the  amendatory  act], 
and  are  presumed  to  have  been  exe- 
cuted at   that  time;  but  executing  is 
not  issuing,  for  they  might  be  fully 
executed  but  never  issued.     It  is  clear 
that  the  purchaser  of  a  bond  from  the 
obligor  named  therein  simply  lends  the 
latter  money.     Coddington  r.  Gilbert, 
17  N.  Y.  489;  Ahem  r.  Goodspeed,  72 
N.  Y.  108.     The  essence  of  the  original 
transaction  between  the  parties,  there- 
fore, was  a  Ic^an  of  money  secured  by 
the  bonds  of  the  borrower.     The  bonds 
had  no  legal  inception,  and  could  not 
become  valid  obligations,   jiside  from 
any  other  question,  until  actually  de- 
li veretl  for  a  valuable  consideration. 
Under  the  circumstances,  we  think  that 
the  delivery  of  the  bonds  to  the  plaintiff 
determines  the  date  when  his  bonds 
were  issued.     In  this  vital  respect  the 
case  differs  from   Potter  v.  Town  of 
Greenwich,  92  N.  Y.  662;  26  Hun,  326, 
where  the  bonds  were  issued  prior  to 
the  pas.sage  of  the  [amendatory]  act. 
*    »    *    The  plaintiff   in   that    case 
bought  his  bonds  [prior  to  that  date]." 
The  bonds  here  were  i>urchased  July 
1,    1871,   after    the    passage    of    the 
amendatory  act.    The   court   said  of 
them:    "  [They]  were  issued  on  [the 
date  of  purchase],   when  they   were 
first  delivered  as  evidence  of  an  exist- 
ing debt.     The  plaintiff  had  the  right 
to  assume  that  they  were  issued  under 
the  statute  as  it  stood  at  the  date  of 


delivery,    for    he    was    dealing   with 
actual  commissioners,  clothed  with  all 
the  authority  that  the  state  conferred. 
The   mere  inspection    of    his    bonds 
would  show  that  they  were  made  pay- 
able as  the  statute  then  required.     It 
does  not  appear  that  he  had  seen  any 
of  the  bonds  except  those  which  he 
purchased,  or  that  he  knew  that  all  of 
the  bonds  were  payable  at  the  same 
time,  or  even  that  any  other  bonds 
had  been  issued  at  the  date  of  his  pur- 
chase.    He  was  not  bound  to  examine 
the  entire  scries  to  see  that  no  more 
became  due  in  a  single  year  than  the- 
statute  i)ermitted.     He  was  bound  to 
examine    his    own    bonds,  and    was, 
doubtless,  charged  with  knowledge  of 
the  bonding  act  and  the  bonding  roll, 
as  the  one  was  a  public  statute  and 
the  other  a   public  record,  and  both 
were  accessible  to  all.     How  could  he 
examine  the  remaining  bonds?  If  they 
were  not  then  issued,  but  still  in  the 
hands  of  the  commissioners,  an  exami- 
nation would  be  useless,  for  a  pur- 
chaser of  bonds  issued  according  to 
law,  cannot  be  affected  by  the  subse- 
quent acts  of  the  commissioners  in 
issuing  other  bonds  in  a  manner  not  in 
accordance  with  law.     If  they  were 
issued,  how  could  he  find  them,  scat- 
tered in  the  hands  of  unknown  owners? 
It  would  be  unreasonable  to  charge 
him  with  knowledge  of  the  contents  of 
the  rest  of  the  bonds,  or  to  declare  his 
bonds    void    because    the    others,  of 
which  he  knew   nothing  and  had  no 
means  of  knowing,  were,  in  fact,  made 
payable  at  a  time  not  authorized  by 
the  statute.     A   purchaser,  under  the 
circumstances  disclosed,  might  assume 


§475] 


MUNICIPAL  AID  BONDS  —  TOWNS. 


985 


been  issued  in  aid  of  a  railroad  company  in  a  proceeding  under 
the  New  York  statutes  providing  for  and  authorizing  such  bonds, 
had  been  returned  to  the  commissioners  appointed  to  execute  and 
issue  them  and  other  bonds,  to  the  same  amount  substituted  by  the 
commissioners,  larger  in  amount,  severally,  and  payable  at  a  differ- 
ent place,  which,  it  was  assumed, would  maJie  them  more  salable.  In 
the  town's  action  against  the  bank  which  held  some  of  these  bonds, 
to  have  them  surrendered  and  canceled,  one  of  the  grounds  upon 
which  they  were  claimed  to  be  invalid  was  that  there  was  no  author- 
ity in  the  commissioners  to  substitute  these  bonds  for  the  others. 
The  Court  of  Appeals  held  that  the  commissioners  had  the  power 
to  substitute  the  bonds  last  issued  for  those  surrendered  to  them 
by  the  holders,  and  that  the  substituted  bonds  were  not  invalid.* 

that  the  defendant,  through  its  law-  upon  them.     Bank  of  Rome  v.  Village 

fully  appointed  commissioners,  would  of  Rome,  19  N.  Y.  20;  Brainerd  v.  N. 

not  do  an  act  utterly  void,  and  thereby  Y.  C.  R.  R.  Co.,  25  N.  Y.  499.     The 

commit  a  fraud  upon  one  of  its  citizens  liability  of  the  municipal  corporation 

by    taking    his   money    without  any  is  dependent  upon  the  statute,  and  its 

consideration."  observance    in    the    proceedings  had 

»  Town  of  Solon  v.  Williamsburgh  with  a  view  to  the  creation  of  such 

Savings  Bank,  (1889)  114  K   Y.   122.  obligations.     And  when  there  is  a  fail- 

The  court  said:    "The  bonds  issued  ure  to  comply  with  the  statute  in  the 

pursuant  to  the  statute  were  the  obli-  steps  taken  to  vest  the  power  in  those 

gations  of  the  town,  and  in  the  per  officers  to  create  the  bonds,  there  can 

formance  of  their  defined  duty  in  that  in  this  state  be  taken  no  rights  by  a 

respect,  the  commissioners  represented  person  as  a  bona  fide  holder.     Cagwin 

the  [town],  and,  in  some  sense,  their  t.  Town  of  Hancock,  84  N.  Y.  532; 

relation   was  that  of  agency.     When  Craig  r.  Town  of  Andes,   93   N.    Y. 

the  proceeding   for  the  purpose  has  405.     So  far  as  we  have  observed,  the 

been  (as  is  treated  to  have  been  in  this  doctrine  of  the  cases  does  not  neces- 

case)  legally  conducted  to  the  appoint-  sjirily  go  any  further  in  that  respect, 

ment  of  such  officers,  irregularities  in  The  examination  of  the  proceedings 

the  manner  in  which  they   perform  before    the    county    judge    disclosed 

their  duties  do  not  affect  the  validity  their  regularity  and  showed  that  the 

of  the  bonds  issued  in  the  hands  of  an  persons  whose  names  were  subscribed 

innocent  holder  for  value.     Town  of  to  the  bonds  were  only  appointed,  and 

Lyons  v.  Chamberlain,  89  X.  Y.  586.  by  the  statute  vested  with  the  power 

The  bonds  are  in  form  negotiable,  and  to  issue  bonds  like  those  in  question, 

while  they  cannot  be  treated  as  com-  While  the  commissioners  were  not  ap- 

mercial  paper,  to  the  extent  of  the  rule  pointed  by  the  town  or  clothed  with 

applicable  to  it  in  that  respect,  they  power  by  it,  the  power  to  exercise 

have  the    character   of    negotiability  their  statutorily   defined   duties  was 

sufficient  to  furnish,  under  some  cir-  given  pursuant  to  the  requisite  con- 

cumstances,  protection  to  a  bona  fide  sent  of  the  taxpayers.     The  question, 

holder,  which  he  otherwise  would  not  therefore,  arises  whether,  by  this  issue 

have  for  the    support  of   his   claim  of  the  substituted  bonds,  the  [town] 
124 


m 


I II 


98^ 


MUNICIPAL  AID  BONDS  —  TOWNS. 


[§4 


*i> 


I 


II) 


I 


Hi 


The  Constitution  of  the  state  of  New  York  which  went  into  effect 
January  1,  1875,  declared  :  "No  county,  city,  town  or  village 
shall  hereafter  give  any  money  or  property,  or  loan  its  money  or 
credit,  to  or  in  aid  of  any  individual,  association  or  corporation, 
or  become  directly  or  indirectly  the  owner  of  stock  in,  or  bonds 


was  chargtnl  with  liability.     The  issue 
of  bonds  outstanding  in  excess  of  the 
amount  authorized  would  have  been 
void.     That  was  not  the  case  here, 
and  the  [town]  was  practically  unaf- 
fected   by    those    put    in    place    of 
the    ones    surrendered.     The  [town], 
through  the  commissioners,  paid  the 
interest  coupons  upon  them  for  several 
years,  and   the   defendant    was    the 
holder  of  them  for  six  years  before 
this  action  was  commenced.     These 
facts  might  be  entitled  to  some  con- 
sideration upon  the  question  of  laches. 
Alvord  ©.  Syracuse  Sav,  Bank,  98  N. 
Y.  599,  610.     But  we  do  not  place  our 
conclusion  upon  that   ground.     The 
defendant  was  a  bona  fds  holder  of 
these  bonds,  and  as  such  relied  upon 
the  authority  with  which  the  commis- 
sioners  were   lawfully    clothed.    To 
charge  the  [town]  upon  them  would 
not    increase   its    apparent    liability 
beyond  that  which  it  undertook  by 
the  proceeding  had  pursuant  to  the 
statute   to  assume.     So  there    is   no 
equity  in  its  behalf  as  against  the  de- 
fendant,  to  support  this   action  for 
their  cancellation  arising  out  of  the 
substitution.     The  defendant  was,  not 
only  by  the  apparent  situation  at  the 
time  of  the  purchase,  but  by  the  con- 
tinued recognition  of  the  obligation 
of  the  bonds  for  several  years  there- 
after, induced  to  understand  that  they 
were  in  all  respects  lawfully  created. 
And  they  were,  in  fact,  issued  and  de- 
livered by  the  persons  clothed  with 
power  to  issue  the  bonds  of  the  town. 
The  extrinsic  fact  now  relied  upon  to 
deny  to  them  the  power  to  issue  these 
particular  bonds  at  the  time  and  in 
the  manner  it  was  done,  was  peculiarly 


withi'i  the  knowledge  of  those  persons 
so  selected  to  represent  the  town  in 
that  respect.     This,  as  l)etween  prin 
cipal  and  agent,  is  sufficient  to  charge 
the  former  with  the  consequences  of 
the  act  of  the  latter  in  the  scope  of  his 
apparent  authority,  as  against  an  in- 
nocent party  acting  in  reliance  upon 
such  situation,  although  authority  to 
do  the  particular  act  does  not,  in  fact, 
exist.     N.  Y.  &  N.  II.  H.   U.  Co.  r. 
Schuyler,    34    N.    Y.    30;    Bank    of 
Bataviar.  N.  Y..  L.  E.  &  W.  R  K. 
Co.,  106  N.  Y.  195.     This  proposition 
may  not,  to  the  full  extend  to  which 
it  is  applied  to  the  relation  of  an  agent 
clothed  by  his  principal  with  authority, 
be  applicable  to  the  commissioners  in 
their  relation  to  the  town  for  which 
they   are  appointed    to    perform  the 
duties  devolved  upon  them,  but  in  the 
reason  of  it  is  illustrated  a  principle 
which  may  be  applied  to  the  circum- 
stances of  the  present  case  in  reference 
to  the  execution  of  the  bonds  in  ques- 
tion.    In  the  cited  case  of  Horton  r. 
Town  of   Thompson,  71  N.  Y.  513, 
the  bonds  appeared  to  have  been,  in 
terms,  issued  in  violation  of  the  stat- 
ute pursuant  to  which  the  consent  of 
the  taxpayers  was  given,  upon  which 
the  proceeding  taken  was  had.     And 
the  remarks  of  the  learned  judge  who 
delivered  the  opinion  may  be  treated 
as  applicable  only  to  the  case  as  there 
presented.     They  represent  the  town 
in  the  exercise  of  the  powers  with 
which  they  are   vested.     Cagwin   r. 
Town  of  Hancock,   84    N.    Y.    542; 
Alvord  V.  Syracuse  Savings  Bank,   98 
N.   Y.   599.     The  practical  effect  of 
this  subscription  of  the  bonds  was  not 
an  excessive  issue,  but  the  continuance 


■m 


§475] 


MUNICIPAL  AID  BONDS  — TOWNS. 


987 


of,  any  association  or  corporation,  nor  shall  any  such  county,  city, 
town  or  village  be  allowed  to  incur  any  indebtedness  except  for 
county,  city,  town  or  village  purposes."  A  town  of  New  York 
had,  previously  to  the  adoption  of  this  amended  Constitution,  in 
proceedings  instituted  under  the  acts  of  the  state  relating  to  such 
matters,  determined  to  issue  its  bonds  in  aid  of  a  railroad  com- 
pany. The  act  of  1870  authorized  the  commissioners  of  the  town 
appointed  in  such  proceedings  and  the  railroad  company  to  enter 
into  an  agreement  for  limiting  and  defining  the  times  when  and 
proportions  in  which  the  bonds  should  be  delivered,  and  the 
places  where  and  the  purposes  for  which  they  should  be  applied. 
It  also  provided  that  ^'  the  petition  "  [of  the  taxpayers]  may  be 
absohite  or  conditional,  and,  if  the  same  be  conditional,  the  accept- 
ance of  a  subscription  founded  on  such  petition  shall  bind  the 
railroad  company  accepting  the  same  to  the  observance  of  the 
condition  or  conditions  specified  in  such  petition.  The  petition 
in  this  case  was  for  authority  to  issue  bonds  to  a  certain  amount 
to  a  certain  railroad  company,  conditioned  that  its  road  be  con- 
structed from  a  certain  point  to  a  certain  other  point  and  to  pass 
through  a  certain  village  in  this  town.  The  commissioners  of  the 
town  just  afterwards,  the  issue  of  the  bonds  having  been  author- 
ized, entered  into  an  agreement  with  the  railroad  company  to 
deliver  the  bonds  when  those  conditions,  referring  to  the  petition, 
on  the  part  of  the  railroad  company  were  performed.  In  a  statu- 
tory proceeding,  upon  an  agreed  statement  of  facts,  before  the 
Supreme  Court  of  the  state  of  New  York,  after  the  adoption  of 
the  amended  Constitution,  in  which  the  railroad  company  prayed 
for  an  order  directing  the  issue  of  the  bonds  and  the  subscription 
of  the  stock,  and  the  commissioners  prayed  for  a  decree  against 
such  issue  and  subscription,  the  decree  was  made  as  prayed  by 
the  commissioners.  This  was  affirmed  by  the  Court  of  Appeals 
of  that  state.  The  Court  of  Appeals  held  that  there  was  no  con- 
tract in  existence,  as  alleged  by  the  railroad  company,  when  the 
amended  Constitution  went  into  effect,  and,  therefore,  that  the 


of  those  issued,  modified  in  form,  not 
in  substance,  and  these  were  the  only 
ones,  with  others  outstanding,  which 
covered  the  amount  of  the  stock  of  the 
railroad  company,  to  which  the  com- 
missioners had  subscribed  for  the 
town,  and  for  which  they  had  xmder- 


taken  to  issue  its  bonds  for  a  like 
amount."  The  case  of  The  Town  of 
Solon  D.  Williamsburgh  Savings  Bank, 
(1889)  114  N.  Y.  122,  was  thoroughly 
discussed  and  its  conclusions  adhered 
to  in  Williamsburgh  Savings  Bank  v. 
Town  of  Solon,  (1893)  136  N.  Y.  465. 


1^1 


988 


MUNICIPAL  AID  BONDS  —  TOWNS. 


[§475 


§476] 


MUNICIPAL  AID  BONDS TOWNS. 


989 


proliibition  contained  in  the  Constitution  before  quoted  was  con- 
clusive against  the  right  and  power  of  the  town  to  issue  the  bonds 
and  subscribe  for  the  stock  which  formed  the  subject  of  this  liti- 
gation. A  writ  of  error  was  taken  to  the  United  States  Supreme 
Court  upon  the  constitutional  question  involved,  and  they  consid- 
ered whether  any  such  contract,  valid  and  binding  on  tliis  town, 
did  exist  at  the  time  of  the  adoption  of  the  amended  Constitution. 
In  the  opinion  rendered  in  the  case  by  the  United  States  Supreme 
Court  Mr.  Justice  Bradley,  speaking  for  the  court,  made  this 
statement  of  the  facts,  that  "  the  railroad  was  not  constructed 
through  [the  village  named  in  the  petition  and  agreement  before 
referred  to]  until  the  20th  of  October,  1875.  On  the*  1st  of  Jan- 
uary, 1875,  when  the  amended  Constitution  went  into  effect, 
nothing  had  been  done  except  to  survey  the  route  and  file  a  map 
thereof.''  The  court  affirmed  the  decision  of  the  New  York 
Court  of  Appeals,  holding  the  agreement  made  oy  the  commis- 
sioners with  the  railroad  company  ultra  vires  and  not  binding 
upon  the  town.^ 


'  Railroad  Company  v.  Falconer, 
(1880)  103  U.  8.  821.  It  was  said,  as 
to  the  power  of  these  commissioners  in 
the  matter:  "  Their  powers  were  con- 
fined to  subscribing  for  the  stock  and 
making  and  issuing  the  bonds  in  pay- 
ment thereof  when  and  as  the  petition 
ofthe  taxpayers  directed;  that  is,  after 
the  road  was  completed  through  [the 
village  in  the  town].  By  the  act  of 
1870  they  might  also  stipulate  as  to  the 
installments  in  which  the  bonds  should 
be  delivered,  and  the  purposes  for 
which  they  might  be  applied.  But 
the  power  to  do  this  being  but  an  in- 
cident of  the  principal  power  to  make 
and  issue  the  bonds,  and  being  only 
intended  to  enable  the  commissioners 
to  prescribe  the  times  and  manner  of 
their  issue  and  the  uses  to  which  they 
should  be  applied,  would  not  properly 
arise  and  could  not  be  effectively  exer- 
cised until  the  principal  power  itself 
arose  and  became  exercisable.  Whilst, 
however,  the  commissioners  had  the 
power,  or,  rather,  would  have  the 
power,  at  the  prescribed  time,  to  sub- 


scribe for  the  stock  and  to  execute  and 
issue  the  bonds,  neither  the  statutes  nor 
the  taxpayers'  petition  gave  them  any 
power  to  make  a  contract  to  subscribe 
for  stock,  nor  a  contract  to  deliver 
bonds  to  the  railroad  company.  They 
were  not  charged  with  any  such  duty; 
they  were  not  invested  with  any  such 
power.  The  case  of  the  railroad  com- 
pany, therefore,  must  stand  upon  the 
effect  of  the  taxpayers'  petition  and 
the  proceedings  had  thereon  before 
the  county  judge.  If.  under  the  oper- 
ation of  existing  statutes,  these  pro- 
ceedings amounted  to  a  contract  be- 
tween the  town  and  the  railroad  com- 
pany, no  subsequent  legislation  or  con- 
stitutional amendment  could  lawfully 
impair  its  obligation.  But  it  is  diffi- 
cult to  see  how  said  petition  and  pro- 
ceedings, including  the  appointment 
of  commissioners,  can  be  considered  as 
amounting  to  such  a  contract.  All 
that  was  done  by  the  town,  through 
the  action  of  its  taxpayers  and  the 
county  judge,  was  to  appoint  agents 
for  making  a  subscription  and  issuing 


fl« 


§  476.  The  sealing  of  such  bonds. —  A  town  of  New  York 
issued  bonds  in  aid  of  a  railroad  corporation.  The  town  had  no 
common  seal.  The  attestation  clause  of  each  bond  was :  "  In 
witness  whereof  the  within  named  commissioners  *  *  * 
have  caused  this  bond  to  be  made  and  executed  and  have  set  their 

hands  and  seals  hereto  the  first  day  of in  the  year ;" 

and  they  subscribed  their  names  as  commissioners,  and  opposite 
each  name  was  the  scroll  [L.  S.].  In  an  action  by  the  town 
against  a  bank,  the  holder  of  these  bonds,  praying  that  they  be 


bonds  on  the  happening  of  a  certain 
event.  When  that  event  should  hap- 
pen it  would  be  the  duty  of  these 
ageuts,  under  [a]  section  of  the  act  of 
1869,  to  execute  their  commission. 
The  words  of  the  section  are:  '  Such 
commissioners  are  further  empowered 
and  directed  to  subscribe,'  etc.  But  to 
whom  did  they  owe  this  duty?  Evi- 
dently to  the  town  which  appointed 
them;  not  to  the  railroad  company. 
The  latter  came  under  no  obligation 
and  acquired  no  rights  until  the  com- 
missioners should  subscribe  to  its 
stock.  Had  no  conditions  been  im- 
posed by  the  petition,  the  duty  of  the 
commissioners  to  subscribe  stock  and 
issue  bonds  would  have  arisen  imme- 
diately after  their  appointment;  but  it 
would  have  been  an  obligation  owed 
to  their  principals  alone.  The  condi- 
tions which  were  in  fact  imposed  re- 
quired, it  is  true,  something  to  be  done 
by  the  railroad  company  before  the 
commissioners  could  act;  but  no  stipu- 
lation was  demanded  of  the  company, 
or  given  by  it,  that  this  something 
should  be  done.  The  two  parties  were 
not  brought  together.  There  was  no 
mutuality  between  them.  Each  was 
free  to  act  as  it  listed.  This  was  the 
condition  of  things  on  the  1st  of  Jan- 
uary, 1875,  when  the  new  Constitution 
went  into  operation,  prohibiting  all 
municipal  aid  to  corporations  or  in- 
dividuals, by  subscription  of  stock  or 
otherwise.  It  seems  to  us,  therefore, 
that  the  New  York  Court  of  Appeals 


was  right  in  deciding  that  no  contract 
existed  at  that  time.  After  the  amend- 
ment took  effect,  no  county,  city, 
town  or  village  could  subscribe  for 
railroad  stock;  and,  of  course,  no 
agent  or  attorney  of  any  such  corpora- 
tion could  do  so.  What  had  not  been 
done  before,  in  this  regard,  could  not 
be  done  afterwards,  unless  some  valid 
contract  required  it  to  be  done.  But, 
as  we  have  shown,  no  such  contract 
existed  in  this  case,  The  action  on  the 
part  of  the  town  was  voluntary  up  to 
the  time  of  the  constitutional  amend- 
ment. The  railroad  company  may 
have  expected  a  subscription  when 
their  road  should  be  completed;  but 
they  had  no  subscription,  and  had  no 
valid  agreement  that  any  should  be 
made.  Everything  was  inchoate  and 
undetermined  up  to  the  first  day  of 
January,  1875,  and  then  all  power  to 
subscribe  for  stock  was  taken  away 
from  the  town."  County  of  Moultrie  t. 
Savings  Bank,  92  U.  S.  631,  was  relied 
upon  to  sustain  the  position  that  a  con- 
tract did  exist  in  this  case.  It  was  dis- 
tinguished by  the  United  States  Su- 
preme Court  as  follows:  "But  an  ex- 
amination of  that  case  will  show  that  it 
was  very  far  from  being  parallel  to  the 
present.  Here  the  statute  of  Illinois 
authorized  the  board  of  supervisors  of 
the  county  of  Moultrie  to  subscribe  to 
the  stock  of  a  particular  railroad  com- 
pany by  name,  to  an  amount  not  ex- 
ceeding eighty  thousand  dollars,  and 
to  issue  bonds  therefor  when  the  road 


090 


MITNICIPAL  AID  BONDS  —  TOWNS. 


[§476 


I 


,  *^i 


\ 


surrendered  and  canceled,  it  being  claimed  that  they  were  invalid 
on  account  of  the  manner  in  which  they  had  been  executed  and 
sealed  by  these  commissioners  appointed  in  the  proceedings  before 
a  county  judge  under  the  New  York  statutes  to  execute  and  issue 
them  to  the  railroad  company,  the  Court  of  Appeals,  while  con- 
ceding tliat  the  doctrine  established  in  that  state  did  not  permit 
the  conclusion  that  the  seal  upon  the  bonds  in  question  was  the 
seal  of  the  commissioners,  held  that  it  did  not  follow  that  the 
bonds  were  for  that  reason  invalid,  and  inasmuch  as  they  were 
issued  and  delivered  by  the  commissioners  in  the  performance  of 
their  duty,  and  upon  a  consideration,  the  mistake  or  failure  to 
aflix  their  seals  did  not  defeat  the  enforceable  validity  of  the 
bonds.*     At  the  time  the  bank  became  the  holder  and  owner  of 


should  be  opened  for  traffic  between 
certain  points.  Before  this  event  took 
place,  the  board  ordered  that  a  sub- 
scription to  the  stock  of  the  company 
in  the  sum  of  eighty  thousand  dollars 
be  made,  and  that,  in  payment  there- 
for, bonds  should  be  issued  to  the 
company  when  the  road  should  be 
open  for  traffic.  This  resolution  was 
acted  upon  by  the  railroad  company 
as  a  subscription,  and  was  entered  on 
its  minutes,  and  the  promised  bonds 
were  disposed  of  by  contract.  This 
court  held  that  the  board  of  super- 
visors itself  had  complete  authority  to 
make  a  present  subscription,  and  that 
the  resolution  amounted  to  a  subscrip- 
tion, or,  at  least,  to  an  agreement  to 
subscribe,  which,  being  accepted  and 
acted  upon  by  the  railroad  company 
as  such,  created  a  contract  between 
the  county  and  the  company.  In  the 
case  before  us,  no  act  equivalent 
to  the  action  of  the  board  of 
8up)ervisors  of  Moultrie  county  was 
ever  done  by  any  person  or  body  of 
persons,  having,  at  the  time  of  such 
act,  a  present  power  to  subscribe  for 
stock  or  to  issue  bonds  of  the  town 
[involved  in  this  case].  The  taxpayers 
had  no  authority  to  make  a  subscrip- 
tion of  stock  or  to  issue  bonds,  or  to 
make  any  contract  to  do  so;  they  could 


only  express  their  desire  that  it  should 
be  done,  and  that  commissioners  should 
be  appointed  to  do  it;  and  when  they 
did  express  such  desire  it  was  con- 
tinued, as  before  stated.  The  commis- 
sioners, as  we  have  seen,  had  no  power 
to  act,  for  no  power  was  given  them  to 
act  until  the  railroad  was  located  and 
completed  through  [a  named  village  of 
the  county].  It  follows  that  nothing 
which  was  done  in  the  present  case  can 
be  fairly  regarded  as  equivalent  to  the 
action  of  the  parties  in  the  case  of 
Moultrie  county.  The  circumstances 
of  the  two  cases  were  essentially  dif- 
ferent." 

*  Town  of  Solon  v.  Williamsburgh 
Savings  Bank,  (1889)  114  N.  Y.  122; 
citing  People  ex  rel.  v.  Mead,  24  N. 
Y.  114;  Kelly  r.  McCormick,  28  N. 
Y.  318;  Board  of  Education  v.  Fonda, ' 
77  N.  Y.  350;  San  Antonio  v.  Mehaflfy, 
96  U.  S.  312;  United  States  v.  Linn, 
15  Pet.  290.  The  court  additionally 
said:  "  At  all  events,  as  the  commis- 
sioners intended  to  properly  and 
effectually  execute  the  bond,  and  the 
omission  of  the  seals  was  caused  by 
their  misunderstanding,  mistake  or  in- 
advertence, the  court  of  equity  may 
afford  the  relief  requisite  to  the  party 
justly  entitled  to  the  benefit  of  the  in- 
struments and  to  render  them  enforce- 


1 


§  4TCj 


MUNICIPAL  AID  BONDS  —  TOWNS. 


991 


these  bonds  seals  had  baen  affixed  and  were  upon  them  over  the 
places  where  the  scroll  opposite  the  names  of  the  commissioners 
using  them   was   placed  so   that   the   bonds  then    appeared  to 
Iiave  been  properly  sealed.     The  defendant  purchased  them  in 
good  faith,  and  tjjen  supposed  that  the  seals  were  those  of  the 
commissioners.     The  evidence   tended  to  prove  that  the   seals 
were  not  affixed  by  any  officer  of  the  railroad  company  who 
received  them  from   the  commissioners,  and  that  they  were  not 
upon  them  when  transferred  by  the  company.     It  did  not  appear 
who  were  all  the  intermediate  liolders  of  the  bonds  between  the 
transfer  of  them  by  the  railroad  officers  and  the  purchase  by 
defendant.     The  trial  court  found  that  these  seals  were  affixed 
by  a  stranger.     Whether  or  not  this  worked  an  alteration  of  the 
bonds  and  its  effect  upon  the  rights  of  the  holders  was  discussed 
by  the  Court  of  Appeals  as  follows  :  "  If  placed  there  by  some  one 
having  no  interest  in  the  bonds  and  without  any  authority,  consent 
or  complicity  of  any  person  liaving  any  interest,  the  seals  would  not 
be  treated  as  effecting  any  alteration  of  the  bonds.    [Citing  cases.] 
If,  therefore,  this  was  done  by  a  stranger  in  the  sense  of  the  term 
applicable  in  such  case,  the  alteration  produced  by  it  would  not 
be  effectual  to  impair  the  right  before  existing  to  enforce  the  bonds. 
But,  inasmuch  as  they  passed  through  the  hands  of  other  owners 
before  they  reached^tlie  defendants,  it  is  contended  that  the  find- 
ing that  it  was  done  by  a  stranger  is  not  supported,  and  that  the 
presumption  arises   that   the  seals  were  affixed  by  some  party 
liaving  an  interest  in  having  them  put  on,  and,  therefore,  explana- 
tion is  necessary  to  relieve  them  from  the  effect  of  the  alteration. 
As  a  general  rule,  when  a  material  alteration  appears  to  have  been 
made  in  a   written    instrument   after  its  execution,  evidence  is 
necessary  to  explain  it,  and  the  burden  of  proof  rests  upon  the 
party  seeking  to  enforce  it  to  do  so  to  support  a  recovery  upon  it. 
[Citing  cases.]     The  plaintiff's  counsel  seeks  to  apply  that  rule  in 
respect  to  the  burden  of  proof  to  this  case,  and  insists  that  the 
defendant  must  bear  it.     While  the  burden  is  with  a  party  seek- 
ing to  enforce  a  contract,  to  relieve  it  from  the  effect  of  any 
material  alteration  made  in  it  after  its  inception,  that  rule  is  not 
necessarily  applicable  to  a  defendant  in  an  action  brought  to  have 
a  security  held    by  him    canceled  upon  that  ground,  when  it 

able."     Citing    Wiser   t.    Blachly,    1    v.  Stebbins,   109  U.  S.  341;  Cockerell 
Johns.   Ch.  607;  Bernards  Township   r.  Cholmeley,  1  Russ.  «&  Myl.  418. 


ii 


ii 


992 


MUNICIPAL  AID  BONDS  —  TOWNS. 


[HT7 


I 

r 

.5: 


appears  that  such  defendant  is  in  no  sense  chargeable  with  mala 
fides  in  tliat  respect.  Our  attention  is  called  to  no  authority 
going  to  that  extent.  And  the  proposition  does  not  seem  tl> 
commend  itself  to  a  court  of  equity,  which  is  supposed,  within 
recognized  bounds,  to  exercise  discretionary  powers  in  such  cases.'" 

§477.  Proceedings  under   New   York  statutes  prelimi- 
nary to  issue  of  bonds.—  A  town  of  New  York  which  had 
through  commissioners  appointed  for  that  purpose  issued  bonds 
to  a  certain  amount,  under  the  statute  authorizing  it,  in  aid  of  a 
railroad  company,  some  of  wliicli  were  held  by  a  bank,  brought 
its  action  in  equity  against  the  bank,  charging  such  irregularities, 
etc.,  and  non-compliance  with  the   statute,  as  would  render  the 
bonds  invalid  as  the  town  contended,  and  praying  to  have  the 
bonds  surrendered  up  and  canceled.     A  judgment  was  rendered 
in  favor  of  the  defendant,  affirmed  in  General  Term  and  the 
Court   of  Appeals  when  it  was  considered  there  affirmed  the 
judgment,  holding  the  bonds  to  be  valid  and  binding  upon  the 
town.     The  statute  under  which  these  bonds  were  issued  pro- 
vided that  "  whenever  a  majority  of  the  taxpayers  of  any  munic- 
ipal corporation  in  this  state,  whose  names  appear  upon  the  last 
preceding  tax  list  or  assessment  roll  of  said  corporation,  shall 
make  application  to  the  county  judge  of  the  county  in  which  such 
corporation  is  situated,  by  petition,  verified  by  one  of  the  petition- 
ers, setting  forth  that  they  are  such  a  majority  of  taxpayers  and 
represent  such  a  majority  of  taxable  property,''  etc.,  the  further 
proceedings  may  be  taken  as  therein  provided  for  the  requisite 
adjudication  and  the  appointment  of  commissioners  to  issue  the 
bonds  of  the  corporation  and  invest  them  in  the  stock  or  bonds 
of  the  railroad  company,  in  view  of  which  the  proceeding  was 
taken.^    The  petition  addressed  to  the  county  judge  under  this 
statute  in  this  case  contained  this  statement :  "  The  undersigned, 
representing  a  majority  of  the  taxpayers  of  the  town  of  Solon,  in 
said  county  of  Cortland,  whose  names  appear  upon  the  last  pre- 
ceding tax  list  or  assessment  roll  of  said  town,"  etc.     It  was 
signed  by  persons  purporting  to  be  citizens  of  that  town,  and 
upon  the  petition  was  the  verification  by  the  affidavit  of  one  of 

>  Town  of  Solon  v.  Williamsburgh  of  Springport   t>.    Teutonia   Savingi 

Savings  Bank,  (1889)  114  N.  Y.  122,  Bank.  75  N.  Y.  397-408. 

134,  135;   citing   on    that  point  Mc-  «N.  Y.  Laws  1869,  chap.  907. 
Henry  v.  Hazard,  45  N.  Y.  580;  Town 


§478] 


MUNICIPAL  AID  BONDS  —  TOWNS. 


99:3 

tlie  petitioners  Which,  among  other  things,  stated  that  the  persons 
Mgnmg  said  petition  are  a  majority  of  the  taxpayers  whose  names 
appear  upon  the  last  preceding  tax  list  and  assessment  roll  in  said 
town      It  was  contended  in  behalf  of  the  town  that  the  petition 
failed  to  set  forth  that  the  petitioners  were  such  a  majority  of 
the  taxpayers  by  reason  of  the  insertion  of  the  word  "represent- 
ing,   which,  It  was  claimed,  so  far  qualified  the  phrase  "a  major- 
ity of  the  taxpayers  "  following  it,  as  to  import  that  such  majority 
did  not  themselves  subscribe  the  petition,  but  did  it  only  throui 
the  instrumentality  of  others  who  were  such  subscribers,  and  In 
he  relation  of  agency  represented  such  taxpayers  in  thus  making 
the  apphcation      The  court  held  adversely  upon  this  contention^ 
and  that  the  petition,  as  made,  was  in  compliance  with  the  statute 
and   gave    :,urisdiction   to   the   county  judge   to   entertain   the 
proceeding/ 

§  478.  Bonds  issued  after  the  passage  of  an  act  authorizing- 

Lt  onffir  ;  "  '''T-^'f  '"'  ''  ''^'^  amendatory  of  the 
act  of  1869  clianging  the  term  for  whicl.  bonds  issued  by  towns 

m  aid  of  railroads  might  run,  has  been  held  by  the  New  York 
Court  of  Appeals  to  apply  to  bonds  issued  after  it  went  into 
eSect,  m  pursuance  of  a  consent  of  taxpayers  given  and  adjudi- 
cated upou  before  that  time,  and,  as  so  construed,  that  the  act 
Avas  constitutional.^ 

'  Town  of  Solon  v.  Williamsburgh 

Savings  Bank.  (1889)  114  N.  Y.  122. 
« Brownell  v.  Town  of  Greenwich 

(1889)114  N.  Y.  518,  Brown,  J.,  dis^ 

senting.  .Arguendo,  Vann,  J.,  for  the 

majority  of  the  court,  said:  "In  Syra- 
cuse Savings  Bank  v.  Town  of  Seneca 

Falls,  86  N.  Y.  317,  it  was  held  that 

the  act  of  1871  applied  to  proceedings 

regularly  taken  prior  to  its  passage. 

In  that  case    the    proceedings    were 

terminated  in  August,  1870,  when  the 
county  judge  made  the  adjudication 
and  record,  and  appointed  the  com- 
missioners, who  delayed  action  until 
after  May  12,  1871,  when  they  sub- 
scribed for  stock  and  issued  the  bonds. 
No  further  consent  of  the  taxpayers 
was  obtained.  In  Angel  v.  Town  of 
Hume,  17  Hun,  374,  the  adjudication 

125 


was  made  April    22,    1871,   and    the 
bonds  were  issued  in  February  and 
July,  1872.     In  both  of  these  cases  it 
was  held  that  the  judgment  of  the 
county  judge,  based  solely  upon  the 
consent  of  the  taxpayers  to  bond  pur- 
suant to  the  act  of  1869,  was  not  nul- 
lified or  avoided  by  the  amendment  of 
1871.     In  neither  of  those  cases  had 
any  taxpayer  consented   to    such  an 
issue  of  bonds,  as  the  amended  act 
gave  the  commissioners  the  discretion 
to  issue.     In  Gould  v.  Town  of  Ster- 
ling. 23  N.  Y.  456,  the  consents  were 
obtamed  prior  to  September  29  1852 
(pp.  443,  445).  while  the  bonds 'were 
issued  in  August,   1853  (p.  457)      In 
the  meantime  an  act  had  been  passed 
authorizing    the     interest    upon    the 
bonds  to  be  made  payable  on  the  first 


II 


994 


UUNICIPAL  AID  BONDS TOWNS. 


[§  479 


III 


I 


§479.  Rules  as  to  the  taxes  collected  for  payment  of 
bonds  issued  under  New  York  statutes. —  This  was  an  action 
by  a  supervisor  of  a  town  in  Kew  York  against  tlio  supervisors 
of  the  county  to  recover  certain  state  and  county  taxes  which  had 
been  collected  of  a  railroad  company  which  had  been  aided  by 
the  issue  of  bonds  of  this  town  under  certain  statutes  of  the  state, 
and  which  it  was  claimed  had  been  diverted  by  the  county  by  the 
action  of  its  board  of  supervisors  and  county  treasurer  from  the 
use  of  the  town  to  general  county  purposes,  contrary  to  certain 
statutes  of  the  state.     The  Court  of  Appeals,  upon  the  question 


days  of  Jamiary   and   July   of    oach 
year,  instead  of  ]VlHrch  lirst,  as    was 
provided  by  the  original  bonding  act. 
The  only  authorities  cited  to  sustain 
the  position  that  the  act  of  1871  is  un- 
constitutional are  People  r.  Batchcllor, 
53  N.  Y.  128,  and  Horton  v.  Town  of 
Thompson,  71  N.  Y.  513.     We  do  not 
consider  either  of  them  applicable  to 
this    case.     The    only   constitutional 
questions    involved    in    those    cases 
were,    in    the    former,    whether    the 
legislature  could    compel  a  town  to 
become  a  stockholder  in  a  railroad  cor- 
poration by  exchanging  its  bonds  for 
stock  without  its  consent  in  any  way 
given;  and,  in  the  latter,  whether  the 
legislature  could  make  a  void   bond 
valid  after  it  had   actually  issued  to 
a  person  who  could  not  claim  as  a 
b&na  file  holder."     Returning  to  the 
case  at  bar  it  was  said:  "In  the  case 
under  consideration  the  consents  had 
been  duly  given,  and  an  adjudication 
duly  made  to  that  effect,  when  the 
amendatory  act  was  passed.     There 
was  no  want  of  power,  therefore,  to 
issue  bonds,   as  the  conditions  prec- 
edent had    all  been    complied    with. 
The  amendment  did    not    extend  to 
matters  of  jurisdiction,   '  but  to  that 
which  the  legislature  might  have  dis- 
pensed with  the  necessity  of  by  the 
prior     statute.'      The     bonding    act 
would  not  have  conflicted   with  the 
Constitution  if  it    had  contained  no 
provision  as  to  w^hen  the  bonds  should 


be  made  payable,  but  had  left  that  to 
the  discretion  of  the  commissioners. 
The  provision, 'therefore,  so  far  as  the 
Constitution  is  concerned,  was  imma- 
terial,  and   could  be  modified,  even 
retrospectively,  at  the    discretion  of 
the  law-making  power.     In  Williams 
r.  Town  of  Duanesburg,  66  N.  Y.  137, 
the  court  said:    *  In  this  case  the  legis- 
lature could  originally  have   author- 
ized the  bonds  of  the  town    *    *    * 
to  be  issued  under  the  precise  circum- 
stances   existing    when    they     were 
issued:  and  if  the  acts  of  the  commis- 
sioners have,  by   subsequent  legisla- 
tion, been  ratified,  it  is  equivalent  to 
an  original  authority  to  do  what  has 
been  done.     The  authorities  as  to  the 
legislative  power  to  validate,  by  sub- 
sequent legislation,  acts  done  in  as- 
sumed execution  of  a  statute  author- 
ity which  has  not  been   strictly  fol- 
lowed   are    numerous   and  decisive.* 
People    r.   Mitchell,    35    N.    Y.    551; 
Town  of  Duanesburg  v.  Jenkins,  57 
N.  Y.   177;    People  ex  rel.  Kilmer  v. 
McDonald,  69  N.  Y.  362;  Tifift  v.  City 
of  Buffalo,  82  N.  Y.  204;   Rogers  v. 
Stevens,  86    N.  Y.  623.     If  the  legis- 
lature has   power,   after  bonds  have 
been  issued,  to  correct  irregularities  of 
official  action,   without   affecting  the 
consents  of  the  taxpayers  previously 
given,  its  power  to  authorize  a  change 
in  the  form  of  the  bond  before  it  is 
actually   issued,    without     impairing 
such  consents,  cannot  well  be  denied." 


§479] 


MUNICIPAL  AID  BONDS TOWNS. 


995 


of  the  riglits  of  the  town  in  such  case,  generally,  said :  "  The 
right  of  towns  that  have  issued  bonds  in  aid  of  railroads,  and 
which  are  still  outstanding,  to  reclaim  taxes  collected  from  the 
railroad  within  the  town,  but  diverted  to  general  purposes,  is  well 
settled."  *  There  was  a  Statute  of  Limitations  as  to  such  actions, 
and  it  appeared  as  to  the  claims  embraced  in  this  suit  for  certain 
years  that  the  board  of  county  supervisors,  as  organized,  at  cer- 
tain dates  had  passed  resolutions  referring  to  the  taxes  for  those 
years,  in  which  they  expressly  stipulated  and  agreed  not  to  inter- 
pose the  defense  of  the  Statute  of  Limitations  to  any  sum  found 
due  the  town  on  account  of  the  taxes  in  question.  The  Court  of 
Appeals  held  that  this  stipulation  and  agreement  were  within  the 
power  of  the  board  of  county  supervisors.^     The  statutes  of  New 


*  Woods  V.  Board  of  Supervisors  of 
Madison  County,  (1893)  136  N.  Y.  403, 
405,  406;  citing  Clurk  v.  Sheldon,  106 
N.  Y.  104;  Strough  v.  Supervisors,  119 
N.  Y.  212;  Crowninshield  v.  Supervis- 
ors, 124  N.  Y.  583;  Kilboume  v.  Super- 
visors, 62  Hun,  210. 

'  Ibid.  The  court  said:  "  It  is  stated 
as  a  fact  in  the  case  agreed  upon  that 
the  plaintiff,  relying  upon  the  validity 
of  such  resolutions,  refrained  from 
bringing  an  action  in  time  for  the  re- 
covery of  the  taxes  for  these  years, 
which,  but  for  such  stipulations,  he 
would  have  done.  If  the  county, 
through  its  board  of  supervisors,  can 
waive  the  statute  like  an  individual, 
this  would  seem  to  be  a  writing  signed 
by  the  party  to  be  charged,  and  con- 
taining a  sufficient  acknowledgment 
of  the  debt  and  a  promise  to  pay  the 
same  within  the  meaning  of  the  Code. 
Code,  §  395;  Chemung  Canal* Bank  v. 
Supervisors,  5  Den.  517;  Shapley  v. 
Abbott,  42  N.  Y.  443;  Anderson  «. 
Sibley,  28  Hun,  16;  Mosher  v.  Hub- 
bard. 13  Johns.  510.  Boards  of  su- 
pervisors represent  the  county  in  its 
corporate  capacity  and  have  power  to 
bind  it  to  the  extent  conferred  by  stat- 
ute and  when  any  act  of  such  board  is 
challenged  as  beyond  its  power,  or  not 
binding  upon  the  county,  resort  must 


be  had  to  the  specific  powers  enumer- 
ated in  the  statute  which  such  board 
may  exercise.     But  in  such  cases  the 
body  is  not  confined  to  the  exercise  of 
the  precise  act  contained  in  the  grant 
of  power,  but,  from  the  nature  of  the 
case  as  well  as  upon  settled  principles, 
it  possesses  and  may  exercise  such  in- 
cidental powers  not  expressly  enumer- 
ated or  mentioned  in  the  statute,  but 
which  are  fairly  and  reasonably  neces- 
sary and  proper  in  order  to  give  effect 
to  or  carry  out  the  powers  expressly 
conferred.    Dillon  on  Mun.  Corp.  §89; 
Brady  v.   Mayor,    etc.,   1   Barb.  584; 
Supervisors    v.    Bowen,    4  Lans.  24. 
Boards  of    supervisors  are  expressly 
empowered  by  statute    *to  examine, 
settle  and  allow  all  accounts  charge- 
able against  the  county,  and  to  direct 
the  raising  of  such  sums  as  may  be 
necessary  to  defray    the   same.'     It 
cannot  be  doubted  that  the  board  had 
power  to  settle  and  allow  the  plain- 
tiff's  claim   and   restore  the    money 
which  had  been  appropriated  to  the 
benefit  of  the  county  at  large,  instead 
of  investing  or  using  it  for  the  benefit 
of  the  town  as  required  by  the  statute. 
Nor  can  it  be  doubted  that  in  this  suit 
the  defendant  could  have  most  effectu- 
ally waived  the  defense  of  the  Statute 
of  Limitations  by  honestly,  and  with- 


i! 


] 


996  MUNICIPAL  AID  BONDS  —  TOWNS.  [§  479 

York,  providing  for  the  bonding  of  towns  in  aid  of  railroads, 
direct  the  application  of  taxes  assessed  upon  any  railroad  in  a 
town  toward  the  redemption  of  bonds  issued  by  it  in  the  con- 
struction of  such  railroacl,  and  make  it  the  duty  of  the  county 
treasurer  to  purchase  with  sucli  taxes  the  bonds  of  the  town,  or 
to  otlierwise  invest  the  same  and  hold  the  investment  as  a  sinkimr 
fund  for  the  redemption  of  such  bonds.  Upon  the  petition  of  a 
taxpayer  of  a  town  to  compel  the  county  treasurer  to  apply  such 
taxes  in  his  hands  as  directed  by  the  statute,  the  New  York  Court 
of  Appeals  held  that  a  county  treasurer,  in  his  relation  to  such 
taxes,  was  not  the  agent  of  the  county  or  town,  but  held  them  as 
a  trust  fund  for  the  purpose  expressed  in  the  act,  and  any  action 
on  his  part  that  diverted  them  from  that  purpose  was  illei^al. 
Further,  that  any  taxpayer  of  the  town  might  apply  to  the  county 
judge  for  an  order  compelling  the  county  treasurer  to  execute 
the  law  in  case  of  his  refusal  so  to  do,  and  it  was  the  duty  of  the 


§  479] 


MUNICIPAL  AID  BONDS  —  TOWNS. 


997 


out  collusion,  refusing  to  plead  it. 
Having  the  power  to  audit  it  and  set- 
tle the  claim  and  to  bind  the  county  in 
that  respect,  it  is  difficult  to  discover 
any  sound  reason  in  law  or  in  morals 
for  the  contention  that  the  stipulation 
in  question  is  not  also  within  the  scope 
of  their  necessary  incidental  powers. 
The  board  may  have  been  in  doubt  as 
to  their  powers  or  duty  to  pay  or  audit, 
and  by  the  stipulation  it  procured  time 
and  induced  the  plaintiff  to  delay 
legal  proceedings.  Under  such  cir- 
cumstances, justice  requires  that  the 
defendant  be  held  bound  by  the  stipu- 
lation in  the  same  way  as  if  made  be- 
tween individuals  for  a  like  purpose. 
It  was  said  by  Church,  Ch.  J.,  in 
Buffalo  V.  Bettinger,  76  N.  Y.  393, 
that  'a  municipal  corporation  has 
public  and  private  attributes,  and  its 
rights  and  duties  are  regulated  accord- 
ingly. In  protecting  its  property,  in 
collecting  its  debts,  and  in  general  in 
transacting  business  of  a  private  char- 
acter, when  not  otherwise  provided  by 
statute,  it  may  avail  itself  of  the  rights 
and  remedies  afforded  to  an  individ- 
ual.'   The  defendant  has  capacity  to 


sue  and  be  sued,  to  audit,  settle, 
pay  or  compromise  claims  against  it, 
and  this  fairly  implies  power  to  agree 
upon  terms  of  payment  and  to  waive 
by  proper  agreement  the  defense  of 
the  Statute  of  Limitations  as  to  claima 
not  barred.  This  power  was  exercised 
in  this  case  for  the  purpose  of  reliev- 
ing the  county  from  actions  at  law  in 
each  year  as  the  time  for  bringing 
such  suit  was  about  to  expire,  and  we 
think  the  bar  of  the  statute  is  thereby 
avoided.  This  result  does  not  dis- 
turb the  rule,  which  is  conceded,  that 
a  county,  through  its  board  of  super- 
visors, can  exercise  only  such  powers 
as  are  expressly  conferred  by  statute, 
or  such  incidental  powers,  not  ex- 
pressly enumerated,  as  are  necessary 
to  carry  out  the  express  powers,  and, 
moreover,  it  is  supported  by  those 
general  principles  of  equity  and  jus- 
tice which  are  binding  upon  all  cor- 
porations as  well  as  upon  individuals." 
As  to  the  rights  of  a  village  as  to  such 
taxes,  see  Village  of  Oneida  v.  Board 
of  Supervisors  of  Madison  County, 
(1892)  136  N.  Y.  369. 


county  judge  to  grant  the  order  applied  for.     Further,  in  such 
proceedings,  it  was  no  defense  that  the  county  treasurer  had  paid 
over  the  fund  to  an  officer  of  the  town,  or  that  the  town  had  had 
the  benefit  of  it  for  other  town  purposes.    In  this  case  it  appeared 
that  the  transactions  upon  which  a  claim  of  the  county  treasurer, 
that  he  had  paid  over  the  fund  to  the  town  officers,  was  based, 
occurred  during  the  pendency  of  the  proceeding  of  the  taxpayer 
against  hmi  before  the  county  judge  to  compel  him  to  comply 
with  the  statute.     The  Court  of  Appeals  held  that  his  refusal  to 
obey  the  statute  was  not  only  without  legal  excuse,  but  was  to  be 
regarded  as  willful ;   and  that  he  was  chargeable  with  the  fund, 
and  also  witli  interest  upon  it,  as  the  town  had  been  deprived  of 
interest  wliicli  it  would   have  earned  had  the  law  been  obeyed.* 
The  Court  of  Appeals  has,  in  another  case,  held  that  this  statute 
requiring  taxes  collected  on  the  assessed  valuation  of  a  railroad  in 
a  municipality  which  has  issued  bonds  to  aid  in  the  construction 
of  the  railroad  to  be  applied  by  the  county  treasurer  to  the  pur- 
chase of  such  bonds,  or  to  be  invested  as  a  sinking  fund  for  their 
redemption,  is  not  limited  to  the  bonds  originally  issued  ;    that 
where  new  bonds  have  been  issued  to  retire^  and  pay  off  the  old 
ones,  they  are  covered  by  the  provision,  as  they  represent  in  all 
respects  the  same  debt.^    The  taxes  collected  on  the  assessed 
valuation  of  a  railroad  in  a  municipality  which  had  issued  bonds 
to  aid  in  the  construction  of  the  railroad,  instead  of  being  used, 
as  required  by  the  statutes,  by  the  county  treasurer  to  purchase 
the  bonds,  or  invested  by  him,  having  been   applied   by  that 
officer  to  the  payment  of  county  obligations,  the  ]S"ew  York  Court 
of  Appeals  held  that  the  town  had  an  equitable  cause  of  action 
against  the  board  of  supervisors  of  the  county  to  compel  the 
levying  and  collection  of  a  tax  upon  the  taxable  property  of  the 
county  for  the  amount  so  misappropriated,  to  be  paid  to  the 
treasurer  and  used  as  required  by  the  statutes.   And  the  fact  that 
the  municipality  had  presented  its  claim  to  the  board  of  super- 
visors and  demanded  the  levying  and  collection  of  the  tax,  and 

J^Clark  V.  Sheldon.  (1892)  134  N.  Y.  ors,  119  N.   Y.  212;  Crowninshield  v 

333;    8.  c,   32  N.  E.   Rep.  23.      See  Supervisors,  124  N  Y  583 

Matter  of  Clark  v.  Sheldon,  (1887)  108  .     «  Barnum  «.  Board  of  Supenrisore  of 

N.  Y.   104,  m   which   the  court  sus-  SuHivan  County.  (1893)  137  N  Y   179- 

tained  the  constitutionality  of  the  stat-  s.  c,  33  N.  E.  Rep.  162,  affirming  63 

utes  under  which  this  proceeding  was  Hun,  190. 

had.    See,  also,  Strougli  v.  Supervis- 


^11 


Vi 


9d8 


MUNICIPAL  AID  BONDS  —  TOWNS. 


[§480 


I 


that  tlie  demand  liad  been  refused,  did  not  confine  the  remedy  of 
the  claimant  to  a  certiorari  to  review  the  action  of  the  board,  or 
to  a  mandamus  to  compel  a  compliance  with  the  demand.  Upon 
the  plea  of  the  Statute  of  Limitations  as  a  bar  it  was  held  that 
such  a  cause  of  action  arose  when  the  county  treasurer  appropri- 
ated the  money  to  the  payment  of  county  obligations,  and  the 
burden  was  upon  the  county  to  show  that  the  money  was  so  mis- 
appropriated more  than  six  years  before  the  commencement  of 
the  action.* 

§  480.  Power  of  town  authorities  as  to  aid  bonds  under 
Kansas  statutes  —  for  what  time  they  may  run. — As  to  the 
authority  of  a  municipal  township  of  Kansas  to  issue  certain 
kinds  of  bonds  in  aid  of  a  railroad,  the  United  States  Circuit 
Court  of  Appeals  for  the  eighth  circuit  calls  attention  to  these 
special  prov^isions  of  the  statute  of  that  state  authorizing  sub- 
scriptions in  aid  of  railroads,  to  wit :  That  one  which  requires  a 
petition  by  two-fifths  of  tlie  taxpayers,  asking  the  county  com- 
missioners to  submit  to  the  township  electors  a  proposition  of 
subscription ;  such  petition  to  designate  the  amount  of  tlie  stock, 
"  the  terms  of  payment,"  and  other  conditions  of  the  subscrip- 
tion ;  the  proposition  to  be  accepted  by  two-thirds  of  those  vot- 
ing at  the  election  held  for  that  purpose,  and  the  bonds  to  have 
coupons  attached  "as  may  be  required  by  the  terms  of  said 
proposition  ;  ■'  the  county  commissioners  to  levy  a  tax  "  sutficient 
to  pay  the  interest  on  such  bonds  as  the  same  shall  become  due, 
and  to  create  a  sinking  fund  sufficient  to  pay  such  bonds  at 
maturity,"  the  principal  of  the  bonds  to  be  made  payable  "  at 
any  time  that  may  be  fixed  in  the  proposition  voted  on,"  not 
exceeding  thirty  years.  The  section  after  this  last  declares, 
among  other  things,  that  to  the  said  bond  shall  be  attached  cou- 
pons for  annual  installments  of  "  the  principal  and  interest  accru- 
ing from  time  to  time  by  the  terms  of  the  bonds."  The  Court  of 
Appeals  held  that,  in  view  of  the  prior  provisions,  the  language 
quoted  from  the  last  section  did  not  require  that  all  bonds  issued 
under  the  act  should  provide  for  annual  payments  on  the  princi- 
pal, but  merely  that  if  the  proposition  voted  on  provided  for  such 
annual  payments,  coupons  therefor  should  be  attached,  and  the 

>  Kilbourne  v.  Board  of  Supervisors  of  SulUvan  County,  (1893)  137  N.  Y. 
170;  8,  c,  33N.  E.  Rep.  159. 


n 


§481] 


MUNICIPAL  AID  BONDS  —  TOWNS. 


999 


township  had  authority,  by  proper  proposition,  vote,  etc.,  to  issue 
bonds,  the  whole  principal  of  which  should  not  mature  until 
thirty  years.^ 

§  481.  Power  of  towns  in  Massachusetts  as  to  aid  bonds 
—  their  power  in  the  sale  of  them. — In  a  ratlier  recent  action 
on  contract  to  recover  certain  installments  of  interest  on  the 
bonds  issued  by  a  town  in  Massachusetts  in  aid  of  railroads,  the 
Supreme  Court  of  Judicature  of  that  state  referred  generally  to 
the  statutes  of  the  state  with  reference  to  bonding,  etc.,  and  then 
rendered  their  opinion  as  to  the  power  of  the  towns  of  that  state 
under  those  statutes  in  tliese  words :  "  We  can  have  no  doubt  that 
in  this  commonwealth  the  power  given  to  these  towns  to  raise 
these  large  or  annual  sums  of  money  by  loans,  no  conditions  or 
restrictions  being  imposed,  carried  with  it  the  power  to  issue 
bonds,  a  method  which  certainly  enabled  the  towns  to  seek  the 
best  markets.  It  is,  indeed,  laid  down  as  a  sound  doctrine  of 
general  application  in  1  Dillon  Mun.  Corp.  §  125  that  '  express 
power  to  borrow  money,  perhaps  in  all  cases,  but  especially  if  con- 
ferred to  effect  objects  for  which  large  or  unusual  sums  are 
required,  as,  for  example,  subscriptions  to  aid  railroads  and  other 
j)ublic  improvements,  will  ordinarily  l>e  taken,  if  there  be  noth- 
ing in  the  legislation  to  negative  the  inference,  to  include  the 
power  (the  same  as  if  conferred  upon  a  corporation  organized  for 
pecuniary  profit)  to  issue  negotiable  paper  with  all  the  incidents 
of  negotiability.'  Many  decisions  are  cited  in  support  of  this 
statement,  but  the  recent  decision  in  Merrill  v.  Monticello,  138  U. 
S.  673,  is  to  the  contrary.  However  it  may  be  elsewhere,  our 
decision  rests  upon  the  usage  and  the  general  course  of  legisla- 
tion in  this  commonwealth."  As  to  the  regularity  and  validity  of 
the  bonds,  it  was  said  :  "  It  is  contended  by  the  defendant  that, 
even  if  the  town  had  power  to  borrow  money  and  issue  the  bonds 
therefor,  the  issue  was  irregular  and  invalid,  because  the  bonds 
were  delivered  directly  to  the  officers  of  the  railroad  company  in 
exchange  for  the  stock  for  which  tlie  town  had  subscribed, 
instead  of  being  sold  for  money.  The  bonds  appear  to  have 
been  taken  at  par,  and  there  has  been  no  proof  or  suggestion, 
and,  so  far  as  we  are  aware,  there  is  no  reason  to  suppose  that 
they  would  have  brought  more  than  par  in  the  market.     The 

»  Township  of  Washiugton  r.  Coler,  (1892)  51  Fed.  Rep.  363. 


r\ 


i 


II 


1000 


MUNICIPAL  AID  BONDS TOWNS. 


[§482 


I 


I 

r 


state  got  them  at  that  rate.  If  tlie  railroad  company  was  willing 
to  take  them  at  their  fair  value,  it  would  have  been  a  vain  and 
useless  proceeding  to  require  tlie  towns  to  sell  them  in  the  market 
for  cash  and  pay  over  the  money  to  the  railroad  company.  This 
was  not  necessary."  ^ 

§  482.  Power  of  towns  in  Mississippi  as  to  aid  bonds  — 
for  what  time  they  may  run.—  A  town  in  Mississippi,  under 
the  statute  of  March  25,  i871,  of  that  state,  authorizing  the  issue 
of  bonds  of  counties,  cities  and  towns  in  payment  of  subscrip- 
tions by  the  municipalities  to  the  capital  stock  of  a  railroad  com- 
pany, issued  such  bonds  maturing  at  from  eleven  to  seventeen 
years.  In  an  action  by  a  liolder  of  certain  of  these  bonds  and 
coupons  thereon  past  due,  in  the  demurrer  to  the  declaration,  it 
was  claimed  by  the  town  that  the  bonds  sued  on,  being  payable 
more  than  ten  years  after  their  execution,  were  void.  The 
Supreme  Court  of  the  United  States  affirmed  the  decision  of  the 
Circuit  Court  of  the  United  States  sustaining  the  demurrer  to 
the  declaration  on  this  ground."^ 

'  Commonwealth   r.   Williamstown,  bonds  except  subject  to  the  restrictions 

(1892)  156  Mass.  70,  73,  74.     The  court  and  conditions  of  the  enabling  act,  are 

cited  to  the  last  statement,  Common-  propositions  so  well  settled  by  frequent 

wealth?'.  Commissioners  of  Allegheny,  decisions  of  this  court,  that  we  need 

37  Pa.  St.  237, 241;  liogers  r.  Burling-  not  pause  to  consider  them.     Sheboy- 

ton.  3    Wall.  6.54,  666,  667.     The  court  gun  County  v.  Parker,  3  Wall.  93,  96; 

cited,  also,  various  statutes  and  these  Wells  r.  Supervisors,   102  U.  S.  625; 

additional  cases:   Chapin  r.  Vermont  Claiborne   County   r.  Brooks,  111   U. 

&  Massachusetts   Railroad,    8    Gray,  S.  400;  Young  i\  Clarendon  Township, 

575;  Edwards  r.  Marcy,  2  Allen,  486;  132  U.  S.  340,   346.     Accordingly,  if] 

Haven  r.   Adams,  4  Allen.  80;  White  in  the  present  instance,  the  legislature 

>'.  Vermont  &  Massachusetts  Railroad,  of  Mississippi,  in  authorizing  the  town 

21  How.  575.  of  Okolonti  to  subscribe  for  stock  in  a 

» Barnum  i\  Okolona,  (1893)  148  U.  railroad  company  and  to  pay  for  the 

S.  393.     Mr.  .Justice  Shikas,  speaking  same  by  an  issue  of  bonds,  prescribed 

for  the  court,  declared  the  law  of  the  that  such  bonds  should  not  extend  be- 

case  to  be  as  follows:  "That  muuici-  yond  ten  years  from  the  date  of  issu- 

pal    corporations   have  no  power  to  ance,  such  limitation  must  be  regarded 

issue  bonds  in  aid  of  a  railroad  except  as  in  the  nature  of  a  restriction  on  the 

by  legislative  permission;  that  the  leg-  power  to  issue  bonds.     Norton  r.  Dy- 

islature,  in  granting  permission  to  a  ersburg,   127   U.   8.   160;  Brenham  r. 

municipality  to  issue  its  bonds  in  aid  German  American  Bank,    144  U.  S. 

of  a  railroad,  may  impose  such  condi-  173,  188."    There  was  a  contention  on 

tions  as  it  may  choose;  and  that  such  behalf  of  the  holder  of  the  bonds  that 

legislative  permission  does  not  carry  no  such  limitation  was  put   by  the 

with  it  authority  to  execute  negotiable  enabling  act  on  bonds  issued  by  towns; 


ll 


§  483] 


MUNICIPAL  AID  BONDS TOWNS. 


1001 


§  483.  Actions  of  bona  fide  holders  on  such  bonds  — 
what  they  need  not  show.—  The  Supreme  Court  of  the  United 
States  has  lield  that  an  instruction  asked  in  an  action  by  a  holder 
of  certain  bonds  issued  by  a  town  in  JSTew  Jersey  and  exchanged 
for  bonds  of  a  railroad  as  authorized  by  a  statute  of  that  state, 
"  that  by  the  issue  presented  [the  town  pleaded  non  est  factum] 
by  the  pleadings  in  the  case,  the  burden  of  showing  that  he  was 
a  purchaser  fur  value,  or  claims  title  through  such  a  purchaser, 
was  on  the  plaintiff,"  was  properly  refused.^     Another  instruction 


that  the  restriction  to  a  hmit  of  ten 
years,  contained  in  the  fourth  section 
of  the  act,  was  applicable  only  to  the 
case  of  bonds  issued  by  counties.     To 
this  the  court  said:  "  It  is  true  that,  in 
the  fifth  section  of  the  act,  which  con- 
ferred the  power  on  towns  and  cities 
to  subscribe  for  railroad  stock  and  pay 
therefor  in  bonds,  no  express  provision 
is  found  as  to  the  length  of  time  dur- 
ing which  the  bonds  shall  run.     As, 
however,  the  fifth  section  does  provide 
that  the  bonds  to  be  given  by  towns 
shall  be  issued  'in  the  same  manner 
and  with  the  like  effect  sufficient  in 
amount  to  meet  the  total  sum  of  their 
respective  subscriptions  for  stock,  as 
the  boards  of  supervisors  of  the  differ- 
ent counties  are  by  this  act  authorized 
to  do,'  and  that  all  '  bonds  and  coupons 
of  interest  issued  by  said  mayor  and 
selectmen  shall  ])e  alike  binding  upon 
SJiid  towns  respectively,  in  their  cor- 
porate capacity,  as  the  s-.iid  bonds  so 
issued  by  the  said  boards  of  super- 
visors shall  be  binding  upon  said  coun- 
ties respectively,'  it  seems  plain  that 
the    legislative   intent  was    that  the 
bonds  of  the  towns  should  be  subject 
to  the  ten-year  limitation  contained  in 
the  fourth  section.     This  is  the  fair 
and  obvious  import  of  the  language 
used.     The  question  involves  the  con- 
struction of  the  statute  of  Mississippi 
and  has  been  decided  by  the  Supreme 
Court  of  that  state  in  the  case  of  Wood- 
ruff V.  Okolona,  57  Miss.  806,  where  it 
was  held  that  bonds  issued  under  that 
126 


act,  having  more  than  ten  years  to  run, 
were  void,  and  where,  in  order  to  reach 
that  conclusion,  it  was  necessary  to 
hold  that  the  limitation  of  ten  years 
for  the  running  of  the  bonds,  contained 
in  the  fourth  section,  was  applicable 
to  bonds  issued  by  towns  under  the 
fifth  section." 

'  Montclair  v.  Ramsdell,  (1882)  107 
U.  S.  147, 158.     The  court  said:  "  The 
pleadings  do  not,  of  themselves,  im- 
pose  upon   plaintiff  the   necessity  of 
showing  cither  that  he,  or  any  prior 
holder  of  the  bonds,  was  a  purchaser 
for  value.     As  holder  he  is  presumed 
to  have  acquired  them  in  good  faith 
and  for  value.     Goodman  c.  Simonds, 
20  How.   343;  Murray  t.   Lardner,  2 
Wall.  110;  Shaw  v.   Railroad  Co.,  101 
U.  S.  557;  Swift  v.  Smith,   102  U.  S. 
442.     The  plea  of  non  est  factum  did 
not  put  in  issue  the  fact  that  he  was 
the  holder.     Legislative  authority  for 
an  issue  of  bonds  being  established  by 
reference  to  the  statute,  and  the  bonds 
reciting  that  they  were  issued  in  pur- 
suance   of    the    statute,    the    utmost 
which  plaintiff  was  bound  to  show  to 
entitle  him,  prima  facie,  to  judgment 
was  the  due  appointment  of  the  com- 
missioners and  the  execution  by  them, 
in  fact,   of  the    bonds.     It  was    not 
necessary  that  he  should,  in  the  first 
instance,    prove   either    that  he  paid 
vahie  or  thiit  the  conditions  preliminary 
to  the  exercise  by  the  commissioners 
of  the  authority  conferred  by  statute 
were,   in  fact,  performed  before  the 


I 


m 


1002 


MUNICIPAL  AID  BONDS TOWNS. 


[§483 

was  asked  in  tins  case  and  refused,  to  wit :  "  If  the  evidence 
satisfies  the  jury  that  there  were  circumstances  of  fraud  or  ille- 
gality in  the  inception  of  the  bonds  or  in  the  circumstances  under 
which  they  were  issued  and  disposed  of  by  the  commissioners, 
then  the  plaintifT  cannot  recover  on  the  bonds  without  some  proof 
that  he  purchased  them  for  value,  or  gave  some  consideration  for 
them."  The  counsel  on  behalf  of  the  town  contended  that  it 
was  competent  under  the  plea  of  non  est  factum  to  prove  either 
fraud  or  illegahty  in  the  inception  of  the  bonds,  in  order  to 
remove  the  presumption  of  honafide  ownership  for  value  which 
arises  from  the  mere  possession  of  the  bonds,  and  thus  compel 
plaintiff  to  show  that  he  paid  value  for  them ;  consequently  the 
foregoing  instruction  should  have  been  given.  The  Supreme 
Court  of  the  United  States  held  that  it  was  properly  refused.* 


bonds  were  issued.  The  one  was  pre- 
sumed from  the  possession  of  tlie 
bonds;  and  the  other  was  established 
by  the  statute  authorizing  an  issue  of 
the  bonds,  and  by  proof  of  the  due 
appointment  of  the- commissioners  and 
their  execution  of  the  bonds,  with  re 
citals  of  compliance  with  the  statute. 
So  we  have  often  ruled  in  numerous 
cases  with  which  the  profession  are 
familiar  and  which  need  not  be  cited." 
Illustrations  of  who  are  not  bona  fide 
purchasers  of  bonds  of  a  town,  Lan- 
sing V.  Lytic,  38  Fed.  Rep.  204.  A 
transferee  of  such  bonds  in  an  action 
brought  against  him  for  their  surren- 
der and  cancellation  has  imposed  upon 
him  the  burden  of  showing  that  he  or 
the  one  under  whom  he  claims  was  a 
honafide  purchaser.  Lytic  v.  Jjjinsing, 
147  U.  S.  59;  citing  Stewart  n.  Ijan- 
sing,  104  U.  S.  505. 

» Montclair  v.  Ramsdell,  (1882),  107 
U.  S.  147.  The  court  said:  «*[The  re- 
fusal to  give  this  instruction!  was 
proper  for  the  reason,  if  there  were  no 
other,  that  it  required  the  jury,  if 
they  believed  either  fraud  or  illegality 
in  the  inception  of  the  bonds  to  have 
been  established,  to  find  for  the  town- 
ship, unless  the  plaintiff  proved  that 
he  purchased  for  value  or  gave  some 


consideration  for  them.     Such  is  not 
the  law;  for  if  any  previous  holder  of 
the  bonds  in  suit  was  abotiafide  holder 
for  value,  the  plaintiff,  without  show- 
ing that  he  had  himself  paid  value, 
could  avail  himself  of  the  position  of 
such  previous  holder.     *   »  * "    This 
question    was  directly    adjudged    in 
Commissioners  v.  BoUes,  94  U.  S.  104. 
One  of  the  issues  there  was  whether 
the  plaintiff  was  a  borui  fide  holder  of 
certain  municipal  bonds.     After  stat- 
ing that  the  legal  presumption  was 
that  they  were,  the  court,  speaking  by 
Mr.  Justice  Strong,  said:  "  But  the 
plaintiffs  are  not  forced  to  rest  upon 
mere  presumption   to    support    their 
claim  to  be  considered  as  having  the 
rights  of  purchasers  without  notice  of 
any  defense.     They  can  call  to  their 
aid  the  fact  that  their  predecessors  in 
ownership  were  such  purchasers.     To 
the  rights  of  those  predecessors  they 
have  succeeded.     Certainly,  the  rail- 
road company  paid  for  the  bonds  and 
coupons  by  paying  an  equal  amount 
of  their  stock,  which  this  county  now 
holds;  and  nothing  in  the  special  facts 
found  shows  that  the  company  knew 
of  any  irregularity  or  fraud  in  theii 
issue"    The  court  proceeded:   "And 
still  more;  the  contractor  for  building 


71 


§484] 


MUNICIPAL  AID  BONDS TOWNS. 


lOOS 


§  484.  Bonds  absolutely  void -effect  upon  hoIders.-The 

Supreme  Court  of  Illinois  has  held  that  where  bonds  of  a  munici- 
pal corporation  are  issued  without  any  power  orauthority  in  law 
as  under  what  purported  to  be  a  law,  but  which  was  not  passed 
m  the  constitutional  mode,  they  are  absolutely  void,  no  maLrin 
w  lo^^^^^^^^  they  may  be  ;  but  if  the  legal  power  or  authority  to 
sue  them  existed,  but  was  defectively  or  irregularly  executed, 
they  are  only  voidable,  and  an  innocent  holder  may  collect  them 
Where  they  are  void,  no  subsequent  act  or  recognition  of  thei; 
validity  by  the  municipal  authorities  can  estop  the  taxpayers  from 

the  railroad  received  the  bonds  from   delivered  to  the  contractor  or  upon  his 
the  county  in  payment  for  his  work,    order    between    May    10    TsTand 

work  had  been  completed.     There  is  structed  as  contemplated    and  The  in 

no  pretense  that  he  had  notice  of  any-  come  bonds  of  the  coCanrremdned 

thmg   tha     should  have  made  them  in  the  hands  of  the  commLTone  s  or 

doubt  their   validity.     Why   was  he  of   some    of    them.      Whethr    those 

not  a  *.««  fide  purchaser  for  value?  bonds  ultimately  proved  to  be  of  anv 

The  law  IS  undoubted  that  every  per-  value,  is  of  no  consequence  as  between 

son  succeeding  him  in  the  ownership  the  township    and    the   plltiff      It 

hs  rights.       The  court  in  this  case   asked  to  give  an  instruction  upon  the 
then  resumed:  "When  the  instruction    basis    that    the    plaintiff    couM    not 

hrlTr^l'^'^^'^^'"^^^"''^^  ^^^•^-^'  -1-s  it  was  proven  tL 
the  bonds  had  been  issued  by  the  he  paid  value  for  the  bonds  i 
commissioners,   and  exchanged    with    was  established  beyond  quesin  tha 

~  "f    th^r"    '"    ^    "'^    ^he  bonds  had  previously  passed    n^' 
amount    of    the    company's   income   the  hands,  or  become  pled-ed  for  the 

stand  d   ^^^\.^^^^-?«  --    -    -b-    benem,ofthecontn.ct'orXbuitthe 
8  antial  compliance  with  the  statute,    road.     He  acquired  an  interest  or  a 
It  was  made  under  a  contempomneous   lien,  on  the  bonds,  to  secureTayment 
agreement  between  the  commission-   of  the  amount  dile  him  for  hh  Zk 
ers.  the  railway  company  and  certain   and  labor.     He,   therefore    be^me  a 
trustees    mutually  selected,  whereby    holder  for  valu;  in  the    enseTh"  ht 
the  bonds  passed  upon  the  exchange,    paid   real,  in    contradistinctTon   f'^^^^ 
under  the  con  rol  of  those  trustees,    apparent,    value,   without    notice  Tf 
and  were  deposited  in  the  Union  Trust   any  fraud  or  illegality  affect,  the 
Company,    to    be    surrendered  -  ten   bonds.     Story  on  Lte^  7 1  o^  r!^ 
thousand  dollars  at  a  time -only  as   road  Company  T  ^at  Li  iank^02 
the  work  of  constructing  the  milroad    U.  S.  14;  BylJs  on  B^  m     ^oev^^ 
progressed  to  the  company  or  the  con-   dence  was  introduced  o;  offLd  whilh 
tractor  on  their  order.     The  receipt  of   in    any  de-ree   imnPn.>w  I  !^ 

the  trustcompanyshowsthatitagLd  faith,  'or';C;i^?,ri  ^^^^ 
to  dehver  them  to  the  contractor  or  his  part  that  the  preliminary^condLns 
agents  or  assigns,  on  the  joint  order  prescribed  by  statute  ha"^  not  bee" 
of  the  trustees  or  any  two  of  them,  fully  performed.  The  character  of 
and  It  was  proven  that  the  bonds  were   the    bonds    as    negottbirrurities' 


ill 


!i 


p 


1004 


MUNICIPAL  AID  BONDS  —  TOWNS. 


[§484 


denying  tlieir  legality.*  Negotiable  bonds  wliicli  have  been 
issued  without  statutory  authority  in  payment  of  a  subscription 
to  the  stock  of  a  railroad  company,  which  subscription  a  town,  in 
pursuance  of  statutory  authority,  makes,  are  absolutely  void,  and 
no  suit  can  be  maintained  on  them  on  the  theory  that  they  arc 


valid  as  non-negotiable  instruments.^ 


'  free  from  defenses  which  might  have 
been  available  as  between  the  original 
parties,  was  established  by  their  being 
pledged  for  the  benefit  of  the  con- 
tractor. So  that,  even  if  there  was 
fraud  or  illegality  in  the  inception  of 
the  bonds  (apart  from  such  illegality 
as  would  have  made  them  absolutely 
void  by  whomsoever  held),  a  defense 
upon  that  ground  would  not  have 
been  good  against  the  contractor,  and 
consequently  is  not  available  against 
the  plaintiff.  The  latter,  in  virtue  of 
1  he  new  and  independent  title  derived 
from  or  traced  to  a  prior  h(y}ia  Jide 
holder  for  value,  could  stand  upon  the 
rights  of  such  holder."  The  questions 
of  pleading  and  rules  of  evidence  in 
actions  on  town  aid  bonds  are  very 
fully  discussed  in  Brown  r.  Point 
Pleasant,  36  W.  Va.  290. 

»  Ryan  v.  Lynch,  (1873)  68  111.  160. 
As  to  this  distinction,  as  repeatedly 
recognized,  the  court  cited  Clark  p. 
Board  of  Supervisors  of  Hancock 
County,  27  111.  308;  Johnson  r.  Stark 
County,  24111.  75;  Schuyler  County  r. 
The  People,  25  111.  185;  Board  of  Su- 
pervisors r.  Weider,  64  111.  427;  Marsh 
V.  Fulton  County,  10  Wall.  683.  In  a 
later  case  (Barnes  v.  Lacon,  [1877]  84 
Bl.  461)  the  court  adhered  to  their 
ruling  in  Ryan  r.  Lynch,  68  111.  160, 
and  as  the  bonds,  in  their  opinion, 
were  absolutely  void,  held  that  the 
holder  could  not  recover  on  them. 
They  said :  * '  This  rule  is  well  settled  in 
this  and  other  courts.  The  position  of 
[the  plaintiff]  is,  however,  untenable 
upon  another  ground .  The  bonds  con- 
tain a  recital  on  their  face  that  they 
are  issued  in  payment  of  a  subscrip- 


tion made  by  the  town  of  Lacon  by 
virtue  of  a  vote  of  a  majority  of  the 
voters  at  a  special  election  held  in  said 
town  on  the  22d  day  of  December, 
1868.  This  was  notice  to  the  purchaser, 
when  he  was  informed  by  a  recital  in 
the  bonds  that  they  were  issued  in  pur- 
suance of  a  vote  of  the  people  at  an 
election  held  at  a  special  time,  and 
there  was  no  law  in  existence  author- 
izing the  election  to  be  held  at  that 
time.  As  he  cannot  claim  to  be  igno- 
nuit  of  what  the  law  was,  he  was 
bound  to  take  notice  of  the  illegality 
of  the  election." 

»  Dodge  r.  City  of  Memphis,  (1892) 
51  Fed.  Rep.  165;  citing  Mayor  r. 
Ray,  19  Wall.  468;  Hitchcock  r.  Gal- 
veston, 96  U.  S.  350;  Little  Rock  r. 
Merchants'  Nat.  Bank,  98  U.  S.  308; 
Wall  r.  Monroe  Co.,  103  U.  S.  78; 
Hill  i\  City  of  Memphis,  134  U.  8. 
198;  s.  c,  10  Sup.  Ct.  Rep.  562;  Merrill 
r.  Monticello,  138  U.  S.  673;  s.  c,  11 
Sup.  Ct.  Rep.  441.  Referring  to  these 
cases,  Thayer,  J.,  said:  "  They  show, 
no  doubt,  that  when  a  municipal  cor- 
poration sells  bonds  which  are  void, 
and  receives  the  money,  it  may  be  com- 
pelled to  restore  it  in  an  action  for 
money  had  and  received.  So,  when  a 
municipal  corporation  is  authorized  to 
purchase  property  for  any  purpose,  or 
to  contract  for  the  erection  of  pub- 
lic buildings,  or  for  any  other  public 
work,  and  it  enters  into  such  author- 
ized contract,  but  pays  for  the  prop- 
erty acquired  or  work  done  in  negoti- 
able securities,  which  it  has  no  express 
or  implied  power  to  issue,  it  may  be 
compelled  to  pay  for  that  which  it 
has  received  in  a  suit  brought  for  that 


§485] 


MUNICIPAL  AID  BONDS TOWNS. 


1005 


§  485.  When  a  curative  act  of  the  legislature  will  not 
validate  them. — In  a  case  before  the  Illinois  Stipreme  Court, 
where  it  was  held  that  a  subscription  of  a  certain  sum  to  the 
stock  of  a  railroad  company,  being  voted  in  a  town  meeting  with- 
out authority,  was  void  and  conferred  no  power  on  the  town 
authorities  to  issue  railroad  bonds,  the  effect  of  a  certain  act  of 
the  legislature,  the  intention  of  which  was  to  make  the  subscrip- 
tion binding  upon  the  town,  was  fully  considered  by  the  court. 
The  question  before  the  court  was  whether  the  legislature  could 
create  a  debt  against  a  town  and  require  the  town  to  assess  a  tax 
for  its  payment.  The  object  of  the  act  being  to  compel  the  town 
to  issue  bonds  for  railroad  stock  independently  of  its  own  wishes, 
as  viewed  by  the  court,  the  act  was  held  to  be  one  violative  of 
the  Constitution  and  of  no  effect.*  There  was  a  contention  in 
the  case  that  the  legislature  miglit  have  authorized  the  town 
supervisor  and  town  clerk,  as  the  corporate  authorities  of  the 
town,  to  subscribe  to  the  stock  of  the  railroad  corporation  and 
issue  township  bonds  therefor  without  a  vote  of  the  people,  and 
that  the  curative  act  was  to  be  considered  as  giving  them  that 
power,  which  they  had  duly  exercised.  The  court  held  adversely 
to  this  contention.^ 


purpose.  In  no  case,  however,  does  it 
appear  that  a  suit  has  been  sustained 
on  a  void  bond  treating  it  as  non-nego- 
tiable and  as  something  entirely  differ- 
ent from  what  the  parties  intended  it 
should  be." 

>  Marshall  v.  Silliman,  61  111.  218. 
The  court  referred  to  the  provision  of 
the  then  existing  Constitution  that 
*'  the  corporate  authorities  of  counties, 
school  districts,  cities,  towns  and  vil- 
lages may  be  vested  with  power  to 
assess  and  collect  taxes  for  corporate 
purposes,  such  taxes  to  be  uniform  in 
respect  to  persons  and  property  within 
the  jurisdiction  of  the  body  imposing 
the  same,"  and  the  rulings  of  the  court 
previously  construing  this  clause  in 
Harward  v.  The  St.  Clair  &  Monroe 
Levee  Drainage  Co.,  51  111.  130;  Peo- 
ple ex  rel.,  etc.,  v.  The  Mayor  of  Chi- 
cago, 51  111.  30;  Hessler  v.  Drainage 
Comrs.,   53    111.   110,  and  Lovingston 


V.  Wider,  53  HI.  302,  as  settling  the 
doctrine  that,  under  that  Constitution 
the  legislature  could  not  compel  a 
municipal  corporation  to  incur  a  debt 
for  merely  local  purposes  against  its 
own  wishes. 

2  Marshall  v.  Silliman,  (1871)  61  111. 
218.  The  court  distinguished  Town 
of'Keithsburg  v.  Frick,  34  111.  420, 
which  was  relied  upon  to  support  this 
contention,  in  these  words:  "  It  was 
said  in  that  case  that  the  legislature 
might  grant  that  power  to  the  trustees 
of  a  town,  if  it  thought  proper  to  do 
so,  without  taking  a  vote  of  the  peo- 
ple. We  do  not  dissent  from  that 
position,  but  it  does  not  aid  the  * 
appellees  in  the  present  case.  The 
town  supervisor  and  clerk  who  issued 
the  bonds  do  not  represent  a  township 
as  the  board  of  trustees  represent  an 
incorporated  town  or  the  common 
council  represent  a  city.    The  super- 


fl 


1006 


MUNICIPAL  AID  BONDS TOWNS. 


[§486 


§  486.  Effect  of  curative  act  of  New  York.—  The  effect  of 
a  curative  act  of  the  state  of  New  York  upon  the  bonds  issued 
by  a  town  in  that  state,  under  its  laws,  in  aid  of  a  railroad,  being 
before  the  United  States  Supreme  Court,  this  court,  by  reason  of 
a  judgment  rendered  in  the  Court  of  Appeals  of  New  York  that 
this  act,  in  its  maui  features,  was  unconstitutional,  and  this  judg- 
ment, the  town  contending,  being  conclusive  upon  the  Supreme 
Court,  very  fully  considered  the  statutes  of  the  state  of  New 
York  with  reference  to  such  municipal  aid.  After  a  review  of 
the  decisions  of  the  courts  of  New  York  pertinent  to  the  ques- 
tion, they  held  that  the  subsequent  act  of  the  legislature  effectu- 
ally cured  the  defects  in  connection  with  the  original  issuing  of 


visor  and  town  clerk  are  but  a  part  of 
the  corporate  authorities.     They  have 
no  power  of  taxation  nor   power  of 
themselves  to  bind  the  city  in  any 
way.      The    case    of    Lovingston    r. 
Wider,  53  111.  302,  may  again  be  cited. 
We  sjiid   there  that  the  police  com- 
missioners were  not  the  corporate  au- 
thorities  of   East  St.  Louis,  as  they 
had  not  been  elected  by  the  people  of 
the  city  nor  appointed  in  any  manner 
to  which  the  people  had  given  their 
consent,  and,  therefore,  the  legislature 
could  not  give  them  the  power  of  tax- 
ation by  creating  a  debt  binding  upon 
the  city.     So  of   the  supervisor  and 
clerk.     Though  elected  by  the  people, 
they  were  not  elected  for  the  purpose 
of  creating  a  debt  or  imposing  a  tax, 
and  the  legislature  could  not  clothe 
these  two  officers,  without  the  consent 
of  the  j)eople,  with  a  discretionary 
power  of   taxation  or  of   creating  a 
debt,  because  they  are  not  by  them- 
selves the  corporate  authorities  in  the 
sense  of  the  Constitution.     But  even 
if  these  two  officers  could  be  recog- 
nized   as   the    corporate    authorities, 
they  cannot  be  said  to   have  volun- 
tarily incurred  this  debt  on  behalf  of 
the  town.     The  act  gave  them  no  dis- 
cretion.   It  declares  the  subscription 
shall  be  binding  and  may  be  collected. 
It  did  not  authorize  the  corporate  au- 


thorities to  subscribe  to  the  stock  or 
not,  as  they  should  think  proper,  but 
declared  that  an  illegal  vote  should  bo 
a  valid  subscription,  and  left  to  the 
town  authorities  only  the  ministerial 
function  of  executing  the  behest  of 
the  legislature.     Counsel  for  appellees 
claim  that  this  case  is  like  that  of 
Cowgill  r.  Long.  15  111.  202.     There  is, 
however,   a    broad  distinction.     The 
tax  in  that  case  was  a  valid  tax,  and 
when  the  court  say  in  their  opinion 
that  it  was  improperly  voted  in  July, 
they  evidently  mean  merely  that  it 
was  improperly  voted  in  that  month 
for  the  purpose  of  collection  during 
the  current  year.     The  tax  was  legally 
imposed,  and  the  only   question  de- 
cided by  the  court  was  that  the  subse- 
quent act  of  the  legislature  legalizing 
the  steps  by  which  the  tax  was  ille- 
gally certified   to  the  County  Court 
and  placed  in  the  course  of  collection 
during  that  year  was  so  far  effectual 
that  the  tax  could  be  collected  by  vir- 
tue of  the  act.     The  act  dealt  with  a 
subject  entirely  under  the  control  of 
the  legislature,  namely,  the  subject  of 
remedy.      The    question    before    the 
court  was  very  different  from  the  rati- 
fication of  a  void  tax  by  retrospective 
legislation,     which     the     legislature 
could  not  of  its  own  power  impose 
prospectively." 


§487] 


MUNICIPAL  AID  BONDS TOWNS. 


1007 


these  bonds,  and  that  they  were  valid  obligations  in  the  hands  of 
the  holder  in  this  case.^ 


§  487.  Township  bonds  under  South  Carolina  laws  made 
a  legal  indebtedness  by  subsequent  legislation. —  The 
Supreme  Court  of  South  Carolina,  by  a  majority  of  the  court, 
having  held  in  1888  that  township  bonds,  issued  in  aid  of  rail- 


» Thompson  v.  Perrine,  (1880)  103  U. 
S.  806.  The  cases  reviewed  by  the 
Supreme  Court  in  the  opinion  rendered 
by  Mr.  Justice  Harlan  were  Bank  of 
Rome  r.  Village  of  Rome,  18  N.  Y. 
38;  People  r.  Mitchell.  35  N.  Y.  551; 
People  V.  Batchellor,  53  N.  Y.  128; 
Town  of  Duanesburgh  v.  Jenkins,  57 
N.  Y.  177;  Williams  r.  Town  of 
Duanesburgh,  66  N.  Y.  129;  Clark  r. 
(Mty  of  Rochester,  13  How.  Pr.  204. 
The  court  considered  Horton  v.  Town 
of  Thompson,  71  N.  Y.  513,  not  bind- 
ing upon  it,  and  gave  reasons  why  it 
was  not.  In  Thompson  r.  Perrine, 
supra,  as  to  the  rights  of  the  holders, 
it  was  said:  "It  is,  therefore,  an  im- 
material circumstance  that  the  recitals 
in  the  bonds  may  have  furnished  notice 
that  they  were  issued  originally  in  vio- 
lation of  the  statute.  That  was  the 
very  difficulty  which  the  act  of  1871 
was  designed  to  remove,  and,  as  mat- 
ter of  law,  it  was  removed,  if  regard 
be  had  to  the  settled  doctrines  of  this 
court,  or  to  the  decisions  of  the  highest 
court  of  the  state,  rendered  previously 
to,  and  which  were  unmodified  at,  the 
passage  of  that  act.  It  results  that 
from  that  moment  the  bonds,  by 
whomsoever  held,  whether  by  the  rail- 
road company  or  by  others,  became 
binding  obligations  upon  the  town,  as 
much  so  as  if  they  had  originally  been 
sold  and  their  proceeds  invested  in  the 
stock  of  the  railroad  company,  as  re- 
quired by  the  acts  of  1868  and  1869. 
If  tbe  rights  of  those  holding  the 
bonds  were  in  any  degree  affected  by 
the  subsequent  decision  in  People  v. 


Batchellor,  53  N.  Y.  128,  the  later  de- 
cision in  Town  of  Duanesburgh  v. 
Jenkins,  57  N.  Y.  177,  restored  the 
law,  so  far  as  the  courts  of  New  York 
were  concerned,  as  it  undoubtedly  was 
declared  to  be  at  the  time  the  act  of 
1871  was  passed.  The  defendant  in 
error  acquired  the  bonds  in  suit  in 
1875,  before  the  decision  in  Horton  t. 
Town  of  Thompson,  71  N.  Y.  513,  and 
when,  according  to  the  principles  an- 
nounced in  Town  of  Duanesburgh  v. 
Jenkins,  and  many  prior  cases  in  the 
Court  of  Appeals,  the  act  of  1871  must 
have  been  sustained  as  a  valid  exercise 
of  legislative  power.  He  purchased 
them  for  value  at  public  auction  in  the 
city  of  New  York,  without  notice  of 
any  defense  thereto  or  of  the  pendency 
of  any  suit  involving  their  validity. 
If  the  recitals  in  the  bonds  gave  notice 
that  the  acts  of  1868  and  1869  forbade 
their  exchange  for  stock  and  required 
them  to  be  sold  and  their  proceeds  in- 
vested in  such  stock,  the  purchaser  is 
also  presumed  to  have  known,  not  only 
that  such  exchange  had  been  legalized 
by  the  act  of  1871,  but  that  the  au- 
thority of  the  legislature  to  pass  that 
act  was  sustained  by  the  decisions  of 
the  highest  court  of  the  state,  rendered 
prior  to  its  passage.  His  rights,  there- 
fore, should  not  be  affected  by  a  de- 
cision rendered  after  they  accrued, 
which  decision  is  in  conflict  with  the 
law  as  declared  not  only  by  this  court 
in  numerous  cases,  but  by  the  highest 
court  of  the  state,  at  and  before  the 
time  he  purchased  the  bonds." 


1    ' 


11  Hi' 


1008 


MUNICIPAL  AID  BONDS  —  T0WN8. 


[§487 


w 


u 


roads  to  be  constructed  through  those  townsliips,  were  invalid,^ 
the  legislature  of  that  state  in  December,  1888,  passed  an  act  to 
provide  for  the  payment  of  township  bonds  issued  in  aid  of  rail- 
roads in  that  state.'  Certain  bonds  of  a  county  of  that  state, 
executed  before  the  passage  of  this  act,  had  been  placed  in  the 
hands  of  a  trust  company,  l)ut  before  they  could  be  delivered  to 
the  parties  entitled  it  was  necessary  that  the  engineer  of  the  road 
should  certify  as  to  the  completion  of  the  road,  and  then  the 
chairman  and  clerk  of  the  board  of  county  commissioners  of  that 
county  were  to  affix  their  signatures  to  the  certificate  of  the 
engineer.  The  engineer  had  given  the  certificate  required  by 
him,  but  the  county  officials  above  mentioned  refused  to  affix 
their  signatures.  The  parties  entitled  to  these  bonds  thereupon 
petitioned  the  Supreme  Court  of  the  state  for  a  writ  of  man- 
dainus  to  compel  these  county  officials  to  affix  their  signatures  to 
the  engineer's  certificate,  and  thus  enable  these  petitioners  to  have 
the  bonds  delivered  to  them.  The  Supreme  Court  dismissed  the 
petition,  holding  that  where  a  township  voted  a  subscription  to  a 
railroad  under  an  unconstitutional  statute,  and  the  county  com- 
missioners, as  the  agents  of  such  township,  issued  bonds  in  pay- 
ment therefor,  and  the  county  commissioners,  assuming  to  act  as 
such  agents,  made  a  contract  with  a  trust  company,  whereby  the 
trust  company  took  possession  of  said  bonds  and  agreed  to  deliver 
them  to  a  construction  company  whenever  the  engineer  of  the 
railroad  company  certified  that  the  railroad  was  completed  through 
such  township,  and  when  this  certificate  was  countersigned  by  the 
chairman  of  the  board  of  county  commissioners,  attested  by  the 
clerk,  the  subscription,  the  issue  of  the  bonds  and  the  trust 
indenture  being  all  unauthorized  and  void,  rnandamus  would  not 
lie  after  the  railroad  had  been  completed  to  compel  such  chair- 
man to  countersign,  and  such  clerk  to  attest  his  signature  to  the 
certificate  of  the  chief  engineer  that  the  road  had  been  so  com- 
pleted.^   The  Supreme  Court  of  South  Carolina,  in  another  peti- 


»See  Floyd  v.  Perrin,  30  S.  C.  1; 
8.  c,  8  S.  E.  Rep.  14.  McGowan,  J., 
dissented. 

« See  20  St.  at  Large  (S.  C),  12. 

» State  ex  rel.  C.  C.  &  C.  R  Co.  v. 
Whitesides,  (1889)  30  8.  C.  579.  Mc- 
GowAN,  J.,  said:  "I  concur,  the  mean- 
ing of  the  opinion  of  the  court  being 
that  there  is  no  necessity  for  the  issue 


of  any  new  bonds;  but  'the  debt' 
fixed  upon  the  several  townships  by 
the  act  of  1888  shall  be  represented  by 
the  bonds  heretofore  issued,  to  be  paid 
according  to  the  provisions  of  the  act; 
and  I  am  authorized  to  say  that  such 
is  the  view  of  the  other  members  of 
the  court."  See  Massachusetts  &  8. 
Const.  Co.  «>.  Cane  Creek  Tp.,  (1891) 


§487] 


MUNICIPAL  AID  BONDS TOWNS. 


1009 


tion  for  inandamua  as  to  these  township  bonds,  held  that  man- 
damus would  not  lie  to  compel  a  county  treasurer  to  pay  out 
money  on  a  coupon  of  a  railroad  aid  bond,  when  the  only  con- 
stitutional law  that  recognized  such  bonds  and  its  coupons  as  a 
debt  declared  that  no  tax  should  be  levied  to  pay  interest  on  such 
debt  until  the  railroad  had  been  completed,  and  that  all  taxes 
theretofore  collected  for  that  purpose  should  be  refunded  to  the 
taxpayers ;  and  where  no  tax  had  been,  or  could  have  been,  col- 
lected since  the  railroad  was  completed,  the  court  in  this  case 
held  that  the  act  of  1888,*  providing  for  the  payment  of  town- 
ship bonds  in  aid  of  railroads  in  that  state,  was  not  intended  to 
Validate  a  previous  statute  which  this  court  had  pronounced 
unconstitutional,  nor  to  legalize  acts  done  thereunder,  but  to 
impose  upon  consenting  townsliips  a  debt  which  they  had  vainly 
attempted  to  impose  upon  themselves  under  such  unconstitutional 
statute.^     In  a  suit  upon  the  bonds  in  aid  of  a  railroad,  issued  by 

Us  own  power,  impose  a  tax  for  the 
same  purpose  for  which  it  had,  with- 
out constitutional  authority ,  attempted 
to  delegate  the  power  to  certain  town- 
ships. That  'decision  rested  on  the 
ground  that  as  the  purpose  for  which 
the  legislature  attempted  to  delegate 
to  the  townships  the  power  of  taxation 
was  not  a  corporate  purpose,  the  act 
purporting  to  delegate  such  power 
was  without  constitutional  authority. 
No  such  question  is  presented  or  can 
arise  in  this  case.  The  only  question 
here  is  whether  the  legislature  can,  by 
the  original  exercise  of  its  own  power 
of  taxation,  impose  a  tax  on  the  prop- 
erty within  the  boundaries  of  Cherokee 
township  for  the  purpose  of  contribut- 
ing to  the  construction  of  a  railroad 
which  passes  through  said  township. 
The  proposition  that  the  construction 
of  a  railroad  is  such  a  public  purpose 
as  to  warrant  the  levy  of  taxes  to  aid 
in  building  it  is  too  well  settled  by  the 
very  decided  weight  of  authority  to 
admit  of  further  discussion,  although, 
if  the  question  were  an  open  one,  its 
correctness  might  well  be  disputed. 
So,  too,  it  seems  to  be  settled  by  the 
weight  of  authority  that  the  legisla- 


45  Fed.  Rep.  336,  referring  to  South 
Carolina  township  bonds,  holding  that 
where  township  bonds  are  declared  in- 
valid by  the  courts,  and  the  legisla- 
ture afterwards  passes  an  act  provid- 
ing for  the  payment  of  such  bonds, 
the  debt  represented  by  the  bonds  is 
incurred  at  the  date  of  such  act. 

»  See  90  St.  at  Large  (S.  C),  12. 

•State  ex  rel.  Dickinson  v.  Neely, 
(1889)  30  S.  C.  587;  8.  c,  9  8.  E.  Rep. 
664.  The  court  sustained  the  consti- 
tutionality of  the  act  of  1888.  After 
calling  attention  to  the  distinction  be- 
tween the  two  classes  of  power  of  the 
legislature,  the  one  which  it  exercises 
at  its  own  sovereign  will,  the  other 
which  it  delegates  to  some  subor- 
dinate agency,  to  be  exercised  by 
such  agency  at  its  will,  within  the 
prescribed  limits,  it  is  said:  "  Bearing 
these  distinctions  in  mind,  it  must 
be  obvious  that  when  this  court  de- 
cided in  Floyd  v.  Perrin,  30  S.  C.  1 , 
that  the  act  purporting  to  delegate 
power  to  a  township  to  levy  a  tax  for 
a  purpose  other  than  a  corporate  pur- 
pose was  unconstitutional,  it  did  not 
touch  the  question  whether  the  legis- 
lature might  not,  by  the  exercise  of 

127 


II 


.''1 


1010 


MUNICIPAL  AID  BONDS TOWNS. 


[§48; 


tliis  township  of  South  CaroHna,  it  was  held  in  the  federal  court 
that  the  statute  of  that  state  of  Deccinher,  1SS8  (20  Stat.  [S.  C] 
12),  declaring  all  township  bonds  theretofore  issued  in  aid  of 
railroads  to  he  a  del)t  of  the  township,  authorizing  the  levy  of  a 
tax  to  pay  it,  and  providing  that  the  bonds  might  be  nsed  as  evi- 
<lence  of  the  amount  and  character  of  such  debt,  impressed  such 
debt  on  the  township  j?roprto  vigore^  and  it  was  liable  therefor, 
although  the  act  authorizing  the  issue  of  the  bonds  was  uncon- 
stitutional and  the  bonds  void  ;  as  to  the  interest,  it  was  held  that 
where  an  interest  coupon  covered  a  period  before  and  after  the 
completion  and  acceptance  of  the  road,  only  so  nmch  of  the 
interest  as  was  earned  after  such  completion  could  be  recovered 
under  the  statute  of  December,  1S8S,  which  provided  that  no 
tax  should  be  levied  to  pay  any  interest  which  may  have  accrued 
on  such  bonds  prior  to  completion  and  acceptance  of  the  road. 
There  was  a  further  ruling  that  voluntary  payments  made  upon 
invalid  coupons,  prior  to  completion  and  acceptance  of  the  road, 
could  not  be  set  off  against  those  maturing  afterwards.^ 

ture  may  not  only  delegate  this  power 
of  levying  taxes  to  aid  in  the  construc- 
tion of  a  railroad  to  municipal  cor- 
porations, but  may  also,  by  the  exer- 
cise of  its  original  power  of  taxation, 
directly   impose  such  tax   upon  any 
territorial  division  of  the  state,  to  aid 
in  the  construction  of  a  railroad  sup- 
posed to  be  of  special  advantage  to 
the  people  residing  within  such  terri- 
torial division,  provided  a  majority  of 
those  people  have  signified  their  assent 
to  the  imposition  of  such  a  tax.     In- 
deed, some  of  the  authorities  hold  that 
the  tax  may  be  imposed  without  the 
consent  of  the  inhabitants  of  the  terri- 
torial division  upon  which  the  tax  is 
imposed.     But  we  are  not  prepared  to 
go  to  that  extent.    What  is  said  in  the 
opinion  of  the  chief  justice  in  the  case 
of  SU\te  r.  Whitesides,   30  S.  C.  579, 
584,  585,  Is  not  to  be  regarded  as  a  de- 
cision that  such  a  tax  may  be  imposed 
directly  by  the  legislature  without  the 
consent  of  the  people  of  the  particular 
locality  to  be   affected  thereby,  but 


simply  as  a  statement  of  the  fact  that 
some  of  the  authorities  go  to  that  ex- 
tent.    Except    for  government'd  pur 
poses  proper,  we  do  not  think  that  the 
legislature  has  the  power  to  impose  a 
tax  upon  the  people  of  any  particular 
locality   or  territorial   subdivision   of 
the  state   without  their   consent.     In 
this  case,  however,  such  consent  was 
given,  and  that  is  the   avowed   basis 
upon  which  the  act  of  1888  rests.     It 
is  argued,  however,  that  such  consent 
has  only  been  manifested  by  an  elec- 
tion held   without  authority  of  law, 
and  hence  should  not  be  regarded.     It 
seems  to  us  that  it  is  not  at  all  material 
how  the  assent  of  the  people  has  been 
given.     All    that  was  necessary  was 
that  the  legislature  should  be  satisfied 
that  consent  had  been  given,  and  the 
terms  of  the  act,  especially  the  pre- 
amble, show  plainly  that  they  were 
notified  of  that  fact." 

'  Granniss  i?.  Cherokee  Township  of 
York  County,  (1891)  47  Fed.  Rep. 
All. 


%  488,  489]  MUNICIPAL  aid  bonds  —  towns. 


1011 


§  488.  An  Ohio  statute  as  to  town  aid  held  unconstitu- 
tional.—  The  Supreme  Court  of  the  United  States  has 
held  that  the  act  of  the  legislature  of  Ohio  of  April  9,  1880, 
authorizing  townsliips  having  a  population  of  3,683,  under  the 
census  of  1870,  "to  build  railroads  and  to  lease  or  operate  the 
same,"  and  "  to  borrow  money  "  as  a  fund  for  that  purpose,  and 
"  to  issue  bonds  therefor  in  the  name  of  said  township,"  is  repug- 
nant to  the  provisions  in  the  State  Constitution,  that  "  the  gen- 
eral assembly  shall  never  authorize  any  county,  city,  town  or 
township,  by  vote  of  its  citizens  or  otherwise,  to  become  a  stock- 
holder in  any  joint-stock  company,  corporation  or  association 
whatever,  or  to  raise  money  for,  or  loan  its  credit  to  or  in  aid  of, 
any  such  company,  corporation  or  association,"  and  the  bonds  of 
Buch  a  township,  issued  under  the  supposed  authority  of  that  act, 
were  held  to  be  void.^  The  United  States  Circuit  Court  for  the 
northern  district  of  Ohio,  upon  the  case  being  remanded  to  the 
court  by  the  United  States  Supreme  Court,  followed  the  latter 
and  held  the  act  unconstitutional  and  the  bonds  void.^ 

§  489.  Miscellaneous  rules  as  to  town  aid  bonds. —  The 

issuing  of  township  bonds  to  aid  in  constructing  within  its  limits 
the  depots  and  side  tracks  of  an  existing  railroad,  has  been  held 
to  be  authorized  by  the  act  of  Kansas  authorizing  townships  with 
other  municipal  corporations  "  to  issue  bonds  for  the  purpose  of 
building  bridges,  aiding  in  the  construction  of  railroads,  water 
power  or  other  works  of  internal  improvement,"  etc.^  Negotiable 
bonds  made  by  a  township  in  Kansas,  under  legislative  authority, 
reciting  that  they  were  issued  "  for  the  purpose  of  aiding  internal 
improvements  in  said  townships,"  have  been  held  valid  in  the 
hands  of  a  holder  for  value,  notwithstanding  they  had  in  fact 
been  issued  to  aid  in  the  improvement  of  a  water  power,  and  the 
erection  of  a  water  mill  owned  by  private  persons.*  The  hona 
fide  purchaser  of  municipal  bonds  is  under  no  obligation  to  look 
beyond  the  action  of  the  persons  or  tribunal  authorized  by  law 
to  determine  the  result  of  an  election  held  for  the  purpose  of 
ascertaining  whether  the  municipality  should  issue  its  bonds  in 

*  Pleasant  Township  «.-^tna Life  In-  "Rock  Creek  Township  v.    Strong, 

surance  Co.,  (1891)  138  U.  S.  67;  s.  c,  96  U.  S.  271. 

11  Sup.  Ct.  Rep.  215.  *  Guernsey  v.  Burlington  Township^ 

« uEtna  Life    Ins.   Co.  v.    Pleasant  4  Dill.  372. 
Township,  (1893)  53  Fed.  Rep.  214. 


11'  ■ 


1012 


MUNICIPAL  AID  BONDS  —  TOWNS. 


[§48^ 


aid  of  an  object  authorized  by  law,  as  such  actiou  is  conclusive.^ 
A  township  in  Michigan  had  voted  railroad  aid  bonds  with  a  con- 
dition precedent  to  the  delivery  of  the  bonds  that  the  road  should 
not  only  be  in  running  order,  but  an  equivalent  amount  of  the 
company's  stock  should  be  delivered  to  the  township  treasurer. 
Before  this  was  done  a  new  township  was  set  off  from  the  one 
which  voted  the  bonds.  The  Supreme  Court  of  tliat  state  held 
that  until  the  exchange  of  bonds  for  stock  was  made  there  were 
no  contract  relations  with  the  railroad  company,  and  that  even  if 
the  bonds  had  been  valid,  the  new  township  would  not  be  bound 
by  a  judgment  against  the  old  township  for  the  amount  of  the 
bonds.^  Attaching  conditions  to  the  signatures  to  a  petition  for 
the  issue  of  railroad  aid  bonds  will  not  necessarily  vitiate  the 
petition.' 

8.  E.  Rep.  410.  As  to  the  power  of 
the  legislature  under  a  constitutional 
provision  that  the  legislature  may  per- 
mit municipal  corporations  to  assess 
and  collect  taxes  for  corporate  purposes 
only,  to  authorize  such  corporations  to 
issue  bonds  in  aid  of  railroad  com- 
panies, see  Town  of  Darlington  v. 
Atlantic  Trust  Co.,  68  Fed.  Rep.  849. 
See,  also,  Atlantic  Trust  Co.  of  New 
York  V.  Town  of  Darlington,  63  Fed. 
Rep.  76.  The  Supreme  Court  of  South 
Carolina  has  held  a  provision  in  an 
act  of  the  legislature  allowing  female 
adults,  owning  §100  worth  of  taxable 
property  within  the  corporate  limits 
of  the  town,  to  vote  at  an  election  to 
be  held  in  the  town  upon  the  question 
of  issuing  town  bonds  in  aid  of  a  rail- 
road to  be  valid  as  within  the  power 
of  the  legislature.  Woodley  v.  Town 
Council  of  Clio,  (S.  C.  1895)  22  S.  E. 
Rep.  410,  following  Wilson  v.  City- 
Council,  39  S.  C.  397;  8.  c,  17  8.  E. 
Rep.  835;  approved  in  40  S.  C.  290; 
8.  c,  18  8.  E.  Rep.  792. 


*Rock  Creek  Township  v.   Strong, 
96  U.  8.  271. 

'  Beeman  v.  Black,  49  Mich.  598. 

=«Town  of  Andes  v.  Ely,  15  Sup.  Ct. 
Rep.  954.  A  case  holding  a  town 
estopped  to  set  up  the  defense  of  nltra 
virea  as  to  bonds  which  were  regular 
upon  their  face  and  purported  to  have 
been  issued  in  accordance  with  the  act 
of  the  legislature  authorizing  them. 
Town  of  Brewton  v.  Spira,  (Ala.)  17 
So.  Rep.  606.  In  Linn  v.  Chambers- 
burgh  Borough,  (1894)  160  Pa.  St. 
611,  a  bill  in  equity  to  restrain  the 
borough  from  undertaking  the  erec- 
tion of  an  electrical  plant,  on  the 
ground  that  the  borough  indebtedness 
would  be  increased  beyond  the  consti- 
tutional limit,  it  was  held  that  the  bur- 
den was  on  the  plaintiff  to  prove  that 
the  indebtedness  would  be  necessarily 
increased  to  an  amount  exceeding  the 
legal  limit.  Railroad  aid  bonds  held 
not  invalidated  in  the  hands  of  a  bona 
fide  holder  in  Union  Bank  t.  Board  of 
Comrs.  of  Town  of  Oxford,  (N.  C.)  21 


CHAPTER  XXY. 

BONDS  AND  COUPONS  —  PRIVATE  COPORATIONS. 


^490. 
491. 

492. 

498. 
494. 

495. 

496. 

497. 

498. 


Bonds  of  private  corporations, 
generally. 

Meeting  of  stockholders  to  au- 
thorize the  issuance  of 
bonds  —  when  legally  held. 

Interest  on  bonds  —  what  rate, 
etc. 

When  principal  becomes  due. 

Bonds  —  when  "  issued  "  un- 
der Wisconsin  statute. 

When  a  mortgage  trustee 
should  countersign  bonds. 


Pledge    of    its    bonds    by 


a 
of 


corporation  —  rights 
pledgee,  etc. 

Validity  of  bonds  as  affected 
by  statutory  or  constitu- 
tional provisions. 

Validity  of  bonds  as  affected 
by  the  manner  of  sale  and 
character  of  purchasers. 


§  499.  Reorganization  —  surrender  of 
old  bonds  and  stock  for  new 
bonds  —  rules. 

500.  Bondholders  —  when  bona  fide 

holders    and    when    not  — 
the  rights  of  such. 

501.  Holders  of   income  bonds  — 

rules  as  to  an  accounting 
with  them. 

502.  Detached,  uncanceled  coupons 

—  rules  governing. 

503.  Actions    on    coupons  —  rules 

governing. 

504.  Guaranty   of    bonds    of    one 

corporation   by    another  — 
rules. 

505.  Lease  of  a  bonded  railroad  — 

when  lessee  is  not  bound  on 
the  bonds. 


§490.  Bonds  of  private  corporations,  generally. —  Private 

corporations,  in  the  conduct  of  their  business,  are  vested  with 
power  to  give,  as  obligations,  their  bonds  as  a  means  of  borrow- 
ing money  for  their  legitimate  business  purposes,  or  in  payment 
of  debts  incurred  in  carrying  out  the  purposes  of  their  creation, 
unless  there  be  some  restriction  upon  them  b}'^  statute.^  These 
bonds  are  known,  generally,  as  coupon  bonds,  because  attached 


*  Peoria  &  Springfield  R.  R.  Co.  v. 
Thompson,  103  111.  187;  Brown  v. 
Maryland,  62  Md.  439;  McLane  i). 
Placerville  &  Sacramento  Valley  R.  R. 
Co.,  66  Cal.  606;  Mead  v.  New  York, 
Housatonic  &  Northern  R.  R.  Co., 
45  Conn.  199;  Kelly  i\  Trustees,  etc., 
68  Ala.  489;  Da  Ponte  t.  Northern 
Pac.  R.  R.  Co.,  21  Blatchf.  534;  Coe 
f>.  Columbus,  Piqua  &  Ind.  R.  R.  Co., 
10  Ohio  St.   372;    Commonwealth  t. 


Smith,  10  Allen  (Mass.),  448;  Craven 
0.  Atlantic  «fc  North  Carolina  R.  R. 
Co.,  77  N.  C.  289;  Miller  t.  New  York 
&  Erie  R.  R.  Co.,  18  How.  Pr.  374; 
Dana  ».  Bank  of  the  United  States,  5 
Watts.  &Serg.  223;  McMastersr.  Reed, 
1  Grant's  Cas.  36;  Hubbard  t.  New 
York  &  Harlem  R.  R.  Co.,  36 
Barb.  286.  As  to  the  power  and  right 
to  issue  income  bonds,  see  Garrett  v. 
May,  19  Md.  177. 


It< 


II 


1014 


BONDS  AND  COUPONS PRIVATE  CORPORATIONS. 


[§490 


I 


L 


and  connected  with  them  are  usually  interest  coupons,  for  the 
terms  at  wliich  the  interest  on  the  bonds  is  to  become  due ; 
mortgage  bonds,  or  bonds  secured  by  mortgage  or  trust  deed  of 
the  property  of  the  corporation  to  a  trustee  for  the  bondholders ; 
income  bonds,  secured  by  a  mortgage  of  the  income  of  the  cor- 
poration, and  debenture  bonds.  Tliese  bonds  are  usually  made 
payable  to  bearer,  and  are  negotiable,  passing  generally  by 
delivery.*  The  statements  in  a  certificate  accompanying  a  bond 
that  it  is  secured  by  a  mortgage  must  be  construed  with  the  bond 
and  mortgage  as  a  part  of  the  same  security.^  Bonds  of  a  corpo- 
ration chartered  to  bnild  a  canal  that  contained  recitals  that  they 
should  have  preference  over  all  debts  to  be  thereafter  contracted, 
and  that,  in  default  of  payment  of  interest,  the  holder  of  the 
bonds  might  enter  into  the  possession  of  the  tolls,  water  rates  and 
other  incomes  of  the  company,  and  might  apply  for  the  appoint- 
ment of  a  receiver,  have  been  held  by  the  United  States  Supreme 
Court  in  effect  to  constitute  a  mortgage,  and  the  holders  of  the 
bonds  entitled  to  the  relief  usually  granted  in  case  of  a  mort- 
gage.* The  effect  of  the  provisions  of  the  Civil  Code  of  California 
upon  the  bonds  and  mortgage  of  a  railroad  company  was  consid- 
ered in  a  case,  and  it  was  held  that,  in  a  bond  ]>ayable  at  a  fixed 
date,  a  provision  that  the  obligor  may,  at  its  option,  redeem  the 


'  Ide  V.  Passumpsic  &  Connecticut 
Rivers R.R  Co.,  32  Vt.  297:  Edwards 
T.  Marcy,  2  Allen,  486;  White  r.  Ver- 
mont &  jMassachusetts  R.  R.  Co.,  21 
How.  575;  Morris  Canal  &  Bkg.  Co. 
f>.  Fisher,  9  N.  J.  Eq.  667;  Carr  r. 
Le  Fevre.  27  Pa.  St.  413;  Chapin  v. 
Vermont  &  Massachusetts  R.  R.  Co., 
8  Gray,  575;  Langston  v.  South  Caro- 
lina R.  R.  Co.,  2  8.  C.  248;  Hubbard 
t>.  New  York  &  Harlem  R.  R.  Co.,  36 
Barb.  286;  Brainerd  «?.  New  York  & 
Harlem  R.  R.  Co.,  25  N.  Y.  496;  s.  c, 
10  Bosw.  332;  Dinsmore  r.  Duncan, 
57  N.  Y.  573;  Welch  r.  Sage,  47  N.  Y. 
143;  Hodges  v.  Shuler,  22  N.  Y.  114; 
Virginia  v.  Chesapeake  &  Ohio  Canal 
Co.,  32  Md.  501;  Junction  R.  R.  Co. 
V.  Cleneay,  13  Ind.  161.  As  to  for- 
malities of  bonds,  see  Hendee  v.  Pin- 
kerton.  14  Allen,  381;  Allen  v.  Sulli- 
van R.  R.  Co.,  32  N.   H.  446;  Royal 


Bank  of  Liverpool  v.  Grand  Junction 
R.  R.  &  Depot  Co.,  100  Mass.  444; 
Chilton  V.  People,  66  111.  501;  Bates  v. 
Boston  &  N.  Y.  Central  R.  R.  Co.,  10 
Allen,  251.  When  a  bo?ia  fide  pur- 
chaser  of  such  bonds  has  a  right  to 
presume  the  requirements  of  a  statute 
as  to  the  execution  of  bonds  have  been 
complied  with,  see  Connecticut  Mut. 
Life  Ins.  Co.  v.  Cleveland,  Columbus 
&  Cincinnati  R.  R.  Co.,  41  Barb.  9. 
That  the  board  of  directors  and  presi- 
dent of  the  corporation  have  power 
without  the  concurrence  of  the  stock- 
holders to  authorize  the  issue  of  bonda 
and  mortgage,  see  Hodder  o.  Ken- 
tucky &  Great  Eastern  Ry.  Co.,  7 
Fed.  Rep.  793. 

'  Benjamin  v.  Elmira,  Jefferson  & 
Canandaigua  R.  R.  Co.,  49  Barb.  441. 

3  White  Water  Valley  Canal  Co.  v, 
Vallette,  21  How.  414. 


§490] 


BONDS  AND  COUPONS  —  PRIVATE  CORPORATIONS. 


1015 


same  before  maturity  at  any  date  when  the  semi-annual  interest  is 
due,  did  not  render  the  bond  so  uncertain,  as  to  time  or  amount,  as 
to  deprive  it  of  its  negotiable  quality  under  the  provisions  of  the 
Civil  Code  of  California,  sections  3087-3089,  3091,  3093.  The 
constitutional  provision  of  California  that  the  stock  and  bonded 
indebtedness  of  corporations  shall  not  be  "  increased  "  without  the 
consent  of  the  person  holding  the  larger  amount  of  the  stock,  does 
not  apply  to  the  first  creation  of  bonded  indebtedness.^  It  was 
found  in  an  Illinois  case,  an  action  to  annul  certain  bonds  as 
ultra  vires  the  railway  corporation  to  issue,  that  the  president 
and  general  manager  of  the  corporation,  without  any  authority, 
used  the  bonds  which  came  into  his  hands  to  pay  debts  of  other 
corporations  which  were  under  liis  control,  and  "  not  in  any  way 
about  the  construction,  equi2)ment  or  operation  "  of  the  railway 
corporation,  and  that  the  bonds  were  acquired  by  the  holders  with 
full  knowledge  that  they  had  been  misapplied  in  the  manner  they 
were.  These  findings  the  Supreme  Court  of  the  state  held  to 
exclude  the  hypothesis  that  the  corporation,  the  debts  of  which 
were  paid  with  the  bonds,  might  have  agreed  to  construct  or 
equip  the  road  in  part,  and  were  sufficient  to  support  the  decree 
declaring  the  bonds  null  and  void  as  against  the  railway  corpora- 
tion.' A  traffic  contract  had  been  made  by  a  railway  corporation, 
which  had  executed  certain  bonds  payable  in  thirty  years,  with 
another  railway  corporation,  agreeing  that  it  should  retain  the 
former's  share  of  the  earnings  and  pay  them  over  semi-annually 
to  a  trustee,  to  be  applied  to  the  ultimate  redemption  of  the 
bonds.  The  contract,  by  its  terms,  was  to  continue  for  thirty 
years,  "  or  for  so  long  a  time  as  will  be  sufficient  to  provide  a 
fund  large  enough  to  redeem  all  of  said  bonds."  The  agreement 
was  indorsed  on  the  bonds.  This  agreement  was  held  in  a  federal 
court  not  to  give  the  corporation  issuing  the  bonds  the  right  to 
pay  off  the  bonds  as  soon  as  a  fund  sufficient  for  that  purpose 
had  accrued  and  before  the  expiration  of  the  thirty  years.^  A 
construction  company,  employed  by  a  railroad  corporation  to 
build  its  track  under  an  agreement,  was  to  have  issued  to  it  by 
the  railway  corporation  bonds  of  the  latter  to  a  certain  amount 

'  Union  Loan  &  Trust  Co.  r.  South-       '  City  of  Chicago  i\  Cameron,  120 
ern  Cahfornia  Motor  Road  Co.,  (1892)    111.  447;  s.  c,  11  N.  E.  Rep.  899. 
61  Fed.  Rep.  840.  '  Chicago  «fe  Iowa  R.  Co.  r.     Pyne, 

30  Fed.  Rep.  86. 


|i 


I  >■■ 


m 


1016  BONDS  AND  COUPONS  —  PRIVATE  CORPORATIONS.         [§490 

per  mile  of  track,  iii  installments,  as  sections  of  the  work  should  be 
completed.  The  bonds  of  the  railroad  corporation,  by  a  subse- 
quent agreement,  were  delivered  in  advance  of  the  building  of 
the  track,  the  construction  company  agreeing  to  take  care  of  and 
pay  all  interest  accruing  before  the  road  was  in  condition  for 
traffic,  and  the  railway  corporation  agreed  to  reimburse  the  con- 
struction company  for  all  interest  paid,  not  properly  chargeable 
to  it,  out  of  the  first  earnings  of  the  road.  A  federal  court  held 
that  the  proper  construction  of  the  contract  was  that  the  con- 
struction company  was  only  bound  to  pay  interest  on  so  many  of 
the  bonds  as  it  received  and  used  to  which  it  was  not  entitled 
imder  the  construction  contract.'  That  it  was  known  to  the 
executive  committee  of  the  directors  of  a  corporation  that  a  pur- 
chaser of  its  mortgage  bonds  purchased  them  under  a  belief  that 
the  proceeds  were  to  be  used  for  a  particular  purpose,  has  been 
held  in  New  York  not  sufficient  to  bind  the  corporation  to  a  trust 
limiting  the  use  of  the  proceeds  of  the  lK>nds  sold.^  The  charter 
of  a  consolidated  corporation  recited  the  uses  to  which  money  to 
be  derived  from  the  sale  of  its  bonds  was  to  be  applied,  and  a 
trust  agreement  was  entered  into  in  accordance  with  the  terms  of 
the  charter.  The  bonds  of  the  corporation  were  sold  under  a 
prospectus  pointing  out  a  source  of  inquiry  as  to  the  charter  and 
trust.  The  prospectus,  however,  misstated  the  purpose  for  which 
the  proceeds  of  the  bonds  were  to  be  used.  A  federal  court  held 
that  the  trustees  were  not  liable  to  the  bondholders  for  having 
used  the  proceeds  in  accordance  with  the  trust  agreement,  and 
not  in  the  manner  set  out  in  the  prospectus.  It  was  further  held 
that  the  company,  having  sold  its  bonds  by  an  agent  who  issued 
a  prospectus  stating  to  what  uses  the  money  was  to  be  applied,  did 
not  establish  a  fiduciary  relation  between  the  bondholder  and  the 
company,  and  the  bondholder  could  not  pursue  the  money  received 
for  the  bonds  as  a  trust  fund  where  the  company  had  parted  with 
it  to  another  for  a  different  use,  the  latter  having  obtained  title  as 
l)etween  himself  and  the  company.^  It  appeared  in  a  case  that 
a  firm  engaged  in  negotiating  bonds  for  the  company  negotiated 
a  large  number  of  them,  of  which  fact  it  did  not  notify  the  com- 
pany.    Afterwards,  the  firm  purchased  them  back  and  loaned  the 

'  Foster  f.   Mansfield,  C.  &  L.  M.       « Bischoffsheim  v.  Brown,   34  Fed. 
Ry.  Co.,  36  Fed.  Rep.  627.  Rep.  156;  Banque  Franco-Egyptienne 

« Ives  T.  Smith,  3  N.  Y.  Supp.   645.    r.  Brown,  34  Fed.  Rep.  162. 


§490J 


BONDS  AND  COUPONS PRIVATE  CORPORATIONS. 


1017 


company's  trustees  a  sum  less  than  it  had  received  from  the  sale 
of  the  bonds  to  be  used  for  a  certain  purpose,  pretending  to  hold 
the  bonds  as  a  collateral  for  the  loan.  The  court  held  that  this 
firm  could  not,  on  the  trustees'  applying  the  money  to  the  uses  of 
their  trust,  though  different  from  those  agreed  upon  with  the  firm, 
follow  the  property  into  the  hands  of  those  to  whom  it  had  been 
paid,  without  paying  the  trustees  the  money  which  had  been 
received  from  the  sale  of  the  bonds,  the  trustees  having  an  equi- 
table title  to  such  money.^  It  was  provided  in  a  mortgage  exe- 
cuted by  a  railroad  company  that  certain  bonds  secured  by  it 
remaining  in  the  hands  of  the  trustee  should  not  be  issued  unless 
with  the  assent  of  a  majority  in  amount  of  the  outstanding  pre- 
ferred stock,  and  that  if  any  part  of  such  bonds  should  be  used 
for  the  construction  of  branches  or  extensions,  the  same  should 
only  be  countersigned  and  delivered  by  the  trustee  at  a  rate  not 
exceeding  $20,000  per  mile  of  new  construction,  and  upon  the 
certificate  of  the  engineer  of  the  mortgagor  that  sections  of  not 
less  than  ten  miles  had  been  completed,  ready  for  operation. 
This  provision  of  the  mortgage  was  held  in  a  federal  court  not  to 
authorize  the  trustee  to  refuse  to  issue  them  except  for  continuous 
sections  of  ten  miles  each ;  that  the  company  was  entitled  to  have 
the  bonds  issued  for  every  ten  miles  of  new  construction  com- 
pleted and  ready  for  operation,  whether  in  branches,  each  shorter 
than  ten  miles,  or  in  the  excess  over  ten-mile  sections.'  Mort- 
gage bondholders  of  a  corporation,  who  subscribed  to  the  deben- 
ture bonds  of  the  corj^oration,  agreed  to  pay  specified  portions  of 
their  subscrijDtion  as  called  for,  they  to  receive  therefor  the  deben- 
ture bonds  bearing  interest,  etc.  This  undertaking  on  the  part 
of  the  bondholders  was  held  by  the  Supreme  Court  of  Judicature 
of  Massachusetts  to  be  in  effect  an  agreement  to  loan  the  corpo- 
ration money,  and  not  analagous  to  an  unpaid  subscription  to 
capital  stock ;  and,  therefore,  on  that  theory  the  creditors  of  the 
corporation  could  not  maintain  a  bill  to  have  the  subscriptions  to 
the  debenture  bonds  applied  to  their  claims.  It  was  further  held 
that  the  fact  that  the  debenture  bonds  were  issued  to  enable  the 
corporation  to  complete  its  railroad  did  not  create  any  trust  in 
favor  of  creditors  whose  claims  were  for  supplies  furnished  in  the 

*  Ibid.  720,  an  action  to  compel  the  trustee  to 

'  Denver  &  Rio  Grande  R.   Co.   v.    countersign  and  issue  the  bonds. 
United  States  Trust  Co.,  41  Fed.  Rep. 

128 


|(, 


1018 


BONDS  AND  COUPONS PRIVATE  CORPORATIONS. 


[§  4y<) 


§491] 


BONDS  AND  COUPONS  —  PRIVATE  COKPOEATIONS. 


1019 


n 


•i 


construction  of  the  road ;  tliat  this  contract  hetween  the  corpora- 
tion and  its  bondholders  wlio  subscribed  for  these  debenture 
bonds  bein^  executory  on  both  sides,  and  not  assignable  by  either 
party,  was  not  within  Public  Statutes  of  Massachusetts,  chapter 
151,  section  2,  clause  11,  giving  creditors  a  remedy  in  equity  to 
reach  and  apply  "  any  property,  right,  title  or  interest,  legal  or 
equitable,"  belonging  to  a  debtor.^  Bonds  secured  by  mortgage 
having  been  issued  by  an  organization  assuming  to  act  as  a  corpora- 
tion, and  put  in  circulation,  the  holders  of  the  stock  of  such  cor- 
poration cannot  defeat  the  bonds  and  mortgages  by  alleging  that 
the  corporation  was  not  duly  incorporated.^  The  fact  that  the 
road  was  constructed  for  less  than  the  amount  of  the  bonds  a  rail- 
road company  may  have  issued  to  pay  for  its  construction,  will 
not  invalidate  such  bonds  where  the  contract  for  construction  has 
been  fairly  made  and  carried  out  and  called  for  that  amount.' 
The  bonds  in  this  case  were  issued  under  the  mortgage  securing 
them  by  a  railroad  company  which  had  leased  its  railroad  for  a 


'  Pettibone  f>.  Toledo.  C.  &  St. 
Louis  R.  Co.,  148  Mass.  411;  s.  c,  19 
N.  E.  Rep.  337.  As  to  overissue  of 
bonds,  see  Stephens  r.  Benton,  1  Duv. 
(Ky.)  112.  As  to  what  form  of  con- 
tract would  pass  title  to  nulroad  bonds 
under  particular  circumstances^  see 
American  Loan  &  Trust  Co.  v.  Toledo, 
C.  &  S.  Ry.  Co.,  (18d0)  47  Fed.  Rep. 
343.  Under  what  conditions  the  fact 
that  bonds  were  issued  by  a  corpora- 
tion when  insolvent  does  not  render 
them  void,  see  Cochran  r.  Anglo- 
American  Dry  Dock  &  Warehouse  Co. , 
69  Hun,  168;  s.  c,  23  X.  Y.  Supp.  404. 
Bonds  of  a  manufacturing  corporation 
delivered  to  a  bank  to  secure  indebted- 
ness held  valid,  though  the  trust 
company  to  which  the  mortgage  to 
secure  the  bonds  was  to  be  given, 
had  not  signed  them  before  the  de- 
livery to  the  bank,  notwithstanding 
the  bonds  provided  they  would  not  be 
valid  until  signed  by  the  trust  com- 
pany in  Gunther  r.  Mayer,  138  N. 
Y.  654,  8.  c,  34  N.  E.  Rep.  513. 
When  a  stockholder  of  a  corporation 
is  estopped  to  contest  the  validity  of 


its  bonds,  see  Zabriskie  r.  Cleveland, 
Columbus  &  Cincinnati  R.  R.  Co.,  23 
How.  381.  When  bonds  of  a  corpo- 
ration hypothecated  as  a  collateral  will 
be  held  void,  see  Pfister  r.  Milwaukee 
Electric  Ry.  Co.,  83  Wis.  86;  e.  c,  53 
N.  W.  Rep.  27. 

'Phinizy  r.  Augusta  &  K.  R.  Co., 
62  Fed.  Rep.  678. 

'Farmers'  Loan  &  Trust  Co.  v. 
Rockaway  Valley  R.  Co.,  69  Fed.  Rep. 
9.  As  to  when  bonds  issued  by  a  rail- 
road corporation  in  excess  of  the 
amount  of  cash  paid  on  its  capital 
stock,  or  to  pay  for  constructing  a  road 
other  than  the  one  specified  in  its 
articles  of  incorporation,  to  be  used  as 
a  branch  line,  and  secured  by  a  mort- 
gage containing  on  its  face  what 
amounts  to  a  promise  by  the  corpora- 
tion to  observe  the  law  governing  the 
making  of  such  bonds  and  mortgages, 
will  be  held  valid  in  the  hands  of 
innocent  purchasers,  and  void  in  the 
hands  of  others,  see  Baker  r.  Guaran- 
tee Trust  &  Safe  Deposit  Co.,  (N.  J. 
Eq.)  31  Atl.  Rep.  174. 


term  of  fifty  years  to  a  railroad  company  owning  a  majority  of 
the  shares  of  its  capital  stock,  the  lease  providing  that  the  lessee 
should  furnish  the  necessary  rolling  stock  and  equipment  for  the 
operation  of  the  railroad,  and  should  receive  out  of  the  revenues 
of  the  road  a  reasonable  compensation  for  the  use  of  such  rolling 
stock  and  equipment.     The  bonds  were  five  per  cent  bonds  and 
to  mature  in  forty  years.     They  were  taken  by  the  lessee  company 
at  ninety  per  cent  of  their  face  value  in  consideration  of  a  large 
debt  due  the  lessee  company,  rolling  stock  sold  to  the  mortgagor 
company,  and  stocks  and  bonds  of  other  corporations  owning  roads 
connecting  with  and  forming  feeders  of  the  railroad  of  the 'latter 
company  sold  to  it  by  the  lessee  company.     Minority  stockholders 
filed  a  bill  praying  that  these  bonds  and  the  mortgage  securing 
them  should  be  declared  null  and  void  and  decreed  to  be  delivered 
up  for  cancellation.     The  main  allegation  of  the  bill  was  that  the 
transaction  consummated  by  the  issuing  of  the  bonds  and  mortgage 
in  question  was  a  fraudulent  scheme  concocted  for  the  benefit  of  the 
corporation  holding  the  majority  of  the  stock  to  enable  it  to  raise 
money  for  its  own  purposes,  and  carried  out  to  the  prejudice  of  the 
other  stockholders  of  the  company,  by  means  of  the  domination  and 
control  which  the  former  company  had  over  the  management  of 
the  affairs  of  the  latter.     The  Supreme  Court  held  that  these 
minority  stockholders  could  not  complain  of  an  issue  of  mortgage 
bonds  to  a  holder  of  the  majority  of  the  stock  when  such  issue 
was  made  by  the  corporation  without  fraud,  for  an  adequate  con- 
sideration and  with  great  benefit  to  the  corporation,  though  the 
issuance   was   procured  by  the  majority  stockholder  for  use  to 
raise  money  for  itself  and  was  actually  so  used.' 


16 


§  491.  Meeting  of  stockholders  to  authorize  the  issuance 
of  bonds  — when  legally  held.— In  this  foreclosure  suit  it  was 
objected  to  the  validity  of  the  bonds  that  the  meeting  called  to 
increase  the  bonded  indebtedness  of  the  railroad  company  was 
not  held  within  the  state  as  required  by  the  statute  of  Alabama, 
which  provides  that  a  stockholders'  meeting  for  such  a  purpose 
must  be  held  in  the  state,  that  the  call  must  state  the  time,  place 
and  object  of  the  meeting,  and  that  a  report  of  the  meeting  must 
be  filed  with  the  secretary  of  state.     It  appeared  that  notice  was 

"Gloninger  v.   Pittsburgh  &  Con-   13;  s.  c,  21  Atl.  Rep.  211;  27  W.  N. 
nellsville  R.  R.  Co.,  (1890)  139  Pa.  St.    C.  497. 


1 


1020 


BONDS  AND  COUPONS  —  PRIVATE  CORPORATIONS. 


[§492 


g 


I 


'  I ) 


f1 

^1 


given  to  the  stockholders  of  the  railroad  company  of  a  meeting 
to  be  held  at  a  place  in  the  state  of  Alabama  on  April  20,  1887, 
to  increase  the  bonded  indebtedness  of  the  company,  and  prior  to 
thai  date  every  stockholder  consented  in  writing  to  the  increase. 
On  March  24,  1887,  the  board  of  directors  held  a  meeting  in  the 
state,  at  which  the  call  of  the  stockholders'  meeting  and  the  wnt- 
ten  consent  of  all  the  stockholders  were  recited,  and  the  issuance 
of  the  bonds  were  authorized ;  and  subsequently  a  report  of  the 
directors'  meeting,  reciting  the  stockholders'  consent,  was  filed 
with  the  secretary  of  state.  The  court  held  that  there  was  a  suf- 
ficient compliance  with  the  law  of  Alabama  as  to  such  meetings, 
and  the  issue  of  the  bonds  was  legally  authorized.* 

§  492.  Interest  on  bonds  —  what  rate,  etc. — The  railroad 
bonds  upon  which  this  bondholders'  suit  was  based,  were  issued 
by  a  South  Carolina  railroad  company,  and  the  interest  was  made 
payable  in  London.  One  of  the  questions  before  the  United 
States  Supreme  Court  was  what  rate  of  interest  the  principal  of 
these  bonds  bore.  It  was  held  by  the  court  that  the  contract 
being  made  in  one  place  and  the  performance  of  the  contract  to 
be  in  another,  both  as  to  the  interest  and  the  principal,  and  the 
interest  before  maturity  being  payable  according  to  the  legal  rate 
in  the  place  of  performance,  the  presumption  was,  in  the  absence 
of  attendant  circumstances  to  show  the  contrary,  that  the  princi- 
pal of  these  bonds  bore  interest  after  maturity  at  the  same  rate  — 
the  rate  fixed  by  the  laws  of  England  and  not  the  rate  fixed  by 
the  laws  of  South  Carolina.^    There  was  a  covenant  in  coupon 


»  Coe  V.  East  &  West  R.  Co.  of  Ala., 
(1892)  52  Fed.  Rep.  531;  Grant  v.  East 
&  West  R.  Co.  of  Ala.,  (1892)  52  Fed. 
Rep.  531.  In  Hodder  v.  Kentucky  & 
Great  Eastern  Ry.  Co.,  7  Fed.  Rep. 
793,  it  was  held  that  the  mortgage  of 
the  property  of  the  Kentucky  corpom- 
tion  to  secure  the  bonds  could  be 
legally  acknowledged  by  its  president 
in  the  state  of  Ohio.  Bonds  and  mort- 
gages of  corporations  organized  under 
Illinois  laws  have  been  held  not  to  be 
invalid  merely  because  executed  out 
of  the  state.  Hervey  v.  111.  Mid.  Ry. 
Co..  28  Fed.  Rep.  169. 

'  Coghlan  r.  South  Carolina  R.  Co., 


(1891)  142  U.  S.  101;  s.  C,  12  Sup.  a. 
Rep.  150.  Mr.  Justice  Harlan,  for 
the  court,  after  a  reference  to  the  au- 
thorities upon  the  subject  of  such  con- 
tracts generally,  as  to  this  particular 
one  said:  "What  law,  then,  did  the 
parties  have  in  view  as  determining 
the  legal  consequences  resulting  from 
the  non-performance  of  the  contract 
between  them?  Presumptively,  the 
law  of  England,  where  the  contract 
was  to  be  entirely  performed.  The 
bonds  and  coupons  were  to  be  pre- 
sented and  paid  there  and  not  else- 
where. They  were  to  be  paid  in 
pounds  sterling  at  a  designated  house 


f 


§493] 


BONDS  AND  COUPONS PRIVATE  COKPORATIONS. 


1021 


"bonds,  issued  by  a  railroad  corporation,  that  a  sinking  fund,  suffi- 
cient to  pay  a  certain  amount  of  tlie  bonds  and  accrued  interest, 
should  be  provided  on  November  fifteenth  in  each  year  until  the 
whole  amount  of  the  bonds  should  be  paid  ;  that  the  numbers  of 
the  bonds  to  be  paid  in  each  year  should  be  determine(?  by  draw- 
ing lots,  and  that  the  principal  of  the  bonds  so  drawn  should  "  l>e 
payable  at  the  option  of  the  holders,  *  *  *  upon  the  sur- 
render of  the  bonds  drawn,  with  all  the  coupons  thereto  belong- 
ing, and  after  the  said  15th  day  of  IS'ovember  the  interest  upon 
the  bonds  should  cease."  A  court  of  New  York  has  held  the 
option  of  the  holders  of  tlie  bonds  so  drawn  under  this  covenant 
applied  only  to  their  right  to  retain  possession  of  the  bonds,  and 
that  interest  on  such  bonds  ceased  on  the  November  fifteenth  for 
which  they  were  drawn,  whether  surrendered  by  the  holders  or  not.^ 

§  493.  When  principal  becomes  due. —  The  mortgage  bonds 
in  this  foreclosure  suit  contained  the  provision  that  "it  is 
hereby  expressly  agreed  by  said  company,  with  each  and  every 
holder  of  this  bond,  that,  in  case  of  the  non-payment  of  any 
interest  coupon  hereto  attached,  if  such  default  shall  continue 
for  six  months  after  maturity  and  demand  of  payment,  the  prin- 
cipal of  this  bond  shall  become  immediately  due."  The  United 
States  Circuit  Court  of  Appeals  for  the  fifth  circuit  held  that  the 
six  months  was  not  in  addition  to  days  of  grace,  but  was  to  run 


in  London.  The  fair  inference  is  that 
the  railroad  company  negotiated  the 
bonds  abroad  and  made  them  payable 
in  that  city  in  order  to  facilitate  a  sale 
of  them  to  foreign  buyers.  Every 
circumstance  connected  with  the  con- 
tract tends  to  show  that  the  parties  in- 
tended that  all  questions  in  respect  to 
performance  or  the  legal  consequences 
of  a  failure  to  perform'  were  to  be  de- 
termined by  the  law  of  the  place,  and 
the  only  place,  where  the  obligation 
to  make  payment  could  be  discharged, 
and  where  the  breach  of  that  obliga- 
tion would  occur  if  payment  was  not 
made  at  the  appointed  time  and  place. 
In  this  view  of  the  contract  the  rate  of 
interest,  after  the  maturity  of  the  obli- 
gations, was  not  d.eterminable  by  the 
law  of  South  Carolina.     This  is  abun- 


dantly established  by  the  authorities." 
Sec  Scudder  v.  Union  National  Bank, 
91  JS.  S.  406,  412;  Scotland  County  v. 
Hill,  133  U.  S.  107,  116;  Hall  v.  Cor- 
dell,  (1891)  142  U.  S.  116  (upon  a  bill 
of  exchange  drawn  in  Missouri  pay- 
able in  Illinois).  As  to  interest  and 
the  sale  of  bonds  below  par,  see  Cra- 
ven r.  Atlantic  &  North  Carolina  R. 
R.  Co.,  77  N.  C.  289;  McGregor  v. 
Covington  &  Lexington  R.  R.  Co.,  1 
Disney,  509;  Morrison  v.  Eaton  &  H. 
R.  R.  Co.,  14  Ind.  110;  Traders'  Na- 
tional Bank  v.  Manufacturing  Co.,  96 
N.  C.  298;  Coe  v.  Columbus,  Piqua  & 
Indiana  R.  R.  Co.,  10  Ohio  St.  372; 
Junction  R.  R.  Co.  v.  Bank  of  Ash- 
land, 12  Wall.  226. 

*  Henry  v.  Syracuse,  G.  &  C.  R.  Co., 
5  N.  Y.  Supp.  437. 


1022     BONDS  AND  CX)IJPONS  —  PRIVATE  CORPORATIONS.    [§§  494,  495 

from  the  date  on  which  the  coupons  were  expressed  to  be  due, 
and  the  default  liaving  continued  in  the  case  two  days  more  than 
the  six  months,  the  bondliolders  were  entitled  to  declare  the  prin- 
cipal immediately  due.  Further,  the  recitation  in  the  bond  as 
quoted  above  restricted  the  provision  for  the  maturity  of  the 
bonds  for  non-payment  of  interest  to  the  particular  bond  or 
bonds  on  which  interest  was  not  paid.  Also,  an  acceptance  of 
interest  after  the  default  had  continued  longer  tlian  six  months 
was  a  waiver  of  the  right  to  declare  the  bonds  matured.  It 
appearing  in  the  foreclosure  suit  tliat  the  interest  was  paid  on 
some  of  the  bonds,  it  became  necessary  to  take  an  account  of  the 
bonds  which  were  projx3rly  declared  to  have  matured ;  and  the 
Court  of  Appeals  lield  the  decree  adjudging  the  bonds  to  be  due 
to  be  erroneous  and  reversed  it  on  tliat  ground.* 

§  494.  Bonds —  when  "  issued  "  under  Wisconsin  statutes. 

—  In  a  bill  in  a  Court  of  Chancery  brought  by  a  judgment  creditor, 
his  execution  having  been  returned  nxdla  hona,  for  the  appointment 
of  a  receiver  and  an  injunction  against  a  water  company  and  certahi 
purchasers  at  foreclosure  of  its  property  and  franchises  who  had 
received  from  this  water  company  bonds  to  the  amount  of  $100,000 
as  collateral  for  $40,000,  money  advanced,  and  had  afterwards 
contracted  to  advance  $27,000  more,  a  part  of  which  had  been 
advanced,  the  question  of  the  validity  of  these  bonds  was  before 
the  United  States  Circuit  Court  for  the  eastern  district  of  Wis- 
consin. The  water  company  had  issued  bonds  to  the  amount  of 
$125,000,  depositing  the  $25,000  with  a  trust  company  under 
deed  of  trust.  It  was  held  by  the  court  that  the  bonds,  although 
pledged  as  collateral  and  not  sold,  were  "  issued "  within  the 
meaning  of  the  Revised-  Statutes  of  Wisconsin,  section  1753, 
which  declares  void  any  bonds  issued  by  a  corporation,  except  for 
money  actually  received,  equal  to  seventy-five  per  cent  of  their 
par  value ;  and  that  these  bonds  were  not  enforceable  in  the  hands 
of  the  pledgee.^ 

§  495.  When  a    mortgage    trustee    should  countersign 

bonds. —  The  trustee  of  a  railroad  mortgage,  a  trust  company,  was 
sued  to  compel  it  to  countersign  and  deliver  certain  mortgage  bonds 

» Alabama  &  (Jeorgia  Mfg.    Co.  r.  •  National  Foundry  &  Rpe  Works  «. 

Robinson,   (1893)  56  Fed.   Rep.   690;  Oconto  Water  Co.,  (1892)52  Fed.  Rep. 

citing  Railroad  Co.  v.  Fosdick,  106  U.  29,  in  which  a  receiver  was  appointed, 

S.  47;  s.  c,  1    Sup.  Ct.  Rep.  10.  an  injunction  granted  and  the  bonds. 


§496] 


BONDS  AND  CJOUPONS  —  PRIVATE  CORPORATIONS. 


1023 


to  the  comi)lainant  in  the  suit.  The  trustee  had  refused,  relying  for 
justification  of  its  refusal  upon  a  provision  in  the  mortgage  that 
certain  bonds  secured  by  it  remaining  in  the  hands  of  the  trustee 
ehould  not  l)e  issued  unless  with  the  assent  of  a  majority  in  amount 
of  the  outstanding  preferred  stock ;  and  that,  in  the  event  any  part 
of  such  bonds  should  be  used  for  the  purpose  of  constructing 
branches  or  extensions,  the  same  should  only  be  countersigned 
and  delivered  by  the  trustee  at  a  rate  not  exceeding  $20,000  per 
mile  of  new  construction,  and  upon  the  certificate  of  the  engineer 
of  the  mortgagor  that  sections  of  not  less  than  ten  miles  had  been 
completed  ready  for  operation.  Wallace,  J.,  of  the  United 
States  Circuit  Court  for  the  southern  district  of  New  York,  held 
that  tlie  mortgage  did  not  authorize  the  trustee  to  refuse  to  issue 
them  except  for  continuous  sections  of  ten  miles  each,  but  that  the 
company  was  entitled  to  the  bonds  for  every  ten  miles  of  new  con- 
struction completed  and  ready  for  operation,  whether  in  branches 
each  shorter  than  ten  miles  or  in  excess  over  ten-mile  sections.* 

§  496.  Pledge  of  bonds  by  a  corporation  —  rights  of 
pledgee,  etc. —  The  statute  of  Michigan  as  to  railroads  provides 
that  "  all  companies  organized  under  this  act  shall  have  power, 
from  time  to  time,  to  borrow  such  sums  of  money  as  may  be 
necessary  for  completing,  finishing,  or  operating  their  road,  or 
any  part  thereof,  or  for  paying  any  indebtedness  necessarily  incur- 
red for  completing,  finishing,  or  operating  their  road,  or  any  part 
thereof,  and  to  issue  and  dispose  of  their  bonds  or  obligations  for 
any  amount  necessarily  borrowed  for  such  purpose,  and  for  such 
sums  and  for  such  rate  of  interest,  not  exceeding  ten  per  cent,  as 
they  may  deem  advisable,  and  to  mortgage  their  corporate  prop- 
erty and  franchises,  and  income  thereof,  or  any  part  thereof,  to 
secure  the  payment  of  any  debt  contracted,  *  *  *  and  said 
company  may  sell  their  bonds  or  obligations  either  within  or  with- 


by  order  of  the  court,  were  to  be  de- 
livered into  the  hands  of  its  officers 
until  further  order  of  the  court. 

'  Denver  &  Rio  Grande  R.  Co.  r. 
United  States  Trust  Co.,  (1890)  41  Fed. 
Rep.  720.  The  court  said:  "  The  ob- 
ject of  the  rlnuse  manifestly  is  to  pro- 
tect the  bondholders  against  the  crea- 
tion of  mortgage  indebtedness  for  new 
construction  not  secured  by  actually 
completed  new  lines  and  against  the 


contingency  that  bonds  might  be 
issued  ostensibly  to  pay  for  new  con- 
struction and  be  used  for  some  object 
from  which  the  bondholders  would  de- 
rive no  benefit.  It  is  framed  so  as  to 
enable  the  trustee  to  know  that  the 
bonds  to  be  issued  represent  com- 
pleted lines  ready  for  operation 
and  not  merely  projected  new 
construction." 


^'% 


1024 


BONDS  AND  COUPONS  —  PRIVATE  CORPORATIONS. 


[§  490 


ii 


i 


out  the  state,  and  at  such  place  and  prices  as  they  may  deem 
proper."  There  was  in  this  case  a  resohition  in  stockholders' 
meeting  of  a  company  in  that  state  directing  its  managing  body 
"  to  borrow  such  suras  of  money  as  they  may  think  necessary  for 
completing,  equipping  and  operating  its  road,  *  *  *  and  to 
issue  and  dispose  of  the  bonds  of  the  company  for  any  amount 
borrowed  for  such  purpose,  for  such  sums  and  for  such  rates  of 
interest,  not  exceeding  seven  per  cent,  as  they  may  deem  advisable, 
and  to  mortgage  the  corporate  property  and  franchises,  and  the 
income  thereof,  to  secure  the  same,  and  to  sell  such  bonds  on  the 
best  terms  they  may  be  able  to  obtain  for  the  same."  They  bor- 
rowed money  from  a  national  bank  and  pledged  some  of  their 
bonds  issued  under  this  resolution  for  the  payment  of  the  sums 
borrowed.  The  United  States  Circuit  Court  of  A2)peals  for  the 
sixth  circuit  held  that,  under  tlie  Michigan  statute  and  tlie  resolu- 
tion of  the  stockholders,  the  corporation  was  empowered  and 
authorized  to  pledge  its  bonds  for  the  money  borrowed.^  It 
appearing  upon  foreclosure  proceedings  that  the  bonds  of  a  street 
car  company,  issued  pursuant  to  a  vote  of  tlie  stockholders  "  for 
the  purpose  of  extending  and  constructing"  the  road,  purchasing 
rolling  stock  and  equipment,  and  paying  "  for  labor  done  and  to 
be  -done  in  the  construction  "  and  operation  of  the  road,  were 
never  sold  to  procure  funds  for  these  purposes,  but  that,  after 
ineffectual  attempts  to  sell  them,  were  pledged  by  the  president 
and  vice-president  of  the  mortgagor  to  secure  antecedent  indebt- 


» Farmers'  Loan  &  Trust  Co.  p. 
Toledo  &  S.  H.  R.  Co.,  (1893)  54  Fed. 
Rep.  759.  Jackson,  Circuit  Judge, 
said:  "  Under  the  New  York  statute, 
from  which  [the  Michigan  statute]  is 
evidently  taken,  it  is  settled  that 
under  authority  to  borrow  money  and 
*to  issue  and  dispose  of  bonds'  in 
connection  therewith,  there  is  a  right 
to  pledge  such  securities  as  collateral 
for  the  sums  borrowed.  Duncomb  v. 
Railroad  Co.,  84  N.  Y.  190.  So  in 
Beecher  v.  Mill  Co.,  45  Mich.  103;  8.  c, 
7  N.  W.  Rep.  695,  where  bonds 
of  a  corporation  were  issued  on 
the  understanding  that  they  were  to 
be  sold  for  cash,  but  were  in  fact 
pledged  to  a  creditor  as  collateral  to 


corporate  notes  held  by  him,  it  seems 
to  have  been  held  by  the  court  that  the 
objection  that  such  disposition  of  the 
bonds  was  unlawful  could  only  be 
taken  by  the  corporation  or  its  stock- 
holders; that  it  was  not  open  to  strang- 
ers or  even  to  a  purchaser  of  the  equity 
of  redemption  at  execution.  Without 
going  into  a  review  of  the  decisions, 
we  are  of  opinion  that  the  weight  of 
modem  authority,  as  well  as  sound 
principle,  establishes  the  general  rule 
that,  in  respect  to  negotiable  securities, 
authority  to  sell  carries  with  it  author- 
ity to  pledge.  Piatt  v.  Railroad  Co., 
99  U.  S.  48;  and  Leo  v.  Railroad  Co., 
17  Fed.  Rep.  275." 


§  496]  BONDS  AND  COUPONS  —  PRIVATE  CORPORATIONS.  1025 

edness  of  the  company,  wliich  to  a  large  extent  was  due  to  other 
companies  of  which  also  they  were  officers  and  directors,  it  was 
held^  by  the  United  States  Circuit  Court  for  the  southern 
district  of  California  that  the  pledge  was  without  authority, 
and  in  fraud  of  the  rights  of  the  stockholders. ^  The  lower 
court  in  the  foreclosure  suit  decreed  in  favor  of  a  bank 
which  had  loaned  the  railroad  corporation  a  large  sum  of 
money  on  bonds  of  the  corporation  pledged  to  it  as  collateral,  the 
amount  loaned  with  interest,  wliich  was  not  as  much  as  the  face 
of  the  bonds  represented.  The  United  States  Court  of  Appeals 
for  the  sixth  circuit  held  that  this  was  erroneous,  and  that  the 
holder  of  these  bonds  was  entitled  to  have  a  decree  for  the  whole 
amount   due  upon  them.^     A   railroad   company,   incorporated 


^  Farmers'  Loan  &  Trust  Co.  r.  San 
Diego  St.  Car  Co.,  (1891)45  Fed.  Rep. 
518,  in  which  case,  as  in  the  opinion 
of  the  court  none  of  the  bonds  in 
question  ever  were  legally  issued,  or 
ever  became  valid  outstanding  obliga- 
tions of  the  defendant  corporation,  the 
bill  for  foreclosure  of  mortgage  was 
held  not  to  be  well  pled.     It  was  said 
by  the  court:  "Aside  from  the  want 
of  legal  power  already  referred  to,  a 
court  of  equity  will  not  permit  the  di- 
rectors of  a  corporation,  who  are  not 
only  trustees  for  the  stockholders  of 
the  corporation,  but  for  its  creditors  as 
well,  to  thus  dispose  of  the  corporate 
property  to  themselves,  or  for  their 
individual    benefit.     However  in  fact 
intended,  equity  treats  such  tmnsfer 
as  fraudulent,  because  it  operates  as  a 
fraud   upon  the  cestui    que    trustent. 
Koehler  v.   Black    River,   etc.,    Co., 
2  Black,  717."  See,  also,  upon  the  gen- 
eral   subject,    Richardson's    Exrs.  v. 
Green,  133  U.  S.  30;  s.  c,  10  Sup.  Ct. 
Rep.  280.     In  California,  it  is  provided 
by  statute  that  "neither  a  trustee,  nor 
any  of  his  agents,  may  take  part  in 
any  transaction  concerning  the  trust 
in  which  he,  or  any  one  for  whom  he 
acts  as  agent,  has  an  interest,  present 
or  contingent,  adverse  to  that  of  his 
beneficiary,"  with  certain  enumerated 
129 


exceptions  not  applicable  to  the  present 
case.  Civil  Code  Cal.  §  2230.  And 
section  2234  of  the  same  Code  declares 
that  every  violation  of  the  provisions, 
among  others,  of  section  2230,  "is  a 
fraud  against  the  beneficiaries  of  the 
trust."  These  Code  provisions  have 
been  held  applicable  to  the  directors  of 
corporations  in  their  trust  relations  by 
the  Supreme  Court  of  the  State. 
Graves  v.  jVlining  Co.,  81  Cal.  303;  s.  c, 
22  Pac.  Rep.  665. 

'  Farmers'  Loan  &  Trust  Co.  v.  To- 
ledo &  S.  H.  R.  Co.,  (1893)  54  Fed.  Rep. 
759.  Jackson,  Circuit  Judge,  said: 
"  The  sale  and  purchase  of  these  bonds 
by  the  bank  under  and  within  the 
terms  of  the  railroad  company's  note 
and  pledge  of  the  collateral  were  not 
per  se  void.  It  was  at  most  only  void- 
able, at  the  instance  and  upon  reason- 
able objection  on  the  part  of  the  cor- 
poration or  its  stockholders.  Third 
parties  or  strangers  have  no  right  to 
question  or  challenge  the  bank's  title 
to  the  bonds  on  the  ground  either  of 
inadequacy  of  the  price  paid  for  the 
same,  or  for  the  reason  that  it  occupied 
such  a  quasi  trust  relation  to  the 
pledgee  as  to  disqualify  it  from  pur- 
chasing at  a  sale  made  for  its  own 
benefit.  The  securities  having  been 
regularly  issued  and  hypothecated  as 


1026 


BONDS  AND  COUPONS PRIVATE  CORPORATIONS. 


[§40G 


f 


under  tlie  laws  of  Virginia,  executed  a  first  mortgage  upon  its 
road,  to  secure  bonds  to  the  amount  of  $15,000  per  mile.  The 
greater  i)ortion  of  these  bonds  passed  into  the  hands  of  purchasers. 
Afterwards,  desiring  to  build  an  extension  of  its  road,  the  stock- 
holders authorized  a  second  mortgage  to  the  same  trustees  as  in 
the  first  mortgage,  to  secure  bonds  to  the  amount  of  $25,000  per 
mile  of  its  road.  The  resolutions  as  to  this  second  mortgage,  and 
all  the  proceedings  preliminary  to  the  execution  of  this  second 
mortgage,  showed  the  intention  to  be  to  take  up  the  bonds  issued 
iinde/  the  first  mortgage  by  an  exchange  of  second  mortgage 
bonds,  or  raising  of  money  on  the  latter  and  paying  off  the  former. 
The  railroad  company,  foreseeing  that  it  might  not  be  able  to 
exchange  the  general  mortgage  bonds  for  the  first  mortgage 
bonds,  made  this  provision,  that  "  until  all  bonds  which  have  been 
and  may  hereafter  be  issued  under  the  security  of  the  first  mort- 
^     shall  come  into  the  hands  of  the  trustee  of  tliis 


*     * 


mortgage  under  this  provision,"  [the  provision  for  exchange] 
"  and  the  trustees  of  this  mortgage  shall  determine  the  advisability 
of  the  satisfaction  and  release  of  the  said  first  mortffajre  *  *  * 
all  such  first  mortgage  bonds  which  shall  come  into  the  hands  of 
the  trustees,  under  this  provision,  shall  be  held  by  the  trustees 
uncanceled  for  the  security  and  benefit  of  the  holders  of  the 
bonds  secured  tliereby;  *  *  *  "  Fifteen  days  after  the 
general  mortgage  was  executed,  bonds,  to  the  amount  authorized 
under  the  first  mortgage,  not  already  issued,  were,  in  pursuance 
of  the  prescribed  terms,  duly  issued  by  the  railroad  company  and 
delivered  by  its  treasurer  to  the  trust  company  as  trustee  on  the 
first  mortgage.  These  bonds  under  the  general  mortgage  were 
sold  principally  to  a  syndicate  under  tlie  terms  of  a  prospectus 
which  virtually  pledged  tliese  bonds  issued  under  the  first  mort- 
gage as  a  collateral  for  the  security  of  the  bondholders  under  the 
general  mortgage.     The  general  mortgage  was  afterwards  fore- 


collateral  for  a  debt  the  company  was 
authorized  to  contract,  and  thereafter 
lawfully  sold  under  the  terms  of  the 
pledge,  upon  proper  notice,  even  the 
maker  of  the  paper  could  not  impeach 
the  purchaser's  title  thereto,  and  the 
right  to  recover  the  amount  thereof, 
without  setting  up  and  establishing 
fraud  or  breach  of  trust  causing  injury. 
Such  an  objection  by  way  of  impeach- 


ment of  the  purchaser's  title  to  the 
pledged  security  is  confined  to  the  cor- 
poration or  its  stockholders.  [This  in- 
tervener's] relation  to  the  railroad 
company  was  not  such  as  entitled  him 
to  question  the  bank's  title  to  the 
bonds,  or  complainant's  right,  as  the 
legal  representative  of  the  bondholders, 
to  foreclose  for  the  full  amount 
thereof." 


§  497]  BONDS  AND  COUPONS  —  PRIVATE  CORPORATIONS.  1027 

closed.     In  the  final  decree  the  court  below  lield  that  the  bond- 
liolders  under  the  general  mortgage  were  entitled  to  share  in  the 
security  of  the  first  mortgage  to  the  extent  of  $1,560,000,  the 
amount  of  the  first  mortgage  bonds  deposited  with  the  trustee  as 
collateral  security  for  the  payment  of  the  general  mortgage  bonds. 
The  majority  of  the  Supreme  Court  of  Virginia  affirmed  the 
decree  of  the  lower  court,  holding  that  in  placing  these  bonds  a^ 
eecunty  for  the  general  mortgage  bonds  the  company  violated  no 
nghts  of  the  first  mortgage  bondholders;  that  as  to  tliese  bonds 
both  sets  of  bondholders  stood  upon  the  same  footing ;  that  there 
was  no  overissue ;  that  the  failure  of  the  trustees  to  certify  these 
particular  bonds,  as  directed,  did  not  affect  their  validity.^ 

§  497.  Validity    of  bonds  —  as  affected  by  statutory  or 
constitutional    provisions.-  The   Code  of  Alabama  requires 
subscriptions  to  railroad  stocks,  which  are  payable  in  labor  or 
property,  to  be  taken  at  their  money  value,  which  must  be  stated 
in  the  subscription  list.     In  this  case  it  appeared  that  a  railroad 
company  adopted  a  resolution  to  sell  all  its  property  to  another 
company  for  $750,000,  one-half  in  stock  and  one-half  in  bonds  of 
the   purchaser,    and     subsequently    entered   a   subscription    for 
$375,000  of  stock  "  to  be  paid  for  in  the  railroad  property "  of 
the  seller,  "  of  the  value  of  the  said  sum  of  three  Imndred  and 
seventy-five  thousand  dollars."     The  United  States  Circuit  Court 
of  Appeals  for  tlie  fifth  circuit  held  that,  reading  the  subscription 
m  connection  with  the  resolution,  as  it  must  be,  its  language  was 
not  conclusive  that  the  value  of  the  entire  property  was  not  over 
$37o,000,  so  as  to  render  void  the  issue  of  $375,000  in  bonds 
under  the  constitutional  provision  forbidding  overcapitalization 
1  hey  declared  this  further  rule,  that,  under  the  constitutional  pro- 
vision of  that  state  forbidding  corporations  to  issue  stock  or  bonds 
except  for  money,  labor  or  property  actually  received,  and  the 
before-mentioned  Code  provision  as  to  subscriptions  payable  in 
money  labor  or  property,  railroad  property  sold  by  one  company 
to  another  and  paid  for  by  an  issue  of  stock,  as  in  this  case  may 
be  valued  according  to  its   net  earning  power,  and  the  cost  of 
budding  It  de  novo,  and  that  it  was  immaterial  that  the  seller 
originally  acquired  it  for  much  less  than  its  actual  value.^    In 

•Atwood  V.   Shenandoah  Valley  R.       « Grant  r.  East  &  West  R    Co   of 
B.  Co..  (1889)  85  Va.  966.  Alabama,  (1893)   54  pj.   tp^'^. 


m 


1028 


BONDS  AND  COUPONS PRIVATE  CORPORATIONS. 


[H»T 


§497] 


BONDS  AND  COUPONS  —  PRIVATE  CORPORATIONS. 


1029 


this  case  it  appeared  that  certain  stockholders  and  directors  of  a 
railroad  company,  owning  a  controlling  interest  in  the  company, 
having  the  best  interests  of  the  company  in  view,  and  with  the 
concurrence  of  all  the  other  stockholders,  made  a  contract  on 
belialf  of  the  company  with  a  construction  company  for  the  build- 
ing of  a  portion  of  the  road  to  be  paid  for  in  bonds  to  the  extent 
of  $10,000  Dcr  mile,  and  the  same  amount  in  stock  of  the  raiboad 


There  was  a  contention  in  this  case 
that  the  taking  of  the  property  at 
double  the  price  which  was  considered 
its  real  value,  payable  in  equal 
amounts  of  stock  and  bonds  of  said 
company,  was  illegal  under  the  Ala- 
bama laws,  and  by  absorbing  into  said 
bonds  the  full  real  value  of  the  prop- 
erty secured  on  the  subscription, 
worked  a  fraud  on  the  rights  of  sub- 
sequent creditors,  for  whose  protec- 
tion that  stock  of  the  company  and  its 
proceeds  constituted  a  trust  fund  inde- 
pendent of  any  state,  organic,  or  stat- 
ute law.  The  court  held  adversely  to 
this  contention.  McCormick,  Circuit 
Judge,  speaking  for  the  court,  said: 
"It  has  long  been  the  settled  doctrine 
of  the  United  States  courts  that  the 
capital  stock  of  an  insolvent  corpora- 
tion is  a  trust  fund  for  the  payment  of 
its  debts;  that  the  law  implies  a  prom- 
ise by  the  original  subscribers  of  stock 
who  do  not  pay  for  it  in  money  or 
other  property  to  pay  for  the  same 
when  called  upon  by  the  creditors; 
and  that  a  contract  between  them- 
selves and  the  corporation  that  the 
stock  shall  be  treated  as  fully  paid 
and  non-assessable,  or  otherwise  limit- 
ing their  liability  therefor,  is  void  as 
against  creditors.  Sawyer  r.  Hoag, 
17  Wall.  610;  Upton  r.  Tribilcock,  91 
U.  S.  45;  Sanger  v.  Upton,  91  U.  S. 
56;  Webster  v.  Upton,  91  U.  S.  65; 
Chubb  r.  Upton,  95  U.  S.  665;  Pul- 
man  v.  Upton,  96  U.  S.  328;  Graham 
f).  Railroad  Co.,  102  U.  S.  148-161; 
Hawkins  v.  Glenn,  131  U.  S.  319;  s.  c, 
9  Sup.  Ct.  Rep.  739.  And  the  trust  aris- 
ing in  favor  of  creditors  by  subscrip- 


tions to  the  stock  of  a  corporation  can- 
not be  defeated  by  a  stipulated  payment 
of  subscription,  nor  by  any  device 
short  of  an  actual  payment  in  good 
faith.  Camden  v.  Stuart,  144  U.  S.  104; 
8.  c,  12  Sup.  Ct.  Rep.  585.  The  well- 
settled  doctrine  of  the  general  law  re- 
lating to  subscriptions  to  the  stock  of 
corporations,  as  announced  by  the 
United  States  Supreme  Court  in  the 
cjises  above  cited,  has  been  embodied 
in  the  Constitutions  and  Codes  of 
many  of  the  states;  and  issues  of 
stocks  and  bonds,  under  constitu- 
tional and  statutory  provisions  sub- 
stantially similar  to  those  in  Alabama, 
have  been  sustained  when  they  have 
been  disposed  of  b}^  a  corporation  after 
its  organization  for  the  best  price  that 
could  be  obtained,  though  for  less 
than  their  face  value.  Railroad  Co.  v. 
Thompson,  103  111.  187;  Railroad  Co. 
r.  Dow,  120  U.  S.  2S7;  8.  c.  7  Sup.  Ct. 
Rep.  482;  Ilandley  v.  Stgz,  139  U.  8. 
417;  8.  c,  11  Sup.  Ct.  Rep.  530;  Clark 
V.  Bever,  139  U.  S.  96;  s.  c,  11  Sup.  Ct. 
Rep.  468;  Fogg  v.  Blair,  139  U.  8. 
US;  8.  c,  11  Sup.  Ct.  Rep.  476.  When 
the  charter  of  a  corporation  or  the 
general  law  under  which  it  is  created 
authorizes  the  capital  stock  to  be  paid 
for  in  property,  and  the  shareholders 
honestly  and  in  good  faith  pay  for 
their  subscriptions  in  property  instead 
of  money,  there  is  an  end  of  trust  in 
favor  of  anybody,  and  third  parties, 
even  subsequent  creditors,  have  no 
ground  of  complaint,  although  a 
gross  and  obvious  overvaluation  of 
such  property  would  be  strong  evi- 
dence of  fraud  in  an  action  by  a  cred- 


company.  The  United  States  Circuit  Court  for  the  northern 
district  of  Alabama  held  that  as  the  contract  appeared  to  be  fair, 
under  the  circumstances,  and  involved  no  fraudulent  overvalua- 
tion of  the  work,  the  bonds  and  stock  issued  in  terms  of  the  con- 
tract were  not  void  under  the  provision  of  the  Constitution  of 
Alabama  that  "  no  corporation  shall  issue  stock  except  for  money, 
labor  done,  or  money  or  property  actually  received,  and  all 
fictitious  increase  of  stock  or  indebtedness  shall  be  void."^     A 


iter  to  enforce  personal  liability.  Coit 
V.  Gold  Amalgamating  Co.,  119  U.  S. 
343;  s.  c,  7  Sup.  Ct.  Rep.  231." 

»  Coe  V.  East  &  West.  R.  Co.  of  Ala., 
<1892),   52  Fed.   Rep.  531.     Pardee, 
Circuit  Judge,  said:  "  A  provision  in 
the  Constitution  of  Arkansas,  almost 
identical  with  that  of  the  state  of  Ala- 
bama,   has    been    construed    by    the 
Supreme  Court  of  the  United  States 
not  to  prevent  the  carrying  out  of  an 
agreement  by  which  the  bondholders  of 
a  railroad  stipulated    that  the    road 
should  be  bought  upon  foreclosure  by 
trustees,  who  should  convey  it  to  a 
new  company  composed  of  bondhold- 
ers,   who    should    receive    mortgage 
bonds  of  the  new  company    in    ex- 
change for  their  old  bonds,  and  full 
paid-up  stock  subject  to  the  mortgage 
debt,  without  any  payment  of  money. 
The  court  said:    'But  appellant  dis- 
putes its  liability  upon  the  bonds  given 
for  the  balance  upon  the  theory  that 
they   were    prohibited    from    issuing 
them    by    the    *    *    *    Constitution 
of  Arkansas.     *    *    *    That  section 
provides  that  '  no  private  corporation 
shall  issue  stock  or  bonds  except  for 
money  or  property  actually  received 
or  labor  done,  and  all  fictitious  increase 
of   stock    or    indebtedness    shall    be 
void.'    In  support  of  this  view  our 
attention  is  called  to  the  fact  admitted 
by  the  demurrer,  that  the  full  value 
of  the  property  rights  and  privileges 
conveyed  to  appellant  did  not  exceed 
$1,300,000,  the  amount  at  which  the 
capita.!    stock   was  fixed;   and   conse- 


quently, it  is  argued,   the  $2,600,000 
of    bonds   were  issued  without    any 
consideration  received  in  money,  prop- 
erty or  labor,  and  represented  only  a 
fictitious      indebtedness.      In      other 
words,  appellant's  vendors  were  fully 
compensated  for  their  interests  by  tak- 
ing to  themselves  its  entire  stock.   We 
do  not  concur  in  this  view  of  the  case. 
It  does  not,   we  think,   rest  upon  a 
sound  interpretation  of  the  State  Con- 
stitution.    The  prohibition  against  the 
issuing  of  stock  or  bonds,  except  for 
money  or  property,  actually  received, 
or  labor  done,  and  against  the  fictitious 
increase  of  stock  or  indebtedness,  was 
intended     to     protect     stockholders 
against  spoliation,  and  to  guard  the 
public    against    securities  that    were 
absolutely  worthless.     One  of  the  mis- 
chiefs sought  to  be  remedied  is  the 
flooding  of  the  market  with  stock  and 
bonds  that  do  not  represent  anything 
whatever  of   substantial    value.      In 
reference  to  a  provision  in  the  Con- 
stitution of  Illinois,  adopted  iif  1870, 
containing  a  prohibition  as  to  railroad 
corporations  similar  to  that  imposed 
by  the  Arkansas  Constitution  upon  all 
private    corporations,    the     Supreme 
Court  of  the  former  state  in  Railroad 
Co.   V.   Thompson,    103    111.    187-201, 
said  :  *  The  latter  part  of  the  clause 
of  the  Constitution  in  question  which 
declares   that   'all    stocks,   dividends 
and    other    fictitious  increase  of  the 
capital  stock  or  indebtedness  of  such 
corporation  shall  be  void,'  we  think 
clearly    points  out  the  chief   object 


1030 


BONDS  AND  COUPONS — PRIVATE  COKPOliATIONS. 


[§49T 


Minnesota  railroad  company  entered  into  a  contract  with  parties 
to  construct  a  portion  of  its  road.  By  the  terms  of  that  contract 
a  certain  amount  of  the  company's  first  mortgage  bonds,  guaran- 
teed by  another  corporation,  a  mining  company  located  on  the 
company's  railroad,  and  a  cei-tain  amount  of  shares  of  its  stock, 
were  to  be  placed  in  the  hands  of  a  trustee,  to  be  delivered  to  the 
contractor  when  the  road  was  completed.  The  right  of  the  com- 
pany to  issue  these  bonds  and  the  stock  and  use  it  in  this  way 
was  questioned  in  an  action  by  one  claiming  to  be  a  stockholder 
of  the  company  to  restrain  the  company  from  this  act,  as  an 
ultra  vires  act  on  its  part,  it  being  claimed  that  it  was  in  viola- 
tion of  the  Minnesota  statute,  prohibiting  any  railroad  company 
or  officer  thereof  from  selling  or  disposing  of  shares  of  its  capital 
stock,  or  issuing  certificates  therefor,  unless  such  shares  shall  have 
been  fully  paid,  or  issuing  any  stock  or  bonds,  except  for  money, 
labor  or  property  received  and  applied  for  the  purpose  for  which 
the  corporation  was  created.  It  was  held  by  the  court  that  this 
statute  did  not  forbid  the  issue  of  first  mortgage  bonds  and  full- 
paid  stock  by  the  company  in  payment  for  the  construction  of  the 
road,  if  the  amount  did  not  unreasonably  exceed  the  value 
actually  received.^     The  statute  of  New  York,  providing  that  no 


which  the  constitutional  convention 
sought  to  accomplish  in  adopting  it, 
and  to  this  we  must  look  in  a  large 
degree  for  a  solution  of  the  language 
■which  precedes  it.  The  object  was 
doubtless  to  prevent  reckless  and  un- 
scrupulous speculators, under  the  guise 
of  pretense  of  building  a  railroitd,  or 
of  accomplishing  some  other  legiti- 
mate corporate  purpose,  from  fmudu- 
lently  issuing  and  putting  upon  the 
market  bonds  or  stock  that  do  not, 
and  are  not  intended  to,  represent 
money  or  property  of  any  kind,  either 
in  possession  or  expectancy,  the  stock 
or  bonds  in  such  case  being  entirely 
fictitious.'  "  Railroad  Co.  t.  Dow,  120 
U.  S.  287-297;  8.  c.,7  Sup.  Ct.  Rep.  482. 
» Brown  v.  Duluth,  M.  &  N.  Ry. 
Co. ,  (1893)  53  Fed.  Rep.  889.  Nelson, 
D.  J.,  said:  "This  statute  was  not 
intended  to  prevent  or  interfere  with 
the  usual  method  of  raising  money  to 
build  railroads,  or  for  any  legitimate 


corporate  purpose.  It  is  not  to  be 
construed  as  obstructive  to  the  extent 
of  restricting  and  hampering  corpora- 
tions in  their  internal  management, 
and  embarrass  them  in  procuring 
means  to  carry  out  the  legitimate  pur- 
poses of  the  corporation  ;  and,  unless 
it  appears  that  under  the  guise  of 
building  its  road,  bonds  and  stock  of 
the  defendant  company  are  to  be 
issued  and  put  upon  the  market 
fraudulently  that  do  not  and  are  not 
intended  to  represent  money  and  prop- 
erty, this  corporation  is  not  prohibited 
from  entering  into  a  real  transaction 
based  upon  a  present  consideration, 
and  having  reference  to  legitimate  cor- 
porate purposes.  Beach  on  Corp, 
909,  and  authorities  there  cited.  Such 
a  transaction  is  not  a  scheme  or  device 
to  evade  the  statute.  It  may  be  that 
an  amount  of  corporate  bonds  and 
stock  turned  over  by  a  corporation  is 
so  much  in  excess  of  the  expenditures 


§  49>J]  BONDS  AND  COCPONS PRIVATE  CORPORATIONS.  1031 

corporation  shall  issue  bonds,  "  except  for  money,  labor  done,  or 
property  actually  received  for  the  use  and  lawful  purposes  of 
such  corporation,"  has  been  held  to  prohibit  an  issue  of  bonds 
by  the  corporation  to  pay  scrip  dividends.^ 

§498.  Validity  of  bonds  as  affected  by  the  manner  of 
sale  and  character  of  purchasers. —  The  validity  of  the  bonds 
of  this  railroad  company  received  by  certain  of  its  stockholders 
and  directors  by  purchase  from  a  construction  company,  to  which 
they  were  issued  by  the  railroad  company  in  payment  for  the 
construction  of  its  road  upon  a  contract  of  so  much  in  bonds  and 
so  much  in  stock  per  mile,  was  sustained  in  a  foreclosure  suit  by  the 
holders  of  consolidated  first  mortgage  bonds,  purchased  by  them 
from  those  to  whom  they  were  issued  and  those  bonds  for  con- 
struction taken  up  by  the  company.  The  complainants  sought  to 
invalidate  the  bonds  held  outside  of  themselves  as  being  based 
upon  an  improper  contract  for  the  construction  of  the  road.^ 


to  be  made  by  the  recipients  of  the 
same  that  a  court  would  hold  that  the 
statute  prohibited  such  a  transaction; 
but  if  the  purpose  of  the  corporation 
in  issuing  bonds  and  stock  is  to  build 
its  road  and  no  unreasonable  amount 
is  issued  beyond  the  value  actually 
received  or  provided  for,  the  statute 
in  my  opinion  does  not  apply." 
Citing  Railroad  Co.  v.  Dow,  120  U.  S. 
298;  8.  c,  7  Sup.  Ct.  Rep.  482. 

'  Merz  V.  Interior  Conduit  &  Insula- 
tion Co.,  (1895)  34  N.  Y.  Supp.  215. 
Bonds  of  a  corporation  held  not  a  fic- 
titious indebtedness  prohibited  by  the 
Constitution  of  Texas,  in  North  Side 
Ry.  Co.  v.  Worthington,  (Tex.  Civ. 
App.)  27  S.  W.  Rep.  740. 

'  Coe  V.  East  &  West  R.  Co.  of  Ala., 
(1892)  52  Fed.  Rep.  531.  It  was  said 
by  the  court:  "  Certainly,  if  the  con- 
tract inured  to  the  benefit  cf  the  rail- 
road company,  and  was  the  best  avail- 
able method  for  securing  the  construc- 
tion of  the  road,  and  there  was  no 
palpable  overvaluation  of  the  work 
performed  and  moneys  advanced,  nor 
undervaluation  of  the  stocks  and  bonds 


received  in  payment,  and  it  resulte<l 
in  no  injury  to  any  person  in  interest 
at  the  time,  it  should  not  be  set  aside 
on  technicalities,  but  only  in  case  of 
palpable  intended  violation  of  law. 
The  case  of  Van  Cott  v.  Van  Brunt,  82 
N.  Y.  535,  is  directly  in  point:  '  The 
right  of  the  ofllcers  of  a  railroad  corpo- 
ration to  enter  into  an  agreement  to 
build  its  road  and  pay  for  the  construc- 
tion of  the  same  in  stocks  and  bonds 
cannot  be  seriously  questioned,  and 
contracts  of  this  description  are  fre- 
quently made  for  such  a  purpose.' 
In  Angell  &  Ames  on  Corporations 
(§  590a)  it  is  laid  down:  'An  agree- 
ment is  often  made  by  railroads  to  pay 
the  persons  building  them  a  certain 
proportion  of  the  contract  price  in 
stock.  Under  such  a  contract  the  con- 
tractor is  entitled  to  the  proportion  in 
stock  at  its  current  market  value  at 
the  time  payment  should  have  been 
made.  And  if  the  stock  depreciate  so 
that  it  has  no  market  value,  the 
amount  agreed  to  be  paid  in  stock 
must  be  paid  in  money,'  See  Hart  v. 
Lauman,  29  Barb,  410;  Moore  v.  Rail- 


1032      BONDS  AXD  COUPONS  —  PRIVATE  CORPORATIONS.    [§  498 

These  same  stockholders  ana  directors,  retaining  control  of  the 
railroad  conipfuij,  failed  to  collect  interest  on  the  first  bonds  of 
the  company  held  by  them,  and  advanced  to  the  company  money 
for  repairs  made  necessary  by  an  unusual  flood,  and  for  improve- 
ments until  the  floating  debt  due  them  amounted  to  more  than 
$300,000.  A  meeting  of  stockholders  authorized  the  issue  of 
debenture  bonds  of  the  railroad  company,  not  exceeding  $500,000, 


road  Co.,  12  Ikrb.  156;  Porter  r.  Riil- 
road  Co.,  32  Me.  539.     If  a  contract 
can  be  made  to  pay  in  part  for  build- 
ing a  portion  of  the  road,  it  may  also 
be  made  to  pay  for  the  whole  thereof 
in  like  manner,  and  there  is  no  valitl 
ground   for  claiming  that,  where  the 
contractor  is  entitled  to  stock  at  its 
market  value,  he  would  be  liable  for 
the    difference    between   the    market 
value  and  the  par  value  thereof.   There 
is  no  evidence  in  the  record  before  us 
to  establish  affirmatively  that  the  value 
of  the  work  done  and   materials  fur- 
nished was  less  than  the  fair  and  just 
value  of  the  stock,  or  that  the  road 
built  or  equippetl  was  worth  less  than 
said    stock.     In    fact    the    testimony 
shows  that  the  amount  expended  ex- 
ceeded the  actual  value  of  the  stock 
and   bonds   which   were    received    in 
consideration  of  the  same.     The  evi- 
dence also  establishes  that  the  stock 
never  had  any  market  value  whatever. 
It  is  true  that  some  of  the  bonds  were 
disposed  of    at    fifty    and    sixty-five 
cents  upon  the  dollar  and  less,  and  in 
some  instances  by  throwing  in  stock 
to  the  same  amount  and  one-half  more, 
and  in  one  insUiuce  taken  at  par  in 
part  payment  of  a  debt,   but    they 
were  intrinsically  valueless,  and  after 
a  while  were  sold  for  only  a  nominal 
sum,  until  at  last  no  one  outside  of 
the  company  would  take  either  the 
bonds  or  stock  at  any  real  price.    The 
arrangement  for  the  building  of  the 
road  was  made  after  full  deliberation 
and  consultation,  with  the  knowledge 
and  approval  of  all  the  directors  and 
stockholders.     It  was  assented  to  as 


the  only  mcjms  furnished,  and  the  only 
offer  which  could  be  obtained  from 
any  one  to  insure  the  construction  of 
the  railroad.     It  was   the  best  thing 
that  could  be  done  under  the  circum- 
stances, was  entirely  satisfactory,  and 
made  most  clearly  without  any  inten- 
tion to  defraud  the  company  or  its 
creditors  and  in   perfect  good  faith. 
It  is  difficult  to  see    how    creditors 
could  bo  defrauded  when  all  the  prop- 
erty which  the  company  ever  had  re- 
mained in  its  possession  and  under  its 
control.     *    *    ♦    It  is  claimed  that 
the  defendant,  as  president,  director 
and  trustee,   having  wrongfully  ap- 
propriated the  stock  to  himself  with- 
out paying  for  it,  takes  all  the  obliga- 
tions of  a  subscriber.     This  depends 
upon  the  question  whether  the  trans- 
fer of  the  stock  to  the  defendant  and 
the    application    of   the    same     was 
wrongful.     It  was  done,  as  we  havo 
seen,   with  the  full  approval  of  the 
stockholders,  and  in  fact  was  a  neces- 
sity, and,  without  the  contract  entered 
into,   no    portion    of  the   road  could 
have  been  built.     If    the  defendant 
had  realized  a  sum  beyond  the  amount 
actually  expended,   there  might  havo 
been  perhaps  some  ground  for  claim- 
ing that  the  arrangement  should  inure 
to  and  for  the  benefit  of  the  company. 
As,   however,  this  was  not  the  fact, 
and  no  special  advantage  accrued  to 
the  defendant  from  the  contract,  and 
as  there  is  no  proof  of  any  fraud,  it  is 
not    apparent    that    there    was    any 
wrongful  appropriation  of  the  stocks 
and  bonds  or  that  the  stocks  and  bonds 
were  diverted  from  their  legitimate 


§  408]  BONDS  AND  COUPONS  —  PRIVATE  COKPOEATIONS.  1033 

for  the  purpose  of  paying  the  floating  debt,  to  be  secured  by  a 
second  mortgage.  A  resolution  of  the  directors  had  previously 
determined  that  these  debenture  bonds,  when  issued,  should  not 
be  disposed  of  at  less  than  sixty-five  per  cent  of  their  face  value. 
The  court  held  as  to  these  bonds  that  the  purchase  by  the  holders 
of  the  floating  debt  of  the  whole  amount  of  bonds  authorized,  by 


use.     The  mere  fact  that  the  defend- 
ant held  a  certificate  of  the  stock  which 
was  transferred  to  him  did  not  make 
him  liable,  as  it  was  to  all  intents  and 
purposes   paid-up  stock."    This  case 
has  received  some  adverse  criticism 
(2    Mor.    Priv.    Corp.    §    826;    Cook 
Stocks  &  S.  §  47,  note  5;  Jackson  v. 
Traer,  64  Iowa,  483;  s.  c,  20  N.  W. 
Rep.  764),  but  it  has  been  cited  with 
approval  and  its  doctrines  have  been 
reaffirmed  by  the  court  of  last  resort 
in  the  state  of  New  York  in  the  case 
of  Barr  v.   Railroad  Co.,  125  N.   Y. 
263;  s.  c,  26  K  E.  Rep.  145,  where  it 
is  said:  "The  respondent  has  ques- 
tioned the  legality  or  validity  of  the 
issue  of  shares  upon  which  plaintiffs 
base  their  right  to  sue.    I  do  not  think 
it  is  in  a  position  to  raise  that  question, 
and  for  several  manifest  reasons.     All 
of  the  stock  and  bonds  were  issued  in 
payment  for  the  construction  of  the 
railroad,  and  were  taken  by  a  syndi- 
cate of  persons  who  assumed  the  con- 
tract   for  the  work.     It  is  true  that 
that  syndicate  was  made  up  of  mem- 
bera  of  the  board  of  directors,  but  as 
the  members  of  the  syndicate  were 
practically  the  company,  and  composed 
the  whole  number    of   stockholders, 
there  was  no  one  to  object,  and  the 
manner  in  which  they  chose  to  divide 
up  their  interests  in  the  proprietorship 
of  the  corporation,  and  to  represent 
them  in  shares,  concerned  only  them- 
selves.    No  principle  of  law  forbade 
the  company  agreeing  to  pay  for  the 
construction  of  its  railroad  in  the  way 
or  in  the  amount  it  did.     Van  Cott  v. 
Van  Brunt,   82  N.    Y.   535.     If   the 
130 


company's  directors  were  interested  in 
the  work  and  profits  of  construction, 
and  evaded  a  direct  contract  through 
the  form  or  device  of  an  intermediary 
contractor,  that  was  a  matter  for  the 
company  or  for  its  stockholdere   to 
take  hold  of.    But  the  stockholdere 
and  the  members    of   the    syndicate 
were  the  same  persons,  and,  however 
wrong  the   transaction  might    be    if 
other  persons  were  concerned,  here  no 
injury  was  effected  to  any  one  inter- 
ested in  the  corporation.     And,  how- 
ever illegal  the  transaction,  there  was 
no  person  apparently  to  complain  of 
it.     As  the  stock  was  issued  as  a  part 
of  the  consideration  for  construction, 
it  cannot  be  said  that  it  was  taken 
without  value  given,  and  the  mode  of 
its  apportionment  or  division  concerned 
only  those  interested  in  the  contract 
through  which  it  was  received  as  pay- 
ment.    We  may  concede  that  the  con- 
tract was  voidable  as  a  scheme  con- 
cocted by  the  directors  for  sharing  in 
the  profits  of   construction,  but    the 
difficulty  is  that  the  membere  of  the 
corporation    were    assenting    to    it. 
There  was,  however,  no  fraud  prac- 
ticed upon  the  company.     Practically, 
the  promoters  of  the  corporation  in 
this  way  placed  a  valuation  upon  the 
corporate    properties   and    franchises 
which  the  contribution  and  expendi- 
ture of  their  money  created,  and  the 
fact  that  they  were  created  for  an  ex- 
penditure less  than  the  par  value  of 
the  aggregate  issues  of  capital  stock 
and  bonds  does  not  affect  the  question 
at  all." 


I 


Ik 


I' 


1034 


BONDS  AND  COUPONS PRIVATE  CORPORATIONS. 


[§  'ti)^ 


the  terms  of  which  they  paid  for  them  in  this  floating  indebted- 
ness and  the  balance  in  cash,  was  valid.*  Certain  bonds  of  a  rail- 
road company  had  been  placed  in  the  hands  of  a  trust  company  to  be 
by  said  trust  company,  upon  the  completion  of  work  of  construc- 
tion of  an  extension  of  the  railroad  by  a  construction  company, 
delivered  over  to  the  latter,  on  certain  certificates  of  the  comple- 
tion of  the  extension.  When  the  extension  was  practically  com- 
pleted the  bonds  were  issued  on  certificates  to  the  construction 
company,  but  the  trust  company  retained  them  to  secure  prior 
advances  to  the  construction  company.  In  the  foreclosure  suit 
upon  these  bonds,  an  intervening  judgment  creditor,  who  had 
constructed  a  part  of  this  extension  under  a  contract  with  the 
construction  company,  but  had  brought  his  action  against  the 
railroad  company  upon  which  his  judgment  was  recovered,  after 
the  failure  of  the  construction  company,  set  up  a  claim  to  these 
bonds  so  retained  by  the  trust  company.  The  court  held  that  he 
had  no  claim  to  those  bonds  to  subject  them  to  the  satisfaction  of 
his  judgment,  but  the  court  recognized  his  judgment  as  a  valid 
judgment  against  the  railroad  company,  but  inferior  as  a  lien  to 
that  of  the  bondholders  under  the  iirst  consolidated  mortgage 
which  was  being  foreclosed.^  A  contract  for  the  lease  of  a  rail- 
road belonging  to  an  iron  company  was  entered  into  by  a  railroad 
company  represented  by  certain  stockholders  and  directors,  they 
being  also  stockholders  and  directors  of  the  iron  company,  which 
contract  was  in  good  faith  and  in  the  form  of  a  resolution  by  the 
directors  of  the  railroad  company,  the  payment  for  the  lease  to 
be  in  stocks  and  bonds  of  the  railroad  company  and  of  a  sub- 
scription by  the  iron  company  to  be  paid  in  property  —  a  lease  of 
its  railroad,  and  the  contract  was  ratified  by  a  unanimous  vote  of 
all  the  stockholders  of  the  railroad  company.  The  validity  of 
the  bonds  issued  to  the  iron  company  in  terms  of  this  contract 
was  questioned  in  this  foreclosure  suit.  It  was  held  by  the 
United  States  Circuit  Court  that  the  contract  was,  at  least,  only 
voidable,  and  as  no  fraud  or  intentional  overvaluation  appeared, 
and  the  consideration  was  as  nearly  adequate  as  could  be  expected 


»  Coe  V.  East  &  vVest  R.  Co.  of  Ala., 
(1S92)  52  Fed.  Rep.  531.  When  a 
purchaser  of  bonds  is  put  upon  in- 
quiry in  regard  to  the  regularity  or 
validity  of  their  issue  by  the  low 
price  at  which  they  are  offered,  see 


Riggs  V.  Pennsylvania  &  New  Eng- 
land R.  R.  Co.,  16  Fed.  Rep.  804. 

'  Coe  V.  East  &  West  R.  Co.  of  Ala., 
(1892)  52  Fed.  Rep.  531;  Grant  v.  East 
&  West  R.  Co.  of  Ala.  (Schley,  Inter- 
vener), (1892)  52  Fed.  Rep.  531. 


§  499]  BONDS  AND  COUPONS  —  PRIVATE  CORPORATIONS.  1035 

under  the  circumstances,  the  bonds  issued  to  the  iron  company 
were  valid.^ 

§  499.  Reorganization  — surrender  of  old  bonds  and  stock 
for  new  bonds  —  rules. — A  bondholder  in  this  case  it  appeared 
had  declined  to  surrender  and  exchange  his  mortgage  bonds  pur- 
suant to  a  reorganization  agreement  which  he  refused  to  accept 
in  a  suit  to  collect  the  mortgage  bonds  according  to  the  terms  of 
the  original  mortgage,  while  all  of  the  bonds  except  his  were 
surrendered  and  exchanged.     The  federal  court  in  the  district 
where  this  suit  was  brought  had  substantially  confirmed  the  reor- 
ganization ;  the  trustee  of  the  bondholders  was  a  party  defendant 
to  the  suit  and  fairly  represented  the  rights  of  all.     The  interest 
representing  ninety-nine  per  cent  of  the  bondholders  demanded 
the  judgment.     Tiie  rights  of  the  non-conforming  bondholders 
were  fully  recognized  in  the  decree  of  the  court  by  providing 
that  the  company  should  execute  an  indemnity  bond  conditioned 
for  the  payment  of  the  bonds  of  those  dissenting  as  to  the  judg- 
ment, and  that  this  bondholder  might  recover  under  the  decree 
all  he  was  entitled  to.     There  was  a  cross-bill  filed  by  the  com- 
panies to  compel  this  bondholder,  who  brought  the  suit,  to  sur- 
render his  bonds  and  receive  in  lieu  thereof  new  bonds  accord- 
ing to  the  reorganization  agreement.     The  United  States  Circuit 
Court  for  the  southern  district  of  New  York  held  that  the  decree 
in  the  original  suit  properly  protected  his  interests  ;  that  he  must 
surrender  his  old  bonds  and  accept  the  new  ones  as  provided  for 
in  the  agreement,  but  that  he  was  entitled  to  the  same  security 
afforded  the  majority  bondholders.     The  cross-complainants,  the 
railroad  companies,  having  taken  the  position  throughout  the  suit 
that  the  bondholder  suing  could  at  any  time  surrender  his  bonds 
and  receive  new  ones  in  lieu  thereof  under  the  original  decree, 
and  their  counsel  in  their  brief   having  offered  to  deliver  the 
bonds  and  cash  upon  such  surrender,  it  was  further  held  that  the 
cross-complainants  were  not  in  a  position  to  insist  that  the  bond- 
holder suing  had  by  his  misconduct  forfeited  his  rights  to  inter- 
est.'*   The  decree  entered  in  a  bill  to  foreclose  a  mortgage  upon  the 
property  of  a  railroad  company  in  this  case  authorized  such  bond- 
holders as  should  become  purchasers  to  pay  their  bids  in  bonds. 

>  Coe  V.  East  &  West  R.  Co.  of  Ala.,       '  Pollitz  v.  Farmers'  Loan  &  Trust 
(1892)  52  Fed.  Rep.  531.  Co.,  (1892)  53  Fed.  Rep.  210. 


1036  BONDS  AND  CXJUPONS PRIVATE  CORPORATIONS.  [§499 

The  representative  of  certain  bondholders  purchased  the  prop- 
erty and  a  master  was  apj^ointed  to  report  distribution  and  the 
form  of  tlie  conveyances.     The  master  reported  that  the  purchase 
by  the  representative  above  mentioned  was  on  behalf  of  certain 
bondholders  named,   not   including   the   one  who  brought  this 
action,  and  of  sucli  others  as  might  wish  to  join  in  the  purchase 
and  pay  tlieir  proportions  of  the  purchase  money  and  expenses, 
and  that  the  property  was  bought  to  sell  again  in  sucli  manner  as 
three-fourths  of  the  bondholders  should  direct.     The  form  of 
deed  to  the  purchaser  reported  by  the  master  recited  that  it  was 
in   trust  for  all  the   bondholders.     Afterwards,  as  directed  by 
three-fourths  of  the  bondholders,  the  representative  of  tlie  bond- 
holders conveyed  the  property  to  a  railroad  company,  organized 
by  the  purchasing  bondholders  to  succeed  tlie  former  company, 
"  free  and  discharged  from  all  and  every  trust  whatsoever."    The 
act  incorporating  tliis  new  company  recited  that  the  company 
was  composed  of  persons  named  and  "  all  others  who  held  mort- 
gage bonds,"  but  the  preamble  set  out  the  deed  to  the  representa- 
tive of  the  bondholders  "  in  trust  for  all  the  bondholders  who 
participated  in  the  said  purchase,"  and  that  it  was  desirable  "  to 
reimburse  the  said  bondholders  for  their  expenditure  of  money 
and  labor."     The  plaintiff  in  this  case,  as  surviving  partner  of  a 
firm,   afterwards   discovering  among   the   firm's   assets  a  bond 
of  the  old  company,  which,  by  its  terms,  was  convertible  into 
stock,  brought  assumpsit  against  the  corporation  formed  by  the 
purchasing  bondholders  to  recover  for  their  refusal  to  exchange 
stock  in  the  new  company  for  the  bond,  claiming  that  the  repre- 
sentative of  the  bondholders  took  as  trustee  for  all  the  bond- 
holders of  the  old  company,  and  that  the  conveyance  to  the  new 
company  was  really  with  the  agreement  that  the  latter  company 
assumed  the  duties  of  the  representative  of  the  bondholders  as 
such  trustee,  and  that,  therefore,  the  new  company  was  bound  to 
make  the  exchange  which  he  demanded.     The  Supreme  Court  of 
Pennsylvania  held  that  it  was  clear,  from  a  consideration  of  the 
foreclosure  decree,  the  deeds  to  and  from  the  representative  of 
the  bondholders,  the  master's  report  and  the  act  incorporating  the 
new  company,  that  the  plaintiff  had  merely  an  option  to  partici- 
pate in  the  new  venture  by  coming  in  within  a  reasonable  time 
and  sharing  in  the  expenses  and  risk ;  that  the  representative's 
duty,  notwithstanding  general  expressions  in  the  deeds  and  the 


§500] 


BONDS  AND  COUPONS  —  PRIVATE  CORPORATIONS. 


1037 


act  of  incorporation,  was  to  distribute  stock  to  such  bondholders 
as  participated  in  the  original  purchase  or  subsequently  exercised 
their  option  to  come  in,  and  the  last  chance  to  exercise  this  option 
was  when  the  deed  was  made  to  the  new  company  clear  of  all 
trusts.*  The  United  States  Supreme  Court  has  given  a  full  con- 
sideration to  the  effect  of  the  constitutional  provision  of  the 
state  of  Arkansas  that  "  no  private  corporation  shall  issue  stock 
or  bonds  except  for  money  or  property  actually  received  or  labor 
done,  and  all  fictitious  increase  of  stock  or  indebtedness  shall  be 
void."  They  held  that  the  provision  did  not  prevent  the  carry- 
ing out  of  an  agreement  between  mortgage  bondholders  of  an 
embarrassed  railroad  company  in  that  state  by  which  it  was  agreed 
that  trustees  should  buy  in  the  mortgaged  property  on  foreclosure 
and  convey  it  to  a  new  company  which  should  issue  new  mort- 
gage bonds  to  pay  the  expenses  of  the  sale,  and  other  new  mort- 
gage bonds  to  be  taken  by  the  bondholders  in  lieu  of  their  old 
bonds  and  full  paid-up  stock,  subject  to  the  mortgage  debt,  to  be 
delivered  to  and  held  by  the  bondholders  without  any  payment 
of  money  ;  and,  further,  the  bonds  issued  under  such  an  agree- 
ment were  not  subject  to  the  provisions  of  the  statutes  of  that 
state  respecting  the  legal  rate  of  interest  for  certain  classes  of 
railroad  securities.^ 

§500.  Bondholders  —  when  bona  fide  holders,  and  when 
not  —  the  rights  of  such. —  A  hona  fide  purchaser,  before 
maturity,  of  coupon  bonds  of  a  railroad  company  payable  to 
bearer,  takes  them  freed  from  any  equities  that  might  have 
been  set  up  against  the  original  holder ;  and  the  burden  of  proof 
is  on  him  who  assails  the  hona  fixles  of  such  purchase.^  A  hona 
fide  holder  of  negotiable  bonds  of  a  corporation  is  not  subject  to 
the  general  doctrine  of  Us  pendens  /  and  this  applies  even  if  the 
bonds  were  purchased  during  the  pendency  of  a  suit  in  which 
the  issue  of  the  bonds  was  finally  declared  invalid.*    Bonds  which 


'  Landis  v.  West  Pennsylvania  R.  R. 
Co.,  (1890)  133  Pa.  St.  579.  This 
action  was  brought  thirty  years  after 
the  sale  of  the  property. 

'Memphis  &  Little  Rock  Railroad 
V.  Dow,  (1887)  120  U.  S.  287. 

'  Kneeland  v.  Lawrence,  (1891)  140 
U.  S.  209,  in  which  the  holder  was  not 
held  to  be  a  bona  fide  purchaser.     See 


Murray  v.  Lardner,  2  Wall.  110,  121, 
and  cases  there  cited. 

*  Farmers'  Loan  &  Trust  Co.  o. 
Toledo  &  S.  H.  R.  Co.,  (1893)54  Fed. 
Rep.  759;  citing  Lexington  v.  Butler, 
14  Wall.  283;  Warren  County  x).  Marcy, 
97  U.  S.  96;  Douglass  t.  Pike  County, 
101  U.  S.  687;  2  Beach  Priv.  Corp. 
§666. 


1038 


BONDS  AND  COUPONS PBIVATE  COBPOBATIONS. 


[§500 


§500] 


BONDS  AND  COUPONS PRIVATE  COEPOEATIONS. 


1039 


may  have  been  issued  to  a  contractor  who  had  in  course  of  trade 
passed  title  to  the  bonds  to  a  purchaser  in  good  faith,  the  latter's 
right  to  recover  on  the  bonds  is  not  open  to  any  defenses  on  the 
part  of  the  corporation  which  they  may  have  had  against  the 
contractor  in  connection  with  the  performance  of  his  contract.* 
The  purchaser  of  tlie  bonds  of  the  corporation  from  its  president 
and  one  of  its  directors,  inquired  of  the  vice-president,  secretary 
and  attorney  as  to  their  vahdity,  and  was  informed  by  each  that 
the  bonds  were  regularly  issued  and  sold,  and  were  valid.  The 
books  of  the  corporation  showed  that  the  bonds  were  authorized 
to  be  sold  for  $35,000 ;  that  the  name  of  the  director  from  whom 
the  purchase  was  made  was  entered  as  the  purchaser,  and  that  he 
was  credited  with  that  sum  of  money.  Tlie  purchaser  from  the 
director  was  held  to  be  an  innocent  purchaser,  and  the  corporation 
was  held  to  be  estopped  to  deny  the  validity  of  the  bonds,  as 
against  him.  The  corporation  which,  with  the  knowledge  and 
consent  of  all  its  stockholders,  had  sold  certain  of  its  bonds  to  its 
directors  for  less  than  par,  but  for  their  full  actual  value,  was 
also  held  estopped  from  questioning  the  validity  of  the  sale  of 
bonds,  either  as  against  the  directors  or  their  assignees.*  An 
objection  was  urged  in  this  case  that  the  sale  of  the  amount  dis- 
posed of  of  general  mortgage  bonds  was  negotiated  by  a  banking 
house,  who  were  the  financial  agents  of  the  railroad  company, 
and  the  bonds  were  purchased  or  subscribed  for  by  this  banking 
firm,  or  by  members  thereof,  standing  in  a  fiduciary  relation  to 
the  railroad  company,  which  rendered  the  whole  transaction 
invalid,  and,  therefore,  rendered  this  deposit  of  the  1,560  bonds 
as  collateral  also  invalid.  The  Supreme  Court  of  Virginia  held 
that  the  principles  controlling  fiduciary  relations  had  no  applica- 
tion ;  that  the  transaction  was  merely  a  lending  of  money  on  one 
side  and  a  borrowing  on  the  other.''     The  holder  of  the  first 


»  McElrath  r.  Pittsburg  &  Steuben- 
ville  R.  R.  Co.,  55  Pa.  St.  189. 

»  Union  Loan  &  Trust  Co.  v.  South- 
ern California  Motor  Road  Co.,  (1892) 
81  Fed.  Rep.  840. 

2  Atwood  V.  Shenandoah  Valley  R. 
R.  Co.,  (1889)  85  Va.  966.  The  court 
said:  "In  , Hotel  Co.  v.  Wade,  97  U. 
8.  13,  it  was  said:  But  where  stock- 
holders sanction  a  contract  under 
which  directors  loan  money  to  the  cor- 


poration, and  its  bonds,  secured  by 
mortgage,  are  given,  if  the  money  is 
properly  applied,  the  corporation  is 
estopped  from  setting  up  that  the 
bonds  and  mortgage  are  void  by  reason 
of  the  trust  relations  which  directors 
sustained  to  it.  Here  the  railroad 
company  not  only  obtained  the  loan  on 
the  terms  dictated  by  it,  but  received 
the  cash  and  actually  expended  it  in 
the  construction  of  the  extension  of  ita 


mortgage  bonds  of  this  railroad  company  contracted  with  brokers 
to  sell  them  all  their  bonds ;  they  transferred  to  the  brokers  a 
portion  of  the  bonds,  and  together  with  the  brokers  fraudulently 
procured  the  listing  of  the  bonds  on  the  New  York  Exchange. 
The  complainants  in  the  auxiliary  suit  for  foreclosure  of  this 
mortgage,  who  had  purchased  some  of  these  bonds,  which  had 
been  pledged  to  them  as  loans  made  to  the  brokers,  claimed  that 
they  were  entitled  to  priority  upon  their  bonds  to  those  held  by 
the  bondholders  in  the  main  suit,  on  account  of  fraud  practiced 
upon  them.     The  court  held  that  complainants  in  the  auxiUary 
bill,  who  loaned  money  to  the  brokers  on  these  bonds  as  security, 
relying  either  on  the  standing  and  representations  of  the  brokers, 
or  on  quotations  made  in  the  New  York  Stock  Exchange,  and 
produced  by  fictitious  manipulations  of  the  brokers,  and  not  on 
the  false  representations  as  to  the  earnings  of  the  company,  etc., 
made  by  the  original  holders  to  secure  tlie  listing,  and  who,  on 
non-payment  of  the  loans,  were  compelled  to  buy  in  the  bonds 
lield  as  security,  w^ere  not,  on  the  ground  of  fraud,  entitled  to 
priority  over  the  original  holders  in  the  application  of  the  pro- 
road.     Could  there  be  any  higher  sane-    and  the  peril  of  permitting  any  sort  of 
tion   than   this  ?    We   think   not.     It   collision  between  the  personal  interests 
would  be  ..n  almost  barbarous  rule  that   of   the  individual  and  his  duties  as 
would    forbid    a  transaction  of    this   trustee    in    his    fiduciary    character, 
character,  and  one  that  would  at  least   Davoue   r.  Fanning,  2  Johns.  Ch.  260. 
hazard   the   undoing  of   all  common   But  the   rule  was  adopted  to  secure 
transactions  of  mankind.     Even  in  the   justice,  not  to  work  injustice;  to  pre- 
cases  where  the  equitable  principle  in    vent  a  wrong,   not  to  substitute  one 
question  is  given  its  widest  scope,  the   wrong  for  another,  and  hence  have 
general  rule  is  that  the  contract  may   arisen  limitations  upon  its  operation 
be  avoided  at  the  election  of  the  stock-   calculated  to  guard  it  against  evil  re- 
holders,  or  cestui  qiie  ti'ust,  upon  the   suits   as  inequitable  as  those   it  was 
terms  of  restoring  what  the  trustee  or   designed  to  prevent.     Thus,  the  bene- 
agent  has  parted  with  in  the  transac-    ficiary  may  avoid  the  act  of  the  trus- 
tion.     The  principle  underlying  this   tee,  but  cannot  do  so  without  restoring 
doctrine  is  forcibly  stated  by  Fench,    what  it  has  received.      York  Co.  v. 
J.,  in  Duncomb  r.  N.  Y.,  H.  &  N.  R.    Mackenzie, 8  B.  Par.  Cas.  42.    To  cling 
R.    Co.,  84   N.  Y.  190,    where   it  is   to  the  fruits  of  the  trustee's  dealing 
said:  *  Nor  is  it  at  all  questioned  that  in   while  seeking  to  avoid  his  act;  to  take 
such  cases  the  right  of  the  beneficiaries,    the  benefit  of  his  loan  and  yet  avoid 
or  those   claiming  through  them   to   and  reverse    its    security,   would  be 
avoidance,  does  not  depend  upon  the   grossly  inequitable  and    unjust      It 
question  whether  the  trustee  in  fact   would  turn  a  rule,  designed  as  a  pro- 
lias  acted  fraudulently  or  in  good  faith  tection,  into  a  weapon  of  offence  and 
and  honestly,  but  is  founded  upon  the  injustice.' 
known    weakness  of  human    nature. 


in 


1040 


BONDS  AND  COUPONS  —  PRIVATE  COKPOEATIONS. 


[§500 


§500] 


BONDS  AND  COUPONS PRIVATE  CORPORATIONS. 


1041 


ceeds  of  the  foreclosure  to  the  satisfaction  of  the  bonds.'     The 
United  States  Supreme  Court  has  applied  the  doctrine  that  where 
negotiable  paper  has  been  put  in  circulation,  and  there  is  no 
inlirmity  or  defense  between  the  antecedent  parties  thereto   a 
purchaser  of  such  securities  is  entitled  to  recover   thereon   as 
against  the  maker  the  whole  amount,  irrespective  of  what  lie  may 
liave  paid  therefor,  in  a  case  involving  the  following  statement  of 
tacts :  A  railroad  company  contracted  with  a  construction  com- 
pany to  build  and  complete  its  railroad  on  a  line  designated  on  a 
map  of  the  same,  and  to  furnish  and  equip  it,  agreeing  to  pay  for 
the  same  in  stock  and  mortgage  bonds  to  be  issued  from  tinie  to 
bme  as  sections  should  bo  completed.     A  mortgage  was  made  of 
die  road  and  property  then  existing  and  afterwards  to  be  acquired 
Ihe  construction  company  began  work  and  completed  a  small 
section,  for  which  it  received  the  stipulated  pay  in  stock  and 
bonds.     It  parted  with  the  latter  for  a  good  consideration,  and 
they  eventually  came  by  purchase  into  the  possession  of  the  bond- 
holder, the  trustees  of  whose  estate  brought  the  suit  for  the  pur 
pose  of  enforcing  the  mortgage  lien.   ''No  further  section  was 
completed,  but  work  was  done  at  various  points  on  the  line  and 
the  construction  company  acquired   for  the  railroad  company 
rights  of  way  through  nearly  or  quite  the  entire  route      Subse- 
quently another   railroad    company    acquired    tliese    properties 
through  the  construction  company,  and  completed  the  road     The 
court  held  that  the  bondholder,  whose  bonds  were  involved  in  the 
suit,  being  a  bona  fide  holder  of  the  bonds  secured  by  the  first 
mortgage  had  through  the  mortgage  a  prior  lien  on  the  whole 
line  for  the  full  amount  of  the  face  of  his  bonds,  which  was  not 
affected  by  the  fact  that  the  new  company  acquired  its  rights  and 
property,  not  directly  from  the  first  company,  but  through  inter- 
venmg  conveyances.'    The  railroad  company  here,  in  accordance 

T^f^n      f\f''  *^'*°"'-  ^^   <^0'»Pa»y.  by  whom  they  were  pledged. 
&  W<^t  li.  Co.  of  Ala.,  (1893)  52  Fed.   and  the  pledgee  or  purchaser  therfun: 

f  wj         ^K-  ^"  succeeded  to  the   rights  of   the 

•  Wade  v^  Chicago,    Springfield  &  pledgor,  and  upon  no  principle  could 

^   s.  c    13  Sup.  Ct.  Rep.  892.     Mr.  be  restricted  to  what  he  might  pay  fo; 

■■"^TJ.^^'^''-  '^^'^^  ^o"*.  «•*<»:  the  bonds.    Negotiable  securities  once 

The  bonds  were  vahd  securities  in  put  in  circulation   for  value  may  be 

the  hands  of  the  trustee  for  the  protoc-  transferred  for  less  than  their  face  but 

toon  of  Wade  as  accommodation  in-  the  maker  and  those  claiming  iladet 


•with  resolutions  of  the  stockholders  authorizing  the  issuance  of 
consolidated  first  mortgage  bonds,  all  the  stockholders  assent- 
ing, in  order  to  extend  and  improve  the  road,  to  take  up  and 
retire  the  first  mortgage  bonds  and  debenture  bonds,  and  to 
cancel  the  first  and  debenture  mortgages,  issued  to  the  holders  of 
the  latter  consolidated  first  mortgage  bonds,  and  took  up  at  an 
agreed  rate  the  debenture  bonds  purchased  by  those  holders,  and 
stock  issued  to  them  and  to  the  iron  company,  and  the  first  mort- 
gage bonds  and  stock  issued  to  the  construction  company,  and 
subsequently  sold  to  those  holders  by  the  construction  company 
to  enable  it  to  complete  the  road.  It  was  held  in  the  action  to 
foreclose  the  consolidated  first  mortgage,  that  subsequent  pur- 
chasers from  those  holders  of  bonds  of  some  of  these  consolidated 
first  mortgage  bonds  were  chargeable  with  notice  of  the  prior 
bonds  and  mortgages,  and  of  the  terms  on  which  the  consolidated 
bonds  were  issued,  and  that,  the  railroad  company  acquiescing  in 
the  transaction,  and  no  intention  to  defraud  subsequent  credit- 
ors being  shown,  these  subsequent  purchasers  of  the  bonds 
could  not  impeach  the  prior  indebtedness  on  which  the 
bonds  were  issued,  in  order  to  invalidate  the  balance 
of     the    consolidated    bonds    held     by    the     original    parties.^ 


him  cannot  limit  the  right  of  a  subse- 
quent holder  to  a  recovery  of  what  he 
may  have  paid  therefor.  In  the  case  of 
Cromwell  v.  County  of  Sac,  96  U.  S. 
51,  60,  in  which  it  was  held  that  the 
holder  of  such  negotiable  securities, 
regularly  issued,  is  not  limited  to  the 
amount  which  he  may  have  paid 
therefor,  it  is  said  by  the  court,  speak- 
ing by  Mr.  Justice  Field:  *  We  are  of 
opinion  that  a  purchaser  of  a  negotiable 
security  before  maturity,  in  cases 
where  he  is  not  personally  chargeable 
with  fraud,  is  entitled  to  recover  its 
full  amount  against  its  maker,  though 
he  may  have  paid  less  than  its  par 
value,  whatever  may  have  been  its 
original  infirmity.  We  are  aware  of 
numerous  decisions  in  conflict  with 
this  view  of  the  law,  but  we  think  the 
sounder  rule,  and  one  in  consonance 
with  the  common  understanding  and 
usage  of  commerce,  is  that  the  pur- 

131 


chaser,  at  whatever  price,  takes  the 
benefit  of  the  entire  obligation  of  the 
maker.  Public  securities,  and  those  of 
private  corporations,  are  constantly 
fluctuating  in  price  in  the  market, 
one  day  being  above  par  an^  the  next 
1t>elow  it,  and  often  passing  within 
short  periods  from  one-half  of  their 
nominal  to  their  full  value.  Indeed, 
all  sales  of  such  securities  are  made 
with  reference  to  prices  current  in  the 
market,  and  not  with  reference  to  their 
par  value.  It  would  introduce,  there- 
fore, inconceivable  confusion  if  bona 
Jide  purchasers  in  the  market  were  re- 
stricted in  their  claims  upon  such  secu- 
rities to  the  sums  they  had  paid  for 
them.' " 

»Coe  V.  East  &  West  R.  Co.  of 
Ala.,  (1892)  52  Fed.  Rep.  531.  It  was 
said  by  the  court:  ' '  The  holders  of  the 
first  consolidated  bonds  are  charged 
with  notice  of  the  prior  bonds  and 


w 


1042 


BONDS  AND  COTTPONS — PEIVATE  CORPORATIONS. 


[§500 


A  railroad  corporation  will  not  be  allowed  to  show  that  restric- 
tions imposed  by  its  charter  on  its  power  to  issue  bonds  were  vio- 
lated as  against  a  bona  fide  holder  of  bonds  issued  by  it,  eis  such 
corporations,  in  general,  have  power  to  issue  bonds.^  The  fact 
that  bonds  of  a  corporation  which  were  legally  pledged  by 
autliority  of  the  directors  for  the  purpose  of  carrying  on  con- 
struction work  were,  on  foreclosure  of  the  pledge,  sold  for  a  small 
amount,  has  been  held  not  to  affect  the  purchaser's  title,  no  fraud 
being  shown.^  The  remedies  provided  in  a  railroad  mortgage 
given  simultaneously  with  the  issuing  of  the  bonds  for  the  better 
securing  of  wliich  it  is  executed,  will  not  affect  the  right  of  the 
bondholder  to  sue  upon  his  bond  at  law,  unless  the  provisions  of 
the  mortgage  exclude  this  right  of  the  bondholder  in  express 
terms  or  by  necessary  implication.^  That  it  may  be  provided  in 
a  mortgage  securing  the  bonds  of  a  corporation  that  upon  default 
in  the  interest  the  principal  sum  may  be  declared  due,  will  not 
entitle  the  bondholder  to  sue  upon  his  bond  for  the  principal  as 
due  in  case  of  default  in  interest.  Such  provisions  have  been  held 
to  apply  only  to  the  right  to  foreclose  the  mortgage.*     It  has 


mortgages,  and  of  the  terms  upon 
■which  their  own  bonds  were  issued. 
Caylus  r.  Railrojid  Co.,  10  Hun,  295; 
Branson  v.  Railroad  Co.,  2  Wall.  287, 
311.  This  being  the  case,  it  is  very 
doubtful  whether  complainants  can 
impeach  the  indebtedness  which  ex- 
isted prior  to  the  issuance  of  their 
bonds,  and  upon  which  their  bond% 
are  based.  At  the  time  the  first  con- 
solidated bonds  were  authorized  and 
issued  every  interest  consented,  every 
bondholder,  every  stockholder,  and 
the  board  of  directors,  and,  so  far  as 
the  record  shows,  every  creditor;  and 
the  transaction  was  the  consolidation 
of  two  series  of  bonds  secured  by 
mortgages  of  different  dates  into  an 
equal  number  of  bonds  running  a 
longer  time,  and  bearing  the  same  rate 
of  interest,  secured  by  one  mortgage 
on  practically  the  same  property. 
Any  and  all  the  defects  of  construc- 
tion, and  all  equities  existing  to  the 
prejudice  of  the  prior  bonds,  were 
waived  and  extinguished,  and  it  was 


competent  for  the  railroad  company 
to  make  such  waiver.  See  Bronson  ». 
Railroad  Co.,  supra.  Even  if  the  rail- 
road company  had  been  wronged  or 
cheated,  it  would  seem  that  subse- 
quent creditors  and  subsequent  pur- 
chasers have  no  right  to  question  the 
transaction  as  long  as  the  railroad 
company  acquiesces,  and  no  intention 
to  defraud  subsequent  creditors  is 
shown.  See  Graham  v.  Railroad  Co., 
102  U.  S.  148.  And  the  same  case  de- 
nies, in  respect  to  such  matters,  that  a 
corporation  stands  on  any  different 
footing  from  an  individual  debtor." 

*  Ellsworth  V.  St.  Louis,  Alton,  etc., 
R.  R.  Co.,  98  N.  Y.  553;  8.  c,  83 
Hun,  7. 

«  Wheelwright  v.  St.  Louis,  N.  O. 
&  O.  Transportation  Co.,  (1893)  56 
Fed.  Rep.  164. 

'Manning  v.  Norfolk  Southern  R. 
Co.,  29  Fed.  Rep.  838. 

*Mallory  t.  West  Shore  Hudson 
River  R.  R.  Co.,  3  Jones  &  8.  174; 
American  Nat.  Bank  v.  American  Wood 


§500] 


BONDS  AND  COUPONS PRIVATE  COKPOKATIONS. 


1043 


been  held  in  the  United  States  Circuit  Court  for  the  southern  dis- 
trict of  lUinois  that  where  overdue  railroad  mortgage  bonds 
which  belonged  to  the  railroad  company,  were  bought  at  forty 
cents  on  the  dollar  from  the  vice-president  of  the  company  after 
suit  to  foreclose  the  mortgage  had  been  begun  and  a  receiver  had 
taken  possession  of  the  mortgaged  property,  the  purchasers  of 
such  bonds  were  not  hona  fide  holders,  where  inquiry  on  their 
part  would  have  shown  that  the  vice-president  had  no  authority 
to  sell  the  bonds.^  It  appearing  in  a  suit  to  enforce  the  collec- 
tion of  railroad  bonds  which  had  been  declared  fraudulent  that 
the  bonds  were  given  to  a  firm  of  which  plaintiff  was  a  member, 
in  payment  for  work  alleged  to  have  been  done  for  the  railroad 
company,  and  that  another  member  of  the  firm  was  an  active 
participant  in  the  fraud  which  rendered  the  bonds  invalid,  it  was 
held  that  plaintiff  was  not  an  innocent  holder.^  In  this  suit  to 
enforce  the  mortgage  given  by  the  corporation  defendant  there 
was  an  intervention  by  one  who  petitioned  as  the  holder  of  cer- 
tain bonds  of  the  corporation  for  a  recovery  and  a  participation 


Paper  Co.,  (R.  I.)  32  Atl.  Rep.  305. 
As  to  the  right  to  recover  on  bonds 
issued,  secured  by  a  mortgage,  though 
the  corporation  had  no  power  to  exe- 
cute the  mortgage,  see  Philadelphia  & 
Sunbury  R.  R.  Co.  d.  Lewis,  33  Pa. 
St.  33.  That  it  may  be  proven  by  ex- 
trinsic evidence  that  certain  bonds 
were  the  ones  secured  by  a  mortgage, 
see  Butler  v.  Rahm,  46  Md.  541.  As  to 
bonds  payable  to  a  payee  named  '*  or 
assigns,"  see  Bunting  v.  Camden  & 
Atlantic  R.  R.  Co.,  81  Pa.  St.  254.  As 
to  the  right  of  a  holder  to  fill  in  his 
name  in  a  bond  issued  and  delivered 
in  blank  as  to  the  payee,  and  bring 
suit  in  his  own  name,  see  White  v. 
Vermont  &  Massachusetts  R.  R.  Co., 
21  How.  575;  Chapin  v.  Vermont  «fc 
Massachusetts  R.  R.  Co.,  8  Gray,  575. 
As  to  the  rights  of  a  purchaser  of 
bonds  which  may  have  been  pledged 
for  a  loan  by  the  corporation,  see 
Grand  Rapids  &  Indiana  R.  R.  Co.  i). 
Sanders,  54  How.  Pr.  214.  Of  one  who 
may  have  purchased  stolen  bonds,  see 
Maas  V.  Missouri,  Kansas  &  Texas  Ry. 


Co.,  11  Hun,  8.  As  to  the  effect  upon 
a  purchaser  of  bonds  being  overdue 
when  he  purchases  them,  see  Ver- 
milye  v.  Adams  Express  Co.,  21  WalL 
138.  As  to  the  purchaser  of  bonds  re- 
ferring to  the  mortgage  securing 
being  bound  by  the  statements  con- 
tained in  the  mortgage,  see  Caylus  v. 
New  York,  K.  &  S.  R.  R.  Co.,  10  Hun, 
295.  As  to  the  rights  of  holders  of 
bonds  by  their  terms  convertible  into 
stock  of  the  corporation  issuing  them, 
see  DenneytJ  Cleveland  «&  Pittsburg 
R.  R.  Co.,  28  Ohio  St.  108;  SutUff «?. 
Cleveland  &  Mahoning  R.  R.  Co.,  24 
Ohio  St.  147.  When  the  issuing  of 
such  bonds  will  be  enjoined,  see  Bel- 
mont V.  Erie  Ry.  Co.,  52  Barb.  637; 
Riimsey  v.  Erie  Ry.  Co.,  38  How.  Pr. 
193. 

*  American  Loan  &  Trust  Co.  v.  St. 
Louis  &  Chicago  Ry.  Co.,  (1890)  42 
Fed.  Rep.  819. 

« Smith  t.  Florida  Central  &  West- 
em  R.  R.  Co.,  (1890)  43  Fed.  Rep. 
731. 


'  1 


1044 


BONDS  AND  (X>UPONS PRIVATE  CORPORATIONS. 


[§501 


§501] 


BONDS  AND  COUPONS PRIVATE  CORPORATIONS. 


1045 


in  the  security.  It  appeared  that  one  acting  as  the  agent  of  the 
intervener  in  loaning  her  money  had  fraudulently  procured  the 
making  of  a  note  by  an  irresponsible  party  payable  to  himself 
"  as  trustee,"  and,  having  connection  with  the  corporation  defend- 
ant, had  fraudulently  put  in  circulation  these  particular  bonds, 
which  he  forwarded  to  her  as  collateral  security  for  the  payment 
of  the  note  with  the  note  not  indorsed,  she  merely  obtaining  by 
the  transfer  an  equitable  title  to  the  note.  This  note  the  federal 
court  held  was  subject  to  equitable  defenses  in  the  hands  of  the 
petitioner,  and  that  the  fact  that  the  note  was  held  subject  to 
equitable  defenses  rendered  the  bonds  payable  to  bearer  subject 
also  to  such  defenses  while  in  her  hands  as  the  note  holder  as 
collateral  security  for  the  note.*  The  United  States  Circuit 
Court  for  the  district  of  Washington  has  sustained  its  jurisdiction 
to  entertain  the  bill  of  a  bondholder  secured  by  the  mortgage  of 
a  street  railroad  company's  property  to  enjoin  the  construction  of 
a  sewer  by  the  city  which  had  granted  the  franchise  to  use  its 
streets  to  the  railroad  company,  holding  that  a  mortgage  upon  a 
street  railroad  was  as  much  entitled  to  protection  from  unlawful 
injury  by  such  action  on  the  part  of  a  city  as  any  other  kind  of- 
property.' 

§  501.  Holders  of  income  bonds  —  rules  as  to  an  account- 
ing with  them. —  Where  mortgage  bondholders  seek  an  account- 
ing by  a  railway  company,  the  bonds  of  which  they  hold,  the 
company  will  not  be  allowed  to  charge  against  income  any  pay- 
ment or  loss  arising  out  of  an  antecedent  debt ;  and  the  holder  of 


*  Tiiomson  Houston  Electric  Co.  v. 
Capitol  Electric  Co.  (Read,  Intervener), 
(1893)  56  Fed.  Rep.  849,  dismissing  the 
intervener's  petition.  See  Farmers' 
Loan  &  Trust  Co.  v.  Oregon  &  W.  T. 
R.  Co.  (Congdon,  Intervener),  (1893)  58 
Fed.  Rep.  639,  where  a  contract  for 
the  sale  of  railroad  bonds  was  held  to 
include  overdue  coupons,  it  appearing 
that  the  contract  contemplated  a  pur- 
chase of  the  railroad  free  from  all  in- 
debtedness, and  that  the  purchase  of 
the  bonds  was  merely  a  means  to  that 
end.  It  was  also  held  that  the  inter- 
vener, who  took  an  assignment  of 
these  overdue  coupons  with  knowl- 


edge of  the  contract  above  referred  to, 
was  not  a  bona  fide  purchaser. 

•Clapp  r.  City  of  Spokane,  (1892) 
53  Fed.  Rep.  515;  citing  Morgan  v. 
Gilbert,  2  Fed.  Rep.  835-838.  When 
the  rights  of  bondholders  are  not  af- 
fected by  a  subsequent  fraudulent  is- 
sue, see  Union  Trust  Co.  of  New  York 
T.  Nevada  &  O.  R.  R.  Co.,  20  Fed. 
Rep.  80.  As  to  the  right  of  the  holder 
of  a  bond  guarantied  by  another  cor- 
poration to  recover  upon  default  in 
payment  by  the  one  issuing  the  bond 
of  the  guarantor,  see  Harrison  v.  Union 
Pac  Ry.  Co.,  13  Fed.  Rep.  522.  When 
bondholders   are   entitled   to  money 


C3upons  upon  such  bonds  will  be  entitled  to  have  the  interest 
earned  during  each  interest  period  applied  upon  the  coupons  rep- 
resenting that  period.^  Where  a  corporation  has  paid  a  higher 
rate  of  interest  than  needful  on  incumbrances  prior  to  an  income 
mortgage  in  an  accounting  in  favor  of  the  income  bondholders, 
the  corporation  cannot  charge  the  difference  in  interest  against  the 
income  to  the  injury  of  the  bondholders,  in  direct  contravention 
of  the  provisions  of  the  mortgage  securing  their  bonds.^  In  an 
accounting  between  a  railway  corporation  and  the  holders  of  its 
income  bonds,  where  there  was  a  provision  made  on  the  part  of 
the  corporation  for  retiring  a  series  of  secured  income  bonds  and 
issuing  new  bonds  in  exchange,  the  bonds  surrendered  to  be  held 
by  a  trust  company  uncanceled  until  all  were  retired,  a  bond- 
holder, who  has  not  consented  to  surrender  his  bonds,  would  not  be 
entitled  in  the  accounting  under  the  mortgage,  to  claim  for  interest 
due  him  more  of  the  income  than  his  share  would  have  been  had 
no  bonds  been  surrendered.^  The  income  mortgage  bonds  of  a 
railway  corporation  in  a  New  York  case,  issued  after  first  consoli- 
dated mortgage  bonds,  were  secured  only  so  far  as  the  principal 
of  them  was  concerned,  by  the  mortgage,  the  interest  on  them 
being  payable  out  of  net  earnings  as  determined  by  the  directors 
of  the  corporation.  The  Court  of  Appeals  held  that  the  directors 
of  the  corporation  had  the  right,  as  against  these  income  bond- 
holders, to  pay  the  bonds  of  a  road  leased  by  it,  and  the  income 
bondholders  had  no  lien  on  the  road  for  the  payment  of  their 
interest,  and  were  bound  by  the  decision  of  the  directors  as  to  net 
earnings.'*  Where  an  income  mortgage  to  secure  the  payment  of 
interest  on  income  bonds  was  executed  to  cover  the  income  of 
several  roads  constituting  a  system,  and  the  company  afterwards 
acquired  additional  roads,  in  a  bill  for  accounting,  it  was  held 
that  the  income  fund  referred  to  in  this  mortgage  was  confined 
to  that  of  the  roads  specifically  mentioned  in  the  mortgage  and 
not  to  that  from  the  additional  roads  secured  after  its  execution ; 
that  this  was  the  income  fund  to  which  these  bondholders  were 

coming  into  the  hands  of  their  trustees  '  Barry  v.  Missouri,  Eans.  &  Tex. 

for  their  bonds,  see  Dwight  v.  Smith,  Ry.  Co.,  34  Fed.  Rep.  829. 

13  Fed.  Rep.  50.  *  Day  v.  Ogdensburg  &  Lake  Cham- 

>  Barry  v.  Missouri,  Kansas,  etc.,  Ry.  plain  R.  R.  Co.,  107  N.  Y.  129;  13  N. 

Co.,  27  Fed.  Rep.  1.  E.  Rep.  765. 

*  Barry  v.  Missouri,  Kans.  &  Tex.  Ry. 
Co.,  34 Fed.  Rep.  829. 


!l 


1046  BONDS  AND  COUPONS  —  PRIVATE  CORPORATIONS.  [§  502 

to  look  for  the  payment  of  their  interest ;  that  it  was  the  duty  of 
the  company  to  keep  separate  accounts  of  the  income  and 
expenses  of  the  different  hues,  and  that  it  could  not  charge  to  the 
earnino's  of  these  specified  lines  of  road  the  expenses  or  losses 
incurred  in  operating  the  additional  lines  of  road  acquired  after 
the  mortgage  was  given. ^ 

§  502.  Detached,  uncanceled  coupons  —  rules  governing. 

When  a  third  party  with  his  own  money  takes  up  maturing 

coupons  on  honds  of  a  corporation,  without  knowledge  of  the 
holders,  it  is  a  question  of  fact,  to  be  determined  by  the  proof, 
whether  it  is  intended  to  be  a  payment  or  a  purchase  which  leaves 
the  coupons  outstanding.     The  coupons  in  this  case  having  been 
dishonored  before  they  came  into  the  hands  of  the  appellants, 
were  subject  in  their  hands  to  all  defenses  which  existed  against 
their  assignor;  and,  it  being  .evident  that,  without  the   knowl- 
edge of  the  holders  of  the  bonds  of  this  water  works  company, 
to  which  these  coupons  were  attached,  he  used  his  money  to  pay 
the  coupons  on  bonds  which  had  been  sold  solely  in  order  to 
enable  him  to  float  the  rest  of  the  issue,  the  Supreme  Court  of 
the  United  States  held  that  it  would  be  inequitable  to  allow  him 
either  a  preference  over  those  to  whom  he  had  sold  the  bonds  or 
co-equal  rights  with  them.^     In  a  case  before  the  Supreme  Court 
of  Michigan  it  appeared  that  the  wife  of  a  former  promoter  and 
president  of  a  railroad  company  was  bringing  a  suit  against  this 
company  upon  certain  coupons  which  were  past  due  and  detached 
from  bonds  formerly  issued  by  this   company.     The   husband, 


» Spies  r,  Chicago  &  Eastern  Iowa 
Ry.  Co.,  40  Fed.  Rep.  34. 

» Wood  V.  Guarantee  Trust  &  Safe 
Deposit  Co.,  (1888)  128  U.  S.  416;  s.  c, 
9  Sup.  Ct.  Rep.  131.     The  court  dis- 
tinguished Ketchum  r.  Duncan,  96  U. 
S.    659,   relied   upon  to  support    the 
denial  that  these  coupons  had  been  in 
fact  paid.*    They  said  :  "In  Ketchum 
V.  Duncan  stress  was  laid  on  these  cir- 
cumstances,   viz.,    that    the   persons 
alleged  to  have  paid  the  coupons  had  no 
connection  with  the  company  issuing 
the  coupons,  or  interest  in  it;  that  they 
had  repeatedly  and  publicly  notified 
the  holders  of  the  bonds  and  coupons 
that  the  coupons  were  to  be  purchased 


and  not   paid,  and  that  the  coupons 
were  carefully  received  and  preserved 
uncanceled."    In  Fidelity,  etc.,  Com- 
pany T.  West    Penn.,    etc.,   R.   Co., 
(1891)  138  Pa.  St.  494;    s.  c,  21  Atl. 
Rep.  21;    27  W.   N.   C.  267,  the  Su- 
preme Court  of  Pennsylvania  held  that 
when  interest  coupons    of  mortgage 
bonds  have  been  presented  and  paid 
at  the  place  of  payment,  with  money 
furnished  by  a  third  party,  a  private 
arrangement  between  such  third  party 
and  the  mortgagor  that  the  transaction 
should  be  treated  as  purchase  of  the 
coupons  by  the  former  was  not  en- 
forceable against  the  bondholders. 


§503J 


BONDS  AND  COUPONS  —  PRIVATE  CORPORATIONS. 


1047 


upon  the  idea  that  the  bonds  would  sell  better  if  they  showed  no 
unpaid  past  due  coupons,  had  his  wife  clip  them,  and  passed 
them  to  her  without  any  consideration.  He  then  sold  those  bonds 
with  stock,  he  being  the  majority  holder  of  the  bonds  and  stock 
of  the  company,  to  a  capitalist  in  New  York  that  the  latter  might 
have  control  of  the  property.  This  capitalist  afterwards  sold  the 
bonds  and  stock  to  one  who  was  acting  for  the  railroad  company, 
complainant  in  the  bill  to  enjoin  the  action  upon  these  detached 
coupons.  The  parties  in  these  various  negotiations  supposed  that 
the  sale  of  the  bonds  covered  all  the  coupons  attached  and 
detached  and  not  paid  and  canceled.  Upon  a  review  of  the  testi- 
mony in  the  case  the  Supreme  Court  held  that  such  intention 
must  prevail  against  the  wife  of  the  former  president  of  the  com- 
pany, who  was  not  an  innocent  purchaser  for  value,  and  that  the 
coupons  delivered  to  her  must  be  considered  as  paid  when  cut 
from  the  bonds  and  so  delivered.^ 

§  503.    Actions   on   coupons  —  rules   governing. —  A  suit 

may  be  brought  by  the  holder  of  overdue  coupons  and  interest 
warrants,  whether  attaclied  to  or  detached  from  corporation  mort- 
gage bonds,  payable  to  bearer,  and  he  may  recover  interest  from 
the  time  they  become  payable.^  An  action  in  assumpsit  may  be 
brought  by  dissenting  bondholders  for  the  amount  of  unpaid 

Virginia  v.  Chesapeake  &  Ohio  Canal 
Co.,  32Md.  501;  North  Pennsylvania 
R.  R.  Co.  r.  Adams,  54  Pa.  St.  94.  As 
to  the  negotiability  of  coupons,  see 
Chesapeake  &  Ohio  Canal  Co.  v.  Blair, 
45  Md.  102;  Gilbough  v.  Norfolk  &  P. 
R.  R.  Co.,  1  Hughes.  410;  Haven  v. 
Grand  Junction  R.  R.  &  Depot  Co., 
109  Mass.  88;  Hinckley  v.  Union  Pac. 
R.  R.  Co.,  129  Mass.  52;  Evertson  v* 
National  Bank  of  New  York,  66 
N.  Y.  14.  As  to  actions  on  coupons, 
see  Clark  v.  City  of  Janesville,  1  Biss. 
98;  Stevens  r.  N.  Y.  &  Oswego  Mid. 
R.  R.  Co.,  13  Blatchf.  412;  Burroughs 
&  Springs  r.  Comrs.,  etc.,  65  N.  C.  234; 
City  V.  Lamson,  9  Wall.  477;  County 
of  Beaver  v.  Armstrong,  44  Pa.  St.  63; 
Crosby  v.  New  London,  etc.,  R.  R. 
Co.,  26  Conn.  121;  Clark  v.  Iowa  City, 
20  Wall.  583;  Fitchett  v.  No.  Pa.  R. 
R.  Co.,  5  Phil.  132;  Gelpcke  v.  City  of 


»  Chicago  &  Grand  Trunk  Railway 
Co.  V.  Turner,  (1889)  79  Mich.  133. 
For  rules  as  to  whether  coupons  de- 
tached from  bonds  and  taken  up  are 
to  be  considered  as  paid  or  transferred, 
see  Ketchum  v.  Duncan,  96  U.  S.  659; 
Duncan «).  Mobile  &  Ohio  R.  R.  Co.,  3 
Woods,  567;  Hand  r.  Savannah  & 
Charleston  R.  R.  Co.,  17  S.  C.  219; 
Miller  v.  Rutland  &  Wash.  R.  R.  Co., 
40  Vt.  399. 

'  Phil.  &  Read.  R.  R.  Co.  r.  Smith, 
105  Pa.  St.  195;  Phil.  &  Read.  R.  R. 
Co.  V.  Fidelity  Ins.  Trust,  etc.,  Co.,  105 
Pa.  St.  216.  As  to  interest  being  re- 
coverable on  coupons  overdue,  see 
Ashuelot  R.  R.  Co.  v.  Elliot,  57  N. 
H.  397;  Langston  r.  South  Carolina 
R.  R.  Co.,  2  S.  C.  248;  Welsh  r.  St. 
Paul&  P.  R.  R.  Co.,  25  Minn.  314; 
Gibert  v.  Wash.  City,  Va.  Midland  & 
Great  So.   R.   R.  Co.,   33  Gratt.  586; 


1048 


BONDS  AND  COUPONS PRIVATE  CORPORATIONS. 


[§503 


and  overdue  coupons  upon  their  bonds  notwithstanding  the  fact 
that  a  majority  in  interest  of  the  bondholders  secured  by  a  mort- 
gage may  have  consented  to  waive  the  rights  secured  by  the 
mortgage.*  The  right  of  a  bondholder  to  bring  an  action  at  law 
to  recover  on  overdue  interest  coupons  will  not  be  affected  by  a 
provision  in  tlie  mortgage  executed  by  the  corporation  securing 
the  bonds  forbidding  the  holders  of  the  bonds  from  proceeding 
at  law  or  in  ecpiity  to  foreclose  it,  or  procure  a  sale  of  the  prop- 
erty independently  of  the  trustee,  although  the  mortgage  provide 
for  its  foreclosure  on  default  in  the  payment  of  the  coupons.'^ 
Neither  will  the  rights  of  the  bondholder  to  such  action  at  law 
upon  liis  overdue  interest  coupons  be  affected  by  a  waiver  of  the 
right  to  foreclose  the  mortgage  on  default  in  the  payment  of  the 
interest  coupons  attached  to  the  mortgage  secured  by  it.^  The 
Pennsylvania  Supreme  Court  has  declared  these  rules  in  actions 
upon  coupons  detached  from  bonds  of  a  corporation  secured  by 
mortgage  :  Where  an  action  is  brought  upon  coupons  it  is  not 
necessary  to  prove  the  execution  of  the  mortgage  securing  the 
bonds  to  which  the  coupons  were  attached,  particularly  where  a 
rule  of  court  providing  for  an  affidavit  denying  the  execution  of 
a  writing  sued  upon  has  not  been  complied  with.  Eecovery  may 
be  had  upon  coupons  signed  by  the  vice-president  of  the  com- 
pany, although  the  mortgage  accompanying  the  bond  provided 
that  the  bond  should  be  signed  by  the  president.*  Where  no 
affidavit  has  been  filed  denying  proper  execution,  as  provided  by 
rule  of  court,  evidence  that  the  coupons  were  not  properly 
executed  will  be  excluded  at  the  trial.  And  evidence  that  plain- 
tiff entered  into  a  written  agreement  with  other  creditors  that  they 
would  take  stock  in  the  corporation  for  the  principal  of  their 
debts  is  inadmissible.^  The  Statute  of  Limitations  cannot  be  set 
up  to  prevent  a  recovery  upon  coupons  which  have  not  been 
detached  from  bonds;   nothing  can   avail  to  defeat  a  recovery 


Dubuque,  1  Wall.  175;  ttrand  Rapids 
&  Ind.  R.  R.  Co.  r.  Sanders,  54  How. 
Pr.  214;  Kennard  v.  Cass  County,  3 
Dill.  147;  McCoy  t.  Washington 
County,  3  Wall.  Jr.  381;  McLendon  r. 
Comra.,  71  N.  C.  38;  Nat.  Exchange 
Bank  r.  Hart.,  Pro  v.  &  F.  R.  R.  Co.,  8 
R.  I.  375;  Whitjikcrr.  Hart.,  Prov.  & 
F.  R.  R.  Co..  8  R.  I.  47;  Welsh  c.  St. 
Paul  &  Pac.  R.  R.  Co.,  25  Minn.  314. 


'  Manning  v.  Norfolk  Southern  R. 
Co.,  29  Fed.  Rep.  838. 

•  Lyon  V.  New  York,  S.  &  W.  R. 
Co.,  14  Daly,  489. 

» Ibid. 

*  Conshohocken  Tube  Oo.  v.  Iron 
Car  Equipment  Company,  (1894)  161 
Pa.  St.  391. 

'  Roberts  &  Co.  v.  Iron  Car  Equip- 
ment  Co.,  (1894)  161  Pa.  St.  348. 


§  504J  BONDS  AND  COUPONS PRIVATE  COEPOKATIONS.  1049 

upon  them  but  the  presumption  of  payment  which  the  law  allows 
at  the  end  of  twenty  years;  and  such  presumption  may  be 
rebutted  by  evidence  of  non-payment.*  In  a  case  where  bonds 
were  issued  by  a  railroad  company,  with  interest  payable  annu- 
ally, July  iirst,  with  a  provision  that  in  case  the  net  earnings  of  a 
portion  of  its  road  were  not  sufficient  to  pay  the  interest,  scrip 
might,  at  the  option  of  the  company,  be  issued  for  it.  In  the 
absence  of  an  exercise  of  the  option  by  the  company  to  issue  the 
scrip  for  interest,  as  provided  for,  a  federal  court  held  that  the 
liolder  of  the  bonds  had  an  immediate  right  of  action  for  his 
interest ;  it  was  also  held  that  the  acceptance  of  scrip  for  interest 
during  some  of  the  years  by  the  bondholders  did  not  amount  to  a 
waiver  so  as  to  prejudice  this  bondholder's  rights  in  an  action  ^or 
interest  on  his  bonds  for  subsequent  years ;  further,  that  where 
the  treasurer  of  the  railroad  company,  shortly  after  the  interest 
was  due  in  these  subsequent  years,  had  notified  the  bondholders 
that  the  company  could  not  pay  the  interest,  but  no  action  was 
taken  as  to  the  scrip,  no  demand  on  the  part  of  this  bondholder 
for  the  payment  of  his  interest  was  necessary  before  action  to 
entitle  him  to  a  recovery.^ 

§  504.  Guaranty  of  bonds  of  one  corporation  by  another 
rules. — A  railroad  corporation,  vested  \vith  power  by  its  char- 
ter to  issue  its  own  bonds,  may  guarantee  the  bonds  of  another 
railroad  coq)oration  received  by  it  in  payment  of  a  debt,  and  sold 
for  value  or  transferred  in  payment  of  its  own  debts,  such  guar- 
anty being  given  to  improve  the  credit  of  the  bonds  or  to  obtain 
an  adequate^  price  for  them.^  In  this  foreclosure  suit  there  was 
presented  to  the  United  States  Circuit  Court  of  Appeals  the  ques- 
tion whether  a  land  company,  a  corporation  which  guaranteed 
the  mortgage  bonds  of  the  railroad  company,  defendant  in  the 
suit,  and  afterwards  joined  the  railroad  company  in  borrowing 
money  with  which  to  pay  the  interest  coupons  upon  these  bonds, 
should  not  have  been  a  party  to  this  suit.  The  appellate  court 
held  that  by  this  original  guaranty  and  borrowing  in  connection 
with  the  railroad  company  the  money  to  pay  the  interest  coupons 

» Phlla.  Trust  Co.  v.  Phila.  &  Erie  R.       '  Rogers    Locomotive    &    Machine 
R.,  (1894)  160  Pa.  St.  590.  Works  v.  Southern  Railroad  Associa- 

« Texas  &  Pac.  Ry.  Co.  v.  Marlor,  8  tion,  34  Fed.  Rep.  378. 
Sup.  a.  Rep.  311. 
132 


1050 


BONDS  AND  COUPONS PRIVATE  CORPORATIONS. 


[§504 


the  land  company  did  not  become  subrogated  pro  tanto  to  the 
rights  of  the  mortgagee,  so  as  to  become  an  indispensable  or  even 
a  proper  party  to  the  subsequent  foreclosure  suit,  as  subrogation 
does  not  take  place  until  the  payment  of  the  wliole  debt  for  which 
the  surety  is  liable.  The  contention  of  the  appellant,  it  was 
argued,  rested  upon  a  provision  in  the  charter  of  the  railway  com- 
pany to  this  effect :  "  And  in  order  to  enable  said  company  [the 
land  company]  to  guarantee  the  punctual  payment  of  the  interest 
and  principal  of  such  bonds,  it  is  hereby  expressly  declared  that 
the  guarantors  of  such  bonds  shall  be  entitled  to  all  the  benefits 
of  such  mortgage  or  deed  of  trust  made  to  secure  such  bonds  to 
the  same  beneficial  extent  that  the  holders  of  said  bonds  may  be 
entitled."  The  appellate  court  held  that  tlii^^  provision  in  the 
charter  of  the  railway  company  was  a  mere  declaration  of  the 
principles  of  subrogation,  and  could  not  be  construed  as  placing 
the  guarantors,  who  had  made  only  a  partial  payment,  upon  an 
equal  footing  with  the  mortgage  creditors.'  The  jurisdiction  of 
a  court  of  equity  of  a  bill  brought  by  a  railroad  corporation  to 
cancel  its  guaranty  upon  the  bonds  of  another  corporation,  on  the 
ground  of  illegality  and  fraud,  has  been  sustained  by  the  United 
States  Circuit  Court  for  the  district  of  Kentuckv.  The  court 
held,  in  the  first  place,  that  the  bill  was  not  demurrable  because 
it  failed  to  show  that  the  defendants  were  not  bona  fide  holders 
for  value,  as  when  fraud  or  illegality  on  the  inception  of  nego- 
tiable instruments  is  shown  it  devolves  upon  the  indorsee  to  show 
that  he  is  a  bona  fide  holder.  The  main  point  on  which  the  jur- 
isdiction of  the  court  was  placed  was  that  such  a  bill  against  the 
holders  of  the  bonds  to  cancel  the  guaranty  was  maintainable  in 
equity  on  the  ground  of  preventing  a  nmltiplicity  of  suits, 
although  it  might  have  a  good  defense  at  law  to  each  of  the 


bonds.^ 

*  Columbia  Finance  &  Trust  Co.  «. 
Kentucky  Union  Ry.  Co.,  (1894)  60 
Fed.  Rep.  794.  The  court  distin- 
guished Railroad  Co.  t.  Schutte,  103 
U.  S.  141. 

«  Louisville,  N.  A.  &  C.  Ry.  Co.  r. 
Ohio  Valley  Improvement  &  Contract 
Co.,  (1893)  57  Fed.  Rep.  42.  The 
guaranty  of  the  railroad  company  was 
alleged  to  have  been  indorsed  upon  the 


bonds  of  the  improvement  company 
illegally  and  fraudulently.  Lurton 
Circuit  Judge,  reviewed  cases  involv- 
ing the  principles  as  follows:  "The 
case  of  Railway  Co.  r.  Schuyler,  17  N. 
Y.  592,  is  an  interesting  and  instruc- 
tive case.  In  that  case  it  appeared 
that  spurious  certificates  of  stock  in  a 
railroad  corporation  had  been  issued  by 
an  oflScer  having  apparent  authority  to 


§505]  BONDS  AND  COUPONS PRIVATE  CORPORATIONS.  1051 

§  505.  Lease  of  a  bonded  railroad  —  when  lessee  is  not 
bound  on  the  bonds. —  An  Iowa  railroad  company,  by  action  of 
its  directors,  made  a  lease  of  its  road  to  a  second  Iowa  company 
for  forty  years.  This  latter  company  afterwards  entered  into  a 
contract  of  its  road  and  the  leased  road  to  an  Illinois  corporation, 
a  railway  company,  for  twenty  years.  The  first-mentioned  lessor 
company  had,  previously  to  the  lease  of  its  road,  issued  bonds 
which  were  sold  and  the  proceeds  used  in  the  construction  of  its 
road,  and  executed  a  mortgage  to  certain  trustees  to  secure  these 
bonds.  The  mortgage  covered  the  company's  road,  and  the 
net  earnings  thereof,  its  francliises,  privileges,  right  of  way,  depot 
grounds,  and  all  material  designed  to  be  used  in  construction ; 
also,  "  the  rents  and  moneys  payable  by  any  person  or  company  "  to 
that  corporation  "  for  the  use  of  said  road  and  its  appurtenances." 
By  its  contract  with  the  lessee  company  the  Illinois  company 
assumed  the  lease  made  by  this  lessee  with  the  lessor  company. 
When  the  bonds  were  sold  upon  the  market  there  was  indorsed 


do  so,  and  undistinguishable  on  their 
face  from  certificates  of  genuine  stock, 
and  were  outstanding  in  the  hands  of 
numerous    holders.     The   holders    of 
such   spurious  certificates  were  made 
parties  defendant  to  the  bill  filed  by 
the  railroad  company.     After  an  elab- 
orate consideration  of  the  question,  as 
to  whether  or  not  the  bill  would  lie, 
that  court  maintained  its  jurisdiction 
and    held  that  the  false  certificates, 
having  a  common  origin  and  common 
ground  of  invalidity,  though  the  hold- 
ers became  such  under  different  cir- 
cumstances    and     conveyances,    and 
claimed  different  rights,  yet  they  were 
all  properly  joined  as  defendants  and 
the  bill  maintained  as  a  bill  to  prevent 
a  multiplicity  of  suits.     In  Supervisors 
T.  Deyoe,    77  N.  Y.  219*  we  find  a 
similar  case.     The  treasurer  of  Sara- 
toga  county,   under  an  authority  to 
issue  notes  for  money  advanced  to  the 
county  to  the  amount  of  some  $20,000, 
issued    seventy-three    notes    to    the 
amount  of  one  hundred  and   thirty - 
eight  thousand  dollars.     These  notes 
were  held  by  fifty-three  persons,  many 


of  whom  had  brought  separate  suits 
upon    their    notes.     The   supervisors 
filed  a  bill  in   equity  against  all  the 
holders  of  said  notes,  including  those 
who  had  brought  suits  at  law.     Upon 
demurrer  to  the  bill  it  was  held  that 
upon  the  facts  a  case  was  made  entitl- 
ing the  plaintiff,  upon  equitable  prin- 
ciples, to  implead  the  holders  of  the 
notes  for  the  purpose  of  having  their 
respective  rights  and  the  liability  of 
the  [county?]   determined  in  one  ac- 
tion; that  the  claims  were  of  the  same 
general  character,  and  that  the  action 
was  maintainable  for  the  purpose  of 
preventing  a  multiplicity  of  suits  and 
to  protect  plaintiff  against  the  hazard 
of  a    double  recovery.     The  case  of 
Waterworks  v.  Yeomans,  L.  R. ,  3  Ch. 
App.  11,  was  this:  A  very  large  num- 
ber of  persons  held  separate  claims 
against     the    waterworks     company. 
The  claims  were  for  damages  originat- 
ing in  an  inundation  resulting  from 
the  breaking  of  a  reservoir.     Under  a 
special   act  commissioners  were   ap- 
pointed   to  inquire    into    and    assess 
these  damages  and  issue   certificates 


1052 


BONDS  AND  COUPONS PKIVATE  CORPORATIONS.  [§  505 


iil>on  them  and  signed  by  the  president  of  the  lessor  company  this 
statement :  "  The  lease  of  the  [lessor  company's  road]  to  the 
[first-named  lessee],  referred  to  in  the  within  bond,  has  this  day 
been  assumed  by  the  [Illinois  railroad  company],  and  the  mini- 
mum rent  which  that  company  has  thereby  obligated  to  pay  in 
monthly  installments  is  more  than  sufficient  to  meet  the  entire 
amount  of  interest  on  this  issue  of  bonds."     The  road  of  the  mort- 
gagee company  went  into  the  control  of  the  Llinois  company, 
which  paid  the  fixed  rental,  but,  having  obtained  control  of  the 
company  during  the  term  of  lease  from  which  it  had  leased  the 
mortgaged  road,  at   the  end  of  the  twenty  years  of  its   lease, 
returned  the  road  to  the  second  company.     The  surviving  trus- 
tee of  the  mortgage  of  the  lessor  company  brought  a  bill  in  equity, 
charging  that  the  course  of  tlie  Illinois  company  in  neglecting  to 
perform  the  covenants  of  its  lease,  and  to  account  for  the  earnings 
and  income  of  the  mortgaged  railroad,  had  caused  the  mortgagee 
to  default  in   the  payment  of  the  bonds  and  coupons,  and  the 
mortgagee  being  insolvent  and  without  resources,  other  than  its 
leased  property,  had  failed  to  collect  and  properly  apply  the 
income,  rents  and  profits  of  the  mortgaged  property,  and  had  mis- 
applied some  portions  of  them ;  and  that  a  foreclosure  and  sale 
of  the  mortgaged  property,  before  the  obligation  which  the  Illi- 
nois company  had  assumed,  should  be  enforced,  would  be  injuri- 
ous to  the  mortgagee  company  and  its  stockholders,  as  well  as  the 
l>ondholder8.     The  trustee  sought  to  obtain,  by  a  decree  of  the 
court,  the  control  of  the  rents  and  income  under  the  contract  of 
lease.     As  to  the  Illinois  company,  the  United  States  Circuit 


upon  the  several  claims.  The  water- 
works claimed  that  the  power  of  the 
commissioners  had  expired,  and  that  a 
large  number  of  these  certificates  were 
in  consequence  invalid.  A  bill  by  the 
company  against  a  few  as  representing 
the  whole  number  was  filed  and  a  de- 
murrer sustained.  The  Court  [of  Ap- 
peals]  held  that  as  the  rights  of  all 
depended  upon  the  same  question,  and 
that,  although  the  defense  could  be 
made  at  law,  it  was  *a  very  fit  case, 
by  analogy  at  least,  to  a  bill  of  peace, 
for  a  court  of  equity  to  interpose  and 
prevent  the  unnecessary  expense  and 


litigation  which  would  be  thus  occa- 
sioned, and  to  decide  once  for  all  the 
validity  or  invalidity  of  the  certificates 
upon  which  the  claims  of  all  persons 
depend. '  "  See,  also,  Black  v.  Shreeve, 
7  N.  J.  Eq.  440.  As  to  guaranty  of 
bonds,  see  Low  v.  California  Pac.  R. 
R.  Co.,  52  Cal.  53;  New  Haven,  M.  & 
W.  R.  R.  Co.  V.  Town  of  Chatham,  43 
Conn.  465;  Arnot  v.  Erie  Ry.  Co..  67 
N.  Y.  315;  Toppan  v.  Cleveland,  Col. 
&Cin.  R.  R.  Co..  1  Flip.  74;  Opdyke 
V.  Pacific  R.  R.  Co. ,  3  Dill.  55;  Cod- 
man  V.  Vermont  &  Canada  R.  R.  Co., 
16  Blatchf.  165. 


§505] 


B0ND»  AND  COUPONS  —  PRIVATE  CORPORATIONS.  1053 


Court  held  that  as  the  rentals  for  this  road  had  been  fully  paid 
by  that  company  to  the  mortgagee  company  to  the  date  on  which 
its  road  waB  surrendered  to  the  original  lessee  before  the  commence- 
ment of  the  suit,  there  was  no  ground  whatever  for  a  decree 
against  that  corporation,  and  Q&  to  that  company  the  original 
suit  was  ordered  dismissed.* 

iJesup   V.  Illinois  Central R.R.  Co.,   to  the  assumption  of  the  contract  of 
(1890)  43  Fed.   Rep.  483.    It  was  fur-   lease  by  this  company  to  estop  it  from 
ther  held  that  there  was  nothing  in  the  denying  its  liability  in  this  action, 
indorsement  made  upon  the  bonds  as 


CHAPTER  XXVL 

MORTGAGES   AND   TRUST    DEEDS  -  PRIVATE    CORPORATIONS. 

6  514 


507. 


608. 


§  606.  Power  of  corporations  to  exe- 
cute mortgages  and  trust 
deeds  upon  their  property. 

Statutes  requiring  assent  of 
stockholders  to  mortgages 
construed. 

Mortgages  and  trust  deeds  — 
rules  to  as  place  of  execu- 
tion, authorization  —  mode 
of  execution,  to  whom  exe- 
cuted, record,  etc. 

Estoppel  of  corporation  to 
deny  authority  of  officers 
to  mortgage. 

Effect  of  laches  of  corpora- 
tion in  repudiating  a  mort- 
gage. 

WlM\t  are  reasonable  provis- 
ions in  a  mortgage. 

Chattel  mortgages  of  corpora- 
tions. 

Deeds  of  trust  and  mortgages 
securing  directors  —  when 
properly  given. 


609. 


510. 


611. 


612. 


618. 


The  validity  of  mortgages  as 
affected  by  restrictions,  con- 
stitutional, statutory,  or  in 
charter  upon  indebtedness 
to  be  incurred. 
615.  A  mortgage  of  corporation 
property  to  pay  purchase- 
money  debts. 

516.  Illustration   of   an  equitable 

mortgage. 

517.  3Iortgage   of   a   consolidated 

railroad  company —  estoppel 
to  claim  its  invalidity  on 
the  ground  that  the  consoli- 
dation was  not  legally  per- 
fected. 

518.  Illustration  of   a    fraudulent 

mortgage. 
619.     What  corporation  mortgages 

cover,   and    what  they  do 

not  cover. 
520.    Trustees  of  such  mortgages  — 

their     duty,     rights     and 

powers. 


§  506.  Power  of  corporations  to  execute  mortgages  and 
trust  deeds  upon  their  property.— Corporations,  it  is  well 
settled,  have  the  power  to  sell  their  property,  real  and  personal, 
and  to  mortgage  it  for  the  security  of  their  debts,  as  an  incident 
to  the  power  of  acquiring  and  holding  such  property.  This  right 
exists  by  common  law,  but  may  be  limited  by  statute,  or  by  the 
laws  or  charters  under  which  such  corporations  are  organized.^ 

»  Fitch  V.  Lewiston  Steam  Mill  Co.,  Atlantic  «te  Gulf  R.  R.  Co.,    3  Woods, 

(1888)80  Me.  34;  s.  c,  12  Atl.  Rep.  481;   Coe  v.   CoL,  Piqua    &  Indiana 

782.    See  Pierce  v.  Emery,  32  N.  H.  R  R.  Co.,  10  Ohio  St.   373;   Central 

503;  Richards  v.   Merrimack  &  Con-  Gold  Mining  Co.  9.  Pktt,  3  Daly,  263; 

necticut  River  Railroad,    44    N.   H.  Willink  v.  Morris  Canal  &  Bkg.  Co.,  4 

135.     As  to  power  to  mortgage,  see  N.  J.  Eq.  377;  Allen  v.  Montgomery 

Thomas  r.   Citizens'  Horse  Ry.  Co..  R.  R.  Co.,  11  Ala.  437;  Coveys.  Pitts- 

104  111.  462;  McAllister  v.  Plant,  54  burg.  Ft.  Wayne  &  Chicago  R.  R.  Co., 

Miss.  106;  Pullan  v.  Cin.  &  Chicago  3  Phil.  173;  Dunham  v.  Isett,  15  Iowa,' 

Air  Line  R.  R.  Co.,  4  Biss.  35;  Camp-  284;  Bardstown  &  Louisville   R.   R. 

belln  Texas  &  N.  O.  R.  R.  Co.,  2  Co.  v.   Metcalfe,  4  Mete.    (Ky.)    199; 

Woods,  263;  Branch,  Sons  &  Co.  v.  Hays  v.  Galion  Gas  Light  &  Coal  Co.* 


§506] 


PRIVATE  CORPORATIONS. 


1055 


The  United  States  Circuit  Court  of  Appeals  has  held  that  an 
Ohio  railway  corporation  may  mortgage  after-acquired  prop- 
erty, acquired  either  by  itself  or  by  any  successor  in  title  exer- 
cising the  same  franchises  or  similar  franchises  granted  by  the 
same  sovereign  power.^  A  Pennsylvania  railroad  company 
was  empowered  by  its  charter  to  "  purchase,  receive,  have,  hold, 
and  enjoy,  to  them  and  to  their  successors  and  assigns,  lands, 
tenements,  hereditaments,  goods,  chattels,  and  all  estate,  real, 
personal,  and  mixed,  of  what  kind  or  quality  soever,  and  the  same 
from  time  to  time  to  sell,  mortgage,  grant,  alien  or  dispose  of," 
etc.  In  a  case  before  the  Supreme  Court  of  that  state,  the  ques- 
tion was  raised  as  to  the  power  of  this  company  to  execute  a 
mortgage  upon  its  property.  Eeferring  iirst  to  the  provision  of 
the  charter  quoted  above,  the  court  said  :  "  The  power  to  mort- 
gage is  given  in  the  most  explicit  language,  and  embraces  all  the 
property  which  the  company  may  acquire  or  hold  '  real,  personal, 
and  mixed,  of  what  kind  or  (piality  soever.'  It  is  difficult  to 
conceive  how  there  could  be  a  larger  or  more  comprehensive 
description  of  the  kind  of  prv-^perty  upon  which  the  power  to 
mortgage  could  be  exercised  than  is  contained  in  these  words. 
They  embrace  every  species  of  property  known  to  the  law  ;  and 
the  power  itself  is  not  subjected  to  any  limitations,  restrictions  or 


29  Ohio  St.  330;  Kennebec  &  Portland 
R.  K.  Co.  V.  Portland  &  Kennebec  R. 
R.    Co.,   59    Me.   9;   Loudenslager    r. 
Benton,  4  Phil.  382;  McCurdy's  Ap- 
peal, 65  Pa.  St.  290;  Miller  v.  Rutland 
&  Washington  R.  R.  Co.,  36  Vt.   452; 
Ludlow  V.  Hurd,   1  Disney,  552;  Mo- 
bile &  Cedar  Point  R.  R.  Co.   c.  Tal- 
man,  15  Ala.  572;  Racine  &  Mississippi 
R.   R.   Co.  r.  Farmers'  Loan  &  Trust 
Co.,    49  111.  331;   Richards  v.   Merri- 
mack &  Connecticut  River  R.  R.  Co., 
44  N.  H.  127;  Coe  v.  New  Jersey  Mid- 
land Ry.  Co.,  31  N.  J.  Eq.   105;  Mc- 
Lane  v.  Placer ville  &  Sacramento  Val- 
ley R.  R.  Co.,  66  Cal.  606;  Duncomb 
V.  New  York,  IL  &  N.  R.  R.  Co.,  84 
N.    Y.     190;    Gordon    v.    Preston,    1 
Watts,  385;  Burt  i\  Rattle,  31  Ohio  St. 
116;  Jackson  v.  Brown,  5  Wend.  590; 
lieynolds  v.  Stark  County,  5  Ohio,  205; 
State  V.  Rice,  65  Ala.  83;  Pennock  v. 


Coe,  23  How.  117;  Shaw  v.  Bill,  95  U. 
S.  10;  Howe  v.  Freeman,  14  Gray, 
566;  Ellis  v.  Boston.  H.  &E.  Railroad, 
107  Mass.  1;  Da  Ponte  v.  Northern 
Pac.  R.  R.  Co.,  21  Blatchf.  534;  Mead 
i\  New  York,  H.  &  N.  R.  R.  Co..  45 
Conn.  199;  Bell  i\  Chicago,  St.  L.  Ss 
N.  O.  R.  R.  Co.,  34  La.  Ann.  785; 
Scott  15.  Clinton  &  S.  R.  R.  Co.,  6 
Biss.  529. 

'  Compton  V.  Jesup,  68  Fed.  Rep. 
263.  As  to  the  power  of  a  gas  com- 
pany to  mortgage  its  entire  property 
to  secure  bonds  and  floating  indebted- 
ness, see  Hunt  r.  Memphis  Gas 
Light  Co.,  (Tenn.)  31  S.  W.  Rep.  1006. 
As  to  the  limitations  on  the  power  of 
a  railroad  corporation  under  the  New 
Jersey  statutes  to  mortgage  its  prop- 
erty, see  Baker  v.  Guarantee  Trust  & 
Safe  Deposit  Co.,  (N.  J.  Eq.)  31  AtL 
Rep.  174. 


^^^ 


io5e 


MORTGAGES  AND  TRUST  DEEDS. 


[§506 


§506] 


PRIVATE  CORPORATIONS. 


1057 


qualifications   of  any  kind.     Ko   provision  is  made   as   to   the 
manner  in  which  the  power  should  be  exercised,  and  hence  no 
particular  formalities  were  required  to  be  observed.     An  authen- 
tic act  of  execution  by  the  proper  officers  of  the  company  would 
seem,  therefore,  all  that  was  necessary  to  a  vaUd  exercise  of  the 
power.     We  cannot  assent  to  the  contention  that,  in  addition  to 
the  power  to  mortgage,  there  must  also  be  expressed  a  specific 
authority  to  borrow  money  and  issue  bonds  therefor.     Tlie  mani- 
fest purpose  of  a  mortgage  is  to  secure  loans  of  money,  and  the 
power  to  borrow  money  and  to  give  the  ordinary  evidences  of  loans 
in  the  form  of  bonds,  or  other  obligations  to  the  same  effect,  is  a 
necessary  incident  to  the  power  to  mortgage.     But  it  is  also  the 
necessary  incident  to  the  right  to  build  a  railroad ;  and  it  is  only 
essential  to  have  the  power  to  mortgage  expressly  granted,  in  order 
that  it  may  be  exercised  for  the  purpose  of  securing  indebtedness, 
whether  arising  from  loans  of  money  or  upon  other  considerations. 
Nothing  to  the  contrary  of  this  was  decided  in  the  case  of  Pittsburgh 
E.  Co.  V.  Allegheny  County,  63  Pa.  St.  126.     Additional  power  to 
mortgage  was  granted  to  this  company  by  [the  following]  section 
of  [a  subsequent  act  of  the  legislature],  in  these  words :  *And  the 
said  railroad  company  are  hereby  authorized  to  mortgage  or  other- 
wise incumber  their  said  road  and  any  real  and  personal  estate  which 
may  belong  to  it,  for  the  purpose  of  carrying  out  the  privileges 
granted  by  the  act  and  the  several  supplements  thereto  incorporat- 
ing the  same.' "     The  court  said  :  "  It  was  contended  for  the  appel- 
lants that  this  power  was  limited  to  the  purpose  of  carrying  out  the 
privileges  granted  by  the  incorporating  and  supplementary  acts,  and 
that  those  privileges  were  exhausted  when  the  road  as  then  built  was 
finished.     By  [another]  section  of  the  same  act  the  company  was 
authorized  to  extend  their  road  to  any  point  they  may  select  in 
[certain  named]  counties,  so  as  to  form  a  connection  with  [a  cer- 
tain named   railroad],  or  any  other  railroad   that  may  be  con- 
structed.    Other  powers  of  extension  were  granted  by  previous 
and    subsequent  legislation.     The   power  to   mortgage   clearly 
included  the  railroad  and  all  other  real  and  personal  estate  of  the 
company,  without  reference  to  the  time  of  its  acquisition,  so  long 
as  the  purpose  was  observed  of  carrying  out  the  privileges  of  the 
company  granted  by  the  original  act  of  incorporation,  or  any 
supplements  thereto.     So  long  as  the  acts  done  or  supposed  to  be 
done  are  within  the  legalized  powers  of  the  company,  whether 


before  or  subsequent  to  the  passage  of  this  act,  the  power  to 
mortgage  attaches.  We  cannot  agree  that  it  was  restrained  to 
the  mere  physical  structure  then  completed.  If  a  subsequent 
acquisition  of  rolling  stock  should  become  necessary,  or  the  erec- 
tion or  lawful  acquisition  of  branches,  in  addition  to  those  already 
possessed,  should  take  place,  it  cannot  be  doubted  that  the  power 
to  mortgage,  conferred  by  this  act  would  be  applicable."^  A 
railroad  company  of  Tennessee,  the  charter  of  which  empowered 
it  to  mortgage  for  the  purpose  of  completing  its  road  and 
equipping  it  with  everything  necessary  to  give  it  full  operation, 
was  held  by  the  Supreme  Court  of  that  state  not  to  be  thereby 
authorized  to  execute  bonds  and  mortgage  for  any  other  purpose 
than  that  of  completing  and  equipping  the  original  line  of  road 
authorized  by  the  charter.  They  further  held  that  a  mortgage 
by  this  company,  executed  within  twenty-five  years  after  the 
completion  and  equipment  of  its  road,  and  not  purporting  to  have 
been  executed  for  any  such  purpose,  or  to  secure  the  renewal  of 
bonds  originally  issued  for  those  purposes,  could  not  be  presumed 
to  have  been  executed  for  the  purposes  named  in  the  charter.^ 
The  Supreme  Court  of  the  United  States  has  held  that  a  manu- 
facturing corporation  of  New  York,  having  authority  to  mortgage 
its  property  for  the  purpose  of  carrying  on  its  business,  is  not 
prohibited  by  the  laws  of  that  state  from  executing  such  a  mort- 
gage to  secure  the  payment  of  money  to  be  thereafter  advanced.'' 


*  Gloninger  v.  Pittsburgh  &  Con- 
nellsville  R.  R.  Co.  139  Pa.  St.  13;  s. 
c,  21  Atl.  Rep.  211;  27  W.  N.  C.  497. 

*  Frazier  v.  East  Tennessee,  Va.  & 
Ga.  R.  R.  Co.,  88  Tenn.  188;  s.  c,  12 
S.  W.  Rep.  537.  In  Belden  v.  Burke, 
72  Hun,  51;  s.  c,  25  N.  Y.  Supp. 
601,  it  was  held  that  no  statute  being 
contravened  and  the  stockholders  not 
resorting  to  any  deception  or  fraud  to 
attract  investors  to  purchase  the  mort- 
gage bonds,  those  who  have  acquired 
all  the  stock  of  a  corporation  had  a 
legal  right  to  cause  the  corporation  to 
mortgage  its  property  in  an  amount 
exceeding  its  value.  See  Brown  v. 
Supply  Co.,  23  Or.  541;  Nelson  v.  Hub- 
bard, 96  Ala.  238;  Adams  Cotton  Mills 
V.  Dimmick,   96  Ala.  238;    Grant  v. 

133 


Railroad  Co.,  13  U.  8.  App  1;  a.  c,  4 
C.  C.  A.  511;  Robinson  v.  Land  Co.,  2 
Colo.  App.  17. 

'Jones  T.  Guaranty  &  Indemnity 
Co.,  (1879)  101  U.  S.  622.  Mr.  Justice 
S WAYNE,  speaking  for  the  court,  said, 
as  to  the  power  of  corporations  re 
specting  the  execution  of  mortgages: 
'  'At  the  common  law  every  corpora- 
tion had,  as  incident  to  its  existence, 
the  power  to  acquire,  hold  and  con- 
vey real  estate,  except  so  far  as  it  was 
restrained  by  its  charter  or  by  act  of 
parliament.  This  comprehensive  ca- 
pacity included,  also,  personal  effects 
of  every  kind.  The  jiia  disponendi 
was  without  limit  or  qualification.  It 
extended  to  mortgages  given  to  se- 
cure the  payment  of  debts.    1  Kyd 


1058 


MORTGAGES  AND  TRUST  DEEDS. 


[§  5or> 


The  Court  of  Appeals  of  T^ew  York  in  a  fully  considered  case 
lias  sustained  the  validity  of  a  mortgage  given  by  a  manufactur- 
ing corporation  covering  all  of  its  real  and  personal  property.  In 
this  case  Rapallo,  J.,  has  thus  stated  the  views  of  that  court  as 
to  the  construction  of  the  statutes  of  that  state  of  1804  and  1871 
on  the  subject  and  the  powers  conferred  by  them  on  the  corpora- 


Corp.   69,   76,   78,   108;    Ang.   &   A. 
Corp.  §  145;  2  Kent  Com.  282;  Key- 
nolds    r.     Commissioners    of    Stark 
County.  5  Ohio,    204;    White   Water 
Valley  Canal  Co.   r  Yallette.  21  IIow. 
414.     A  mortgage  for  future  advances 
was  recognized  as  valid  by  the  com- 
mon law.     Gardner  r.  Graham,  7  Vin. 
Abr.  22,  pi.  3.     See,  also,  Brinkerhoff 
T.  Marvin,  5  Johns.  Ch.  320:  I^wrence 
V.  Tucker.  23  How.  14.     It  is  believed 
they  are  held   valid   throughout   the 
United  States,  except  where  forbidden 
by  the  local  law.     The  statute  under 
which  the   oil    company   [the    mort- 
gagor]  came  into  existence  made  it 
'  capable  in  law  of  purchasing,  hold- 
ing and  conveying  any  real  and  per- 
sonal  estate,  whenever  necessary   to 
enable'  it  to  carrv   on  its    business, 
but  it  was  forbidden  to   'mortgage 
the    same  or  give  any  lien  thereon.' 
This  disability  was  removed  by  the 
later  act  of  1864,  which  expressly  con- 
ferred  the    power   before    withheld. 
This  change   was  remedial,   and  the 
clause  which  gave  it  is,  therefore,  to 
be  construed  liberally  with  reference 
to  the  ends    in    view.     The    learned 
counsel  for  the  appellant  insisted  that 
a   mortgage    could    be    competently 
given  by  the  oil  company  only  to  se- 
cure a  debt  incurred  in  its  business 
and    already    subsisting.       This,    we 
think,  is  too  narrow  a  construction  of 
the  language  of  the  law.      A  thing 
may    be    within    a    statute    but    not 
within  its  letter,  or  within  the  letter 
and  yet  not  within  the  statute.     The 
intent    of    the  lawmaker  is  the  law. 
People  T.   Utica   Insurance    Co.,    15 


Johns.  357;  United  States  r.  Babbit,  I 
Black,   55.      The  view  of  the  court 
in  Thompson  v.  New  York  &  Harlem 
Railroad  Co.,  3  Sandf.  Ch.  625,  was 
sounder  and  better  law.     There  the 
charter   authorized    the    corporation 
to  build  a  bridge.     It  found  one  al- 
ready built  that  answered  every  pur- 
pose and   bought  it.     The   purchase 
was  held  to  be  intra  rires  and  valid. 
Here  the  object  of  the  authorization  is 
to  enable  the  company  to  procure  the 
means  to  carry  on  its  business.     Why 
should  it  be  required  to  go  in  debt, 
and  then  borrow,  if  it  could,  instead 
of  borrowing  in  advance,  and  shaping 
its  affairs  accordingly?    No  sensible 
reason  to  the  contrary  can  be  given. 
If  it  may  borrow  and  give  a  mortgage 
for  a  debt  antecedently  or  contempo- 
raneously  created,    why   may  it  not 
thus  provide  for  future  advances  as  it 
may  need  them?    This  may  be  more 
economical  and  more  beneficial  than 
any  other  arrangement  involving  the 
security  authorized  to  be  given.     In 
both  these  latter  cases  the  ultimate  re- 
sult with  respect  to  the  security  would 
be  just  the  same  as  if  the  mortgage 
was  given  for  a  pre-existing  debt  in 
literal  compliance   with   the   statute. 
No  one  could  be  wronged  or  injured, 
while  the  corporation,  whom  it  was 
the  purpose  of  the  law  to  aid,  might 
be  materially  benefitted.     Is  not  such 
a  departure  within  the  meaning,   if 
not   of   the   letter,    of   the    statute? 
There  would  be  no  more  danger  of 
the  abuse  of  the  power  conferred  than 
if  it  were  exercised  in  the  manner  in- 
sisted upon.    The  safeguard  provided 


§506] 


PEIYATE  CORPORATIONS. 


1059 


tion  in  these  words  :  "  Where  money  is  lent  to  an  individual  or 
to  a  corporation  authorized  to  borrow  money,  and  the  borrower 
at  the  time  of  the  loan  delivers  his  bond  and  mortgage  as  security 
for  the  repayment  of  the  money  so  loaned,  it  can  hardly  be  ques- 
tioned that  the  bond  and  mortgage  are  given  to  secure  a  debt 
contracted  by  the  borrower.  [These  statutes]  declare  that  where 
the  requisite  consent  of  stockholders  is  given,  the  mortgage  shall 


in  the  required  assent  of  stockholders 
would  apply  with  the  same  efficacy  in 
all  the  cases.  The  object  of  the  loan, 
the  application  of  the  money , and  the  re- 
straints imposed  by  the  charter  in  those 
particulars,  would  be  the  same  whether 
the  transaction  took  one  form  or  the 
other.  According  to  our  construction 
the  company  could  give  no  mortgage 
but  one  growing  out  of  their  business, 
and  intended  to  aid  them  in  carrying 
it  on.  In  legal  effect  the  difference 
between  the  two  constructions  is  one 
merely  of  mode  and  manner,  and  not 
of  substance.  Such  securities  are  not 
contrary  to  the  law  or  public  policy 
of  the  state  [of  New  York].  Many 
cases  are  found  in  her  reported  adj  u- 
dications  where  both  judgments  and 
mortgages  for  future  advances  have 
been  sustained.  Our  view  is  not 
without  support  from  the  language  of 
the  statute,  that  '  every  mortgage  so 
made  shall  be  as  valid  to  all  intents 
and  purposes  as  if  executed  by  an  in- 
dividual owning  such  real  estate.'  If 
this  mortgage  had  been  given  by  indi- 
viduals, the  question  we  are  examin- 
ing doubtless  would  not  have  been 
brought  before  us  for  consideration. 
*  *  *  When  a  deed  is  fatally  de- 
fective for  the  want  of  a  sufficient 
consideration  to  support  it,  such  a 
consideration  subsequently  arising 
may  cure  the  defect  and  give  the  in- 
strument validity.  Sumner  v.  Hicks, 
2  Black,  532.  It  is  not  necessary  to 
go  through  the  form  of  executing  a 
second  deed  to  take  the  place  of  the 
first  one.  This  principle  applies  to 
the  mortgage  after  all  the  advances 


had  been  made,  conceding  that  it  had 
before  been  invalid  for  the  reason  in- 
sisted upon.  The  statute  of  1864 
neither  expressly  forbids  nor  declares 
void  mortgages  for  future  advances. 
If  the  one  here  in  question  be  ultra 
tires,  no  one  can  take  advantage  of 
the  defect  of  power  involved  but  the 
state.  As  to  all  other  parties,  it  must 
be  held  valid,  and  may  be  enforced 
accordingly.  Silver  Lake  Bank  v. 
North,  4  Johns.  Ch.  370;  National  Bank 
V.  :Matthews,  98  U.  S.  621.  In  the  latter 
case  this  subject  was  fully  examined. 
A  corporation  can  act  only  by  its 
agents.  If  there  were  any  such  tech- 
nical defect  as  is  claimed  touching  the 
execution  of  this  mortgage,  it  has  been 
cured  by  acquiescence  and  ratification. 
No  no  else  can  raise  the  question.  All 
other  parties  are  concluded.  Gordon 
V.  Preston,  1  Watts  (Pa.),  385.  Where 
money  had  been  obtained  by  a  corpo- 
ration upon  its  securities,  which  were 
irregular  and  nltra  vires,  but  the 
money  was  applied  for  the  benefit  of 
the  company,  with  the  knowledge  and 
acquiescence  of  the  shareholders,  the 
company  and  the  shareholders  were 
estopped  from  denying  the  liability  of 
the  company  to  repay  it.  And  the 
same  result  follows  where  such  securi- 
ties are  issued  with  the  knowledge  of 
the  shareholders,  so  far  as  the  money 
thus  raised  is  applied  for  the  benefit  of 
the  company.  In  re  Cork  &  Youghal 
Railway  Co.,  Law  Rep.,  4 Ch.  748.  A 
court  of  equity  abhors  forfeitures  and 
will  not  lend  its  aid  to  enforce  them. 
:Marshall  v.  Vicksburg,  15  Wall.  146. 
Nor  will  it  give  its  aid  in  the  assertion 


1060 


MORTGAGES  AND  TRUST  DEEDS. 


IK 


[§506 

be  as  valid  to  all  intents  and  purposes  as  if  executed  bj  an  indi- 
vidual. The  only  other  restriction  is  that  the  debt  secured  by 
the  mortgage  must  be  one  contracted  in  the  business  for  which 
the  corporation  was  incorporated.  There  is  nothing  in  the  stat- 
ute which  requires  that  it  should  Iiave  been  contracted  at  any 
particular  time.  If  it  is  contracted  simultaneously  with  the 
giving  of  the  security,  and  is  a  legitimate  debt  incurred  in  the 
business  of  the  company,  it  comes  within  the  letter  of  the 
authority  conferred  by  the  statute  which  covers  *  any  debt  which 
may  be  contracted  by  it  in  the  business  for  which  it  is  incor- 
porated.' As  to  a  mortgage  given  to  secure  future  advances; 
different  questions  might  arise,  but  where  a  bond  secured  by 
mortgage  is  given  to  the  lender  for  money  advanced  at  the  time, 
the  borrower  becomes  immediately  indebted,  and  it  would  seem 
to  be  immaterial  whether  tlie  money  is  applied  by  the  borrower 
to  the  payment  of  some  antecedent  debt  or  to  other  purposes  for 
which  he  was  legitimately  entitled  to  borrow  the  money.  The 
only  conceivable  intent  which  could  be  attributed  to  the  legisla- 
ture of  requiring  that  the  power  of  mortgaging  should  be  con- 
fined to  the  securing  of  debts  other  than  those  created  simultane- 
ously with  the  giving  of  the  security  would  be  to  put  it  beyond 
the  power  of  the  trustees  or  directors,  even  with  the  assent  of 
the  stockholders,  to  borrow  money  not  needed  for  the  payment 
of  previously  existing  debts,  and  thus  obtaining  the  control  of 
funds  which  they  might  misapply.  T  fail  to  find  any  language  in 
the  act  expressive  of  such  intent.  It  likens  the  power  given  to 
these  corporations  to  that  of  an  individual  to  mortgage  his  own 
property,  to  secure  any  debt  which  he  may  contract,  and  there  is 
no  restriction  upon  this  power  except  that  the  assent  of  stock- 
holders must  be  obtained."  ^ 


§507] 


PRIVATE  CORPORATIONS. 


1061 


of  a  mere  legal  right  contrary  to  the 
clear  equity  and  justice  of  the  case. 
Lewis  n.  Lyons,  13  111.  117." 

»  Lord  V.  Yonkers  Fuel  Co.,  (1885) 
99  N.  Y.  547.  Referring  to  leading 
cases,  it  was  said:  "In  Greenpoint 
Sugar  Co.  v.  Whitin,  69  N.  Y.  328,  it 
is  said  by  Church,  Ch.  J.,  at  page 
333,  that  the  act  of  1864  removed  the 
restriction  substantially  imposed  by 
the  act  of  1848,  with  a  proviso  requir- 
ing   only    that    those   interested,  the 


stockholders,  should  consent,  thus 
plainly  evincing  that  the  purpose  and 
intent  were  to  protect  the  stockholders 
from  improvident  or  corrupt  acts  by 
the  officers  of  the  company;  that  there 
is  nothing  showing  that  the  legislative 
policy  regarded  the  mortgaging  of 
corporate  property  improper  per  w, 
but  the  policy  adopted  indicates  a  fear 
of  its  improper  exercise  and  an  inten- 
tion to  guard  against  it.  And  again 
at  page  334,  that  the  act  of  mortgag- 


§  507.  Statutes  requiring  assent  of  stockholders  to  mort- 
gages construed. — The  act  of  the  state  of  New  York  of 
1867,  with  reference  to  the  execution  of  mortgages  by  manufac- 
turing corporations,  was  succeeded  by  a  further  amendatory  act 
of  the  statute  of  1848,  the  act  of  1872,  whereby  such  corpora- 
tions were  authorized  to  purchase,  hold  and  convey  any  real  or 
personal  estate  necessary  to  enable  them  to  carry  on  their  cor- 


ing is  not  deemed  illegal,  but  the  prin- 
cipal must  assent  in  writing.     In  that 
case  the  mortgage  was  given  to  secure 
the  purchase  price  of  real  estate  con- 
veyed to  the  company  by  the  mort- 
gagee on  the  same  day  the  mortgage 
was  executed,   but  which  had    been 
previously  occupied  by  the  company 
under   a    contract    of   purchase.     In 
Rochester  Savings  Bank  v.  Averell,  96 
N.  Y.  467,  the  mortgage  was  given  to 
secure  $10,000  borrowed  by  the  com- 
pany from  the  bank  at  the  lime  of  the 
execution  of  the  mortgage.     The  fea- 
ture existed  in  that  case  that  the  money 
was  borrowed  to  pay  certain  debts  of 
the    company    and    was    so  applied. 
The  question  did  not  arise  in  that  ease 
as  to  what  the  result  would  have  been 
in  the  absence  of  that  feature.     Adopt- 
ing the  comparison  suggested  by  the 
statute,  with  the  act  of  an  individual 
mortgaging  his  own  property  to  se- 
cure the  payment  of  his  own  debt,  and 
supposing  the    case    of  a    principal, 
having  an  agent  authorized  to  borrow 
money  to  be  used  in  the  business  of 
the  principal,  and  that  the  principal 
should  under  that  state  of  existing  cir- 
cumstances give  a  power  of  attorney 
to  the  agent  empowering  him  to  se- 
cure the  payment  of  '  any  debt  there- 
tofore contracted ,  or  which  might  be 
contracted  by  him  in  the  business '  of 
the  principal,  by  mortgage  on  his  real 
estate,  can  it  be  doubted  that  a  mort- 
gage given  by  the  agent  to  secure 
money  bon*owed  by  him  in  the  busi- 
ness of  his  principal,  simultaneously 
with  the  giving  of  the  mortgage  se- 


curity, would  be  within  the  terms  of 
the  power?    I  can  see  no  reason  for 
applying  a  different  rule  of  construc- 
tion   to    an    authority    in    the    same 
words  contained  in  a  statute.     But  in 
the  present  case  we  are  not  under  the 
necessity  of  deciding  that  question  or 
determining   what  the    result    would 
have  been  if  the  bonds  had  been  sold, 
or  money  raised  thereon  by  the  com- 
pany for  ijurposes  other  than  the  pay- 
ment  of  existing  debts.     It  appears 
from  the  findings,  not  only  that  the 
money  paid  to  the  company  for  the 
bonds  was  used  in  the  payment  of  its 
debts,  but  that  the  money  was  so  paid 
by   the  bondholders  to  the  company 
only  as  its  other  existing  debts  became 
due.     The  bonds  secured  by  the  mort- 
gage did  not  acquire    vitality  until 
they  were  issued  to  purchasers  paying 
value  therefor,  and  did  not  until  then 
become    liens    upon    the    mortgaged 
property.     Consequently,    when    the 
mortgage  lien  was  created,  it  was,  as 
to  each  bond  issued,  created  for  the 
purpose  of  paying  debts  then  owing 
by  the  company  and  was  so  applied. 
There  is  nothing  in  the  act  which  re- 
quires that  in  the  case  of  a  trust  mort- 
gage to  secure  negotiable  bonds  to  be 
thereafter  issued,  the  debts  authorized 
to  be  secured  should  be  in  existence  at 
the  time  the  mortgage  and  bonds  are 
prepared  and  executed.     Every  con- 
ceivable intent  of  the  statute  is  effectu- 
ated, provided  the  bonds  are  negoti- 
ated only  for  the  purpose  of  securing 
or  paying  debts  contracted  before  the 
negotiation  of  the  bonds.     Where  a 


1062 


MORTGAGES  AND  TKUST  DEEDS. 


[§507 


§507] 


PRIVATE  CORPORATIONS. 


1063 


i^i!i 


porate  operations,  and  also  to  borrow  such  sums  of  money,  not 
exceeding  one-half  of  their  capital,  as  might  be  necessary  to 
carry  on  their  business,  and  to  issue  and  dispose  of  their  bonds 
for  any  amount  so  borrowed  and  mortgage  the  corporate  property 
and  franchises  of  the  company  to  secure  the  payment  of  any 
debt  contracted  by  it  for  the  purposes  aforesaid.  The  Court  of 
Appeals  held  that  the  obvious  effect  of  the  last  act  was  to  super- 
sede the  provisions  of  the  law  of  1867  requiring  the  assent  of 
two-thirds  of  the  stockholders  of  a  corporation  as  a  condition  to 
the  exercise  of  the  right  to  mortgage  and  to  enlarge  the  power  of 
a  corporation  to  mortgage,  so  as  to  include  personal  property  and 
franchises  as  well  as  real  estate,  and  to  cover  the  payment  of  all 
debts  contracted  for  the  legitimate  operations  of  the  corporation. 
In  this  particular  case  a  gas  light  company  purchased  the  property 
described  in  the  mortgage  of  the  plaintiff,  agreeing  to  pay  there- 
for $50,000  in  cash  and  $200,000  in  the  stock  of  the  company, 
and  he  accepted  the  mortgage  in  lieu  of  the  cash  payment.  The 
court  held  it  was  competent  for  him  to  do  so  without  impairing 
the  validity  of  the  mortgage,  and  for  the  company  to  transfer 
the  mortgage  to  him  in  lieu  of  the  money  which  it  was  author- 
ized to  borrow  for  the  purpose  of  making  such  payment.  "  The 
result,-'  it  was  said,  "  accomplished  by  this  transaction  was  the 
precise  equivalent  of  a  delivery  to  a  creditor  to  secure  a  loan,  and 
did  not  constitute  a  diversion  of  the  mortgage  from  its  intended 
object.  The  agreement  of  purchase  created  a  debt,  and  the  pur- 
pose of  its  creation  being  to  enable  the  company  to  carry  on  its 
business  operations,  the  transaction  was  brought  within  the  terms 
of  the  statute  authorizing  such  a  corporation  to  mortgage  its 
property."  Again  it  is  said  :  "  The  power  to  purchase  property 
for  the  purposes  of  the  corporation,  and,  if  necessary,  to  contract 


bond  of  this  description,  having  no 
previous  vitality,  is  delivered  to  a 
creditor  of  the  company  to  pay  or  se- 
cure his  debt,  the  delivery  of  the  bond 
is  the  act  by  which  his  debt  becomes 
secured.  The  security  to  the  creditor 
then  for  the  first  time  comes  into 
being,  and  is  as  effectual  as  if  the 
mortgage  were  executed  at  the  same 
time  with  the  delivery  of  the  bonds. 
The  effect  is  the  same  if  the  bond  is 
Fold  to  provide  means  to  pay  a  debt 
existing  at  the  time  of  the  sale,  and 


the  proceeds  are  paid  to  the  creditor. 
As  held  in  the  case  of  Carpenter  r. 
Black  Hawk  Co.,  65  N.  Y.  43,  the 
statute  prescribes  no  form  in  which 
the  mortgage  shall  be  made.  The 
mode  in  which  the  mortgage  lien  shall 
be  created  is  left  to  the  company.  All 
that  is  required  is  that  the  lien  should 
be  given  to  secure  a  legitimate  debt  of 
the  corporation,  and  any  appropriate 
and  convenient  form  for  accomplish- 
ing that  end  may  be  adopted." 


a  debt  therefor,  is  expressly  given  to  the  corporation,  and  author- 
ity to  mortgage  its  property  for  the  payment  of  such  debt  is 
clearly  within  the  spirit  as  well  as  the  letter  of  the  statute."  * 
Bills  in  equity  were  filed,  one  by  a  stockliolder  and  others  by 
unsecured  simple  contract  creditors,  in  a  court  of  Massachusetts 
to  prevent  the  sale  under  power  in  a  trust  deed  or  mortgage  of 
the  property  of  a  heating  company,  a  corporation  of  that  state, 
given  to  secure  certain  bonds  which  the  heating  company  had 
issued  and  used  in  securing  advances  of  money  for  carrying  out 
its  purposes.  This  brought  in  question  the  power  of  such  a 
corporation  in  that  state  to  make  a  mortgage  such  as  it  had  exe- 
cuted in  these  cases.  The  Supreme  Judicial  Court  held  that  the 
heating  company  was  clothed  with  power  under  the  laws  of  Mas- 
sachusetts to  execute  the  mortgage.^     In  a  case  where  the  manu- 


'  Davidson  v.  Westchester  Gras  Light 
Co.,  (1885)  99  N.  Y.  558,  563,  564, 
565. 

•Evans  v.  Boston  Heating  Co., 
(1892)  157  Mass.  37.  Arguendo  it  was 
said:  "The  general  power  of  a  rail- 
road company,  which  is  undoubtedly 
a  public  or  a  quasi  public  corporation, 
to  make  a  mortgage  of  its  property, 
was  much  discussed  by  this  court  in 
Commonwealth  v.  Smith,  10  Allen, 
448.  It  was  there  held  that  such  a 
company,  which  was  created  for  the 
sole  purpose  of  constructing,  owning 
and  managing  a  railroad,  and  author- 
ized to  take  land  under  the  power  of 
eminent  domain,  could  not  make  a 
mortgage  in  a  manner  impliedly  pro- 
hibited by  statute;  and  it  was  said 
that  there  were  innumerable  objections 
to  such  a  corporation  alienating  its 
franchise  and  conferring  its  powers 
and  privileges  upon  another  person  or 
body  without  authority  other  than 
that  derived  from  the  fact  of  its  own 
incorporation.  It  was  also  said :  '  The 
power  to  mortgage  can  only  be  co- 
extensive with  the  power  to  alienate 
absolutely,  because  every  mortgage 
may  become  an  absolute  conveyance 
by  foreclosure.'  And  in  Richardson 
t.  Sibley,   11  Allen,  65,  it  was  held 


that  under  the  statute  of  1864,  chapter 
229,  section  24,  providing  that  no 
street  railway  corporation  shall  sell  or 
lease  its  road  or  property  unless 
authorized  so  to  do  by  its  charter  or 
by  special  act  of  the  legislature,  such 
a  corporation  could  not  mortgage  its 
property."  They  then  said:  "The 
doctrine  of  these  cases  does  not  apply 
to  ordinary  trading  or  manufacturing 
corporations.  Thus,  in  Treadwell  v. 
Salisbury  Manuf.  Co.,  7  Gray,  393,  it 
was  held  that  the  directors  of  a  manu- 
facturing corporation  might,  pursuant 
to  the  votes  of  a  majority  of  its  stock- 
holders, though  against  the  protest  of 
the  minority,  sell  the  entire  property 
of  the  corporation  to  a  new  corpora- 
tion. The  distinction  between  such 
corporations  and  'corporations  estab- 
lished for  objects  quasi  public,  such  as 
railway,  canal  and  turnpike  corpora- 
tions to  which  the  right  of  eminent 
domain  and  other  large  privileges  are 
granted  in  order  to  enable  them  to 
accommodate  the  public,  was  pointed 
out  on  page  404  by  Mr.  Justice  Bige- 
Low.  And  in  Commonwealth  r. 
Smith  it  was  said  by  Mr.  Justice 
Hoar:  '  The  general  power  to  dispose 
of  and  alienate  its  property  is  also  in- 
cidental to  every  corporation  not  re- 


1064 


MOBTOAOES  AND  TEU8T  DEEDS. 


[§50T 


Ml' 


facturing  company  Lad  executed  a  mortgage  for  a  large  amount 
to  secure  a  balance  of  indebtedness  due  for  the  purchase  price  of 
real  estate  and  for  advances  made  for  erecting  the  buildings  of 
the  company,  there  was  a  question  of  whether  the  paper  signed 
by  stockholders,  either  expressly  or  by  legal  intendment,  was 
sufficient  to  manifest  a  consent  to  this  mortgage.  The  paper 
referred  to  expressly  consented  that  the  company  execute  to  the 


507] 


PRIVATE  CORPORATIONS. 


1065 


stricted  in  this  respect  by  express 
legislation  or  by  the  purposes  for 
which  it  is  created,  and  the  nature  of 
the  duties  and  liabilities  imposed  by 
its  charter.'  10  Allen,  455.  The 
policy  of  the  commonwealth  in  regard 
to  railroads  and  street  railways  as  set 
forth  in  the  cases  above  cited  has 
since  been  changed.  The  statute  of 
1874,  chapter  373,  section  49,  provided: 
*  Any  railroad  corporation,  by  a  vote 
at  a  meeting  called  for  the  purpose, 
may  issue  bonds  to  provide  means  for 
funding  its  floating  debt  or  for  the 
payment  of  money  borrowed  for  any 
lawful  purpose.'  This  was  amended 
by  the  statute  of  1875,  chapter  58, 
section  1,  by  adding  the  words,  'And 
may  mortgage  or  pledge  as  security 
for  the  payment  of  such  bonds  any 
part  or  all  of  its  road,  equipment  or 
franchise,  or  any  part  or  all  of  its 
property,  real  or  personal.'  These 
provisions  are  incorporated  in  the 
Public  Statutes,  chapter  112,  section 
62.  By  the  statute  of  1889,  chapter 
316,  a  power  is  given  to  a  street  rail- 
way company  by  a  vote  of  a  majority 
in  interest  of  its  stockholders,  to 
authorize  the  issue  of  coupon  or 
registered  bonds,  '  secured  by  a  mort- 
gage of  a  part  or  of  the  whole  of  the 
railway  of  such  company  and  its 
equipments,  franchise  and  other  prop 
erty,  real  and  personal.'  By  the 
statute  of  1870,  chapter  224,  the  legis- 
lature passed  a  general  law  authoriz- 
ing the  formation  of  various  kinds  of 
manufacturing  and  trading  corpora- 
tions, including  in  section  5  those  for 
the  purpose  of  making  and  selling  gas 


for  light  in  a  city  or  town.  Section 
15  directs  how  the  business  of  the 
company  shall  be  managed,  and  con- 
cludes: '  But  no  conveyance  or  mort- 
gage of  the  real  estate  of  the  company 
or  lease  thereof  for  more  than  one 
year  shall  be  made  unless  authorized 
by  a  vote  of  the  stockholders  at  a 
meeting  called  for  the  purpose.'  By 
the  statute  of  1879,  chapter  202,  sec- 
tion 1,  companies  were  authorized  to 
be  formed  '  for  the  purpose  of  making 
and  selling  gas  for  lights  or  for  the 
purpose  of  generating  and  furnishing 
steam  or  hot  water  for  heating,  cook- 
ing and  mechanical  power,  in  any  city 
or  town,  or  for  either  or  both  of  said 
purposes,'  under  the  provisions  of 
the  statute  of  1870,  chapter  224.  It  is 
from  these  acts  that  sections  11  and  23 
of  Public  Statutes,  chapter  106,  are  de 
rived.  Without  relying  upon  the  re . 
marks  of  Chief  Justice  Bigelow  in 
Commonwealth  v.  Lowell  Gas  Light 
Co.,  12  Allen,  75,  which  are  strongly 
in  favor  of  the  view  that  a  gas  com- 
pany is  not  a  qua&i  public  corporation, 
it  seems  to  us  very  clear  that  the 
legislature  intended  to  treat  a  gas  com- 
pany or  a  heating  company  as  an 
ordinary  manufacturing  corporation 
and  not  as  a  quasi  public  corporation 
so  far  as  the  power  to  make  a  mort- 
gage is  concerned,  and  that  the  pecu- 
liar language  of  the  statute  of  1870, 
chapter  224,  section  15,  and  of  Public 
Statutes,  chapter  106,  section  23,  is  due 
to  the  fact  that  as  a  manufacturing; 
corporation  it  could  make  a  mortgage 
without  special  authority." 


other  corporation  to  which  it  was  indebted  as  above  stated  "  a 

bond  conditioned  for  the  payment  of ,  and  a  mortgage  to 

secure  the  same  upon  the  lands  and  premises  by  them  owned, 
situate  in  the  city  of  Brooklyn,"  etc.     The  New  York  Court  of 
Appeals,  Church,  Ch.  J.,  delivering  the  opinion,  said :  "  Eegard- 
ing  this  as  authority  from  principal  to  agent,  taken  in  connection 
with  the  act  of  1864,  I  think  it  sufficient  to  authorize  a  mortgage 
to  secure  any  debt  of  the  character  specified  in  the  act  of  1864 
which  the  manufacturing  corporation  owed  the  plaintiff.     It  is 
necessary  to  specify  the  amount  of  the  debt  or  the  character  of 
it.     It  is  conceded  that  if  the  paper  had  authorized  the  payment 
of  any  debt  owing  to  the  plaintiff,  it  would,  in  this  respect,  have 
been  sufficient.     The  authority  was  unlimited  as  to  the  amount, 
and,  therefore,  it  authorized  securing  any  amount  which  the  act 
authorized  to  be  secured.     This,  it  seems  to  me,  is  its  legal  effect, 
and  it  is  as  effectual  as  if  it  had  specified  the  indebtedness  or 
referred  to  the  debt  as  one  owing  to  the  plaintiff.     Xo  statute 
authority  was  requisite  to  the  giving  of  the  bond.     The  stock- 
holders  expressly   authorized  a  bond  to  be  given,  and,  as  the* 
amount  was  not  restricted,  I  think,  upon  recognized  principles  in 
analogous  cases,  that  the  authority  was  ample  to  execute  the  bond 
in  question.     The   stockholders    themselves  would  not,  in   the 
absence  of  fraud,  be  heard  to  deny  this  authority.     It  would  not, 
of  course,  authorize  a  bond  for  a  sum  not  owing  or  for  a  debt 
not  authorized  to  be  secured  by  mortgage,  but  within  this  limita- 
tion it  would  authorize  a  bond  for  any  amount."     The  contention 
in  part  of  the  appellant  here  was  that  not  only  the  particular 
sum  be  named,  but  the  date  and  terms  of  the  mortgage  must  be 
specified.     The  chief  justice  said  upon  that :  "  [Such]  a  construc- 
tion    *  *     would  practically  destroy  the  value  of  the  pro- 
vision.    The  defendant  could  not  have  been  misled.     The  con- 
sent in  this  case  was  ample  to  put  him  upon  inquiry.     If  he 
examined  the  files,  he  was  informed  that  the  stockholders  had 
authorized  a  mortgage  to  secure  a  bond  for  an  amount  limited 
only  by  the  amount  of  the  debt  actually  existing  of  a  specified 
nature,  and  the  mortgage  on  record  informed  him  of  the  extent 
to  which  the  authority  had  been  exercised.     He  seeks  to  gain  a 
preference,  not  by  objecting  either  that  the  amount  of  the  debt 
or  its  nature  was  not  correct  and  legitimate,  nor  claiming  that  he 
was  in  any  manner  deceived  or  misled,  but  by  criticising  the  form  in 
134 


1066 


MORTGAGES  AND  TRUST  DEEDS. 


[§5or 


i\t 


which  those  interested  saw  fit  to  express  their  assent.  Assuming- 
his  right  to  object,  we  think  the  defects  must  be  so  radical  that 
an  intention  to  consent  cannot  be  inferred."  ^  The  statute  of 
New  York,  which  required  tlie  written  assent  of  stockholders 
owning  two-thirds  of  its  capital  stock  to  be  first  filed  to  authorize 
the  execution  of  a  mortgage  by  a  corporation  as  security  for  debts 
incurred,  has  been  held  by  the  Court  of  Appeals  to  liave  been 
complied  with  where  the  requisite  consent  was  given,  although 
not  filed  before  the  execution  of  the  mortgage  and  no  rights  of 
other  creditors  had  intervened  to  make  the  mortgage  valid  in  this 
respect  as  against  the  company  and  its  stockholders.^  A  resolu- 
tion at  a  stockholders'  meeting,  passed  l)y  vote  of  stockholders 
owning  more  than  two-tliirds  of  the  stock,  entered  on  the  minutes 
and  attested  by  the  secretary,  has  been  held  to  be  a  "written 
assent "  within  the  meaning  of  the  statute  of  New  York  requir- 
ing the  assent  of  such  a  proportion  of  stockholders  to  the  execu- 
tion of  a  mortgage  by  a  corporation.^  A  corporation  formed 
under  the  act  of  New  York  for  the  formation  of  manufacturing 
and  other  kinds  of  corporations  contested  the  validity  of  a  mort- 
gage upon  the  real  estate  of  the  corporation  made  to  secure  the 
payment  of  bonds  of  some  of  which  the  defendants  were  the 
holders.  The  validity  of  the  mortgage  was  impeached  upon  the 
ground  that  "  the  written  assent  of  the  stockholders  owning  at 
least  two-thirds  of  the  capital  stock  "  was  required  by  the  stat- 
utew  There  was  a  written  assent.  Tlie  corporation's  claim  as  to 
this  was  that  eighty  shares  represented  in  the  assent  had  never 
been  lawfully  issued,  and  that  the  remaining  shares  were  not  two- 
thirds  of  the  capital.  The  judge  below  in  effect  found  that  if 
the  eighty  shares  were  excluded  there  were  still  represented  in 
the  assent  two-thirds  of  the  capital  stock.     The  Superior  Court 


'  Greenpoint  Sugar  Co.  r.  Whitin, 
(1877)  69  N.  Y.  328,  334,  335,  336. 

•Martin  v.  Niagara  Falls  Paper 
>Ianufacturing  Co.,  (1890)  122  N.  Y. 
165;  8.  c,  25  N.  E.  Rep.  303;  citing 
Rochester  Savings  Bank  v.  Averell,  96 
N.  Y.  467. 

'Beebe  v.  Richmond  Light,  Heat  & 
Power  Co.,  35  N.  Y.  Supp.  1.  Assent 
of  stockholders  to  mortgage:  Market 
&  Fulton  National  Bank  v.  Jones,  7 
3Iisc.  Rep.  307;  s.  c,  27  N.  Y.  Supp. 


677;  Adams  Cotton  Mills  v.  Dimmick, 
96  Ala.  238.  That  the  statute  of  New 
York  of  1890,  requiring  the  mutual 
assent  of  two-thirds  of  the  stockhold- 
ers to  the  execution  of  a  corporate 
mortgage,  is  not  applicable  to  a  mort- 
gage given  in  fulfillment  of  a  valid 
and  obligatory  contract  made  upon  a 
full  and  valuable  consideration  before 
the  passage  of  the  statute,  see  Atlantic 
Trust  Co.  r.  Proceeds  of  the  Vigi- 
lancia,  68  Fed.  Rep.  781. 


§507] 


PRIVATE  CORPORATIONS. 


106: 


of  New  York  city  in  General  Term  affirmed  the  finding  and 
judgment.*  The  assent  to  a  mortgage  executed  in  a  case  by  a 
^manufacturing  corporation  of  the  state  of  New  York  was  signed 
by  a  certain  number  of  stockholders  and  by  the  corporation  itself, 
by  its  secretary  and  president,  this  being  done  as  they  intended 
to  represent  940  of  the  5,000  total  shares  which  stood  in  the 
name  of  the  corporation  itself.  The  New  York  Court  of 
Appeals  held  that  these  shares  represented  by  the  company  could 
not  be  counted  to  maRe  the  amount  in  value  required  by  the 
statutes  of  the  state  to  assent  to  the  execution  of  a  mortgage.^ 

should  be  made  upon  the  assent  of 
two-thirds  of  the  actual  capital,  when 
that  was  accomplished  by  the  begin- 
ning of  an  arrangement  to  increase  the 
capital,  or  even  by  an  intention  forth- 
with to  make  such  an  arrangement. 
That  method  would  be  fraudulent  as 
to  those  who  might  afterwards  become 
the  owners  of  shares.     In  the  present 
case  the  fact  is  that  if  there  were  an 
intention  to  issue  the  shares  one  hun- 
dred and  twenty  in  number,  of  which 
the  eighty  was  represented  in  the  as- 
sent, the  result  would  be  that  those 
one  hundred  and  twenty  shares  must 
be  considered  part  of  the  actual  co.pital, 
and  then  the  persons  to  whom  the  issue 
was  made  would    be  considered  the 
owners  of  the  shares.     In  such  case 
there  was  an  assent  of  two-thirds  of 
the  capital  stock   upon  the  position 
taken  by  the  plaintiff.'" 

« Vail  V.  Hamilton,  (1881)  85  N.  Y. 
453,  456,  457.  Danforth,  J.,  said: 
"The  persons  who  became  'a  body 
politic  and  corporate  '  under  the  name 
of  the  '  Secor  Sewing  Machine  Com- 
pany,' were  made  capable  of  buying, 
piurchasing,  holding  and  conveying  in 
their  corporate  name  any  lands,  goods, 
wares  and  merchandise  necessary  to 
enable  the  company  to  carry  on  the 
operations  named  in  their  certificate  of 
incorporation.  But  while  a  certain 
limited  number  of  the  stockholders,  to 
be  called  trustees,  were  empowered  in 
that  character  to  manage  this  property 


» Lyceum  v.  Ellis,  (1890)  57  N.  Y. 
Super.  Ct.  532;  s.  c,  8  N.  Y.  Supp. 
867.     "In  this  [finding],"  said  Sedg- 
wick, Ch.  J.,  in  General  Term  of  the 
Superior  Court    of    New  York  city, 
speaking  for  a  majority  of  the  court, 
"he  was  correct,  under  the    case  of 
Greenpoint  Sugar  Co.  v.  Whitin,  69  N. 
Y.  328.     That  case  decided  that  '  for 
the  purposes  of  this  act    *    *    *    the 
amount   actually  issued  and    owned 
should  be  regarded  as  the  amount  of 
the  capital  stock.     The  design  was  to 
confer  this  power  of  assent  upon  those 
who  represented  two  thirds  of  the  act- 
ual stock.  They  represented  two-thirds 
of  the   pecuniary  interest  and  prop- 
erty of  the  corporation.     The  learned 
counsel  for  the  plaintiff  argues  that 
the  case  cited  makes  a  limitation  of  the 
general  principle  announced  by  saying 
in    reference  to  what  it  held   to  the 
amount  of  the  capital  stock  or  the  two 
thousand  shares,  *  and,  for  aught  that 
appears,  no  more  was  intended  to  be 
issued.'    The  meaning  of  this,  I  take 
to  be,  that  an  assent  to  a  mortgage 
made  by  two-thirds  of  the  then  capital 
stock,   will  not  be  sufficient,  if,  also, 
then  there  is  a  definite  intention  of  in- 
creasing   the  actual  stock  by  future 
issuing  of  shares  in  a  manner  that  will 
increase  the  actual  stock.     The  inten- 
tion referred  to  is  not  a  general  inten- 
tion; that  is  presumed  as  to  all  shares 
not  transferred.  It  would  be  an  attempt 
to  evade  the  statute,  that  a  mortsraffc 


<  « 


1068 


MORTGAGES  AND  TRUST  DEEDS. 


[§50T 


§508] 


PRIVATE  CORPORATIONS. 


1069 


The  Supreme  Court  of  New  York  in  General  Term,  where  it  was 
part  of  tlie  arrangement  under  which  land  was  conveyed  to  an 
incorporated  association  that  it  sliould  give  two  mortgages  to 
secure  future  advances  for  improvements  thereon,  and  the 
mortgages  and  the  deed  were  executed  and  delivered  contem- 
poraneously, sustained  the  finding  of  a  referee  that  the  mort- 
gages were  not  invalid  because  of  any  failure  to  comply  with 
the  requirements  of  a  statute  of  that  state,  providing  tliat  associa- 
tions incorporated  under  it  shall,  as  a  condition  precedent  to  the 
giving  of  a  mortgage  to  secure  a  debt  contracted  by  it  in  the 
course  of  its  business,  have  the  assent  of  two-thirds  of  the  owners 
of  the  capital  stock,  holding  tliese  mortgages  not  within  the  act.* 
In  a  West  Virginia  case,  a  corporation  of  the  state  of  New  York, 
in  an  action  to  foreclose  a  mortgage  upon  its  mining  lands  in  the 
former  state,  tlie  corporation  attempted  to  put  in  issue  the 
validity  of  tlie  mortgage,  claiming  tliat  it  was  invahd  by  reason 
of  the  assent  of  stockholders  required  under  tlie  New  York  stat- 
utes not  having  been  given.     Even  if  this  were  conceded,  the  Court 


and  the  stock  and  concerns  of  thecom- 
pany,  neither  in  a  corporate  capacity, 
nor  through  its  trustees,  was  it  per- 
mitted to  mortgage  the  same  without 
first  obtaining  and  filing  *  the  written 
assent  of  the  stockholders  owning  at 
least  two-thirds  of  the  capital  stock  of 
such  *  company.  [Citing  the  laws  of 
the  state.]  It  is  noticeable  that  there 
is  thus  called  into  action  the  corpora- 
tion as  an  artificial  entity,  the  body  of 
the  trustees  as  its  agents,  and,  lastly, 
the  constituent  members  of  the  corpo- 
rution  or  the  several  individuals  com- 
posing it.  To  each  of  these  a  duty  is 
assigned,  and,  to  make  valid  the  trans- 
action now  before  us,  it  is  plain  that 
something  more  than  corporate  action 
was  required.  The  corporation  might 
become  a  party  to  the  mortgage,  and 
the  trustees  direct  its  officers  to  execute 
it;  but  there  must  Still  be  the  assent  of 
the  stockholder.  The  will  of  the 
whole  body,  expressed  by  vote  or  reso- 
lution, cannot  take  its  place.  The 
name  of  the  corporation  is  signed  to 
the  assent.    This,  if  it  amounts  to 


anything,  must  be  the  result  of  corpo- 
rate, not  individual  action.  It  was 
signed  by  its  officers,  and  their  act,  to 
bind  even  the  corporation,  must  have 
been  official;  it  can  have  no  force  as 
representing  an  individual.  As  to  nine 
hundred  and  forty  shares,  therefore, 
there  is  nootherassenttothe  mortgage 
in  question  than  that  of  the  corpora- 
tion. The  mortgage  itself  must  be 
deemed  a  corporate  act,  and  assent 
thereto  by  the  same  body  can  give  it 
no  additional  validity.  As  to  those 
shares  assent  has  not  been  given.  It 
follows,  also,  that  as  the  corporation 
cannot  assent  for  the  stockholders, 
neither  can  one  stockholder  for  another; 
nor  can  one  who  assents  on  the  strength 
of  stock  standing  in  his  own  name,  be 
deemed  to  represent  a  proportionate 
amount  of  the  stock  owned  by  the 
corporation." 

'McComb  V.  Barcelona  Apartment 
Assn.,  (1890)  10  N.  Y.  Supp.  546;  citing 
Sugar  Co.  v.  Wliitin,  69  N.  Y.  328,  886, 
337;  Coman  v.  Lakey,  80  N.  Y.  846. 


of  Appeals  of  West  Virginia  held  that  the  question  of  whether 
the  proper  assent  of  stockholders  had  been  given  could  not  be 
raised  by  the  corporation.^  The  validity  of  a  mortgage  executed 
by  a  corporation  in  North  Carolina  was  assailed  by  other  credit- 
ors, and  the  Supreme  Court  of  that  state  made  the  following  rul- 
ings :  The  assent  of  a  majority  of  stockholders,  expressed  else- 
where than  at  a  meeting  of  the  stockholders,  as  where  the  assent 
of  each  is  given  separately  and  at  different  times  to  a  person  who 
goes  around  to  them  privately,  does  not  bind  the  company.  An 
agency  to  execute  a  mortgage  given  in  this  manner  gives  no 
validity  to  the  mortgage.  It  is  not  the  corporation's  act,  which 
can  only  be  authorized  in  the  mode  required  by  law.  The  use  by 
the  company  of  money  raised  by  such  mortgage  would  not  of 
itself  be  a  ratification.  If  the  company  ratify  the  mortgage,  it 
would  not  validate  it  as  to  other  creditors  if  the  mortgage  is  invalid 
when  registered.' 

§  508.  Mortg:ag:es  and  trust  deeds  —  rules  as  to  place  of 
execution,  authorization,  mode  of  execution,  to  whom  exe- 
cuted, record,  etc. —  The  United  States  Circuit  Courl  for  the 
eastern  district  of  Louisiana  held,  in  a  suit  to  foreclose  a  mort- 


^Boyce  t>.  Montauk  Gas  Coal  Co., 
(W.  Va.  1892)  16  S.  E.  Rep.  501.  The 
court  said:  "  In  the  case  of  Beecher  v. 
Rolling  Mill  Co.,  45  Mich.  103;  s.  c,  7 
K.  W.  Rep.  695,  under  a  statute  which 
forbade  a  manufacturing  company  to 
mortgage  its  property  unless  author- 
ized thereto  by  vote  of  stockholders 
holding  three-fifths  interest,  and  noti- 
fied of  the  object  of  the  meeting  called 
to  obtain  such  vote,  and  which  pro- 
vides that  without  notice  the  proceed- 
ings shall  not  be  valid,  where  notice 
was  given  of  a  meeting  to  authorize 
the  issue  of  bonds  to  the  extent  of  one 
hundred  thousand  dollars,  secuied  by 
mortgage,  and  the  meeting  actually 
authorized  an  issue  to  the  amount  of 
one  hundred  and  fifty  thousand  dollars, 
it  was  held  that,  so  long  as  the  corpo- 
ration raised  no  objection  to  the  pro- 
ceedings no  one  else  could.  Judge 
CooLEY,  delivering  the  opinion  of  the 
court,  says:  '  The  statute  now  under 


consideration  was  passed  to  protect  the 
interests  of  stockholders  in  mining 
companies.  It  intends  that  their  min- 
ing property  shall  not  be  conveyed 
away  or  mortgaged  except  by  their 
deliberate  action,  after  they  have  been 
notified  of  a  proposal  to  do  so,  and 
have  had  time  to  deliberate  upon  and 
fully  consider  it.  But  the  matter  does 
not  concern  the  public  at  large.  No 
principle  of  public  policy  is  at  stake. 
No  wrong,  direct  or  indirect,  is  done 
to  any  human  being,  if  conveyance  is 
made  or  mortgage  given  without  the 
exact  notice  required,  unless  it  be  a 
wrong  to  the  stockholders  themselves; 
and,  as  others  are  not  concerned,  why 
should  the  statute  give  them  the  right 
to  raise  questions  of  regularity  which 
the  stockholders  elect  to  waive?  We 
are  satisfied  such  was  not  its  purpose.' " 
« Duke  V,  Markham,  (1890)  105  N.  C. 
131;  8.  c,  lOS.  E.  Rep.  1017. 


I*- 


1070 


MORTGAGES  AND  TRUST  DEEDS. 


[§508 


i}  I 


'It 

it! 


\\ 


eage  ffiven  by  a  New  Jersey  corporation  upon  its  property  m 
Louisiana,  that  it  was  no  defense  that  at  the  time  of  executing 
the  mortgage  some  of  the  directors  were  not  residents  of  New 
Jersey.^     Neither  was  the  mortgage  invaUdated  hy  tlie  fact  that 
the  directors  went  into  New  Jersey  and  remained  there  only  a 
brief  period,  to  hold  the  meeting  at  which  was  passed  the  resolu- 
tion authorizing  the  mortgage.^     A  trust  deed  to  secure  bonds 
will  not  be  held  invalid  l)ecause  it  may  not  be  in  strict  accordance 
in  some  particulars  with  the  resolution  of  the  corporation's  board 
of  directors  authorizing  it,  when,  subsequent  to  its  execution,  the 
board  of  directors  have  recognized  the  existence  and  validity  ot 
the  mort<racre  by  directing  the  issuance  of  the  amount  of  bonds  it 
was  given  t°o  secure.^     Certain  officers  and  directors  of  a  private 
corporation  in  Nebraska  loaned  their  credit  to  it  by  executmg 
notes  for  the  accommodation  of  the  corporation,  thus  obtaining 
capital  for  its  operations.     They  were  secured  by  a  mortgage 
upon  the  plant.     When  they  brought  action  to  f orec  ose  this 
mortgage  certahi  alleged  stockholders  intervened  and  defended 
upon    various  grounds,   with  a  prayer  for   a  dismissal  of   the 
petition,  and  that  the  mortgages  and  the  record  thereof  he  can- 
celed, and  for  equitable  relief.     These  interveners,  by  an  amend- 
ment' of  their  answer,  with  the  permission  of   the  court,  also 
daimed  to  be  creditors  of  the  corporation  for  advances  made  to 
it  and  prayed  for  a  receiver  to  take  charge  of  its  property,  con- 
vert it  into  cash,  and  apply  the  proceeds  to  the  payment  of  its 
general  indebtedness,  and  if  anything  was  left  to  apply  it  pro 
rata  among  the  stockholders.     There  was  a  finding  and  a  aecree 
of  foreclosure  in  favor  of  the  plaintiffs,  and  an  appeal  by  the 
interveners.     The  first  proposition  argued  before  the  Supreme 
Court  was  that  the  evidence  failed  to  show  authority  irom  the 
board  of  directors  for  the  execution  of  the  mortgages,  or  either 

against   a  creditor  the  directors  are 
clearly  competent. 

« Wheelwright  v.  St.  Louis,  N.  O.  & 
O.  Canal  Transportation  Co.,  (1893)  56 
Fed.  Rep.  164.  As  to  officers  acting 
outside  the  state,  see  Missouri  Lead 
Mine  &  Smelting  Co.  «.  Reinhard,  114 

Mo.  218. 

« First  Nat  Bank  o.  Sioux  City  Ter- 
minal R.  R,  &  Warehouse  Co.,  69  Fed. 
Rep.  441. 


» Wheelwright  v.  St.  Louis,  N.  O.  & 
O.  Canal  Transportation  Co.,  (1893)  56 
Fed.  Rep.  164.  Billings,  D,  J.,  said: 
Whatever  force  there  might  have  been 
in  this  objection  in  case  the  state  had 
brought  a  quo  warranto  against  the 
corporation,  there  is  no  force  in  it  in 
this  proceeding.  The  board  was 
elected  by  stockholders  in  the  manner 
pointed  out  by  the  charter,  and  as 


§508] 


PRIVATE  CORPORATIONS. 


1071 


of  them.     To  this  argument  the  court  said :  "  Both  mortgages 
purport  to  have  been  executed  by  the  [corporation]  and  acknowl- 
edged in  belialf  of  said   [corporation]  by  F.  R.  Guthman,  presi- 
dent, and  E.  B.  Lewis,  secretary,  and  attested  by  the  seal  thereof. 
The  genuineness  of  the  signatures  to  the  mortgage,  as  well  as  the 
official  character  of  the  signers,  is  speciiically  admitted,  but  we 
understand  counsel  for  interveners  to  contend  that  authority  for 
the  execution  of  the  mortgages  must  affirmatively  appear  from 
the  record  of  the  board  of  directors.     To  that  proposition  we 
cannot  give  our  assent.     The  signatures  of  the  officers,  with  the 
corporate  seal  attached,  is  ^ima  facie  evidence  that  the  mort- 
gages were  executed  by  authority  of  the  company,  and  the  burden 
of  proving  want  of  authority  is  upon  the  interveners."  '     Upon 
the  questions  raised  as  to  the  execution  of  chattel  mortgages  of 
an  insolvent  Michigan  corporation,  the    United  States  Circuit 
Court  of  Appeals  for  the  sixth  circuit  held  that  under  the  resolu- 
tion adopted  by  the  directors  of  the  corporation,  reciting  an  agree- 
ment by  a  creditor  to  advance  to  the  corporation  $3,000,  and  a 
further  sum  of  $1,000,  if  required,  and  authorizing  the  secretary 
and  treasurer  to  secure  the  total  indebtedness  by  chattel  mort- 
gage, tliis  creditor,  having  advanced  the  $3,000  —  the  additional 
$1^000  not  being  required  by  the  corporation  —  was  entitled  to 
the  mortgage.     And  the  further  authorization  in  the  resolution 
of   the  secretary  and  treasurer,  to  secure  "any  and  all  other 
creditors  "  by  subsequent  mortgages,  did  not  require  a  mortgage 
to  secure  all  other  creditors,  the  word  "  and,''  in  the  opinion  of 
the   court,   in   that   connection   having   the   meaning   of   "or." 
Neither  were  the  mortgages  invahdated  by  the  fact  that  some  of 
the  directors  and  stockholders  who,  as  such,  voted  for  the  resolu- 
tion authorizing  the  mortgages,  were  also  guarantors  and  indorsers 
upon  most  of  the  secured  notes.^     After  holding  that  a  heating 


'  Gorder  v.  Plattsmouth  Canning 
Co.,  (1893)  36  Neb.  548,  551,  552;  citing 
Ang.  &  Ames  Corp.  §217;  Boone  Corp. 
§  50;  Blackshire  r.  Iowa  Homestead 
Co.,  39  Iowa,  624;  Whitney  v.  Union 
Trust  Co.,  65  N.  Y.  577;  Davis  v. 
Jenney,  1  Met.  221;  Williamsburg 
City  Fire  Ins.  Co.  c  Frothingham,  122 
Mass.  391;  Murphy  v.  Welch,  128 
Mass.  489;  Hamilton  v.  McLaughlin, 
(Mass.)  12  N.  E.  Rep.  424;   Morris  v. 


Keil,  20  Minn.  531;  Musser  v.  Johnson, 
42  Mo.  74. 

'Brown  v.  Grand  Rapids  Parlor 
Furniture  Co.,  (1893)  58  Fed.  Rep.  286, 
following  on  this  last  point.  Bank  of 
Montreal  v.  J.  E.  Potts'  Salt  &  Lumber 
Co.,  90  Mich.  345;  s.  c,  51  N.  W.  Rep. 
512;  citing  Hills  v.  Furniture  Co.,  23 
Fed.  Rep.  432;  County  Court  v.  Balti- 
more &  O.  R.  Co.,  35  Fed.  Rep.  161, 
and  reviewing  many  other  cases. 


Il 


1072 


MOBTOAQES  AND  TRUST  DEEDS. 


[§508 


§508] 


t 


111 


if 


company  organized  under  tlie  Public  Statutes  of  Massachusetts 
(Chap.  106,  §§11,  23),  had  authority  to  make  a  mortgage  to  secure 
bonds  issued  by  it,  the  Supreme  Judicial  Court  considered  the 
question  whether  the  mortgage  was  authorized  "  at  a  meeting 
called  for  the  purpose  as  required  by  §  23,  above  referred  to." 
They  said  :  "  The  notice  of  the  meeting  stated  the  object  to  be 
*  to  consider  the  question  of  an  issue  of  bonds  of  the  company 
secured  by  a  mortgage  of  its  property.' "  There  was  an  objection 
that  the  notice  did  not  indicate  that  final  action  was  to  be  taken, 
and,  therefore,  the  action  at  the  meeting  did  not  operate  to 
authorize  the  execution  of  the  mortgage.  The  court  held  that 
action  at  the  meeting  upon  the  subject  of  executing  this  mortgage 
was  properly  taken,  the  notice  being  sufficiently  explicit  to 
amount  to  a  compliance  with  the  statute.*  The  Iowa  Supreme 
Court  has  held  that  where  the  resolution  authorizing  the  execu- 
tion of  a  deed  of  trust  conveying  the  property  of  a  corporation 
was  passed  at  a  meeting  of  the  directors,  at  which  four  out  of  live 
were  shown  by  the  minutes  to  be  present,  and  the  minutes  showed 
that  two  of  them  voted  for  the  resolution,  and  that  one  of  them 
voted  against  it,  and  that  it  was  adopted,  but  the  president,  whose 
vote  was  not  ehown  by  the  minutes,  signed  and  approved  them, 
the  president  wjll  be  presumed  to  have  voted  for  it,  and  that  it 


PRIVATE  CORPORATIONS. 


1073 


» Evans  v.  Boston  Heating  Co.,  (1892) 
157  Mass.  37.  The  court  said:  "  The 
object  of  a  call  is  undoubtedly  to  give 
notice  of  the  business  which  is  to  be 
transacted  at  the  meeting.  The  notice 
in  this  case  was  issued  to  members  of 
a  business  corporation,  and  it  could 
hardly  have  been  understood  by  them 
as  calling  a  meeting  simply  for  the 
purpose  of  debate,  and  we  are  of 
opinion  that  this  is  not  its  fair  intend- 
ment, and  that  action  under  it  might 
be  taken.  At  the  time  of  the  notice 
the  corporation  had  a  leasehold  estate 
in  a  parcel  of  land,  with  an  option  to 
purchase  it.  We  see  no  reason  why 
this  was  not  'property'  within  the 
meaning  of  the  notice,  nor  why  it  was 
not  sufficiently  indicated  by  the  notice. 
After  the  directors  had  been  authorized 
at  the  meeting  to  purchase  the  land  in 
which    the   corporation   then    had   a 


leasehold  estate,  and  to  mortgage  '  any 
or  all  of  the  rights,  estate,  property 
and  franchises '  of  the  corporation,  the 
land  was  conveyed  to  the  corporation, 
the  property  was  mortgaged,  and  the 
land  was  paid  for  out  of  the  proceeds 
of  the  mortgage.  We  do  not  think 
that  the  fact  that  between  the  time 
of  the  meeting  and  that  of  the  execu- 
tion of  the  mortgage  the  interest  of 
the  corporation  in  the  land  changed 
from  an  estate  for  years  to  a  freehold 
estate  made  it  necessary  to  call  a  new 
meeting  or  to  pass  a  new  vote.  The 
notice  of  the  meeting  gave  warning 
that  a  mortgage  of  the  property  of  the 
company  was  to  be  considered.  The 
votes  passed  at  the  meeting,  by  fair 
intendment,  contemplated  and  author- 
ized the  doing  of  what  was  in  fact 
done." 


must  be  regarded  as  duly  adopted.^  A  number  of  questions 
arose  in  a  Massachusetts  case  as  to  the  powers  of  the  officers  of  a 
New  Hampshire  corporation  doing  business  in  the  State  of  Mas- 
sachusetts, in  connection  with  the  execution  of  a  mortgage  upon 
real  estate  in  the  latter  state.  The  Supreme  Court  held,  upon  the 
contention  that  the  mortgage  made  to  the  savings  bank  by  the 
corporation  was  without  lawful  authority  and  void,  by  virtue  of 
the  statute  of  Massachusetts,  which  provides  that  no  conveyance 
or  mortgage  of  the  real  estate  of  a  corporation  or  "  lien  thereof 
for  more  than  one  year  shall  be  made,  unless  authorized  by  a  vote 
of  the  stockholders  at  a  meeting  called  for  the  purpose,"  no  such 
vote  having  been  passed  authorizing  the  mortgage  in  question, 
that  the  statute  did  not  refer  to  foreign  corporation s.^     The  Iowa 


'  Rollins  V.  Shaver  Wagon  &  Carriage 
Co.,  (1890)  80  Iowa,  380;  s.  c,  45  N. 
W.  Rep.  1037.     See  as  to  authority  of 
officers  to  execute  a  mortgage,  Jesup 
V.  City  Bank  of  Racine,  14  Wis.  331; 
Haven  v.  Adams,  4  Allen,  80;  Kenne- 
bec &  Portland  R.  R.  Co.  v.  Portland 
&    Kennebec  R.   R.   Co.,   59  Me.   9; 
Luse  V.   Isthmus  Transit  Ry.  Co.,  6 
Or.  125;  Miller  v.   Rutland  &  Wash- 
ington R.  R.  Co.,  36  Vt.  4,52;  Fitch  v. 
Lewiston  Steam  Mill  Co.,  80  Me.  34; 
H.  c,  12  Atl.  Rep.  732. 

'  Saltmarsh  v.  Spaulding,  (1888)  147 
Msiss.  224;  s.  c,  17  N.  E.  Rep.  316. 
Devens,  J.,  speaking  for  the  court, 
said:  "While  the  general  principle 
undoubtedly  is,  that  the  law  of  the 
place  where  real  property  is  situate 
exclusively  governs  as  to  the  title  of 
parties  therein,  the  disposition  and 
mode  of  transfer  thereof,  and  the 
solemnities  attending  such  transfer, 
and  while  we  do  not  doubt  that  it 
would  be  possible  to  provide  by  legis- 
lation that  foreign  corporations,  per- 
mitted to  own  real  property  situate  in 
this  state,  should  only  transfer  the 
same  by  the  authority  of  the  stock- 
holders, no  such  provision  has  been 
made.  Attorney-General  v.  Bay  State 
Mining  Co.,  99  Mass.  148.  While  they 
must  comply  in  their  forms  of  convey- 
135 


ance  with  those  here  required,   they 
derive  their  authority  to  make  them 
from  the  rules  imposed  upon  them  by 
the  states   where   they   are  created." 
To  the  further  contention  that  there 
was  no  power  vested  in  the  board  of 
directors  by  the  laws  of  New  Hamp- 
shire which  authorized  them  to  make 
a  deed  of  real  estate,  the  court  said: 
"The    by-laws     of     the    corporation 
vested  the  management  and  control  of 
its  business  and  the  authority  to  ap- 
point all  necessary  agents  therefor  in 
the  board  of  directors.     The  mortgage 
deed  was  made  iu  the  name  of  the  cor- 
poration,  and  under  its  sejil  by  the 
president  and  treasurer  of  the  corpo- 
ration, by  virtue  of  an  express  vote  of 
the  directors  giving  them   authority. 
The  General  Statutes  of  New  Hamp- 
shire of  1878,  chapter  147,  section  4, 
clause  3,  which  are  made  a  part  of  the 
case,  empowered  the  corporation  to 
adopt  by-laws    '  to  regulate  the  num- 
ber of  officers,  their  powers  and  duties, 
the  mode  of  choosing  them,  and  their 
tenure  of  office;  and  any  others  neces- 
sary and  suitable  to  promote  the  objects 
of    the    corporation;    and    alter   and 
amend  the  same.'  The  corporation  was 
one  authorized  to  make  contracts  nec- 
essary and  proper  for  its  business,  and 
to  purchase,  hold  and  convey  real  and 


1074 


MORTGAGES  AND  TRUST  DEEDS. 


[§503 


II 


Supreme  Court  has  held  that  a  trust  deed  made  by  a  corporation 
to  secure  preferred  creditors  could  not  be  assailed,  as  to  one  of  the 
creditors  secured,  on  the  ground  that  one  of  the  directors  who 
voted  for  it  was  her  husband  and  another  her  brother,  and 
that  without  their  votes  it  could  not  have  been  made.* 
Where  a  charter  of  a  Pennsylvania  corporation  provided  that  the 
property  of  the  association  should  be  purchased,  held,  managed 
and  sold  by  a  board  of  five  trustees,  a  mortgage  executed  by  the 
president  and  secretary  of  the  corporation,  and  not  by  its  trustees, 
and  not  sealed  with  the  corporate  seal,  and  there  was  not  to  be 
found  on  the  books  of  the  corporation  any  resolution  authoriz- 
ing, ratifying,  or  in  any  manner  recognizing,  the  making  of  this 
mortgage,  was  held  by  the  Supreme  Court  of  Pennsylvania  not 
to  be  the  act  and  deed  of  the  corporation,  or  binding  upon  it  as 
such.'  A  corporate  mortgage  has  been  held  valid  as  against  an 
attack  of  creditors  who  were  not  stockholders,  though  not  author- 
ized by  a,  majority  of  the  stockholders  at  a  "regular  general 
meeting"  as  required  by  its  charter.^  No  one  but  a  stockholder 
can  take  advantage  of  a  failure  to  advertise  a  notice  of  a  stock- 
holders' meeting,  as  required  by  the  Tennessee  statute,  at  which 


personal  estate  necessary  for  the  trans- 
action of  its  business.     Gen.  Sts.  of  N. 
H.  of  1878,  chap.  147,  §§  5,  6.    The 
directors,    by    virtue   of   the  powers 
implied  from  their  position,  had  the 
general  control  and    management  of 
the  business,  which  of  necessity  in- 
volved the  raising  of  money  to  carry  it 
on.     It  is  found  that  the  money  raised 
by  means  of  the  mortgage  was  ex- 
pended in  the  real  estate  of  the  mort- 
gagor.    In  the  absence  of  any  pro- 
hibitory statute,  a  sufficient  authority 
is  shown  on  the  part  of  the  directors 
to  mortgage  the  property,  and  doing 
so  they  could  adopt  the  form  ordi- 
narily in  use  where  the  real  estate  was 
situated."     Citing  Burrill  v.  Nahant 
Bank,  2  Met.  163, 166;  Sargent  P.Web- 
ster, 13  Met.  497;  Hendee'tJ.  Pinker- 
ton,  14  Allen,  381,  387;  Despatch  Line 
of  Packets  v.  Bellamy  Mfg.  Co.,  12  N. 
H.  205. 
'  Rollins  V.  Shaver  Wagon  &  Car- 


riage Co.,  (1890)  80  Iowa,  380;  s.  c,  45 
N.  W.  Rep.  1037.  The  court  said: 
"  She  was  not  an  officer  nor  stock- 
holder of  the  company  at  that  time; 
but,  had  she  been  one  of  its  officers, 
that  fact  would  not  have  deprived  her 
of  the  right  to  enter  into  competition 
with  other  creditors  in  a  race  of  dili- 
gence, availing  herself  of  her  superior 
knowledge  and  of  her  position  to  ob- 
tain security  for  or  payment  of  her 
debt.  Buell  v.  Buckingham,  16  Iowa, 
291;  Warfield  r.  Canning  Co.,  72  Iowa, 
666;  Garrett  v.  Plow  Co.,  70  Iowa, 
697.  Much  less  would  it  have  pre- 
vented her  relatives  on  the  board  from 
acting  in  good  faith,  and  without 
fraudulent  intent,  to  secure  or  pay 
her." 

'McElroy  r.  Nucleus  Association, 
(1890)131  Pa.  St.  393;  s.  c,  18  Atl.  Rep. 
1063;  25  W.  N.  C.  263. 

*AntietAm  Paper  Co.  t.  Chronicle 
Pub.  Co.,  (N.  C.)  20  S.  E.  Rep.  366. 


§508] 


PRIVATE  CORPORATIONS. 


1075 


a  mortgage  of  a  railroad  is  authorized.^  A  mortgage  having 
been  executed  under  the  seal  of  a  corporation,  regular  on  its  face, 
and  by  the  properly  constituted  officers,  \s>  jprima  facie  evidence 
that  the  corporation  authorized  its  execution,  and  those  objecting 
to  it  have  the  burden  of  proving  that  it  was  executed  without 
8uch  authority.^3     j^  j^^s  been  held  by  the  United  States  Circuit 


» Central  Trust  Co.  v.  Condon,  67 
Fed.  Rep.  84.  As  to  authority  to  exe- 
cute mortgages  to  secure  bonds  or 
other  obligations,  see  Adams  Cotton 
Mills  V.  Dimmick,  96  Ala.  238;  Brown 
«.  Supply  Co.,  23  Or.  541;  Grant  «. 
Railroad  Co.,  13  U.  S.  App.  1;  s.  c,  4 
C.  C.  A.  511;  Manhattan  Hardware 
Co.  V.  Phalen,  (Pa.)  18  Atl.  Rep.  428; 
Wright  V.  Hughes,  119  Ind.  324;  a.  c, 
21  N.  E.  Rep.  907.  When  a  mortgage 
is  void  for  non-compliance  with  the 
statute  in  its  execution,  see  Alta  Silver 
Mining  Co.  v.  Alta  Placer  Mining  Co., 
78  Cal.  629;  s.  c,  21  Pac.  Rep.  373. 

"  Wood  V.  Whelen,  93  III.  153.  In 
Saltmarsh  v.  Spaulding,  (1888)  147 
Mass.  224;  s.  c,  17  N.  E.  Rep.  316,  as 
to  the  execution  of  mortgages  by  a 
corporation,  it  was  said:  "  The  provis- 
ion that  a  corporation  authorized  to 
hold  real  estate  may  convey  the  same 
by  an  agent  duly  appointed  for  that 
purpose  (Gen.  Sts.  of  N.  H.  of  1878, 
chap.  135,  §  2)  does  not  exclude  other 
modes  of  conveyance;  as,  for  instance, 
in  the  name  and  under  the  seal  of  the 
corporation  itself,  and  by  the  president 
and  treasurer.  Especially  would  this 
be  so  where  the  latter  form  is  that  used 
where  the  real  estate  is  situated.  Mor- 
ris V.  Keil,  20  Minn.  531;  Bason  v. 
King's  Mining  Co.,  90  N.  C.  417.  It 
is  said,  however,  that,  even  if  the 
directors  might  make  the  mortgage, 
they  had  no  power  to  delegate  this  au- 
thority, but  must  exercise  it  them- 
selves. The  directors  delegated  no 
discretionary  power;  they  determined 
upon  the  mortgage,  and  made  the 
president  and  treasurer  simply  the 
agents  to  execute  formally  that  which 


they  themselves  had  voted  to  do.     In 
Burrill  v.  Nnhant  Bank,  2  Met.  163,  it 
was  accordingly  held  that  the  direct- 
ors of  the  bank  not  only  might  mort- 
gage its  real  estate  to  secure  a  debt 
due  from  the  bank,  but  might  delegate 
such  authority  to  a  committee  of  their 
own  number."    There  was  a  further 
contention  that  a  vote  of  the  directors 
passed  without  the  state  to  which  their 
corporation  owed    its  existence  was 
void.   Upon  this  the  court  said:  "  The 
corporation  was  organized  for  the  pur- 
pose of  doing  business  without  the 
limits  of  New  Hampshire.     Its  works 
were  within  this  state,  and  here  its 
contracts  were  made  and  its  business 
was  conducted.     Its  by-laws,  passed 
at  a  meeting  of  the  corporation  in  New 
Hampshire,  while  they  provide  for  the 
annual  meeting  of  the  corporation  in 
that  state,  and  for  the  choice  of  offi- 
cers there,  provide  also  for  meetings 
of  the  directors  for  business  in  this 
state,  for  the  control  of  the  business 
and  the  appointment  of  the  necessary 
agents  here,  and  for  the  filling  here  by 
the  directors  temporarily  of  any  va- 
cancies that  may  have  occurred.     We 
do  not  doubt  that  this  may  be  done 
by    the   corporation.     It  would    cer- 
tainly be  an  extraordinary  anomaly, 
if,  while  by  the  comity  prevailing  be- 
tween the  states  the  corporation  was 
allowed  to  conduct  its   business,    it 
could  disavow  the  acts  of  those  whom 
it  has  appointed  to  direct  its  business 
here,  on  the  ground  that  the  votes  by 
which  they  were  done  were  passed 
here.     The   case   cited,  of    Miller  v. 
Ewer,    27    Me.    509,  to  sustain   the 
statement    in    Angell    &   Ames   oa 


H 


! 


ii 


I 


1076 


MORTGAGES  AND  TRUST  DEEDS. 


[§50& 


Court  of  Appeals  for  the  fifth  circuit  that  when  an  a^istant 
secretary  of  a  railroad  company  acted  as  the  secretary  in  fact, 
transacting  the  business  of  the  company  with  the  knowledge  of 
the  directors,  and  as  such  de  facto  secretary  attached  the  seal  of 
the  company  to  mortgages  executed  by  the  company  on  land 
granted  to  it  by  tlie  state  of  Florida,  it  was  not  necessary  for  the 
mortgagee,  in  establishing  the  validity  of  the  mortgages,  to  show 
that  he  was  assistant  secretary  dejure>    The  statute  of  Montana, 
requiring  foreign  corporations,  before  doing  business  in  the  state, 
to  file,  in  the  office  of  the  recorder  of  the  county  wherein  it 
intended  to  carry  on  business,  a  copy  of  its  charter  and  certain 
verified  statements  as  to  its  capital,  has  been  held  in  the  United 
States  Circuit  Court  for  the  district  of  Montana  not  to  prevent 
a  foreign  trust  company  which  has  not  complied  therewith  from 
purchasing  securities  of  a  railroad  company  in  the  state  and  tak- 
ing a  mortgage  upon  its  property  to  secure  them.^    There  having 
been  an  objection  to  an  answer  in  this  case  that  a  trust  company 
holding  a  mortgage  upon  railroad  securities  which  had  filed  a 
cross  bill  asking  for  relief  was  not  entitled  to  it  for  failure  to 
record  its  mortgage  as  required  by  the  statute  of  Montana  as  to 
the  recording  of  chattel  mortgages,  the  objection  was  sustained  in 
the  federal  court,  the  court  holding  that  in  this  matter  the  statute 
relatinsc  to  mortgages  by  railroad  companies,  providing  that  the 
recordln  the  office  of  the  secretary  of  state  of  a  mortgage  by  a 

American  Corporations.  §  274,  on  considered  as  doing  business  in  Mon- 
which  the  defendants  rely,  only  holds  tana."  See  Manufacturing  Co.  t.  Fer- 
that  a  corporation  estiiblished  under  a  guson,  113  U.  S.  727;  s.  c.  5  Sup. 
charter  of  the  state  of  Maine  could  not  Ct.  Rep.  739.  The  Indiana  statute, 
organize  in  another  state,  and  that  the  which  declares  conveyances  in  trust  to 
attempt  to  do  so  was  void,  but  recog-  other  than  bona  Jide  residents  of  the 
nizes  fully  that  a  corporation  only  or-  state  invalid,  has  been  held  not  to  ap- 
ganized.  and  acting  within  the  limits  ply  to  deeds  of  trust  to  a  foreign  cor- 
of  the  state  granting  the  charter,  may,  poration,  securing  the  bonds  of  a  rail- 
by  agents  duly  constituted,  act  and  road  corporation  within  that  state,  in 
contract  without  the  limits  of  the  Farmers'  Loan  &  Trust  Co.  v.  Chi- 
^^^  >,  cago  &  Atlantic  Ry .  Co. ,  27  Fed.  Rep. 

>  Augusta,  Tallahassee  &  Gulf  R.  146.  A  mortgage  upon  railroad  prop- 
Co  V  ^Kittel,  (1892)  53  Fed.  Rep.  63.  erty,  executeil  to  a  foreign  corporation 
«  Gilchrist  V.  Helena,  H.  S.  &  8.  R.  as  trustee  in  Illinois  to  secure  payment 
Co  ,  (1891)  47  Fed.  Rep.  593.  of  bonds  payable  outside  the  state  has 
Knowles,  J.,  said:  "I  do  not  think  also  been  held  not  to  be  prohibited  by 
the  purchasing  of  securities  or  the  ac-  the  laws  of  that  state  or  contrary  to 
cepting  of  a  mortgage  upon  property  public  policy,  in  Hervey  v.  Illinois 
from  a  company  in  Montana  can  be  Midland  Ry.  Co.,  28  Fed.  Rep.  169. 


§  509] 


PKIVATE  COEPORATIONS. 


10Y7 


railroad  company,  the  line  of  which  is  wholly  or  in  part  in  Mon- 
tana, shall  be  notice  to  all  parties  without  further  record,  was  not 
repealed  by  implication  by  the  passage  of  the  statute  as  to  chattel 
mortgages,  and  its  having  been  complied  with,  was  sufficient 
record  of  the  mortgage.^  As  a  mortgage  of  railroad  rolling 
stock  is  a  chattel  mortgage  under  Civil  Code  of  California,  sec- 
tion 295G,  it  is  void  against  a  subsequent  attachment,  when  not 
executed  and  recorded  in  the  manner  prescribed,  or  accompanied 
by  the  affidavits  of  good  faith  required  by  section  2957.^  When 
a  mortgage  by  a  corporation  is  signed  by  the  president,  secretary 
and  two  stockholders  and  duly  witnessed,  but  there  is  no  common 
seal  attached,  and  the  probate  recites  that  it  is  "  acknowledged  by 
the  secretary,  wlio  also  proves  the  execution  by  the  president  and 
two  stockholders,"  such  probate  is  insufficient  and  does  not 
authorize  registration  and  is  ineffectual  to  pass  title  as  against 
creditors.^ 

§  509.  Estoppel  of  corporation  to  deny  authority  of 
officers  to  mortgage. —  A  corporation  in  the  state  of  Washing- 
ton had  given  its  notes  and  executed  a  mortgage  upon  its  prop- 
erty to  secure  the  payment  of  these  notes.  The  note  and  mort- 
gate  were  executed  and  delivered  by  the  president  and  secretary 
of  the  corporation  without  being  previously  authorized  by  the 
board  of  trustees  so  to  do.  Upon  the  holder  of  the  mortgage 
proceeding  to  foreclose  his  mortgage  the  corporation  defended 
upon  the  ground  that  the  note  and  mortgage  were  executed  by  its 
executive  officers  without  authority.  The  Supreme  Court  of  that 
state  held  that  although  the  note  and  mortgage  may  have  been 
executed  without  authority  from  its  board  of  trustees,  yet  the 
corporation  would  be  estopped  from  denying  the  authority  of  its 
officers  where  it  appeared  that  the  corporation  was  aware  of  the 
transaction  from  the  first  and  never  objected  or  sought  to  repudi- 
ate it ;  that  at  a  regular  meeting  of  its  board  of  trustees  the  pay- 
ment of  the  note  and  mortgage  was  considered  and  discussed,  and 


« Gilchrist  v.  Helena,  H.  S.  &  S.  R. 
Co.,  (1891)  47  Fed.  Rep.  593. 

« Union  Loan  &  Trust  Co.  v.  South- 
cm  California  Motor  Road  Co.,  (1892) 
61  Fed.  Rep.  840.  As  to  recording 
such  mortgages,  see  Allen  v.  Mont- 
gomery R.  R.  Co.,  11  Ala.  437;  Be- 


ment «?.  Plattsburgh  &  Montreal  R.  R. 
Co.,  47  Barb.  104;  Coe «?.  Col.,  Piqua 
&  Ind.  R.  R.  Co.,  10  Ohio  St.  372; 
Branch  Sons  &  Co.  t.  Atlantic  &  Gulf 
R.  R.  Co.,  3  Woods,  481. 

»Duke  V.  Markham,  (1890)  105  N.  C. 
131;  s.  c,  10  S.  E.  Rep.  1017. 


II 


1078 


MORTGAGES  AND  TKUST  DEEDS. 


[§509 


II 


in  fact  two  payments  made  thereon  out  of  the  corporate  funds ; 
and  that  no  act  of  repudiation  was  undertaken  until  two  years 
after  the  execution  of  the  note  and  mortgage,  and  after  tliey  had 
passeii  into  tlie  hands  of  innocent  purchasers.*  In  this  case  it 
was  claimed,  further,  that  if  tlie  debt  were  valid,  the  mortgage 
given  to  secure  it  was  not,  on  account  of  an  alleged  absence  of  a 
resolution  by  the  directors  empowering  the  president  of  the  cor- 
poration to  make  the  mortgage.  Of  this  it  was  said,  in  the  opinion 
rendered  by  the  Supreme  Court :  "  But  the  mortgage  recited  such 
a  resolution,  and  it  is  not  denied  that  it  is  contained  in  the  min- 
utes of  the  corporation.  The  mortgage  is  under  the  corporate 
seal,  signed  by  the  president  and  attested  by  the  secretary  of  the 
[corporation].  The  mortgagee  knew  that  the  corporation  had 
power  to  borrow  money  upon  bond  and  mortgage,  and  in  the 
utmost  good  faith  advanced  his  money  to  the  corporation  and 
accepted  the  mortgage  as  security  for  it.  Upon  its  face  the  mort- 
gage represented  that  it  was  duly  authorized  by  the  directors,  and 
under  the  circumstances  he  was  not  bound  to  look  beyond  it.  He 
had  the  right  to  assume  as  against  the  company  that  all  matters 
of  internal  management  had  been  complied  with.  The  minutes 
of  the  corporation  were  not  for  his  inspection,  and,  if  he  had  been 
allowed  access  to  them,  would  have  sustained  the  recital  in  the 
mortgage.  No  director  or  stockholder  has  ever  claimed  that  the 
mortgage  was  unauthorized,  but,  on  the  contrary,  stockholders 
owning  a  clear  majority  of  the  stock  issued  by  the  corporation 
have  recognized  its  validity  in  their  bill  for  the  appointment  of 
a  receiver.     It  is  the  receiver  appointed  upon  their  bill  who  is 


*  Seal  V.  Puget  Sound  Loan  &  Invest- 
ment Co.,  (1892)  5  Wash.  St.  422.  The 
Supreme  Court  of  Judicature  of  Maine, 
in  Fitch  v.  Lewiston  Steam  Mill  Co., 
80  Me.  34;  s.  c,  12  Atl.  Rep.  732,  held 
similarly.  Referring  to  the  facts  in 
this  particular  case,  it  was  said:  ' '  Here 
was  the  express  authority  of  the  cor- 
poration created  and  existing  by  vote 
duly  recorded,  authorizing  and  em- 
powering its  treasurer  to  make,  sell, 
execute  and  deliver,  in  the  name  of  the 
corporation,  any  and  all  conveyances 
of  land  by  deed,  bond,  or  otherwise. 
This  authority  was  broad  enough  to 
embrace  the  transaction  in  relation  to 


this  mortgage.  The  treasurer,  not 
only  in  this  case,  but  on  other  occa- 
sions, had  acted  in  like  manner,  relying 
on  the  authority  conferred  by  this  vote. 
The  party  who  advanced  the  money 
and  received  the  mortgage  was  led  to 
believe  that  the  treasurer  was  acting 
under  that  authority.  This  is  not  de- 
nied. Consequently,  after  enjoying 
the  benefit  of  the  loan,  and  acquiescing 
in  the  transaction  for  more  than  eight 
years,  it  does  not  lie  in  the  mouth  of 
the  defendant  corporation  to  say  that 
the  mortgage  is  inoperative  and  void. 
Aurora  Agr.  &  Hort.  Society  v.  Pad- 
dock, 80  111.  263." 


§  510,  511] 


PRIVATE  CORPORATIONS. 


1079 


now  seeking,  against  their  protest,  to  destroy  it.  For  aught  that 
appears  in  his  affidavit  of  defense,  every  director  and  stockholder 
of  the  company  knew  of  the  loan  and  mortgage  and  ratified  both 
by  acquiescence.  As  neither  the  corporation,  its  stockholders, 
nor  its  creditors  can  now  allege  a  want  of  authority  to  make  the 
loan  and  mortgage,  the  receiver  cannot  do  so  for  them."^ 

§  510.  Effect    of  laches  of  corporation  in  repudiating  a 

mo.rtgag^e. —  Where  the  president  of  a  company  chartered  for 
the  purpose  of  constructing  a  railroad,  under  authorization  of  the 
board  of  directors,  mortgages  the  company's  land  granted  to  it 
by  a  state,  and  the  money,  which  is  loaned  in  good  faith,  is  used 
by  the  officers  of  the  company  for  company  purposes,  and  the 
validity  of  the  transaction  is  recognized  by  payment  of  interest, 
and  the  transaction  being  brought  to  the  notice  of  the  directors, 
both  actually  and  by  its  being  recorded,  and  there  being  no 
repudiation  of  the  mortgage  or  denial  of  the  authority  of  the 
president  in  the  premises,  a  subsequent  resolution  by  part  of  the 
directors,  made  long  afterwards,  disaffirming  and  annulling  the 
president's  authority,  will  not  invalidate  the  transaction  or  pre- 
vent a  foreclosure,  as  by  not  promptly  disaffirming  the  trans- 
action the  company  would  tacitly  ratify  the  act  of  the 
president.^ 

§  511.  What  are  reasonable  provisions  in  a  mortgage. — 

A  trustee  of  a  railroad  mortgage  brought  his  action  for  fore- 
closure. The  holder  of  bonds  secured  by  several  prior  mortgages 
intervened  in  the  suit  and  asked  the  foreclosure  of  these  prior 
mortgages  in  this  action.  There  were  demurrers  by  various  trust 
companies,  trustees  in  different  mortgages,  to  his  complaiiit  in 
intervention  that  it  did  not  show  a  ground  for  intervention,  or 
state  facts  sufficient  to  constitute  a  cause  of  action.     The  inter- 


*  Manhattan  Hardware  Co.  r.  Phalen, 
(1889)  128  Pa.  St.  110.  118,  119.  See, 
for  a  ruling  upon  a  similar  mortgage 
hy  this  manufacturing  corporation, 
Manhattan  Hardware  Co.  v.  Roland, 
(1889)  128  Pa.  St.  119.  As  to  estoppel 
of  the  corporation  in  such  a  case,  see 
Brooke  r.  Rjiilroad  Co.,  108  Pa.  St.  529; 
(Chestnut  Hill,  etc.,  Co.  r.  Ratter,  4  S. 
&  R.  6;  Bank  of  Kentucky  v.  Schuyl- 


kill Bank,  1  Pars.  251 ;  Hackensack 
Water  Co.  v.  De  Kay,  36  N.  J.  Eq.  548; 
Willis  r.  Phila.,  etc.,  R.  Co.,  6  W.  N.  C. 
461;  Oil  Creek,  etc.,  R.  Co.  v.  Penna. 
Trans.  Co..  83  Pa.  St  160;  Wright  r. 
Pipe  Line  Co..  101  Pa.  St.  204; 
Penn.  N.  Gas  Co.  r.  Cook,  123  Pu. 
St.  170. 

'Augusta,  Tallahassee   &  Gulf  R. 
Co.  «?.  Kittel,  (1892)  52  Fed.  Rep.  63. 


I 

I 


1080 


MORTGAGES  AND  TRUST  DEEDS. 


[§511 


vener  claimed  that  the  provisions  of  the  mortgage  were  void  in 
so  far  as  they  attempted  to  deprive  the  holder  of  any  of  the  bonds 
whicli  may  have  become  due  by  default  in  payment  of  the  inter- 
est coupons  or  the  holders  of  any  of  the  past  due  coupons  from 
enforcing  the  remedy  whereby  he  might  have  his  lien  estabUshed 
upon  the  mortgaged  property  without  the  requisition  of  the 
holders  of  not  less  than  twenty-live  ^^r  centum  of  the  said  bonds 
then  outstanding ;  that  the  provisions  were  in  fact  an  attempt  to 
oust  the  jurisdiction  of  any  court  to  entertain  a  complaint  by,  or 
give  relief  to,  the  holders  of  less  than  twenty-live  ^^r  centum  of 
the  outstanding  bonds.  The  Supreme  Court  of  Minnesota,  upon 
the  question  raised  by  this  contention,  held  that  such  provisions 
were  reasonable  and  valid.^ 


*  Seibert  t.  Minneapolis  &  St.  Louis 
Ry.  Co.  (Griggs,  Intervener),  (1893) 
62  Minn.  148;  s.  c,  53  N.  W.  Rep. 
1134.  It  was  said  by  the  court : 
*'  We  are  unable  to  see  why  the  bond- 
holders, subject  to  reasonable  limita- 
tions, may  not  be  bound  by  stipula- 
tions in  the  mortgage  of  this 
character,  waiving  a  default,  and 
providing,  subject  to  the  conditions 
named,  for  the  foreclosure  by  the 
trustees  exclusively.  The  interests  of 
the  bondholders  as  a  class  and  the 
nature  of  the  security  are  to  be  con- 
sidered. They  are  agreements  which 
the  bondholders  are  atlibertv  to  make, 
and  there  is  nothing  illegal  or  con- 
trary to  public  policy  in  them. 
Chicago  &  V.  R.  Co.  r.^osdick,  106 
U.S.  47,  77;  a.  c.  1  Sup.  Ct.  Rep. 
10.  Each  bondholder  enters  into  con- 
tract relations  with  each  and  all  of  his 
CO- bondholders.  His  right  to  appro- 
priate the  security  in  satisfaction  of 
his  bond  in  such  lawful  manner  as  he 
may  choose  is  modified  not  only  by 
the  express  provisions  of  the  mort- 
gage, but  by  the  i>eculiar  nature  of 
the  security.  Gates  r.  Railroad  Co., 
.53  Conn.  346;  8.  c,  5  Atl.  Rep.  695; 
Shaw  T.  Railroad  Co.,  100  U.  S.  605, 
612;  Canada  Southern  R.  Co.  c.  Geb- 
liard,  109  U.  S.  534-537;  s.  c,  3  Sup. 


Ct.  Rep.  363;  Guilford  ».  Minneapolis, 
S.  Ste.  M.  &  A.  Ry.  Co,,  48  Minn. 
560;  8.  c.  51  N.  W.  Rep.  658.  The 
legislature  would  have  had  an  un- 
doubted right  to  have  incorporated  in  * 
the  enabling  statute  authorizing  the 
execution  of  the  mortgage  and  the 
issuance  of  the  bonds  secured  thereby, 
a  provision  requiring  the  mortgage  to 
contain  similar  stipulations.  Howell 
T.  Western  liailroad  Co.,  94  U.  S.  463- 
466.  It  is  clear  then  that  it  would  be 
competent  for  the  bondholders  them- 
selves to  agree  to  them.  They  are  to 
be  treated  as  stricti  juris,  but,  never- 
theless, are  to  be  reasonably  construed 
in  view  of  the  nature  of  the  mortgage, 
which  is  the  common  security  for  all 
the  bondholders,  and  the  purposes  to 
be  subserved  in  making  them.  There 
is  no  doubt  that  the  parties  could  law- 
fully provide  in  the  same  instrument 
for  a  reasonable  extension  of  the  time 
for  the  commencement  of  foreclosure 
proceedings,  to  be  determined  at  the 
option  of  a  majority  of  the  bond- 
holders. *  *  »  Why  may  not  the 
mortgage  in  the  common  interest 
stipulate  the  conditions  under  which 
this  right  may  be  exercised  by  the 
bondholders,  and,  in  order  to  avoid 
the  risk  of  rash  or  arbitrary  proceed- 
ings, which  might  result  in  great  in- 


§512] 


PRIVATE  COKPOKATIONS. 


1081 


§  512.  Chattel  mortgages  of  corporations. —  It  was  claimed 
before  the  United  States  Circuit  Court  of  Appeals  for  the  sixth 
circuit  that  the  chattel  mortgages  executed  by  the  insolvent  cor- 
poration, to  set  aside  which  this  bill  in  equity  was  originally 
brought,  were  violative  of  certain  statutes  of  the  state  of  Mich- 
igan, the  domicile  of  the  corporation.  The  court  held  that  these 
chattel  mortgages  executed  by  the  insolvent  corporation  to  secure 
a  portion  of  its  debts  were  not  common-law  assignments  with 
preferences,  as  between  creditors,  within  2  Howell's  Statutes  of 
Michigan,  section  8739,  declaring  such  assignments  void.^  Neither 
was  a  chattel  mortgage  an  assignment  within  the  statute,  although, 
in  view  of  the  impossibility  that  the  corporation  can  ever  redeem, 
the  effect  of  the  mortgage  necessarily  is  to  transfer  the  property 
to  the  trustee  named  in  the  mortgage,  who  thereunder  may  sell 
and  distribute  the  proceeds  in  the  same  manner  as  an  assignee 
under  such  an  assignment,  as  the  right  of  redemption  by  the  cor- 
poration or  attaching  creditors  would,  nevertheless,  exist.^  The 
defeasance  clause  in  these  mortgages,  providing  that,  if  the  debts 
be  paid  at  maturity,  the  mortgage  and  the  notes  secured  thereby 
shall  be  void,  and  containing  an  agreement  to  pay  the  same 
accordingly,  was  held  not  to  be  rendered  nugatory  by  the  fact 
that  one  of  the  notes  secured  was  due  when  the  mortgage  was 
made,  and  that  it  should  rather  be  construed  to  require  a  demand 
for  payment  of  the  note  subsequent  to  the  giving  of  the  mort- 
gage, and  a  refusal  to  pay  before  the  mortgage  would  become 


jury  to  the  security,  provide  that  no 
such  proceedings  should  be  instituted 
by  an  individual  bondholder  except 
upon  the  refusal  of  the  trustee  to 
obey  the  requisition  of  a  reasonable 
number  of  bondholders.  It  is  not  the 
intention  or  effect  of  such  conditions 
or  stipulations  to  divest  the  bond- 
holders of  their  right  to  judicial 
remedies,  or  to  oust  the  courts  of  their 
jurisdiction;  it  is  merely  the  imposi- 
tion of  certain  conditions  upon  them- 
selves in  respect  to  the  exercise  of  that 
right."  Provisions  in  a  mortgage 
which  do  not  make  it  void  :  Vincent 
«>.  Snoqualmie  Mill  Co.,  7  Wash.  566; 
8.  c,  35  Pac.  Rep.  396.  Mortgages 
given  without  authority  :  Ohio  VaL 
136 


Nat.  Bank  z).  Walton  Architectural 
Iron  Co.,  30  Wkly.  Law  Bull.  382: 
Currie  r.  Bowman,  (Or.)  35  Pac.  Rep. 
848;  Wright  'c.  First  National  Bank, 
(N.  J.  Eq.)  28  Atl.  Rep.  719. 

'  Brown  r.  Grand  Rapids  Parlor  Fur- 
niture Co.,  (1893)  58  Fed.  Rep.  286. 
following  Sheldon  r.  Mann,  85  Mich. 
265;  s.  c.  48  N.  W.  Rep.  573;  Warner 
V.  Littlefield,  89  Mich.  329;  s.  c,  50  N. 
AV.  Rep.  721;  Bank  of  Montreal  v.  J. 
E.  Potts  Salt  &  Lumber  Co.,  90  Mich. 
345;  8.  c,  51  N.  W.  Rep.  512. 

'  Brown  v.  Grand  Rapids  Parlor  Fur- 
niture Co.,  (1893)  58  Fed.  Rep.  286; 
Warner  v.  Littlefield,  89  Mich.  329;  s. 
c,  .50  N.  W.  Rep.  721,  distinguished. 


II 


1082 


MORTGAGES  AND  TRUST  DEEDS. 


[§512 


absolute.^     In  one  of  the  special  courts  of  the  city  of  New  York, 
a  complaint  of  the  purchasers  of  the  personal  property  of  a  print- 
ing company  at  a  sale,  with  notice  of  certain  chattel  mortgages, 
seeking  equitable  relief  against  the  holders  of  these  mortgages, 
that  the  latter  Ix)  declared  to  be  void,  and  for  an  injunction,  was 
dismissed.     The  court  in  General  Term  affirmed  the  dismissal  of 
the  suit.     In  the  opinion  rendered,  it  is  stated  that  ''  the  plaintiff 
claimed  in  its  complaint  that  the  chattel  mortgages  were  invalid 
because  the  consent  of  the  corporation  had  not  been  obtained  for 
the  execution  thereof.     The  defendants  contend  (1)  that  as  the 
plaintiff  represented  the  purchasers  of  these  chattels,  who  had 
notice  of  the  execution  of  the  mortgages  before  the  sales,  it  is 
estopped  from  taking  advantage  of  such  a  defect,  if  it  existed ; 
(2)  that,  in  fact,  the  written  consent  of  the  corporation  to  the  execu- 
tion of  the  mortgages  had  been  obtained  and  was  duly  tiled.    The 
plaintiff  next  contends  that,  as  to  one  of  the  printing  presses,  it 
had  been  substituted,  after  the  first  mortgage  was  executed,  in 
place  of  another  printing  press,  and  that  the  consent  of  the  cor- 
poration to  the  mortgage  did  not  apply  to  the  cubstituted  mort- 
gage."    The  court  in  General  Term  held  that  a  purchaser  of  prop- 
erty of  a  corporation  at  execution  sale  under  judgments  against 
it,  who  had  notice  of  a  prior  mortgage  on  the  property,  could  not 
take  advantage  of  the  alleged  want  of  consent  to  the  mortgage 
by  the  corporation,  as  required  under  the  laws  of  New  York. 
The  court  concluded  its  opinion  in  these  words :  "  But  even  if  it 
were  conceded  that  the  assent  of  the  corporation  should  have 
bf>en  obtained  to  the  execution  of  these  mortgasjes,  such  assent 
was  in  fact  obtained.     The  assent  of  the  corporation,  as  set  forth 
in  writing  and  filed,  was  an  assent  *  that  the  real  and  personal 
property  of   the  Star  Printing  Company  may  be  mortgaged.' 
This  language  was  broad  enough  to  warrant  the  canceling  of  the 
mortgage  on  some  of  the  chattels  of  the  company,  with  the  con- 
sent of  all  parties  to  the  mortgage,  and  the  substitution  of  another 
mortgage  on  other  chattels  of  the  company.     This  assent  was  not 

» Brown  v.  Grand  Rapids  Parlor  Fur-  New  Jersey  Southern  R.  R.  Co.,  29  N. 

niture  Co.,  (1893)  58  Fed.  Rep.  286.  J.  Eq.  311;  Beraent  ^.  Pkttsburgh  & 

As  to  chattel  mortgages  by  corpora-  INIontreal  R.   R.   Co.,   47   Barb.   104^ 

tions,   see  Cooper  r.   Corbin.   105  111.  Kelly  v.  Boylan.  32  N.  J.  Eq.   581; 

224;  Hoyle  v.  Plattsburgh  &  Montreal  Stevens  v.  Buffalo  &  New  York  City 

R.  R.  Co.,  54  N.  Y.  315;  Nichols  v.  R.  R.  Co.,  31  Barb,  590, 
Mase,   94  N.  Y.  160;  Williamson  v. 


§513] 


PKIVATE  CORPORATIONS. 


1083 


of  itself  a  mortgage,  but  only  a  permission  to  mortgage,  and 
authorized  the  substituted  mortgage  in  question.  It  should  be 
borne  in  mind  that  the  objection  [object  ?]  of  the  legislature  in 
requiring  such  assent  was  the  protection  of  stockholders  against 
improvidence,  collusion  or  unwise  acts  of  the  trustees,  the  gov- 
erning body  of  the  corporation,  in  incumbering  the  corporate 
property.  Bank  v.  Averell,  96  K  Y.  473.  There  is  no  reason 
to  believe  that  it  was  any  part  of  the  intention  of  the  legislature 
to  supply  purchasers  of  corporate  property  with  means  of  defeat- 
ing the  just  claims  of  ho7ia  fide  creditors  of  a  corporation,  when 
the  existence  of  such  claims,  and  of  the  liens  depending  thereon, 
were  well  known  to  the  purchaser,  and  the  justice  and  validity 
of  such  claims  were  unimpeached."  ^ 

§  513.  Deeds  of  trust  and  mortgages  securing  directors  — 
when  properly  given. —  The  contention  here  was  that  the  deed 
of  trust  executed  by  this  railroad  company  upon  certain  lands 
belonging  to  it  was  void  because  of  its  execution  to  secure  debts 
due  to  certain  of  its  directors,  also  large  holders  of  its  stock  and 
mortgage  bonds.  The  court  held,  however,  that  the  inducement 
of  the  directors  being  to  protect  and  give  value  to  their  own  large 
interests  as  creditors  and  stockholders,  but  all  other  creditors  and 
stockholders  being  equally  protected  thereby,  the  advances  made 
in  good  faith  by  them,  and  used  for  legitimate  corporate  purposes, 
constituted  a  valid  debt,  enforceable  by  suit,  and  the  deed  of  trust 
thereafter  executed  by  the  direction  of  the  stockholders  and  board 
of  directors  to  secure  it  was  as  valid  as  if  given  to  any  other 
creditor.^    It  was  further  held  that,  treating  the  directors  as  trus- 


» Star  Printing  Co.  ©.  Andrews,  (1890) 
9  N.  Y.  Supp.  731,  732. 

«  Gould  V.  Little  Rock,  M.  R.  &  T. 
Ry.  Co.,  (1892)  52  Fed.  Rep.  680. 
Caldwell,  Circuit  .Judge,  in  support 
of  the  rule  declared  in  the  text,  said: 
' '  Where  a  corporation  is  legally  liable 
to  pay  a  debt  it  may  undoubtedly  give 
security  for  its  payment.  The  use  of 
its  property  to  pay  or  secure  a  bona 
Jide  debt  is  not  an  unlawful  use  or  di- 
version of  its  property,  no  matter  v^'hat 
official  relation  the  creditor  sustains  to 
the  corporation.  The  corporation  is 
under  the  same  obligation  to  pay  a 


bona  fide  debt  due  to  one  of  its  direct- 
ors and  stockholders  that  it  is  to  pay  a 
debt  due  to  a  stranger,  and  a  security 
given  for  a  debt  due  to  a  director  and 
stockholder  is  as  valid  as  a  security 
given  to  pay  other  creditors.  The  doc- 
trine established  by  the  best-considered 
cases  and  by  the  decisions  of  the  Su- 
preme Court  of  the  United  States  is 
that  the  mere  fact  that  creditors  of  a 
corporation  are  directors  and  stock- 
holders does  not  prevent  their  taking 
security  to  themselves  as  individuals 
to  secure  a  bona  fide  loan  of  money  pre- 
viously made  to  such  corporation  and 


:, 


1084 


MORTGAGES  AND  TRUST  DEEDS. 


[§513 


tees,  tlie  payment  of  the  debt  was  an  essential  prerequisite  to  the 
avoidance  of  the  deed  of  trust  given  to  secure  it,  whether  the 
debt  was  a  present  or  precedent  one.^  In  a  chancery  case  in 
New  Jersey  it  appeared  that  there  were  a  number  of  mortgages 


used  by  it  in  conducting  its  legitimate 
corporate  business.     Among  the  states 
maintaining  this  doctrine  may  be  men- 
tioned Vermont,  Massachusetts,  Con- 
necticut,   New  York,    New    Jersey, 
Pennsylvania,  Virginia,   Illinois,  Min- 
nesota  and  Iowa.     The  rule  is  thus 
stated  in  a  recent  case  by  the  Supreme 
Court  of  Iowa:     '  We  understand  that 
he  [a  director]  may  become  a  creditor 
of  the  corporation,   may  advance  it 
money  or  sell  it   property,  and  obli- 
gations of  the  corporation    executed 
therefor  may  be  enforced  by  him.     In 
this  regard  he  occupies  no  different  po- 
sition from  that  of  any  other  creditor, 
and  if  the  debt  he  holds  was  coBstraeted 
in  good  faith  and  there  is  an  absence 
of  fraud  on  his  part  he  may  take  se- 
curity or  payment,  though  the  corpo- 
ration be  insolvent,  and  he  may  thereby 
acquire  priority  in  the  payment  of  his 
claim.'    Garrett  r.  Plow  Co.,  70  Iowa, 
697;  8.   c,  29  N.  W.   Rep.  395.     The 
previous  cases  in  that  court  to  the  same 
effect  are:     Buell  r.  Buckingham,  16 
Iowa,  284;  Bank  r.  Wasson,  48  Iowa, 
336;  Hallam  v.  Hotel  Co.,  56  Iowa,  178; 
8.  c,  9  N.  W.  Rep.  111.     In  discussing 
the  question  the  Supreme  Court  of 
Connecticut  say:  '  These  creditors  had 
a  perfect  right  to  receive  pay  in  money 
or  goods,  and  the  fact  that  they  were 
stockholders    and    directors    did    not 
modify  or  abridge  that  right  so  long  as 
there  was  no  actual  fraudulent  intent. 
The  fact,  if  it  be  a  fact,  that  it  oper- 
ated to  prefer  these  creditors,  is  not 
sufficient  at  common  law  to  stamp  it 
as  fraudulent,   for  the  common  law 
favored  the  vigilant   and   a  creditor 
might  rightfully  obtain  a  preference.' 


Smith  V.  Skeary,  47  Conn.  47.     And  to 
the  same  effect  see  Duncomb  v.  Rail- 
road Co.,  84  N.  Y.  190;  88  N.  Y.  1; 
Harts  r.  Brown,  77  111.  226;  Reichwald 
r.  Hotel  Co.,  106  111.  439;  Stratton  t?. 
Allen,  16  N.  J.  Eq.  229;  Wilkinson  v. 
Bauerle,  41  N.  J.  Eq.  635;  8.  c,  7  Atl. 
Rep.  514;  Bjvnk  r.  Whittle,  78  Va.  737; 
Ashhurst's  Appeal,   60  Penn.  St.  314; 
Whit  well  V.  Warner,  20  Vt.  425;  Gor- 
don r.  Preston,  1  Watts,  386;  Sargent 
V.  Webster,   13  Met.  497;  Kitchen  v. 
Railway  Co.,  69  Mo.  224;  Oil  Co.  v. 
Marbury,  91  U.  S.  587.    An  exhaustive 
and  luminous  discussion  of  this  ques- 
tion is  found  in  the  opinion  of  the  Su- 
preme Court  of  Minnesota,  delivered 
by  Judge   Mitchell,  in  the  case  of 
Hospes  V.  Car  Co.,  (Minn.)  50  N.  W. 
Rep.    1117.      The    reasoning    of    the 
learned  judge  who  delivered  the  opin- 
ion of  the  court  in  that  case  makes  it 
extremely  clear  that  an  insolvent  cor- 
poration   may    prefer    its    creditors, 
whether  they  be  officers  of  the  corpo- 
ration or  strangers,  and  that  there  is 
no  foundation  for  the  doctrine  that  the 
insolvency  of  a  corporation  has  the 
effect  to  convert  its  assets  into  a  trust 
fund  in  the  technical  sense  of  that 
term,  and  its  officers  into  mere  trustees 
charged  with  the  duty  of  distributing 
its  assets  ratably  among  its  creditors. 
The  question  has  been  before  the  Su- 
preme Court  of  the  United  States  in 
several  cases.     In  the  case  of  Hotel 
Co.  r.  Wade,  97  U.  8.  13,  the  court 
said:     '  His  [circuit  judge's]  finding  is 
that  the  bonds  and  mortgages  were  not 
void  upon  the  ground  that  the  lenders 
of  the  money  were  also  the  directors  of 
the  company;   that  the  terms  of  the 


»  Gould  V.  Little  Rock,  M.  R.  &  T.    See  Duncomb  r.  Railroad  Co.,  84  N. 
Ry.  Co.,  (1892)  52  Fed.  Rep.  680,  686.    Y.   190;  88  N.  Y.  1.     When  directors 


§513] 


PRIVATE  CORPORATIONS. 


1085 


executed  by  a  corporation  to  the  directors  of  the  corporation  upon 
the  eve  of  application  for  a  receiver  of  the  corporation  as  insolvent. 
The  corporation  was  limited  by  its  charter  in  its  authority  to 
mortgage  to  a  limited  amount.  At  the  time  these  mortgages 
were  executed  it  had  about  exhausted  its  power  to  raise  money 
by  mortgage  under  its  charter.  There  was  a  contention  that  as 
a  consequence  these  mortgages  were  tdtra  vires,  and  since,  not 
for  cash  loaned,  but  as  security  for  previous  advancements,  or 
against  the  indorsements  of  these  directors,  they  were  void  as  to 
general  creditors  and  could  not  be  enforced  in  equity.  It  was 
also  insisted  upon  the  part  of  the  receiver  of  the  insolvent  corpo- 
ration that  the  mortgages  executed  by  the  corporation  to  its 
directors  and  others  were  illegal  and  void  as  to  creditors,  because 
conceived  in  fraud  and  for  the  purpose  of  cheating,  delaying  and 
liindering  the  creditors.  Yice-Chancellor  Bird  held  that,  under 
the  Corporation  Act  of  the  state  of  New  Jersey,  as  revised,  the 
directors  of  a  corporation  may  execute  to  themselves  mortgages 
to  secure  the  actual  or  contingent  liability  of  the  corporation  to 
themselves,  even  though  it  be  done  in  contemplation  of  imme- 


contract  were  sanctioned  by  the  stock- 
holders, and  that  the  money  loaned 
was  needed  to  complete  the  building, 
and  that  it  was  applied  to  effect  the 
purpose  for  which  it  was  borrowed, 
*  *  *  Examined  in  the  light  of  the 
circumstances  attending  the  transac- 
tion, as  the  case  should  be,  the  court  is 
of  the  opinion  that  the  finding  fails  to 
support  the  proposition  that  the  bonds 
and  mortgage  were  invalid  because  the 
directors  became  the  holders  of  the 
bonds  and  advanced  the  money. 
Transactions  of  the  kind  have  often 
occurred,  and  it  has  never  been  held 
that  the  arrangement  was  invalid  where 
it  appeared  that  the  stockholders  were 
properly  consulted  and  sanctioned 
what  was  done  either  by  their  votes  or 
silence.*    In  the  case  of  Richardson's 


Exr.  D.  Green,  133  U.  S.  30, 43;  s.  c,  10 
Sup.  Ct.  Rep.  280,  the  court  said: 
'Undoubtedly,  his  relation  as  a  di- 
rector and  oflBcer  or  as  a  stockholder  of 
the  company  does  not  preclude  him 
from  entering  into  contracts  with  it, 
making  loans  to  it  and  taking  its  bonds 
as  collateral  security;  but  courts  of 
equity  regard  such  personal  transac- 
tions of  a  party  in  either  of  the  speo- 
sitions,  not  perhaps  with  distrust,  but 
with  a  large  measure  of  watchful  care, 
and,  unless  satisfied  by  proof  that  the 
transaction  was  entered  into  in  good 
faith,  with  a  view  to  the  benefit  of  the 
company  as  well  as  of  its  creditors, 
and  not  solely  with  a  view  to  his  own 
benefit,  they  will  refuse  to  lend  their 
aid  to  its  enforcement.'  " 


may  execute  mortgages  to  themselves:   Execution  of  mortgage  notwithstand- 
Whittaker  v.  Am  well  Nat.  Bank,  (N.    ing    pending   insolvency:      Sabin   v. 
J.  Eq.)  29  Atl.  Rep.  203;   Brown  v.    Columbia  River  Lumber  &  Fuel  Co., 
Grand  Rapids  Parlor  Furniture  Co.,  •(Or.)34Pac.  Rep.  692. 
58  Fed.  Rep.  286;  s.  c,  7  C.  C.  A.  225. 


11 


111' 


'HI 


i 


10S6 


MORTGAGES  AND  TRUST  DEEDS. 


[§513 


§514] 


PRIVATE  CORPORATIONS. 


1087 


w. 


I  • 


ii 


4 


ii 


«i 


'i 


diate  application  for  the  appointment  of  a  receiver,  and  the  lien 
secured  by  such  mortgagees  would  be  valid  and  prior  to  the  liens 
of  general  creditors,  which  was  contrary  to  the  statute  as  it  existed 
prior  to  the  revision.*  The  mortgage  of  the  plant  of  a  corpora- 
tion which  was  in  course  of  foreclosure  in  favor  of  certain  officers 
and  directors  of  the  corporation,  to  whom  it  was  given  as  a  security 
or  indemnity  against  loss  by  the  loaning  of  their  credit  to  the  cor- 
poration, was  claimed  before  the  Supreme  Court  of  Nebraska 
to  be  void  by  reason  of  the  fact  that  the  plaintiffs  were  directors 
of  the  corporation  at  the  time  the  indebtedness  was  incurred  and 
when  the  morttjaffes  were  executed.  The  court  held  the  mort- 
gage  to  he  valid  and  enforceable."^    in  case  a  corporation,  while 


l< 


'  Whittaker  r.  Amwell  Nat.  Bank, 
(N.  J.  Eq.  1894)29  Atl.  Rep.  203;  citing 
in  support  of  the  rule  for  construction 
of  the  statute  adopted,  Bowyer  v. 
Camden,  50  N.  J.  Law,  87;  a.  c,  11 
Atl.  Rep.  137;  Hoetzel  v.  East  Orange, 
50  N.  J.  I^w,  354;  s.  c.  12  Atl.  Rep. 
911;  Hajnes  p.  Cape  May,  50  N.  J. 
Law,  58;  s.  c,  13  Atl.  Rep.  231;  Bank 
V.  Bridges,  30  N.  J.  I^aw,  112;  citing 
as  to  the  validity  of  the  mortgages  to 
directors,  Wilkinson  v.  Bauerle,  41 
K  J.  Eq.  635;  s.  c.  7  Atl.  Rep.  514; 
Bergen  v.  Fishing  Co.,  42  N.  J.  Eq. 
397:  8.  c,  8  Atl.  Rep.  523.  See  Boehme 
«.  Rail,  (N.  J.  Eq.)  26  Atl.  Rep.   832. 

'  Grorder  v.  Plattsmouth  Canning 
Co.,  (1893)  36  Neb.  555.  The  court 
said:  "  It  should  be  observed  in  this 
connection  that  two  of  the  plaintiffs 
*  ♦  *  were  acting  as  president  and 
secretary  respectively,  and  as  such 
executed  the  mortgages  in  behalf  of 
the  company.  Tliere  is  no  claim  made 
of  fraud  against  the  plaintiffs.  In  fact 
their  conduct  throughout  prtjves  that 
they  were  actuated  by  no  motives  but 
to  promote  the  success  of  the  company 
and  the  interest  of  the  stockholders. 
It  is  not  disputed  that  the  business  of 
the  company  was  conducted  from  the 
beginning  with  money  raised  by  these 
and  other  directors  upon  their  personal 
obligations.  And,  from  the  facts  dis- 
closed by  the  record,  the  inference  is 


irresistible  that  said  money  was  ad- 
vanced, and  that  the  mortgages  to  the 
plaintiffs  were  executed,  with  the 
knowledge  and  approval  of  the  stock- 
holders, including  the  interveners 
[who  were  opposing  the  foreclosure].' 
After  instancing  various  things  appear- 
ing in  the  record  to  justify  such  infer- 
ence, the  court  further  on  said  as  to 
the  one  intervener  who  positively  de- 
nied knowledge  of  the  mortgages, 
"  We  think,  in  view  of  the  undisputed 
facts  in  the  case,  he  should  not  now  be 
heard  to  question  this  legality.  He,  in 
common  with  other  stockholders,  must 
have  known  from  the  amount  of  the 
company's  business,  that  it  was  obtain- 
ing large  sums  of  money  from  some 
source  and  beyond  its  power  to  secure 
except  by  mortgaging  the  canning 
factory  and  fixtures.  It  is  also  in  evi- 
dence, and  not  seriously  questioned, 
that  at  each  annual  meeting  of  the 
stockholders  a  statement  of  the  assets 
and  liabilities  of  the  company  was  ex- 
hibited and  the  books  examined.  When 
we  take  into  consideration  also  the 
fact  that  the  validity  of  the  mortgages 
was  first  called  in  question  by  the  in- 
terveners' answer,  *  *  *  it  is  evi- 
dent that  the  claim  of  the  latter  that 
the  execution  thereof  was  without 
their  consent  is  not  entitled  to  serious 
consideration." 


still  a  going  concern,  is  insolvent,  a  mortgage  on  its  property, 
executed  to  secure  directors,  who  are  liable  as  indorsers  for  it  to 
a  large  amount,  is  valid  as  to  general  creditors,  and  that  though 
the  mortgage  may  be  procured  by  the  directors  without  any  actual 
fraudulent  intent.'  The  Supreme  Court  of  Iowa  has  held  that  a 
trust  deed  made  by  an  insolvent  corporation,  and  conveying 
nearly  all  its  property,  was  not  void  on  the  ground  that  it  was 
given  to  secure  only  a  portion  of  its  creditors.* 

§  514.  The  validity  of  mortgages  as  affected  by  restric- 
tions, constitutional,  statutory  or  in  charter,  upon  indebted- 
ness to  be  incurred. —  The  Supreme  Court  of  Pennsylvania  hav- 
ing sustained  the  power  of  this  railroad  company,  under  the 
charter  of  1837  and  the  subsequent  act  of  the  legislature  of  1853, 
then  considered  an  objection  to  the  validity  of  this  mortgage, 
which  was  that  there  was  in  issuing  these  bonds  and  executing 
this  mortgage  to  secure  them,  on  the  part  of  the  railroad  com- 
pany, an  increase  of  indebtedness  without  compliance  with  the 
provisions  of  the  Constitution  of  1874,  to  the  following  effect : 
"  No  corporation  shall  issue  stock  or  bonds,  except  for  money, 
labor  done,  or  money  or  property  actually  received,  and  all  fic- 
titious increase  of  stock  or  indebtedness  shall  be  void.  The  stock 
and  indebtedness  of  corporations  shall  not  be  increased,  except  in 
pursuance  of  general  law,  nor  without  the  consent  of  the  persons 
holding  the  larger  amount  in  value  of  the  stock  first  obtained,  at 
a  meeting  to  be  held  after  sixty  days'  notice,  given  in  pursuance 
of  law,"  and  the  acts  passed  subsequently  to  carry  this  constitu- 
tional provision  into  effect,  prescribing  the  mode  of  proceeding, 
etc.,  in  such  cases  of  contemplated  increase  of  indebtedness.  The 
court  held  that  the  mortgage  was  not  invalid  as  in  conflict  with 
this  constitutional  provision  and  statute.^    It  was  contended  in  an 


'  Howe,  Brown  &  Co.  ®.  Sanford 
Fork  &  Tool  Co.,  (1890)  44  Fed.  Kep. 
231.  The  court  cited  in  support  of  this 
ruling,  Lippincott  v.  Carriage  Co.,  25 
Fed.  Rep.  577,  586;  White,  etc.,  Mfg. 
Co.  r.  Pettes  Importing  Co.,  30  Fed. 
Rep.  864;  Adams  r.  Milling  Co.,  35 
Fed.  Rep.  433;  Beach  r.  Miller.  (HI.) 
22  N.  E.  Rep.  464;  Haywood  v.  Lum- 
ber Co.,  64  Wis.  639;  s.  c,  26  N.  W. 
Rep.  184;  Olney  v.  Land  Co.,  16  R.  I. 
597;  8.  c,  18  Atl.  Rep.  181;  Rouse  v. 


Bank,  (Ohio)  22  N.  E.  Rep,  293;  Hope 
V.  Salt  Co.,  25  W.  Va.  789;  Gillet  v. 
Moody,  3  N.  Y.  479;  Purifier  Co.  v. 
McGroarty,  136  U.  S.  241;  s.  c,  10 
Sup.  Ct.  Rep.  1017. 

'  Rollins  V.  Shaver  Wagon  &  Car- 
riage Co.,  (1890)  80  Iowa,  380;  s.  c,  45 
N.  W.  Rep.  1037;  citing  as  authority 
Southern  White  Lead  Co.  v.  Haas,  73 
Iowa,  404. 

'Gloninger  v.  Pittsburgh  &  Con- 
nellsville  R.  R.  Co.,  (1890)  139  Pa.  St. 


1088 


MOETGAOES  AND  TRUST  DEEDS. 


[§514 


earlier  PenDsylvania  case  that  tlie  execution  of  a  mortgage  by 
the  corporation,  party  to  the  suit,  was  in  violation  of  the  same 
constitutional  provision.  In  the  opinion  rendered  by  McCollum, 
J.,  for  the  Supreme  Court,  holding  the  instrument  to  be  a  valid 
one,  it  was  said :  "  It  was  given  to  secure  a  debt  incurred  by  the 
company  in  the  improvement  of  its  property,  and  it  was  clearly 
within  the  power  of  the  corporation  to  create  the  debt  and  to 
execute  the  mortgage.  It  could  hold,  purchase  and  transfer  such 
real  and  pereonal  property  as  its  purposes  required,  not  exceeding 
the  amount  limited  by  its  charter  or  by  law,  borrow  money  on 
bond  and  mortgage,  and  secure  its  indebtedness  by  them.  Act  of 
April  29,  1874,  P.  L.  73.  But  it  is  objected  that  the  debt  was 
not  authorized  by  a  previous  meeting  and  consent  of  stockholders, 
as  directed  by  §  7,  article  21  of  the  Constitution,  and  the  act  of 
April  18,  1874,  P.  L.  61.  This  objection  assumes  that  the  debt 
secured  by  the  mortgage  was  an  increase  of  indebtedness  within 


13;  8.  c,  21  Atl.  Rep.  211;  27  W.  N. 
O.  497.  As  to  this  contention,  the  Su- 
preme Court  of  Pennsylvania  said: 
"  We  have  seen  that  the  right  of  the 
company  to  mortgage  its  property  was 
cx)mplete,  absolute,  and  without  any 
conditions  or  limitations  as  to  the  man- 
ner of  its  exercise.  There  was  noth- 
ing, either  in  its  charter  or  its  supple- 
mental acts,  or  in  any  general  legislation 
prior  to  the  Constitution  of  1874,  which 
imposed  any  restrictions  or  formalities 
upon  it,  in  the  exercise  of  its  right  to  in- 
crease its  indebtedness  or  to  make 
mortgages  u  pon  its  property .  Neither 
the  act  of  1855  nor  the  amendment  of 
1867,  which  gave  power  to  the  legis- 
lature to  alter,  revoke  or  annul  char- 
ters of  the  corporation  when  they  were 
injurious  to  the  citizens  of  the  Com- 
monwealth, had  any  specific  effect 
upon  this  particular  chartered  right  of 
this  company."  The  court  then  re- 
viewed several  cases  in  that  state, 
including  Ahl  v.  Rhoads,  84  Pa.  St. 
319,  and  Lewis  v.  Jeffries,  86  Pa. 
St.  340,  in  both  of  which  mortgages 
executed  by  banks,  without  conform- 
ity to  the  requirements  of  the  same 


constitutional  provision  and  statutes, 
were  upheld  by  this  court.  They  said : 
"In  view  of  the  provisions  of  the 
Constitution,  that  'The general  assem- 
bly shall  not  remit  the  forfeiture  of 
any  corporation  now  existing,  or  alter 
or  amend  the  same,  or  pass  any  gen- 
eral or  special  law  for  the  benefit  of 
such  corporation,  except  upon  the  con- 
dition that  such  corporation  shall  there- 
after hold  its  charter  subject  to  the 
provisions  of  this  Constitution,'  and 
of  the  schedule  that  '  All  laws  in  force 
in  this  commonwealth  at  the  time  of 
the  adoption  of  this  Constitution,  not 
inconsistent  therewith,  and  all  rights, 
actions,  prosecutions  and  contracts, 
shall  continue  as  if  this  Constitution 
had  not  been  adopted;'  and  in  view  of 
the  repeated  decisions  of  this  court, 
that  neither  the  Constitution  of  1874, 
nor  the  legislation  to  carry  it  into  ef- 
fect, had  any  application  to  existing 
charters,  it  is  our  plain  duty  to  decide, 
as  we  now  do,  that  the  [article  of  the 
Constitution  invoked  here]  is  not  ap- 
plicable to  [this  railroad  company],  so 
as  to  affect  its  rights  and  privileges 
under  its  charter." 


§515] 


PRIVATE  CORPORATIONS. 


10S9 


the  intendment  of  the  Constitution.  It  is  consonant  to  reason 
and  settled  by  authority  that  the  debts  incurred  by  a  corporation 
in  the  conduct  of  its  ordinary  business,  are  not  affected  by  the 
constitutional  provision,  or  by  the  act  of  assembly  referred  to."* 
In  an  action  by  certain  officers  and  directors,  who  had  loaned  their 
credit  to  a  corporation,  to  foreclose  the  mortgages  given  for  their 
indemnity  against  loss  upon  the  plant  of  tJie  company,  it  was 
claimed  by  interveners,  other  stockholders,  that  the  mortgages 
were  void  for  the  reason  tliat  they  were  in  excess  of  the  amount 
of  indebtedness  authorized  by  the  articles  of  incorporation  of  the 
company.  The  Supreme  Court  of  Nebraska  sustained  the  valid- 
ity of  the  mortgages  over  this  objection.^ 

§  515.  A  mortgage  of  corporation  property  to  pay  pur- 
chase-money debts. — The  ])resident,  secretary  and  treasurer  of 
a    Pennsylvania    manufacturing  corporation,  as  the  latter  was 


*  Manhattan  Hardware  Co.  «.  Phalen, 
(1889)  128  Pa.  St.  110. 

'  Gorder  v.  Plattsmouth  Canning  Co., 
(1893)  36  Neb.  548.  The  court  said: 
"  It  is  provided  by  article  4  that  '  The 
highest  amount  of  indebtedness  to 
which  the  corporation  shall  at  any  time 
subject  itself  shall  not  exceed  one-half 
of  the  amount  of  its  capital  stock  is- 
sued.' It  appears  from  the  bill  of  ex- 
ceptions that  five  thousand  dollars  of 
the  indebtednsss  represented  by  the 
mortgages  was  incurred  on  the  18th 
day  of  August,  1885,  on  which  day  the 
plaintiffs  executed  their  joint  note  to 
the  [national  bank]  for  the  accommo- 
dation of  the  company,  the  note  of  like 
amount,  described  in  the  mortgages, 
being  a  renewal  thereof.  At  that  time 
the  amount  of  stock  issued  does  not 
appear,  although  it  is  alleged  in  the 
answer  that  the  capital  stock  in  Feb- 
ruary, 1885,  was  eighteen  thousand 
dollars,  nor  is  the  amount  of  the  com- 
pany's indebtedness  apparent  from  the 
record.  It  appears,  also,  from  the 
minutes  of  a  meeting  of  stockholders, 
held  January  4,  1886,  that  148^  shares 
of    stock   were  represented   thereat, 

137 


from  which  it  is  evident  that  the  stock 
at  that  date  amounted  to  at  least  four- 
teen thousand  eight  hundred  and  fifty 
dollars.     The  date  when  ihe  additional 
indebtedness  of  forty -five  hundred  dol- 
lars was  incurred  does  not  appear,  but 
the  note  for  said  amount  is  in  renewal 
of  an  accommodation  note  executed  by 
plaintiffs  for  the  benefit  of  the  com- 
pany, long  prior  to  the  execution  of 
the  mortgages.     The   presumption  is 
in  favor  of  the  validity  of  the  contract 
in  question.     It  is  not,  upon  its  face, 
necessarily  outside  the  scope  of  the 
corporate  power  of   the    defendant's 
company.     The  recognized  rule  is  that 
the  contracts  of  a  corporation  not  con- 
trary to  the  express  provisions  of  its 
charter,  are  presumed  to  be  within  its 
powers,  and  the  burden  is  upon  one 
seeking  to  invalidate  them  to  prove  the 
facts  which  render  them  vltra  mres. 
Ohio  &  M.  R.  Co.  i\  McCarthy,  96  U. 
S.  267;  Curtis  «.  Gokey,  68  K  Y.  300; 
Elkins  r.  Camden  &  Atlantic  R.  Co.,  36 
N.  J.'  Eq.    241;  Wood  I^w  of  Rail- 
roads, 526;  Boone  Corp.  43.     This  case 
is  clearly  within  the  rule  recognized  in 
the  authorities  cited." 


!ii 


If! 


i  ' 


1090 


MORTGAGES  ASD  TRUST  DEEDS. 


[§513 


III 


It; 


about  being  pressed  for  the  balance  of  purchase  money  for  real 
estate  purchased  by  it  for  its  business,  borrowed  from  a  third 
party  the  money  and  executed  a  mortgage  in  the  name  of  the 
corporation  to  secure  it.     It  appeared  in  the  case  that  these  officers 
of  the  company  had  issued  to  themselves  shares  of  the  stock  of 
the  corporation  and  gave  their  notes  for  the  money  secured  by 
these  shares  as  collateral,  but  the  money  was  applied  to  the  pay- 
ment  of   this  purchase-money  debt    of    the  corporation.      The 
validity  of  the  mortgage  was  assailed  in  a  bill  in  ecpiity  of  certain 
shareholders,  alleging  conspiracy  to  defraud,  and  charging  that 
the  mortgage  was  executed  to  secure  a  private  loan  to  these  offi- 
cers as  individuals  and  also  that  the  mortgage  was  executed  in 
violation  of  the  provisions  of  the  Constitution  of  the  state  as  to 
increase  of  indebtedness  on  the  part  of  the  corporation.     The 
validity  of  the  mortgage  was  upheld  by  the  Supreme  Court  of 
the  state,  they  liolding  that  the  corporation  having  executed  and 
delivered  the  niortgage,  the  money  raised  therein  being  admit- 
tedly applied  to  discharge  a  purchase-money  indebtedness  on  the 
mortgaged  property,  the  mortgagee  receiving,  moreover,  certain 
shares  of  stock  of  the  company  with  the  note  of  its  officers  as 
additional  security  for  the  loan,  and,  as  the  mortgage  did  not 
increase  the  indebtedness  of  the  corporation,  it  was  not  invalid 
because  in  violation  of  the  constitutional  provision  prohibiting 
such  increase  without  the  consent  of  the  shareholders,  and,  in  the 
absence  of  fraud,  the  mortgagee  had  a  right  to  all  the  security 
the  company  or  its  officers  were  willing  to  give  him.^ 


§516] 


PRIVATE  CORPORATIONS. 


1091 


» Powell  r.  Blair,  (1890)  133  Pa.  St. 
550;  s.  c,  19  Atl.  Rep.  559,  affirming 
the  decree  below.  In  the  opinion 
•which  was  rendered  by  Schuyler,  P. 
J.,  in  the  court  below,  confirming  the 
master's  report,  upon  the  last  point 
made  it  was  said:  "  In  Ahl  v.  Rhoads, 
84  Pa.  St.  319,  it  is  held  that  where  a 
bank,  without  the  consent  of  its  share- 
holders, executes  a  mortgage  upon  its 
property  to  secure  the  debt  of  a  cred- 
itor, the  execution  of  such  a  mortgage 
is  not  an  increase  of  indebtedness 
within  the  meaning  of  the  Constitu- 
tion, which  prohibits  any  increase  of 
indebtedness  by  a  corporation  without 


the  consent  of  a  majority  of  its  stock- 
holders given  at  a  meeting  called  for 
that  purpose.  The  ground  of  that  de- 
cision is  that  the  mortgage  was  given 
as  *  security  for  indebtedness  that  had 
already  legitimately  accrued,'  and 
that,  therefore,  '  there  was  nothing  in 
the  transaction  that  could  be  properly 
described  as  the  creation  or  increase  of 
a  debt.*  We  cannot  see  wherein  Ahl 
t.  Rhoads  differs  in  principle  from  the 
case  in  hand.  True,  in  the  former 
case  the  mortgage  was  given  immedi- 
ately to  the  creditor,  but  the  effect 
in  both  cases  was  the  same,  the  secur- 
ing of  an  existing  debt." 


! 


§  516.  Illustration  of  an  equitable  mortgage.— As  to  who 

might    resist    the    payment    of    this  fraudulent    judgment,   it 
appeared  that  two  railroads,  owned  by  a  Tennessee  company  and 
a  Georgia  company,  were  constructed  to  form  one  line  and  as  a 
common  enterprise,  the  controlling  interest  in  the  stock  of  each 
being  held  by  the  same  parties.     The  Tennessee  company  agreed 
with  the  contractor  who  built  its  road  to  pay  him  in  mortgage 
bonds  at  a  fixed  rate  per  mile.     The  bonds  actually  deUvered  to  and 
sold  by  him  were,  however,  issued  by  the  Georgia  company,  but 
the  Tennessee  company  gave  a  mortgage  on  its  road  to  secure 
them.     The  Court  of  Appeals  held  that  the  persons  acquiring 
these  bonds  had  an  equitable  mortgage  on  the  road  of  the  Ten- 
nessee company,  such  as  would  entitle  them  to  contest  the  fraudu- 
lent judgment  which  gave  to  sub-contractors  fictitious  liens  on  the 
road.     As  to  the  right  of  parties  to  raise  objections  to  this  equi- 
table  mortgage,  it  was  held  that  the  sub-contractors  could  not 
object  to  the  mortgage  on  the  ground  that  it  w^as  given  by  the 
railroad  company  when  insolvent,  and  was,  therefore,  void  under 
the  Tennessee  law.     Their  claim,  if  they  had  any  at  all  against 
the  company,  being  a  lien  prior  to  the  mortgage,  and,  if  they  had 
no  claim  against  the  company,  but  only  against  the  principal  con- 
tractor, then  they  had  no  interest  in  any  disposition  the  company 
might  make  of  its  property.     Neither  could  a  general  creditor, 
whose  claim  came  into  existence  subsequent  to  the  execution  of 
the  mortgage,  object  to  it  on  the  ground  of  an  unlawful  prefer- 
ence.    There  was  an  objection  to  this  mortgage  that  there  was  no 
power  in  the  company  to  execute  it  by  reason  of  the  provisions 
of  the  Tennessee  statute  which  provides  that  no  railroad  com- 
pany shall  have  power  to  execute  any  mortgage  or  other  lien 
which  shall  be  valid  as  against  judgments  for  work  and  labor 
done  or  timbers  furnished,  etc.     The  Court  of  Appeals  held  that 
this  statute  applied  only  when  the  labor  and  materials  were  fur- 
nished in  such  manner  that  the  railroad  company  would  be  liable 
to  pay  the  'contractor  or  materialman  for  them,  and  .  not  when 
they  were  furnished  to  a  principal  contractor  in  his  individual 
capacity  without  establishing  a  lien  in  the  manner  prescribed  by 
the  later  statute  relating  to  railroads  contracting  liens;  and, 
further,   if,   in    the   latter  case    judgments  were  fraudulently 
obtained  against  the  company,  the  statute  would  not  prevent  a 
court  of  equity  disregarding  them.* 

•Central  Trust  Co.  of  New  York  v.  Bridges,  (1893)  57  Fed.  Rep.  758. 


I 


1092 


MORTGAGES  AND  TEUST  DEEDS. 


[§51T 


§518] 


PEIVATE  CORPORATIONS. 


1093 


§  517.  Mortgage  of  a  consolidated  railroad  company  — 
estoppel  to  claim  its  invalidity  on  the  ground  that  the  con- 
soUdation  was  not  legally  perfected.—  Certain  local  railroad 
companies  in  the  state  of  South  Carolina,  which  had  been  aided 
by  counties  of  that  state  subscribing  to  their  capital  stock,  look- 
ing to  securing  the  greatest  benefits  to  tlie  separate  companies 
and  accomphshing  the  purposes  which  led  counties  through  which 
they  passed  to  aid  in  the  construction  of  the  respective  roads 
under  the  laws  of  South  Carolina,  were  consolidated  under  a  gen- 
eral corporate  name.     This  consolidated  organization  executed  a 
mortgage  to  a  trust  company  to  secure  bonds  which  it  issued,  the 
latter  being  used  principally  for  taking  up  the  divisional  bonds 
issued  by  the  separate  companies  and  for  use  in  part  m  comple- 
tion and  perfection  of  the  roads  of  the  system.     The  trustee 
brought  action  to  foreclose  this  mortgage  in  the  federal  court. 
The  suit  was  resisted  by  a  cross-bill  filed  by  several  of  these  coun- 
ties which  held  stock  in  the  separate  roads  and  afterwards  in  that 
of  the  consolidated  mortgage.     It  was  contended  that  the  mort- 
gage was  an  invalid  one.     One  of  the  questions  raised  was  as  to 
the  consolidation.     From  the  statement  of  the  court,  it  appeared 
that  the  agreement  entered  into  was  in  compliance  with  the  gen- 
eral statute  of  South  Carolina  upon  the  subject  of  consolidation 
of  roads,  and  was  executed  by  each  board  of  directors  and  sub- 
mitted to  the  stockholders  of  the  several  companies.     The  min- 
utes of  the  action  of  three  of  tlie  companies  confirming  the 
agreement  were  in  evidence,  but  the  minutes  of  the  other  com- 
pany  had  been  lost.     The  old  stock  was  surrendered  and  the  new 
certificates  accepted.     The  new  company  took  full  charge  and 
control  of  all  the  roads  embraced  in  the  agreement,  without  ques- 
tion or  exception,  and  for  years  exercised  such  control,  with 
immense  advantage  to  the  different  roads  from  the  consolidation. 
The  court  held  that  such  facts  showed  that  the  agreement  wbb 
accepted  and  ratified ;  also,  that  it  was  not  an  essential  prerequi- 
8it«  to  such  consolidated  companies  acting  as  a  corporation  that 
the  agreement  should  have  upon  it  the  certificates  of  the  several 
secretaries  of  each  of  the  railroad  companies  that  it  had  been 
accepted.    After  disposing  of  this  question,  it  was  held  further  that 
the  organization  having  assumed  to  act  as  a  corporation,  and  issued 
the  bo'^nds  secured  by  the  mortgage  and  put  the  bonds  in  circula- 
tion, persons  holding  stock  in  the  corporation,  a&  such,  could  not 


defeat  the  bonds  and  mortgage  by  alleging  that  the  corporation 
was  not  duly  incorporated.*  The  court  held  the  mortgage  valid 
over  the  objection  that  it  was  not  submitted  to  the  corporation 
for  approval,  but  was  the  act  of  its  directors.^ 

§  518.  Illustration  of  a  fraudulent  mortgage. —  A  Michigan 
manufacturing  corporation  having,  in  carrying  on  its  business, 
become  involved  with  a  large  floating  indebtedness,  certain  new 
parties,  with  a  view  to  paying  this  floating  indebtedness,  were 
brought  into  it.  There  were  subsequent  readjustments  of  the 
stock  of  the  corporation,  whicli  resulted  finally  in  one  of  those 


'Phinizy  v.  Augusta  &  K.  R.  Co.; 
Central  Trust  Co.  of  New  York  v. 
Port  Royal  &  Western  Carolina  Ry. 
Co.,  (1894)  62  Fed.  Rep.  678.  The 
court  said  in  one  place:  "It  must  be 
kept  in  mind  that  the  consolidation  of 
railroads  does  not  create  a  new  corpo- 
ration, with  powers  of  its  own,  dis- 
tinct from,  greater  or  less  than,  those 
enjoyed  by  the  consolidating  com- 
panies separately.  It  is  a  method  pro- 
vided by  law  for  the  formation  of  a 
copartnership  between  railroad  corpo- 
rations, by  which,  if  the  expression 
may  be  used,  they  pool  their  franchises 
and  property,  and  are  enabled  to  act  in 
complete  harmony  under  one  head,  as 
a  unit.  This  unit  possesses  the  powers 
of  its  component  parts  —  no  more  and 
no  less.  Pub.  Laws,  §  1538  (Gen. 
St.  S.  C.  §  1427).  And  the  act 
authorizing  it  provides  a  method  of 
advertising  the  state  that  this  copart- 
nership has  been  formed.  No  further 
grant  of  a  franchise  is  necessary,  nor 
is  any  given.  Indeed,  it  is  an  accom- 
plished fact,  requiring  no  further  act 
or  deed  on  the  part  of  the  state,  or  any 
one  else.  Gen.  St.  §  1428  (Pub.  Laws, 
§  1 539). "  See,  also,  Wallace  v.  Loomis, 
97  U.  S.  146. 

'Phinizy  v.  Augusta  &  K.  R.  Co.; 
Central  Trust  Co.  of  New  York  v. 
Port  Royal  &  Western  Carolina  Ry. 
Co.,  (1894)  62  Fed.  Rep.  678.  It  was 
said  by  the  court:  "Under  the  law  of 


South  Carolina  (Gen.  St.  S.  C.  §§  1427, 
1428;  Pub.  Laws  S.  C.  §§  1538,  1539) 
it  is  provided  that,  upon  the  consum- 
mation of  the  act  of  consolidation,  the 
rights,   privileges    and   franchises    of 
each  of  the  corporations,  parties  to  the 
same,  shall  be  taken  and  deemed  to  be 
vested  in  and  transferred  to  such  new 
corporation,  without  any  further  act 
and  deed.     Each  of  these  corporations, 
at  the  date  of  the  consolidation,  had 
outstanding  bonds  secured  by  mort- 
gage   under   proper   authority.     The 
main   purpose  of  the  new  mortgage 
was  to  take  up  them  and  substitute 
the  bonds  of  the  new  company.     The 
bonds  and  mortgage  substituted  were 
authorized  and  sustained  by  the  same 
powers.     'The  directors  alone,  with 
out  the  vote  of  the  stockholders,  may 
authorize  a  mortgage  to  be  made;  and 
even  though  there  is  a  question  as  to 
their  authority,   the    validity  of    the 
mortgage,  as  against  the  corporation, 
is  established  by  its  affirmance  of  it 
by  the  issue  of  bonds  under  it.'    Wood 
R.  R.  1951,  §  461,  quoting  McCurdy's 
Appeal,   65  Pa.    St.    290;    Plodder  «. 
Railroad  Co.,  7  Fed.  Rep.  793.     'If 
the  act  authorizing  the  mortgage  re- 
quires a  concurrence  of  the  majority 
of  stockholders,  it  is  held  that  this  is 
a   requirement  in  which  the  public 
have  no  interest.'    Thomas  v.  Railroad 
Co.,  104  ni.  462." 


¥ 


m 

4 


1094 


MORTGAGES  AND  TRUST  DEEDS. 


[§619 


who  had  assumed  this  floating  indebtedness  having  one  share  of 
the  stock  issued  to  his  brother,  and  tliere  was  a  new  election  of 
ofticers.  The  two  brothers,  one  as  president,  and  the  other  as 
secretary  and  treasurer,  and  tlie  third  party  as  vice-president,  were 
elected.  A  meeting  of  the  directoi-s  was  then  called  and  a  reso- 
lution adopted,  the  two  brothers  voting  for  it,  the  third  party 
against,  whicli  authorized  the  execution  of  a  chattel  mortgage 
upon  the  whole  plant  and  stock  to  secure  a  large  note  then  held 
by  transfer  to  him  by  their  father.  Under  a  bill  for  foreclosure 
of  this  mortgage  a  receiver  was  appointed  and  a  decree  for  sale, ' 
and  the  property  was  sold  and  purchased  by  the  father  and  a ' 
bank  holding  the  other  note,  these  notes  representing  the  original 
floating  indebtedness  which  the  defendant  in  this  action  assumed. 
The  declaration  alleged  that  the  introduction  of  the  brother  of 
this  defendant  into  the  corporation,  the  readjustment  of  the  shares 
of  stock,  the  change  made  in  the  ofHcers  of  the  corporation,  the 
transfer  of  the  notes,  the  resolution  directing  the  execution 
of  the  chattel  mortgage,  and  the  sale  of  the  property,  were  acts 
done  in  pursuance  of  a  fraudulent  scheme  to  relieve  the  former 
president  of  the  corporation  from  his  obligations,  to  appropriate 
the  assets,  goods  and  plant,  and  deprive  the  plaintiff,  the  only 
other  shareholder,  of  his  interest  in  the  corporation,  and  that  the 
defendants  unlawfully  conspired  together  to  accomplish  the 
desired  purpose.  The  Supreme  Court  of  Michigan  held  that  the 
declaration  set  forth  a  cause  of  action.  They  said  :  "  The  right 
of  the  directors  of  a  corporation  to  execute  a  mortgage  to  secure 
its  indebtedness  does  not  include  the  right  of  a  member  of  that 
corporation,  who  is  under  obligations  to  carry  the  corporation 
paper,  to  introduce  a  dummy  into  the  board  of  directors,  and, 
confederating  with  him,  direct  the  execution  of  a  mortgage  to 
another  confederate,  to  whom  the  pajxjr  has  been  assigned  for 
the  purpose  of  avoiding  tliese  obligations,  wrecking  the  corpora- 
tion and  appropriating  its  assets ;  nor  does  the  right  of  a  creditor 
to  foreclose  include  the  right  of  such  confederate  fraudulently  to 
obtain  the  security  for  the  purpose  named  and  to  foreclose  it  in 
furtherance  of  that  purpose."  ^ 

§  519.  What  corporation  mortgages  cover,  and  what  they 
do  not  cover. —  It  is  settled  that  the  after-acquired  property 

»  Hanley  v.  Balch,  (1892)  94  Mich.  315,  319. 


§519] 


PRIVATE  CORPORATIONS. 


1095 


clause   in  a  mortgage  of   railroad    property  is  valid,   and   that 
thereby  the  mortgage  covers  not  only  property  then  owned  by 
the  railroad  company,  but  becomes  a  lien  upon  all  property  sub- 
sequently acquired  by  it  which  comes  withhi  the  description  in 
the  mortgage.^     And  this  is  true,  not  only  as  to  property  to  which 
it  acquires  the  legal  title,  but  also  as  to  that  to  which  it  acquires 
only  a  full  equitable  title.^     Tlie  doctrine  that  the  "  after-acquired 
property "  clause  in  a  railroad  mortgage  covers  not  only  legal 
acquisitions,  but   also   all   equitable   rights   and    interests  subse- 
quently acquired  either  by  or  for  the  railroad  company,  has  been 
reaffirmed  by  the  Supreme  Court  of   the  United  States.^     The 
language  of  a  railroad  mortgage  covering,  among  other  things,  all 
the  corporate  rights,  privileges,  franchises  and  immunities,  and 
all  other  things  in  action,  contracts,  claims  and  demands  of  the 
said  party  of  the  first  part,  whether  now   owned   or  hereafter 
acquired  in  connection  or  relating  to  said  railroad,  has  been  held 
sufficient  to  include  a  subsequently  acquired  lease  of  a  belt  rail- 
way whereby  the  company  acquired  access  to  a  city  at  one  of  its 
termini.*     A  lien  will  be  created  ujion    the  terminal  facilities  of 
a  railroad  company  where  such  conipany  is  incorporated  to  con- 
struct a  railroad  between  two  cities  named  as  its  termini,  by  a 
mortgage,  expressed  to  be  upon  its  line  of  railroad  constructed,  or 
to  be  constructed,  between  the  named  termini,  together  with  all 
tlie  stations,  depot  grounds,  engine  houses,  machine  shops,  build- 
ings, erections  in  any  way  now  or  hereafter  appertaining  under 

» Central    Trust  Co.    r.    Kneeland,  ^^''ade  r.    Chicago,  Springfield   «fc 

(1891)  138  U.  S.  414.     See  Pennock  v.  St.  Louis  R.  R.  Co.,  (1893)  149  U.  S. 

Coe,    23  How.    117;  Dunham  r.  Cin-  327;  s.  c,  13  Sup.  Ct.  Rep.  892;  cit- 

cinnati.   P.,   etc.,   Ry.,   1   Wall.    254;  ing  Dunham   v.   Cincinnati,   P.,  etc.. 

Galveston    Raib-oad    v.    Cowdrey,   11  Ry.    Co.,    1    Wall.     254;     Galveston 

Wall.  459;  Thompson  v.  Valley  Rail-  Railroad  v.    Cowdrey,   11   Wall.   459; 

road  Company,  132  U.  S.  68;  Omaha  Porter  v.  Bessemer  Steel  Co..  122  U.  S. 

&  St.  Louis  Ry.  Co.  v.  Wabash,  St.  267;  Toledo,  etc. ,  Railroad  «^.  Hamilton, 

Louis  &  Pac.  Ry.  Co..  (1891)  108  Mo.  134  U.  S.   296;   Central  Trust  Co.   v. 

298;  McTighe  r.  Macon  Construction  Kneeland,  138  U.  S.  414.     As  to  the 

Co.,   (Ga.)  21  S.  E.  Rep.  701.  priority  of  a  railroad  mortgage  cover- 

'  Toledo,  etc. ,  Railroad  Co.  v.  Ham-  ing  after-acquired  property  under  the 

ilton,  134  U.  S.  296.     The  court  cited  Iowa  statutes,  on  rolling  stock  deliv- 

in  support  of  this  position  Jones  on  ered  to  the  railroad  company,  before 

Mortgages,  §  138;  Massey  «?.  Papin,  24  its  use,    on  the  depot    grounds,   see 

How.    362;    Farmers'   Loan  &  Trust  Manhattan  Trust  Co.  r.  Sioux  City  & 

Co.  r.  Fisher,  17  Wis.  114;    Lincoln  N.  Ry.  Co.,  68  Fed.  Rep.  72. 

Building  Assn.  v.  Hass,  10  Neb.  581;  *  Columbia  Finance  &  Trust  Co.  v. 

Laughlin  t.  Braley,  25  Kans.  147.  Kentucky   Union  Ry.   Co.,  (1894)60 


III 


■  I 


1096 


MORTGAGES  AND  TRUST  DEEDS. 


[§519 


I 


; 


I 


■I  1  •  •• 


I 
I 


the  described  line  of  railroad,  and  will  not  be  limited  to  so  much 
of  the  road  as  is  found  between  the  city  limits  of  those  places.* 
A  railroad  mortgage  on  an  entire  line  of  railroad  between  named 
points,  "as  said  railroad  now  is  or  may  be  hereafter  constructed, 
maintained,  operated  or  acquired,  together  with  all  the  privileges, 
rights,  franchises,  real  estate,  right  of  way,  depots,  depot  grounds, 
side  tracks,  water  tanks,  engines,  cars  and  other  appurtenances 
thereto  belonging,-'  has  been  held  by  the  Supreme  Court  of 
Missouri  to  cover  land  subsccpiently  purchased  by  the  company 
near  a  depot  on  the  line  of  its  road,  and  a  hotel  erected  thereon 
for  the  purpose  of  an   eating  house   and  to  accommodate  the 


Fed.   Rep.   794;   citing   Trust   Co.    r. 
Kneeland,   138  U.   S.   416;   s.   c,   11 
Sup.   Ct.    Rep.   357;    Railroad  Co.  v. 
Hamilton,  134  U.  S.  297;  s.  c,  10  Sup. 
Ct.     Rep.     546;     Branch    f.     Jesup, 
106  U.  S.  468;  s.  c,  1  Sup.  Ct.  Rep. 
495.       As  to  what    such    mortgages 
cover,  see  Cooper  v.  Corbin,   105  111. 
224;  First  Nat.  Bank  of  Salem  v.  An- 
derson, 75  Vii.   250;  Nichols  r.   'Slnse, 
94  N.  Y.  160;  McAllister  «?.  Plant,  54 
Miss.  106;  ^Morgan  &  Riynor  v.  Don- 
ovan, 58  Ala.  241;  Kelly  r.  Trustees, 
58  Ala.  489;  Butler  r.  Ribm,  46  Md. 
541:  Pullan  r.  Cin.  &  Chic.  Air  Line 
R.   R.   Co.,  5  Biss.   237;    Calhoun   p. 
Memphis  «&   Paducah    R.    R.    Co.,   3 
Flip.  442;  Seymour  r.  Canandaigua  & 
Niagjira  Falls  R.  R.  Co..  25  Barb.  284; 
Willink  r.  Morris  Canal  &  Bkg.  Co.,  4 
N.  J.  Eq.  377;  Eldridge  r.   Smith,  34 
Vt.  484;  Elwell  v.  Grand  St.  &  New- 
town R.  R.  Co.,  67  Rnrb.  83;  Farmers' 
Loan  &  Trust  Co.  /■.  Commercial  Bank 
of    Racine,    15    Wis.    426;    Farmers' 
Loan    &    Trust    Co.    i\    Commercial 
Bank,  11  Wi.'*.  207;  Farmers'  Loan  ifc 
Trust   Co.    r.    Fisher,    17    Wis.    114; 
Fisk    t.    Potter,   2    Abb.    Ct.    App. 
Dec.  138;  Buck  r.  Memphis  &  Little 
Rock  R.  R.  Co.,  4  Cent.   L.   J.  430; 
Galena  &  Chic.  U.  R.  R.  Co.  r.  Men- 
zies,  26  111.  121;  Bardstown  &  Louis- 
ville R.  R.  Co.,  Metcalfe,  4  Mete.  (Ky.) 
199;    Hunt   V.    Bullock,    23    111.    320; 
Ludlow  r.  Hurd,  1  Disney,  552;  Mo- 


bile &  Cedar  Point  R.   R.   Co.   v.  Tal- 
man.    15  Ala.   472;  Morrill  v.  Noyes, 
56  Me.    458;    Parkhurst  v.   Northern 
Central  R.  R.  Co.,  19  Md.  472;  Phil., 
Wilm.  &  Bait.  R.  R.  Co.  r.  Woelpper, 
64  Pa.   St.  366;  Pierce  r.   Emery,  32 
N.  II.  484;  Phillips  r.  Winslow,  18  B. 
Mon.  431;  Pierce  r.  Milwaukee  &  St. 
Paul  R.  R.  Co.,  24  Wis.  551;  Robin- 
son r.  Atl.  &  Gt.   West.   Ry.   Co.,  66 
Pa.  St.   160;  Shamokin  Valley  R.  R. 
Co.    V.    Livermore,   47    Pa.    St.    465; 
Walsh  v.    Barton,    24    Ohio    St.    28; 
Youngman  r.  Elmira  &  Williamsport 
R.  R.   Co.,  65  Pa.   St.   278;  Parish  r. 
Wheeler,    22    N.     Y.     494;     Morgan 
County  r.  Thomas.  76  111.  120;  Ray- 
mond V.  Clark,  46  Conn.  129;  Buck  v. 
Seymour,   46   Conn.    156;    Palmer  v. 
Forbes,  23  111.  301;  Farmers'  Loan  & 
Trust   Co.    r.  Hondrickson,  25  Barb. 
484;    Beardsky  r.    Ontario  Bank,   31 
Barb.  619;  Taylor  v.  Burhngton,  Ce- 
dar  Rapids  &  Minn.  Ry.   Co.,   4  Dill. 
570;   Addison  r.   Lewis,   75  Va.   701; 
Dean  v.   Biggs,  25  Hun,  122;  Titus  v. 
Mabee,  25  111.  257;  Resor  v.  Ohio  & 
Miss.  R.  R.  Co.,  17  Ohio  St.  139.    For 
an  illustration  of  what  was,  and  what 
was  not,  covered  by  the  "after-ac- 
quired "  property  clause  in  a  corpora- 
tion mortgage,  see  Boston  Safe  Deposit 
&  Trust  Co.  V.  Bankers  &  Merchants' 
Telegraph  Co.,  (1888)  36  Fed.  Rep.  288. 
'  Central    Trust    Co.    v.    Kneeland, 
(1891)  138  U.    S.    414.     Mr.    Justice 


§519] 


PBIVATE  CORPORATIONS. 


1097 


employees  of  the  company,  passengers  and  other  persons.^     It  has 
been  lield  by  tlie  United  States  Circuit  Court  of  Appeals  for  the 
fifth  circuit  tliat  a  mortgage  by  a  railroad  company  of  all  and 
any  interest  the  company  might  have  to  the  land  granted  to  it 
by  the  state  of  Florida  to  which  it  had  been  donated  under  the 
act  of  congress  as  to  the  swamp  and   overflowed   land,  passed 
whatever  title  the  company  had,  as  it  had  a  full  equitable  title, 
though  it  di(Unot  have  a  legal  title  to  the  land,  by  reason  of  the 
absence  of  a  patent  in  the  original  grant  to  the  state.^     The  con- 
gress of  the  United  States  by  act  granted  the  right  of  way  to 
the  state  of  Missouri  through  certain  public  lands  between  desig- 
nated points,  and  also  granted  to  the  state  every  alternate  section 
of  land,  properly  designated  by  metes  and  bounds,  for  the  purpose 
of  aiding  in  making  railroads  and  branches,  and  at  the  same  time 
authorized  the  legislature  to  dispose  of  the  lands  for  the  purpose 
named,  and  for  none  other.     The  state  by  act  afterwards  granted 
some  of  these  lands  to  a  railroad  company  for  the  purposes  above 
stated  and  subject  to  the  terms  of  the  acts  of  congress,  and  at  the 
same  time  authorized  the  company  to  issue  bonds  and  secure  the 
same  by  mortgage  on  those  lands  in  order  to  raise  funds  to  con- 
struct  the   railroad.      By  subsequent  legislation   the   state   was 
authonzed  to  issue  aid  bonds  to  this  company,  none  of  the  bonds 
to  be  delivered  to  the  company  until  it  had  signified  its  accept- 


Brewer,  speaking  for  the  court,  said: 
"The  stations,  depot  grounds,  etc., 
in  the  terminal  cities  appertain  to  the 
railroad  as  fully  as  similar  structures 
in  places  intermediate  those  termini. 
In  the  absence  of  restrictive  words 
such  is  the  natural  import,  and,  there- 
fore, must  be  adjudged  the  intent 
and  scope  of  a  mortgage  containing 
that  description.  The  first  mortgage 
contains  not  only  the  general  terms 
referred  to,  but  after  them,  and  as  if  it 
were  to  avoid  any  possible  doubt, 
adds:  'And  all  its  depot  grounds, 
yards,  sidings,  turnouts,  sheds,  ma- 
chine shops,  leasehold  rights,  and 
other  terminal  facilities  now  or  here- 
after owned  by  the  said  party  of  the 
first  part.'  It  would  be  difficult  to 
make  language  more  full,  accurate 
and    descriptive."      See    Willink    v. 

138 


^lorris  Canal  «fc  Bkg.  Co.,  4  N.  J.  Eq. 
377;  3Iorris  &  Essex  Rtiilroad  v.  Cen- 
tral Railroad  Co.,  31  N.  J.  L.  205;  Mo- 
hawk Bridge  Co.  r.  Utica  &  Schenec- 
tady Railroad,  6  Paige,  554;  Common- 
wealth r.  Erie  &  Northeast  Railroad, 
27  Pa.  St.  339. 

'  Omaha  &  St.  Louis  Ry.  Co.  v. 
Wabash,  St.  Louis  &  Pac.  Ry.  Co., 
(1891)  108  Mo.  298.  See  U.  S.  Trust 
Co.  of  New  York  v.  Wabash,  St.  L.  & 
Pac.  Ry.  Co.,  32  Fed.  Rep.  480,  where 
the  court  ordered  the  money  arising 
from  insurance  on  the  building  paid 
over  to  the  receiver,  who  represented 
the  first  mortgage  creditors.  The  court 
distinguished  Humphreys  v.  McKis- 
sock,  Receiver,  140  U.  S.  304. 

•Augusta,  Tallahassee  &  Gulf  R. 
Co.  r.  KitteL   (1892)  52  Fed.  Rep.  63. 


Hi 


1098 


MORTOAQES  AND  TRUST  DEEDS. 


[§519 


ance  by  filing  a  receipt  tlierefor  with  the  secretary  of  state,  and 
that  when  recorded  in  the  office  of  the  secretary  of  state  each 
certificate  should  be  a  mortgage  on  the  road.  The  company 
accepted  these  bonds  and  filed  the  certificates  required,  and  after- 
wards the  state's  statutory  mortgage  lien  upon  the  railroad  and  its 
property  was  enforced  by  sale.  After  the  donation  of  these 
public  lands  to  the  company  by  the  state  the  company  made  a 
deed  of  trust  to  certain  trustees  of  these  lands  to  secure  an  issue 
of  bonds,  with  power  in  the  trustees  to  sell  these  lands  and  take 
up  the  bonds,  etc.  This  case  was  an  ejectment  case  growing  out 
of  the  sales  of  these  lands  for  the  purposes  above  stated,  and  the 
question  was  before  the  court  as  to  what  the  statutory  mortgage 
of  the  state  covered.  It  was  held  by  the  Supreme  Court  of 
Missouri  that  the  lien  of  the  certificates  of  the  company  accept- 
ing the  aid,  which  by  the  provisions  of  the  aid  act  were  to  be  a 
mortgage  "  of  the  road  and  every  part  and  section  thereof  and  its 
appurtenances,"  did  not  include  the  railroad  lands  granted  to  the 
company  by  the  state,  since  they  were  not  appurtenant  to  the 
road.  !N'or  did  the  lien  created  by  the  terms  of  a  subsequent  act 
of  the  legislature  authorizing  an  additional  loan  of  state  bonds  to 
this  company  where  the  provision  was  that  the  bonds  so  issued 
'*  should  constitute  a  first  lien  or  mortgage  upon  the  road  and 
property  of  the  several  railroad  companies  receiving  them " 
extend  the  state's  lien  over  such  railroad  lands  crranted  to  the 
state  and  by  the  state  to  the  company.^  A  mortgage  of  all  of 
the  property  of  a  corporation  formed  to  supply  heat  to  the  public, 
covers  all  tlie  franchises  essential  to  the  operation  of  its  prop- 
erty.2    The  United   States  Circuit  Court   of  Appeals  for  the 


'  Wilson  r.  Beckwith,  (1893)  117  Mo. 
61;  8.  c,  23  S.  W.  Rep.  639.  The  court 
discuss  and  distinguish  Whitehead  r. 
Vineyard,  50  Mo.  30;  Wilson  r.  Boyee. 
92  U.  S.  323;  Chouteau  r.  Allen,  TO 
Mo.  290,  327;  Railroad  r.  McGeo,  115 
U.  S.  469.  In  Mcllhenny  r.  Binz, 
(Tex.)  13  S.  W.  Rep.  655,  the  directors 
of  a  railroad  company  adopted  a  reso- 
lution authorizing  a  mortgage  of  its 
property  to  render  effectual  what  was 
attempted  to  be  done  in  a  former  mort- 
gage, the  validity  of  the  latter  being 
in  doubt.  As  directed  by  the  resolu- 
tion, the  second  mortgage  was  exe- 


cuted. In  this  latter  there  was  no 
reference  made  to  the  former,  and 
neither  the  resolution  of  the  directors 
nor  the  second  mortgage  gave  expres- 
.sion  to  any  intention  that  the  same 
property  named  in  the  first  mortgage 
should  be  covered  by  the  second.  The 
Supreme  Court  of  the  state  of  Texas 
held  that  in  such  case  the  description 
of  the  property  in  the  second  mortgage 
could  not  be  decided  by  that  in  the 
first. 

« Pumphrey  r.  Threadgill,  (Tex.  Qv. 
App.)  28  S.  W.  Rep.  460. 


§519] 


PRIVATE  COKPOKATIONS. 


1099 


seventh  circuit,  upon  an  appeal  from  an  order  in  a  creditor's  bill 
against  a  water  company  and  the  purchasers  of  its  property  at 
foreclosure  sale  and  others,  appointing  a  receiver  and  ordering 
the  purchasers  to  surrender  the  property  to  the  receiver  and 
restraming  these  purchasers  from  interfering  with  the  possession 
of  the  receiver,  sustained  the  validity  of  the  mortgage  and  set 
aside  the  order  of  injunction.  It  was  held  that  the  mortgage 
executed  by  the  water  company  covered  all  franchises  owned  by 
the  company  and  enumerated  in  the  ordinance  of  the  city  grant- 
ing the  same  to  the  company  whether  the  franchises  were  in  fact 
granted   by  the   city  or   by  the   state.^      After  mortgaging  its' 

» Andrews  v.   National   Foundry  &   alone  should  a  writing  be  interpreted  ' 
Pipe  Works,  (1894)  61  Fed.  Rep.  782.    'The  rule  is  to  regard  the  intention 
It  was  said  by  the  court  upon  the  con-   rather  than  the  words; '   and  here  the 
structionof  the  mortgage:    "Theap-    evident  intention,  deducible  from  the 
pellants,  it  is  not  disputed,  advanced   whole  instrument,   was  to  mortgage 
large   sums  of  money  to  the  water   the  rights  and  franchises  which  the 
company  in  the  belief  that  they  were   ordinance  granted  in  terms,  or  which 
receiving  a  valid  security,  and,  while   it  purported  to  convey.     The  resolu- 
they  are  presumed  to  have  known  the   tion  whereby  the  water  company  de- 
law,  it  is  not  to  be  presumed,  if  there   clared  its  acceptance  of  the  ordinance, 
is  reasonable  escape  from  it,  that  either   and  '  of  the  franchise  thereby  granted,' 
party  to  the  transaction  intended  a   shows  that  both  parties  entert^ained  an 
vam   thing.      '  Intcrpretatio  fdciencUi   equally  broad  and  generous  view  of 
e8t  ut  res  magis  valcat  quam  pereat;    the  powers  of  the  common  council  of 
and  other  familiar  maxims,  lend  sup-    the  city  in  the  premises,  and,  when  the 
port  to  the  requirement  that  a  contract   deed  of  trust  came  to  be  drawn,  it  was 
or  deed  shall  be  so  construed  as  to   only  natural  that  for  certainty  of  de- 
have  effect  rather  than  so  as  to  be   scription  reference  should  be  made  to 
made  void.      By  the  literal  terms  of   the  ordinance  by  which  the  rights  of 
the  mortgage  and  of  the  decree  of   the  company  were  defined,  and,  as  the 
foreclosure,   upon  which  the  title  of    parties  supposed,  were  granted.    And 
the  appellants  depends,  there  was  a   even  if  this  supposition  was  mistaken, 
conveyance  or  assignment  of  '  all  the   must  it  be  held  that  the  entire  pur* 
rights,   privileges,   immunities,    fran-    pose  of  the  parties  failed,  and  that, 
chises  and  powers,  of  whatever  name   notwithstanding  the  covenant  of  the 
or  nature,  which  were  granted  in  and    water  company  that  it  was  •  the  owner 
by  that  certain  ordinance,'  etc.,  and  if,    and  holder,'  and  had  '  good  right  and 
upon  a  proper  interpretation  of  the   lawful    authority'  to    make  transfer 
statutes    touching    this    question,   no    and  sale   *of  said   rights,    privileges 
mortgageable  right,  privilege  or  fran-   immunities,  franchises  and  powers'  'in 
chise  was  granted  in  or  by  the  ordi-    the  manner  aforesaid,'  yet  the  instru- 
nance,  as  distinguished  from  a  direct   ment  is  a  total  nullity?    Indeed,  why 
grant  by  the  corporation,  then  by  a   should  it  not  be  held  that  by  that 
strict  construction  the  mortgage  was,    covenant  the  water  company  is    es- 
as  it  was  held  to  be,  ineffectual  and    topped  to  deny  that  its  franchises  were 
meamngless.     But  not  by  the  words  granted  by  the  ordinance?    Or  must  it 


II 


n 


l# 


1100 


MOBTGAOES  AND  TRUST  DEEDS. 


[§519 


property  a  corporation  organized  for  lighting  purposes  placed 
dynamos  and  exciters  in  the  building  used  by  it  for  the  manufac- 
ture of  electricity,  as  part  of  its  electric  plant,  with  the  intention 
that  they  should  remain  there  till  worn  out  or  superseded  by  more 
suitable  machines.  The  New  York  Supreme  Court  has  held  that 
they  became  part  of  the  realty  and  were  subject  to  the  mortgage 
as  against  judgment  creditors  of  the  corporation  notwithstanding 
they  could  be  removed  without  impairing  the  constniction  of  the 
building.'  In  a  case  where  several  railroad  companies  combined 
to  construct  an  elevator  connected  with  their  respective  railroads, 
each  company  agreehig  to  pay  its  portion  of  the  cost  of  construc- 
tion, and  to  receive  a  corresponding  amount  in  the  shares  of  stock 
in  a  corporation  organized  for  its  construction,  and  to  hold  title  to 
the  same,  the  Supreme  Court  of  the  United  States  has  held  that 
a  railroad  company  joining  iu  such  an  arrangement,  the  elevator 
to  be  built  upon  land  not  belonging  to  the  company,  and  situated 
at  some  distance  from  its  road,  did  not  acquire  an  interest  in  the 
elevator,  which  would  pass  as  an  appurtenance  under  a  mortgage 
of  its  railroad  as  constructed  or  to  be  constructed,  and  the 
appurtenances  thereto  belonging.* 


T>e  said  that  the  covenant  covers  only 
the  rights  and  franchises  which  were 
granted  by  the  ordinance,  and,  like 
the  granting  clause,  is  itself  void  be- 
cause the  franchise  came  to  the  com- 
pany in  that  way?  It  would  seem 
more  reasonable,  the  ordinance  having 
been  made  a  part  of  the  deed  by  refer- 
ence as  if  copied  into  it,  to  treat  the 
covenant  as  covering  the  rights  and 
privileges  named  in  the  ordinance, 
whether  derived  from  one  source  or 
another.  To  say  the  least,  upon  the 
whole  instrument,  it  is  onlj'  reasonable 
and  in  accord  with  the  canons  of  con- 
struction to  read  the  expression  '  which 
were  granted,*  etc.,  as  if  it  were 
*  which  iu  terms  were  granted  unto  the 
said  Oconto  Water  Company  in  and  by 
that  certain  ordinance,'  etc.  The 
added  words  are  fairly  implied,  and 
the  addition,  without  doing  violence 
to  any  part  of  the  writing,  gives  effect 
alike  to  the  words  of  grant  and  cove- 
nant and   accomplishes   the    evident 


purpose  for  which  the  deed  was 
executed." 

'  New  York  Security  &  Trust  Co. 
V.  Saratoga  Gas  &  Electric  Light  Co., 
88  Hun,  569;  s.  c,  34  N.  Y.  Supp. 
890.  As  to  fixtures  falling  within  the 
terms  of  a  mortgage,  see  Wade  v. 
Donau  Brewing  Co.,  (Wash.)  38  Pac. 
Rep.  1009.  As  to  what  is  covered  by 
a  mortgage,  see  Wood  v.  Whelen,  93 
111.  153;  Despatch  Line  of  Packets  t>. 
Bellamy  Mfg.  Co.,  13  N.  H.  205; 
Hicks  r.  Cheyenne  Land  &  Live  Stock 
Co.,  (Wyo.)  35  Pac.  Rep.  475.  As  to 
"  after -acquired  "  property,  see  Wood 
V.  Holly  Mfg.  Co.,  (Ala.)  13  So.  Rep. 
948. 

•  Humphreys  v.  McEissock,  (1891) 
140  U.  S.  304;  8.  c.  11  Sup.  a.  Rep. 
779;  Wabash,  St.  Louis  &  Pacific  Ry. 
Co.  V.  McKissock,  Ibid.  The  court 
below  had  passed  a  decree  confirming 
the  report  of  the  commissioners,  hold- 
ing that  the  mortgaging  company  pos- 
sessed such  an   interest.    Upon   the 


§  620]  PRIVATE  CORPORATIONS.  HOI 

§520.  Trustees  of  such  mortgages  —  their  duty,  rights 
and  powers. —  Under  the  general  statutes  of  Minnesota  a  rail- 
road company  may,  in  a  mortgage  executed  by  it,  pledge  the 
income  of  the  property,  and,  to  make  such  pledge  effectual,  may 


point   directly   involved    Mr.  Justice 
Field,  speaking  for  the  court,  said: 
"Had  the  elevator  been  constructed 
upon  property  covered  by  the  mort- 
gage it  might  have  been   contended 
that  it  fell  to  the  extent  of  the  one- 
sixth  interest  under  the  mortgage,  as 
one  of  the  depots  of  the  company. 
The  terra  *  depot '  in  the  mortgage  is 
not  necessarily  limited  to  a  place  pro- 
vided for  the  convenience  of  passen- 
gers while  waiting  for  the  arrival  or 
departure  of  trains.     It  applies  also  to 
buildings  used  for   the  receipt   and 
storage  of  freight,   which,  when  re- 
ceived, is  to  be  sjifely  kept  until  for- 
warded by  the  cars  of  the  company  or 
delivered  to  the  owner  or  consignee. 
Such  a  building,  whether  existing  at 
the    time    of   the    mortgage  or   con- 
structed afterwards  upon  the  property 
of  the  company  covered  by  it,  may 
pass  under  the  mortgage  as  one  of  its 
depots,  but  will  not  pass  as  an  appur- 
tenance to  the  property  previously  ex- 
isting,    A    thing   is   appurtenant  to 
something  else  only  when  it  stands  in 
the  relation  of  an  incident  to  the  prin- 
cipal   and     is    necessarily    connected 
with  the  use  and  enjoyment  of  the  lat- 
ter.    Harris  r.  Elliott,  10  Pet.  25,  54; 
Jackson  v.  Hathaway,  15  Johns.  447, 
455;  Linthicum  v.  Ray,  9  Wall.  241. 
Of  two  parcels  of  land  one  can  never 
be  appurtenant  to  the  other,  for  though 
the  possession  of   the  one  may  add 
greatly  to  the  benefit  derived  from  the 
other,  it  is  not  an  incident  of  the  other 
or  essential  to  the  possession  of  its  title 
or  use;  one  can  be  enjoyed  independ- 
ently of  the  other.     As  said  by  the 
Court  of   Appeals  of  New  York  in 
WoodhuU  V.  Rosenthal,  61  N.  Y.  382, 
890:    'A  thing  ' appurtemuit '  is  de- 


fined to  be  a  thing  used  with  and  re- 
lated to  or  dependent  upon  another 
thing  more  worthy,  and  agreeing  in  its 
nature    and    quality   with  the  thing 
whereunto  it  is  appendant  or  '  appur- 
tenant.'   It  results  from  this  definition 
that  land  can  never  be  appurtenant  to 
other  land  or  pass  with  it  as  belonging 
to  it.     *    *    *    All  that  can  be  rea- 
sonably claimed  is  that  the  word  *  ap- 
purtenances'  will  carry  with  it  ease- 
ments  and  servitudes  used  and  enjoyed 
with  the  lands  for  whose  benefit  they 
were  created.     Even  an  easement  will 
not  pass  unless  it  is  necessary  to  the 
enjoyment    of    the     thing    granted.' 
Under  the  term   'appurtenances,'  as 
used  in  the  mortgage  in  question,  only 
such   property  passes  as  is  indispen- 
sable to  the  use  and  enjoyment  of  the 
franchises  of  the  company.    It  does 
not  include  property  acquired  simply 
because  it    may  prove  useful  to  the 
company  and  facilitate  the  discharge  of 
its  business.     A  distinction  is  made  in 
such  cases  between  what  is  indispen- 
sable to  the  operation  of  a  railway  and 
what  would  be  only  convenient.    Bank 
v.  Tennessee,  104  U.  S.  493,  496.     The 
elevator  in  question  was  at  all  times 
under   an  independent  management, 
and  was  used  in  the  same  manner  as 
any  other  warehouse  not  on  the  prem- 
ises of  the  railway  company  to  which 
it  sent  cars  for  freight."     In  New  Or- 
leans &  Pac.  Ry.  Co.  v.  Union  Trust 
Co.,  (1890)  41  Fed.  Rep.  717,  the  rail- 
road company  mortgaged  the  whole  of 
its    Une   in  the    state    of    Louisiana; 
"also   all    real    and    personal   estato 
within  the  state  owned  by  the  com- 
pany at  the  date  of  this  mortgage,  or 
which  may  be  acquired  by  it  thereaf- 
ter, appurtenant  or  necessary  for  the 


ii 


i( 


1103 


MORTGAGES  AND  TRUST  DEEDS. 


[§520 


stipulate  in  the  mortgage  that  upon  default  the  trustee  named  in 
the  mortgage  may  take  possession,  operate  the  railroad  and  receive 
its  earnings.  Under  such  a  stipulation  the  trustee,  upon  default, 
may,  without  bringing  an  action  to  foreclose,  take  possession,  and, 
if  lie  be  prevented,  may  have  an  action  to  be  put  in  possession.* 

operation  of  said  line."    Tlie  special   and  bridges  of  a  railroad  of  necessity 
authority  given  in  its  charter  to  the    become  a  permanent  part  of  the  whole 
company  to  mortgage  did  not  author-   structure,  and,   therefore,   cannot  be 
ize  it  to  mortgage  an  after-acquired   made  the  subjects  of  special  liens,  but 
land  gmnt.     And  the  Code  of  Louisi-   is  more  analogous  to  the  class  in  which 
ana  provided  that   "future  property    the  rolling  stock  of  a  railroad  company 
can  never  be  the  subject  of  conven-   has  been  held  to  be  the  subject  of  a 
tional  mortgage."    The  federal  court   conditional  sale,  and  on  which  a  lien 
for  the  eastern  district  of  Louisiana  may  be  reserved  by  the  vendor.     And 
held  that  the  mortgage  did  not  affect   this  appears  to  be  reasonable.     Loco- 
land  thereafter  granted   to  the  com-    motive  engines  and  cars  are  as  essen- 
I>any  to  aid  in  the  construction  of  the    tial  to  the  operation  of  the  railroad  as 
road.     In  New  Chester  AVater  Co.  v.    pumping  engines  are  to  waterworks, 
Holly   Manufacturing   Co.,  (1892)   53   but  it  has  been  held  that  the  former 
Fed.  Rep.  19,  affirming  48  Fed.  Rep.    may  be  treated  as  personal  property, 
879  (a  bill  to  establish  and  enforce  a   and  as  such  may  be  liable  to  a  lien  in 
lien  on  pumping  engines  for  the  pur-    favor  of  the  seller,  which  will  not  be 
chase  price),  where  the  water  company,    lost  inconsequence  of  a  prior  mort- 
on  a  sale  of  pumping  engines  for  its   gage  which  by  its  terms  was  made  to 
water  works,  expressly  agreed  that  the   cover  after-acquired  property.     U.  S. 
seller,   the  manufacturing   company,    r.  New  Orleans  &  O.  R.  Co.,  12  Wall, 
should  have  a  lien  thereon  with  full   362."    In  Metropolitan  Trust  Co.  v. 
right  of  possession  until  the  price  was    New  York,  L.  E.  &  W.  R.  R.  Co.,  45 
paid,  the  United  States  Circuit  Court   Hun,   84,  where  there  was  an  agree- 
of  Appeals  for  the  third  circuit  held   ment  by  a  railroad  company  with  an- 
that  this  showed  an  intent  that  the    other,    as    to    promoting    the    busi- 
pumping  engines  should  not  becothe  a   ness  of  the  former  on  the  part  of  the 
part  of  the  realty,  and  under  the  Penn-   latter,  in  consideration  of  the  latter's 
sylvania  decisions  this  intent  was  con-    giving  the  former  the  control  of  a  ma- 
trolling  and  the  lien  was  not  waived  in   jority  of  its  stock,  and  the  former  road 
favor  of  the  mortgage  bondholders  or   agreed  to  make  good  any  deficiencies 
other  creditors  by  attaching  the  en-   in  the  net  earnings  of  the  latter  to  meet 
gines  to  the  foundation  in  the  usual   the  interest  on  its  bonds  secured  by  a 
manner.     As  to  the  general  rule  of  law    mortgage  of  its  property  by  the  latter 
uncontrolled  by  local  statutes  govern-   in  usual  form,  the  undertaking  on  the 
ing  conditional  sales,   the    court    re-   part  of  the  former  to  make  up  this  de- 
ferred to  Harkness  v.  Russell,  118  U.    ficiency  in  earnings  was  held  neither 
S.  663;  8.  c,  7  Sup.  Ct.  Rep.  51,  as   to  be  embraced  in  nor  covered  by  the 
containing  an  elaborate  discussion  of   mortgage. 

the  whole  subject.     They  said    fur-       *  Seibert  v.  Minneapolis  &  St.  Louis 
ther:     "The  present  case  does  not  fall   Ry.  Co.,  (1893)  52  Minn.  246;  8.  c,  68 
within  the  class  of  cases    *    ♦    *    in   N.  W.  Rep.  1151. 
which  it  has  been  held  that  the  rails 


§  520] 


PRIVATE  CORPORATIONS. 


1103 


Trustees,  under  their  power  in  a  railroad  mortgage,  under  certain 
circumstances,  as  for  default  in  payment  of  interest  for  a  limited 
|)eriod,  to  declare  all  the  bonds  secured  by  the  mortgages  to  be 
past  due,  must  exercise  this  power  with  the  utmost  good  faith, 
and  only  when  approved  by  their  honest,  disinterested  judg- 
ment, as  the  best  thing  for  the  interest  of  the  bondholders.* 
The  trustees  in  a  tnist  deed  of  a  railroad  company  having,  in  a 
suit  to  be  placed  in  possession  of  the  property,  obtained  a  decree 
that  they  are  entitled  to  possession,  under  the  provisions  of  the 
trust  deed,  will  be  entitled,  there  being  no  debts  for  current 
expenses,  to  receive  all  profits  of  the  road  earned  from  the  com- 
mencement of  their  suit.^  The  trustees  in  a  railroad  mortgage, 
having  entered  into  possession  of  the  property  by  reason  of  non- 
payment of  the  interest  on  the  bonds,  according  to  the  terms  of 
the  mortgage,  where  the  principal  of  the  bonds  has  not  matured, 
on  the  interest  being  paid,  may  be  compelled  to  surrender  the 
possession  of  the  property  if  the  mortgage  deed  in  no  way 
requires  a  course  to  the  contrary.^  Trustees  under  a  trust  deed 
with  covenants  of  warranty  from  a  railroad  company  may  pay  a 
prior  incumbrance  to  prevent  a  forced  sale  of  the  property 
embraced  in  their  deed  ;  and  when  paying  such  they  are  sub- 
rogated to  the  rights  of  the  holder  of  that  prior  incumbrance.* 
There  was  a  provision  in  a  trust  deed  executed  by  a  land  grant 
railroad  company  to  secure  its  bonds  that  the  proceeds  arising 
from  the  sales  of  the  lands  should  be  applied  by  the  trustees : 
Flrst^  to  the  ]myment  of  the  interest  coupons  attached  to  the 
bonds,  should  the  earnings  of  the  road  be  insufficient  for  their 
payment ;  second,  to  the  purchase  of  outstanding  bonds  at  their 
market  value,  not  exceeding  ten  per  cent  premium ;  third,  to  the 
payment  of  bonds  coming  due.  There  was  also  a  provision  for  the 
investment  of  the  proceeds  of  the  sales  not  thus  used.  The 
holders  of  certain  interest  coupons,  there  being  no  funds  at  one 
time  to  pay  them,  accepted  scrip  of  tlie  company,  payable  in  ten 
years,  with  the  right  on  the  part  of  the  company  to  take  the  scrip 
up  at  any  time.  They  surrendered  their  coupons  to  the  trustees, 
to  hold  as  collateral.  The  United  States  Supreme  Court  held 
that  it  was  the  duty  of  the  trustees  at  a  subsequent  time,  when 

'Bound  «.  South  Carolina  Ry.  Co.,  ^ Union     Trust     Co.    r.     Missouri, 

(1892)  50  Fed.  Rep.  853.  Kansas,  etc. ,  Ry.  Co. ,  26  Fed.  Rep.  485. 

« Dow  t>.  Memphis  &  Little  Rock  R.  *  Memphis  &  Little  Rock  R.  R.  Co. 

R.  Co.,  8  Sup.  Ct.  Rep.  673.  ©.  Dow,  120  U.  S.  287. 


Il 


\  ' 


a 


k 


1104 


MORTGAGES  AND  TRUST  DEEDS. 


[§520 


the  earnings  of  the  road  proved  sufficient  to  pay  the  current 
coupons,  and  the  business  of  the  company  promised  that  this 
would  continue,  and  the  outstanding  bonds  of  the  company  could 
not  be  bought  up  on  the  terms  allowed  in  the  trust  deed,  and 
investments  could  not  be  made  except  at  a  lower  rate  of  interest 
than  the  scrip  held  by  these  former  holders  of  coupons  bore,  to 
apply  the  funds  in  their  hands  to  the  payment  of  the  coupons 
which  were  represented  by  the  scrip.'  A  mortgage  executed  by 
a  railroad  company,  to  secure  its  bonds,  recited  that  it  was  deemed 
expedient  to  fund  certain  coupons  of  ])rior  bonds  by  the  issue  of 
scrip  convertible  into  bonds,  and  that  the  bonds  which  this  mort- 
gage was  executed  to  secure  had  been  issued  for  that  purpose. 
The  validity  of  this  mortgage  being  in  doubt,  the  bonds  were 
destroyed  and  never  issued.  Another  issue  of  bonds  was  made, 
secured  by  another  mortgage,  after  which  the  first  mortgage  was 
released  by  the  trustees  named  therein.  In  a  case  before  it  the 
Supreme  Court  of  Pennsylvania  held  that  the  holders  of  the 
coupons  referred  to  in  the  first  mortgage  acquired  no  vested  interest 
in  the  mortgage  which  had  been  released,  and  that  they  were  in  no 
position  to  object  to  the  release.'*  The  trust  companies,  acting  as 
trustees  in  certain  railroad  mortgages  executed  by  Texas  railroad 
companies,  representing  the  bondholders  whose  bonds  were  secured 
by  these  several  mortgages,  brought  actions  in  the  United  States 
Circuit  Court  for  the  western  district  of  Texas  against  the  rail- 
road companies  involved  and  against  the  state  railroad  commis- 
sioners and  the  attorney-general  of  the  state,  alleging  that  the 
full  interest  on  the  bonds  was  not  being  paid  or  earned  ;  that  in 
most  cases  the  earnings  were  even  insufficient  to  pay  operating 
expenses ;  that  the  railroad  companies  were  willing  and  anxious 
to  meet  all  their  obligations  to  complainants,  but  were  prevented 
from  exercising  their  judgment  and  discretion  in  making  remu- 
nerative rates  of  transportation  by  the  defendant  railroad  com- 
missioners, under  pain  of  the  severe  penalties  prescribed  by  the 
act  providing  for  this  board  of  railroad  commissioners.  The 
claim  of  the  bill  was  that  the  act  was  unconstitutional,  and  prayed 
for  an  injunction  restraining  these  commissioners  from  interfering 
with  the  railroad  companies  in  the  matters  complained  of.  Their 
right  to  maintain  the  action  was  questioned  before  the  court. 

» Little  Rock  &  Ft.  Smith  Ry.  Co.  v.       •  Commonwealth  v.  Wilmington  & 
Huntington,  7  Sup.  Ct.  Rep.  517.  N.  R.  R.  Co.,  (Pa.)  17  Atl  Rep.  5. 


§520] 


PRIVATE  CORPORATIONS. 


1105 


The  court  held,  however,  that  these  trustees  for  bondholders 
showed  a  sufficient  interest  in  the  roads  to  entitle  them  to  maintain 
the  suits.* 


» Mercantile  Trust  Co.  v.  Texas  & 
Pac.  Ry.  Co.,  (1892)  51  Fed.  Rep.  529. 
McCoRMiCK,     Circuit     Judge,     said: 
"The  complainants  here  show  equit- 
able interest  in  the  fair  earnings  of  the 
roads;  they  show  actual  ownership  and 
possession  of  the  mortgage  securities  of 
the  roads,  both  of  which  they  allege  are 
being  irreparably  injured  and  threat- 
ened with  destruction  by  the  defend- 
ants; they  show  that  the  railways  are 
willing  and  want  to  meet  all  their  obli- 
gations as  mortgagors  in  possession,  but 
that  said  railways  are  coerced  by  the 
defendants,  armed  with  the  Railroad 
Commission  Act,    and    the   directors 
cannot  exercise  their  judgm(3nt  and 
discharge  their  duty  as  they  should 
and  would  but  for  said  coercion.     It 
may  be  that  the  railway  companies 
could,  under  section  6  of  the  Railroad 
Commission  Laws,  or  without  the  au- 
thority of  that  section,  have  brought 
these  suits  and  obtained  all  the  relief 
to  which  the  complainants  are  entitled 
against  the  other  defendants,  or  it  may 
be  that  they  could  not.     If  they  could 
not,  that  would  be  only  one  additional 
reason  why  the  complainants  should 
sue;  and,  if  the  railways  could  have 
so  sued,  that  would  be  no  reason  for 
denying  the  complainants  any  right, 
even  if,  as  seems  to  be  hinted  rather 
than  charged,  the  railways  could  only 
have  resorted  to  the  state  courts;  and 
that  there  was  a  previous  understand- 
ing between  the  complainants  and  the 
railways  that  the  relief  complainants 
desired  and  believed  themselves  enti- 
tled to  receive,  would  be  more  likely 


to  be  speedily  and  adequately  extended 
in  the  national  courts.     It  was  to  meet 
such  cases  that  the    national  courts 
were  established.      In    them    parties 
'  may  hope  to  escape  the  local  influ- 
ences which  sometimes    disturb    the 
even  flow  of  justice.'     Davis  v.  Gray, 
16  Wall.  221.     What  has  already  been 
said  expresses  sufficiently  my  view  as 
to  the  suggestion,  and  the  authority  in 
its  support,  that  the  injury  inflicted 
and  threatened,  if  any,  was  done  and 
directed  to  the  mortgagor  in  posses- 
sion, and  is  too  remote  to  give  the  com- 
plainants the  right  to  sue.     It  may  be 
conceded  that  there  is  no  express  de- 
cision of    the   Supreme  Court  or  of 
other  courts  of  authority  on  this  ques- 
tion, but  as  to  this  point  the  case  of 
Peik  V.  Railway  Co.,  in  94  U.  S.  164, 
is  substantially  the  same  as  these  cases. 
That  case  was  strongly  controverted. 
Lawyers     of     the     highest     national 
reputation  argued  it  elaborately  and  at 
great  length  in  the  Supreme   Court. 
The  same  question  was  involved  in  the 
case  of  Stone  v.  Trust  Co.,  116  U.  8. 
307;  8.  c,  6  Sup.   Ct.   Rep.   334,  388, 
1191;  and  while  the  failure  to  raise  or 
notice  this   question  in  the  progress 
and  decision  of  those  cases  prevents 
their  being  relied  on  as  authority  on 
this  point,  the  fact  that  it   was  not 
raised  or  noticed  is  persuasive  in  the 
direction  of    the    inclination    of    my 
judgment  in  this  case  that  complain- 
ants show  a  right  to  one.     The  case  of 
Murdock  v.  Woodson,  2  Dill.  188,  per- 
suades to  the  same  conclusion." 


n 


139 


CHAPTER  XXVII. 


INSOLVENCY  OF  PRIVATE  CORPORATIONS. 


I 


§  621.  How  far  the  assets  of  an  in- 
solvent corporation  are  a 
trust  fund  for  its  creditors. 

5^.  The  power  of  directors  of  a 
corporation  to  execute  an 
assignment  of  the  corpora- 
tion's property  for  the  bene- 
fit of  cretiitors. 

683.  Preferences  of  creditors  by  in- 
solvent corporations. 

6S4.  Attachment  of  property  of  in- 
solvent corporation  —  the 
rights  of  a  creditor  to  attach 
%  — lien  of   its   attachment, 

etc. 

685.  Receivers  —  rules  as  to  ap- 
pointment. 

586.  Removal  of  receivers  and 
assignees. 


§52 


t. 


528. 


529. 


530. 


531. 


532. 


533. 


The  rights  of  receivers  and 
assignees  as  to  property  of 
insolvent  corporation. 

Other  rights  of  receivers  and 
assignees  of  insolvent  corpo- 
rations. 

Insolvent  beneficial  association 
—  rules. 

Liability  of  stockholders  on 
unpaid  subscriptions  —  the 
court's  right  to  enforce  and 
how  enforced. 

Creditors'  bills  —  equitable 
jurisdiction. 

Claims  against  insolvent  cor- 
poration —  rules  as  to  allow- 
ance, etc. 

Rules  in  cases  of  insolvent 
banks. 


§  521.  How  far  the  assets  of  an  insolvent  corporation  are 
a  trust  fund  for  its  creditors. —  The  Court  of  Appeals  of  West 
Yiroinia  held  that  an  assignee  of  an  unsound  savings  bank  was 
entitled  to  recover  from  a  director  of  the  bank  money  which 
he  had  withdrawn  as  his  deposit  in  the  bank,  not  in  cash,  but  in 
bills  and  notes  discounted  by  the  bank,  which  property  of  the 
bank  had  been  turned  over  to  him  by  the  cashier.  Johnson, 
President,  for  the  Court  of  Appeals  of  West  Virginia,  then  applied 
the  principles  evolved  from  a  review  of  cases  to  the  case  before 
the  court,  in  these  words :  "  It  seems  to  me  that  the  doctrine  that 
the  directors  of  a  corporation  do  not  sustain  a  fiduciary  relation 
to  the  creditors,  is  based  on  no  better  reason  than  that  a  natural 
person  or  the  member  of  a  partnership  do  not  sustain  a  confiden- 
tial relation  to  their  creditors.  Is  this  reason  a  sound  one  ?  Is 
there  no  difference  between  the  natural  person  and  the  artificial 
person  called  a  corporation  ?  A  person  goes  into  mercantile  busi- 
ness. He  is  worth,  it  may  be,  one  hundred  thousand  dollars. 
His  creditors  trust  him  more  on  the  faith  of  his  property  than  his 


§521] 


INSOLVENCY  OF  PRIVATE  CORPORATIONS. 


HOT 


business  management.     They  know  that  his  liability  is  unlimited ; 
that  all  he  has  is  held  for  his  debts.     JS'ot  so  with  a  corporation. 
In  this  state,  as  well  as  others,  no  stockholder,  after  he  has  paid 
his  stock  subscription,  is  liable  personally  for  any  part  of  the  debts 
of    the  corporation.      The  [savings  institution  here   involved], 
according  to  the  evidence,  in  1870  had  a  capital  of  fifty  thousand 
dollars,  yet  the  depositors  lost  about  three  hundred  thousand  dol- 
lars, six  times  as  much  as  the  whole  capital  stock.     This  corpora- 
tion, by  its  directors,  was  by  law  permitted  to  carry  on  business, 
receive  deposits,  etc.,  and  its  stockholders  would  have  reaped  all 
the  profits  after  the  debts  were  paid,  and  yet  are  not  personally 
liable  for  the  debts  of  the  corporation.     The  corporation  has  con- 
ferred upon  it  a  privilege,  which  the  natural  person  does  not  pos- 
sess ;  and  the  modern  authorities,  recognizing  this  distinction  and 
the  great  necessity  for  strict  management   of   its   affairs,  have 
declared  that  its  assets  are  a  trust  fund  for  the  payment  of  credit- 
ors.    Some  of  the  authorities  declare  that  the  capital  stock  is  a 
trust  fund  for  the  payment  of  the  debts  of  the  creditors.     If  the 
capital  stock  is,  then  why  not  that  which   represents  the  capital 
stock  ?     Fifty  thousand  dollars,  say,  is  paid  in  as  the  stock  sub- 
scription.     This  money    is    loaned  and  bills    and  notes   taken 
therefor.     The  fifty  thousand  dollars  in  cash  is  gone,  but  there  is 
its  equivalent  with  its  accumulated  earnings.     If  the  capital  stock 
is  a  trust  fund  for  the  payment  of  the  debts  of  the  corporation, 
then,  I  think,  all  the  assets  of  the  corporation  are  a  trust  fund  for 
the  same  purpose.     Why  should  this  not  be  true  ?     It  is  a  very 
old  doctrine,  as  old  as  corporations  themselves,  that  the  stockhold- 
ers are  not  entitled  to  receive  anything  from  the  corporation  until 
its  debts  are  paid.     If  that  is  so,  it  seems  to  me  it  follows  that 
the  creditors  are  entitled  to  all  the  assets  of  the  corporation,  if 
necessary,  for  the  payment  of  their  debts.     But  if  the  assets  of 
a  corporation  are  a  trust  fund  for  the  payment  of  the  debts,  who 
holds  the  property  in  trust  ?     The  directors  are  the  managers  of 
tlie  corporation,  and  it  has  long  been  held  that  they  are  trustees 
for  the  corporation  and  its  stockholders.     They  are  to  prudently 
and  faithfully  manage  the  affairs  of  the  corporation,  pay  its  debts, 
and  divide  the  residue  among  the  stockholders.     They  must  nec- 
essarily look  after  the  debts  before  they  can  discharge  their  trusts 
to  the  stockholders.     K  the  assets  are  a  trust  fund  for  the  payment 
of  the  debts  of  the  corporation,  it  necessarily  follows  that  the  direct- 


I 


iiiiii«w!iii:. 


1108 


INSOLVENCY  OF  PRIVATE  CORPORATIONS* 


[§321 


■ 


Vi| 


ore,  in  whose  hands  are  those  funds,  are  the  trustees  for  the  creditors 
of  the  corporation.  When  the  directors  of  a  banking  corporation 
ascertain  that  it  is  hopelessly  insolvent,  so  that  individually  they 
are  unwilling  longer  to  aid  it,  their  manifest  duty  is  to  close  its 
doors  at  once,  for  continuing  to  do  business  then  (as  receiving  depos- 
its) is  a  fraud  upon  the  public,  and  they  should  not  receive  any  more 
deposits  nor  pay  any  more  checks,  but  should  proceed  to  execute 
their  trust,  either  by  making  a  general  assignment  for  the  bene- 
fit of  creditors,  or  by  paying  jpro  rata  the  debts  of  the  corpora- 
tion. Whether  the  board  of  directors  could  then,  under  peculiar 
circumstances,  make  preference  of  creditors,  as  was  done  in  Burr 
V.  McDonald,  3  Gratt.  210,  it  is  unnecessary  to  decide  in  this  case. 
But  the  directors  had  no  right,  occupying  the  fiduciary  relation 
to  the  creditors  generally  which  they  did,  to  keep  tlie  doors  of  the 
[savings  institution]  open,  until  they  could  get  out  their  deposits, 
and  all  the  time  from  the  21st  of  February,  1871,  until  the 
25th  of  the  said  month,  luring  depositors  to  give  credit  to  the 
insolvent  concern,  while  some  of  them,  at  least,  including  the 
defendant  in  this  cause,  were  receiving  their  money  from  deposits 
thus  improperly  received.  Before  [defendant]  received  his 
monev,  the  directors,  under  the  evidence  in  this  cause,  should 
have  closed  the  doors  of  the  institution.  Under  these  circum- 
stances he  had  no  right  to  draw  his  money,  and  thus  prefer  him- 
self to  the  other  creditors,  for  whom  he  was  acting  as  trustee. 
To  do  so  was  a  gross  breach  of  trust  and  was  also  fraud."  ^     The 


*  Lamb,  Trustee,  p.  Laughlin,  (1884) 
25  W.  Va.  300,  321,  322.  The  cases 
to  sustain  the  director's  position 
reviewed  were  Poole,  Jackson  & 
Whyte's  Case,  9  Ch.  Div.  322;  Dana  t>. 
U.  S.  Bank,  5  Watts  &  Serg.  223;  Cat- 
lin  t.  Eagle  Bank,  6  Conn.  233;  Pond- 
ville  Co.  fi.  Clark,  25  Conn.  97;  Smith 
tj.  Skeary,  47  Conn.  47;  Whitwell  t>. 
Warner,  20  Vt.  425;  Stratton  r.  Allen, 
1  C.  E.  Green  (N.  J.),  232;  Daniels  t. 
Davison,  16  Ves.  249;  Moore  y.  But- 
ler, 1  Scho.  &  Lef.  262;  Railroad  u. 
Claghom,  1  Speers  Eq.  562;  Buell  t). 
Buckingham,  16  Iowa,  291;  Merrick  r. 
Pern  Coal  Co.,  61  111.  472;  Burr  v. 
McDonald,  3  Gratt.  216;  Addison  v. 
Lewis,  75  Va.  720;  Planters'  Bank  t. 
Whittle,  78  Va.  737.     The  cases  to  the 


contrary  were  Wootl  r.  Dummer,  3 
Mason,  308;  Curran  v.  Arkansas,  15 
How.  308;  Drnry  r.  Cross,  7  Wall. 
302;  Koehler  v.  Black  River  Falls  Iron 
Co.,  2  Black,  720;  Sawyer  r.  Hoag,  17 
Wall.  610;  Upton  t.  Tribilcock.  91  U. 
S.  47;  Jackson  v.  Ludcling,  21  Wall. 
616;  County  of  Morgan  r.  Allen,  103 
U.  S.  498;  Shea  v.  Mabry,  1  Lea 
(Tenn.),  319;  Hastings  n.  Drew,  76  N. 
Y.  9;  Goodin  v.  Canal  Co.,  18  Ohio  St. 
182;  Richards  t.  Insurance  Co.,  43  N. 
11.  263;  Colby  v.  Copp.  35  N.  H.  434; 
Jones,  McDowell  &  Co.  n.  Arkansag 
Mechanical  &  Agricultural  Co.,  38 
Ark.  17;  Bradley  v.  Farwell,  1  Holmes, 
433;  Coons  &  Braine  «.  Tome,  9  Fed. 
Rep.  532. 


I 


I 


§  -^^i] 


INSOLVENCY  OF  PRIVATE  COEPORATIONS. 


1109 


Supreme  Court  of  the  United  States,  in  a  late  case,  after  a  refer- 
ence  to  eases  which  had  been  determined  by  that  court,  has  said : 
"  These  cases  negative  the  idea  of  any  direct  trust  or  lien  attach- 
ing to  the  property  of  a  corporation  in  favor  of  its  creditors,  and 
at  the  same  time  are  entirely  consistent  with  those  cases  in  which 
the  assets  of  a  corporation  are  spoken  of  as  a  trust  fund,  using 
the  term  in  the  sense  that  we  have  said  it  was  used.     The  same 
idea  of  equitable  lien  and  trust  exists  in  tlie  case  of  partnership 
property.     Whenever,  a  partnership  becoming  insolvent,  a  court 
of  equity  takes  possession  of  its  property,  it  recognizes  the  "fact 
that  in  equity  the  partnership  creditors  have  a  right  to  payment 
out  of  those  funds  in  preference  to  individual  creditors,  as  well 
as  superior  to  any  claims  of  the  partners  themselves.     And  the 
partnership  property  is,  tlierefore,  sometimes  said,  not  inaptly,  to 
be  held  in  trust  for  the  partnership  creditors,  or  that  they  have 
an  equitable  lien  on  such  property.     Yet  all  that  is  meant  by 
Buch  expressions  is  the  existence  of  an  equitable  right  which  will 
be  enforced  whenever  a  court  of  equity,  at  the  instance  of  a 
proper  party,  and  in  a  proper  proceeding,  has  taken  possession  of 
the  assets.     It  is  never  understood  that  there  is  a  specific  lien,  or 
a  direct  trust.     A  party  may  deal  with  a  corporation  in  respect  to 
its  property  as  with  an  individual  owner,  and    with  no  greater 
danger  of  being  held  to  have  received  into  his  possession  prop- 
erty burdened  with  a  trust  or  lien.     The  officers  of  a  corporation 
act  in  a  fiduciary  capacity  in  respect  to  its  property  in  their 
hands,  and  may  be  called  to  an  account  for  fraud  or  sometimes 
even  mere  mismanagement  in  respect  thereto ;  but  as  between 
itself  and  its  creditors,  the  corporation  is  simply  a  debtor,  and 
does  not  hold  its  property  in  trust,  or  subject  to  a  lien  in  their 
favor,  in  any  other  sense  than  does  an  individual  debtor.     That 
is  certainly  the  general  rule,  and  if  there  be   any   exceptions 
thereto,  they  are  not  presented  by  any  of  the  facts  in  this  case. 
Neither  the  insolvency  of  the  corporation,  nor  the  execution  of 
an  illegal  trust  deed,  nor  the  failure  to  collect  in  full  all  stock 
subscriptions,  nor  all  together,   gave  to   these    simple   contract 
creditors  any  lien  upon  the  property  of  the  corporation,  nor 
charged  any  direct  trust  thereon."^    In  a  late  case  before  the 

*  Hollins  V.  Brierfield  Coal  &  Iron  Louis  «fe  Pacific  Railway  t,  Hnm,  114 

Co.,  (1893)  150  U.  S.   371.     They  re-  U.  S.  587,  it  appeared  that  four'rail- 

ferred   to  the  cases  in  these  words:  way    corporations  owing  debts  were 

*'In    the    case  of    The  Wabash,   St.  consolidated  under  authority  of  law. 


I 


I 


1 


1110 


INSOLVENCY  OF  PKIVA.TE  CORPORATIONS. 


[§521 


Supreme  Court  of  Nebraska  that  court  held  that  the  relation  of 
the  directors  and  managing  officers  of  an  insolvent  private  corpo- 
ration towards  the  property  and  assets  thereof  is  that  of  trustees 
for  all  of  the  creditors,  and  such  officers  cannot  take  advantage 
of  their  position  to  secure  a  preference  for  themselves,  but  are 
required  to  share  ratably  with  other  creditors.^ 


and  by  the  terms  of  the  consolidation 
agreement  the  new  corporation  was  to 
protect  the  debts  of  the  old.  Subse- 
quently the  new  corporation  executed 
a  mortgage  on  all  its  property,  and  in 
-a  contest  between  the  mortgagees  and 
the  unsecured  creditors  of  one  of  the 
constituent  companies  the  court  held 
that  the  lien  of  the  mortgagees  was 
prior.  In  respect  to  this,  Mr.  Justice 
Gray  (p.  594)  thus  stated  the  law :  *  It 
was  contended  that  the  property  of 
the  Toledo  and  "Wabash  Railway  Com- 
pany was  a  trust  fund  for  all  its  cred- 
itors, and  that  upon  the  consolidation 
the  Toledo,  Wabash  and  Western  Riil- 
way  Company  took  the  property  of 
the  Toledo  and  Wabash  Railway  Com- 
pany charged  with  the  payment  of  all 
its  debts.  The  property  of  a  corpora- 
tion is  doubtless  a  trust  fund  for  the 
payment  of  its  debts,  in  the  sense  that 
when  the  corporation  is  lawfully  dis- 
solved and  all  its  business  wound  up, 
or  when  it  is  insolvent,  all  its  creditors 
are  entitled  in  equity  to  have  their 
debts  paid  out  of  its  corporate  prop- 
erty before  any  distribution  thereof 
among  the  stockholders.  It  is  also 
true  in  the  case  of  a  corporation  as  in 
that  of  a  natural  person  that  any  con- 
veyance of  property  of  the  debtor, 
without  authority  of  law  and  in  fraud 
of  existing  creditors,  is  void  as  against 
them.'  The  case  of  Fogg  c.  Blair,  133 
U.  8.  534,  541,  presented  a  similar 
question,  and  this  court,  by  Mr.  Jus- 
tice Field,  observed  :  '  We  do  not 
question  the  general  doctrine  invoked 
by  the  appellant  that  the  property  of 
a  railroad  company  is  a  trust  fund  for 
the  payment  of  its  debts,  but  we  do 
not  percive  any  place  for  its  applica- 


tion here.  That  doctrine  only  means 
that  the  property  must  first  be  appro- 
priated to  the  i)ayment  of  the  debts  of 
the  company  before  any  portion  of  it 
can  be  distributed  to  the  stockholders; 
it  does  not  mean  that  the  property  is 
so  affected  by  the  indebtedness  of  the 
company  that  it  cannot  be  sold,  trans- 
ferred or  mortgaged  to  bona  fide  pur- 
chasers for  a  valuable  consideration, 
except  subject  to  the  liabiUty  of  being 
appropriated  to  pay  that  indebtedness. 
Such  a  doctrine  has  no  existence/ 
In  the  case  of  Hawkins  r.  Glenn,  131 
U.  S.  319,  332,  which  was  an  action 
brought  by  the  trustee  of  a  corpora- 
tion against  certain  of  its  stockholders 
to  recover  unpaid  subscriptions,  and 
in  which  the  defense  of  the  Statute  of 
Limitations  was  pleaded.  Chief  Justice 
Fuller  referred  to  this  matter  in 
these  words  :  '  Unpaid  subscriptions 
are  assets,  but  have  frequently  been 
treated  by  courts  of  equity  as  if  im- 
pressed with  a  trust  sub  modo  upon  the 
view  that,  the  corporation  being  insol- 
vent, the  existence  of  creditors  sub- 
jects liabilities  to  the  rules  applicable 
to  funds  to  be  accounted  for  as  held  in 
trust,  and  that,  therefore,  statutes  of 
limitations  do  not  commence  to  run  in 
respect  to  them  until  the  retention  of 
the  money  has  become  adverse  by  a 
refusal  to  pay  upon  due  requisition.'  " 
See  further  on  this  subject  Ford  v. 
Plankinton  Bank,  (Wis.  1894)  58  N. 
W.  Rep.  766,  and  an  article  by  Sey- 
mour D.  Thompson,  one  of  the  judges 
of  the  Court  of  Appeals  of  St.  Louis, 
in  27  Am.  Law  Rev.  846. 

*Ingwersen  v.  Edgecombe,  (Neb. 
1894)  60  N.  W.  Rep.  1032.  The  court 
considered  the  weight  of  authority  as 


§522] 


INSOLVEXCY  OF  PRIVATE  CORPORATIONS. 


1111 


§  522.  The  power  of  directors  of  a  corporation  to  execute 
an  assignment  of  the  corporation's  property  for  the  benefit 
of  creditors. — The  Supreme  Court  of  Missouri  has  held  that  a 
private  corporation,  havinjr  the  power  to  make  an  assignment  for 
the  benefit  of  creditors,  and  the  management  of  its  affairs  being 
vested  in  the  directors  witliout  restriction,  the  directors,  and  they 
alone,  are  authorized  to  make  it;  that  when  the  corporation 
becomes  crippled  and  unable  to  meet  its  obligations  in  tlie  usual 
course  of  business  it  is  the  duty  of  the  directors  to  care  for  the 
creditors,  and  it  is  competent  for  the  directors  to  make  an 
assignment,  and  this  they  may  do  without  the  consent  of  the 
stockholders.^ 


to  the  relation  of  the  trustees  to  be  in 
favor  of  the  statement  in  the  text,  and 
cited    in  support  of  their  judgment 
Haywood  v.  Lumber  Co.,  64  Wis.  639; 
8.  c,  26   N.  W.  Rep.  184;   Hopkins' 
Appeal,  90  Pa.  St.  69;  Sicardi  v.  Oil 
Co.,  149  Pa.  St.  139;  s.  c,  24  Atl.  Rep. 
163;  Olney  v.  Land  Co.,  16  R.  I.  597; 
8.  c,  18  Atl.  Rep.  181;  Rouse  r.  Bank, 
46  Ohio  St.  493;  s.  c,  22  N.  E.  Rep. 
293;  Hays  v.  Bank,  51  Kans.  535;  s.  c, 
33  Pac.  Rep.  318;  Thompson  v.  Lum- 
ber Co.,  4  Wash.  St.  600;    8.  c,  30 
Pac.  Rep.  741,  and  31  Pac.  Rep.   25; 
Corey    v.   Wadsworth,   (Ala.)   11   So. 
Rep.  a50;    Adams  t.  Milling  Co.,  35 
Fed.  Rep.  433;  2  Dillon   Mun.    Corp. 
787,  803;  Beach  Priv.  Corp.  241  et  seq. ; 
Wait  Insol.    Corp.   162.      As  to    the 
doctrine  of  the  assets  of  a  corporation 
being  a   trust  fund  for  its  creditors, 
see  Alberger  v.  National  Bank  of  Com- 
merce, 123  Mo.  313;  s.  c,  27  S.  W. 
Rep.  657;  Fear  v.   Bartktt,  (Md.)  32 
Atl.  Rep.  322;  O'Bear  Jewelry  Co.  v. 
Volfer,  (Ala.)  17  So.   Rep.   525,  over- 
ruling Corey  v.  Wadsworth,  99  Ala. 
68;  8.  c,  11  So.  Rep.  350;  Goodyear 
Rubber  Co.  v.  George  D.  Scott  Co.,  96 
Ala.   439;  8.  c,  11  So.  Rep.   370,  and 
Gibson  v.  Furniture  C'o.,  96  Ala.  357; 
8.   c,   11  So.   Rep.    365.     See,   also, 
Worthen  r.   Griffith,  59  Ark.   562;  s. 
C,  28  8.  W.  Rep.  286;  Chattanooga, 


R.  &  C.  R.  Co.  V.  Evans,  14  C.  C.  A. 
116;  8.  c,  66  Fed.  Rep.  809. 

'  Hutchinson  v.  Green,  (1886)  91  Mo. 
367,  375;  8.  c,  1  S.  W.  Rep.  853.  The 
court  cited  Chew  r.  Ellingwood,  86 
Mo.  260;  Dana  v.  The  Bank  of  the 
United  States,  5  W.  &  S.  223;  De  Camp 
i\  Ahvard,  52  Ind.  473,  in  support  of 
this  conclusion.  Thecourtsaid:  "The 
directors  may  with  propriety  consult 
with  the  stockholders,  but  under  the 
circumstances  just  stated,  and  in  the 
exercise  of  their  best  judgment,  they 
may  make  the  assignment  even  against 
the  expressed  will  of  the  stockholders. 
Of  the  cases  relied  upon  by  the  [stock- 
holders attacking  this  assignment]  that 
of  Abbott  V.  American  Hard  Rubber 
Co.,  33  Barb.  580,  was  not  an  assign- 
ment for  the  benefit  of  creditors.  There 
the  trustees  attempted,  through  the 
form  of  a  sale,  to  secure  to  themselves 
the  property  of  the  corporation  at  the 
expense  of  the  other  stockholders. 
The  sjile  was  voidable  as  to  the  stock- 
holders not  consenting,  although  a  ma- 
jority agreed  to  the  tninsaction.  No 
question  of  the  validity  of  a  voluntary 
assignment  of  an  insolvent  corporation 
made  for  the  benefit  of  creditors  was 
involved  in  the  case.  The  same  may 
be  said  of  Northern  Railroad  v.  Con- 
cord Railroad,  50  N.  H.  175.  for  there 
the  purpose  of  the  contract  brought  in 


I    I 


J 


1112 


INSOLVENCY  OF  PRIVATE  CORPORATIONS. 


[§523 


§523] 


INSOLVENCY  OF  PEIVATE  COKPOKATIONS. 


1113 


\im 


H 


3 


§  523.  Preferences  of  creditors  by  insolvent  corporation. 

—  The  right  of  a  railroad  company  in  this  case  to  make  prefer- 
ences among  its  creditors  was  brought  in  question.  The  United 
States  Circuit  Court  for  the  eastern  district  of  Arkansas  held  that 
under  the  decisions  of  the  courts  of  Arkansas,  and  at  common 
law,  an  insolvent  corporation  may  make  preferences  among  its 
creditors  in  good  faith,  so  long  as  its  right  to  do  so  is  not 
restrained  by  statute.'     A  corporation   in   failing  circumstances 


question  was  to  transfer  the  nmnage- 
ment  of  the  affairs  of  one  company  to 
the  other  for  a  i>eriod  of  five  years. 
The  assignment  was  upheld  in  Epp- 
right  V.  Nickcrsoii,  78  Mo.  483,  though 
the  stockholders  did  not  authorize  or 
assent  to  it.  In  that  case  the  assign- 
ment was  not  assaikni  by  any  stock- 
holder, and  the  court,  by  way  of  con- 
cession, made  some  remarks  which 
seem  to  imjily  that  consent  on  the  part 
of  the  stockholders  was  essential  to 
give  validity  to  an  assignment  as 
against  them,  but  of  these  remarks 
enough  was  said  in  Chew  r.  EUing- 
wood,  86  Mo.  260."  As  to  the  power 
of  a  corporation  to  make  an  assign- 
ment for  the  benefit  of  creditors,  see 
Shockley  r.  Fisher,  75  Mo.  498.  As  to 
assignments  for  benefit  of  creditors, 
see  In  re  Lehigh  Co.'s  Estate,  12  Pa. 
Co.  Ct.  Rei  .  257;  National  Bank  of 
Commerce  r.  Shuraway,  49  Kans.  224; 
Potts  T.  Wallace,  146  U.  S.  689;  s.  c, 
13  Sup.  Ct.  Rep.  196;  Vanderpoel  i. 
Gorman,  22  N.  Y.  Supp.  541. 

» Gould  V.  Little  Rock,  M.  R.  &  T. 
Ry.  Co.,  (1892)  52  Fed.  Rep.  680;  cit- 
ing Ex  parte  Conway,  4  Ark.  302,  348, 
354;  Ringo  v.  Biscoe,  13  Ark,  563. 
Caldwell,  Circuit  Judge,  said:  "The 
established  rule  in  [ArkansjisJ  is  in 
harmony  with  the  general,  though  not 
quit3  uniform,  current  of  authorities 
in  this  country  on  the  question.  2  Mor. 
Corp.  §  802;  Allis  r.  Jones,  45  Fed. 
Rep.  148;  Covert  r.  Rogers,  38  Mich. 
363;  Coats  v.  Donnell,  94  N.  Y.  168; 
Dana  r.  Bank,  5  Watts  &  S.  223;  War- 


ner r.  Mower.  11  Vt.  390;  Whitwell  v. 
Warner,  20  Vt.  426;  Stratton  v.  Allen, 
16  N.  J.  Eq.  229;  Wilkinson  v.  Bauerle, 
41  K  J.  Eq.  635;  s.  c,  7  Atl.  Rep. 
514;  Duncomb  r.  Railroad  Co.,  84  N. 
Y.  190;  88  N.  Y.  1;  Harts  t.  Brown, 
77  111.  226;  Reich wald  v.  Hotel  Co., 
100  111.  439;  Buellr.  Buckingham,  10 
Iowa,  284  (opinion  by  Judge  Dillon); 
llallam  v.  Hotel  Co.,  56  Iowa,  178;  s. 
c,  9  N.  W.  Rep.  Ill;  Garrett  v.  Plow 
Co..  70  Iowa,  697;  s.  c,  29  N.  W.  Rep. 
395;  Smith  r.  Skeary,  47  Conn.  47; 
Bank  v.  Whittle,  78  Va.  737;  Ashhurst's 
Appeal,  60  Pa.  St.  314;  Sargent  v. 
Webster,  13  Met.  497."  Then  he  dis- 
cusses the  question  generally:  "In 
some  states,  by  statute,  the  property 
of  an  insolvent  corporation  must  be 
devoted  to  the  payment  pro  rata  of 
all  its  creditors,  and,  after  the  insol- 
vency of  the  corporation  is  known, 
the  directors  cannot  divert  its  property 
from  such  use  by  giving  preferences 
to  some  of  its  creditors;  but  where 
there  is  no  such  statute  the  great 
weight  of  authority  is  that  the  prop- 
erty of  an  insolvent  corporation  may 
be  held  and  used  by  its  directors  in 
the  payment  of  some  of  its  creditors 
to  the  exclusion  of  others.  Its  insol- 
vency docs  not  affect  its  right  to  make 
preference  any  more  than  the  right  of 
an  individual  debtor  to  make  prefer- 
ences is  affected  by  his  insolvency. 
The  cases  which  hold  the  contrary 
doctrine  are  bottomed  on  the  erroneous 
theory  that  the  insolvency  of  a  corpo- 
ration, in  effect,  dissolves  it,  and  makes 


may,  in  Missouri,  prefer  one  creditor  to  another  in  discharging 
its  obligations,  if  such  j^reference  is  made  in  good  faith,  while  the 
property  of  the  corporation  remains  in  its  possession  and  unaf- 
fected by  liens  or  by  process  of  law.  Such  a  preference  is  not 
invalidated  by  the  subsequent  act  of  the  failing  corporation  in 
making  a  general  assignment  on  the  same  day  for  the  benefit  of  its 
creditors.  Nor  is  such  a  preference  rendered  fraudulent  because 
the  amount  of  property  transferred  is  largely  in  excess  of  the 


the  directors  mere  trustees  to  dis- 
tribute its  assets  ratably  among  its 
creditors.  It  is  undoubtedly  true  that 
the  property  of  a  corporation  is  in 
one  sense  a  trust  fund  for  the  payment 
of  its  debts;  but  this  rule  means  no 
more  than  that  the  property  of  a  cor- 
poration cannot  be  distributed  among 
Its  stockholders,  or  apphed  to  any  pur- 
pose foreign  to  the  legitimate  business 
of  the  corporation  until  its  debts  are 
paid.  The  rule,  so  far  as  it  relates  to 
the  payment  of  debts,  is  satisfied 
whenever  the  property  of  a  corpora- 
tion is  applied  to  the  payment  of  any 
of  its  bona  fide  debts.  The  rule,  as  has 
been  often  pointed  out,  does  not  pre- 
vent a  corporation,  whether  solvent  or 
insolvent,  from  making  preferences 
among  its  creditors,  and  exercising  in 
good  faith  absolute  dominion  over  its 
property  in  the  conduct  of  its  legiti- 
mate corporate  business,  so  long  as  its 
right  to  do  so  is  not  restrained  by  stat- 
ute or  by  judicial  proceedings.  In 
Fogg  r.  Blair,  133  U.  S.  534,  541;  s.  c, 
10  Sup.  Ct.  Rep.  338,  Mr.  Justice 
Field,  in  delivering  the  opinion  of 
the  court,  calls  attention  to  the  fact 
that  the  property  of  a  corporation  is 
not  a  trust  fund  for  creditors  in  any 
other  sense  than  we  have  stated.  He 
says:  *  We  do  not  question  the  gen- 
eral doctrine  invoked  by  the  appellant 
that  the  property  of  a  railroad  com- 
pany is  a  trust  fund  for  the  payment 
of  its  debts,  but  do  not  perceive  any 
place  for  its  application  here.  That 
doctrine  only  means  that  the  property 
140 


must  first  be  appropriated  to  the  pay- 
ment of  the  debts  of  the  company  be- 
fore any  portion  of  it  can  be  distributed 
to  the  stockholders.  It  does  not  mean 
that  the  property  is  so  affected  by  the 
indebtedness  of  the  company  that  it 
cannot  be  sold,  transferred  or  mort- 
gaged to  bona  fide  purchasers  for  a 
valmible  consideration,  except  subject 
to  the  liability  to  be  appropriated  to 
pay  that  indebtedness.  Such  a  doctrine 
has  no  existence.  The  cases  of  Curran 
r.  State,  15  How.  304,  307,  and  Wood 
t.  Dumnier,  3  Mason,  308,  give  no 
counteniince  to  anything  of  this  kind.' 
The  case  of  Rouse  r.  Bank,  46  Ohio 
St.  493;  8,  c  ,  22  N.  E.  Rep.  293,  is 
cited  in  support  of  the  proposition  that 
the  property  of  an  insolvent  corpora- 
tion is  a  trust  fund  for  its  creditors  in 
a  sense  that  precludes  the  corporation 
from  making  preferences  among  its 
creditors  or  otherwise  using  its  prop- 
erty in  the  conduct  of  its  corporate 
business.  Referring  to  the  doctrine  of 
this  case,  the  Supreme  Court  of  the 
United  States,  speaking  by  >fr.  Justice 
Gray,  stiys:  *  That  decision  it  is  true, 
proceeded  in  part  upon  the  roeory  that 
the  property  of  an  insolvent  corpora- 
tion is  a  trust  fund  for  its  creditors  in 
a  wider  and  more  general  sense  than 
could  be  maintained  upon  general  prin- 
ciples of  equity  jurisprudence.  Gra- 
ham r.  Railroad  Co.,  102  U.  S.  148, 
161;  Railroad  Co.  v.  Ham,  114  U.  S. 
587,  594;  s.  c,  5  Sup.  Ct.  Rep.  1081; 
Richardson's  Exrs.  r.  Green,  133  U.  S. 
30,  44;   8.  c,  10  Sup.  Ct.  Rep.  280; 


I 


•I    I' 


IIU 


INSOLVENCY  OF  PRIVATE  CORPORATIONS. 


[§  523 


debt  thereby  preferred.^  They  held  also  that  the  mere  insolvency 
of  a  corporation  does  not  of  itself  transform  its  assets  into  a  trust 
fund  for  the  equal  benefit  of  all  creditors.^  The  Illinois  Supreme 
Court  has  declared  the  settled  law  of  that  state  to  he  that  corpo- 
rations may  prefer  creditors ;  that  the  corporate  property  of  the 
corporations  is  not  held  in  trust  in  such  sense  as  to  forbid  the  cor- 
poration from  giving  judgment  notes,  confessions  of  judgments 
or  mortgages,  or  doing  any  other  matter  or  thing  in  the  exercise 
of  the  right  they  have  to  prefer  one  creditor  to  another.  As  to 
what  is  required  of  the  officers  of  the  corporation  in  such  trans- 
actions, they  declared  the  rule  to  be  that  the  persons  to  whom  the 
corporation  intrusts  the  exercise  of  its  right  to  prefer  creditors, 
must  exercise  the  trust  in  the  utmost  good  faith,  without  regard 
to  the  extent  of  their  personal  interest  in  the  corporation  or  its 
property ;  and  that  the  fact  that  the  corporation  may  be  embar- 
rassed with  debts,  or  may  be  well  nigh  or  wholly  insolvent,  will 
not  lessen  the  duty  to  exercise  with  fairness  the  power  given 
them.  The  officers,  as  they  represent  the  corporation,  have  no 
right  to  join  creditors  or  stockholders  hostile  to  the  corporation 


Fogg  i>.  Blair,  133  U.  8.  534,  541;  s.  c, 
10  Sup.  Ct.  Rep.  338;  Peters  r.  Bain, 
133  U.  S.  670,  691,  692;  s.  c,  10  Sup. 
Ct.  Rep.  354;'  Purilier  Co.  p.  Mc- 
Groarty,  136  U.  S.  237;  s.  c,  10  Sup. 
Ct.  Rep.  1017.  A  good  many  courts 
have  from  time  to  time  inveighed 
against  the  rule  of  the  common  hiw 
which  allows  a  debtor  to  make  prefer- 
ences among  his  creditors,  but  the  rule 
is  too  firmly  imbedded  in  our  system  of 
jurisprudence  to  be  overthrown  by 
judicial  decision,  and  it  can  no  more 
be  overthrown  by  the  courts  in  its  ap- 
plication to  corporations  than  to  indi- 
viduals. Tn  Wilkinson  r.  Bauerle,  41 
N.  J.  Eq.  635;  8.  c,  7  Atl.  Rep.  514, 
the  court  said:  '  Both  reason  and  au- 
thority establish  the  proposition  that 
a  corporation  may  sell  and  transfer  its 
property,  and  may  prefer  its  creditors, 
although  it  is  insolvent,  unless  such 
conduct  is  prohibited  by  law.'  We 
think  this  is  a  correct  statement  of  the 
rule,  and  that  it  can  only  be  abrogated 
by  legislation." 


*  Alberger  r.  National  liauk  of  Com- 
merce. (>fo.  1894)  27  8.  W.  Rep.  657. 
Upon  the  second  point  the  court  cited 
Union  Bank  r.  Kansas  City  Bank, 
(1889)  136  U.  S.  223;  s.  r..  10  Sup.  Ct. 
Rep.  1013.  As  to  the  second,  ilarga- 
dine  i\  Henderson,  (1888)  97  Mo.  375; 
s.  c,  11  S.  W.  Rep.  218;  J»iffmy  r. 
Mathews.  (Mo.  1894)  2oS.W.  Rep.  187. 

*  Alberger  v.  National  Btuik  of  Com- 
merce, (Mo.  1894)  27  S.  W.  Rep.  657, 
following  La  Grange  Butter  Tub  Co. 
r.  National  Bank  of  Commerce,  (Mo. 
1894)  26  8.  W.  Rep.  710.  On  the  subject 
of  preferences  of  creditors  by  a  corpo- 
ration the  court  cited  City  of  St.  Louin 
V.  Alexander,  (1856)  23  Mo.  524,  which 
was  appro vetl  in  Kitchen  i\  Railway 
Co.,  (1878)  69  Mo.  254,  and  in  Foster 
V.  Planing  Mill  Co.,  (1887)  93  Mo.  87  ; 
8.  c,  4  S.  W.  Rep.  260.  They  distin- 
guished Rouse  r.  Bank,  (1889)  46  Ohio 
St.  493;  8.  c,  22  N.  E.  Rep.  293; 
Lyons- Thomas  Hardware  Co.  v.  Perry 
Stove  Manufg.  Co.,  (Tex.  Sup.  1893) 
24  S.  W.  Rep.  16. 


INSOLVENCY  OF  PRIVATE  CORPOBATIONS. 


1115 


§523] 

in  hostile  action  to  tlie  corporation  or  its  property.  They  must 
always  act  in  the  interest  of  the  corporation,  and  adversely  to  the 
enemies  seeking  to  destroy  the  corporation.*  In  Pennsylvania  an 
insolvent  corporation  may  prefer  a  creditor  by  a  confession  of 
judgment.'  And  a  sale  under  a  judgment  confessed  by  an  insol- 
vent corporation  will  not  be  restrained  by  a  court  of  equity  on 
the  ground  that  a  sale  of  the  corporation's  property  can  be 
more  advantageously  conducted  in  the  interests  of  all  the  credit- 
ors by  receivers.  For  until  the  rights  of  the  other  creditors  are 
violated  no  one  has  standing  to  challenge  the  execution  creditor's 
rights  to  use  the  means  provided  by  law  for  the  enforcement  of 
his  claim.^  The  corporation  here  was  a  foreign  one,  organized 
under  the  laws  of  New  Jersey,  and  it  was  attempted  to  apply  the 
laws  of  that  state  to  the  case.  But  the  court  held  that  where  no 
disability  to  make  a  preference  of  one  creditor  before  another  was 
imposed  upon  a  foreign  corporation  by  its  charter,  the  prohibition 
of  such  a  preference  by  a  general  enactment  of  the  state  where 
the  corporation  was  chartered  could  have  no  extraterritorial 
effect.*  In  an  action  for  the  foreclosure  of  a  chattel  mortgage 
executed  by  a  corporation  to  secure  the  claims  of  certain  credit- 
ors, it  appeared  that  the  corporation  afterwards  made  a  general 
assignment  for  the  benelit  of  its  creditors.  The  Supreme  Court 
of  Michigan  declared  the  rule  in  that  state  to  be  that  it  is  not 
unlawful  for  a  corporation,  though  insolvent,  to  give  preferences 
to  its  creditors  by  way  of  mortgage.^     A  corporation  in  failing 

»  J.  W.  Butler  Paper  Co.  «).Robbins,  ^  Bank  of  Montreal  v.  J.  E.  Potts 
(1894)  151  111.  588.  Salt  &  Lumber  Co.,  (1892)  90  iMieh. 

'PairpointMfg.  Co.  v.  Phila.  Opti-  345;  citing  Kendall  r.  Bishop,  76  Mich. 
cal&  Watch  Co.,  (1894)  161  Pa.  St.  634,  and  others.  The  court  referred  to 
17,  following  Lake  Shore  Banking  Co.  certain  cases  in  that  state  in  these 
V.  Fuller,  110  Pa.  St.  156.  w^ords:  "  In  the  case  of  Town  v.  Bank, 

*  PairpointMfg.  Co.  v.  Phila.  Opti-  3  Doug.  (Mich.)  530,  certain  creditors 
cal  &  Watch  Co.,  (1894)  161  Pa.  St.  17.  were  preferred  by  the  corporation  in  a 
See,  also,  Lowry,  Trustee,  etc.,  v.  common -law  assignment.  It  was  held 
Phila.  Optical  &  Watch  Co.,  (1894)  161  that  the  corporation  had  the  same 
Pa   St   123.  right    to    prefer    one    creditor    over 

*  Pairpoint  Mfg.'Co.  v.  Phila.  Opti-  another  that  an  individual  has.  In 
cal  &  Watch  Co.,  (1894)  161  Pa.  St.  17.  TurnbuU  v.  Lumber  Co.,  55  Mich. 
As  to  corporations  preferring  creditors  396,  it  appeared  that  the  corporation 
by  assignment  in  Illinois,  and  that  the  was  converting  its  assets  into  money 
law  of  the  state  where  incorporated  as  rapidly  as  possible  and  paying  only 
has  no  effect  to  prevent  it,  see  War-  certain  of  the  creditors.  The  corpo- 
ren  v.  First  National  Bank  of  Colum-  ration  was  at  the  time  insolvent." 
bus,  (1893)  149  111.  9.  Speaking  of  these  acts  of  the  corpo- 


I 


1116 


INSOLVENCY  OF  PRIVATE  COBPORATIONS. 


[§523 


'        *%J  :; 


I  J 


circumstances  cannot  borrow  money  with  which  to  purchase 
shares  in  itself,  and  give  to  the  person  from  whom  the  loan  is 
made  a  preference  over  all  other  creditors  by  confessing  judg- 
ments, when  insolvent,  in  favor  of  the  persons  loaning  the  money 
with  actual  knowledge  of  the  purpose  for  which  the  same  was 
borrowed,  when  such  conduct  works  a  fraud  upon  bona  fide  credit- 
ors, and  defeats  the  collection  of  their  claims.*     In  case  an  insol- 


ration,  Mr.  Justice  Champlin  said: 
*'It  being  insolvent  such  action  must 
result  in  the  payment  of  some  to  the 
exclusion  of  others.  Such  conduct 
*  *  *  although  legal  and  proper 
before  a  bill  is  filed  against  it  by  a  judg- 
ment creditor  whose  execution  is  re- 
turned unsatisfied,  becomes  improper 
after  the  filing  of  such  bill.  From 
that  time  on  no  unsecured  creditor  is 
entitled  to  a  preference  over  others. 
In  the  case  of  Hills  r.  Furniture  Co., 
2;j  Fed.  Rep.  43-4,  a  mortgage  had 
been  given  by  an  insolvent  corporation 
to  secure  certain  creditors.  It  was 
said:  'It  does  not  affect  the  question 
if  the  company  could  never  pay  its 
debts  in  full,  for  the  legal  right  of  an 
insolvent  debtor  to  secure  one  or  more 
creditors,  in  preference  to  others, 
where  no  fraud  is  intended,  is  settled 
in  Michigan  by  many  decisions.'" 

*  Adams  &  Westlake  Co.  v.  Deyette, 
(S.  D.  1894)  59  N.  W.  Rep.  214.  The 
court,  discussing  the  subject  gener- 
ally, Siud:  "The  property  and  capital 
of  a  corporation  gives  it  financial 
standing,  because  it  is  primarily  liable 
for  its  debts.  Persons  extending  credit 
to  such  corporations  do  so  upon  the 
faith  that  its  officers  and  agents  will 
conduct  its  affairs  in  a  manner  consist- 
ent with  business  principles,  and  when 
such  officers  devote  the  corporate  as- 
sets to  their  individual  use  and  benefit 
to  the  exclusion  of  creditors  courts 
-without  hesitation  characterize  such 
acts,  as  to  creditors,  fraudulent  and 
void.  Independently  of  the  question 
of  actual  fraud  in  the  case  under  con- 
sideration, the  immediate  effect  of  the 


purchase  of  the  Trask  stock  at  a  time 
when  the  corporation  was  financially 
embarrassed,  if  not,  indeed,  insolvent, 
was  to  increase  its  liability,  without 
adding  anything  to  its  resources  to 
which  plaintiff  could  look  for  the  se- 
curity or  payment  of  its  claim,  and 
such  conduct  is  contrary  to  the  spirit, 
if  not  the  letter,  of  our  statute,  and  is 
not  upheld  by  the  courts.  Comp. 
I^ws  Dak.  §«^  2917,  2928.  In  Cur- 
rier V.  Slute  Co.,  56  N.  H.  262, 
the  court  says:  'The  funds  of  an 
insolvent  corporation  cannot  be  taken 
to  buy  a  portion  of  its  capital  stock. 
*  *  *  It  would  be  grossly  inequi- 
table to  the  other  stockholders,  and  a 
fraud  upon  creditors.'  From  Cop- 
pin  V.  Greenlees,  38  Ohio  St.  275,  we 
quote  the  following:  'The  doctrine 
that  corporations,  when  not  prohibited 
by  their  charter,  may  buy  and  sell 
their  own  stock,  is  supported  by  a 
line  of  authorities,  but  nevertheless 
we  think  the  decided  weight  of  au- 
thority, both  in  England  and  the  United 
States,  is  against  the  exercise  of  the 
power,  unless  conferred  by  an  express 
grant  or  clear  imphcation.  ♦  *  » 
It  is  true,  however,  that  in  most  juris- 
dictions where  the  right  of  a  corpora- 
tion to  traffic  in  its  own  stock  has  been 
denied,  an  exception  to  the  rule  has 
been  admitted  to  exist  whereby  a  cor- 
poration has  been  allowed  to  take  its 
own  stock  in  satisfaction  of  a  debt 
due  it.  This  exception  is  supposed  to 
rest  upon  a  necessity  which  arises  in 
order  to  avoid  loss.'  If  a  corporation 
to  the  injury  of  creditors  can  borrow 
money  for  the  purchase  of  one  share 


§524] 


INSOLVENCY  OF  PRIVATE  COKPOBATIONS. 


HIT 


vent  corporation  assigns  all  its  property  to  one  of  its  creditors  for 
the  purpose  of  satisfying  its  debt  to  that  creditor,  the  remedy  of 
the  other  creditors  wishing  to  attack  the  assignment  is  by  suit  in 
equity  to  compel  an  equal  distribution  of  the  corporate  assets.* 
A  chattel  mortgage  executed  by  the  president  and  secretary  of 
an  insolvent  corporation,  with  the  knowledge  and  consent  of  all 
the  stockholders,  has  been  held  to  be  valid  by  the  Supreme 
Court  of  Michigan.^  The  Supreme  Court  of  Illinois  has  held 
that  the  general  statute  of  New  York  prohibiting  the  assignment 
or  transfer  of  property  in  contemplation  of  insolvency  had  no 
application  to  an  assignment  of  a  fund  in  Illinois  executed  in 
Ohio  by  a  New  York  corporation.^  • 

§  524.  Attachment  of  property  of  insolvent  corporation  — 
the  right  of  a  creditor  to  attach  —  lien  of  the  attachment, 
etc. —  A  Colorado  corporation,  a  land  company,  in  proceedings 
in  insolvency  to  wind  it  up  and  obtain  an  equitable  distribution 
of  its  assets,  was  placed  in  the  hands  of  a  receiver,  and  the 
receivership  was  extended  to  lands  in  another  state.  The  United 
States  Circuit  Court  of  Appeals  for  the  eighth  circuit  held  that 
the  court  of  equity  which  had  appointed  this  receiver  had  no 


of  its  stock,  or  the  stock  held  by  one 
member,  it  can  borrow  money  with 
which  to  purchase  the  shares  of  all  its 
members  and  thus  destroy  its  very 
existence,  as  no  corporation  like  the 
defendant  can  have  an  existence  in 
this  jurisdiction  without  stock  and 
without  stockholders.  The  doctrine 
is  well  established  that  a  purchase  of 
shares  in  itself  by  a  corporation  is 
against  public  policy  and  ultra  vires, 
whenever  such  purchase  diminishes  its 
ability  to  pay  its  debts  or  lessens  the 
security  of  its  creditors.  Bank  «. 
Wulfekuhler,  19  Kans.  60;  Gill  v. 
Balis,  72  Mo.  424;  Barton  v.  Plank 
Road  Co.,  17  Barb.  397;  Clapp  v. 
Peterson,  104  111.  26;  1  Spell.  Priv. 
Corp.  168,  and  cases  there  cited." 

»  Holbrook,  Merrill  &  Stetson  v. 
Peters  &  Miller  Co.,  (Wash.  1894)  36 
Pac.  Rep.  256.  For  a  case  holding  that 
a  corporation  which  has  ceased  to  do 
business,  or  by  conveying  its  property 


to  a  trustee  for  the  benefit  of  its  cred- 
itors incapacitated  itself  for  continuing 
business,  ha^ing  no  power  to  pre- 
fer its  creditors,  see  Lyons-Thomas 
Hardware  Co.  v.  Perry  Stove  Manuf. 
Co.,  (Tex.  1894)  27  S.  W.  Rep.  100. 

^Kalamazoo  Spring  &  Axle  Co.  v. 
Winans,  Pratt  &  Co.,  (Mich.  1895)  64 
N.  W.  Rep.  23. 

'Warren  «.  First  National  Bank, 
(111.  1895)  38  N.  E.  Rep.  122.  Trans- 
fers of  property  of  insolvent  corpora- 
tions have  been  held  to  be  void  in 
Brouwer  v.  Harbeck,  9  N.  Y.  589  That 
a  deed  of  assignment  made  by  a  cor- 
poration under  the  insolvency  laws  of 
Minnesota,  regular  and  complete  on 
its  face,  cannot  be  collaterally  at- 
tacked, see  Staples  v.  Schulenberg  & 
Boeckeler  Lumber  Co.,  (Minn.  1895) 
64  N.  W.  Rep.  148,  following  Bank  id. 
Schranck,  43  Minn.  38;  s.  c,  44  N. 
W.  Rep.  524. 


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1118 


INSOLVENCY  OF  PRIVATE  CORPORATIONS. 


[§524 


power  to  enjoin  a  citizen  of  the  other  state  or  jurisdiction  from 
levying  an  attachment  on  the  lands  in  that  state,  unless  he  was  a 
party,  either  in  })erson  or  by  representation,  in  the  proceedings  in 
which  the  receiver  was  appointed ;  also,  that  a  lien  having  been 
established  by  such  an  attachment  suit,  which  neither  the  receiver 
nor  the  corporation's  other  creditors  could  divest,  there  was  noth- 
ing to  prevent  a  party  to  the  receivership  ])roceedings  from  taking 
an  assignment  of  the  judgment  and  lien,  with  all  the  rights  of 
enforcement  belonging  to  the  original  owner  of  the  judgment. 
But  the  court  had  authority  to  enjoin  one  who  had  joined  in  the 
receivei*ship  proceedings  and  had  been  active  in  extending  the 
receivership  to  the  lands  in  the  other  state,  and  afterwards  caused 
suit  to  be  brouglit  in  that  other  state,  to  collect  a  debt  and 
thereby  obtained  a  lien  on  the  lands,  from  enforcing  the  Jien  or 
in  any  way  interfering  witli  the  receiver's  possession  or  disposi- 
tion of  the  property.^  Valid  attachments  of  the  property  of  a 
corporation,  made  before  the  tiling  of  a  bill  for  the  appointment 
of  a  receiver  for  the  corporation,  are  not  dissolved  by  the  filing 
of  such  bill  and  the  subsequent  appointment  of  a  receiver.^  The 
Missouri  Supreme  Court  has  in  a  late  case  held  that,  though  a 
corporation  is  insolvent,  a  creditor  not  connected  with  the  corpo- 
ration may  obtain  preference,  before  a  court  of  equity  obtains 
jurisdiction  over  it  for  winding  up  its  affairs,  by  attaching  the 
property  of  the  corporation,  though  lie  is  advised  so  to  do  by  a 
director  of  the  corporation.^     The  Iowa  Supreme  Court  has  held 


'  Schinddholz  p.  Cullum,  (1893)  55 
Fed.  Rep.  885.  As  to  property  in  the 
hands  of  a  receiver  of  an  insolvent 
corporation  being  exempt  from  being 
interfered  witli  by  an  officer  under 
process  issueil  in  other  cases,  see  Har- 
rison V.  Waterberry,  (Tex.  1894)  27  S. 
W.  Rep.  109. 

'  Page  V.  Supreme  Lodge  Knights  & 
Ladies  of  P*rotection,  (Mass,  1894)  37 
N.  E.  Rep.  369;  citing  Atlas  Bank  r. 
Nahant  Bank,  23  Pick.  480;  Kilborne 
t.  Lyman,  6  Met.  299;  Hubbard  v. 
Bank,  7  Met.  346;  Davenport  v.  Til- 
ton,  10  Met.  325;  Hills  v.  Parker,  111 
Mass.  610;  Book  Co.  v.  DeGolyer,  115 
Mass.  69;  Sage  t.  Heller,  124  Mass. 
213;  Qarham  v.  Mutual  Aid  Society, 


(Mass.  1894)  37  N.  E.  Rep.  447;  Tay 
lor  V.  Insurance  Co.,  14  Allen,  353 
Folger  r.  Insurance  Co.,  99  Mass.  267 
Burdon  r.  Association,  147  Mass.  360 
s.  c,  17N.  E.  Rep.  874. 

'  La  Grange  Butter  Tub  Co.  v.  Na- 
tional Bank  of  Commerce,  (Mo.  1894) 
26  S.  W.  Rep.  710.  The  court  declare 
the  principles  of  law  ruling  in  Missouri 
courts,  in  such  cases,  in  these  words: 
"While  it  may  be  conceded  that  cor 
porate  assets  are  regarded  as  a  trust 
fund  for  the  benefit  of  all  the  corpora- 
tion creditors,  the  rule,  as  announced 
by  this  court  in  Foster  v.  Planing  Mill 
Co.,  92  Mo.  79;  s.  c,  4  S.  W.  Rep. 
260,  is  that  a  corporation  may,  when 
acting  within  the  scope  of  the  pur- 


g  524] 


INSOLVENCY  OF  PRIVATE  CORPORATIONS. 


1119 


that  an  officer  of  a  corporation,  who  is  also  its  creditor,  may  attach 
it«  property  for  the  collection  of  his  debt,  though  he  knows  of  its 
failing  circumstances,  but  is  in  no  way  responsible  therefor,  and 
though  he  knows  that  his  attachment  will  precipitate  a  crisis  in 
its  affairs ;  and  his  attachment  will  be  good  as  against  subsequent 
attaching  creditors  and  mortgagees.^  Corporations,  it  has  been 
held  in  Maryland,  are  not  subjected  to  the  insolvency  laws  of  that 
state.'  The  proi)erty  of  this  corporation  was  sold  by  the  officers 
of  the  federal  court  at  the  end  of  an  attachment  proceeding. 
The  title  of  the  purchaser  was  attacked  in  this  action  upon  the 
officers'  bond.  The  purpose  of  the  writ  of  error  to  the  United 
States  Circuit  Court  of  Appeals  for  the  eighth  circuit  was  to  pre- 
sent the  question  whether  a  business  corporation,  when  it  became 
insolvent,  thereafter  held  all  of  its  property  in  trust  for  equal  dis- 
tribution among  its  creditors,  and  was  deprived  of  the  common- 
law  power  of  preferring  creditors,  which  individuals  ordinarily 
possessed.  The  court,  on  account  of  the  record  not  presenting  it 
properly,  did  not  determine  it.  But  they  did  not  hold  that,  if 
the  theory  that  coi'porate  property  is  a  trust  fund  for  its  creditors 
is  invoked  to  invalidate  a  conveyance  which  operates  a  preference, 
there  was  no  reason  why  it  should  not  also  operate  to  prevent 
complaining  creditors  from  obtaining  priority  by  an  attachment. 
And  in  this  case,  the  purchaser,  in  good  faith,  for  full  value,  with- 
out notice  of  defects  in  the  seller's  title,  it  was  held  could  hold 
property,  as  against  an  attaching  creditor  of  the  corporation  from 


poses  for  which  it  was  incorporated, 
do  any  act  in  furtherance  of  those 
purposes,  and,  although  insolvent,  it 
may  prefer  some  creditors  to  others, 
even  though  such  creditors  be  among 
the  directors  of  the  corporation,  pro- 
vided such  preference  is  made  in  good 
faith,  and  to  a  bona  fde  creditor.  This 
rule  only  applies  to  the  acts  of  the 
corporation  while  it  is  a  going  con- 
cern, and  before  it  has  gone  into  the 
hands  of  a  receiver,  or  liens  have 
attached  to  the  corporate  property. 
It  is  true,  as  held  in  Roan  v.  Winn,  93 
Mo.  503;  s.  c,  4  S.  W.  Rep.  736,  and 
authorities  cited,  that,  after  confessed 
insolvency,  the  directors  of  a  corpora- 
tion cannot,  in  equity,  secure  any  ad- 


vantages to  themselves.  This  is  be- 
cause they  represent  all  the  creditors, 
and  occupy  the  position  of  trustees 
towards  them,  and  a  trustee,  or  a  per- 
son standing  in  a  similar  or  fiduciary 
relation,  will  not,  inequity,  be  allowed 
to  take  advantage  of  his  position,  ex- 
ercise his  power,  or  to  manage  or  ap- 
propriate the  property  of  which  he 
has  the  control,  for  his  own  profit  and 
to  his  own  advantage,  at  the  expense 
of  those  for  whom  he  is  acting." 

'Rollins  V.  Shaver  Wagon  &  Car- 
riage Co.,  (1890)  80  Iowa,  380;  s.  c. 
45  N.  W.  Rep.  1037. 

« Ellicott  Machine  Co.  r.  Speed,  (1889) 
72  Md.  22;  8.  c,  sub  nam.  Search  v. 
Ellicott,  18  Atl.  Rep.  863. 


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ii 


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UK 


■'HII 


I<i 


1120 


INSOLVENCY  OF  PRIVATE  CORPORATIONS. 


[§524 


which  the  seller  obtained  it,  even  if  the  seller  had  notice  of  the 
insolvency  of  the  corporation,  and  his  title  would  have  been  inval- 
idated thereby.*  In  case  the  property  of  an  insolvent  foreign 
corporation  has  been  seized  1)y  tlie  sheriff  under  a  warrant  of 
attachment  issued  by  a  state  court  in  an  action  afterwards  prose- 
cuted to  judgment,  an  execution  issued  and  levy  made  upon  the 
property  seized,  a  receiver  of  sucli  corporation,  appointed  subse- 
quent to  the  attachment  by  the  United  States  Circuit  Court  of 
the  district  where  such  property  is  situated,  takes  the  property  of 
the  corporation  in  that  jurisdiction,  subject  to  such  rights  over 
the  same  as  had  been  acquired  by  the  various  proceedings  in  the 
state  court.'  AVhere  funds  attached  had  been  paid  over  to  the 
receiver  by  order  of  the  court,  without  prejudice  to  the  rights  of 
the  attaching  parties,  it  was  held  in  Massachusetts  that  the 
receiver  took  the  property  subject  to  all  valid  attachments,  to  the 
extent  of  the  property  lawfully  attaclied  before  the  filing  of  a  bill 
for  a  receiver,  the  claims  of  the  attaching  creditors,  if  allowed  to 
be  proved,  must  be  treated  as  preferred.^  It  has  been  held  by 
the  Court  of  Civil  Appeals  of  Texas,  on  a  rehearing,  that  a  cred- 
itor of  an  insolvent  corporation,  obtaining  a  lien  by  judicial  pro- 
cess on  the  assets  of  the  corporation,  may  have  the  assets  applied 
to  the  payment  of  his  claim,  to  the  exclusion  of  other  creditors.* 


» Walker  v.  Miller,  (1894)  59  Fed. 
Rep.  869.  See  Holllns  v.  Iron  Co..  150 
U.  8.  371;  s.  C,  14  Sup.  Ct.  Rep.  127; 
Brown  v.  Furniture  Co.,  58  Fed.  Rep. 
286,292;  s.  c,  7  C.  C.  A.  225. 

'Cole  V.  Oil  Well  Supply  Co.,  (1893) 
57  Fed.  Rep.  534. 

*  Page  v.  Supreme  Lodge  Knights  & 
Ladies  of  Protection,  (Mass.  1894)  37 
N.  E.  Rep.  369;  citing  WalUng  v.  Mil- 
ler, 108  N.  Y.  173;  s.  c,  15  N.  E. 
Rep.  65. 

♦Harrigan  v.  Quay,  (Tex.  Civ.  App. 
1894)  27  S.  W.  Rep.  897,  This  case,  in 
the  opinion  of  this  court,  rendered  on 
appeal,  in  26  S.  W.  Rep,  512,  has  been 
remanded  so  that  the  creditors  of  the 
insolvent  corporation  other  than  the 
one  claiming  that  the  assets  should  be 
applied  first  to  his  attachment,  might 
raise  the  question  whether  the  prop- 
erty of  the  insolvent  corporation  should 


be  administered  for  the  benefit  of  all 
the  creditors,  and  that  the  one  pro- 
ceeding under  the  attachment  was  not 
entitled  to  any  portion  of  it,  except 
what  might  be  his  pro  rata  share  of  it 
as  a  creditor.  On  the  hearing  the 
court  held  that  its  former  judgment 
was  error,  and  said:  *'  The  rule  of  law 
that  exists  in  this  state  that  denies  the 
right  of  an  insolvent  corporation,  by 
contract,  to  transfer  its  property  to  a 
trustee  for  the  benefit  of  preferred 
creditors,  does  not,  in  our  opinion,  in- 
terfere with  the  rights  of  a  diligent 
creditor  to  pursue  the  remedies  pro- 
vided by  law  for  the  collection  of  his 
debt,  and  subjecting  the  property  of 
such  corporation  to  its  payment.  The 
fact  that  a  corporation  may  be  insol- 
vent does  not  deprive  the  creditor  of 
his  right  to  sue  it,  and  to  levy  upon 
its  property  to  satisfy  his  judgment." 


§525] 


INSOLVENCY  OF  PRIVATE  CORPORATIONS. 


1121 


§  525.  Receivers  —  rules  as  to  appointment. — The  Court 
of  Chancery  of  New  Jersey,  on  a  bill  filed  for  appointment  of  a 
receiver  for  a  corporation,  has  announced  these  rules  :  Nothing 
short  of  present  actual  insolvency  will  warrant  the  appointment 
of  a  receiver  to  wind  up  a  corporation.  Expected  insolvency  at 
some  time  in  the  future  is  not  sufficient.  A  court  of  equity,  in 
the  exercise  of  its  general  jurisdiction,  may  appoint  a  receiver  of 
a  corporation,  either  because  it  has  no  properly  constituted  gov- 
erning body  or  because  there  are  such  dissensions  in  its  governing 
body  as  to  make  it  impossible  for  the  corporation  to  carry  on  its 
business  "with  advantage  to  its  stockholders ;  but  this  power  is 
always  exercised  with  great  caution  and  only  for  such  time  and 
to  such  an  extent  as  may  be  necessary  to  preserve  the  property 
of  the  corporation  and  to  protect  the  rights  of  its  stockholders.* 
The  United  States  Circuit  Court  of  Appeals  for  the  fifth  circuit 
affirmed  the  order  appointing  a  receiver  in  this  action  by  stock- 
holders and  bondholders  and  others,  bondholders  only,  against  an 
Alabama  corporation,  on  the  ground  that  the  equities  presented 


That  an  attachment  cannot  be  levied 
under  the  California  rulings  on  the 
assets  of  a  bank  after  the  date  of  its 
insolvency,  as  decreed  in  the  pro- 
ceedings under  the  California  Statutes, 
for  winding  up  an  insolvent  bank's 
business,  see  Crane  v.  Pacific  Bank, 
(Cal.)  39  Pac.  Rep.  215. 

^  Edison  v.  Edison  United  Phono- 
graph Co.,  (N.  J.  Eq.  1894)  29  Atl. 
Rep.  195.  Van  Fleet,  V.  C,  said: 
"  This  is  the  doctrine,  as  I  understand 
it,  which  was  laid  down  by  Vice-Chan- 
cellor  Malins  in  Featherstone  v. 
Cooke,  L.  R.,  16  Eq.  298,  and  Auxiliary 
Co.  V.  Vickers,  L.  R.,  16  Eq.  303,  and 
which  was  approved  by  Chancellor 
RuNYON  in  Einstein  v.  Rosen f eld,  38 
N.  J.  Eq.  309,  and  by  Chancellor  Mc- 
GiLL  in  Archer  v.  Waterworks  Co.,  50 
N.  J.  Eq.  33;  s.  c,  24  Atl.  Rep.  508. 
But  neither  of  the  grounds  which  this 
doctrine  recognizes  as  sufficient  to 
warrant  the  appointment  of  a  receiver 
exists  in  this  case.  The  defendant  cor- 
poration has  a  lawfully  constituted 
governing  body,  which  is  in  peaceable 
141 


possession  of  all  its  property,  controll- 
ing and  directing  its  business  regularly 
and  peacefully,  in  conformity  to  the 
judgment  of  seven  of  its  nine  direct- 
ors. Two  of  the  nine  differ  in  judg- 
ment from  the  other  seven.  The  two 
believe  that  the  adoption  of  a  different 
course  of  business  from  that  which  is 
now  proposed  would  result  in  larger 
gains.  Both  methods  are  clearly 
within  the  purposes  and  powers  of  the 
corporation.  Which  method  shall  be 
pursued,  or  whether  one  or  both,  is  a 
question  which  the  law  commits  abso- 
lutely and  unconditionally  to  the  judg- 
ment of  a  majority  of  the  directors. 
Though  somewhat  disguised,  the  real 
purpose  of  the  bill  in  this  case  appears, 
when  critically  examined,  to  be  to  in- 
duce judicial  action  which  shall  sub- 
stitute the  judgment  of  a  minority  of 
the  directors  of  this  corporation  for 
that  of  the  majority.  That  cannot  be 
done.  It  is  beyond  judicial  power. 
No  rule  of  law  is  better  settled  than 
that  which  declares  that  so  lonij  as  the 
directors  of  a  corporation  keep  within 


it 


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I 


r: 


1122 


INSOLVENCY  OF  PRIVATE  CORPORATIONS. 


[§525 


>    t 


k 


in  the  bill  warranted  the  court  to  intervene  for  the  preservation 
of  the  trust  property.  The  allegations,  among  others,  were  that 
there  was  an  issue  of  the  bonds,  w^hen  financially  embarrassed,  by 
the  company,  to  the  amount  of  $300,000,  to  raise  more  money, 
secured  by  a  mortgage,  tlie  greater  part  of  which  bonds  had  been 
disposed  of  at  or  near  par  and  the  rest  hypothecated  for  debts ; 
that  valuable  properties  of  the  corporation  had  been  disposed  of 
at  ruinous  rates  to  meet  debits  of  the  corporation ;  that  the  real 
estate  had  been  sold  for  taxes  ;  that  default  had  been  made  upon 
the  interest  of  the  bonds ;  that  the  price  of  the  bonds  wfis  depressed 
to  a  very  low  iigure ;  that  at  a  meeting  presided  over  by  its  pres- 
ident, holding  a  majority  of  the  proxies,  few  stockholders  being 
present,  it  was  voted  to  issue  $1,000,000  in  bonds ;  that  the  trus- 
tee had  brought  no  suit  to  foreclose  the  mortgage  made  to  secure 
the  principal  and  interest  of  the  bonds ;  that  the  management 
was  wasteful  and  extravagant  and  entirely  controlled  by  the 
president  of  the  corporation.'  The  Supreme  Court  of  Minnesota 
lias  held  tliat  in  an  action  brought  under  the  provisions  of  the 
General  Statutes  of  18T8,  chapter  76,  for  the  purpose  of  seques- 
trating the  property  of  an  insolvent  corporation  and  enforcing  the 
constitutional  liability  of  its  stockholders,  the  plaintifiE  was  not 
entitled,  on  the  pleadings  and  as  a  matter  of  absolute  right,  to 
have  a  receiver  appointed  when  it  appeared  that  proceedings 
were  pending  under  the  Insolvency  Law,  in  which  a  receiver  or 
assignee  had  been  designated  or  selected,  who  had  qualified,  and 
under  the  supervision  of  the  court  had  entered  upon  and  was  dis- 


the  scope  of  their  powei's,  and  act  in 
good  faith  and  with  honest  motives, 
their  acts  are  not  subject  to  judicial  con- 
trol or  revision.  The  statement  of  the 
principle  of  Vice-Chancellor  Green  in 
Ellerman  v.  Stock  Yards  Co.,  49  N.  J. 
Eq.  217,232;  s.  c.,23Atl.  Rep.  287, 
is  adopted  by  the  court,  and  the  same 
was  restated  by  the  same  vice-chan- 
cellor in  8ewell  v.  Beach  Co.,  50  N.  J. 
Eq.  717,  723;  8.  c,  20  Atl.  Rep.  929. 
Chancellor  McGill,  in  Benedict  v. 
Construction  Co.,  49  N.  J.  Eq.  23.  36; 
8.  c,  23  Atl.  Rep.  485,  expressed  it  in 
these  words:  '  If  stockholders  in  a  cor- 
poration disapprove  of  the  company's 
management,  which  is  conducted  with- 


out fraud,  or  by  actions  not  ultra  vires, 
or  not  in  gross  abuse  of  trust,  or  shall 
consider  their  speculation  a  bad  one, 
their  remedy  is  to  elect  new  officers  or 
sell  their  shares  and  withdraw.  Where 
the  question  is  one  of  mere  discretion 
in  the  management  of  corporate  busi- 
ness, or  of  doubtful  event  in  the  un- 
dertaking in  which  the  corporation  had 
embarked,  remedy  cannot  be  had  by 
application  to  a  court  of  equity.' " 

'  Fort  Payne  Coal  &  Iron  Co.  v. 
Sayles,  (1893)  55  Fed.  Rep.  360.  Aa 
to  appointment  of  receivers  of  insol- 
vent corporations,  sec  Straman  v. 
North  Baltimore  Water  Works  Co.,  8 
Ohio  Cir.  Ct.  liep.  89;  Ford  v.  Kansas 


§525] 


INSOLVENCY  OF  PRIVATE  COKPOKATIONS. 


1123 


charging  the  duties  of  his  trust.^  Charges  in  a  bill  brought  by 
one  stockholder  against  a  corporation  and  the  other  stockholders, 
that  the  president  of  the  corporation  refuses  to  account  for  money 
intrusted  to  him  for  the  interests  of  the  company,  or  to  allow  any 


City  &  I.  S.  L.  R.  Co.,  52  Mo.  App. 
439;  Espuela  Land  &  Cattle    Co.   d. 
Bindle,  5  Tex.  Civ.  App.  18;  s.  c,  23 
8.  W.  Rep.  819;  State  v.  Bank  of  New 
England,  (Minn.)  56  N.  W.  Rep.  575; 
McGeorge  v.  Big  Stone  Gap  Improve- 
ment Co.,  57  Fed.  Rep.  262;  Porter  v. 
Industrial    Information  Co.,   5  Misc. 
Rep.  262;  s.  c,  25  N.  Y.  Supp.  328; 
Ralph  V.   Shiawassee  Circuit  Judge, 
(Mich.)  58  N.  W.  Rep.  837;  Towle  v. 
American  Bldg.,  Loan  &  Inv.  Soc,  60 
Fed.  Rep.  131 ;  In  re  Lewis,  52  Kans. 
660;  8.  c,  35  Pac.  Rep.  287;  Downing 
v.    Dunlap    Coal,    Iron    &  Ry.   Co., 
(Tenn.)  24  S.  W.  Rep.  122;  Davis  v. 
Power  Co.,   77  Md.   35;    Lime    City 
Building,  Loan  &  Sav.  Assn.  v.  Black, 
(Ind.)  35  N.   E.  Rep.   829;  Supreme 
Sitting  of  the  Order   of  Iron  Hall  v. 
Baker,  (Ind.)  33  N.  E.  Rep.  1128;  Fort 
Payne  Furnace  Co.  v.  Ft.  Payne  Coal 
&  Iron  Co.,  (Ala.)  11  So.  Rep.  439; 
Sho waiter  v.    Improvement    Co.,    83 
Tex.  162;  Fluker  v.  Railway  Co.,  48 
Kans.    577;    Hinckley  v.    Pfister,    83 
Wis.    64;  8.   c,   53  K  W.   Rep.   21; 
Zieverink  v.  Kemper,  (Ohio)  34  N.  E. 
Rep.  250;  Davis  v.  United  States  Elec- 
tric Power  &  Light  Co.,  (Md.)  25  Atl. 
Rep.    982;  3Ierchants'  Nat.   Bank   v. 
Manuf.  Co.,  48  Minn.  361.     Effect  of 
appointment    upon     an    attachment. 
Waverly  Co.  v.  Worthington  Co.,  24 
N.  Y.  Supp.  331.    Jurisdiction  in  such 
matters.     Glines  v.   Supreme   Sitting 
Order  of  Iron  Hall,  22  Civ.  Pro.  Rep. 
437;  8.  c,  20  N.  Y.  Supp.  275.   Where 
the  claims  against  a  corporation  were 
ascertained  and  small  in  comparison 
with  the  property  sought  to  be  seques- 
trated, and  no  notice  of  the  application 
for  a  receiver  under  the  statutes  of 
Virginia  had  been  given  to  the  corpo- 


ration, and  an  offer  had  been  made  to 
secure  those  claims  should  they  be  es- 
tablished by  giving  any  bond  that 
might  be  required,  it  was  held  that  it 
was  error  to  appoint  such  a  receiver  in 
Va.,  Tenn.  &  Car.  Steel  &  Iron  Co.  «. 
Wilder,  (1892)  88  Va.  942. 

•  Walther  v.  Seven  Comers  Bank, 
(IVIinn.  1894)  59  N.  W.  Rep.  1077.     As 
to  the  power  of  a  court  in  California 
to  appoint  a  receiver  for  an  insolvent 
bank,   see  People's  Home  Sav.  Bank 
V.  Court,  103  Cal.  27.     As  to  power  of 
bank  commissioners  in  California  in 
winding  up  an  insolvent  bank's  affairs, 
see  Long  r.  Court,  102  Cal.  449.    When 
a  receiver  will  be  appointed  for  an  in- 
solvent corporation.     Hale-Berry  Co. 
V.  Diamond  State  Iron  Co.,  (Ga.)  22  S. 
E.  Rep.  217;  Mosher  v.  Supreme  Sit- 
ting of  Order  of  Iron  Hall,  34  N.  Y. 
Supp.  816;  Security  Savings  &  Trust 
Co.  V.  Piper,  (Idaho)  40  Pac.  Rep.  144; 
San  Antonio  i&  G.  S,  R.  Co.  v.  Davis, 
(Tex.  Civ.  App.)  30  S.  W.  Rep.  693; 
Hatfield  ».  Cummings,  (Ind.)  40  N.  E. 
Rep.  53;  Cotton  Mills  v.  C.  C.  Randle- 
man  Cotton  Mills,  115  N.  C.  475;  s.  c, 
20  S.  E.  Rep.  770.     When  a  receiver 
should  be  appointed  on  a  bill  by  stock- 
holders of  a  corporation  asking  for 
such  an  appointment.     Jones  v.  Pearl 
Mining  Co.,  (Colo.)  38  Pac.  Rep.  700; 
State  V.  Second  Judicial  District  Court 
of  Silver  Bow  County,  (Mont.)  39  Pac. 
Rep.  316;  Downing  v.  Coal  Company, 
93  Tenn.  221.     When  a  stockholder  is 
not  entitled  to  have  a  receiver  ap- 
pointed for  the    corporation.     Little 
Warrior  Coal  Co.  z>.  Hooper,  (Ala.)  17 
So.  Rep.  118.    When  a  receiver  should 
not   be  appointed.     United    Electric 
Securities  Co.   v.   Louisiana    Electric 
light  Co.,  68  Fed.  Rep.  673;  Original 


i 


1124 


INSOLVENCY  OF  PRIVATE  C0RP0KATI0N8. 


[§525 


ilt^i 


t< 


inspection  of  the  books  by  this  stockliolder,  and  an  affidavit  filed 
with  the  bill  charging  that  the  president  is  insolvent,  and  since 
the  inauguration  of  the  suit  had  mortgaged  all  his  real  estate  with 
intent  to  defeat  the  claim  of  the  company,  tliere  being  no  allega- 
tion of  fraud  on  the  part  of  the  other  stockholders,  but  rather  a 
distinct  intimation  that  the  president  was  sustained  by  them,  and 
the  solvency  of  the  corporation  being  unquestioned,  it  has  been 
held  would  not  justify  a  court,  before  the  time  for  answer  has 
expired,  in  granting  a  motion  for  the  appointment  of  a  receiver, 
and  thereby  taking  the  corporation  out  of  the  control  of  the  large 
majority  of  stockholders.^     On  a  motion  for  a  receiver  of  a  cor- 
poration in  this  action,  it  was  held  that  an  allegation  that  the 
assets  of  the  corporation  were  insufficient  to  pay  all  its  liabilities, 
including  its  capital  stock  as  a  liability  of  the  corporation  to  its 
stockholders,  was  not  sufficient  to  show  that  the  corporation  was 
insolvent.2    The  United  States  Circuit  Court  for  the  western  dis- 
trict of  Virginia  refused  to  appoint  a  receiver  for  a  business  cor- 
poration upon  mere  allegations  of  insolvency,  unaccompanied  by 
a  charge  of  fraud,  mismanagement  or  wasting  of  assets,  whereby 
the  plaintiffs  claim  would  be  imperiled.     Besides,  the  plaintiffs 
affidavits  as  to  insolvency  were  opposed  by  other  affidavits  deny- 
ing the  facts  and  alleging  that  the  appointment  of  a  receiver 
would  be  injurious  to  the  interests  of  all  parties,  including  cred- 
itors.'   That  the  property  of  a  corporation  subject  to  levy  under 
a  judgment  of  a  state  court  was  unsalable  by  reason  of  its  unmar- 
ketable condition,  though  valuable,  and  the  further  fact  that  the 
sheriff  was  so  situated  with  reference  to  the  property,  that  he 
could  not  execute  the  writ,  has  been  held  by  the  federal  court 


Vienna  Bakery,  Coffee  &  Natatorium 
Co.  V.  Heissler,  50  111.  App.  406;  Klee 
v.  E.  H.  Steele  Co.,  (Minn.)  62  N.  W. 
Rep.  399;  Doe  v.  North  West  Coal  & 
Transportation  Co.,  G4  Fed.  Rep.  928; 
Cook  «.  East  Trenton  Pottery  Co.,  (N. 
J.  Eq.)  30  Atl.  Rep.  534. 

*  Ranger  v.  Champion  Cotton  Press 
Co..  (1892)  52  Fed.  Rep.  609. 

*  Hagenbeck  v.  Hagenbeck  Zoologi- 
cal Arena  Co.,  (1893)  59  Fed.  Rep.  14. 
When  a  corporation  is  insolvent. 
Corey  v.  Wads  worth,  (Ala.)  11  So. 
Rep.  350,  overruling  Corrugating  Co. 


r.  Thacher,  87  Ala.  458 ;  s.  c,  6  So. 
Rep.  366;  Woolverton  v.  George  H. 
Taylor  Co.,  43  111.  App.  424:  Albitzue 
V.  Guadelupey  CalooMin.  Co.,(Tenn.) 
22  S.  W.  Rep.  739.  As  to  when  a  cor- 
poration is  insolvent,  see  At  water  v. 
American  Exchange  Nat.  Bank,  152 
111.  605;  8.  C,  38  N.  E.  Rep.  1017; 
Mish  V.  Main,  (Md.)  31  Atl.  Rep.  799; 
French  v.  Andrews,  81  Hun,  272;  8.  c, 
30  N.  Y.  Supp.  796. 

'  Lawrence  Iron  Works  Co.  v.  Rock- 
bridge Company,  (1891)  47  Fed.  Rep. 
755. 


§  525] 


INSOLVENCY  OF  PRIVATE  CORPORATIONS. 


1125 


not  suflScient  to  warrant  the  appointment  of  a  receiver  for  the  cor- 
poration by  that  court.*  In  this  case  it  was  held  that  the  action 
of  the  directors,  at  a  meeting  of  this  corporation,  the  president, 
secretary  and  treasurer  only  were  present,  in  voting  themselves 
salaries,  which,  however,  were  never  collected,  was  void,  and  cer- 
tain irregularities  in  the  management  were  not  sufficient  to  justify 
appointing  a  receiver  for  the  corporation,  it  being  shown  that  no 
actual  fraud  was  intended.^  The  Supreme  Court  of  "Wisconsin 
has  declared  these  rules  as  to  sequestration  of  the  property  of  an 
insolvent  corporation  and  having  it  administered  through  a 
receiver :  "  It  is  within  the  function  of  tlie  Circuit  Court  to 
supervise  and  compel  the  directors  of  insolvent  corporations  to 
perform  their  duties  as  trustees  for  the  corporate  creditors  in  the 
administration  of  the  corporate  property.  To  that  end,  in  a 
proper  case,  by  sequestration,  it  will  lay  hold  of  the  corporate 
estate  and  administer  it  by  its  receiver.  A  proper  case  for  the 
intervention  of  the  court  arises  whenever  execution  on  a  judg- 
ment against  a  domestic  corporation  has  been  returned  unsatisfied. 
Then  the  court,  in  an  action  for  that  purpose  by  the  execution 
plaintiff,  will  sequester  the  property  and  effects  of  the  corpora- 
tion and  put  it  into  the  hands  of  a  receiver  to  wind  up  its  affairs 
and  distribute  its  assets  among  its  creditors.^  To  make  the  seques- 
tration effectual,  it  will  enjoin  other  creditors  from  pursuing  their 
own  remedies,  and  will  compel  all  officers  of  the  law  to  turn  over 
to  the  receiver  all  property  of  the  corporation  held  by  them  on 
attachment  or  execution,  to  the  end  that  there  shall  be  a  fair  and 
just  division  of  the  assets  of  the  corporation  among  all  its  credit- 
ors, according  to  law."*  A  portion  of  the  stockholders  of  a  cor- 
poration have  no  absolute  right  to  the  appointment  of  a  receiver, 
though  the  corporation  be  insolvent,  in  the  absence  of  fraud  or 
mismanagement.'  The  Supreme  Court  of  Iowa  has  held  that  a 
court  of  equity  has  jurisdiction  to  appoint  a  receiver  of  a  state 
banking  association  on  the  petition  of  a  stockholder ;  and  where 
it  shows,  and  the  facts  are  admitted,  such  a  state  of  financial 
affairs  of  the  bank  as  indicate  its  hopeless  insolvency,  a  receiver 

'  Buckeye    Engine    Co.    v.    Donau  *  Ford  v.    Plankinton  Bank,  (Wis. 

Brewing  Co.,  (1891)  47  Fed.  Rep.  6  1894)  58  N.  W.  Rep.   766;  citing  in 

(creditor's  bill).  support  of  the  rules  Ballin  v.  Loeb,  78 

»  Hardee  v.  Sunset  Oil  Co.,  (1893)  56  Wis.  404;  s.  c,  47  N.  W.  Rep.  516. 

Fed.  Rep.  51.  *Denike  v.  New  York  &  Rosendale 

•  Rev.  Stat.  Wis.  §§  3216-3228.  Lime  &  Cement  Co.,  80  N.  Y,  599. 


HI 


*i 


1 


m 


^1 


1126 


INSOLVENCY  OF  PRIVATE  CORPORATIONS. 


[§526 


ahould  be  appointed.^     There  was  a  receiver  appointed  in  the 
United  States  Circuit  Court  for  the  northern  district  of  Illinois 
for  a  building  and  loan  association  organized  under  the  laws  of  that 
state.     A  receiver,  afterwards  appointed  bj  a  state  court,  applied 
to  the  United  States  court  by  petition,  asking  that  the  receiver 
appointed  by  the  latter  court  be  ordered  to  surrender  to  him  the 
assete  of  the  corporation.     The  petition  was  denied   and   the 
court  upheld  its  jurisdiction  in  tlie  matter,  holding  that  courts  of 
equity  have  jurisdiction  to  appomt  receivers  to  administer  the 
assets  of  insolvent  corporations.     Also  that  a  shareholder  in  a 
building  and  loan  association,  the  officers  of  which  association  had 
Bo  mismanaged  its  affairs  that  its  assets  amounted  to  less  than 
two-thirds  of  the  capital  paid  in,  was  entitled  to  have  the  cor- 
porate  assets  placed  in  the  hands  of  a  receiver.     Upon  special 
pomts  of  objection  to  the  jurisdiction  of  tlie  United  States  court 
It  was  held  that  in  such  a  suit  by  a  shareholder  for  the  appoint- 
ment  of  a  receiver  of  a  corporation,  the  amount  in  controversy 
was  the  value  of  the  entire  corporate  assets.     The  court  also 
dechned  to  dismiss  the  suit  by  the  stockholder  on  the  ground  that 
the  parties  to  the  suit  had  been  collusively  arranged  for  the  pur- 
pose  of  creatmg  a  case  cognizable  in  the  federal  courts,  as  it 
appeared  that  the  assets  of  the  corporation  were  in  different  states, 
and  that  its  shareholders  resided  in  different  states,  and,  therefore, 
It  was  desirable  to  have  all  the  corporate  affairs  wound  up  under 
a  homogeneous  management.^ 

§  526.  Removal  of  receivers  and  assigfnees.— The  United 
States  Circuit  Court  for  the  district  of  Oregon  ordered  the 
removal  of  a  receiver  of  a  corporation  who  had  been  appointed 
at  the  suggestion  of  parties  representing  one  of  two  hostile  fac- 
tions or  interests  in  the  corporation  on  the  ground  that  he  was 
the  nominee  of  the  hostile  party  bitterly  opposed  by  the  other, 
whose  appointment  was  made  in  the  mistaken  belief  that  all  inter- 
ests were  united  in  him.«    In  a  Minnesota  case,  where  a  trusted 

5  Dill.  478:  '  It  becomes  a  duty  of  the 
court  to  see  that  its  powers  are  exer- 
cised on  principles  of  strict  neutrality 
as  regards  the  belligerents;  and  this 
can  be  done  in  this  cjise  by  removing 
the  representatives  of  these  hostile  in- 
terests and  appointing  a  receiver,  who, 
in  feeling   and    in  conduct,   will  be 


'Dickerson  v.  Cass  County  Bank, 
(Iowa,  1895)  64  K  W.  Rep.  395. 

*Towle  V.  American  Building,  Loan 
&  Inv.  Soc.,  (1894)  60  Fed.  Rep.  131. 

'  Wood  V.  Oregon  Development  Co.. 
(1893)  55  Fed.  Rep.  901.  The  district 
judge  said :  **It  was  said  by  Mr.  Jus- 
tice MiLLEB,  in  Meier  v.  Railway  Co., 


§  527] 


INSOLVENCY  OF  PRIVATE  CORPORATIONS. 


112' 


and  confidential  employee  of  an  insolvent  corporation  was  selected 
for  its  assignee  by  its  president,  who  held  a  majority  of  its  stock, 
had  obtained  illegal  preferences  to  indemnify  him  against  his 
indorsements  for  the  corporation,  and  who  guaranteed  the  assignee 
a  certain  compensation  for  a  specified  time  for  his  services  as 
assignee,  and  such  assignee,  after  accepting  and  entering  upon  the 
trust,  made  an  agreement  with  said  president  and  certain  other 
preferred  creditors  who  were  not  residents  of  this  state,  to  hold 
and  collect  for  them,  as  their  trustee,  securities  in  his  hands  as 
assignee  which  had  been  received  by  the  insolvent  as  collateral 
to  other  securities  delivered  by  it  to  such  creditors  as  an  illegal 
preference,  retaining  such  collateral  in  its  hands,  and  the  assignee, 
to  assist  him  in  the  performance  of  his  trust  as  assignee,  employed 
the  former  attorney  of  the  insolvent,  the  Supreme  Court  held  that 
the  assignee  should  have  been  removed,  under  the  circumstances 
stated,  on  the  application  of  a  minority  in  number  or  amount  of 
the  creditors.* 

§  527.  The  rights  of  receivers  and  assignees  as  to  prop- 
erty of  insolvent  corporations. —  A  corporation  in  Wisconsin 
being  insolvent,  as  charged,  confessed  judgment  to  certain  cred- 
itors, and  under  their  executions  property  of  the  corporation  was 
sold  by  the  sheriff ;  tlie  moneys  resulting  therefrom  being  still  in 
his  hands,  a  receiver  of  the  corporation  having  been  appointed  by 
a  court  having  jurisdiction  in  tlie  suit  of  other  creditors,  made  his 
motion  in  the  court  for  a  sequestration  of  the  moneys  and  an 
order  that  they  be  placed  in  his  hands  to  be  administered  for  the 
benefit  of  all  the  creditors  of  the  corporation.  There  was  an 
order  for  the  money  to  be  paid  to  the  receiver,  and  from  this  the 
judgment  creditor  of  the  corporation  appealed.  Upon  appeal  the 
Supreme  Court  affirmed  the  order  of  the  court  below.^     A  cor- 


strictly  neutral  and  strictly  honest.' 
The  receiver  is  solely  the  officer  of  this 
court.  He  must  be,  in  the  full  sense 
of  the  term,  the  '  representative  of  the 
court.'  He  is  in  no  way  the  represent- 
ative of  either  party.  His  past  rela- 
tions, the  influences  that  secured  his 
appointment,  his  sympathies,  from 
whatever  cause,  must  not  be  such  as 
to  predispose  him  either  way.  He 
must  be  the  appointee  of  the  court." 


'  In  re  Mast,  Buford  &  Burwell  Co., 
(Minn.  1894)  59  N.  W.  Rep.  1044. 

2  Ford  V.  Plankinton  Bank,  (Wis. 
1894)  58  N.  W.  Rep.  766.  Newman, 
J.,  speaking  for  the  court,  stated  in 
his  opinion  the  law  in  that  state  in 
such  cases  to  be  as  follows:  "[The 
verified  complaint  of  the  receiver, 
taken  to  be  true],  charges,  in  effect, 
that  the  [corporation]  is  an  insolvent 
corporation;    that  after  it  became  in- 


fli 


W 


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*    I 


\\\r 


H 


112S 


INSOLVENCY  OF  PRIVATE  CORPORATIONS. 


[§527 


poration,  before  its  insolvencj,  having  pledged  property  with 
power  of  sale,  a  court,  after  appointing  a  receiver  for  such  corpo- 
ration, cannot  compel  the  pledgee  to  turn  over  the  property  to 
its  receiver  without  first  requiring  payment  of  the  debt  it  was 
pledged  to  secure.  Nor  does  the  appointment  of  a  receiver  of 
the  insolvent  corporation  in  such  case  deprive  the  pledgee  of  the 
property  of  the  right  to  sell  the  property  in  accordance  with  the 

solvent,  and  while  known  to  be  in-   ment.     And  cases  are  cited  which  hold 
solvent,  both  by  its  directors  and  the   that  moneys  made  on  execution,  while 
appellant,  it  colluded  and   conspired   still  in  the  hands  of  the  sheriff,  are  the 
with  the  appellant  and  certain  others   property  of  the  creditor.     This  may 
of  its  creditors  named,  for  the  purpose   be  law,  as  between  the  debtor  and  his 
of  securing  to  such  creditors  unjust   creditor,  in  an  ordinary  case;  but  it  is 
and  inequitable  preference  over  other   not  controlling  here,  because,  for  the 
creditors  of  such  insolvent  corpora-   purposes  of  this  motion  and  appeal,  it 
tion;  that,  as  a  means  of  effecting  the   is  assumed  to  be  true  that  the  moneys 
object  of  such  conspiracy,  judgments   which  are  in  the  sheriff's  handsare  the 
were  confessed  by  such  insolvent  in   fruit  of  an    illegal   combination    be- 
favor  of   such   creditors,    executions   tween  the  directors  of  the  insolvent 
were  issued    upon   such  judgments,    corporation  and  the  appellant  for  the 
and  property  of  the  insolvent  corpora-    purpose  of  giving  to  the  appellant  an 
tion,  to  a  large  amount,  was  sold,  of   illegal  preference  over  its  other  cred- 
which  sales  the  moneys  so  in  the  hands   itors.     This  is  a  fraud  upon  the  rights 
of   the    sheriff,  and    directed    to    be   of  the  other  creditors.     Fraud  taints 
turned  over  to  the  receiver,  are  the   whatever  it  touches.     No  right  can 
fruit."    After  stating  these  allegations   grow  out  of  a  transaction  which  fraud 
the  court  said:    "Assuming  what  is   has  touched.     So,   upon  the  present 
charged    to   be   true,   it  seems  quite   showing,  it  is  held  that  the  moneys 
clearly  to  show  a  proper  case  for  the   were  properly  directed  to  be  turned 
sequestration    of    the    property   and   over  to  the  receiver  as  a  part  of  the 
effects  of  the  insolvent  corporation,    assets  of   the  corporation.     But  this 
and  prima  facie,  at  least,  thjit  the  ap-   does  not,  of  necessity,   supersede  or 
pellant  and  the  other  creditors  named   displace  the  appellant's  right  to  the 
are  not  justly  entitled  to  the  entire   fund.     If  it  has  a  valid  lien,  that  lien 
fund  in  the  sheriff's  hands  to  the  exclu-    will  follow  the  fund  into  the  hands  of 
sioB  of  other  creditors  of  the  insolvent   the  receiver,  and  the  fund  will  be  ad- 
corporation."    The  court  said,  as  to   ministered  accordingly.     The  order  is 
the  contention  of  the  appellant  that   not  a  final  determination  of  its  rights, 
the  moneys  in    the    sheriffs   hands.    The  right  is  not  to  be  determined  on  a 
made  upon  its  executions,  were  not   mere  motion;  it  is  to  be  determined  in 
subject  to  sequestration  as  the  prop-   the  motion  itself.    The  rights  of  the 
erty  of    the    corporation,   because  it   creditors  are  to  be  adjusted  and  deter- 
claimed  the  title  to  those  moneys  was   mined  by  the  final  order  or  judgment 
in  it  (the  appellant)  and  not  in  the  cor-   in  the  action.     The  statute  so  directs, 
poration:     "Probably    the    appoint-    Section  3217  of  the  Revised  St^itutes 
ment   of  a  receiver  can  affect   only    provides  that  it  shall  be  the  duty  of 
such  property  as   is   owned   by  the   the  court,  in  the  final  ortler  in  the  mo- 
insolvent  at  the  time  of  the  appoint-   tion,  to  direct  a  just  and  fair  distribu- 


§528] 


INSOLVENCY  OF  PEIVATE  CORPOKATIONS. 


1129 


contract  of  the  pledger.*  A  court  of  equity  will  not  take  juris- 
diction of  a  suit  brought  in  aid  of  a  judgment  at  law,  where  the 
bill  avers  that  execution  has  been  issued  and  levied  upon  the 
judgment  debtor's  property,  and  does  not  allege  that  such  execu- 
tion has  been  returned.  In  this  case,  it  appearing  that  the 
insolvent  corporation  confessed  judgment  in  a  state  court  in  favor 
of  several  creditors,  and  also  made  a  voluntary  assignment  for  the 
benefit  of  creditors,  it  was  held  that  the  federal  court  had  no 
jurisdiction,  at  the  suit  of  a  creditor,  brought  after  the  sheriff  and 
assignee  had  taken  possession,  to  interfere  with  their  disposition 
of  the  corporation's  property.' 

§  528.  Other  rights  of  receivers  and  assignees  of  insol- 
vent corporations. —  Receivers  of  an  insolvent  corporation  who 
by  order  of  court  collect  accounts  assigned  by  the  corporation  as 
security  are  entitled  to  compensation  for  their  services  out  of  the 
funds  so  collected.^  A  suit  commenced  before  the  appointment 
of  a  receiver  of  the  property  of  a  corporation,  upon  a  claim  after- 
wards filed,  within  the  time  limited,  against  the  receiver,  may  be 
prosecuted  to  judgment,  which,  when  rendered,  establishes,  as 
against  the  receiver,  the  amount  of  the  claim.     Should  such  a 


tion  of  the  property  of  such  corpora- 
tion and  of  the  proceeds  thereof  among 
its  fair  and  honest  creditors  in  propor- 
tion to  their  debts,  respectively,  to  be 
paid  in  the  same  order  as  prescribed  in 
section  3245.  Section  3245  provides 
that  all  lawful  and  equitable  liens 
upon  the  property  of  such  corporation 
shall  be  paid  in  the  order  of  their 
priority,  and  before  the  common  debts 
are  paid.  The  remedy  for  the  enforce- 
ment of  such  rights  as  the  appellant 
may  have  is  to  be  brought  in  the  ac- 
tion where  the  whole  estate  of  the 
insolvent  corporation  is  being  admin- 
istered. That  this  is  the  regular  and 
orderly  proceeding  in  such  cases  is 
recognized  and  made  clear  by  the  de- 
cision in  Aschermann  v.  Bank,  (Wis.) 
57  N.  W.  Rep.  349." 

*  National  Exchange  Bank  v.  Ben- 
brook  School  Furnishing  Co.,  (Tex. 
Civ.  App.  1894)  27  S.  W.  Rep.  297: 

142 


citing  on  first  point  Carter  v.  High- 
tower,  79  Tex.  135;  s.  c,  15  8.  W. 
Rep.  223;  In  re  Home  Provident 
Safety  Fund  Assn.,  129  N.  Y.  288;  s. 
c,  29  N.  E.  R«p.  323;  Hudson  v. 
Wilkinson,  61  Tex.  606;  Goldfrank  v. 
Young,  64  Tex.  437;  Risk  v.  Banking 
Co.,  58  Fed.  Rep.  45;  Schultz  v.  Jer- 
rard,  (N.  J.  Ch.)3Atl.  Rep.  265;  Beach 
Rec.  §§  80-82;  Jones  Pledges,  §§  720, 
724,  789;  King  r.  Insurance  Co.,  58 
Tex.  669.  As  to  power  of  receivers, 
see  ghow.iltcr  r.  Improvement  Co.,  83 
Tex.  162  As  to  duty  of  receivers,  see 
Thompson  r.  Huron  Lumber  Co.,  4 
Wash.  St.  600;  s.  c,  30  Pac.  Rep. 
741. 

2  Cleveland  Rolling  Mill  Co,  v.  JoUet 
Enterprise  Co.,  (1892)  53  Fed.  Rep. 
683. 

3  Preston  Nat.  Bank  of  Detroit  v. 
Emerson,  (Mch.  1894)  60  N.  W.  Rep. 
981. 


I 

•i 


(I  It 


1130 


INSOLVENCY  OF  PRIVATE  CORPORATIONS. 


[§52S 


receiver  know  of  the  pendency  of  a  suit  on  such  a  claim  after- 
wards filed  against  him,  a  failure  on  the  part  of  the  claimant  to 
refer  to  the  pending  suit  at  the  time  of  the  filing  of  the  claim 
would  not  cause  a  waiver  of  the  right  to  prosecute  the  action,  or 
constitute  an  election  of  remedies.  In  such  a  case,  however,  the 
receiver  should  not  be  charged  with  the  costs  both  of  the  suit 
and  of  the  investigation  of  the  claim  before  the  master,  and  the 
creditor  should  only  be  allowed  the  amount  of  the  judgment 
exclusive  of  the  costs.*  In  a  New  Jersey  case  the  assignee  of  one 
of  the  directors  of  an  insolvent  corporation  filed  a  bill  against  the 
receiver  of  the  corporation  and  others,  for  the  administration  of 
both  estates  and  for  the  marshaling  of  assets,  and  the  receiver  of 
the  corporation  answered,  and  filed  a  cross-bill  alleging  that  the 
directors  of  the  corporation  had  declared  and  paid  numerous 
dividends  contrary  to  the  statute,  which  limits  their  liability  for 
the  payment  of  such  illegal  dividends  to  the  payment  of  six  years 
prior  to  the  commencement  of  the  suit.  Yice-Chancellor  Bird 
held  in  the  action  that  it  was  competent  for  the  receiver  to  show 
errors  and  falsifications  of  the  accounts  of  the  corporation  at  any 
reasonable  time  prior  to  the  commencement  of  the  period  of  six 
years  within  which  suit  to  recover  might  be  had.  Also,  that 
although  the  receiver  represented  the  corporation  and  produced 
its  books  of  account,  this  did  not  prevent  him  from  contradicting 
the  entries  in  the  books,  for  the  reason  that  he  represented 
creditors  also.^  A  manufacturing  corporation  had  entered  into  a 
contract  to  deliver  articles  of  its  manufacture  to  one  who  was 
indebted  to  it  upon  its  assignment  for  the  benefit  of  creditors,  it 
becoming  insolvent.  In  an  action  by  the  assignee  upon  this  ojieu 
account  the  Supreme  Court  of  Minnesota  held  that  the  defend- 
ant might  set  off  his  demand  growing  out  of  the  contract  to 
deliver  goods  and  failure  to  deliver  on  the  part  of  the 
corporation.^ 


*Pine  Lake  Iron  Co.  r.  La  Fayette 
Car  Works  (Adams,  Intervener),  (1893) 
53  Fed.  Rep.  853. 

*Whittaker  v.  Amwell  Nat.  Bank 
(N.  J.  Eq.  1894)  29  Atl.  Rep.  203. 

'Laybourn  r.  Seymour.  (1893)  53 
Minn.  105;  s.  c,  54  N.  W.  Rep.  941. 
It  was  said  by  the  court :  "The  un- 
signed order  thus  'accepted'  by  the 
corporation    constituted    an    express 


agreement  on  its  part  to  deliver  goods 
as  therein  specified;  but  that  wa«  the 
extent  of  its  obligation  in  the  first 
instance.  While  the  conditions  re- 
mained as  they  were  when  it  was 
issued,  the  corporation  could  not  be 
called  upon  to  pay  the  specified 
amount  in  money  nor  could  the 
'acceptance'  have  been  available  as  a 
set-ofif,   under  the   statute    against  a 


§529] 


INSOLVENCT  OF  PRIVATE  CORPORATIONS. 


1131 


§  529.  Insolvent  beneficial  associations  —  rules. — A  court 
of  competent  jurisdiction  having,  by  the  appointment  of  a 
receiver,  assumed  the  administration  of  the  funds  of  an  insolvent 
benevolent  association,  it  is  competent  for  a  court  of  equity  in 
another  state,  on  a  bill  filed  for  that  purpose  by  the  receiver,  to 
pay  over  the  funds  in  their  hands  to  the  receiver.  And  it  is  no 
objection  to  making  such  an  order  that  the  fund  in  question  con- 
stitutes a  reserve  fund,  which,  by  the  rules  of  the  association,  the 
central  authority  could  only  call  in  at  certain  times  and  for  cer- 
tain purposes  and  not  for  the  general  purpose  of  liquidating  the 
whole  trust  fund.^  As  to  the  distribution  of  the  funds  of  a 
mutual  benefit  association,  with  branches  in  several  states,  becom- 
ing insolvent  and  placed  in  the  hands  of  a  receiver  in  Massa- 
chusetts, it  was  held  that  the  benefit  and  reserve  funds  should  be 
proportionally  distributed  among  the  certificate  holders  regard- 
less of  their  residence.  And  to  that  end  certificate  holders  who 
may  have  attached  property  of  the  association  would  be  excluded 
from  any  share  in  such  funds  unless  they  released  such  attach- 
ments or  accounted  for  the  property  in  their  possession.' 


debt  due  to  the  corporation,  of  the 
nature  of  that  for  which  this  action  is 
prosecuted ;  but  the  making  of  the 
assignment  under  the  insolvent  law 
changed  the  situation  and  the  legal 
rights  of  the  holder  of  this  instrument. 
The  corporation  thereby  disabled  itself 
from  performing  the  specific  obliga- 
tion expressed  in  its  written  under- 
taking, and  hence  subjected  itself  at 
once  to  the  alternative  liability  to 
answer  in  damages  as  for  breach  of 
contract.  The  law  does  not  require 
the  doing  of  a  useless  thing,  and  the 
corporation  having  thus  disabled  itself 
to  specifically  perform  its  agreement, 
a  demand  was  not  necessary  to  con- 
vert the  right  to  demand  the  goods 
into  a  right  to  compensation  in  money. 
The  situation  of  defendants  is  the 
same  as  it  would  have  been  if,  before 
the  assignment  in  insolvency,  they 
had  demanded  the  goods,  and  the  cor- 
poration, from  inability  to  comply 
with  the  demand,  or  from  other  cause, 
had  refused  to  deliver  the  same." 


»Failey  v.  Talbee,  (1893)  55  Fed. 
Rep.  892.  It  was  said :  "  [The  laws  of 
the  association]  undoubtedly  do  im- 
press upon  the  funds  the  character  of 
trust  funds,  and,  perhaps,  affect  dif- 
ferent parts  of  the  fund  with  differ- 
ent equities;  but  as  to  the  time  and 
manner  of  ascertaining  and  marshal- 
ing these  equities,  and  as  to  the 
method  of  administration  of  the  fund 
accordingly,  they  must  be  taken  to  be 
abrogated  in  the  case  where,  as  this 
bill  alleges,  the  society  is  insolvent. 
The  methods  of  the  court  are  not  to 
be  substituted  for  the  methods  pro- 
vided by  the  laws."  As  to  the  rights 
of  receivers,  one  being  appointed  for 
the  supreme  body  of  a  benevolent  asso- 
ciation, and  one  of  a  local  branch  of 
the  same  association,  see  Weiner  v. 
Sturgiss,  (Md.  1894)  29  Atl.  Rep.  613. 

'Garham  v.  Mutual  Aid  Society, 
(Mass.  1894)  37  N.  E.  Rep.  447.  See 
Fogg  V.  Supreme  Lodge,  156  Mass. 
431;  s.  c,  31  N.  E.  Rep.  289. 


1132 


INSOLVENCY  OF  PRIVATE  CORPORATIONS. 


[§  530 


m 


§  530.  Liability  of  stockholders  on  unpaid  subscriptions  — 
the  court's  right  to  enforce  and  how  enforced. —  The  Supreme 
Court  of  Tennessee  has  held  that  under  a  general  assignment  of 
its  assets  by  an  insolvent  corporation  for  the  benefit  of  its  cred- 
itors, unpaid  subscriptions,  due  from  defendant  shareholders, 
passed  to  the  assignee,  and  that  it  was  his  duty  to  collect  them 
and  pay  the  proceeds  to  creditors,  or,  in  case  of  a  surplus,  to 
the  assignors.  They  also  held  that  the  assignee's  right  to  recover 
such  subscription  was  not  defeated  or  lost,  when,  with  his  per- 
mission, the  shareholders,  other  than  such  delinquent,  reorganized 
the  corporation  and  resumed  business,  issuing  and  selling  pre- 
ferred stock  and  borrowing  money,  thereby  paying  some  of  the 
debts  and  acquiring  assets  sufficient  to  meet  others.*  A  judg- 
ment against  a  corporation  and  others  jointly  for  the  recovery  of 
money  is  a  debt  of  the  corporation,  for  the  purpose  of  enforcing, 
as  against  stockholders,  liabilities  for  unpaid  subscriptions  and 
other  statutory  liability.^  ,  The  doctrine  has  been  declared  by  the 
-  United  States  Supreme  Court  that  creditors  of  an  incorporated 
company  who  have  exhausted  their  remedy  at  law  can,  in  order 
to  obtain  satisfaction  of  their  judgment,  proceed  in  equity  against 
a  stockholder  to  enforce  his  liability  to  the  company  for  the 
amount  remaining  due  upon  his  subscription  to  stock,  although 
no  account  is  taken  of  the  other  indebtedness  of  the  company, 
and  the  other  stockholders  are  not  made  parties ;  although,  by 
the  terms  of  their  subscriptions,  the  stockholders  were  to  pay  for 
their  shares  "  as  called  for "  by  the  company,  and  the  company 
had  not  in  the  case  before  the  court  called  for  more  than  thirty 
per  cent  of  the  subscriptions.'     This  was  an  action  under  the 

'  Cartwright  v.  Dickinson,  (1890)  88 
Tenn.  476;  a.  c,  12  8.  W.  Rep.  1030. 

'Frost  V.  St.  Paul  Banking  &  In- 
vestment Co..  (Minn.  1894)  59  N.  W. 
Rep.  308. 

»  Hatch  u.  Dana,  (1879)  101  U.  8.  205. 
Mr.  Justice  Strong,  speaking  for  the 
court,  said:  "That  unpaid  subscrip- 
tions are  to  be  regarded  as  a  fund, 
which  the  corporation  holds  for  the 
payment  of  its  debts,  is  an  undeniable 
proposition."  He  then  states  the  con- 
tentions of  the  stockholders  sued,  to 
which  the  doctrine  of  the  text  is  an 
adverse  ruling,  and  said:  "These  posi- 


tions, we  think,  are  not  supported  by 
the  authorities  —  certainly  not  by  the 
more  modern  ones  —  nor  are  they  in 
harmony  with  sound  reason,  when 
considered  with  reference  to  the  facts 
of  this  case.  The  liability  of  a  sub- 
scriber for  the  capital  stock  of  a  com- 
pany is  several,  and  not  joint.  By  his 
subscription,  each  becomes  a  several 
debtor  to  the  company,  as  much  so  as 
if  he  had  given  his  promissory  note 
for  the  amount  of  his  subscription. 
At  law,  certainly,  his  subscription  may 
be  enforced  against  him  without  Join- 
der of  other  subscribers,  and  in  equity 


i-j 


§530] 


INSOLVENCY  OF  PKIVATE  CORPORATIONS. 


f  1133 


General  Statutes  of  1878,  chapter  76,  of  Minnesota,  for  the 
sequestration  of  the  property  of  an  insolvent  corporation  and 
to  enforce  the  constitutional  liability  of  its  stockholders  for  the 
purpose  of  paying  any  balance  of  indebtedness  existing  after 
exhausting  the  corporate  assets.     The  court  held  that  the  corpo- 


his  liability  does  not  cease  to  be  sev- 
eral.    A  creditor's  bill  merely  subro- 
gates the  creditor  to  the  place  of  the 
debtor,  and  guarantees  the  debt  due  to 
the  indebted  corporation.     It  does  not 
change  the  character  of  the  debt  at- 
tached or  garnished.     It  may  be  that, 
if  the  object  of  the  bill  is  to  wind  up 
the  affairs  of  this  corporation,  all  the 
shareholders,  at  least  so  far  as  they 
can  be  ascertained,  should  be  made 
parties,  that  complete  justice  may  be 
done  by  equalizing  the  burdens,  and 
in  order  to  prevent  a  multiplicity  of 
suits.     But  this  is  no  such  case.     The 
most  that  can  be  said  is  that  the  pres- 
ence of  all  the  stockholders  might  be 
convenient,  not  that  it  is  necessary. 
When  the  only  object  of  a  bill  is  to 
obtain  payment  of  a  judgment  against 
a  corporation  out  of  its  credits  or  in- 
tangible property,  that  is,  out  of  its 
unpaid  stock,  there  is  not  the  same 
reason    for  requiring  all  the    stock- 
holders to  be  made  defendants.     In 
such  a  case,  no  stockholder  can  be 
compelled  to  pay  more  than  he  owes. 
In  Ogilvie  v.  Knox  Insurance  Co..  22 
How.  380,  the  question  was  consid- 
ered.    That  was  a  case  in  which  sev- 
eral judgment  creditors  of  a  corpora- 
tion   had    brought    a   creditor's    bill 
against  it  and  thirty-six  subscribers 
to  its  capital  stock.     The  bill  alleged 
that  the  complainants  had  recovered 
judgments  against  the  company,  upon 
which  executions  had  been  issued  and 
returned  'no  property;'  that  the  other 
defendants  had  severally  subscribed 
for  its  stock,  and  that  the  subscriptions 
remained  unpaid,  payment  not  having 
been  enforced  by  the  company.     The 
prayer  of  the  bill  was  that  these  other 


defendants  might  be  decreed  to  pay 
their  subscriptions,  and  that  the  judg- 
ments might  be  satisfied  out  of  the 
sum  paid.     It  was  objected,  as  here, 
that  the  bill  was  defective  for  want  of 
proper  parties,  but  the  court  held  the 
objection    untenable.     In    delivering 
the  opinion  of  the  court,  Grier,  J., 
said:   'The  creditors  of  the  corpora- 
tion are  seeking  satisfaction  out  of  the 
assets  of  the  company  to  which  the 
defendants  are  debtors.     If  the  debts 
attached  are  sufficient  to  pay  their  de- 
mands,   the  creditors    need    look    no 
further.     They  are  not  bound  to  settle 
up  all  the  affairs  of  this  corporation, 
and  the  equities  between  its  various 
stockholders,  corporators  or  debtors. 
If  A.  is  bound  to  pay  his  debt  to  the 
corporation  in  order  to  satisfy  its  cred- 
itors,  he  cannot  defend   himself    by 
pleading  that  these  complainants  might 
have  got  their  satisfaction  out  of  B.  as 
well.    It  is  true,  if  it  be  necessary  to 
a  complete   satisfaction  of  the  com- 
plainants   that    the    corporation    be 
treated  as  an  insolvent,  the  court  may 
appoint  a  receiver,  with  authority  to 
collect  and  receive  all  the  debts  due  to 
the  company,  and  administer  all  its 
assets.     In    that    way   all    the    other 
stockholders  or  debtors  may  be  made 
to  contribute.'    The  court,  therefore, 
directed  a  decree  against  the  respond- 
ents severally  for  such  amounts  as  ap- 
peared to  be  due  and  unpaid  by  each 
of  them  for  their  shares  of  the  capital 
stock."    The  court  cited,  also,  Bartlett 
V.  Drew,  57  N.  Y.  587;  Pierce  v.  Mil- 
waukee Construction  Co.,  38  Wis.  253; 
Marsh  v.  Burroughs,  1  Woods,  468; 
Wood  V.  Dummer,  3  Mason  308;  and 
distinguished    Pollard    v.    Bailey,   30 


!' 


i 


I 


llal 


INSOLVENCY  OF  PBIVATE  C0EP0BATI0N8. 


[§530 


!  I 


h 


m 


ilM 


ration  was  not  organized  for  tlie   purpose  of  carrying   on   an 
exclusively   manufacturing  business,  and  its  stockholders  were 
liable  for  its  debts  to  the  amount  of  their  stock.     Also,  that  the 
court  could  not  by  construction  limit  this  liability  by  holding  that 
each  stockholder  was  liable  only  ratably  when  some  of  the  stock- 
holders were  insolvent  or  beyond  the  jurisdiction  of  the  court ; 
further,  all  those  who  were  stockholders  at  the  tune  tlie  action 
was  commenced   were  liable,  although  some  of  them  were  not 
stockholders  at  the  time  the  corporate  liability  was  incurred.*     A 
corporation  making  an  assignment  for  the  benefit  of  creditors, 
under  the  laws  of  Minnesota  relating  to  such  assignments,  the 
court  has  power  to  make  calls  for  unpaid  subscriptions  to  stock. 
And  such  a  case,  while  it  neither  determines  absolutely  the  lia- 
bility of  the  stockholders,  nor  has  the  effect  of  a  judgment,  makes 
whatever  the  stockholdei-s  are  liable  for  within  the  call  become 
due  and  payable  so  that  suit  may  be  brought  to  enforce  the 
liability.'^    The  propriety  of  the  call  for  unpaid  subscriptions  to 
stock  in  this  case,  and  the  justification  of  the  call,  was  before  the 
court.     The  contentions  were  such  as  to  require  the  declaration 
of  rules  as  to  claims  against  such  an  insolvent  corporation.     The 
court  held  that  under  the  law  proof  of  claims  against  the  insolvent 
corporation  was,  in  the  first  instance,  to  be  made  to  the  receiver  or 
assignee,  and  his  decision  upon  them,  if  acquiesced  in,  would  be 
final.     But  in  case  the  receiver  or  assignee  allowed  a  claim,  any 
debtor  or  other  party  interested  in  the  assets,  or  their  distribution, 
might,  before  the  decision  of  the  receiver  or  assignee  became  final 
by  acquiescence,  apply  to  the  court  for,  and  would  be  entitled, 
upon  the  application,  to  have  a  judicial  examination  and  decision 
as  to  the  allowed  claim.     But  such  an  examination  should  be 


Wall.  520,  and  Terry  r.  Tubman,  92 
U.  S.  156. 

» First  Nat.  Bank  of  Winona  v.  Win- 
ona Plow  Co.,  (Minn.  1894)  59  N.  W. 
Rep.  997;  citing  on  the  last  point,  Geb- 
hard  v.  Eastman,  7  Minn.  56. 

'In  re  Minnehaha  Driving  Park 
Assn.,  (1893)  53  Minn.  423;  s.  c,  55  N. 
W.  Rep.  598.  The  court  said:  "  What 
remains  unpaid  on  the  subscriptions 
are  debts  due  the  corporation,  and  are 
its  assets.  When  it  is  insolvent,  they 
constitute  a  fund  for  the  payment  of 


its  debts.  It  is  true  that,  as  the  pri- 
mary purpose  of  the  proceedings  in 
insolvency  is  to  apply  the  assets  to 
payment  of  the  debts,  the  power  of 
the  court  to  make  or  direct  calls  for 
the  unpaid  subscriptions,  and  direct 
the  enforcement  thereof,  must  be  lim- 
ited to  cases  where  it  is  necessary  to 
resort  to  that  fund  for  the  piu-pose, 
and  the  extent  of  the  call  must  be  de- 
termined by  the  amounts  of  the  debta 
and  of  the  other  assets." 


§530] 


INSOLVENCY  OF  riilVATE  COliPOBATIONS. 


^   1135 


J 


applied  fur  in  a  direct  proceeding,  and  not  be  a  part  of,  or  col- 
lateral to,  some  other  proceeding,  such  as  a  proceeding  to  authorize 
a  dividend  or  to  call  in  the  assets.^  This  action  by  an  assignee  of 
an  insolvent  corporation  was  brought  to  recover  from  its  stock- 
holders unpaid  stock  subscriptions.  The  complaint  alleged  merely 
that  no  part' of  the  stock  owned  and  held  by  the  several  defend- 
ants had  been  paid,  except  a  certain  specified  amount.  The 
Supreme  Court  lield  that  evidence  was  inadmissible  to  prove  that 
the  corporation  had  accepted,  in  payment  of  the  stock,  property 
that  was  greatly  undervalued  and  grossly  inadequate  in  value  to 
the  par  value  of  the  shares.^  They  held  also  that  it  was  not  an 
abuse  of  discretion  in  the  court  below  to  refuse  to  allow  the  com- 
plaint to  be  amended  on  the  trial.^  The  Minnesota  Supreme 
Court  has  held  that  the  statutor}^  liability  of  stockholders  for 
corporate  debts  cannot  be  enforced  in  insolvency  proceedings 
against  the  corporation  under  the  act  of  1881,  but,  pending  such 
insolvency  proceedings,  the  creditors  may  bring  an  action  to 
enforce  the  liability  of  stockholders  in  an  insolvent  corporation 
under  the  General  Statutes  of  1878,  chapter  76,  section  17,  in 
which  the  court  may  at  once  determine  the  maximum  liability  of 
each  stockholder,  and  await  the  result  of  the  insolvency  proceed- 
ings to  ascertain  how  much  of  it  shall  be  enforced  by  execution.* 


'  In  re  Minnehaha  Driving  Park 
Assn.,  (1893)  53  Minn.  423;  s.  c,  55  N. 
W.  Rep.  598. 

'  Smith  V.  Prior.  (Minn.  1894)  59  X. 
W.  Rep.  1016.  The  court  said:  '•  The 
cause  of  action  thus  attempted  to  be 
proved  was  not  one  in  favor  of  the 
corporation,  and  founded  on  contract, 
but  one  in  favor  of  creditors,  and 
founded  on  fraud.  Hospes  v.  Car 
Co.,  48  Minn.  174;  s.  c,  50N.  W.  Rep. 
1117." 

'Smith  r.  Prior,  (Minn.  1894)  59  N. 
W.  Rep.  1016. 

*  Olson  r.  State  Bank,  (^linn.  1894) 
59  N.  W.  Rep.  635.  It  was  said  by 
the  court:  "The  question  was  indi- 
rectly before  us  in  State  r.  Bank  of 
New  England,  56  N.  W.  Rep.  575,  in 
which  it  was  stated,  as  a  distinction 
between  proceedings  against  an  insol- 
vent corporation  under  (General  Stat- 


utes of  1878,  chapter  76,  and  insol- 
vency proceedings  under  the  act  of 
1881,  that,  under  the  former  proceed- 
ings, directors  and  stockholders  may 
be  brought  in,  and  their  liabilities  to 
creditors  enforced;  and  it  was  assumed, 
or  taken  for  granted,  that  this  cannot 
be  done  under  the  latter  proceedings. 
Chapter  76  clearly  contemplates  bring- 
ing in  stockholders  for  that  purpose. 
If  this  were  not  so,  then,  so  far  as  that 
chapter  is  concerned,  the  creditors 
would  be  left  to  a  suit  in  equity  to  en- 
force any  liability  of  stockbolders 
other  than  such  as  are  deemed  assets 
of  the  corporation.  The  statute  de- 
termines the  scope  and  compass  of 
every  special  proceeding  provided  by 
it,  and  if  authority  is  not  found,  either 
in  express  terms  or  by  impUcation,  in 
a  statute  regulating  a  special  proceed- 
ing, for  doing  a  particular  thing,  there 


1136 


raSOLTENCT  OF  PRIVATE  C0KP0KAT10N8. 


[§530 


\\m 


There  Las  been  much  litigation  growing  out  of  a  decree  of  the 
Chancery  Court  of  Ricliniond,  Virginia,  in  the  case  of  wliat  was, 
at  first,  a  bill  of  a  creditor  who  had  obtained  a  judgment  in  Mary- 
land against  a  Virginia  corporation  which  had  become  insolvent, 
and  finally  its  whole  business  had  been  abandoned,  with  a  large 
amount  of  indebtedness,  and  no  effort  on  its  part  to  call  for  and 
collect  out  of  its  unpaid  subscriptions  to  stock,  which  was  eighty 
per  cent  of  its  capital  stock,  to  pay  its  indebtedness.  This  cred- 
itoi-'s  suit  was  brought  against  the  insolvent  corporation,  proper 
service  being  secured  upon  it  and  the  trustees  named  in  a  cer- 
tain trust  deed  executed  by  the  corporation  to  them  for  the  bene- 
fit of  its  creditors  of  all  its  estate,  including  money  payable  on 
assessments,  requiring  payment  of  all  its  debts,  but  reserving 
enjoyment  for  a  specified  period.  Charges  of  inefficiency  and  dis- 
position not  to  enforce  the  trust  were  made  against  these  trustees 
and  their  removal  asked.  They  were  removed  in  tlie  suit  and  a 
trustee  substituted,  and  in  iiis  name  the  proceedings  continued, 
finally  resulting  in  a  decree  that  lie  recover,  by  suit  or  otherwise, 
of  the  stockliolders  an  assessment  ordered  by  the  court  of  thirty 
per  cent  of  their  unpaid  subscriptions  to  be  applied  to  the  payment 
of  the  corj)oration's  large  indebtedness.  There  was  no  appeal  from 
this  decree.  In  one  of  the  actions  brought  by  this  trustee  to  recover 
the  assessment  ordered  against  the  estate  of  one  of  the  subscribers 
to  stock  in  Virginia,  the  case  reached  the  Court  of  Appeals  of 
that  state.  This  court  made  these  rulings  upon  the  trust  deed 
and  the  decree  of  the  Chancery  Court :  The  trust  deed,  construed, 
as  it  must  be,  by  the  laws  of  Virginia,  was  valid ;  it  passed  title 
to  all  unpaid  subscriptions,  with  power  to  collect  same  to  extent 


is  no  authority.  In  Spilman  r.  Men- 
denhall,  (Minn.)  57  N.  W.  Rep. 
468,  it  was  held  that  the  proceeding 
regulated  by  General  Statutes  of  1878, 
chapter  34,  sections  415  to  420,  inclu- 
sive, being  one  to  dissolve  a  corpora- 
tion, settle  its  business,  and  convert 
its  assets  and  apply  the  proceeds  to 
payment  of  its  debts,  stockholders 
cannot  be  brought  in  to  answer  to 
their  statutory  liability,  for  the  reason 
that  the  statute  does  not  so  provide, 
though  they  may  be  to  enforce  unpaid 
subscriptions,  because  such  are  assets 
of  the  corporation.    And  it  is  the  same 


with  insolvency  proceedings  under  the 
law  of  1881.  There  is  nothing  in  that 
law  to  suggest  that  any  remedy  of 
creditors  who  come  into  the  proceed- 
ing can  be  enforced,  except  as  to  the 
assets  of  the  debtor.  It  is  a  proceed- 
ing merely  to  convert  such  assets  and 
apply  the  proceeds  upon  the  claims  of 
such  creditors  as  come  in,  and  comply 
with  the  terms  of  the  law."  Actions 
of  receivers  of  insolvent  corporations 
against  stockholders  for  unpaid  sub- 
scriptions to  stock.  Elderkin  v.  Peter- 
son, 8  Wash.  674;  s.  c,  36  Pac.  Rep. 
108a 


I 


1    f 


§  530] 


INSOLVENCY  OF  PRIVATE  CORPORATIONS. 


11? 


0  4 


of  call ;  that  the  decree  of  the  Chancery  Court  bound  not  only 
the  company  but  the  stockholders  also,  whom  the  plaintiff,  as 
such  trustee  and  assignee,  might,  under,  and  also  independently 
of,  the  Code  of  Virginia,  sue  in  his  own  name  for  the  amount  of 
the  call  on  their  subscriptions.*  Where  a  court  of  equity,  at  a 
suit  of  a  creditor  of  an  insolvent  corporation,  directs  an  assess- 
ment on  the  unpaid  stock,  such  assessment,  even  though  by  rea- 
son of  collusion  in  obtaining  the  decree  it  be  larger  than  necessary 
to  pay  the  debts,  is  no  invasion  of  the  stockholder's  absolute 
rights,  his  obligation  being  that  of  a  debtor  to  the  corporation  in 
the  full  amount  of  his  subscription.  And  in  such  a  case  a  differ- 
ent court  would  not  entertain  a  suit  to  enjoin  the  collection  of 
the  assessments  directed,  so  long  as  it  was  within  the  power  of 
the  court  directing  it  to  correct  its  mistake  by  reducing  the  assess- 
ment, or  by  ordering  a  ratable  return  of  any  surplus  remaining 
after  payment  of  the  debts.*    In  one  of  the  suits  brought  by  this 


'  Lewis'  Adrar.  v.  Glenn,  Trustee, 
(1888)  84  Va.  947.  As  to  the  validity 
of  the  trust  deed,  the  court  cited  B.  & 
O.  R.  R.  Co.  V.  Glenn,  28  Md.  287. 
As  to  the  service  upon  the  company, 
etc.,  Glenn,  Trustee,  v.  WiUiams,  60 
Md.  93,  and  authorities  there  cited. 

'Furnald  v.  Glenn,  (1893)    56    Fed. 
Rep.   372.     TowNSEND,   D.   J.,   said: 
"  In  Graham  v.  Railroad  Co.,  118  U.  S. 
161;  8.  c,  6  Sup.  Ct.  Rep.   1009,  the 
Supreme  Court   approved   the   state- 
ment of  law  made  by  Judge  Nelson 
in  the  Circuit  Court  (14  Fed.  Rep. 
153)  as  follows:  'In  Nougue  v.  Clapp, 
101  U.  S.  551,  it  was  held  that  the  Cir^ 
cuit  Court  of  the  United  States  cannot 
revise  or  set  aside  a  final  decree  ren- 
dered by  a  state  court  which  had  com- 
plete jurisdiction  of  the  parties   and 
subject-matter  upon  the  ground  that 
the   decree  was   obtained    by  fraud, 
where  the  injured  party  has  had  an 
opportunity  to  apply  to  the  state  court 
to  reverse  the  decree.     The  plaintiff  is 
a  party  to  the  foreclosure  suit  as  a 
shareholder  in   the    old   corporation. 
The  state  court  is  still  open  to  listen 
to  the  complaint  of  the  corporation  and 
143 


its  shareholders.     The  decree  of  the 
foreclosure,  though  final  in  one  sense, 
as  determining  the  respective  rights  of 
the  parties  to  the  property  in  question, 
is  still  in  its  nature  interlocutory,  and 
is  open  to  review  by  the  court,  upon 
petition  or  motion  in  the  cause,  or  by 
bill  of  review,  for  good  cause  shown. 
The  plaintiff  has,  therefore,  an  ample 
and  complete  remedy  for  all  his  al- 
leged grievances  in  the  state  court, 
and  there  is  no  occasion  for  his  appli- 
cation to  this  court  for  relief  by  bill  in 
equity.'    Judge  Nelson  in  that  part 
of  his  opinion  immediately  preceding 
the  foregoing  quotation,  laid  down  the 
rule  upon  which  the  complaint  relies, 
with  its  Umitations,  as  follows:  '  It  is 
well  settled  in  the  courts  of  the  United 
States  that  when  a  decree  or  judgment 
has  been  obtained  against  a  party  to  a 
suit  at  law  or  in  equity  by  fraud  or 
deception  practiced  upon  him  by  his 
opponent,   and  he  has  lost,    without 
fault  of  his,  his  remedy  of  applying  to 
the  court  for  the  revocation  or  reversal 
of  the  decree  or  judgment,  a  court  of 
equity  will  afford  him  rehef.'    Foster 
V,  Railroad  Co.,  146  U.  S.  88;  s.  c,  13 


1, 


1138 


INSOLVENCY  OF  PRIVATE  CORPORATIONS. 


[§  530 


§530] 


INSOLVENCY  OF  PRIVATE  CORPORATIONS. 


1139 


J I 


1(1 


.»»> 


iK-l 


trustee  against  a  subscriber  to  shares  living  in  West  Yirginia  to 
recover  the  assessment  decreed  against  liini,  the  United  States 
Circuit  Court  of  Appeals  for  tlie  fourth  circuit  has  held,  lately, 
that  in  such  an  action  it  was  no  defense  that  the  liability  of  cer- 
tain other  stockholders  on  their  subscriptions  had  previously  been 
compromised  by  the  creditors  for  less  than  the  amounts  due, 
when  it  appeared  that  the  entire  unpaid  subscriptions  of  all  the 
stockholders  had  to  be  exhausted  in  order  to  satisfy  the  creditors' 
claims.'     The  trustee  named  in  a  trust  deed  of  the  property  of  a 
corporation  to  secure  bonds  had,  for  default  in  interest,  demanded 
possession  and  it  was  surrendered  to  him.     Afterwards  the  trus- 
tee filed  a  bill  for  foreclosure,  and  to  have  a  receiver  appointed, 
and  to  secure  nnpaid  subscriptions  of  stock  from  stockholders  and 
an  application  of  the  assets  for  the  benefit  of  the  creditors  of  the 
corporation.      Unsecured   creditors   having  obtained   judgment 
against  the  corporation,  subsequent  to  the  execution  of  this  mort- 
gage, tiled  a  bill  alleging  the  invalidity  of  the  trust  deed  above 
referred  to,  and  also  praying  that  the  assets  of  the  corporation, 
unpaid  subscriptions,  etc.,  should  be,  as  a  result  of  their  proceed- 
ing, applied  to  the  payment  of  their  claims.     In  the  meantime, 
there  had  been,  in  the  foreclosure  suit,  a  decree  of  foreclosure  and 
sale  of  the  property.     In   the  United  States  Circuit  Court  this 
later   bill   was   dismissed    on   its    merits.      The   United   States 
Supreme  Court,  on  appeal,  approved  the  dismissal   of  the  bill 
but  upon  the  ground  of  jurisdiction.     In  discussing  this  point  of 
the  case,  it  was  said  by  Mr.  Justice  Brewer,  speaking  for  the 
majority  of  the  court  (Justices  Brown  and  Jackson  dissenting) : 


Sup.  Ct.  Rep.  28;  Kent  v.  Iron  Co.. 
144  U.  S.  75;  s.  c,  12  Sup.  Ct.  Rep. 
650.  See  Glenn  v.  Marbury,  145  U.  S. 
499;  s.  c,  12  Sup.  Ct.  Rep.  914;  Foote 
t).  Glenn.  52  Fed.  Rep.  529." 

'Bennett  v.  Glenn.  Trustee,  (1893) 
55  Fed.  Rep.  956.  Fuller,  Circuit 
Justice,  said:  "It  is  well  settled  that 
decrees  against  a  corporation  of  the 
character  of  those  referred  to  in  the 
pleadings  necessarily  bind  the  stock- 
holders in  the  absence  of  fraud,  and 
cannot  be  reviewed  or  impeached  in 
collateral  suits  on  assessments  thereby 
made.  Hawkins  r.  Glenn,  131  U.  8. 
819;  8.  c,  9  Sup.  Ct.  Rep.  739;  Glenn 


V.  Liggett.  135  U.  S.  533;  s.  c,  10  Sup. 
Ct.  Rep.  867.  The  decrees  [in  the 
Chancery  Court  of  Richmond,  Vir- 
ginia] determined  that  the  entire  un- 
paid balance  of  the  stock  subscription 
was  necessary  in  order  to  pay  the  in- 
debtedness of  the  corporation.  The 
judgment  recovereti  against  Bennett 
in  1884,  and  paid  by  him,  determined 
his  liability  as  a  holder  of  fifty  shares 
of  stock,  and  defendants  were  to  that 
extent  at  least,  concluded  in  this 
second  suit.  Nesbit  r.  Independent 
Dist..  144  U.  S.  610;  s.  c.  12  Sup.  Ct. 
Kep.  746." 


"  The  plaintiffs  were  simple  contract  creditors  of  the  company, 
their  claims  had  not  been  reduced  to  judgment,  and  they  had  no 
express  lien  by  mortgage,  trust  deed  or  otherwise.  It  is  the  set- 
tled law  of  this  court  that  such  creditors  cannot  come  into  a  court 
of  equity  to  obtain  the  seizure  of  the  property  of  their  debtor, 
and  its  application  to  the  satisfaction  of  their  claims,  and  this, 
notwithstanding  a  statute  of  the  state  may  authorize  such  a  pro- 
ceeding in  the  courts  of  the  state.  The  line  of  demarcation 
between  equitable  and  legal  remedies  in  the  federal  courts  can- 
not be  obliterated  by  state  legislation.  Scott  v.  [N^eely,  140  U.  S. 
106 ;  Gates  v.  Allen,  149  U.  S.  451.  Nor  is  it  otherwise  in  case 
the  debtor  is  a  corporation  and  an  unpaid  stock  subscription  is 
sought  to  be  reached.  National  Tube  Works  Company  v.  Ballou, 
146  U.  S.  517 ;  Swan  Land  &  Cattle  Company  v.  Frank,  148  U. 
S.  603,  612.  Nor  is  this  rule  changed  by  the  fact  that  the  suit  is 
brought  in  a  court  in  which,  at  the  time,  is  pending  another  suit 
for  the  foreclosure  of  a  mortgage  or  trust  deed  upon  the  prop- 
erty of  the  debtor."  ^ 


*Hollins  T.  Brierfield  Coal  &  Iron 
Co.,  (1893)  150  U.  S.  371,  378,  379, 
The  court  further  said:  "  Doubtless  in 
such  foreclosure  suit  the  simple  con- 
tract creditor  can  intervene,  and  if  he 
has  any  equities  in  respect  to  the 
property,  whether  prior  or  subsequent 
to  those  of  the  plaintiff,  can  secure 
their  determination  and  protection; 
and  here,  by  the  express  language  of 
the  bill  filed  by  the  trustee,  all  claim- 
ants and  creditors  were  united  to  pre- 
sent their  claims  and  have  them  adju- 
dicated. These  plaintiffs  did  not 
intervene,  though,  as  shown  by  the  al- 
legations of  their  bill,  they  knew  of 
the  existence  of  the  foreclosure  suit; 
neither  did  they  apply  for  a  consolida- 
tion of  the  two  suits.  On  the  contrarv, 
the  whole  drift  and  scope  of  their  suit 
was  adverse  to  that  brought  by  the 
trustee,  and  in  antagonism  to  the 
rights  claimed  by  him.  They  ob- 
viously intended  to  keep  away  from 
that  suit,  and  maintain,  if  possible,  an 
independent  proceeding  to  have  the 
property  of  the  debtor  applied  to  the 


satisfaction  of  their  claims.  But  this, 
as  bus  been  decided  in  the  cases  cited, 
cannot  be  done.  The  excuse  suggested, 
that  the  rule  which  forbids  in  a  suit 
to  foreclose  a  mortgage  the  litigation 
of  a  title  adverse  to  that  of  the  mort- 
gagor prevented  them  from  interven- 
ing, is  not  sound.  Their  rights,  like 
those  of  the  trustee  and  the  bond- 
holders, were  derived  from  the  corpo- 
ration defendant.  Each  claimed  under 
it,  and  the  validity  and  amount  of  such 
claims  were  matters  properly  and  ordi- 
narily considered  and  determined  in  a 
foreclosure  suit.  It  is  true  the  corpo- 
ration might  admit  the  validity  of  any 
or  all  of  the  claims,  and  then  the  valid- 
ity could  only  be  a  subject  of  inquiry 
as  between  the  claimants  for  the  pur- 
pose of  determining  the  matter  of 
priority,  but  to  that  extent,  at  least, 
both  validity  and  amount  are  always 
open  to  contest  and  determination." 
As  to  enforcing  the  liability  of  a  cor- 
poration holding  unpaid  shares  of  the 
stock  of  an  insolvent  corporation, 
though  it  may  have  taken  the  shares 


t 


Hi 


1140 


INSOLVENCY  OF  PRIVATE  CORPORATIONS. 


[§531 


n 


1* 


§531.  Creditor's  bills  —  equitable  jurisdiction.— Key,  D. 

J.J  in  the  United  States  Circuit  Court  for  the  eastern  district  of  Ten- 
nessee, sustained  the  court's  jurisdiction  in  a  creditor's  bill  brought 
against  a  railroad  construction  company,  praying  an  injunction  and 
the  appointment  of  a  receiver,  upon  allegations  that  the  same 
persons  engaged  in  building  a  railroad  organized  the  construction 
company  ;  that  nearly  all  the  bonds  of  the  railroad  company  were 
issued  to  it ;  that  the  railroad  company  was  insolvent,  and  in  the 
hands  of  a  receiver,  and  a  decree  of  foreclosure  had  been  ren- 
dered ;  that  the  promoters  of  both  companies  acquired  control  of 
large  quantities  of  the  bonds,  and  in  equity  held  them  as  trustees 
for  the  construction  company ;  that  they  conspired  to  strip  this 
latter  company  of  its  assets,  and  in  pursuance  of  the  conspiracy 
diverted  large  sums  of  money  from  its  treasury,  and  pledged  its 
bonds  for  debts  for  which  it  was  not  liable,  and  that  the  construc- 
tion company  was  insolvent.  The  court  held  that,  as  it  appeared 
that  one  of  the  complainants  had  a  judgment  obtained  in  another 
state,  the  bill,  as  far  as  he  was  concerned,  might  be  maintained 
in  the  federal  court,  though  his  judgment  was  procured  in  another 
state  than  that  in  which  the  federal  court  sat.^  Also  that  the 
allegations  of  the  bill  were  sufficient  to  sustain  equity  jurisdiction, 
although  the  other  creditors  had  not  procured  judgments  as  the  basis 
of  the  suit.2     The  creditors  of  an  insolvent  mercantile  corpoi*a- 


as  collateral  security  for  a  debt,  see 
Calumet  Paper  Co.  t.  Stotts  Invest- 
ment Co.,  (Iowa)  64  N.  W.  Rep.  782. 
As  to  the  liability  of  a  stockholder  of 
a  bank  for  the  debts  of  the  bank  under 
Minnesota  statutes,  see  Harper  t.  Car- 
roll, (Minn.  1895)  64  N.  W.  Rep.  145. 
Rules  as  to  courts'  rights  to  call  for 
unpaid  subscriptions  to  stock  of  insol- 
vent corporations  and  the  right  of 
receivers  and  assignees  to  enforce  the 
liability.  Barcalow  v.  Totten,  (N.  J. 
Eq.)  32  Atl.  Rep.  2;  Bennett  v.  Great 
Western  Telegraph  Co.,  53  111.  App. 
276;  Great  Western  Telegraph  Co.  t. 
Loewenthal,  154  111.  261:  s.  c,  40  N. 
E.  Rep.  318,  affirming  51  111.  App. 
447;  Furnald  v.  Glenn,  12  C.  C.  A.  27; 
8.  c,  64  Fed.  Rep.  49. 

'  Merchants'    Nat.    Bank   t>.    Chat- 
tanooga Construction  Co.,   (1892)   53 


Fed.  Rep.  314,  following  Stutz  v. 
Handley,  41  Fed.  Rep.  527;  Handley 
«.  Stutz,  139  U.  8.  417:  s.  c.  11  Sup. 
Ct.  Rep.  530. 

'Merchants'  Nat.  Bank  v.  Chat- 
tanooga Construction  Co.,  (1892)  53 
Fed.  Rep.  314.  It  was  said:  "  Bills  in 
equity,  with  far  fewer  elements  of 
original  jurisdiction,  have  been  main- 
tained. In  the  case  of  Stutz  v.  Hand- 
ley,  41  Fed.  Rep.  537,  *  *  ♦  the 
court  says  of  that  suit:  'Its  object 
being  to  reach  and  subject  a  trust 
fund,  complainants  were  not  even  re- 
quired to  have  reduced  their  claims  to 
judgment,  and  exhausted  the  remedy 
at  law,  after  the  involving  of  the  com- 
pany.' Citing  Case  v.  Beauregard,  101 
U.  8.  688-690.  Judge  Harlan  says 
in  Mellen  v.  Iron  Works,  131  U.  8. 
367;  8.  c,  9Sup.  Ct.  Rep.  781:  'The 


§531] 


INSOLVENCY  OF  PRIVATE  CORPOBATIONS. 


1141 


tion,  the  corporators  of  which,  having  the  full  and  absolute  con- 
trol of  its  affairs,  having  wrongfully  misappropriated  its  assets, 
so  as  to  put  the  same  beyond  the  reach  of  these  creditors,  may, 
though  the  claim  of  each  be  separate  and  distinct  from  those  of 
all  the  others,  unite  in  an  equitable  petition  for  the  purpose  of 
subjecting  these  corporators  to  individual  liability,  because  of 
such  misappropriation ;  and  to  the  end  of  obtaining  an  account- 
ing by  them  for  the  assets  thus  misappropriated,  the  corporation 
itself  is  a  proper  party  co-defendant  in  such  petition.^  The  United 
States  Circuit  Court  of  Appeals  for  the  fifth  circuit  reversed  a 
decree  granting  an  injunction  in  the  United  States  Circuit  Court 
for  the  southern  district  of  Georgia,  and  ordered  the  injunction 
dissolved  upon  a  bill  in  equity  seeking  to  subject  the  property  of 
a  railroad  company  to  the  payment  of  the  simple  contract  debts 
of  the  complainants.  In  their  bill  they  charged  that  the  defend- 
ant railroad  company  was  insolvent,  and  was  about  to  put  out  an 
issue  of  second  mortgage  bonds  for  purposes  and  on  a  scheme 
that  would  work  an  injury  to  them  as  unsecured  creditors,  and 
asked  for  the  appointment  of  a  receiver  and  for  an  injunction. 
The  Court  of  Appeals  held  that  the  Circuit  Court  had  no  juris- 
diction of  a  bill  in  equity  to  subject  the  property  of  an  insolvent 
corporation  to  the  payment  of  a  simple  contract  debt  in  advance 
of  a  recovery  of  a  judgment  at  law,  when  such  debt  was  unse- 
cured by  lien  or  mortgage,  notwithstanding  the  statute  of  the 
state  authorized  the  bringing  of  such  suit  by  any  three  creditors 
of  the  insolvent  corporation.'* 


removal  of  alleged  liens  or  incum- 
brances upon  property,  the  closing  up 
of  affairs  of  insolvent  corporations, 
and  the  administration  and  distribu- 
tion of  trust  funds  are  subjects  over 
which  courts  of  equity  have  general 
jurisdiction.'  When  insolvency  pro- 
ceedings may  be  instituted  against  an 
insolvent  corporation,  Marble  v.  James- 
ville  Mfg.  Co..  (Mass.)  39  N.  E.  Rep. 
998;  Steel  Edge  Stamping  &  Re- 
tinning  Co.  V.  Manchester  Savings 
Bank,  (Mass.)  39  N.  E.  Rep.  1021. 
Rules  governing  creditors'  actions  to 
enforce  their  rights  against  assets,  etc., 
of  insolvent  corporations,  see  J.  W. 
Butler  Paper  Co.  v.  Bobbins,  151  111. 
588;  8.  c,  38  N.  E.  Rep.  153;  Moulton 


p.  Connell-Hall-McLester  Co.,  93  Tenn. 
377;   8.  c,  27  8.   W.  Rep.  672. 

'  Pullman  v.  Ellis,  (Ga.  1895)  22  S, 
E.  Rep.  568.  As  to  the  rights  of  a 
creditor  whose  execution  against  a  cor- 
poration has  been  returned  nulla  bona 
to  proceed  by  bill  for  a  sequestration 
of  the  effects  of  a  corporation,  see 
Judson  V.  Rossie  Galena  Co.,  9  Paige, 
598.  As  to  the  proper  mode  in  New 
York  to  obtain  a  sequestration  of  a 
corporation's  assets,  see  Coming  v. 
Mohawk  Valley  Insurance  Co.,  11 
How.  Pr.  190. 

2  Atlanta  &  Florida  R.  Co.  v.  West- 
ern Ry.  Co.  of  Alabama,  (1892)  50  Fed. 
Rep.  790.  McCoRMiCK,  Circuit  Judge, 
said:  "  The  bill  in  [Terry  v.  Anderson, 


1142 


INSOLVENCY  OF  PRIVATE  CORPORATIONS. 


[§  532 


§532.  Claims  against  insolvent  corporation  — rules  as  to 
allowances,  etc. —  Upon  tlie  petition  of  certain  banks  wliicli  had 
made  loans  to  a  savings  bank  in  Nebraska  and  held  collaterals  for 
their  loans  in  insolvency  proceedings  against  such  savings  bank, 
the  questions  to  be  decided  were  thus  stated  by  the  Nebraska 
Supreme  Court :  "  Are  these  plaintiffs,  the  banks,  entitled  to  have 
their  claims  against  the  general  assets  of  the  savings  bank  ?    And 


95  IT.   8.   628,  cited  by  appellee]  was 
against  the  trustees  and  stockholders 
to  enforce  against  the  stockholders  of 
the  insolvent  bank  the  liability  of  said 
stockholders  for  the  unredeemed  bills 
of  the  bank,  some  of  which  bills  com- 
plainants held.     Demurrers,   not  dis- 
tinctly  raising  the  question    we  are 
considering,  were  sustained,   and  the 
till  dismissed,  and,  in  delivering  the 
opinion  of  the  court  affirming  the  de- 
cree of  the  CircuitCourt,  Chief  Justice 
Waite  says:  'The  complainants  are, 
neither  of  them,  judgment   creditors 
of  the  bank.     In  a  suit  instituted  by 
the  as.signccs  to  close  up  the  assign- 
ment, they  proved  their  claims,  and 
the  amount  due  them  was  found  for 
the  purposes  of  a  division.     The  lind- 
ing  was  sufficient  for  the  purposes  of 
distribution,   but  it  has  none  of  the 
characteristics  of  a  judgment  or  de- 
cree,  to  be  enforced  as  against  any- 
thing but  the  fund  which  the  court 
was  then  administering.'     At  a  subse- 
quent day  of  the  term,  in  overruling 
a  petition  for  rehearing,  he  used  this 
language  quoted   in  the   brief  of  ap- 
pellee's counsel:  'Ordinarily   a    cred- 
itor must  put  his  demand  into  judg- 
ment against  his  debtor  and  exhaust 
his  remedies  at  law,  before  he  can  pro- 
ceed in  equity  to  subject  choses  in  ac- 
tion to  its  payment.     To  this  rule  there 
are,  however,  some  exceptions,  and  we 
are  not  prepared  to  say  that  a  creditor 
of  a  dissolved  corporation  may  not, 
under  certain  circumstances,  claim  to 
be  exempted  from  its  operation.    If  he 
can,  however,  it  is  upon  the  ground 


that  the  assets  of  the  corporation  con- 
stitute a  trust  fund  which  will  be  ad- 
ministered by  a  court  of  equity,  the 
principle  being  that  equity  will  not  per- 
mit a  trust  to  fail  for  want  of  a  trustee.* 
The  case  of  Graham  r.  Railroad  Co., 
10*2  U.  8.  148,  cited  by  appellees,  was 
a  bill  by  judgment  creditors  of  the 
railroad  to  subject  certain   lands  al- 
leged  to  have  been  fraudulently  ob- 
tained from  the  railroad,  to  the  pay- 
ment   of    complainant's    judgments. 
The  bill  was  dismissed  on  demurrer. 
The  question  we  are  now  considering 
was  not  in  the  case,  and  the  conclud- 
ing paragraph  of  Judge  Bradley's 
opinion,  quoted  by  appellees'  counsel, 
does  not  touch  the  question  as  to  the 
appellees  here  being  proper  parties  to 
bring   the  bill    they    have    exhibited 
against  appellants.     Appellees'  coun- 
sel quotes  the  second  paragraph  of  the 
syllabus  in  the  report  of  the  case  of 
Mellen  r.  Iron  Works,  131  U.  8.  353; 
s.  c,  9  Sup.  Ct.  Kep.  781,  which  ap- 
pear* to  sustain  the  contention  of  ap- 
pellees.    In  the  body  of  the  opinion 
we  note  this  language:  'It  is,   how- 
ever, contended  that  the  furnace  com- 
pany could  not  rightfully  invoke  the 
aid  of  a  court  of  equity  to  remove  this 
lien  or  incumbrance  until  it  had,  by 
obtaining  judgment  for  its  debt,  and 
suing   out   execution,   exhausted    its 
legal    remedies.    Jones   v.    Green,   1 
Wall.  330;  Van  Weel  v.  Winston,  115 
U.  8.  228,  245;  s.  c,  6  Sup.  Ct.  Rep. 
22.     But  that  was  one  of  the  questions 
necesstiry  to  be  determined  in  the  suit 
brought  by  that  company,  and  any 


INSOLVENCY  OF  PRIVATE  CORPORATIONS. 


1143 


§532] 

if  so,  in  what  amount  ?  For  the  whole  original  sum  of  the  loans 
and  interest,  or  must  they  deduct  any  and  all  sums  collected  of  the 
collaterals,  and  prove  their  claim  for  the  balance  ?  And  should 
a  similar  deduction  be  made  before  each  dividend  declared  by  the 
receiver  ?  Each  bank  to  receive,  at  each  time  tlie  dividend  is 
declared,  only  such  amount  as  the  balance  remaining  due  it  after 
such  deduction  entitles  it  ?  And  if  they  are  entitled  to  share  in 
the  general  assets,  should  they  be  required,  as  a  condition  prece- 
dent thereto,  to  deliver  the  collaterals  held  by  them  to  the 
receiver,  to  be  by  him  collected  or  disposed  of  should  the  court 
so  order,  for  the  benefit  of  these  banks,  and  applied  on  their  claim 
until  it  is  extinguished,  or  fully  paid  ? "  The  court  fully  dis- 
cussed the  different  rules  which  had  been  declared  in  different 
jurisdictions  and  adopted  as  in  their  judgment  the  proper  one  that 
all  sums  collected  from  the  collaterals  be  deducted,  and  proof 
made  for  the  balance  of  the  claim,  and,  immediately  before,  or  at 
the  time  of  each  dividend,  all  sums  derived  from  the  collaterals 
between  the  date  of  proof  and  the  date  of  such  dividend  be 
deducted  from  the  claim,  and  the  creditor  draw  dividends  accord- 
ing to  the  balance.^  One  holding  claims  against  an  insolvent  cor. 
poration  in  the  process  of  being  wound  up,  partly  secured  by  first 

error  in  deciding  it  would  not  author-  receiver,  and  in  greater  equity,  fair- 
ize  even  the  same  court  in  an  original  ness,  equality,  and  justice  than  can  be 
independent  suit,  to  treat  the  decree  attained  in  any  other  manner,  and 
as  void.  *  *  *  In  the  view  we  hence  we  conclude  to  adopt  it."  As 
take  of  the  case,  it  is  not  necessary  to  to  the  collaterals,  it  was  then  said: 
determine  the  soundness  of  any  of  "What  should  be  done  with  the  col- 
these  propositions,  for  if  the  court  laterals  has  l)een  variously  determined 
erroneously  ruled  upon  any  of  them,  by  the  courts  which  agreed  on  the 
its  decree  could  not,  for  that  reason,  main  rule  as  to  proof  of  the  claim  or 
be  asserted  in  a  collateral  proceeding  claims,  but  we  think  the  best  and  most 
as  void  for  want  of  jurisdiction.'  equitable  disposition  that  can  be  made 
And  we  take  it  that  the  Supreme  of  them  is  that  they  be  delivered  to 
Court,  in  this  case,  expressly  did  not  the  receiver,  to  be  by  him  held  and 
decide  the  question  we  are  now  collected,  or  otherwise  disposed  of  if 
considering."  the  court  so  orders,  and  the  amount 
'  State  ex  rel.  Attorney-General  r.  realized  in  either  manner,  or  both,  if 
Nebraska  Savings  Bank,  (Neb.  1894)  f.ivored,  to  be  applied  by  him  to  the 
58  N.  W.  Rep.  976.  The  court  said:  payment  of  the  debt  due  the  banks 
"  Wearesatistied  that[therulejis  the  until  these  sums,  together  with  the 
true  one,  and  that  it  will,  in  its  present  dividend,  result  in  canceling  the  in- 
workings,  result  in  keeping  the  parties  debtedness,  or  both  funds  are  ex- 
in  as  near  the  exact  relations  they  oc-  hausted;  the  remainder,  if  any,  then 
cupied.  as  to  enforcement  of  their  to  be  and  become  a  part  of  the  gen- 
claims,  before  the  appointment  of  the  eral  assets,  and  for  the  benefit  of  all 


M 


1U4 


INSOLVENCY  OF  PRIVATE  C0KP0RATI0N8. 


[§533 


V:* 


',f^ 


I 

I 


mortgage  on  the  property,  and  receiving  an  amount  from  the  sale 
of  the  property  of  the  corporation   sufficient  to  pay   the  part 
secured  by  mortgage,  the  Illinois  Supreme  Court  has  held,  was 
not  entitled  to  be  paid  in  the  distribution  dividends  proportioned 
to  the  entire  amount  of  his  claims.     The  dividend  should  have 
been  upon  the  residue    of  his  claim.»      It  appearing  that  the 
notes  of  the  corporation,  which  in  this  case  was  in  the  hands  of  a 
receiver  as  insolvent,  were  given  payable  at  twelve  months  out  of 
the  first  net  earnings  for  a  loan  made  to  the  corporation  by  its 
stockholders  under  an  agreement  between  themselves  to  meet  a 
certain  indebtedness  of  the  corporation,  the  corporation's  liability 
on  the  notes  was  held  to  be  limited  to   the  net  earnings,  and, 
there  being  no  net  earnings  applicable  to  the  payment  of  the 
notes,  there  could  be  no  recovery  upon  them  either  by  the  stock- 
holders or  those  to  whom  they  assigned  them.' 

§  533.  Rules  in  cases  of  insolvent  banks.—  Depositors  in  a 
bank  which  may  be  a  state  depository  may  set  off  their  deposits 
against  notes  of  theirs  due  the  bank  in  the  hands  of  a  receiver  of 
the  bank.  The  lien  of  the  state  for  the  bank's  indebtedness  to  it 
affects  only  the  balances  due  on  such  notes  after  the  set-off  of  the 
deposits  due  the  makers.^     A  check  on  a  suspended  bank  acquired 

creditors;  the  expense  of  the  collection       '  First  Nat.  Bank  of  Peoria  v.  Com- 
of  collaterals  to  be  paid  from  such  col-   mercial  Nat.  Bank  of  Peoria,  (111.  1894) 
lections,  and  the  general  assets  not  to   37  N.  E.  Rep.  1019.    The  court  distin- 
be  chargeable  with  such  expense;  and   guished,  Re  Bates,  118  111.  524;  s.  c. 
no  expense  of  collecting  other  assets   9  N.  E.  Rep.  257.     In  Watson  v.  New 
to  be  paid  from  moneys  derived  from   Jersey  Chemical  Co.,  (N.  J.  Eq.  1894) 
the  collaterals;  the  receiver  to  be  paid   29    Atl.     Rep.     186,'  Vice- Chancellor 
such  compensation    for  holding    the   Green,  a  firm  having  transferred  to  a 
collaterals  as  shall  be  ordered  by  the   creditor,  a  claim  against  the  corpora- 
court  to  be  paid  from  the  proceeds  of   tion  which  subsequently  had  become 
the  collaterals.     By  this  we  think  the   insolvent,  held  that  the  dividend  de- 
collaterals  will  be  more  rapidly  made,    clared  by  the  receiver  should  be  ap- 
and  at  less  expense;  and  any  favorable    plied  on  such  indebtedness  instead  of 

controversy  between  the  receiver  and   on    notes    upon  which  the  firm  was 

the  creditors  holding  the  securities,  in  accommodation     indorser     for     the 

reference  to  it,  or  failure  to  collect  or  corporation. 

enforce  it    on    their    part,    wiU    be       « Lyman  r.  Northern  Pac.  Elevator 

avoided."  That  a  creditor  cannot  prove   Co.,  (1894)  62  Fed.  Rep.  891. 

both  his  original  claim  and  collateral       »  State  v.  Brobston,  94  Ga.  95;  s.  c, 

obligations  of  the  corporation  creating   21    S.  E.   Rep.   146.      See    Davis   v. 

a  heu  upon  its  property,  see  People  v.    Manufpcturing  Co.,  114  N.  C.  321. 

Remington,  121  N.   Y.   675,  affg.  54 

Hon,  480. 


t    M 


§533] 


INSOLVENCY  OF  PRIVATE  CORPORATIONS. 


1145 


with  a  knowledge  of  its  suspension  by  a  debtor  to  that  bank  can- 
not be  set  off  by  him  against  his  debt  to  the  bank,  though  the 
check  may  have  been  acquired  before  a  receiver  for  the  bank  was 
appointed.*     A  trust  in  favor  of  a  principal  will  not  be  impressed 
upon  the  assets  of  an  insolvent  bank,  giving  him  a  preference 
over  its  other  creditors  by  the  simple  fact  that  his  agent  deposited 
money  in  another  than  his  own  name  with  notice  to  the  bank  that 
it  was  the  money  of  third  parties.^     Where  a  special  depositor 
with  a  bank  on  being  falsely  told  that  there  were  not  sufficient 
funds  in  bank  to  pay  the  amount  held  in  trust  by  the  bank  for 
him,  received  in  pai*t  payment  a  draft  which  was  never  paid,  the 
Supreme  Court  of  Michigan  held  that  there  was  in  the  circum- 
stances no  waiver  of  his  right  to  impress  upon  the  assets  of  the 
insolvent  bank  a  trust  in  his  favor.^     That   a  bank   receiving 
money  as  agent  for  another,  mingled  it  with  its  own  funds,  has 
been  held  in  Michigan  not  to  prevent  the  imposition  of  a  trust 
for  the  amount  on  the  insolvency  of  the  bank,  where  the  money 
in  hand  in  the  bank  at  the  time  prior  to  its  failure  was  reduced 
below  the  amount  in  1  ns  manner  received  in  trust  by  it.*     A 
check  given  to  the  bondsman  of  a  city  treasurer  by  an  insolvent 
bank  for  the  amount  of  the  first  dividend  on  the  claim  of  the 
city  for  a  deposit  of  city  funds  by  its  treasurer  was  turned  over 
to  the  city  treasurer  and  credited  on  his  account  with  the  citv. 
The  Kansas  Supreme  Court  has  held  that  the  amount  of  such 
check  was  a  trust  fund  which  might  be  recovered  by  the  city 
from  the  assignee  of  the  bank.^     Where  a  holder  of  a  bank  cer- 
tificate of  deposit  had  become  suspicious  of  the  bank's  solvency 
and  withdrew  a  part  of  his  deposit  and  took  a  certificate  for  the 
balance,  upon  an  agreement  that  this  balance  should  be  put  in  a 
separate  package,  subject  to  his  order,  but  it  was  not  done,  the 
Illinois  Appellate  Court  held  that  this  balance  of  money  to  his 
credit  was  not  sufficiently  distinct  from  the  other  funds  of  the 
bank  to  impress  a  trust  in  favor  of  the  depositor  on  the  insol- 
vency of  the  bank.*    The  Supreme  Court  of  Georgia  has  in  a 

'  Avery  v.  Ladd,  (Or.)  38  Pac.  Rep.  *  Ibid. 

1088.  8  aty  of  Larned  v.  Jordan,  (Kans.) 

•Henry  v.  Martin,  88  Wis.  367;  s.  c,  39  Pac.  Rep.  1030. 

60  N.  W.  Rep.  263.  "Bay or  d.  Schaffner  &  Co.'s  Estate, 

»In  re  Johnson,  (Mich.)  61  N.  W.  51  111.  App.  180. 
Rep.  352. 

144 


y   I 


1146 


INSOLVENCY  OF  PRIVATE  CORPORATIONS. 


[§533 


I 


late  case  held  that  where  a  bank,  having  money  on  deposit  with 
another,  failed  in  business  and  Ixjcame  insolvent,  being  at  the 
time  indebted  to  the  depositary  upon  promissory  notes  the  sum 
total  of  which  exceeded  the  amount  of  tlie  deposit,  it  was  the 
right  of  the  depositary  by  way  of  equitable  set-off  to  appropri- 
ate the  money  on  deposit,  as  far  as  it  would  go,  to  the  satisfaction 
of  such  notes,  although  they  had  not  yet  become  due.  In  such 
case  ordinary  checks  payable  to  the  order  of  named  jwrsons 
drawn  upon  the  depositary  by  the  iirst  bank  before  its  failure, 
but  not  made  payable  specifically  out  of  the  fund  on  deposit,  were 
neither  assignments  nor  appropriations  jt7?'c>  tcmto  of  that  fund,  so 
as  to  bind  the  drawee  to  pay  the  same  notwithstanding  the 
drawer's  failure.  It  was  the  right  of  the  depositary  after  credit- 
ing the  deposit  upon  the  notes  it  held  against  the  failing  bank,  to 
share  upon  the  balance  still  due  j[>ro  7'«/fl^  with  the  depositors  of 
that  bank  in  a  general  distribution  of  its  assets  in  the  liands  of  a 
receiver  who  had  been  appointed  to  take  charge  of  and  admin- 
ister the  same.* 


*  Georgia  Seed  Co.  t.  Talmadge,  (Ga. 
1895)  22  S.  E.  Rep.  1001.  As  to  the 
point  with  reference  to  the  checks 
upon  the  depositary  not  operating  as 
an  assignment,  the  court  cited  Baer  v. 
English,  84  Ga.  403;  s.  c,  11  S.  E. 
Rep.  458;  Haas  v.  Bank,  91  Ga.  307; 
8.  c,  18  S.  E.  Rep,  188;  Jones  v. 
Glover,  93  Ga.  484;  s.  c,  21  S.  E.  Rep. 
50.  As  to  the  right  of  equitable  set- 
off, see  Kentucky  Flour  Co.'s  As- 
signee V.  Merchants'  Xat.  Biink,  (Ky.) 
13  8.  W.  Rep.  910;  Nashville  Trust 
Co.  t>.  Fourth  National  Bank,  (Tenn.) 
18  8.  W.  Rep.  822;  Jones  r.  P.obinson. 
26  Barb.  310.  For  a  case  holding  tlmt 
a  county  treasurer  was  not  entitled  to 
a  preference  over  other  creditors  to 
certain  moneys  among  the  assets  of  an 
insolvent  banker  making  an  assign- 
ment for  the  benefit  of  his  creditors, 
see  Stevens  t.  Williams,  (Wis.  1895) 
64  N.  W.  Rep.  422.  As  to  the  right 
to  recover  from  receivers  of  insolvent 
banks  moneys  received  on  deposit  by 


banks  with  a  knowledge  of  their  in- 
solvency, see  Lake  Erie  &  Western  R. 
R.  Co.  T.  Indianapolis  Nat.  Bank,  65 
Fed.  Rep.  600;  Grant  r.  Walsh,  145 
N.  Y.  502;  8.  c,  40  N.  E.  Rep.  200; 
American  Trust  &  Savings  Bank  v. 
Gueder  &  Paeschke  Manufacturing 
Co.,  150  111.  336;  s.  c,  37  N.  E.  Rep. 
227,  affirming  51  111.  App.  340.  As  to 
rules  governing  in  cases  of  criminal 
prosecution  of  officers  of  banks  under 
statutes  in  various  states  for  receiving 
deposits  knowing  the  banks  to  be  in- 
solvent, see  State  v.  Myers,  54  Kans. 
206;  8.  c,  38  Pac.  Rep.  296;  Common- 
wealth r.  Sponsler.  16  Pa.  Co.  Ct. 
Rep.  116:  Carr  r.  State,  (Ala.)  16  So. 
Rep.  150;  Koetting  r.  State,  88  Wis. 
502;  s.  c,  60  N.  W.  Rep.  822;  State «-. 
Buck,  120  Mo.  479.  That  the  statute 
of  Iowa  as  to  criminal  acts  of 
officers  of  banks  applies  to  officers 
of  national  banks,  see  State  v.  Fields, 
(Iowa)  62  N.  W.  Rep.  653. 


As  to  "Insolvency  of   I^ivate  Corporations,"  see  further,   chapter  XIII, 
"Insolvency  of  Banks,"  and  chapter  XIV,  " Liability  of  Shareholders." 


CHAPTER  XXYIII. 

FORECLOSURE  OF  MORTGAGES  AND  TRUST  DEEDS. 


§  534.  Jurisdiction  of  actions  to  fore- 
close. 

535.  Bringing  such  actions  —  rules. 

536.  Parties  to  such  actions. 

537.  General  rules  as  to  such  actions. 

538.  Decrees  in  such  actions — gen- 

eral rules . 

539.  Decrees  for  sale  of  property. 


§  540.  Purchasers  at  sales  under  the 
decrees  —  their  rights  and 
liabilities. 

541.  Who  may  be  heard  on  petition 

in  foreclosure  suits. 

542.  Disposition  in  decree  of   pro- 

ceeds of  sale. 

543.  Allowances  in  forclosure  suits 


§534-  Jurisdiction  of  actions  to  foreclose.— A  federal 
court,  having  jurisdiction  and  possession,  through  its  receiver,  of 
all  the  property  of  a  railroad  company,  thereby  acquires  jurisdic- 
tion of  a  subsequent  suit  to  foreclose  a  mortgage  on  the  same 
property,  irrespective  of  the  citizenship  of  the  parties  thereto, 
and  may  enter  in  such  suit  a  binding  decree  of  foreclosure  and 
sale.^  There  is  no  jurisdiction  or  power  in  a  state  court  to  interfere 
with  a  decree  of  foreclosure  made  in  a  federal  court  against  a 
railroad  company  where  the  railroad  was  within  the  jurisdiction 
of  the  court  making  the  decree,  and  all  the  parties  in  interest 
were  before  it.^  It  has  been  held  in  the  United  States  Circuit  Court 
for  the  eastern  district  of  Tennessee  that  the  provision  in  the  fed- 
eral statute  of  August  13,  1888,  that  in  any  suit  to  enforce  any 
legal  or  equitable  lien  on,  or  claim  to,  or  to  remove  any  lien  or  cloud 
upon,  property  situated  in  the  district  where  the  suit  is  brought, 
defendants  who  are  not  inhabitants  thereof  may  be  made  parties, 
and  brought  into  court  by  the  methods  there  prescribed,  applied 
to  an  original  bill,  brought  for  the  purpose  of  enforcing  various 
liens  upon  part  of  a  railroad  lying  in  the  district,  as  against  the 
lien  of  a  general  mortgage,  which  is  about  to  be  foreclosed  in  the 
same  court  by  a  suit  ancillary  to  another  suit  in  a  different  dis- 
trict and  state.     The  court,  therefore,  held  the  original  bill  filed 

*  Carey  v.  Houston  &  Texas  Cent.    Bee  v.  Central  Trust  Co.  of  New  York, 
Ry.  Co.,  (1892)  52  Fed.  Rep.  671,  fol-   48  Fed.  Rep.  243;  affirmed  by  the  u! 
lowing  Morgan's  L.  &  T.  R.  «&  S.  S. 
Co.  t>.  Texas  Cent.  Ry.  Co.,  137  U.  S. 
171;  8.  c,  11  Sup.  Ct.  Rep.  61. 

« Gernshemi  v.  Olcott,  (1889)  7  N.  Y. 
Supp.  872.    As  to  jurisdiction,  see  Mc- 


S.  Circuit  Court  of  Appeals  for  the 
sixth  circuit  in  McBee  v.  Central  Trust 
Co.  of  New  York,  (1893)  57  Fed.  Rep. 
753. 


m 


■I 


;■  y' 


5*- 


1148  rOKECLOSURE  OF  MOETGAGES  AND  TRUST  DEEDS.         [§  534 

by  these  lienors  to  l^e  maintafinable,  although  some  of  the  defend- 
ants were  non-residents  of  the  district.     The  court's  view  of  the 
matter  was  that  while  such  a  bill  was  an  original  bill  within  the 
meaning  of  that  term  as  used  in  equity  pleading,  yet  the  suit  in 
its  essence  was   supplementary  to  the  ancillary  foreclosure  suit 
which  it  sought  to  oppose,  and  hence  the  court's  jurisdiction  was 
unaffected  by  the  fact  that  when  the  parties  were  arranged  accord- 
ing to  their  interests  in  the  suit,  some  who  were  residents  of  the 
same  state  would  be  found  on  opposite  sides  of  the  controversy.* 
A  railroad  company  had  been  incorporated  both  in  the  state  of 
Georgia  and  the  state  of  South  Carolina.     The  United  States 
Circuit  Court  for  the  southern  district  of  Georgia  had  appointed 
a  receiver,  and  an  ancillary  suit  was  tiled  in  the  district  of  South 
CaroHna  to  have  his  authority  extended  over  the  property  of  the 
company  in  that  state.     The  complainant  in  the  bill  was  a  citizen 
of  Georgia.     Other  citizens  of  Georgia  were  parties  to  the  bill, 
which  was  the  counterpart  of  the  bill  origmally  filed  in  Georgia, 
but  no  relief  was  asked  against  them.     It  was  held  upon  a  ques- 
tion of  jurisdiction  that  the  controversy  was  between  citizens  of 
different  states,  and  the  jurisdiction  of  the  United  States  Circuit 
Court  in  South  Carolina  of  the  ancillary  bill  was  maintained.' 
It  appeared  here  that  a  railway  company,  tiie  road  of  which  passed 
through   several  states,  purchased   a  small   road  lying  entirely 
within  one  of  the  states.     Afterwards  it  mortgaged  the  whole 
system,  including  the  newly-purchased  road.    Several  years  after- 
wards there  was  brought  in  the  Federal  Circuit  Court  a  suit  to  fore- 
close this  general  mortgage,  and  the  whole  property  was  placed  in 
the  hands  of  the  receiver  appointed  in  the  federal  court.    The  char- 
ter of  this  state  road  was,  in  the  meantime,  by  proper  proceedings 
in  the  state  court,  declared  forfeited,  and  a  receiver  of  its  prop- 
erty appointed.     Upon  the  petition  of  this  state  receiver  to  the 
federal  court  for  possession,  in  which  petition  it  was  alleged  that 
the  sale  of  the  road  to  the  interstate  company  was  ultra  vires 
and  void,  and  that,  therefore,  the  federal  court  had  no  jurisdic- 
tion, it  was  held  that  this  petition  merely  raised  the  question  as 

>  McBee  v.  Marietta  & N.  G.  Ry.  Co.,  c,  12  Sup.  Ct.  Rep.  935;  Railway  Co.  v. 

(1891)  48  Fed.  Rep.  243.  Whitton.   18  Wall.    283 ;    Nashua    & 

»  Phinizy  v.  Augusta  &  Knoxville  Lowell  R.  Corp.  v.  Boston  &  Lowell 

R.  Co.,  (1893) 56  Fed.  Rep.  273.   See  as  R.  Corp.,  136  U.  S.  356;  s.  c,  10  Sup. 

to  the  citizenship  of  the  corporation,  Ct.  Rep.  1004. 
»haw  V.  Mining  Co.,  145  U.  S.  449;  s. 


§  534]  FORECLOSURE  OF  MORTGAGES  AND  TRUST  DEEDS.  1149 

to  the  validity  of  the  sale,  which  question  could  properly  be  tried 
in  the  federal  court,  and  hence  it  would  retain  possession.  Besides, 
the  fact  that  the  mortgagees  of  a  prior  mortgage,  which  was 
placed  upon  this  state  road  before  its  order,  had  intervened  in  the 
federal  court  for  the  protection  and  enforcement  of  their  prior 
lien,  was  also  a  sufiicient  ground  for  retaining  jurisdiction  and 
possession  of  the  road.  Nor  did  the  fact  that  the  state  statutes 
provide  for  the  payment  of  the  corporation's  debts  after  its 
charter  is  forfeited,  and  for  the  distribution  of  its  assets,  give  the 
state  courts  exclusive  jurisdiction,  as  these  directions  would  be 
complied  with  in  the  federal  courts.^  In  this  suit  for  foreclosure 
in  a  state  court  of  a  corporation  mortgage,  one  claiming  the  title 
to  the  property  mortgaged  by  the  corporation  was  made  a  party 
defendant ;  the  claimant,  as  a  non-resident,  had  the  case  removed 
to  the  federal  court.  In  this  court  the  case  was  ordered  to  be 
remanded  on  the  ground  that  as  in  a  suit  for  foreclosure  only  the 
rights  and  interests  under  the  mortgage  and  subsequent  to  it 
could  be  determined,  and  that  this  third  person  who  claimed  a 
paramount  and  independent  title  was  not  a  proper  party  to  the 
suit,  he  should  have  applied  to  the  state  court  where  the  fore- 
closure suit  was  proceeding  for  leave  to  bring  an  independent 
suit  in  that  court  against  the  receiver.^  The  following  rules  as  to 
practice  in  foreclosure  suits  were  declared  in  this  case  :  A  motion 
to  consolidate  three  foreclosure  suits  when  all  are  not  ripe  for 
decree,  and  where  nothing  can  be  gained  for  the  purpose  of  a 
hearing,  will  be  denied.  Leave  to  file  a  cross-bill  in  a  suit  of  fore- 
closure, wliere  it  appears  that  the  purpose  is  to  secure,  between  an 
alleged  debtor  and  the  mortgagor,  an  accounting  not  necessary  to 
the  determination  of  the  suit,  will  be  denied.  Where  a  railroad 
is  in  the  hands  of  receivers  pending  suits  of  foreclosure  and  set- 
tlement of  the  priority  of  liens,  it  is  proper,  on  the  application  of 
a  lienholder  claiming  priority,  to  extend  the  receivership  as  to 
such  claim  over  the  portion  of  the  road  on  which  the  priority  is 
claimed.^  Here  a  mortgage  bondholder  sued  for  foreclosure  in 
behalf  of  himself  and  all  the  other  bondholders,  and  the  other 

»  Mercantile  Trust  Co.  v.  Missouri,    phone  &  Power  Co.,   (1893)  56  Fed. 
K.  &  T.  Ry.  Co.,  (1890)  48  Fed.  Rep.    Rep.  257. 
351  8  Mercantile  Trust  Co.  v.  Missouri, 

«  California  Safe  Deposit  &  Trust  K.  &  T.  Ry.  Co.,  (1889)  41  Fed.  Rep.  8. 
Co.  V.  Cheney  Electric  Light,   Tele- 


1150  FOKECLOSURE  OF  MORTGAGES  AND  TRUST  DEEDS.         [§  535 

bondholders  though  not  made  parties,  intervened  by  leave  of  the 
court,  and  prayed  a  foreclosure.  It  was  held  in  the  United  States 
Circuit  Court  for  the  district  of  Washington  that  all  such  bond- 
holders  were  indispensable  parties,  and  in  determining  the  juris- 
diction of  the  court,  tliej  were  all  to  be  considered  as  parties 
plaintiff ;  and  it  having  appeared  that  one  of  them  was  a  citizen 
of  the  same  state  witii  several  of  the  defendants,  the  jurisdiction 
of  the  federal  courts  failed.* 

§535-  Bringingsuchactions  — rules.— A  prior  mortgagee 
cannot  be  required,  against  his  will,  at  the  instance  of  a  subse- 
quent mortgagee,  to  foreclose  his  mortgage.^     In  tiiis  case,  the 
trust  company,  which  was  the   trustee  under  a  railroad   mort- 
gage, Hied  its  bill  in  the  United  States  Circuit  Court  for  foreclos- 
ure of  the  mortgage  as  well  as  to  set  aside  a  sale  of  the  railroad 
which  had  been  made  under  a  decree  of  the  state  court,  in  which 
proceedings  it  was  charged  there  was  fraud  upon  the  part  of  the 
movers  in  the  same.     There  being  no  averment  in  the  bill  that 
sixty   per   cent   of   the   owners   of  the  outstanding  bonds  had 
requested  action  on  the  part  of  the  trustee,  it  was  insisted  that 
these  proceedings  were  instituted  without  authority.     The  cove- 
nant in  the  mortgage  upon  which  the  contention  was  founded 
provided  that  in  case  of  default,  etc.,  in  paying  the  interest  and 
principal  of  the  bonds,  "  it  shall  be  the  duty  of  the  said  trustees 
for  the  time  being,  and  they  shall  or  will,  upon  written  request 
of  the  holders  of  sixty  per  centum  of  the  said  bonds  then  out- 
standing, enter  upon  and  take  possession  of  the  said  railroad  prop- 
erty and  estate,"  and  operate  the  same,  appropriating  the  net 
income  to  the  best  advantage,  etc.,  "  or  the  said  trustee  shall  and 
will,  after,  or  without  entering  upon  or  taking  such  possession, 
upon  the  written  request  of  the  holders  of  bonds  of  a  like  amount, 
proceed  upon,  and  under  this  indenture  of  mortgage,  to  sell  the 
railroad  property  and  estate     *     *     *     at  public  sale  in  the  city 
of  Philadelphia,  lirst  giving  at  least  four  weeks'  notice  by  publi- 
cation, etc.,  and  grant  and  convey  the  same  to  the  purchaser, 
freed   from   all   and   every   trust    hereby   created,"   etc.      The 

..l^to^^^  "•  ^°''^"  Brewing  Co..       »  Seibert  v.  Minneapolis  &  St.  Louis 
n892)  53  Fed.  Rep.  513.    See  Removal   Ry.  Co.,  (1893)  52  Minn.  246;  s  c    68 
Cases,  100  U.  S.  468.    The  court  dis-   N.  W.  Rep.  1151. 
tinguished  Stewart  «>.  Dunham,  115  U. 
8,  61;  8.  c,  5  Sup.  Ct.  Rep.  1163. 


§  535]  FORECLOSURE  OF  MORTGAGES  AND  TRUST  DEEDS.  1151 

Supreme  Court  of  the  United  States  reversed  the  decree  of  the 
United  States  Circuit  Court,  dismissing  this  bill.^  The  court 
also  held  in  this  case  that  a  provision  in  the  railroad  mortgage 
that  the  mode  of  sale  provided  by  it  "  shall  be  exclusive  of  all 
others,"  was  an  attempt  to  provide  against  a  remedy  in  the  ordi- 
nary course  of  judicial  proceedings  and  oust  the  jurisdiction  of  the 


•  Guaranty  Trust  &  Safe  Deposit  Co. 
V.  Green  Cove  Springs  &  Melrose  R. 
R.  Co.,  (1891)  139  U.  S.  137;  s.  c,  11 
Sup.  Ct.  Rep.  512.  Mr.  Justice 
Brown,  speaking  for  the  court,  re- 
ferred to  the  case  of  Chicago,  etc.,  R. 
R.  Co.  V.  Fosdick,  106  U.  S.  47,  77, 
which  was  claimed  to  be  decisive  of 
the  question  of  authority  to  bring  the 
action,  as  follows:  "In  that  case, 
which  was  a  bill  for  foreclosure,  the 
proviso  was  that  the  trustee,  upon  the 
written  request  of  the  holders  of  a  ma- 
jority of  the  bonds  then  outstanding, 
should  proceed  to  collect  both  jjrinci- 
pal  and  interest  of  all  such  bonds  out- 
standing, by  foreclosure  and  sale  of 
said  property  or  otherwise,  as  therein 
provided.  It  was  argued  that  the 
office  of  this  clause  was  merely  to  make 
the  obligation  of  the  trustees  impera- 
tive instead  of  optional,  but  the  court 
held  that  the  whole  article  must  be 
taken  together  as  a  unit,  and  '  the  na- 
ture of  the  provision  and  the  character 
of  its  object  must  be  taken  into  con- 
sideration as  furnishing  the  rule  of  its 
interpretation.'  It  will  be  observed, 
however,  that  the  provision  was  di- 
rected against  the  very  proceeding 
taken  by  the  trustees  in  the  suit, 
namely,  a  foreclosure  'and  sale  of  the 
property ;  while  in  the  present  case  it 
is  directed  only  to  a  taking  possession 
OT  a  sale  under  the  deed  of  trust  without 
institution  of  legal  proceedings.  A 
case  nearer  in  point  is  that  of  Morgan's 
Steamship  Co.  r.  Texas  Central  Rail- 
way, 137  U.  S.  171,  decided  at  the 
present  term,  in  which  the  condition 
was  that  on  default  continuing  for 


sixty  days  in  the  payment  of  interest 
or  any  part  of  principal,  the  principal 
of  the  bonds  should  become  immedi- 
ately due,  and  that  upon  request  of 
seventy -five  per  cent  of  the  holders  of 
bonds  and  written  notice  of  the  same, 
the  trusted  should  take  possession  of 
the  property  and  operate  it  for  the 
benefit  of  the  bondholders,  and  that 
upon  like  request  he  should  proceed  to 
foreclose  the  mortgage  and  sell  the 
property  to  the  highest  bidder  for 
cash.  It  was  also  provided  that  noth- 
ing contained  in  the  instrument  should 
be  construed  to  prevent  or  interfere 
with  the  foreclosure  by  any  court  of 
competent  jurisdiction.  It  was  held 
that  the  trustee  could  maintain  a  bill  to 
foreclose  the  mortgage  upon  occur- 
rence of  a  default  without  averring  or 
proving  a  request  of  seventy-five  per 
cent  of  the  bondholders,  as  such  re- 
quest was  necessary  only  in  case  the 
trustee  wished  to  proceed  to  foreclose 
or  take  possession  ex  mero  motu  with- 
out the  intervention  of  a  court.  We 
think  that  such  limitations  upon  the 
power  of  the  trustee  to  take  legal  pro- 
ceedings to  enforce  payment  of  the 
amount  secured  should  be  strictly  con- 
strued. In  this  case  the  condition  only 
relates  to  the  taking  possession  of  the 
property  under  the  deed  of  trust,  or 
to  a  sale  in  the  city  of  Philadelphia 
under  the  power  of  sale  contained 
therein,  and  we  think  it  should  not  be 
held  to  apply  to  foreclosure  proceed- 
ings begun  in  a  court  of  competent 
jurisdiction  to  obtain  a  judicial  sale  of 
the  property.  This  was  the  ruling  in 
the  eighth  circuit  by  Judge  Dillon 


1 

1 

m 


1152     FORECLOSURE  OF  MORTGAGES  AND  TRUST  DEEDS.    [§  535 

courts,  and  was,  therefore,  invalid.*     A  mortgage  of  railroad  prop- 
erty to  a  trustee  to  secure  bonds  and  interest  coupons,  with  provision 
that  in  case  of  demand  and  default  of  payment  of  interest  for  six 
months  the  trustee  may  enter  upon  the  property,  with  a  similar 
provision  as  to  advertisement  and  sale,  with  an  article  besides 
stipulating  that  both  of  those  remedies  were  cumulative  of  fore- 
closure proceedings  in  the  courts  which  the  trustee  should  insti- 
tute at  the  direction  of  the  bondholders  "  upon  default  being 
made  as  aforesaid,"  authorizes  a  bill  to  foreclose,  although  the 
default    has    not    continued    six   months.^     It    was    urged    in 
abatement  of  this  suit  to  foreclose  a  mortgage  executed  by  a  rail- 
road  company,  that  it  was  prematurely  brought  because  default 
m  the  payment  of  interest  had  not  continued  for  six  months. 
The  contention  was  based  upon  the  language  of  the  article  in  the 
trust  deed  which  read  as  follows :  "  It  shall  be  the  duty  of  the 
trustee,  upon  a  requisition  in  writing,  signed  by  the  holders  of 
not  less  than  one-quarter  in  amount  of  the  said  bonds  then  out- 
standing, and  upon  adequate  security  and  indemnity  a^rainst  all 
costs,  expenses  and  liabilities  to  be  by  the  trustees  incurred    to 
proceed  to  enforce  the  rights  of  the  bondholders  under  this  inden- 
ture, either  by  the  exercise  of  the  powers  granted  by  articles  9 
and  10  of  this  indenture,  or  of  any  of  said  powers,  or  by  a  suit  or 
suits  in  equity  or  at  law  in  aid  of  the  execution  of  such  powers, 

in  Alexander  .    Central  Railroad  of   ceedings  instituted  by  parties  having 
Iowa.  3  Dill.  487,  and  by  Judge  Cald-    no  connection  with  the  mort-afre  " 

7^^n  •?  ^irf  ?.  ^f 'i""""'  ^''°-       '  ^^^^^°*y  Trust  &  Saf:  Deposit 
tral  Rnilroad  Co.,  15  Fed.  Rep.  46.  and   Co.  ..  Green  Cove  Springs  &  MeLe 

wethinkitissound.     *    *    *   Again,    R.  R.  Co.,  (1891)  139  U.  8.  137;  s  c 
It  is  evident  that  this  was  a  condition   11  Sup.  Ct.  Rep.  512;  citing  Hope  i,' In- 
for  the  benefit  of  the  grantor  and  its    ternational  Society,  4  Ch  D  327-  Ed 
assigns,  and  that  intervening  lienhold-    wards  r.  Aberayronlns    Society  '  1  O 
ers  and  those  who  have  purchased  the   B.  D.  563;  Horton  r.  Sayer  4u'&N 
property  under  decrees  in  their  favor   643;  Scott  v.  Avery    8  Exch    487-  s 
do  not  stand  in  a  position  to  take  ad-   c,  5  H.  L.  Cas.   811;   Thompson  v 
vantage  of  this  covenant.     The  whole    Charnock,   8  T.   R    139-  Mitchell  v 
object  of  the  covenant  was  to  protect   Harris.   2  Ves.   Jun.    129-    Tobey  v 
the  mortgagor  against  a  seizure  and   County  of  Bristol,  3  Story,' 800-  Koyes 
sale  of  Its  property  for  non-payment  v  Marsh.  123  Mass.  286;  Kingi,  How- 
of  interest  or  principal  at  the  mere  ca-   ard,  27  Mo.   21;  Conner  v    Drake    1 
pnce  of  the  trustee,  or  without  the    Ohio  St.  166;  Trott  v.  City  Ins  Co'  1 
consent  of  a  majority  of  the  stockhold-   Cliff.  439;  2  Story  Eq  §  1457   '       "' 
era,  and  it  has  no  application  to  a  case       «  Mercantile  Trust  Co    v   Missouri 
where  the  mortgagors  have  already   K.  &  T.  Ry.  Co.,  (1888;  36  Fed.  Rep' 
lost  the  property  under  adverse  pro-   221. 


§  536]    FOBECLOSURE  OF  MORTGAGES  AND  TRUST  DEEDS.      1153 

or  otherwise,  as  the  trustee,  being  advised  bj  counsel,  shall  deem 
most  effectual  to  enforce  such  rights."  Article  9  treated  of 
the  rights  of  the  trustee  to  enter  and  operate  the  road  in  case  of 
default  in  payment  of  interest  continuing  for  six  months.  Article 
10  treated  of  the  riglits  of  the  trustee  to  enter  and  sell  in  case  of 
default  of  the  principal  of  the  bond.  The  federal  court  held  that 
the  trustee  was  not  deprived  by  the  provisions  of  the  right,  in  its 
discretion,  to  begin  foreclosure  proceedings  immediately  upon 
default  in  the  payment  of  interest.^ 

§  536.  Parties  to  such  actions. —  The  trustee  named  in  a  cor- 
poration mortgage  or  deed  of  trust,  holding  title  for  all  the  bond- 
holders as  beneficiaries,  is  the  proper  party  to  institute  foreclosure 
proceedings,  but  in  case  of  unreasonable  neglect,  or  a  refusal  to 
discharge  his  duty,  any  bondholder  may  bring  an  action  to  enforce 
his  security  for  the  common  benefit.^     The  United  States  Circuit 


>  Farmers'  Loan  &  Trust  Co.  v.  Chi- 
cago &  Northern  Pac.  R.  Co.,  (1894)  61 
Fed.    Rep.    543.      Jenkins,     Circuit 
Judge  said:     "This  provision,   as  I 
conceive,  has  only  reference  to  the  ex- 
ercise of  the  powers  granted  by  arti- 
cles 9  and  10,  and  to  proceedings  in  aid 
of  the  execution  of  such  powers.     It 
is,    moreover,    mandatory,    rendering 
action  by  the  trustee  imperative  when 
the  requisite  number  of  bondholders 
shall  require  it,  to  act  upon  comple- 
tion of  the  stipulated  period  of  default. 
It  does  not  interfere  with  the  exercise 
of  discretion  of  the  trustee  to  act  or 
limit  its  right  to  act  immediately  upon 
default.     This  view  is  strengthened  by 
the  subsequent    provision    declaring 
that  the  rights  of  entry  and  sale  are 
granted  or  intended  as  cumulative  rem- 
edies additional  to  all  other  remedies 
allowed  by  law,   and  that  the  same 
shall  not  be  deemed  in  any  manner 
whatsover  to  deprive  the  trustee  or  the 
beneficiaries  under  the  trust  of  any 
legal  or  equitable  remedy  by  judicial 
proceedings  consistent  with  the  pro- 
vision of  the  trust  deed.    The  subse- 
quent provisions  in  prevention  of  suit 
145 


by  individual  bondholders,  without 
first  giving  notice  in  writing  to  the 
trustee  of  default  continued  for  six 
months,  and  requesting  it,  to  institute 
suit,  are  simply  restraints  upon  the 
action  of  individual  bondholders  in 
supposed  antagonism  to  the  interests 
of  the  bondholders  in  a  body.  I  think 
this  case  falls  within  the  principle  of 
Railroad  Co.  v.  Fosdick,  106  U.  S.  47; 
B.  c. ,  1  Sup.  Ct.  Rep.  10;  Morgan's  L.  & 
T.  Railroad  &  Steamship  Co.  v.  Texas 
Cent.  Ry.  Co  ,  137  U.  S.  171;  s.  c,  11 
Sup.  Ct.  Rep.  61;  Farmers'  Loan  & 
Trust  Co.  V.  Winona  &  S.  W.  Ry.  Co., 
59  Fed.  Rep.  957.  While  it  is  true  that 
a  mortgagor  has  the  right  to  stipulate 
for  a  breathing  spell  for  the  payment 
of  his  matured  debt,  it  is  still  true 
that  the  limitations  upon  the  powers 
of  the  trustee  to  take  the  legal  pro- 
ceedings to  enforce  payment  upon  de- 
fault should  be  strictly  construed. 
Guaranty  Trust  &  Safe  Deposit  Co. 
V.  Green  Cove  Springs  &  Win.  R.  Co., 
139  U.  S.  137;  s.  c,  11  Sup.  Ct.  Rep. 
513." 

'  Seibert  v.  Minneapolis  &  St.  Louis 
Ry.   Co.   (Griggs,   Intervener),  (1893) 


il 


m 


r 


1154 


FORECLOSURE  OF  MORTGAGES  AND  TRUST  DEEDS. 


[§536 


h' . 


I?, 


11 


W' 


Court  of  Appeals  for  the  fifth  circuit  lias  held  a  foreclosure  suit 
properly  brought  by  one  of  three  trustees  named  in  the  trust 
deed,  where  he  averred  that  one  of  the  other  trustees  was  dead, 
and  that  the  remaining  one,  who  was  made  a  defendant  at  a  sale 
of  the  property  covered  by  the  trust  deed  under  a  decree  of  the 
state  court,  claimed  to  be  interested  in  the  purchase  thereof,  and 
was  "  interested  adversely  to  the  complainant  as  trustee  of  the 
bondholders."  *  They  also  held  that  the  trustees,  being  empowered 
in  this  trust  deed,  on  default  of  interest  payments,  to  sell  the  prop- 
erty, "  if,  after  notice  is  served  on  the  president  of  said  company, 
the  same  shall  remain  unpaid  for  six  months  after  such  default," 
having  sued  to  foreclose,  instead  of  selling  under  the  power,  it 
was  unnecessary  to  aver  the  giving  of  notice  of  default  to  the 
president  of  tlie  corporation.^  The  Supreme  Court  of  New 
York,  sitting  in  another  department,  having  before  it  proceedings 
to  declare  the  insolvency  of  and  appoint  a  receiver  for  a  trust 
company  which  had  been  named  as  trustee  in  a  trust  deed  exe- 
cuted by  a  corporation  to  secure  bonds  which  it  had  issued,  upon 
motion  of  bondholders  appointed  another  trust  company  trustee 
for  the  holders  of  said  mortgage  to  fill  the  vacancy  occasioned  by 
the  insolvency  of  the  trustee  first  named,  disabling  it  to  act  any 
longer  in  that  capacity.  This  newly-appointed  trustee  brought 
action  for  foreclosure  of  the  mortgage,  and  in  the  foreclosure 
action  the  legality  of  the  appointment  of  the  trustee  to  fill  the 
vacancy  was  questioned,  as  not  being  within  the  terms  of  the  pro- 
vision as  to  filling  such  vacancy  in  the  trust  deed.  The  Supreme 
Court  of  New  York,  in  General  Term,  held  that  the  Supreme 
Court,  succeeding  to  the  jurisdiction  and  power  of  the  old  Court 
of  Chancery,  had  jurisdiction  of  trusts  and  trustees,  and  had 
power,  independent  of  any  statute,  to  remove  a  trustee,  on  good 
cause  shown,  and  to  appoint  another  in  his  place ;  that  the  origi- 
nal trustee,  under  the  trust  deed,  becoming  insolvent,  that  court 
had  jurisdiction  to  appoint  a  successor  trustee.  They  further 
held  that  this  trustee,  having  been  accepted  by  the  mortgagee 
and  the  bondholders  as  satisfactory,  as  evidenced  by  the  action  of 

52  Minn.  148;  s.  c,  53  N.   W.   Rep.  Georgia  Mfg.  Co.,  (1891)48  Fed.  Rep. 

1134.  12. 

'  Alabama  &  Georgia  Manufacturing  « Alabama  &  (Jeorgia  Manufacturing 

Co.  V.  Robinson,  (1893)  56  Fed.  Rep.  Co.  v.  Robinson,  (1893)  56  Fed.  Rep. 

690,  affirming  Robinson  v.  Alabama  &  690. 


§  536]    FORECLOSURE  OF  MORTGAGES  AND  TRUST  DEEDS.      1155 

those  parties  in  the  proceedings  throughout,  the  mortgagee  exe- 
cuting a  supjjlemental  mortgage  to  this  trustee,  and  the  bondhold- 
ers placing  their  bonds  under  the  control  of  the  trustee,  for 
receiving  payments  of  interest,  and  for  final  action  for  foreclosure 
of  mortgage,  a  stranger,  not  a  trustee,  could  not  raise  any  ques- 
tion as  to  the  jurisdiction  of  the  court  appointing  the  successor 
trustee,  or  as  to  the  regularity  of  the  proceedings.^     In  this  case 
the  trust  company,  acting  as  trustee  for  bondholders  under  the 
mortgage,  through  its  secretary,  sent  notice  to  the  corporation 
mortgagor  that  it  exercised  the  option  given  in  the  mortgage  to 
declare  the  principal  of  the  bonds  due  after  the  lapse  of  a  fixed 
time  in  not  relieving  the  default  as  to  the  payment  of  the  inter- 
est.    The  Supreme  Court  of  New  York,  in  General  Term,  held 
that  there  was  no  necessity  for  a  resolution  of  the  directors  of  the 
trust  company  directing  the  secretary  to  take  this  action  ;  that  it 
was  a  matter  that  called  for  no  deliberation  or  action  upon  the 
part  of  the  directors ;  that  it  was  a  mere  executive  duty,  which 
the  executive  officers  of  the  trust  company  could  perform  in  the 
ordinary  discharge  of  their  duty.     It  had  been  requested  to  take 
this  action  by  the  majority  of  the  bondholders,  and  by  the  terms 
of  the  mortgage  the  request  by  the  bondholders  was  conclusive 
and  mandatory.     Besides,  the  bringing  of  the  suit  of  foreclosure 
was  a  sufficient  declaration  of  the  intention  of  the  trustees  to 
exercise  the  option.^    The  provision  in  a  railroad  mortgage  that 
the  trustees,  after  default  and  upon  petition  of  the  owners  of  a 
certain    amount    of    the   bonds,    may    take    possession   of  and 
manage   the   road,  or  sell   it,   at  their  option,   does   not  affect 
the   right   of   the   trustees   as  legal   owners    of    the    mortgage 
to  go  into  a  court  of  equity  after  default  and  ask  the  appoint- 
ment of  a  receiver  and  foreclosure  of  the  mortgage,  without 
waiting    for    any    action   upon   the  part   of  the   bondholders.^ 
When  a  mortgage  is  made  to  a  trustee  to  secure  coupon  bonds, 
the  right  to  bring  suit  of  foreclosure  is  in  the  trustee,  which  right' 

and  possession  by  the  trustee  did  not 
preclude  the  trustee  from  his  regular 
action  for  foreclosure  of  mortgage  for 
a  default  as  to  payment  of  interest,  see 
Farmers'  Loan  &  Trust  Co.  v.  Winona 
&  S.  W.  Ry.  Co.,  (1893)  59  Fed.  Rep. 
957. 


» New  York  Security  &  Trust  Co.  v. 
Saratoga  Gas  &  Electric  Light  Co., 
(1895)  34  N.  Y.  Supp.  890. 

*Ibid.;  citing  Bank  v.  Kidder,  106 
N.  Y.  221;  s.  c,  12  N.  E.  Rep.  577. 

•  Phinizy  v.  Augusta  &  Knoxville  R. 
Co.,  (1893)  56  Fed.  Rep.  273.  As  to 
what  provision  in  a  mortgage  for  entry 


§  536]  FOBECLOSURE  OF  MORTGAGES  AND  TRUST  DEEDS. 


1157 


1156 


FORECLOSURE  OF  MORTGAGES  AND  TRUST  DEEDS. 


[§536 


however,  is  not  exclusive  of  the  hondholders,  unless  made  so  by 
terms  of  the  deed.     And  where  a  trustee  in  a  mortgage  securing 
coupon  bonds  accepts  the  position  of  trustee  in  a  subsequent  deed 
of  general  assignment  made  by  the  mortgagor  for  the  benefit  of 
all  its  creditors,  which  embraces  the   property  covered   by  the 
mortgage,   the   respective    interests    to  be    represented  by   the 
trustee  under  the  deed   being   conflicting  and  antagonistic,  such 
acceptance  on  the  part  of  the  trustee  would  cause  a  forfeiture  of 
any  preference  the  trustee  might  otherwise  have  had,  as  against 
the  bondholders,  to  bring  suit  to  foreclose  the  mortgage.*     The 
trust  deed  given  to  secure  an  issue  of  a  New  Jersey  corporation's 
bonds,  after  conferring  on  the  trustee  a  right  to  enter  and  hold 
possession,  to  sell,  etc.,  declared  that  those  remedies  were  merely 
cumulative,  and  additional  to  all  other  remedies  allowed  by  law, 
and  that  the  same  should  not  be  deemed  to  deprive  tlie  trustee, 
"  or  the  beneficiaries  under  the  deed,"  of  any  legal  or  equitable 
remedy.     The  whole  series  of  bonds  was  to  become  due  upon 
a  default  for  six  months  in  the  payment  of  the  interest.     The 
mortgage  was  upon  property  of  the  corporation  situated  in  Louisi- 
ana.    A  suit  for  foreclosure  of  tliis  mortgage  upon  a  default  for 
the  six  months  as  to  the  interest  was  brought  by  a  bondliolder  in 
the  federal  court  for  the  eastern  district  of  Louisiana.     It  was 
held,  upon  objection  to  the  suit  by  a  bondholder,  that  where  the 
position  of  trustee  was  vacant,  this  owner  of  a  majority  of  the 
bonds  was  entitled  to  maintain  his  suit  in  the  federal  court  in  his 
own  name  to  foreclose  the  mortgage  for  himself  and  the  other 
bondholders,  and  that  the  court  would  not  compel  him  to  go  to  New 
Jersey  to  have  another  trustee  appointed.^    Where  there  is  a  pro- 
vision in  a  mortgage  made  to  a  trustee  to  secure  coupon  bonds 
that,  in  case  of  non-payment  of  any  one  of  the  bonds  or  coupons 
for  thirty  days  after  maturity,  and  payment  demanded,  it  would 
be  lawful  for  one-fifth  or  more  of  tlie  holders  of  the  bonds  to 
cause  the  principal  to  be  at  once  matured,  and  to  call  on  the  trus- 
tee to  foreclose  the  mortgage,  the  bondholders  alone  are  to  exercise 

» American  Tube  &  Iron  Co.  d.  Ken-  Fed.  Rep.  164.    The  court  calls  atten- 

tucky  Southern  Oil  &  Gas  Co  ,  (1892)  tion  to  Railroad  Co.  «.  Orr,  18  Wall. 

61   Fed.   Rep.  826,   overruling  a  de-  471,  and  Railroad  Co.  v.  Fosdick,  106 

murrer   to   the    bondholders'  suit  to  U.  S.  47;  s.  c,  1  Sup.  Ct.  Rep.  10, 

foreclose.  distinguishing  them. 

•Wheelwright  v.   St.  Louis,  N.  O. 
&  O.   Transportation    Co.,   (1893)  5« 


the  option.  The  trustee  need  not  join  with  them.*  Where  a 
mortgagor  corporation  and  the  trustee  of  the  mortgage  are  citi- 
zens of  the  same  state,  the  holders  of  bonds  secured  by  the  mort- 
gage cannot  bring  suit  in  a  federal  court  to  foreclose  the  mort- 
gage in  their  own  name,  without  showing  reasons  why  the  suit  is 
not  brought  by  the  trustee.^  Mortgage  bondholders,  upon  default 
in  the  payment  of  their  bonds,  may  properly  institute  a  foreclosure 
suit  where  a  railroad  company  has  been  sued  by  a  few  minority 
stockholders,  and  a  receiver  asked,  the  suit  being  opposed  by  a 
great  majority  of  the  stockholders,  and  have  a  receiver  appointed 
and  thus  control  any  litigation  which  might  withdraw  from  the  cor- 
poration the  mortgaged  property ;  and  it  would  not  be  fraudulent 
or  collusive  for  the  officers  of  the  corporation  to  admit  the  truth 
of  the  allegations  in  the  bill  filed  by  the  bondholders.  And  a 
stockholder  who  has  brought  such  a  suit  against  the  corporation 
cannot,  by  intervening  in  the  bondholders'  suit  to  foreclose,  have 
such* suit  stayed  until  his  suit  is  determined,  unless  the  case  be  an 
extraordinary  one,  and  such  a  proceeding  be  justified  within  sound 
judicial  discretion.^  The  prayer  of  a  petition  of  a  committee 
representing  bondholders  under  various  mortgages  of  railroads, 
to  be  made  a  party  plaintiff  in  a  foreclosure  suit  where  a  receiver 
had  been  appointed  for  the  property  of  a  railroad  company  which 
owned  or  controlled  a  large  number  of  other  roads  operated  under 
separate  charters,  was  denied  in  the  United  States  Circuit  Court 
for  the  eastern  district  of  Virginia,  the  court  holding  that  the  fact 
that  a  single  trust  company  was  trustee  under  twelve  different 
mortgages  or  trust  deeds  was  not  of  itself  a  sufficient  ground  to 
support  the  petition,  in  the  absence  of  anything  showing  negli- 
gence on  the  part  of  the  trustee  in  protecting  the  interest  of  the 
bondholders  or  that  there  was  any  conflict  between  the  various 
interests  represented  by  the  trustee.*      One  seeking  to  enforce  by 


^American  Tube  &  Iron  Co.  v.  Ken- 
tucky Southern  Oil  &  Gas  Co.,  (1892) 
61  Fed.  Rep.  826. 

« Needham  v.  Wilson,  (1891)  47  Fed. 
Rep.  97. 

*  Pennsylvania  Co.  for  Insurance  of 
Lives  and  for  Granting  Annuities  v. 
Jacksonville,  T.  &  K.  W.  Ry.  Co. 
(American  Construction  Co.,  Inter- 
vener), (1893)  55  Fed.  Rep.  131. 


*  Clyde  V.  Richmond  &  Danville  R. 
Co.,  (1893)  55  Fed.  Rep.  445.  Gopp, 
Circuit  Judge,  said:  "  I  think  the  rule 
is  now  well  established  that  the  indi- 
vidual bondholder  and  the  separate 
beneficiary  will  not  be  made  parties  to 
suits  relating  to  the  mortgage  or  trust 
deed  unless  it  is  alleged  and  shown 
that  the  trustee  is  incompetent,  or  for 
some  reason  cannot  faithfully  repie- 


! 


"•» 


I  r  , 


1   I 


m 


1158  FOEECLOSOEE  OF  M0ETGA0E8  AND  TRD8T  DEEDS.  [§  537 

aiit  a  specific  lien  which  does  not  involve  the  validity  of  a  trust 
deed  of  a  corporation,  or  afiect  its  lien,  when  all  the  bondholders 
are  before  the  court,  and  the  joinder  would  oust  the  jurisdiction 
need  not  jom  the  trustee  of  the  corporation  trust  deed  or  mort- 
gage as  a  party  defendant.'     Ther«  was  a  petition  in  this  suit  to 
foreclose  a  railroad  mortgage  in  which  the  petitioners  prayed  that 
they  be  allowed  to  be  made  parties  defendant,  alleging  as  a  reason 
hat  the  defendant  company  was  made  up  by  an  illegal  consoKda- 
tion  of  three  other  companies,  in  one  of  which  the  petitioners 
were  stockholders;  that  they  never  consented  to,  or  recognized 
«ie  vahdity  of,  the  consolidation,  and  were  not  bound  by  it  or  bv 
the  act  of  the  new  company  creating  the  mortgage ;  that  the  new- 
company  was  "perhaps  concluded  by  its  conduct  in  the  premises 
from  makmg  defense  "  to  the  suit ;  that  the  original  company,  of 
which  they  were  stockholders,  had  no  officer  or  representative 
upon  whom  they  could  call  to  make  defenses  for  them,  and  that 
the  counsel  for  the  consolidated  company  decUned  to  set  ub  the 
defense  which  they  desired  to  make.     It  was  held  by  the  United 
States  Circuit  Court  for  the  nortliern  district  of  Georgia  that  the 
facts  stated  in  the  petition  gave  no  right  to  these  petitionee  to 
intervene  as  defendants,  especially  as  there  was  no  charge  of 
fraud  or  collusion,  and  the  proper  remedy  was  by  an  independent 

§537.  General  rules  as  to  such  actions.- In  case  the  trus- 
tee in  the  junior  of  a  series  of  mortgages  pledging  income  of  the 
railroad  company  and  a  stipulation  in  case  of  default  in  interest 
for  the  taking  of  possession  of  the  property  by  the  trustee,  brings 
an  action  to  foreclose  his  mortgage,  making  the  prior  mortgagees 
parties  defendant,  and  obtains  the  appointment  of  a  receiver  to 
take  possession  of  and  operate  the  railroad  and  receive  its  earn- 
ings, the  senior  mortgagees  may  apply  to  the  court  to  have  the 
sent  the  eeatui  que  trmt."  The  follow-  City.  W.  &  N  W  K  Co  58  P«l 
.ng- cases  will  be  found  of  interest  Rep.  182;  Van  VechL  °' rtrv  3 
upon  this  question:  Skiddy  r.  Railroad  Johns    n,    lor   l     .       "■    i^"^'  ^ 

road  Co..  1  McCrary,  466;  s.  c,  3  Fed.    1  Hughes  28  «aiiroaa  l.o., 

mil  ml  ^ohT^  ""'t  '•  ""'"'"'•  '      'Holly 'Mfg.  Co.  ..  New    Chester 

^233    s'  f   «%'■     rT^  '''  ^-  '^''''  ^"•'  (^«»1)  4«  ^^-  Rep.  879. 

flK        '     x>    '  ^  ^"P-   ^^-  R^P-   ^^^'  'Central  Trust  Co  of   New  York  ^ 

Shaw  ..  Railroad  Co.,  5  Gmy.  162;  Marietta  &N  G  R  Co    aSOnLL 

farmers'  Loan  &  Trust  Co.  v.  Kansas  Rep  ^^^'^''^'^'  ^^^  ^^^^^>  ^^Fed. 


§537] 


FORECLOSURE  OF  MORTGAGES  AND  TRUST  DEEDS. 


1159 


»i 


receiver  hold  for  and  pay  to  them  so  much  of  the  net  earnings  as 
is  covered  by  their  mortgages,  and  are,  therefore,  entitled  to 
receive  the  same.*  There  was  here  a  cross-bill  filed  by  the  trustees 
of  a  first  consolidated  railroad  mortgage,  after  declaring  the  mort- 
gage due  before  maturity  for  default  in  interest,  pursuant  to  the 


*  Seibert  v.  Minneapolis  &  St.  Louis 
Ry.  Co.,  (1893)  52  Minn.  246;  s.  c,  53 
N.   W.  Rep.  1151.     The  court  said: 
"But  suppose  the  case  of  an  action  to 
foreclose  by  a  junior  mortgagee,  and 
appointment,  upon  his  application,  of 
a  receiver  to  take  possession  of  the 
property  and  receive  the  income  for 
his    benefit  only,    while    there    were 
senior  mortgagees  having  the  right  to 
take  and  hold  possea.3ion  and  receive 
such  income,  we  can  easily  conceive 
that  if  they  acquiesce  in  the  possession 
of  the  property  and  the  receipt  of  the 
income  by  the  receiver  for  purposes 
other  than  their  mortgages,  making  no 
move  towards  asserting  their  claims, 
they  would  have  no  right  to  any  part 
of  the  income  any  more  than  had  they 
permitted  the  mortgagor  to  remain  in 
possession  and  to  receive  and  disburse 
it  for  its  general  purposes.     Such  was 
the  case  of  Sage  v.  Memphis  &  L.  R. 
R.  Co.  125  U.  8.  361;  s.  c,  8  Sup.  Ct. 
Rep.  887,   in  which  the  mortgagees 
had  laid  by  until  all  the  moneys  they 
sought  to  have  paid  to  them  had  been 
earned  by  the  receiver,   and  he  had 
been  discharged.     The  purpose  of  that 
action  was  only  to  satisfy  the  plain- 
tiff's claim,  and  for  that  purpose  the 
receiver  was  appointed  and  the  in- 
come was  earned;  but  the  purpose  of 
this  action  is,  in  part  at  least,  to  ad- 
just the  rights  of  all  the  parties,  as 
well  to  the  income  as  to  the  body  of 
the  property.     For  the  purpose  of  ad- 
justing their  rights  to  the  income  it 
was  necessary  for  the  court  to  lay 
hold  upon,  not  merely  that  portion 
which  the  plaintiff  might  be  entitled 
to,  but  that  which  all  the  parties  were 
entitled  to.     The  order  appointing  the 


receiver  not  assuming  to  appropriate 
it  to  plaintiff,  the  court  was  to  be  re- 
garded as  taking  and  holding  it  for 
all  the  parties,  as  their  rights  and  in- 
terests might  appear,  at  least  so  long  as 
none  of  them  made  objection,    *    *    * 
Being   unable  to  take  the  possession 
from  the  mortgagor,  or  from  the  re- 
ceiver, what  then  can   [senior  mort- 
gagees of  income]  do,  except,  if  they 
are  not  parties  to  the  action,  to  come 
in    by  intervention,   or,  if    they    are 
parties,  to  petition  the  court  that  there 
be  paid  to  them  by  the  receiver  out  of 
the  earnings  which  shall  come  into  his 
hands  such  part  as,  but    for  his  ap- 
pointment, they  would  have  had  the 
right  to  receive  and  apply  on   their 
mortgages?    The  right  of  the  prior 
mortgagees  to  take  such  a  way  to  as- 
sert their  claim,  and  subject  the  earn- 
ings to  their  lien,  was  recognized  in 
the    Sage    case,    the    court    saying : 
'  There  was  no  moment  pending  the 
receivership  when  these  parties,  upon 
the  request  of  the  holders  of  a  ma- 
jority of  the  bonds,  might  not  have 
appeared  in  this  suit,  or  in  a  separate 
suit,  in  the  same  court,  and  asked  that 
the  receiver  hold  for  them  as  well  as 
Sage,  or  that  he  be  discharged,  and 
they  be  put  into  possession  of  the 
mortgaged  property  for  the  purpose 
of  sale  pursuant    to  the    mortgage.' 
When  such    mortgagees   are   in    the 
action,  and  so  in  a  position  to  make 
their  demand  upon  the    court,   it  is 
entirely  immaterial  in  what  form  it  is 
made,  so  that  it  is  clearly  made,  and 
presents  to  the  court  the  ground  of 
their  claim,  if  it  be  not  already  before 
it." 


'i 


1160     FORECLOSURE  OF  MORTGAGES  AND  TRUST  DEEDS.    [§  537 

terms  of  tlieir  mortgage  in  a  pending  foreclosure  suit  brought  by 
second  consolidated  mortgage  bondholders,  which  also  prayed  a 
foreclosure.     Other  lienors  praying  for  a  sale  also  came  into  the 
suit,  their  liens  being  prior  to  the  lirst  consolidated  mortgage  and 
past  due.     After  this  a  cross-bill  was  tiled  by  a  majority  of  the  hold- 
ers of  the  bonds  secured  by  the  first  consolidated  mortgage,  in 
which  they  repudiated  the  action  of  their  trustees  declaring  the 
mortgage  due,  and  prayed  the  court  to  order  a  sale  subject  to  all 
incumbrances  prior  to  the  second  consolidated  mortgage,  and  to 
direct  the  payment  out  of  the  proceeds  of  all  arrears  of  interest 
on  the  bonds  secured  by  the  firet  consolidated  mortgage,  and  on 
certain  mortgages  prior  to  that,  not  offering,  however,  to  bid  an 
amount  sufficient  to  pay  these  arrearages,  or  any  of  the  large 
costs  and  expenses  of  the  suit.     The  United  States  appellate 
court  held  that  the  Circuit  Court  rightfully  refused  to  decree  as 
requested   in   this   cross-bill   of  the   bondholders,   and   properly 
adhered  to  its  determination  to  decree  a  sale  free  of  all  liens, 
reserving  a  right  to  any  party  to  redeem  on  paying  the  several 
amounts  found  due,  with  costs.*     There  should  be  in  a  petition 
of  junior  lienors  to  be  allowed  to  redeem  prior  mortgages,  in 
foreclosure  i)roceedings,  an  offer  to  pay  whatever  sums  the  junior 
lienors  admit  to  be  due.     A  prayer  in  such  a  petition  that  the 
prior  mortgagees  be  required  to  deposit  their  securities  in  court  in 
order  that  the  petitioners  "  may  have  the  privilege  of  redeeming  " 
them  lias  been  held  by  the  United  States  Court  of  Appeals  to  be 
insufficient.^     A  railroad  company  operated  a  road  which  with 
the  property  connected  was  located  partly  in  the  state  of  Ohio 
and  partly  in  the  state  of  Indiana.     There  had  been  a  foreclosure 
of  a  mortgage  upon  this  road  and  property  in  a  state  court  of 
Ohio.     A  bondholder  instituted  his  suit  afterwards  in  the  United 
States  Circuit  Court  for  the  district  of  Indiana  against  the  com- 
pany and  the  trustee  named  in  the  mortgage,  alleging  that  the 
trustee  refused  to  bring  action  for  foreclosure  of  the  mortgage 
as  against  the  property  situated  in  that  state.     The  decree  in 
foreclosure  in  Ohio  was  pleaded  in  bar  of  the  suit.     The  federal 
court  held  the  plea  insufficient,  on  the  ground  that  under  such  cir- 
cumstances a  court  of  one  state  cannot  merge  into  its  judgment  the 
lien  on  the  property  in  the  other  state,  and,  while  it  may  act  upon 


» 


*  Bound  r.  South  Carolina  Ry.  Co., 
(1893)  58  Fed.  Rep.  473. 


« Ibid. 


g  537]    FORECLOSURE  OF  MORTGAGES  AND  TRUST  DEEDS.      1161 

the  person  of  defendant  so  as  to  compel  it  to  make  conveyances  or 
releases,  yet,  if  it  had  not  done  so,  its  mere  judgment  was  not  a  bar 
to  a  suit  in  the  other  state  between  the  same  parties  to  foreclose  the 
same  mortgage  there.^  The  trustees  of  railroad  mortgage  bondhold- 
ers represent  their  bondholders  in  any  litigation  relating  to  the  trust, 


'  Lynde  v.  Columbus,  C.  &  I.  C.  Ry. 
Co.,  (1893)  57  Fed.  Rep.  993.  It  was 
said  in  the  opinion:  "It  is  argued 
that,  in  respect  of  immovable  prop- 
erty mortgaged  by  an  interstate  rail- 
way, a  different  rule  has  been  estab- 
lished by  the  ease  of  Muller  r.  Dows, 
94  U.  S.  444.  It  is  contended  that  the 
court  there  held  that  as  the  railroad 
and  its  franchise  were  an  entirety, 
any  court  having  iurisdiction  of  the 
parties  and  subject-matter  could  make 
a  valid  decree  of  foreclosure  which 
would  operate  on  the  entire  railroad 
property  as  well  without  as  within 
the  state  where  the  decree  was  pro- 
cured, and  that  it  would  completely 
merge  the  lien  of  the  mortgage.  What 
was  there  said  giving  apparent  sup- 
port to  this  contention  was  merely 
arguendo,  and  was  not  essential  to  the 
judgment  pronounced.  In  that  case 
the  Circuit  Court  of  the  United  States 
for  the  district  of  Iowa  passed  a  de- 
cree of  foreclosure  and  sale  of  a  rail- 
road extending  from  a  point  in  Iowa 
to  a  point  in  Missouri,  and  owned  by 
a  corporation  formed  by  the  consolida- 
tion of  a  corporation  of  Missouri  with 
a  corporation  of  Iowa.  The  entire  line 
was  covered  by  one  trust  deed,  and  the 
suit  to  foreclose  was  brought  by  the 
trustee.  The  mortgagees  were  also 
before  the  court,  and  the  sale  was  made 
by  a  master  at  the  instance  of  the  trustee. 
It  was  held  that  the  decree  was  not  void 
so  far  as  it  directed  the  foreclosure 
and  sale  of  that  part  of  the  railroad 
lying  in  Missouri,  and  that  the  trustee 
could  be  required  by  the  court  in  Iowa 
to  make  a  deed  to  the  purchaser  in 
confirmation  of  the  sale.  In  my  judg- 
146 


ment  this  case  does  not  overturn  the 
well-established  doctrine  that  a  court 
in  one  state  cannot  pass  a  decree  which 
shall  operate  to  change  the  title  to  or 
merge  a  lien  upon  immovable  prop- 
erty in  another  state.  The  title  in  that 
case  was  transferred  by  the  court  com- 
pelling the  execution  of  a  power  of 
sale,  and  not  by  force  of  the  decree. 
Mercantile  Trust  Co.  v.  Elanawha  & 
O.  Ry.  Co.,  39  Fed.  Rep.  337;  Farmers' 
Loan  &  Trust  Co.  v.  Postal  Telegraph 
Co.,  55  Conn.  334;  s.  c,  11  Atl.  Rep. 
184.  The  case  last  cited  is  exactly  in 
point.  The  Postal  Telegraph  Com- 
pany, a  New  York  corporation,  mort- 
gaged all  its  property,  which  was 
situated  in  several  states,  including 
Connecticut  and  New  York,  to  the 
plaintiffs,  in  trust,  to  secure  the  pay- 
ment of  its  bonds.  Upon  a  failure  to 
pay  the  interest  the  plaintiffs  brought 
a  suit  for  a  foreclosure  in  the  Supreme 
Court  in  the  city  of  New  York. 
Judgment  was  rendered  for  the  plain- 
tiffs, pursuant  to  which  a  referee  was 
appointed,  who  sold  all  the  property, 
including  the  real  estate  in  Connecti- 
cut, and  executed  a  conveyance  of  the 
same  to  the  purchaser.  Suit  was 
brought  to  foreclose  the  mortgage  on 
the  Connecticut  property  according  to 
the  laws  and  practice  in  that  state. 
The  defendant,  *  *  *  an  attach- 
ing creditor,  appeared  and  set  up  a 
special  defense,  alleging  the  foreclos- 
ure and  proceedings  in  the  state  of 
New  York.  The  defense  was  held  in- 
sufficient on  the  ground  that  the  de- 
cree and  proceedings  had  thereunder 
were  nugatory  as  to  the  real  estate 
situate  in  Connecticut." 


K 


I 


i 


I 


1162  FOBECLOSURE  OF  MORTGAGES  AND  TRUST  DEEDS.  [§537 

and  where  the  purpose  of  the  suit  is  substantially  the  same  as  a 
foreclosure  of  the  mortgage,  the  fact  that  the  trustee  is  a  party 
defendant  instead  of  plaintiff  is  immaterial,  and  the  bondholders 
are  bound  by  the  decree,  although  they  may  not  be  parties  to 
the  suit.*  An  intervening  petition  in  proceedings  to  foreclose 
railroad  mortgages,  filed  by  one  claiming  under  a  contract  for  the 
purchase  of  land  from  the  land  agent  of  the  company,  where  it 
appeared  that  the  land  in  question,  together  with  other  lands, 
was  specially  excepted  by  the  orders  appointing  the  receiver  from 
the  property  thereby  put  into  his  hands,  and  that  he  had  never 
come  into  possession  of  the  lands,  and  that  in  none  of  the  several 
causes  was  there  any  controversy  about  the  lands,  nor  any  decla- 
ration of  lien  thereon  in  the  respective  decrees,  and  tlie  inter- 
vener and  the  defendant  company  were  citizens  of  the  same  state, 
was  held  by  the  United  States  Circuit  Court  to  have  been  prop- 
erly dismissed,  both  as  thrusting  a  foreign  litigation  into  the  suit 
and  for  want  of  jurisdiction.* 


!  i 


'  Pollitz  T.  Farmers'  Loan  &  Trust 
Co.,  (1892)  53  Fed.  Rep.  210.  Coxe, 
JD.  J.,  said:  "  In  Shaw  v.  Railroad  Co., 
100  U.  S.  605,  the  Supreme  Court 
says:  '  The  trustee  of  a  railroad  mort- 
gage represents  the  bondholders,  and 
all  legal  proceedings  carried  on  by  him 
affecting  his  trust,  to  which  they  are 
not  actual  parties,  and  whatever  binds 
him,  if  he  acts  in  good  faith,  binds 
them.  *  *  *  The  trustee  repre- 
sents the  mortgage,  and  in  executing 
his  trust  may  exercise  his  own  discre- 
tion within  the  scope  of  his  powers.' 
In  Beals  v.  Railroad  Co.,  133  U.  8. 
290;  8.  c,  10  Sup.  Ct.  Rep.  314,  the 
court  said:  'The  former  judgment 
was  rendered  by  a  court  of  competent 
jurisdiction,  to  which  not  only  the 
railroad  company  that  issued  the  bonds, 
but  the  surviving  trustee  under  the 
mortgage  made  in  the  name  of  another 
company  to  secure  the  payment  of 
those  bonds,  were  made  parties.  The 
bondholders  were  thus  fully  repre- 
sented in  that  suit,  and  bound  by  the 
decree  canceling  and  annulling  the 
bonds  and  mortgage,  unless  the  decree 


was  fraudulently  obtained.'  See,  also, 
Kent  V.  Iron  Co.,  144  U.  S.  75;  s.  c, 
12  Sup.  Ct.  Rep.  650;  Richter  v.  Je- 
rome, 123  U.  S.  233;  8.  c,  8  Sup.  Ct. 
Rep.  106;  Bank  r.  Shedd,  121  U.  8. 
74;  8.  c.  7  Sup.  Ct.  Rep.  807;  Elwell 
V.  Fosdick,  134  U.  8.  500;  s.  c,  10 
Sup.  Ct.  Rep.  598.  These  authorities, 
in  my  judgment,  are  conclusive." 

« Cutting  V.  Florida  Ry.  &  Nav.  Co. 
(Wilson,  Intervener),  (1891)  45  Fed. 
Rep.  444.  As  to  the  right  of  the 
trustee  to  foreclose  upon  default  in 
the  payment  of  interest  and  to  have  a 
receiver  appointed,  sec  Mercantile 
Trust  Co.  V.  Chicago,  Peoria  &  St. 
Louis  Ry.  Co.,  (1893)61  Fed.  Rep.  372. 
That  the  provision  in  a  mortgage  for 
an  entry  by  the  trustee  of  the  mort- 
gage in  case  of  default  in  interest  for 
twelve  months,  will  not  prevent  a 
foreclosure  of  the  mortgage  for  in- 
terest past  due,  see  Central  Trust  Co. 
V.  New  York  City  &  Nortliern  R.  R. 
Co.,  33  Hun,  513.  When  bondholders 
not  wishing  a  foreclosure  should  be  al- 
lowed to  stop  proceedings,  see  Tilling- 
hast  V.  Troy  &  B.  R.  R.  Co.,  1  N.  Y. 


FORECLOSURE  OF  MORTGAGES  AND  TRUST  DEEDS. 


1163 


§538] 

§538.   Decrees  in  such  actions — general  rules. — In  a 
proper  case,  a  court  of  equity  lias  the  power  so  to  mould  its  decree 
as  to  order  a  sale  of  the  mortgaged  premises  to  satisfy  that  part  of 
the  mortgage  debt  which  is  due,  and  preserve  the  lien  upon  the 
mortgaged  premises  in  the  hands  of  the  purchaser  as  to  the  unma- 
tured part  of  the  debt.     In  this  case  a  railroad  company  nego- 
tiated its  coupon  bonds,  secured  by  a  mortgage  upon  its  railroad, 
etc.,  each  bond  having  an  indorsement  by  another  railroad  com- 
pany, binding  it  to  purchase  at  maturity  the  bond  and  each  inter- 
est coupon  at  par,  "  and,  when  so  purchased,  each  and  all  of  said 
bonds  and  coupons  are  to  be  held  by  the  said  company,  with  all 
the  rights  thereby  given  and  with  all  the  benefit  of  every  security 
therefor."     The  guaranty  company,  having  been  obliged  to  pur- 
chase coupons,  filed  a  bill  before  the  maturity  of  the  bonds.     It 
was  held  by  Acheson,  J.,  in  the  Circuit  Court  for  the  western 
district  of  Pennsylvania,  that  the  contract  of  purchase  must  be  so 
construed  as  to  preserve  to  the  bondholders  their  mortgage  lien 
until  the  guaranty  company  should  have  fully  performed  its  obli- 
gations according  to  the  tenor  of  its  indorsement,  and  that  in  the 
meantime  its  remedies  upon  purchased  coupons  must  be  kept 
within  such  limits  as  would  effect  that  object.     The  court  in  the 
case,  therefore,  deeming  it  settled  that  the  equities  of  all  the  par- 
ties in  interest  would  be  best  subserved  by  a  sale  of  the  railroad, 
etc.,  under  and  subject  to  the  lien  of  the  mortgage  securing  the 
bondholders  as  to  the  principal  of  the  bonds  thereby  secured,  and 
the  interest  payable  after  the  making  of  the  sale,  so  decreed.* 
The  United  States  Supreme  Court  has  held   that,  where  the 
report  of  a  master  in  a  suit  in  equity  to  foreclose  a  railroad  mort- 
gage to  whom  it  had  been  referred  to  take  proof  of  the  claims, 
found  as  to  a  bondholder  that  his  bonds  were  due  and  unpaid ; 
that  certain  coupons  had  been  paid,  and  that  certain  other  subse- 
quent coupons  had  been  made,  but  made  no  mention  of  the  inter- 
vening coupons,  and  no  exception  taken  to  the  report,  it  was  a 
reasonable  inference  that  the  bondholder  did  not  offer  these  inter- 
vening coupons  in  proof,  and  that  the  failure  to  find  as  to  them 
could  not  be  urged  as  an  objection  to  the  final  decree.^    Where 

Supp.  243.  When  the  silence  of  bond-  '  Pennsylvania  R.  Co.  v.  Allegheny- 
holders  may  be  considered  equivalent  Valley  R.  Co.,  (1891)  48  Fed.  Rep. 
to  an  assent  to  a  foreclosure  of  a  mort-    139. 

gage,  see  Barnes  v.  Chicago,  Milwau-  ^  Coghlan  v.  South  Carolina  R  R 
kee,  etc.,  Ry.  Co.,  122  U.  S.  1.  Co.,  (1891)  142  U.  S.  101;  s.  c,  12Sup. 

Ct.  Rep.  150. 


i 

i 


I 


i  I 


i 


:|« 


I 


1164  FOEECLOSURE  OF  MORTGAGES  AND  TRUST  DEEDS.         [§  538 

a  railroad  lias  been  mortgaged  to  secure  bonds  which  have  been 
guaranteed  by  the  state,  a  decree  that  a  certain  branch  of  the 
road  is  not  subject  to  the  mortgage  lien,  is  of  no  validity  when 
made  in  a  suit  in  which  the  bondholders  are  not  represented,  and 
of  which  the  state  has  not  been  notified,  and  which  is  brought 
in  a  county  in  which  no  part  of  such  branch  road  is  situated.* 
Upon  a  motion  to  make  absolute  the  order  confirming  the  sale  of 
railway  property  in  this  foreclosure  suit,  the  United  States 
Circuit  Court  for  the  southern  district  of  Alabama  held,  upon  the 
question  of  its  jurisdiction  to  hear  and  decide  this  motion,  that  an 
appeal  and  supersedeas  did  not  oust  the  jurisdiction  of  the  lower 
court,  or  preclude  collateral  or  independent  proceedings,  and 
that  this  court  was  not  precluded  by  an  appeal  and  supersedeas  of 
a  decree  in  respect  to  solicitors'  fees  in  this  foreclosure  proceed- 
ing from  passing  on  the  question  of  confirmation  of  the  sale  made 
under  that  decree.  There  being  an  objection  to  confirmation  of 
this  sale,  that  the  price  was  inadequate,  it  was  held  that  inad- 
equacy of  price  alone  was  not  a  ground  to  set  aside  a  judicial 
sale,  unless  so  great  as  to  shock  the  conscience  and  excite  the 
suspicion  of  the  court ;  that  an  expression  of  a  well-founded  opin- 
ion by  a  witness,  that  the  property  would  on  resale  bring  a  much 
higher  price,  was  not  sufficient  ground  for  setting  aside  such  a  sale. 
And  while  inadequacy  of  price,  accompanied  by  additional  cir- 
cumstances of  unfairness,  growing  out  of  fraud,  accident  or  some 
trust  relation,  are  good  grounds  against  confirmation,  the  fact  that 
mortgage  bondholders  of  the  company  were  known  to  have  author- 
ized a  committee  to  bid  up  to  $400,000,  and  that  the  report 
deterred  others  from  bidding,  was  not  good  ground  for  setting 
aside  a  sale  of  the  property  for  $225,000  to  the  bondholders.' 
The  creditors  of  a  railroad  company  and  the  mortgagor  company 
itself  consenting  to  the  entry  of  a  decree  of  foreclosure  of  the 
mortgage  and  sale  of  the  railroad,  without  fraud,  in  pursuance 
of  a  plan  of  reorganization,  such  a  decree  will  not  be  set  aside  at 
the  suit  of  some  of  the  stockholders  merely  because  the  princi- 
pal of  one  mortgage  was  not  yet  due,  should  it  appear  that  the 
sums  due  for  interest  on  that  mortgage,  for  floating  indebtedness, 
and  on  other  mortgages  then  due  are  so  great  as  to  render  fore- 

•  Central  Trust  Co.  v.  Florida  Ry.  v.   Mobile  Street  Ry.   Co.,   (1893)  54 

A  Nav.    Co.    (Hawkins,  Intervener),  Fed.  Rep.  26.    See  Mining  Co.  v.  Ma- 

(1890)  43  Fed.  Rep.  751.  son,  145  U.  S.  349;  s.  c,  12  Sup.  Ct. 

•Fidelity  Trust  &  Safety  Vault  Co.  Rep.  887. 


§538] 


FORECLOSURE  OF  MORTGAGES  AND  TRUST  DEEDS.  1165 


closure  inevitable,  and  in  that  case  to  deprive  the  stockholders  of 
all  their  equity  in  the  property,  especially  when  the  shareholders 
do  not  offer  to  do  equity  by  paying  the  floating  debt  and  have 
not  been  diligent  in  attacking  the  plan  of  reorganization  or  in 
attacking  the  decree  complained  of.^     It  appeared  here  that  this 
insolvent  railroad  company  had  issued  several  series  of  bonds 
secured  by  mortgages,  some  of  which  mortgages  covered  all  of  its 
property  and  others  only  part.    The  principal  of  some  of  the  bonds 
was  due,  and  the  company  had  defaulted  on  the  interest  on  all  of 
them.     In  addition  it  had  a  large  floating  debt,  running  into  mil- 
lions.    There  was  no  fair  possibility  of  its  being  able  to  pay  the 
accrued  interest    on  the  bonds  and  the  floathig  debt  without 
sale  of  all  its  properties.     Certain  stockholders  liled  their  bill  to 
set  aside  a  decree  of  foreclosure  of  the  mortgages  and  to  enjoin 
the  defendants  from  carrying  out  the  plan  of   reorganization. 
The  United  States  Circuit  Court  held  that  this  decree  of  fore- 
closure, entered  by  consent  of  the  creditors,  would  not  be  set 
aside  at  this  suit  of  the  stockholders  on  the  ground  that  the  prin- 
cipal of  some  of  the  mortgages  was  not  yet  due,  as  it  was  to  the 
interest  of  the  railroad  company  that  the  rights  of  all  the  mort- 
gage bondholders  should  be  cut  off  to  enable  the  company  to 
effect  a  reorganization  which  would  secure  and  extend  its  bonded 
debt  and  reduce  the  rate  of  interest  thereon  and  provide  the 
necessary  means  to  satisfy  the  floating  debt.     Nor  would  a  pro- 
posed reorganization  of  the  company,  to  be  effected  in  connection 
with  the  foreclosure  sale,  by  which  the  bonded  indebtedness  was 
to  be  refunded  on  longer  time  and  at  reduced  interest,  and  each 
stockholder  being  allowed  to  retain  his  stock  on  the  payment  of  his 
pro  rata  share  of  the  floating  debt,  it  not  being  a  fraud  on  the 
stockholders,  be  enjoined  at  the  suit  of  some  of  the  stockholders 
who  did  not  suggest  any  other  method  by  which  the  financial 
embarrassments  of  the  company  could  be  met.^     A  final  decree 
for  foreclosure  of  railroad  mortgages  directed  that  the  property  be 
sold  subject  to  any  and  all  Hens  prior  to  the  lien  of  the  mortgages, 
and  which  had  not  been  ascertained  and  adjudicated,  and  subject 
to  receivers'  certificates  before  that  time  authorized,  and  declared 
the  certificates  a  first  and  prior  lien  on  the  property  as  between 
them  and  the  mortgagees.     The  sale  having  taken  place  under 

*  Carey  v.  Houston  &  Texas  Central       ^  Carey  v.  Houston  &  Texas  Central 
Ry.  Co.,  (1892)  52  Fed.  Rep.  671.  Ry.  Co.,  (1891)  45  Fed.  Rep.  438. 


1  U»G  FORECLOSURE  OF  MORTGAGES  AND  TRUST  DEEDS.  [§  539 

this  decree,  a  decree  was  made  upon  tlie  intervening  claim  of  a 
mechanic's  lien  on  part  of  the  property  presented  before  the 
receivers'  certificates  were  authorized,  allo^ving  the  mechanic's 
hen  as  a  subsisting  first  lien  on  the  property  and  directing  pay- 
ment of  the  amount  by  the  purchaser  and,  on  default,  a  sale  of 
the  property.     This  decree  was  affirmed  on  appeal  by  the  Supreme 
Court.     A  holder  of  receiver's  certificates  brought  a  suit  against 
the  holders  of  this  mechanic's  lien  for  an  injunction  to  restrain 
the  enforcement  of  this  decree.     The  United  States  Circuit  Court 
of  Appeals  for  the  fifth  circuit  held  that  the  enforcement  of  the 
decree  ordering  payment  of  this  mechanic's  lien  could  not  be 
restrained    by    holders  of    the  receiver's  certificates   claiming 
pnvity  over  it,  they  being  bound  by  the  decree  as  privies,  and 
because  an  injunction  for  such  a  purpose  in  effect  stayed  execu- 
tion of  the  final  decree  of  the  Supreme  Court.^ 

§  539.  Decrees  for  sale  of  property.—  It  is  proper  upon 
foreclosure  of  a  mortgage  upon  the  property  of  a  manufacturing 
corporation,  to  direct  that  the  property  be  sold  as  an  entirety, 
where  it  appears  that  a  division  of  it  into  parcels  would  lessen  its 
selling  value.2    Creditors  claiming  to    have   prior  rights  to  the 
property  of  an  insolvent  corporation  have  no  right  to  complain 
of  a  decree  for  the  sale  of  the  property  of  the  corporation  to 
satisfy  a  mortgage  where  such  decree  expressly  provides  that 
such  creditors  may  present  their  claims  to  the  court  for  adjudica, 
tion  before  distribution  of  the  proceeds  of  the  sale.'    It  appear- 
ing in  a  suit  to  foreclose  a  mortgage  given  by  a  street  railroad 
company  to  secure  payment  of  certain  bonds,  that  the  bonds  were 
invalid,  still,  as  all  the  property  covered  by  the  mortgage  was  in 
possession  of  a  receiver  appointed  pending  the  litigation,  who 


'  Gordon  v.  Newman,  (1894)  62  Fed, 
Rep.  686.  White,  Circuit  Justice, 
said:  "That  the  holders  of  receiver's 
certificates  depend  for  their  ultimate 
rank  upon  the  final  decree  in  the  cause 
where  the  certificates  are  issued  is  be- 
yond question."  A  text  book  thus 
states  the  rule:  "The  holders  of  these 
securities  must  see  to  it  that  in  the 
order  distributing  the  purchase  money 
the  proper  provision  is  incorporated 
for  their  redemption,  because,  if  once 


the  property  is  sold,  and  the  court 
makes  a  final  decree  without  provid- 
ing for  the  payment  of  the  certificates, 
there  is  an  end  of  the  matter.  »  *  *» 
Beach  Rec.  par.  401,  p.  332;  citing, 
also.  Mercantile  Trust  Co.  v.  Kanawha 
&Ohio  Ry.  Co.,  58  Fed.  Rep.  11;  s. 
c,  7C.  C.  A.  3. 

•  Central  Trust  Co.  of  New  York  t. 
United  States  Rolling  Stock  Co.,  (1893) 
56  Fed.  Rep.  5. 

•Ibid. 


§  539]  FORECLOSURE  OF  MORTGAGES  AND  TRUST  DEEDS.  1167 

had  issued  certificates  for  expenses  incurred  for  the  preservation 
of  the  property,  a  decree  was  entered,  upon  consent  of  all  parties 
in  interest,  ascertaining  and  fixing  the  amounts  of  their  respec- 
tive claims,  and  directing  a  sale  of  all  the  property  of  the  com- 
pany to  satisfy  the  same.     The  court  held  that  rails,  fish  plates 
and  bolts  purchased   by  the  company  for  use  on  its  road,  but 
which  had  not  been  actually  used  and  were  stacked  upon  land 
not  within  the  company's  right  of  way,  were  within  the  terms  of 
the  mortgage,  which  included  all  real  and  personal  property  of 
every  kind  and  description,  "  used  or  intended  to  be  used  in  con- 
nection with  or  for  tlie  purpose  of  said  railroad,"  and  came  clearly 
within  the  decree.     In  the  receiver's  inventory  of  property  of 
the  railway  company  taken  possession  of  by  him  under  order  of 
the  court  were  set  out  certain  notes,  secured  by  mortgage,  which 
had  been  executed  to  tlie  railway  company  by  a  land  association, 
and  these  notes  were  in  the  receiver's  hands  at  the  time  of  mak- 
ing the  decree  by  consent  for  the  sale  of  all  the  company's  prop- 
erty.    The  court  held   that,  even  though  these  notes  and  mort- 
gages securing  them  were  not  included  in  the  railway  mortgage 
sought  to  be  foreclosed,  as  they  had  been  l)rouglit  into  the  cus- 
tody of  the  court  under  color  of  its  authority,  and  all  parties  in 
interest  were  parties  to  the   suit,  the  court  had  jurisdiction  to 
decide  all  conflicting  rights  thereto,  and  should  not  release  the 
control  of  them  in  order  that  they  might  be  subjected  to  process 
obtained  by  creditors  of   the   company  from   a  state  court,  nor 
should  it  award  such  creditors  a  priority  of  lien  by  reason  of  their 
proceeding  in   the  state  court.^     The  railroad  property  in  this 
foreclosure  suit  was  ordered  by  decree  of  the  court  to  be  sold  on 
the  ground  that  most  of  the  lienholders  were  urging  a  sale,  and 
it  appeared    that,  in  spite  of   the  exercise    of   ability  and  great 
economy  by  a  receiver   during  the   three  years  he*  had  had  it 
under  his  management,  no  interest  had  been  paid  on  any  of  the 
securities  for  a  year,  although  the  sale  was  opposed  by  one  class 
of  bondholders.'^     An   announcement   at  a  judicial  sale  of  the 
property  of  an  insolvent  corporation,  by   the  receiver,  that  the 
purchaser   would  also  have  the  right,  at  his  election,  to  take  cer- 
tain land,  not  covered  by  the  order  of  sale,  and  acquired  by  the 

'  Farmers'  Loan  &  Trust  Co.  c.  San       '  Bound  t.  South  Carolina  Ry.  Co., 
Diego  Street  Car  Co.,  (1892)  49  Fed.    (1892)  50  Fed.  Rep.  853. 
Rep.  188. 


i 


.ill 


w 


11 


•  II 


1168 


FORECLOSURE  OF  MORTGAGES  AND  TRUST  DEEDS.  [§  53i) 


receiver  during  liis  administration  of  the  corporate  property,  litis 
been  Iield  not  to  render  such  sale  invalid.     Nor  was  the  mere 
fact  that  the  receiver,  on  taking  possession,  inventoried  the  prop- 
erty at  a  sum  considerably  greater  than  that  fixed  by  the  apprais- 
ers at  a  judicial  sale  of  the  property  eight  years  afterwards,  a 
ground  for  setting  aside  the  sale  for  inadequacy  of  price.^     The 
railway  company,  the  property  of  which  was  by  this  decree  in 
foreclosure  suit  to  be  sold,  being  situated  entirely  within  the  state 
<^  Kentucky,  there  were  assignments  of  error  to  the  United 
States  Circuit  Court  of  Appeals  for  the  sixth  circuit  that  allow- 
ing four  months  by  the  decree  for  redemption  was  erroneous ; 
that  the  railroad  should  have  been  treated  as  "  realty,"  and  the 
time  allowed  for  redemption  should  have  been  that  prescribed  in 
the  Kentucky  statute  where  judicial  sales  are  had  and  mortgages 
are  foreclosed  upon  real  estate.     The  appellate  court  held  that 
the  time  to  be  allowed  for  payment  of  a  railroad  mortgage  after 
the  entry  of  a  foreclosure  decree  was  within  the  discretion  of  the 
court,  and  the  allowance  of  only  four  months  in  this  case  was  not 
an  abuse  of  the  court's  discretion.     Further,  that  when  railroad 
franchises  and  property,  both  real  and  personal,  are  mortgaged, 
and  are  to  be  scld  on  foreclosure,  they  were  to  be  treated  as  an 
entirety,  and  this  entirety  was  not  "real estate"  within  the  mean- 
ing of  the  Kentucky  statute  which  requires  an  appraisement  as 
a  prerequisite  to  a  judicial  sale  of  real  estate,  and  allows  one  year 
for  redemption  when  the  property  does  not  bring  two-thirds  of 
its  appraised  value.^     The  sale  of  the  property  in  this  foreclosure 


*  Lake  Superior  Iron  Co.  v.  Brown, 
Bonnell  &  Co.,  (1890)  44  Fed.  Rep. 
539. 

*  Cohimbia  Finance  &  Trust  Co.  v. 
Kentucky  Union  Ry.  Co.,  (1894)  60 
Fed.  Rep.  794.  Lurton,  Circuit 
Judge,  said:  "A  like  question  was 
decided  by  the  Supreme  Court  of  tlie 
United  States  in  Hammock  r.  Trust 
Co.,  105  U.  S.  77.  The  question  in 
that  case  arose  under  the  redemption 
statutes  of  the  state  of  Illinois.  The 
statute  of  that  state  provided  for  the 
redemption  of  lands  '  sold  under  and 
by  virtue  of  any  decree  of  a  court  of 
equity  for  a  sale  of  mortgaged  lands.' 
It  was  provided,  with  reference  to  the 


latter  case,  'that  it  should  be  lawful 
for  the  mortgagor  of  such  lands,  his 
executors,  administrators  or  grantees, 
to  redeem  the  same  in  the  manner  pre- 
scribed for  the  redemption  of  lands 
sold  upon  execution  upon  judgments 
issued  at  common  law.'  Upon  elabo 
rate  consideration  it  was  unanimously 
decided  by  that  court  that  a  railroad 
was  not  within  the  provision  of  that 
statute.  The  learned  counsel  for  the 
appellant  have  undertaken  to  draw  a 
distinction  between  the  state  of  the 
law  of  Kentucky  and  that  of  Illinois, 
which  they  have  argued  is  sufficient  to 
distinguish  this  case  from  the  case  of 
Hammock  v.  Trust  Co.,  supra.    These 


§  ^39]  FORECLOSURE  OF  MORTGAGES  AND  TRUST  DEEDS.  1169 

proceeding  under  the  decree  of  the  court  was  confirmed  over  the 
objection  that  it  was  sold  at  judicial  sale  as  a  whole,  and  not  in 
the  parcels  in  which  it  actually  existed,  and  that  either  of  such 
parcels  was  of  sufficient  value  to  discharge  the  lien  for  which  the 


distinctions  are  predicated  upon  the 
propositions:   (1)  That  under  the  law 
of  Illinois  a  railroad  property  consisted 
in  (a)  its  franchises;   (b)  its  movable 
property,  such  as  rolling  stock,  sup- 
plies, etc.,  which  were  under  the  com- 
mon law  personalty;   (c)  its  right  of 
way,  to  which   was  affixed  its  rails, 
bridges,    culverts,    depots,   etc.,   and 
which  was  clearly  real  estate.     The 
conclusion  drawn  from  this  common- 
law  division  of  its  property  was  com- 
mented on  by  the  Supreme  Court  of 
the  United  States  as  fatal  to  the  in- 
sistence   that    when    a    railroad    was 
mortgaged  as  an  entirety  it  was  re- 
deemable as  'real  estate,'  within  the 
meaning  of  the  Illinois  statutes  con- 
ferring the  right  of  redemption  when 
real  estate  was  sold  to  enforce  the  lien 
of  a  mortgage,  which,  under  the  law, 
covered  the  franchises,  personalty  and 
realty  as  unitedly  constituting  a  rail- 
road.    In  contrast  it  has  been  insisted 
that,  under  the  decisions  of  the  highest 
court  of  Kentucky,  at  the  time  the 
mortgage  to  the  Central  Trust  Com- 
pany was  executed  in  1888:   (a)  A  rail- 
road was  a  unit,  and  that  its  movable 
property    was    so  affixed  to  its  real 
estate  as  to  be  held  fixtures,  and,  there- 
fore,   inseparable.      To    support  this 
proposition   the  cases  of    Phillips  v. 
Winslow,  18  B.  Mon.  448,  and  Rail 
road  Co.  v,  Elizabethtown,   13   Bush, 
233,  are  cited,     (b)  That,  in  harmony 
with  this,  the  same  court  has  held  that 
railroad  shares  descend  as  realty  to  the 
heirs,  and  are  subject  to  dower.    Price 
V.  Price's  Heirs,  6  Dana,  107,  and  Cope- 
land   V.   Copeland,   7  Bush,   349.     (c) 
That  the  franchises  of  a  railroad  com- 
pany are  not  prerogative  franchises, 
and  that  a  railroad  could  be  operated 

147 


without  a  franchise.     Railroad  Co.  «. 
Metcalfe,  4  Mete.  (Ky.)  199.    The  cases 
cited  do  not,  in  our  judgment,  support 
the  conclusions  sought  to  be  drawn. 
Phillips  V.  Winslow,  supra,  was  a  case 
where  a  trustee  under  second  mortgage, 
made  to  secure  an  issue  of  bonds,  and 
covering  all  the  property  of  the  com- 
pany then  in  existence,  as  well  as  all 
after-acquired  property,  filed  a  bill  to 
enjoin  certain  proceedings  at  law  by 
judgment  creditors,  one  of  whom  had 
levied  on  certain  movable  property  and 
was  about  to  sell,  while  the  other  had 
seized  and  sold,  and  bought  at  his  own 
sale,    under    execution,   certain  cars, 
car  wheels,  firewood  and  stove  coal, 
being  supplies  for  the  operation  of  the 
road.     The  levy  was  exclusively  upon 
property  acquired  after  the  mortgage 
under  which  the  plaintiff  claimed,  but 
was  embraced  in  the  clause  covering 
after-acquired  property.     After  decid- 
ing that  the  property  was  not  subject 
to  seizure  by  execution,  because  it  was 
embraced  in  the  mortgage,  the  court 
was  confronted  with  the  proposition 
that  the  plaintiff  had  an  ample  remedy 
at  law  by  replevin  or  in  an  action  for 
damages.       This    the    court    decided 
upon  a  consideration  of  the  irreparable 
character  of  the  damage  to  creditors 
having  a  mortgage  upon  a  railway  by 
a  unit  which  would   result   to  them 
from  such  a  seizure  in  view  of  the 
unity  of  railroad  property,  and  other 
great  inconveniences  resulting  to  the 
public  from  the  interference  with  the 
equipment  and  necessary  supplies  of 
a  common  carrier.     The  court  did  not 
decide  that  the  rolling  stock  of  a  rail- 
road passed  with  the  realty  as  a  fix- 
ture.    It  certainly  did  not  decide  that 
cordwood  and  stove  coal  were  fixtures. 


1 
'i 


mi 


A' 


1170 


FOKECLOSURE  OF  MORTGAGES  AND  TRUST  DEEDS. 


[§" 


39 


I 


I 


In  i 


whole  was  sold.^  Tlie  court  also  considered  the  other  objection 
to  the  confirmation  of  the  sale,  that  other  liens  bore  upon  the 
same  property  of  equal  rank,  and  that  the  property  ought  to  be 
resold,  and  for  the  benefit  of  all  lienholders,  as  of  no  avail.'  It 
is  proper  in  a  decree  for  sale  on  foreclosure  proceedings 
against  a  railroad  company  upon  a  mortgage  executed  to  secure 
its  bondholders,  the  road  being  in  the  possession  of  a 
receiver,  to  direct  that  the  sale  be  made  subject  to  the  standing 
obligations  of  the  receiver,  at  the  same  time  requiring  the 
receiver  to  file  a  statement  of  his  outstanding  obligations  in 
detail,   so  that  the  amount  may  be   known  with  sufiicient  cer- 

and  yet  the  reasoning  of  the  court  was 
applied  as  much  to  such  supplies  as  it 
was  to  the  freight  cars  and  detached 
car  wheels,  which  were  also  in  the  levy. 
In  the  subsequent  case  of  Railroad  Co. 
V.  Elizabethtown,  supra,  it  was  ex- 
pressly ruled  that  a  municipality 
could  not  dismember  a  railroad  by  a 
seizure  for  taxes  of  the  engines  and 
cars  of  a  railway  company.  It  is  true 
that  Lindsay,  C.  J.,  did,  in  passing 
upon  this  question,  observe  that  in 
Phillips  V.  Winslow,  the  engines  and 
cars  of  a  railraad  'were  treated  as 
fixtures.*  But  that  case  was  not,  as 
we  have  seen,  put  on  any  such  ground, 
and  indeed  no  such  question  arose  for 
decision.  Neither  that  case  nor  the 
decision  in  Railroad  Co.  r.  Elizabeth- 
town  rested  upon  any  technical  consid- 
eration of  the  law  of  fixtures.  The 
fii-st  went  off,  so  far  as  the  point  now 
in  question  is  concerned,  upon  the 
question  of  equitable  remedy.  The 
latter  was  vested  [rested  ?]  upon  the 
high  and  rational  ground  that  a  rail- 
road was  an  entirety,  and,  being 
charged  with  qnau  public  duties  as  a 
common  carrier,  could  not,  from  con- 
siderations of  public  policy,  be  dis- 
abled or  dismembered  by  seizure  un- 
der execution  of  its  necessary  equip- 
ments or  supplies.  It  is  true  both 
cases  recognized  the  unity  of  a  rail- 
road property  resulting  from  its  struc- 
ture and  utility.    Severance  of  such  a 


property  is  destructive  of  the  interests 
of  all  concerned,  and  disables  the  road 
in  the  discharge  of  its  public  functions. 
Neither  held  that  a  railroad  property 
considered  as  an  entirety  was  techni- 
cally realty." 

»  Central  Trust  Co.  of  New  York  v. 
Sheffield  «&  Birmingham  Coal,  Iron  & 
Ry.  Co.,  (1894)60  Fed.  Rep.  9.  Par- 
dee, Circuit  Judge,  sjiid:  "  The  answer 
to  this  objection  is  twofold:  First,  the 
decree  so  directed,  and  neither  party 
complained  until  afterwards;  second^ 
there  is  no  offer  now  by  any  one  to 
pay  a  higher  price  for  any  parcel,  or 
for  the  whole,  than  the  sale  realized, 
in  case  the  bidding  shall  be  reopened. 
*  *  *  The  decree  is  a  sufficient 
answer,  however,  to  the  objection  that 
the  sale  was  not  made  in  parcels. 
Hammock  v.  Trust  Co.,  105  U.  8,  77- 
86;  Central  Trust  Co.  v.  Wabash,  etc., 
Ry.  Co.,  30 Fed.  Rep.  333. 

«  Central  Trust  Co.  of  New  York  v. 
Sheffield  &  Birmingham  Coal,  Iron  & 
Ry.  Co..  (1894)  60  Fed.  Rep.  9.  The 
circuit  judge  said:  "  The  record  of  the 
cases  discloses  that  there  are  other  and 
large  liens  on  the  property  of  equal 
and  perhaps  prior  rank  to  the  inter- 
vener's lien.  This,  in  part,  accounts 
for  the  price  brought  at  the  sale,  as  the 
purchaser,  as  well  as  other  bidders, 
knew  that  the  property  offered  was 
incumbered.  But  such  fact  is  no  rea- 
son why  the  sale,  as  made,  should  not 


§  539]  FORECLOSURE  OF  MORTGAGES  AND  TRUST  DEEDS.  llTl 

taintj  to  enable  intending  purchasers  to  bid  with  confidence.* 
The  United  States  Circuit  Court  of  Appeals  for  the  fourth  cu^- 
cuit  has  declared  the  following  rules  in  a  foreclosure  proceeding 
participated  in  by  different  lienholders:    The  owner  of  second 
consolidated  railroad  mortgage  bonds  filed  a  foreclosure  bill,  and, 
according  to  the  prayer  of  his  bill,  the  court  appointed  a  receiver 
and  required  all  lienholders  to  come  into  the  cause,  and  enjoined 
them  from  asserting  their  claims  in  any  other  case.     Cross-bills 
were  filed  by  all  the  lien  claimants,  including  the  holders  of  prior 
and  subsequent  mortgage  bonds.     These  cross-bills  asked  affirma- 
tive relief  and  the  sale  of  the  property.     For  nearly  three  years 
the  Circuit  Court  treated  the  suit  as  a  consolidated  case,  and 
finally  decreed  a  sale  free  of  all  liens.     It  was  held  by  the  Court 
of  Appeals  that  it  was  too  late  for  any  party  to  object  to  the 
decree,  that  it  was  not  in  conformity  to  the  prayer  of   he  original 
bill,  or  to  contend  that  because  the  lienors  had  filed  cross-bills, 
instead  of  obtaining  leave  to  file  original  bills,  the  pleadings  were 
irregular.2     A  court  of  equity,  pending  an  appeal,  without  super- 
sedeas, from   a   final   decree  in  a  foreclosure  suit,  settling   the 
priority  of  liens  and  fixing  a  day  for  sale,  has  power  to  postpone 
the  order  if  a  sale  on  the  day  fixed  would  be  oppressive  or  unjust. 
And  such  a  postponement  should  be  made  in  such  a  suit  to  fore- 
close a  matured  mortgage,  when  an  appeal  has  been  taken  from 
the  decree  of  sale,  the  result  of  which  might  be  disastrous  to  the 
purchaser,  or  where  the  sale,  if  incapable  of  being  rescinded, 
would  render  nugatory  a  decision  in  favor  of  appellants.^     In 
proceedings  to  foreclose  the  liens  of  the  state  of  South  Carolina 
on  railway  property  as  the  guarantor  oi  the  railway  bonds,  as 
also  the   mortgages   on  the  same  property,  the  United   States 
Circuit  Court  for  that  district  refused  to  authorize  the  sale  of 
land,   free   from   such    liens,   at  private  sale,   not   being  fully 
informed  as  to  its  selling  value.     In  the  opinion  of  the  court,  on 
foreclosure  proceedings,  where  a  receiver  has  been  appointed, 
but  the  relative  rights  of  the  various  parties  had  not  been  estab- 
lished, the  fact  that  the  mortgages  authorized  the  sale  of  lands 


be  confirmed,  the  other  lienholders  not 
complaining,  and  otherwise  being  able 
to  take  care  of  themselves." 

*  Bound  V.  South  Carolina  Ry.  Co., 
(1893)  58  Fed.  Rep.  473. 


•Ibid. 

»  Bound  V.  South  Carolina  Ry.  Co.. 
(1893)  55  Fed.  Rep.  186. 


¥ 


I'  » 


1172  rORECLOSllKE  OF  AlClRTGATiES  AND  TRUST  DEEDS.         (_§  54:0 

not  needed  for  corporate  purposes,  and  the  application  of  the 
proceeds  bj  the  trustees  to  the  extinguishment  of  the  oldest  liens, 
would  not  justify  such  sale  by  the  court,  in  the  absence  of  con- 
sent by  all  the  parties,  and  the  mere  absence  of  counsel  from  the 
hearing  of  a  motion  for  the  purpose  of  ordering  such  a  sale  would 
not  amount  to  consent.*  It  is  proper  to  order  a  sale  of  the  prop- 
erty mortgaged,  where  shown  to  be  in  the  best  interests  of  all 
concerned,  notwithstanding  objections  of  a  minority  of  the  bond- 
holders, when  apparent  that  controverted  questions  of  priorities 
and  validity  of  some  of  the  bonds  can  be  afterwards  settled.'*  The 
decree  for  sale  of  railroad  property  in  foreclosure  proceedings 
should  name  an  upset  price  sufficiently  large  to  cover  claims 
against  the  proceeds  of  the  sale.* 

§540.  Purchasers  at  sales  under  the  decrees  —  their 
rights  and  liabilities. —  Where  a  railroad  has  been  in  the  hands 
of  a  receiver  appointed  by  the  United  States  Circuit  Court,  is 
sold,  and  the  purchaser,  as  part  of  the  consideration,  covenants  to 
discharge  all  existing  debts  and  liabilities  of  the  receivership,  it 
is  the  duty  of  such  court  to  protect  the  purchaser  against  all 
demands  which  are  not  just  and  proper  demands  against  the 
receiver,  and  to  that  end  to  require  all  such  demands  to  be  presented 
to  the  court  for  allowance.  And  where,  on  the  strength  of  such 
a  covenant,  a  person  brings  an  action  in  the  state  court  against 
the  purchaser  to  recover  for  a  tort  to  his  realty  conmiitted  by  the 

»  Bound  V.  South  Carolina  Ry.  Co.  Utah,  280.    When  an  order  of  the  sale 

(Mayfield,  Intervener),  (1891)  46  Fed.  of  securities  adjudged  to  be  subject  to 

Rep.  315.     SeeKneeland  t'. 'ft'ust  Co.,  the    lien    of   a    mortgage    with    the 

136  U.  S.  89;  s.  c,  10  Sup.  Ct.  Rep.  950.  mortgaged  property  is  conclusive,  see 

•First  National  Bank  of  Cleveland  Herring  v.  New  York,  Lake  Erie,  etc., 

V.  Shedd,  121  U.  S.  74;  s.  C,  7  Sup.  R.  R.  Co.,  105  N.  Y.  340.     When  an 

Ct.  Rep.  807.  order  for  sale  of  insolvent  corpora- 

•BlairtJ.  St.  Louis,  Hannibal,  etc.,  R.  tion's  property  granted  to  a  receiver 

R.  Co.,  25  Fed.  Rep.  232.     See.   also,  will  not  be  vacated  by  the  court,  see 

McIlhennyo.Binz,(Tex.)138.W.Rep.  Farmers'    Co-operative    Mfg.   Co.    v. 

655.    When  a  petition  for  an  interlocu-  Drake,  (Ga.  1895)  22  S.  E.  Rep.  1004. 

tory  decree  of  sale  of  railway  prop-  What  will  be  required  to  justify  a  re- 

erty  should  bedenied,  see  Pennsylvania  opening  of   the  foreclosure  proceed- 

R.  Co.  V.  Alleghany  Valley  R.  Co.,  42  ings  where  a  sale  has  been  decreed,  see 

Fed.  Rep.  82.     When  a  court  will  not  Leavenworth  County  v.  Chicago.  Rock 

hear  a  motion  in  behalf  of  an  individ-  Island,  etc.,  Ry.  Co.,  25  Fed.  Rep.  219. 

ual  bondholder  to  set  aside  a  foreclos-  See,  also,  Robinson  v.  Iron  Railway 

ure  sale  under  its  decree,  see  Meyer  v.  Co.,  135  U.  S.  522;  s.  c,  10  Sup.  Ct. 

Utah  &  Pleasant  Valley  R.  R.  Co..  3  Rep.  907. 


§ 


5401 


FORECLOSURE  OF  MORTGAGES  AND  TRUST  DEEDS. 


1173 


receiver,  such  demand  being  primarily  chargeable  on  the  fund  in 
the  federal  court,  arising  from  the  sale  of  the  railroad  property, 
the  federal  court  should  restrain  the  prosecution  of  the  action, 
and  require  the  plaintiff  to  present  his  claim  to  it,  inasmuch  as  a 
judgment  on  such  a  claim  in  the  state  court  would  entitle  the 
plaintiff  to  satisfy  it  out  of  any  property  in  the  hands  of  the  pur- 
chaser subject  to  levy ;  and  the  purchaser's  appearance  in  the 
state  court  would  not  be  a  waiver  of  its  rights  to  have  the  pro- 
ceedings in  the  state  court  restrained,  where  the  nature  of  the 
suit  did  not  once  appear,  but  it  invoked  the  jurisdiction  of  the 
federal  court  as  soon  as  its  right  to  do  so  was  revealed  by  the 
pleadings.^     The  federal  court,  in  which,  under  foreclosure  of  a 
railroad  mortgage  there  had  been  a  sale,  directed  its  receiver  to 
turn  over  the  possession  of  the  road  to  another  railroad  company, 
the  assignee  of  the  purchaser  at  the  sale,  the  court  reserving  the 
right  to  resume  the  possession  if  the  assignee  should  thereafter 
refuse  to  pay  into  court  any  part  of  the  purchase  price.     It  was 
held,  on  an  application  of  the  assignee  for  a  writ  of  assistance, 
that  the  order  of  the  court  just  returned  brought  the  assignee 
within  Equity  Rule  10,  which  provides  that  every  person  not  a 
party  to  a  cause,  in  whose  favor  an  order  has  been  made,  shall  be 
enabled  to  enforce  obedience  to  such  order  by  the  same  process  as  if 
he  were  a  party  to  the  same,  and  that  a  writ  of  assistance  would  issue 
in  favor  of  such  assignee  against  another  railroad  company  which 
unlawfully  refused  to  surrender  possession  of  a  part  of  the  road.* 
It  is  a  well-established  principle  that  the  mere  purchase  of  a  rail- 
way under  a  foreclosure  sale  by  a  new  corporation  does  not  of  itself 
make  such  new  corporation  liable  for  the  obligations  of  the  old  one.' 
In  a  case  before  the  United  States  Supreme  Court  it  appeared  that  a 
railroad  company,  which  had  purchased  the  property  and  franchises 
of  a  railroad  company  against  which  a  mortgage  had  been  fore- 
closed, neither  renounced  the  contract  under  which  the  insolvent 
company  had  used  the  land  constituting  its  approaches  to  a  ferry 
belonging  to  a  ferry  company  which  by  a  contract  with  covenants 
on  the  part  of  the  insolvent  railroad  company  to  use  solely  its 
ferry  for  the  purposes  of  transportation  of  freight  and  passengers 

»  Jesup  V.  Wabash,  St.  L.  &  P.  Ry.  'Stewart's  Appeal,  72  Pa.  St.  291; 

Co.,  (1890)  44  Fed.  Rep.  663.  Vilas  v.  Milwaukee,  etc.,  Railway,  17 

«  Farmers'  Loan  &  Trust  Co.  of  New  Wis.  497;  Smith  v.  Chicago  &  North- 
York  V.  Chicago  &  Atlantic  Ry.  Co.,  western  Railway,  18  Wis.  17. 
(1890)  44  Fed.  Rep.  653. 


|i: 


I! 


» 


!»  ' 


••« 


1174      FORECLOSURE  OF  MORTGAGES  AND  TRUST  DEEDS     [§  540 

across  this  navigable  stream,  nor  made  any  further  arrangement 
with  the  ferry  company  after  it  became  the  purchaser.  It  main- 
tained, however,  possession  of  the  land.  The  purchasing  com- 
pany becoming  insolvent,  and  the  mortgage  it  had  executed  being 
in  the  process  of  foreclosure,  and  the  property  in  the  hands  of  a 
receiver,  the  ferry  company  intervened  and  set  np  a  claim  on  the 
theory  mainly  of  the  relation  of  landlord  and  tenant,  for  the  use 
of  its  land,  including,  also,  breaches  of  certain  covenants  as  to 
using  its  ferry  alone  and  not  directing  any  of  the  traffic  to  other 
lines,  as  it  charged  had  been  done.  The  court  regarded  the  the- 
ory of  the  intervention  as  a  serious  obstacle  in  the  way  of  doing 
substantial  justice  between  the  parties,  but  recognized  the  right 
of  the  ferry  company  to  equitable  relief  as  against  the  purchasing 
company,  as  then  represented  by  the  receiver,  and  remanded  the 
case  to  the  Circuit  Court  for  a  change  of  pleadings  and  such  fur- 
ther proceedings  as  mi^ht  be  consonant  with  justice  and  in  con- 
formity to  its  opinion.*  A  purchaser  of  a  railroad  at  a  foreclos- 
ure sale,  who  had  no  direct  agency  in  the  act  complained  of,  will 
not  ordinarily  be  liable  for  an  act  of  the  receivers  operating  the 
road  prior  to  tlie  sale ;  but  if  the  act  of  the  receivers  created  a  nui- 
sance, wliich  was  in  existence  at  the  time  of  the  purchase,  and  the 
purchaser  then  had  notice  of  the  acts  constituting  the  nuisance, 
and  continued  the  nuisance  afterwards,  and  in  consequence  thereof 
plaintiff's  land  was  overflowed,  rendered  untillable,  and  his  crops 
ruined,  the  Missouri  Appellate  Court  held  the  purchaser  to  be 
liable.'  They  further  held  that  written  notice  of  the  existence  of 
a  nuisance  served  upon  the  chief  engineer  of  the  former  railway 
company  could  not  import  notice  to  a  corporation  (not  then  in 
existence)  that  subsequently  purchased  the  railway  at  foreclosure 
sale ;  but  where  such  officer  was  retained  in  the  service  of  the 
receivers,  and  while  so  retained  acquired  full  knowledge  of  all 
the  facts  constituting  the  nuisance,  and  the  continuation  thereof, 
and  was  continued  in  the  office  in  the  service  of  the  subsequent 
purchaser,  under  such  conditions  as  necessarily  gave  rise  to  the 
inference  that  such  knowledge  remained  fixed  in  his  mem- 
ory when  his  employment  by  the  purchaser  began,  then  his 
knowledge  must  be  deemed  the  knowledge  of  the  purchaser. 
A  purchaser  at  a  foreclosure  sale  having  been  allowed  in  the 

»  Wiggins  Ferry  Co.  v.  Ohio  &  Mis-       « George  v.   Wabash  Western  Ry. 
sisaippi  Ry.  Co.,  (1892)  142  U.  S.  396.    Co..  (1890)  40  Mo.  App.  433. 


§540]  FORECLOSURE  OF  MORTGAGES  AND  TRUST    DEEDS.  1175 

decree  confirming  the  sale  a  credit  by  reason  of  a  certain  receipt 
filed  by  him,  the  United  States  Circuit  Court  of  Appeals  for  the 
fifth  circuit  held  that  it  was  error  to  reject  such  credit  in  the 
subsequent  decree  distributing  the  proceeds  of  sale.'     The  pur- 
chaser of  this  railroad  property  on  foreclosure  was  entitled  to  a 
credit  for  taxes  paid  by  it  where  the  taxes  were  a  lien  upon  the 
property,  the  date  of  the  assessment  not  appearing,  that  being  the 
date  when  the  lien  attaches  under  the  statutes  of  Florida.    The 
United  States  Circuit  Court  of  Appeals  for  the  fifth  circuit  held 
that  it  could  not  be  said  that  the  refusal  to  allow  such  a  credit 
was  error.*     There  being  a  provision  in  a  railroad  foreclosure 
decree  that  certain  specified  classes  of  claims  constituted  a  lien 
prior  to  that  of  the  mortgage  bonds  and  a  direction  that  the  sale 
should  be  made  subject  to  such  lien,  the  purchaser  at  the  sale 
would  be  estopped  from  objecting  to  the  payment  of  a  claim 
which  belonged  to  one  of  the  classes  specified.^     The  mortgagor 
railroad  company  here,  pending  the  foreclosure  of  a  mortgage 
upon  its  property,  etc.,  leased   to  another  railroad   company  an 
equal  right  to  the  use  of  a  designated  part  of  the  road  for  a  period 
of  twenty  years.     The  foreclosure  decree  provided  that  the  pur- 
chaser at  the  sale  should  be  at  liberty  to  abandon  or  disclaim  any 
leasehold  interest  or  contracts  or  other  agreements  entered  into 
by  the  mortgagor  after  the  commencement  of  foreclosure  pro- 
ceedings.    The  lessee  railroad  company  declined  to  surrender  the 
use  it  had  acquired  under  this  agreement  with  the  mortgagor 
company  to  the  assignee  of  the  purchaser  at  the  foreclosure  sale 
upon  various  pretexts.     The  assignee  applying  to  the  court  for  a 
writ  of  assistance  to  enable  it  to  secure  the  exclusive  use  of  this 
part  of  the  road  purchased,  it  was  held  that  the  purchaser's  right 
to  abandon  and  disclaim  the  lease,  as  provided  in  the  decree  of 
sale,  was  not  affected  by  tlie  receipt  of  the  rent  by  the  receiver 
during   the   pendency   of   the   foreclosure   proceedings  and  his 
acquiescence  in  the  lease,  and  that  all  right  of  possession  in  the 
lessee  ceased  on  being  notified  of  the  purchaser's  intention  to  dis- 
claim and  abandon.     It  appeared  also  that  just  after  the  fore- 
closure sale  the  assignee  of  the  purchaser  notified  the  lessee  of  its 
intention  to  disclaim  the  lease,  and  forbade  the  latter  from  using 

*  Cutting  V.   Tavares,   O.  &  A.   R.       'Ibid. 
Co.  (Florida  Central  &  P.  R.  Co.,  In-       »8t.  Louis  S.  W.  Ry.  Co.  v.  Stark, 
tervener),  (1894)  61  Fed.  Rep.  150.  (1893)  55  Fed.  Rep.  758. 


ir 


III 


^. 


11T6 


FORECLOSURE  OF  MORTGAGES  AND  TRUST  DEEDS. 


[§541 


r. 


the  road  at  tlie  expiration  of  fliirtj  days  from  tlie  date  of  the 
notice.  It  was  held  by  the  court,  upon  the  special  contention  of 
the  lessee,  that  the  receipt  of  the  rent  for  those  thirty  days  by 
the  assignee  of  the  purchaser,  which  was  expressly  stated  to  be 
without  prejudice  to  its  rights  to  abandon  the  lease,  was  not  such 
a  consent  to  the  lessee's  possession  as  to  constitute  it  a  tenant 
from  year  to  year  within  the  meaning  of  the  Indiana  Statutes, 
which  provide  that  all  general  tenancies  where  premises  are 
occupied  with  the  consent,  either  express  or  constructive,  of  the 
landlord,  shall  be  deemed  tenancies  from  year  to  year,  to  be 
determined  by  three  months'  notice  to  be  given  the  tenant  before 
the  expiration  of  the  year.^  Lands  of  a  i*ailroad  company  had 
been  leased  to  one  who  built  upon  them  warehouses,  etc.  There 
were  provisions  in  the  leases  for  the  purchase  of  these  improve- 
ments by  the  lessor  or  their  removal  by  the  lessee  at  the  end  of 
the  term.  These  leases  were  made  subsequent  to  the  execution 
of  mortgages  by  the  railroad  company  and  subject  to  them.  In 
a  bill  filed  by  the  final  successor  to  the  purchaser  at  foreclosure 
sale  under  the  mortgages  against  the  assignees  of  these  leases  to 
declare  them  void,  a  contention  of  the  defendants  was  that  the 
failure  of  the  mortgagor  to  bring  them  in  as  parties  defendant  to 
the  foreclosure  suit  operated  as  a  recognition  of  their  status  as 
tenants  and  a  ratification  of  their  leases.  The  court  held  asrainst 
this  contention  as  the  lessees  were  not  necessary  parties  to  that 
suit,  and  so  far  as  the  mortgagor  was  concerned,  the  rights  of 
these  lessees  were  exthiguished  by  the  foreclosure  sale.' 

§541.  Who  may    be   heard    on   petition  in  foreclosure 
suits. —  Persons  who  are  not  parties  to  a  suit  cannot,  in  general, 


*  Farmers'  Loan  &  Trust  Co.  of  New 
York  V.  Chicago  &  Atlantic  Ry.  Co., 
(1890)  44  Fed.  Rep.  653.  And  the  un- 
disputed facts  showing  that  the  pur- 
chaser, after  the  foreclosure  sale,  never 
waived  its  right  to  abandon  and  dis- 
claim the  lease,  the  federal  court  in 
which  the  mortgage  was  foreclosed, 
in  the  exercise  of  its  primary  jurisdic 
tion  over  the  matter,  determined  to 
issue  a  writ  of  assistance  in  favor  of 
the  purchaser,  notwithstanding  the 
issuance  of  a  temporary  injunction  by 
the  state  court  in  which  the  purchaser 


appeared,  restraining  it  from  inter- 
fering with  the  lessee's  possession, 
should  the  lessee  continue  to  hold  the 
property. 

"  Tyler  v.  Hamilton,  (1894)  62  Fed. 
Rep  187.  As  to  what  passes  by  a  sale 
under  foreclosure  of  the  property  of 
the  corporation,  see  Lawrence  v.  Mor- 
gan's La.  &  Tex.  R.  &  Steamship  Co., 
39  La.  Ann.  427;  s.  c,  2  80.  Rep.  69; 
Dow  V.  Beidleman,  (Ark.) 5  S.  W.  Rep. 
297;  Washington,  Ohio  &  W.  R.  Co. 
V.  Lewis,  (Va.)  2  S.  E.  Rep.  746. 


§541] 


FOKECLOSUEE  OF  MOETGAGES  AND  TRUST  DEEDS. 


1177 


file  a  petition  tliereiii  for  any  cause ;  but  persons  belonging  to  a 
class  represented  in  the  suit,  such  as  mortgage  creditors  represented 
by  the  trustees  of  the  mortgage,  are  regarded  as  quasi  parties, 
and  may  be  heard  on  petition  or  motion.*  In  suits  brought  by  a 
trustee  for  foreclosure,  or  otherwise  affecting  trust  property,  the 
beneficiaries  of  the  trust  will  frequently  be  allowed  to  intervene  for 
the  purpose  of  protecting  their  interest.^  A  petition  seeking  to 
recover  damages  from  the  trustee  for  maladministration  of  the  trust 
cannot  be  filed  as  a  cross-bill  in  a  proceeding  for  the  foreclosure 
of  a  deed  of  trust.  The  matter  set  up  in  such  a  bill  is  not  neces- 
sary as  a  defense  to  the  original  bill,  but  would  be  matter  entirely 
foreign  to  the  primary  object  of  the  bill  and  would  make  it  an 
original,  independent  bill.^  In  a  foreclosure  suit  against  a  rail- 
road company  another  railroad  company  intervened  and  petitioned 
the  court  to  allow  a  claim  which  it  made  under  certain  traflSc  con- 
tracts entered  into  between  several  railroad  companies.  The  peti- 
tion was  dismissed  in  the  United  States  Circuit  Court.  The  inter- 
vener appealed  to  the  United  States  Circuit  Court  of  Appeals  for 
the  eighth  circuit  and  the  appellate  court  afiirmed  the  decree  of 
the  court  below.  It  was  held  that  such  an  agreement  between 
railroad  companies,  by  the  terms  of  which  all  their  roads  were  to  be 
operated  as  to  through  traffic  as  if  "  operated  by  one  corporation 
which  owned  all  of  them,"  and  which  provided  for  an  actual  division 
of  such  traffic,  and,  where  this  was  not  done,  for  a  division  of  the 
gross  earnings  thereof,  the  obvious  purpose  of  the  agreement 
being  to  suppress  or  limit  competition,  and  to  establish  rates  with- 
out regard  to  their  reasonableness,  was  contrary  to  public  policy  and 
void.*     The  appellate  court  further  held  in  this  case  that  one 


»  Fidelity  Trust  &  Safety  Vault  Co. 
«.  Mobile  Street  Ry.  Co.,  (1893)  53 
Fed.  Rep.  850  (a  bill  to  foreclose  a 
mortgage).  Citing  Anderson  v.  Rail- 
road Co.,  3  Woods,  628. 

'Fidelity  Trust  &  Safety  Vault  Co. 
tJ.  Mobile  Street  Ry.  Co.,  (1893)  53 
Fed.  Rep.  850;  citing  Fost.  Fed. 
Pr.  291;  Carter  v.  City  of  New  Or- 
leans, 19  Fed.  Rep.  659. 

3  Fidelity  Trust  &  Safety  Vault  Co. 
t>.  Mobile  Street  Ry.  Co.,  (1893)  53 
Fed.  Rep.  850. 

*  Chicago,  M.  &  St.  P.  Ry.  Co.  v. 
Wabash,  St.  L.  &  P.  Ry.  Co.,  (1894) 
148 


61  Fed.  Rep.  993.  Caldwell,  Circuit 
Judge,  said:  "A  railroad  company  is 
a  qium  public  corporation  and  owes 
certain  duties  to  the  public,  among 
which  are  the  duties  to  afford  reason- 
able facilities  for  the  transportation  of 
persons  and  property  and  to  charge 
only  reasonable  rates  for  such  service. 
Any  contract  by  which  it  disables 
itself  from  performing  these  duties, 
or  which  makes  it  to  its  interest  not  to 
perform,  them  or  removes  all  incentive 
to  their  performance,  is  contrary  to 
public  policy  and  void."  The  court 
cited  in  support  of  its  ruling  Railroad 


I 


It; 


f 

I. 


1178 


FORECLOSURE  OF  MORTGAGES  AND  TRUST  DEEDS. 


[§541 


party  to  sucli  illegal  agreement,  claiming  to  have  performed  its 
part  of  the  same,  could  not  maintain  a  suit  to  enforce  division  of 
earnings  by  another  party  thereto,  the  traffic  not  having  been 
divided.^    In  this  intervention  in  a  foreclosure  suit  it  was  held  not 


CJo.  «.  Closser,  126  Ind.  348;  8.  c,  26 
N.  E.  Rep.  159;  Gulf,  C.  &  S.  F.  R. 
Co.  V.  State,  (Tex.)  10  S.  W.  Rep.  81; 
State  V.  Standard  Oil  Co.,  (Ohio) SON. 
E.  Rep.  279;  Texas  &  P.  Ry.  Co.  v. 
Southern  Pac.  Ry.  Co.,  (La.)  6  So. 
Rep.  888;  Gibbs  v.  Gas  Co..  130  U.  S. 
396;  8.  c,  9  Sup.  Ct.  Rep.  553;  Morris 
Run  Coftl  Co.  V.  Barclay  Coal  Co.,  68 
Pa.  St.  173;  Salt  Co.  v.  Guthrie,  35 
Ohio  St.  666;  Stanton  v.  Allen,  5 
Denio,  434;  Hooker  v.  Vandewater, 
4  Denio,  349;  Chicago  Gaslight  i& 
Coke  Co.  V.  People's  Gaslight  &  Coke 
Co.,  121  111.  530;  8.  c,  13  N.  E.  Rep. 
169;  West  Virginia  Transp.  Co.  v. 
Ohio  River  Pipe  Line  Co.,  22  W.  Va. 
600;  W.  U.  Telegraph  Co.  v.  Ameri- 
can Union  Tel.  Co..  65  Ga.  160;  Say  re 
«.  Association,  1  Duv.  143;  U.  S.  v. 
Trans- Missouri  Freight  Assn.,  58  Fed. 
Rep.  58;  8.  c,  7  C.  C.  A.  15. 

'Chicago,  M.  &  St.  P.  Ry.  Co.  r. 
Wabash.  St.  L.  &  P.  Ry.  Co.,  (1894) 
61  Fed.  Rep.  993.  Caldwell,  Cir- 
cuit Judge,  said:  "The  illegal  and 
void  contract  has  not  been  executed, 
and  the  appellant  invokes  the  aid  of 
the  court  to  compel  the  Wabash  Com- 
pany  to  execute  it  on  its  part  by  pool- 
ing its  earnings.  It  may  be  conceded 
that  the  illegal  contract  has  been  per- 
formed on  the  part  of  the  appellant, 
though  it  does  not  appear  to  have 
done  anything  more  than  to  sign  the 
contract.  The  only  thing  it  could  do 
towards  a  performance  of  the  contract 
was  not  to  compete  for  the  business. 
This  was  a  violation  of  its  duty  to  the 
public,  and  illegal.  But  a  contract 
performed  on  one  side  only  is  not  an 
execiited  contract.  Where  an  illegal 
act  is  to  be  done  and  paid  for,  the  con- 
tract is  not  executed  until  the  act  is 


done  and  paid  for.  A  court  will  not 
compel  the  act  to  be  done,  even  though 
it  has  been  paid  for.  Neither  will  it 
compel  payment,  although  the  act  has 
been  done,  for  this  would  be  to  en- 
force the  illegal  contract.  The  ille- 
gality taints  the  entire  contract,  and 
neither  of  the  parties  to  it  can  success- 
fully make  it  the  foundation  of  an 
action  in  a  court  of  justice.  The 
Wabash  Company  performed  ■  the 
service  that  earned  the  money  the 
appellant  is  seeking  to  recover.  The 
appellant  earned  no  part  of  it.  There 
is  nothing  in  the  record  to  show  that 
the  appellant  would  have  carried  more 
or  the  Wabash  Company  less  freight 
if  the  contract  had  never  been  entered 
into.  The  money  demanded  was  re- 
ceived by  the  Wabash  Company  for 
freight  tendered  to  it  by  shippers 
themselves  and  carried  by  it  over  its 
own  line.  It  was  legally  bound  to 
accept  the  freight  thus  tendered,  and 
was  entitled  to  receive  the  compensa- 
tion for  the  carriage,  and  cannot  be 
compelled  to  pay  the  money  they 
earned  or  any  part  of  it  to  the  appel- 
lant on  this  illegal  and  void  contract. 
*  *  *  Courts  will  not  lend  their 
aid  to  enforce  the  performance  of  a 
contract  which  is  contrary  to  public 
policy  or  the  law  of  the  land,  but  will 
leave  the  parties  in  the  plight  their 
own  illegal  action  has  placed  them. 
Central  Transp.  Co.  v.  Pullman's 
Palace  Car  Co..  139  U.  S.  24;  s.  c,  11 
Sup.  Ct.  Rep.  478;  Gibbs  p.  Gas  Co., 
130  U.  S.  396;  s.  c,  9  Sup.  Ct.  Rep. 
553;  Texas  &  P.  Ry.  Co.  v.  Southern 
Pac.  Ry.  Co.,  41  La.  Ann.  970;  8.  c, 
6  So.  Rep.  888;  Morris  Run  Coal  Co. 
V,  Barclay  Coal  Co.,  68  Pa.  St.  173; 
Hooker  v.  Vandewater,  4  Denio,  349." 


§542] 


FOEECLOSUEE  OF  MOETGAGES  AND  TEUST  DEEDS. 


ll'TO 


to  be  necessary,  under  the  Missouri  statute  which  gives  a  mechan- 
ic's lien  for  materials  furnished  to  a  railroad  company,  to  show  that 
the  materials  were  incorporated  in  the  construction  of  the  road. 
Further,  that  the  railroad,  being  in  the  hands  of  a  receiver 
appointed  by  the  court,  he  alone  was  a  necessary  defendant  in  an 
action  to  foreclose  such  a  mechanic's  lien  under  the  statute  which 
provides  that  any  person  or  corporation  "  owning  or  operating  " 
the  railroad  shall  be  made  a  party  to  such  proceedings.^ 


§  542.  Disposition  in  decree  of  proceeds  of  sale. —  The  fed- 
eral court  for  the  eastern  district  of  Missouri  had  under  a  judg- 
ment creditor's  bill  appointed  a  receiver  and  ordered  the  property 
of  a  railroad  company  sold.  The  property  was  sold  subject  to  the 
lien  of  a  mortgage  covering  its  franchises,  etc.,  to  secure  bonds 
and  "  to  all  liens  for  taxes."  As  to  the  distribution  of  the  pro- 
ceeds of  the  sale  the  court,  inasmuch  as  the  receiver  had  been  in 
the  possession  of  the  property  during  the  time  when  a  levy  might 
be  made  upon  it  for  taxes  on  the  personalty,  ordered  the  payment 
of  the  taxes  on  personal  property  out  of  the  proceeds  of  the  sale 
in  preference  to  all  other  claims ;  but  as  the  state  had  a  perma- 
nent lien  for  taxes  on  realty  and  the  sale  was  subject  thereto,  did 
not  order  those'  taxes  to  be  paid  out  of  the  proceeds.  It  was 
ruled  further  that  the  proceeds  of  the  sale  of  the  property  being 
insufficient  to  pay  the  judgment  creditors,  and  there  having  pre- 
viously been  no  application  to  the  payment  of  judgment  creditors 


The  court  disapproved  Central  Trust 
Co.  V.  Ohio  Cent.  R.  Co.,  23  Fed.  Rep. 
306,  as  not  supported  by  authority 
and  unsound  in  principle. 

*  Central  Trust  Co.  of  New  York  v. 
Chicago,  K.  &  T.  Ry.  Co.  (Holton- 
Warren  Lumber  Co.,  Intervener), 
(1893)  54  Fed.  Rep.  598.  Philips,  D. 
J.,  said:  "  Where,  on  petition  of  cred- 
itors, a  court  of  chancery  takes  pos- 
session of  a  railroad,  and  appoints  re- 
ceivers to  run  and  operate  it,  the 
property  passes  in  custodia  legia,  and 
the  receivers  become  the  representa- 
tives of  the  corporation  for  the  very 
purpose  of  protecting  and  preserving 
the  property  for  the  benefit  of  both 
creditors   and    stockholders.      While 


the  corporation,  as  a  legal  entity,  is 
not  disturbed,  and  its  board  of  direct- 
ors still  exist,  with  power  to  guard 
and  preserve  the  franchise,  and  would 
resume  jurisdiction  in  management 
upon  the  surrender  of  the  property 
by  the  court,  yet  they  do  not  operate 
and  control  it  while  so  in  court,  and  I 
think  the  evident  purpose  of  the  stat- 
ute *  *  *  was  to  prevent  the  en- 
forcement of  such  liens  against  the 
corpus  of  the  corporation  simply  in 
rem.  It  seeks  to  have  the  railroad 
represented  in  court."  When  the 
petition  of  an  intervening  creditor 
should  be  dismissed,  see  Penn  t>.  Cal- 
houn, 121  U.  S.  251. 


I 


II 


1180 


FOKECLOSUKE  OF  MOBTGAQES  AND  TRUST  DEEDS. 


[§542 


V 


I   * 


i 

if 


of  any  of  the  railroad  company's  property  which  should  have 
been  applied  to  the  payment  of  open  accounts,  the  holders  of  such 
accounts  were  not  entitled  to  participate  in  the  proceeds  of  the 
sale.  As  to  intervening  judgment  creditors,  the  rule  was  declared 
to  be  that  the  bill  to  reach  the  property  which  could  not  be  effec- 
tively reached  at  law  being  Hied  by  certain  judgment  creditors  for 
the  l>enefit  of  all  judgment  creditors  of  the  insolvent  railroad 
company,  and  no  order  having  been  made  requiring  others  to 
intervene  by  a  certain  time  or  be  barred  of  their  rights,  all  judg- 
ment creditors  who  chose  to  intervene  were  entitled  to  share 
ratably  with  complainants  in  the  proceeds  of  the  sale  of  the  prop- 
erty, even  though  some  did  not  intervene  until  after  the  inter- 
locutory decree  ordering  the  sale ;  and  the  right  of  these  subse- 
quent interveners  to  share  ratably  was  not  affected  by  the  fact 
that  the  bill  prayed  that  after  a  sale  the  proceeds  should  be  dis- 
tributed among  the  persons  in  whose  behalf  the  suit  was  brought 
"  according  to  their  respective  rights  and  equities,"  as  the  origi- 
nal complainants  and  prior  interveners  had  no  prior  lien  on  all 
the  property  sold  when  the  bill  was  tiled. ^  The  decree  of  fore- 
closure in  this  case  having  provided,  in  accordance  with  the  terms 
of  the  mortgage,  that  the  purchase  money  should  be  applied 
*'  first  to  the  payment  in  full,  if  it  be  sufficient,  or,  if  not,  to  the 
payment  j9/*(?  rata  of  all  defaulted  coupons,"  the  United  States 
Circuit  Court  of  Appeals  for  the  fifth  circuit  held  that  a  decree 
of  distribution  of  the  proceeds  of  the  sale  which  directed  a  j}ro 
rata  payment  on  the  bonds  themselves,  before  paying  the  interest 
coupons  due,  was  erroneous.*  A  bill  in  equity  to  foreclose  a  rail- 
road mortgage  for  non-payment  of  overdue  interest,  the  principal 
being  payable  at  a  future  day,  was  here  taken  pro  corifesso,  the 
company  appearing,  but  not  answering.  Under  the  decree  of  the 
court  a  sale  was  made,  and,  it  appearing  that  there  was  a  surplus 
over  and  above  what  was  necessary  to  pay  the  overdue  interest, 
costs  and  expenses,  it  was  ordered  by  the  court  that  this  surplus 
be  applied  to  the  reduction  of  the  principal  sum  due  upon  the 
bonds,  and  a  decree  entered  that  the  balance  of  such  principal 
sum  remaining  after  the  application  of  this  surplus  was  due  and 
payable  from  the  company  to  the  holders  of  the  bonds,  and  that 

»  George  v.  St.  Louis  Cable  &  West-  •  Cutting  v.  Tavares,  O.  &  A.  R.  Co, 
€m  Ry.  Co.,  (1890)  44  Fed.  Rep.  (Florida  Cent.  &  P.  R.  Co.,  Intervener^ 
117.  (1894)  61  Fed.  Rep.  150. 


§  542]  FORECLOSURE  OF  MORTGAGES  AND  TRUST  DEEDS.  1181 

the  trustee  recover  it  for  them,  vrith  interest  until  paid.     The 
Supreme  Court  of  the  United  States  held  that  the  application  of 
this  surplus  was  properly  made,  but  the  decree  declaring  the 
remainder  of  the  principal  due  and  immediately  payable  was 
irregular   and   was   not   warranted    by    the    pleadings.^      They 
declared  in  the  same  case  these  rules  as  to  pleadings  and  appeals 
in  such  foreclosure  suits  :  The  defendant  in  a  bill  in  equity,  taken 
pro  confesso,  is  not  precluded  from  contesting  the  sufficiency  of 
the  bill  or  from  insisting  that  the  averments  in  it  do  not  justify 
the  decree.     A   decree   on   a  bill   taken  pro   confesso  may  be 
attacked  on  appeal,  if  not  confined  to  the  matter  of  the  bill.    The 
ninety-second  rule  in  equity  does  not  authorize  a  decree  to  be 
entered  in  a  suit  in  equity  for  the  foreclosure  of  a  mortgage  for  a 
balance  due  to  the  complainant  over  and  above  the  proceeds  of 
the  sale,  if,  as  a  matter  of  fact,  such  balance  has  not  become  pay- 
able.    A  railroad  company,  the  road,  property  and  franchises  of 
which  have  been  sold  under  a  decree  for  the  foreclosure  of  a 
mortgage  entered  on  a  bill  taken  pro  confesso,  may  prosecute  an 
appeal  from  the  final  decree  distributing  the  proceeds  of  the  sale 
and  adjudging  a  balance  still  due  the  mortgage  creditors.^     This 
rule  has  been  declared  in  the  United  States  Circuit  Court  of 
Appeals   for   the   eighth   circuit:    That    the    Circuit    Court   of 
Appeals  cannot  take  knowledge,  actual  or  judicial,  of  what  may 
appear  upon  the  records  of  the  District  and  Circuit  Courts  within 
the  boundaries  of  the  judicial  circuit,  and  to  support  the  rights 
of  appeal  cannot  assume  the  existence  of  necessary  facts  which 
do  not  appear  of  record  in  such  courts.     And  upon  an  appeal 
from  an  allowance  of  a  claim  in  railway  mortgage  foreclosure 
proceedings  by  one  styling  himself  "  the  purchasing  trustee  of 
defendant's  property,"  where  it  did  not  appear  from  the  record 
that  the  property  had  been  sold  under  the  decree,  or  what  inter- 
est or  right  appellant  had  in  the  proceedings,  for  whom  he  was 
trustee,  or  that  the  moneys  out  of  which  the  claim  was  paid  were 
a  part  of  any  fund  in  which  he  had  an  interest,  the  court  held 
that  the  appeal  should  be  dismissed,  appellant  not  showing  by  the 
record  any  right  to  appeal.® 

»  Ohio  Central  R.  R.  Co.  v.  Central  '  Fitzgerald  v.  Evans,  (1892)  49  Fed. 

Trust  Co.  of  New  York,  (1890)  133  U.  Rep.  426.     Shiras,  J.,  speaking  for 

g  g3  the  court,  took  occasion  to  say:     "In 

»  ll^l^  view  of  the  action  we  have  felt  com- 


i 


1182  FORECLOSURE  OF  MORTGAGES  AND  TRUST  DEEDS.         [§  543 

§  543.  Allowances  in  foreclosure  suits.— Where  there  had 
been  a  foreclosure  of  a  mortgage  executed  by  a  corporation  for 
$145,000,  and  interest,  a  decree  entered  on  default,  and  the 
property  bought  in  by  one  of  the  bondholders  for  less  than  the 
mortgage  debt,  an  allowance  was  made  to  the  mortgagee,  a  trust 
company,  of  $1,000,  and  $500  allowed  to  its  counsel.  Upon 
exceptions  to  the  master's  report  in  this  matter  of  allowances,  it 
was  held  that  no  further  allowance  to  the  trustee  for  services  or 


pelled  to  take  in  this  matter,  we  deem 
it  advisable  to  call  attention  to  the 
practice  that  should    be  followed  in 
cases  of  railroad  foreclosures,  where  a 
sale  of  the  property  is  had  before  the 
rights  of  all  intervening  parties  are 
determined,  and  where,  by  the  terms 
of  the  decree,  the  court  reserves  full 
power  to  hear  such  matters  after  the 
sale,    with  the  right  to    subject  the 
property  and  its  proceeds  to  the  pay- 
ment of  claims  finally  adjudged  to  be 
prior   to    the  lien  of  the  mortgage. 
When  a  sale  is  made  under  a  decree  of 
the  kind  described,  it  is  the  duty  of 
the  purchaser,  upon  a  confirmation  of 
the  sale,  to  make  himself  a  party  to 
the  foreclosure  proceedings  by  filing 
therein  a  supplemental  bill  or  petition 
of  intervention,  setting  forth  the  fact 
that  he  has,  by  purchase  of  the  prop- 
erty, become  a  party  in  interest,  thus 
showing  that  he  has  become  subject 
to  the  burdens  and   entitled  to    the 
benefits  of  the  decree  under  which  he 
has  purchased  the  property.     Further- 
more, if  the  purchaser  does  not  reside 
within  the  territorial  limits  of  the  jur- 
isdiction of  the  court,  he  should  appear 
by  an  attorney  who  is  a  member  of 
the  bar  of  the  court  having  charge  of 
the  foreclosure  proceedings,   so  that 
when  need  arises  the  court  may  be  en- 
abled to  have  before  it  all  persons  in- 
terested in  resisting  the  allowance  or 
payment  of  claims  which  are  asserted 
to  be  entitled  to  priority  of  payment. 
It  not  unfrequently  happens  that  the 
purchasers  at  railway  foreclosure  sales 


may  reside  at  distant  points  and  with- 
out the  jurisdiction  of  the  court.     If 
the  purchaser  who  thus  resides  at  a 
distance  does  not  become  a  party  to 
the  record,  and  have  an  attorney  rep- 
resenting him  upon  whom  service  may 
be  made,  the  court  and  litigants  are 
put  to  a  great  disadvantage  in  dispos- 
ing of  the  claims  asserted  against  the 
property  or  its  proceeds.     Many  of  the 
claims  are  of  small  amounts,  and  if, 
before  the  same  can  be  allowed  and 
paid,  it  is  necessary  to  procure  orders 
for  service  upon  a  purchaser  living  in 
New  York  or  some  other  distant  point, 
and  to  complete  such  service  at   his 
place  of  residence,  the  expense  thereof 
will  eat  up  the  claim.     It  is  due  to  the 
court  and  necessary  for  the  prompt 
and  inexpensive  disposition  of  claims 
of  the  nature  indicated,  that  the  pur- 
chaser shall  become  a  party  to  the  rec- 
ord and  subject  himself  to  the  juris- 
diction of  the  court  in  the  manner  in- 
dicated.    If  the  purchaser  fails  in  this 
particular,  then  the  court  having  jur- 
isdiction of  the  foreclosure  proceed- 
ings   should,   by  appropriate  action, 
compel  the  purchaser  to    become   a 
party  to  the  record  in  order  that  the 
business  of  winding  up  the  foreclosure 
case  and  finally  settling  the  rights  of 
all  interested  may  be  proceeded  with 
in  an  orderly  way.     If  a  purchaser  at 
a    foreclosure    sale  makes  himself  a 
party  to  the  record  in  the  manner  indi- 
cated then  it  will  be  the  duty  of  the 
Circuit  Court   to  cause  notice  to  be 
given  him  before  passing  upon  inter- 


^  543  I  FORECLOSURE  OF  MORTGAGES  AND  TRUST  DEEDS.  1183 


counsel  fees  was  warranted  by  the  facts  of  the  case.^  It  appeared 
here  that  on  maturity  of  bonds  secured  by  a  railroad  mortgage, 
after  most  of  them  had  been  returned  and  the  holders  of  nearly 
all  of  the  bonds  outstanding  had  agreed  to  an  extension  of  time, 
the  trustee  of  the  mortgage,  on  his  motion,  and  without  request 
by  the  bondholders,  brought  suit  to  foreclose.  The  suit  was 
never  prosecuted  to  a  decree,  proceedings  on  a  second  mortgage 
being  afterward  instituted  in  the  federal  court.  Upon  the  peti- 
tion by  this  trustee  for  allowances  in  the  bondholder's  suit  to  fore- 
close the  second  mortgage,  Simonton,  Circuit  Judge,  held  that  the 
suit  by  him  was  unnecessary  and  declined  to  allow  him  com- 
pensation or  counsel  fees.  The  lien  of  the  first  mortgage  was  not 
questioned  in  the  foreclosure  proceedings  on  the  second  mortgage ; 
the  holders  of  the  bonds  secured  by  the  first  mortgage  had  con- 
sented to  an  extension  of  time.  The  court  held  that  the  duty  of 
the  trustee,  under  the  first  mortgage,  was  to  see  that  the  amount 
due  thereunder  was  determined,  and  a  decree  made  concerning 
the  interests  of  the  bondholders  ;  and  for  anything  more  than  the 
performance  of  that  duty  he  should  not  be  allowed  compensation 


vening  claims  or  directing  their  pay- 
ment from  the  fund  in  court,  and  thus 
full  opportunity  will  be  afforded  to  all 
parties  in  interest  to  be  heard  for  the 
protection  of  their  rights."  As  to 
rules  of  distribution  of  proceeds  of  a 
foreclosure  sale,  see  Pinkard  r.  Allen, 
75  Ala  73.  As  to  the  rule  of  distri- 
bution of  the  proceeds  of  a  sale  where 
there  is  to  be  a  distribution  between 
bondholders  secured  by  first  and 
second  mortgages,  see  Morton  t.  New 
Orleans  &  Selma  Ry.  Co.,  79  Ala. 
590.  Rules  as  to  the  application  of 
proceeds  of  sale  to  bonds  purchased 
under  an  agreement  of  the  company 
not  to  issue  any  more  of  that  series. 
McMurray  v.  Moran,  134  U.  S.  150; 
8.  c,  10  Sup.  Ct.  Rep.  427. 

'  Boston  Safe  Deposit  &  Trust  Co. 
t.  Adrian,  Mich.,  Water  Works,  (1891) 
47  Fed.  Rep.  8.  Swan,  J. ,  thus  spoke 
of  the  principles  governing  such  al- 
lowances: "While  it  is  well  settled 
that  a  trust  fund  is  chargeable  with 
the  expenses  of  its  own  administration, 


and  that  counsel  fees  may  be  properly 
taxed  against  such  a  fund,  the  present 
is  not  a  case  calling  for  the  application 
of  that  rule.  Such  allowances  are 
frequently  and  properly  made  in  cases 
where  the  trust  fund  had  been  rescued 
from  waste  or  destruction  arising  from 
the  fraud,  neglect  or  misconduct  of 
trustees,  or  when  the  energy  and 
efforts  of  creditors  or  others  interested 
have  saved  the  property  for  those  en- 
titled. It  is  also  true  that  a  creditor 
primarily  seeking  satisfaction  of  his 
own  debt,  who  has  realized,  by  his 
diligence  and  at  his  own  expense,  a 
fund  available  for  the  benefit  of  others 
as  well  as  himself,  is  entitled  to  reim- 
bursement of  his  costs  and  expenses, 
either  out  of  the  fund  or  by  a  propor- 
tional contribution  from  those  who 
accept  the  benefit  of  his  efforts.  The 
cases  of  Trustees  v.  Greenough,  105 
U.  S.  527;  Railroad  Co.  v.  Pettus,  113 
U.  8.  116;  8.  c,  5  Sup.  Ct.  Rep.  387; 
Hobbs  V.  McLean,  117  U.  S.  567;  s.  c, 
6  Sup.  Ct.  Rep.  870,  afford  examples  of 


1 1S4     FORECLOSURE  OF  MORTGAGES  AND  TRUST  DEEDS.    [§  543 

or  counsel  fees.^  As  to  allowances  on  foreclosure  suits  it  was  ruled 
in  this  case  that  an  order  might  be  made  on  tlie  receivers  for  the 
payment  of  expenses  incurred  by  a  mortgagee  in  a  suit  of  fore- 
closure, where  the  mortgage  made  provision  for  such  expenses. 
But  where  the  mortgaged  property  was  insufficient  to  pay  the 
mortgages,  an  order  could  not  l)e  made  for  allowance  of  counsel 
fees  of  the  mortgagee  to  be  paid  out  of  money  in  the  hands  of  the 
receivers.'  The  United  States  Circuit  Court  of  Appeals  for  the 
fifth  circuit  has  held,  in  the  suit  of  a  stockholder,  in  behalf  of 
itself  and  other  stockholders,  should  they  come  in,  against  a  rail- 
way corporation,  alleging  the  making  of  an  illegal  and  void  con- 
tract by  the  corporation,  and  praying  for  an  account,  an  injunc- 
tion, and  the  appointment  of  a  receiver,  an  allowance  for  com- 
pensation to  the  complainant  for  solicitor's  fees,  pending  an 
appeal  from  an  order  appointing  a  receiver  and  continuing  a 
restraining  order,  to  be  premature.^  In  an  action  by  the  holder 
of  second  mortgage  bonds  of  a  railroad  company  for  the  appoint- 
ment of  a  receiver,  and  a  receiver  was,  therefore,  appointed  with 
the  consent  of  all  interested  parties,  and  to  the  advantage  of  all, 
it  was  held  that  the  services  rendered  by  complainant's  attorneys, 
being  for  the  common  benefit,  should  be  paid  for  from  the  assets 
of  the  company.-*  This  foreclosure  suit  was  brought  by  a  bond- 
holder, who  in  his  bill  alleged  laches  on  the  part  of  the  trustees 
of  the  mortgage,  and  made  them,  and  all  prior  lienholders, 
parties.  These  prior  lienholders,  by  cross-bills,  also  prayed  fore- 
closure of  their  own  liens,  so  that,  as  a  result  of  the  litigation,  the 
property  was  decreed  to  be  sold  free  of  all  liens.     Upon  a  ques- 


the  propriety  of  their  allowances.  In 
those  cases  costs  and  expenses  were  al- 
lowed the  successful  plaintiffs  for  the 
recovery  of  salvage  of  an  imperiled 
fund,  which,  but  for  the  diligence  and 
activity  of  the  creditor  or  trustee, 
would  have  been  wholly  lost  to  the 
beneficiaries  or  seriously  depleted. 
They  are  marked,  too,  by  the  fact  that 
success  was  only  attained  by  long  and 
laborious  effort;,  and  at  great  expense, 
against  fraud,  neglect,  misconduct  or 
vigorously  contested  hostile  claims. 
It  is  just  and  equitable  that  such 
meritorious   service   should    be   ade- 


quately compensated  by  the  parties 
benefited.  No  such  features  charac- 
terize this  case."  See,  also,  Williams 
V.  Morgan,  111  U.  S.  699;  s.  c,  4  Sup. 
Ct.  Rep.  638. 

'Bound  V.  South  Carolina  R.  Co.; 
Ex  parte  Walker;  Ex  parte  Calder, 
(1894)  62  Fed.  Rep.  536. 

'Mercantile  Trust  Co.  v.  Missouri, 
K.  &  T.  Ry.  Co.,  (1889)  41  Fed.  Rep.  8. 

•Jacksonville,  T.  &  K.  W.  R.  Co.  ©. 
American  Construction  Co.,  (1893)  67 
Fed.  Rep.  66. 

*  Bound  V.  South  Carolina  Ry.  Co., 
(1890)  43  Fed.   Rep.  404,  ordering  a 


§  543]         FOKECLOSUKE  OF  MORTGAGES  AND  TEUST  DEEDS.  1185^ 

tion  of  allowance  of  counsel  fees,  the  federal  court,  by  which  the 
sale  was  decreed,  held  that  the  trustees  of  the  various  mort^fi:es 
must  be  considered  as  acting  in  the  interest  of  their  own  bond- 
holders  alone ;  and  that  the  counsel  fees  of  the  various  parties 
should  not  be  cliarged  upon  the  fund  as  a  whole,  but  upon  that 
part  of  the  proceeds  appropriated  to  the  payment  of  the  mort- 
gages respectively.     The  court  made  this  exception,  and  held  that 
where  part  of  the  bondholders  under  a  mortgage  dissented  from 
the  action  of  their  trustees  in  declaring  the  mortgage  due  for 
default  in  mterest,  and  contested  the  matter  in  the  foreclosure 
proceedings,  such  dissenting   bondholders  must  pay  their  own 
counsel  fees.^     Certain  bondholders  appeared  by  their  counsel 
and  contested  the  creditors'  rights  in  a  suit  by  bondholders  to 
foreclose  a  mortgage  of  the  corporate  property  and  franchises, 
and  took  various  steps  during  the  progress  of  the  case  involving 
labor  and  responsibility  on  their  counsel ;  subsequently,  during 
the  progress  of  the  litigation,  these  contesting  bondholders  sold 
their  bonds.     On  petition  by  their  counsel  to  be  allowed  a  fee  pay- 
able  out  of  the  dividend  which  would  go  to  these  bondholders,  it 
was  held  that  the  counsel  had  a  lien  upon  sucli  dividend,  and  that 
the  purchaser  of  the  bonds  pendente  lite  took  subject  to  this  lien  « 
In  a  case  where  the  complainant  in  a  bill  for  the  foreclosure  of  a 
railroad   mortgage  was  the  holder  of  a  majority  of  the  bonds 
secured  by  the  mortgage,  and  the  trustee,  by' agreement  ^vith  the 
complainant,  had  declined  to  act  in  the  foreclosure  proceedings 
and  was  made  a  co-defendant,  full  allowance  having  been  made 
to  the  counsel  of  complainant  and  to  the  receiver  for  his  services, 
all  for  duties  which  by  the  mortgage  were  assigned  to  the  trustee' 
the  United  States  Circuit  Court  held  that  it  was  not  error  U> 
refuse  an  allowance  also  to  trustee's  counsel.^ 

payment  to  the  attorneys  on  account      «  Mahone  «>.  Southern  Tel  Co    (1887) 
as  was  done  in  Central  Trust  Co.  v.   33  Fed.  Rep.  702  •»  v       ^ 

Wabash,  etc..  Ry.  Co.,  23  Fed.  Rep.       'Investment  Co.  of  Philadelphia  v. 

x\>      ^      o      .  ^  Ohio  &  Northwestern  R.R.  Co.,  (1891). 

Bound  V.  South  Carolina  Ry.  Co.,   46  Fed.  Rep.  696  »  v       / 

(1894)  69  Fed.  Rep.  509. 
149 


I 


* 


>• 


U 


CHAPTER  XXIX. 


RECEIVERS  IN  FORECLOSURE  SUITS. 


^1! 
.1 


il  I 


§  544.  Receivers — their  appointment 
—  when  they  should  be 
appointed  —  who  may  be 
appointed — their  discharge 
and  removal. 
545.  Conditions  attached  to  the 
appointment  of  a  receiver. 

646.  Receiver's  right  as  to  posses- 

sion of  the  property  of  the 
insolvent  corporation. 

647.  The  relation  of  the  receiver  to 

property  leased  by  the  cor- 
poration coming  into  his 
hands. 

648.  Powers  of  receivers  as  to  con- 

tracts, etc. 

649.  Power  of  the  court  and  its 

receivers  as  to  regulating 
wages  of  employees. 

650.  Receiver's  certificates  —  when 

they  will  be  authorized  — 
the  lien  of  such  certificates 
and  its  enforcement. 


§  561.  Rules  as  to  claims  against  re- 
ceiver growing  out  of  roll- 
ing stock  coming  into  his 
possession. 

552.  Application  of  earnings  of  the 

road  during  receivership. 

553.  Jurisdiction  of  actions  against 

receivers.     • 

554.  Claims  against   receivers  for 

injuries  to  persons  or  prop- 
erty during  receivership. 

555.  Rules  as    to   actions    for  in- 

juries to  persons  during 
receivership. 

556.  Rules  as  to  allowances  to  re- 

ceivers for  counsel  and  ex- 
penses of  parties  in  actions 
where  receivers  are  ap- 
pointed —  what  will  be  al- 
lowed and  what  not. 

557.  Actions  allowed  a  receiver  for 

the  protection  and  benefit  of 
the  property  in  his  hands. 


§  544.  Receivers  —  their  appointment  —  when  they 
-should  be  appointed  —  who  may  be  appointed  —  their  dis- 
charge and  removal. —  The  appointment  of  a  receiver  has  been 
held  to  be  justified  where  it  appeared  that  a  railroad,  heavily 
mortgaged,  had  made  several  defaults  in  the  payment  of  interest, 
aggregating  over  $1,000,000 ;  that  the  business  was  decreasing, 
with  probability  of  further  decrease  from  competition  with  new 
lines ;  that  it  was  in  need  of  repairs  and  improvements ;  that  the 
bondholders  were  not  in  harmony ;  that  a  foreclosure  was  about 
to  be  decreed ;  and  that  no  other  way  existed  for  applying  the 
rents  and  profits  of  the  road  to  its  debts.^  It  appeared  in  this 
action,  upon  the  foreclosure  of  a  railroad  mortgage  and  the 
appointment  of  a  receiver,  that  the  allegations  of  the  bill  and 
answer  were  in  conflict  as  to  the  solvency  of  the  company,  the 

» Mercantile  Trust  Co.  v.  Missouri,  Co.,  91  U.  S.  603;   Dow  v.  Railway 

K.  &T.  Ry.  Co.,  (1889)36  Fed.  Rep.  Co.,  124  U.  S.  652;  s.  c,  8  Sup.  a. 

221.    See  Railroad   Co.  v.   Cowdrey,  Rep.  673;  Kountze  v.  Hotel  Co.,  107 

11  Wall.   463;   Gihnan  v.    Telegraph  U.  S.  378;  s.  c,  2  Sup.  Ct.  Rep.  911. 


§544] 


BECEIVERS  IN  FORECLOSURE  SUITS. 


1187 


condition  and  care  of  its  property,  and  the  wisdom  and  economy 
of  its  methods  of  operation  ;  but  as  it  also  appeared  that  a  majority 
of  the  stock  of  tlie  railroad  company  was  in  the  hands  of  a  con- 
struction company,  with  substantially  the  same  officers  as  the 
railroad  company,  the  officers  of  which  construction  company 
were  adverse  to  those  of  the  mortgage  bondliolders,  and  that  the 
railroad  company  was  unable  or  unwilling  to  pay  the  interest 
upon  its  bonds,  a  federal  court  held  that  a  receiver  should  be 
appointed.^     The  allegations  of  a  bill  filed  by  a  bondholder,  to 
foreclose   a  railway  mortgage  and   for  the   appointment   of  a 
receiver,  that  the  railway  company  had  made  default  in  the  pay- 
ment of  taxes  lawfully  levied  and  imposed  upon  the  railway 
property,  and  that,  in  certain  counties,  it  had  permitted  its  rail- 
road to  be  sold  for  such  taxes ;  and,  further,  that  the  company  was 
hopelessly  insolvent,  and  unable  to  pay  its  present  and  accruing 
indebtedness,  and  that  it  had  failed,  neglected  and  refused  to  pay 
wages  and  operating  expenses  and  other  obligations  and  indebt- 
edness, amounting  to  more  than  $200,000,  and  the  further  allega- 
tion that  the  bondholder,  upon  these  facts  coining  to  his  knowl- 
edge, had  applied  to  the  trustee  named  in  the  mortgage  to  take 
action,  and  that  the  trustee  had  failed  and  neglected  to  take  any 
steps,  were  held  in  a  federal  court  to  make  a  case  for  the  appoint- 
ment of  a  receiver.''    In  a  case  where  the  same  receiver  of  a  rail- 


'  Farmers'  Loan  &  Trust  Co.  v. 
Winona  &  S.  W.  Ry.  Co.,  (1893)  59 
Fed.  Rep.  957. 

"  Putnam  v.  Jacksonville,  Louisville 
&  St.  Louis  Ry.  Co.,  (1893)  61  Fed. 
Rep.    440.     Woods,    Circuit    Judge, 
said:  ••  There  is  another  phase  of  this 
growing  indebtedness  of  the  company 
in  which  the   mortgagors   or   bond- 
holders are  interested.     By   the  law 
as  it  has  grown  up  under  the  case  of 
Fosdick  V.  Schall,  99  U.  S.  235,  and 
later  cases,  establishing  what  is  known 
in  this    circuit  as   the    'six  months 
rule,'  claims  for  labor  and  supplies,  if 
not  otherwise  provided  for,  become 
entitled  to  preference  over  the  mort- 
gage debt.     They,   perhaps,   do   not 
constitute  — I  do  not  think  they  con- 
stitute —  a  lien  on  the  property,  such 
as  to  entitle  the  holders  of  them  to 


apply  for  a  receivership  without  first 
having  established  their  demands.     If 
such  claims  constituted  a  fixed  or  cer- 
tain lien,  their  holders  might  be  en- 
titled to  have  receivers  appointed  to 
take  care  of  their  interests.     But  while 
there  is  not,  strictly  speaking,  a  lien, 
there  is  a  preferential  right  which  may 
be   enforced   against  the  mortgaged 
property  if  there  be  no  other  means  of 
payment;   and,   consequently,  to  the 
extent  that  such  demands    are    per- 
mitted to  accumulate,  the  rights  of 
the  mortgagee  are  liable  to  be  post- 
poned.    This    bondholder,   therefore, 
has  a  right  to   apprehend    that    his 
interest  will  suffer  in    that    respect; 
and  even  if  the  delinquent  taxes  were 
paid,  as  it  has  been  suggested  they 
might  be,  that  element  of  danger  to 
his  rights  would  not  be  eliminated. 


ii 


.  i 


1188 


BECEIVERS  IN  FORECLOSURE  SUITS. 


[§544 


1 

j 


road  company  liad  been  appointed  in  an  ancillary  suit  in  one 
state,  who  had  been  appointed  receiver  in  the  original  suit  in 
another  state,  on  principles  of  comity,  there  was  a  bill  filed  after- 
wards by  the  trustees  under  a  mortgage  to  secure  bonds  issued 
by  the  railroad  company  for  the  appointment  of  a  receiver,  and 
for  the  foreclosure  of  the  mortgage.    It  was  shown  in  the  United 
States  Circuit  Court  for  the  district  of  South  Carolina  that  tlie 
federal  court  in  Georgia  appointed  its  receiver  at  the  instance  of 
another  railroad  company  that  controlled  the  stock  of  the  defend- 
ant company  here,  to  further  the  interests  of  the  dominant  com- 
pany's system,  and  not  in  the  interest  of  creditors  of  the  defendant 
company  ;  and  also  that  the  federal  court  sitting  in  Georgia  had 
since  held  that  its  action  in  the  premises  was  unauthorized.     The 
United  States  Circuit  Court  for  the  district  of  South  Carolina 
held  that,  under  these  circumstances,  a  new  receiver  should  be 
appointed,  who  could  represent  all  interests,  and  whose  position 
would  be  unassailable.     Further,  it  was  held  that  it  was   not 
necessary  that  the  original  receiver  should  be  made  a  party  to  the 
trustee's  bill,  he  being  an  officer  of  the  court,  and  already  within 
the  jurisdiction  and  control  of  the  court ;  nor  was  another  corpo- 
ration, against  which  charges  were  made,  a  necessary  party,  where 
no    relief   was    asked    against   it.^      A    receiver    having   been 
appointed   in   a   suit   for  foreclosure   of    a  railroad   mortgage, 
it  has  been   held   in   Minnesota,  constitutes   no   reason  why  a 
receiver  should  not  be  appointed  in  a  proceeding  by  a  judgment 
creditor  of  the  railroad  company  under  the  laws  of  the  state 
for    the    sequestration    of    all    the    property    and     effects    of 
the  corporation  for  the  benefit  of  all  its  creditors.^     There 

I  cannot  escape  the  conviction  that  by  a  receiver  appointed  in  a  fore- 
practically  this  road  is  insolvent,  and  closure  suit.  The  former  has  sub- 
to  such  a  degree  as  to  require  the  in-  stantially  all  the  powers  and  functions 
terf erence  of  this  court. "  of  an  assignee  in  bankruptcy.    Every- 

»Phinizy  v.  Augusta  &  Knoxville  thing  becomes  assets  in  his  hands 
B.  Co.,  (1893)  56  Fed.  Rep.  273.  which    are    assets    as    to   creditors, 

•  St.  Louis  Car  Co.  v.  Stillwater  although  not  assets  as  to  the  corpora- 
Street  Ry.  Co.,  (1893)  53  Minn.  129;  tion,  as,  for  example,  property  con- 
B.  c,  54  N.  W.  Rep.  1064.  It  was  veyed  in  fraud  of  creditors,  capital 
said  by  the  court:  "The  powers  of  withdrawn  without  provision  for  the 
the  receivers  in  the  two  cases  are  payment  of  corporate  debts,  the  per- 
entirely  different.  There  are  various  sonal  liability  of  stockholders,  etc. 
classes  of  property  that  can  be  reached  Minnesota  Thresher  Mfg.  Co.  v.  Lang- 
by  a  receiver  under  [the  sequestration  don,  44  Minn.  37;  s.  c,  46  N.  W.  Rep. 
statutes]  which  could  not  be  reached  310.    Of  course  an  appointment  of  a 


§544] 


RECEIVERS  IN  FORECLOSURE  SUITS. 


1189 


was  in  a  case  a  question  as  to  the  propriety  of  the  United 
States  Circuit  Court  for  the  northern  district  of  Ohio  appoint- 
ing receivers  of  the  property  located  within  that  jurisdic- 
tion. The  court  ruled  upon  this  point  that  where  a  railroad 
receivership  had  been  extended  by  ancillary  appointment  over 
the  property  of  the  company  in  its  jurisdiction,  the  court  could 
not,  even  if  it  had  the  power,  extend  the  receivership  to,  or 
appoint  additional  receivers  in,  another  independent  and  original 
suit  brought  by  the  corporation  wliich  had  leased  its  road  to  the 
insolvent  company,  upon  unsupported  allegations  that  the  original 
receivership  was  brought  about  by  fraud  and  collusion,  and  that 
the  receivers  were  hostile  to  the  lease.^     In  a  late  case,  the  federal 

receiver  under  [this  statute]  would  not 

necessarily  supersede  the  receivership 

in  the  foreclosure  suit.     If  the  court 

should  be  of  the  opinion  that  the  in- 
terests of  the  mortgagee  could  not  be 

otherwise    properly    protected,    both 

receiverships     might     coexist;     that 

under  [the  statute]  being  subordinate, 

as    to  the  property  covered  by    the 

mortgage,  to  the  receivership  in  the 

foreclosure  suit.     And  as  it  would  be 

eminently  desirable,  if  possible,  that 

the  entire  property  should  be  under 

the  control  of  an  officer  of  the  court, 

there  would  be  nothing  improper  in 

the  court  appointing  the  same  person 

receiver  in  both  cases,  provided  there 
is  no  conflict  of  interest  between  the 
mortgagee  and  the  other  creditors  of 

the  defendant." 

'  New  York,  P.  &  O.  R.  Co.  v.  New 
York,  L.  E.  &  W.  R.  Co.,  (1893)  58 
Fed.  Rep.  268.  Lurton,  Circuit 
Judge,  said:  "Whatever  rights  the 
complainant  has  as  a  creditor  or  under 
the  lease  it  can  set  up  as  against  the 
receivers  without  an  extension  of  the 
receivership.  Such  extension  would 
complicate  accounts  and  result  in  con- 
flicting directions.  There  are  stronger 
reasons  for  the  refusal  to  appoint  addi- 
tional receivers.  The  Erie  system  is  a 
vast  and  extended  one.  Its  lines  ex- 
tend into  several  states  and  as  many 


different  jurisdictions.     The  preserva- 
tion of  this  system  as  a  whole,  its  har- 
monious management  as  a  unit,  gives 
it  its  greatest  value  and  power,  and 
anything  which  tends  to  dismember  it 
or  to  disrupt  its  management  as  an 
entirety  should  be  avoided  if  possible. 
While  it  is  a  *  system '  and  while  it 
remains  a  great  '  trunk  line '  its  man- 
agement under  order  and  direction  of 
the  court  should  be  committed  to  one 
set  of  receivers  having  like  authority 
in  inch  jurisdiction   and  controlling 
each  and  every  part  of  its  property. 
Receivers  are  but  officers  and  agents 
of  the  court.    While  necessarily  much 
is  committed  to  their  judgment  and 
discretion,  yet    their  power  depends 
upon  the  decrees  and  directions  of  the 
courts   appointing    them.     Receiver- 
ships of  railroads  are  in  large  part 
peculiar  appointments.     Railroads,  as 
public  carriers,  are  charged  with  great 
public  duties,  and  the  public  are  in- 
terested that  their  operation  shall  be 
continuous.      Creditors    are    likewise 
interested  that  there  shall  be  no  cessa- 
tion in  their  maintenance  as  going  con- 
cerns, because  their  value  as  property 
depends  upon  the  active  use  of  the 
hne.     These    considerations  have  de- 
veloped the  present  well-settled  propo- 
sition that  such  receivers  are  the  mere 
custodians  of  the  property,  and  hold 


1190 


B£C£iy£SS  IN  FORECLOSURE  SUITS. 


[§544 


I* 

Ik 


court  for  the  eastern  district  of  Nortli  Carolina,  upon  an  inter- 
vention to  rescind  the  order  appointing  the  receiver  of  a  railroad 
company,  held  that  one  possessing  integrity  of  character,  business 
experience,  a  capacity  for  the  examination  into  and  comprehen- 
sion of  accounts,  Avho  had  had  large  financial  experience  and  been 
concerned  in  the  construction  and  management  of  railroads,  with 
a  knowledge  of  railroad  accounts,  was  not  disqualified  to  act  as  a 
receiver  merely  because  he  was  not  a  railroad  expert,  acquainted 
with  all  the  details  of  the  mechanical  work  of  a  railroad  plant. 
Neither  should  he  he  removed  on  the  ground  of  alleged  unfitness 
in  removing  the  treasurer  of  the  company  and  increasing  the 
expenses  of  that  ofiice,  of  frequent  visits  in  person  on  the  rail- 
road and  extravagant  expenditures,  nothing  being  shown  as  to 
the  ability  of  the  person  discharged,  and  the  receiver's  answer 
showing  that  the  expenses  of  the  treasurer's  ofiice  had  not  been 
increased  beyond  what  the  pecuniary  situation  warranted ;  and 
the  allegations  of  visits  were  positively  denied  by  him,  and  no 
extravagant  expenditure  having  been  shown.  Further,  there 
was  no  disqualification  of  a  person  to  act  as  receiver  of  a  North 
Carolina  corporation,  owing  its  conception  to  the  citizens  of  that 
state,  merely  because  he  was  not  a  citizen  of  North  Carolina.* 
In  proceedings  for  the  appointment  of  a  receiver  of  an  insolvent 
railroad  company,  one  who  i$  a  party  to  or  counsel  in  the  cause, 


for  and  as  mere  agents  of  the  court. 
Speaking  of  the  character  of  such 
trustees  and  the  effect  of  such  holding 
upon  the  interests  procuring  the  ap- 
pointment, Chief  Justice  Waite  said: 
*  The  possession  taken  by  the  receiver 
is  only  that  of  the  court,  whose  officer  he 
is,  and  adds  nothing  to  the  previously 
existing  title  of  the  mortgagee.  He 
holds  pending  the  litigation,  for  the 
benefit  of  whomsoever  in  the  end  it  shal 
be  found  to  concern,  and  in  the  mean- 
time the  court  proceeds  to  determine 
the  rights  of  the  parties  upon  the  same 
principles  it  would  if  no  change  of 
possession  had  taken  place.'  Fosdick 
9.  Schall,  99  r.  S.  235,  251;  Railroad 
Co.  T.  Humphreys,  145  U.  S.  82;  s.  c, 
12  Sup.  Ct.  Rep.  787.  A  receiver  rep- 
resents no  particular  interest  or  class 


of  interests.  He  holds  for  the  benefit 
of  all  who  may  ultimately  show  an 
interest  in  the  property.  He  stands 
no  more  for  the  creditor  than  the 
owner.  They  are  not  assignees,  and 
the  principles  of  common  law  appli- 
cable to  assignees  do  not  define  or  de- 
termine the  character  of  a  receiver's 
possession  or  its  effect  upon  the  rights 
of  those  interested  in  the  property  in 
their  possession.  Receivers  ought  not 
to  be  appointed  to  represent  the  pecu- 
iar  interests  of  one  class,  and,  a  for- 
tiori, they  should  not  be  appointed  to 
represent  one  interest  out  of  a  class  of 
Interests." 

'  Farmers'  Loan  &  Trust  Co.  v.  Cape 
Fear  &  Y.  Val.  R.  Co.,  (North  State 
Imp.  Co.,  Intervener)  62  Fed.  Rep. 
675,  confirming  the  appointment. 


§544] 


RECEIVERS  IN  FORECLOSURE  SUITS. 


1191 


or  who  has  been  an  officer  of  the  company,  will  not  be  made  the 
permanent  receiver.^     A  United  States  circuit  judge  has  authority 
to  hear  at  cliambers  a  motion  to  discharge  a  receiver  of  a  corpo- 
ration.^    A  federal  court,  which  had  been  petitioned  to  remove  a 
receiver  of  a  railroad,  has  recently  declared  this  rule  of  practice 
in  such  matters  as  a  proper  one.     In  general,  the  party  who  asks 
the  court  to  remove  one  of  its  officers  for  malfeasance  or  incom- 
petency should  be  prepared,  not  only  to  prefer  specific  charges  of 
wrongdoing,  but  to  accompany  them  with  proof.     It  ought  not* 
to  be  tolerated  that,  upon  mere  vague  and  unsupported  charges, 
one  should  be  compelled  to  submit  to  a  sweeping  investigation 
into  his  conduct,  and  that  upon  sucli  charges  a  court  could  prop- 
erly be  asked  to  order  a  general  investigation  into  his  conduct, 
and  that  upon  such  charges  a  court  could  properly  be  asked  to 
order  a  general   investigation   to   ascertain   whether  something 
might  not  be  found  objectionable  to  his  standing.     It  is  a  funda- 
mental and  most  just  principle  of  law  that  one  should  not  be  put 
to  answer  vague  and  indefinite  charges.     Kor,  in  general,  as  to  a 
specific  charge  of  malfeasance,  should  one  be  put  to  liis  defense, 
in  the  absence  of  evidence  tending  to  sustain  the  charge.     In 
this  particular  case,  the  receiver  objected  to  had  been  appointed 
at  the  request  of  the  trustees  in  all  but  one  of  the  mortgages  on 
the  railway,  and  on  the   recommendation  of   the   bondholders 
secured  by  the  mortgages,  with  the  express  assent  of  the  railroad 
company,  in  the  service  of  which  he  had  been  for  many  years  as 
general  manager  of  the  railroad,  and  as  director,  vice-president 
and  president.     He  was  thoroughly  familiar  with  its  history,  con- 
ditions and  necessities,  and  was  a  thoroughly  competent  railroad 
manager.     The  proofs  established  that  the  road  had  been  man- 
aged with  prudence  and  economy,  so  far  as  concerned  its  actual 
operation,  and  no  fault  in  the  management  of  the  property  was 

'Finance    Co.   of    Pennsylvania    v.  if   applications  for  relief   had  to  be 

Charieston,  C.  &  C.  R.  Co.,  (1891)  45  made  in  all  cases  to  the  court  in  ses- 

Fed.  Rep.  436.  sion.     A  motion    to   discharge  a  re- 

•  Walters  v.  Anglo-American  Mort-  ceiver  may  be   heard    at    chambers, 

gage  &  Trust  Co.,  (1892)  50  Fed.  Rep.  upon  direction,  and  will  be  granted 

316.     Caldwell,  Circuit  Judge,  said:  when  it  appears  that  he  was  improvi- 

"The  exercise  of  chambers  jurisdic-  dently  appointed,  or  that  there  is  any 

tion  in  equity  cases  is  absolutely  essen-  other  sufficient  reason  for  his  discharge, 

tial  for  the  purpose  of  preventing  the  Railroad  Co.  v.  Sloan,  31  Ohio  St.  1; 

delay,  injustice,  expense  and  incon-  Crawford  v.  Ross,  39  Ga.  44;  Beach  on 

venience  which  must  inevitably  ensue  Rec.  §  778. 


1192 


EECEIVERS  IN  FORECLOSURE  SUITS. 


[§544 


I 


u 


1 1 

1 


it 


suggested.  The  court  declined  to  remove  the  receiver  against 
whom  the  petition  was  directed,  holding  the  fact  that  he  was  an 
officer  and  director  of  the  company  at  the  time  of  liis  appoint- 
ment not  to  be  a  ground  for  a  revocation  of  his  appointment.* 
Bond,  Circuit  Judge,  in  the  United  States  Circuit  Court  for  the 
district  of  Maryland,  while  recognizing  that  the  suggestions  and 
recommendations  of  persons  who  substantially  own  property 
about  to  be  intrusted  to  a  receiver  are  of  great  weight  with  the 
court  in  making  an  appointment  of  a  receiver,  declined  to  remove 
this  receiver  of  railway  property,  whose  management  had  been 
able,  efficient  and  impartial,  at  the  request  of  the  controlling 
stockholder  and  his  associates,  in  a  case  where  the  litigation  was 
not  for  the  purpose  of  foreclosing  a  mortgage,  but  was  instituted 
by  a  minority  stockliolder  on  the  ground  that  tlie  bonded  indebt- 
edness and  the  issues  of  stock  were  being  vastly  increased  with- 
out any  corresponding  increase  of  assets,  and  mainly  for  the  bene- 
fit of  the  controlling  stockholder.'  The  removal  or  appointment 
of  a  receiver  rests  in  the  sound  discretion  of  the  court  making 
the  order,  and  is  not  reviewable  in  the  Supreme  Court  of  the 
United  States.^  A  court  of  equity  appointing  receivers  for  a 
corporation,  in  case  the  parties  interested  fail  to  provide  means 
for  the  discharge  of  such  receivers  within  a  reasonable  time,  will, 
on  its  own  motion,  consider  the  propriety  of  dissolving  the 
receivership.* 


'Farmers*  Loan  &  Trust  Co.  v. 
Northern  Pacific  R.  Co.,  (1894)  61  Fed. 
Rep.  546. 

'Street  v.  IVIaryland  Cent.  Ry.  Co., 
(1893)  58  Fed.  Rep.  47. 

'Milwaukee  &  Minnesota  Railroad 
Co.  V.  Soutter,  154  U.  S.  540;  followed 
in  Milwaukee  &  Minnesota  Railroad 
Co.  V.  Soutter,  154  U.  S.  541. 

*  Piatt  V.  Philadelphia  &  Reading 
R.  R.  Co.,  65  Fed.  Rep.  872.  Who 
should  be  appointed  receivers,  see  Olm- 
stead  «?.  Distilling  &  Cattle  Feeding 
Co..  67  Fed.  Rep.  24;  Ralston  t. 
Washington  &  C.  R.  Ry.  Co.,  65  Fed. 
Rep.  557.  When  receivers  will  or  will 
not  be  removed,  see  Etowah  Mining 
Company  v.  Wills  Valley  Mining  & 
Mfg.  Co.,  (Ala.)  17  So.  Rep.  522 ;  Gyp- 


sum Plaster  &  Stucco  Co.  v.  Adsit, 
(Mich.)  63  N.  W.  Rep.  518;  Fowler 
V.  Jarvis-Couklin  Mortgage  Trust  Co., 
66  Fed.  Rep.  14.  In  Clap  v.  Inter- 
state Street  Ry.  Co.,  (1894)  61  Fed. 
Rep.  537,  Colt,  Circuit  Judge,  denied 
a  petition  to  appoint  a  separate  receiver 
for  one  of  the  railway  company's 
branches,  such  branch  having  ceased 
to  be  operated  by  reason  of  the  destruc- 
tion of  its  power  house.  He  said:  "If 
the  road  were  running  the  court  might, 
upon  the  showing  made  by  the  peti- 
tioners, direct  the  receiver  to  keep  a 
separate  account  of  the  receipts  and 
disbursements  of  [the  branch  road], 
but  in  the  present  condition  of  affairs,  I 
see  no  necessity  for  making  any  such 
order.     The   burning  of  the   power 


§545} 


BECEIVERS  IN  FORECLOSURE  SUITS. 


1193 


§    545-    Conditions  attached    to  the  appointment  of  a 
receiver. —  The  doctrine  of  the  United  States  Supreme  Court  is 
that  a  court  of  equity  may  make  it  a  condition  of  the  issue  of  an 
order  for  the  appointment  of  a  receiver  that  certain  outstanding 
debts  of  the  company  shall  ])e  paid  from  the  income  that  may  be 
collected  by  the  receiver  or  from  the  proceeds  of  sale ;  that  the 
property  being  in  the  hands  of  the  court  for  administration  as  a 
trust  fund  for  the  payment  of  incumbrances,  the  court,  in  put- 
ting it  in  condition  for  sale,  may,  if  needed,  recognize  the  claims 
of  materialmen  and  laborers,  and  some  few  others  of  similar 
nature,  accruing   for  a  brief  period  prior  to  its  intervention, 
where  current  earnings  have  been  used  by  the  company  to  pay 
mortgage  debts  or  improve  the  property,  instead  of  to  pay  current 
expenses,  under  circumstances  raising  an  equity  for  their  restora- 
tion ;  as,  for  instance,  where  the  company,  being  insolvent  and 
in  default,  is  allowed  by  the  mortgage  bondholders  to  remain  in 
possession   and   operate  the   road   long   after   that  default  has 
become   notorious,  or  where  the   company  has   been   suddenly 
deprived  of  the  control  of  its  property,  and  the  pursuit  of  any 
other  course  might  tend  to  cessation  of  operation.^     The  better 
practice,  it  has  been  held,  when  a  receiver  has  been  appointed  for 
a  railroad,  is  for  the  judge  of  the  court  making  the  appointment  to 
stipulate  at  the  time,  and  as  a  condition  of  the  appointment  of  a 
receiver,  what  debts  and  liabilities  of  the  railway  company  shall 
be  made  a  charge  on  the  property  and  paid  by  the  receivers.     If 
the  mortgagee  is  unwilling  to  take  a  receiver  on  the  terms  pro- 


house  has  stopped  the  running  of  cars, 
much  to  the  inconvenience  of  the  pub- 
lic. If  this  had  not  happened,  the 
effort  might  have  been  made  to  con- 
tinue the  road  in  operation  while  it 
remained  in  the  hands  of  the  court ; 
but  as  this  cannot  be  done,  owing  to  this 
accident,  I  hardly  think  it  within  the 
legitimate  powers  of  the  court  for  it 
to  undertake  to  set  the  road  in  opera- 
tion again  by  the  outlay  of  any  con- 
siderable sum  of  money  unless  it 
should  be  requested  so  to  do  by  all  the 
parties  in  interest.  It  is  not  the  busi- 
ness of  the  court  to  build  railroads  or 
to  set  railroads  in  operation  which 
150 


have  ceased  to  run,  but  its  duty  is  to 
preserve  the  property  which  comes  into 
its  liands  until  it  passes  to  the  rightful 
owners,  and,  incidentally,  in  further- 
ance of  this  end,  to  continue  the 
operation  of  the  railroad  where  it  is 
practicable." 

'Fosdick  V.  Schall,  99  U.  S.  235; 
Miltenberger  v.  Logansport  Railway, 
106  U.  S.  286.  311,  312;  Penn  v.  Cal- 
houn, 121  U.  S.  251;  Blair?).  St.  Louis, 
etc.,  R.  R.  Co.,  22  Fed.  Rep.  474; 
Farmers'  Loan  &  Trust  Co.  v.  Vicks- 
burgh,  etc.,  R.  R.  Co.,  33  Fed.  Rep. 
778. 


It 


k\ 


1194 


RECEIVERS  IN  FORECLOSURE  SUITS. 


[§546 


I* 


posed,  tlie  foreclosure  can  proceed  without  a  receivership.  If  no 
order  is  made  when  the  receiver  is  appointed,  it  can  be  made 
afterwards.^ 

§  546.  Receiver's  right  as  to  possession  of  the  property 
of  the  insolvent  corporation. —  A  court  will  protect  its  receiver 
in  the  possession  and  proper  use  and  management  of  the  property 
and  privileges  ]iertaining  thereto  connnitted  to  him.  And  it  will 
extend  sucli  protection  even  to  restrainin":  anotlier  railroad  com- 
pany from  proceeding  to  condenm,  or  to  subject  to  its  use,  prop- 
erty in  the  possession  of  its  receiver  by  proper  legal  proceedings, 
and  will  more  readily  do  so  when  such  condemnation  or  vice  is 
sought  or  attempted  to  be  had  without  any  legal  proceedings 
being  taken  for  that  purpose.  In  this  case  the  court  granted  an 
injunction  restraining  a  street  railway  company,  its  officers,  serv- 
ants and  agents,  from  entering  with  their  track  upon,  or  in  any 
manner  interfering  witli,  the  right  of  way  and  roadbed  of  the 
street  railroad  as  then  possessed,  used  and  operated  by  the 
receiver  appointed  by  tliat  court.  At  the  same  time  the  court 
refused  to  consider,  at  the  instance  of  its  receiver,  who  did  not 
use  electricity  in  his  management  of  the  street  railroad  in  his 


§546] 


RECEIVERS  IN  FORECLOSURE  SUITS. 


1195 


^  Central  Trust  Co.  r.  St.  Louis,  A. 
&  T.  Ry.  Co.,  (1890)  41  Fed.  Rep.  551; 
Fosdick  V.  Schall,  99  U.  S.  2m;  Blair 
V.  Railroad  Co.,  22  Fed.  Rep.  471.  In 
Farmers'  Loan  &  Trust  Co.  v.  Kansas 
City,  W.  &  N.  W.  R.  Co.,  (1892)  53 
Fed.  Rep.  182,  it  appeared  that  there 
were  many  creditors  entitled  under  the 
laws  of  Kansas  to  liens  on  the  prop- 
erty, or  parts  of,  it  and  also  other  cred- 
itors who  had  the  right  to  subject  the 
income  and  earnings  of  the  road  to  the 
payment  of  their  claims.  The  court 
required  the  trustee,  as  a  condition  of 
appointing  the  receiver,  to  assent  to 
the  payment  of  all  their  claims  prior 
to  the  satisfaction  of  the  bonds,  and 
the  decree  appointing  the  receiver  pro- 
vided for  the  payment  of  all  debts  for 
ticket  and  freight  balances,  for  work, 
labor,  materials,  machinery,  fixtures 
and  supplies  of  every  kind  and  charac- 
ter furnished  in  the  construction,  ex- 


tension, repair,  equipment  or  opera- 
tion of  the  road,  and  all  liabilities  in- 
curred in  the  transportation  of  freight 
and  passengers,  including  damage  to 
person  and  property,  which  had  accrued 
since  the  execution  of  the  mortgage, 
Caldwell,  Circuit  Judge,  in  the 
United  States  Circuit  Court  for  the 
district  of  Kansas,  held,  that  imposing 
this  condition  upon  the  appointment  of 
the  receiver  was  a  proper  exercise  of 
the  court's  discretion  to  impose  terms; 
and  that  the  trustee's  assent  thereto 
was  binding  upon  the  bondholders, 
and  the  bondholders  would  not  be  per- 
mitted to  become  parties  to  the  suit 
for  the  purpose  of  having  this  decree 
vacated.  There  is  a  very  interesting 
and  full  note  to  this  case  on  the  fore- 
closure of  railroad  mortgages  and  mat- 
ters pertaining  to  such  suits  in  5^ 
Fed.  Rep.  192,  by  Morris  M.  Cohn,  of 
Little  Rock,  Ark. 


h« 


possession,  how  the  use  of  electricity  by  a  competing  company 
over  five  blocks  of  the  same  roadbed  might  affect  future  pur- 
chasers, should  they  desire  to  introduce  that  motive  power.^  The 
property  of  the  railroad  company  involved  in  this  foreclosure 
suit  having  been  uninterruptedly  in  the  possession  of  a  succession 
of  receivers  appointed  by  federal  courts  for  a  length  of  time 
before  the  appointment  of  a  receiver  of  the  same  property  by  a 
state  court,  the  federal  court  refused  to  order  the  property  trans- 
ferred to  the  receiver  appointed  by  the  state  court  on  his  applica- 
tion for  such  an  order,  it  appearing  that  the  receiver  last 
appointed  by  the  federal  court  had  actual  physical  possession 
under  a  bill  filed  by  the  trustee  of  bondholders  representing  the 
bulk  of  the  indebtedness  of  the  road,  while  the  receivers  of  the 
state  court  represented  only  junior  creditors,  and  but  little  of 
the  indebtedness.2  In  the  United  States  Circuit  Court  for  the 
southern  district  of  Georgia,  the  Central  Kailroad  Company  of 
that  state,  in  a  suit  instituted  by  a  stockholder  and  in  which  trust 
companies,  as  trustees  of  bondholders  afterwards  became  parties, 
was  placed  in  the  hands  of  a  receiver.  This  receiver  was 
appointed  under  a  bill  alleging  that  the  company  which  he  had 
in  charge  operated  and  controlled  several  lines  of  railway,  among 

»  Fidelity  Trust  &  Safety  Vault  Co.  In  both  of  these  cases  there  was  some- 

V.  Mobile  St.  Ry.  Co.,  (1892)  53  Fed.  thing  of  a  race  for  the  possession  of 

Rep.  687.  the  property,  and  the  rule  may  be  de- 

»  Central  Trust  Co.  of  New  York  v.  rived  from  these  cases  as  well  as  from 

Chattanooga,  Rome  &  Columbus  R.  all  the  other  authorities  on  the  subject 

Co.,  (1894)  62  Fed.  Rep.   950.     It  was  that  the  court  which  has  the  actual 

said  by  the  court:  "The  facts  here  physical  possession  of  the  property  will 

make  no  such  case  as  was  made  in  the  determine  the  justice  and  rights  of  its 

litigation  over  the  Atlanta  and  Char-  possession,   and  any  other  court  ap- 

lotte  Air-Line  railroad,  in  which  con-  pointing  a  receiver,  even  prior  to  the 

flicting  opinions  as  to  the  duty  of  the  appointment    by    the    court    having 

courts  as   to  possession  of  receivers  possession,  will  direct  that  an  applica- 

were  expressed  by  Justice  Bradley  tion  be  made  to  the  court  in  possession 

and  Circuit  Judge  Woods,  in  the  case  as  to  whether  its  receiver  is  rightfully 

of  Wilmer??.  Railroad  Co.,  2  Woods,  entitled   to    possession.     Under    the 

409;  Fed.  Cas.  No.  17,775,  or  in  the  facts  stated  as  existing  in  the  case  at 

Atlanta  &  Florida  Railroad  case,  in  bar,  a  very  different  question  is  pre- 

which  a  decision   was  made  by  the  sented;  the  state  court  appointed  its 

judge  of  the  state  court  (not  reported),  receiver,  as  has  been  stated,  with  the 

and  afterwards  heard  by  Judge  Speer  knowledge  of  the  fact  that  the  prop- 

of  the  southern  district,  in  the  case  of  erty  was  in  the  hands  of  the  federal 

East  Tennessee,  V.  «fc  G.  R.  Co.  v.  At-  court,  and  notwithstanding  that  fact, 

lantic  &  F.  R.  Co.,  49  Fed.  Rep.  608.  and  it  did  not  direct  its  receiver  to 


_  _  .  ^^  .-^-v- 


1196 


RECEIVERS  IN  FORECLOSURE  SUITS. 


[§546 


.111 


t 


I 


i 


others  the  Port  Rojal  and  Augusta  Railroad  Company ;  that  the 
railroad  company  was  unable  to  pay  the  interest  on  its  bonds,  and 
that  a  receiver  was  necessary  in  order  to  prevent  dismemberment 
and  disastrous  litigation,  and  was  placed  in  charge  of  these  vari- 
ous properties.     Afterwards  one  who  was  appointed  receiver  in 
the  state  court  for  the  Port  Royal  and  Augusta  Railroad  Com- 
pany Hied  a  petition  in  the  federal  court  showing  his  appointment 
as  receiver,  etc.,  and  praying  that  the  received  of  the  Central 
railroad  and  its  subsidiary  properties  be  directed  to  surrender  the 
property  of  the  Port  Royal  and  Augusta  Railroad  Company  to 
petitioner.     The  federal  court  granted  the  prayer  of  the  petition 
and  directed  the  surrender  of  the  property  to  the  receiver  of  the 
state  court,  holding  that  the  Central  Railroad  Company  being 
merely  a  creditor  of  the  Port  Royal  and  Augusta  Railroad  Com- 
pany and  a  majority  stockholder  therein,  but  having  no  rights  of 
ownership  in  the  property  of  the  road,  had  no  right  to  its  posses- 
sion  and  control,  and  the  receiver  of  the  creditor  company  had 
no  greater  rights  than  the  company  itself.^     An  order  appointing 
a  receiver  of  a  railroad  company,  among  other  things  providing 
that  *'  all  the  books,  vouchers  and  papers  touching  the  operation 
of  the  road"  should  be  delivered  by  its  officers,  servants  and 
agents  to  such  receiver,  has  been  held  to  include  all  the  books 
relating  to  the  previous  history  of  the  corporation  and  all  records 
of  its  transactions,  and  not  confined  to  books  relating  to  the 
future  operation  of  the  road,  or  to  such  as  the  receiver  might 
specifically  demand,  and  an  order  of  court  appointing  a  receiver 
of  a  railroad  company,  providing  for  the  delivery  to  the  receiver 
of  "all  and  every  part  of  the  properties,  interest,  effects,  moneys, 
receipts,  earnings,  etc.,  embraces  the  company's  seal.^    LaCombe, 
Circuit  Judge,  in  the  United  States  Circuit  Court  for  the  southeni 
district  of  ISTew  York,  denied  the  motion  of  a  stockholder  for 
leave  to  inspect  the  books  of  a  corporation  which  was  in  the 
hands  of  a  receiver,  it  appearing  that  the  applicant  did  not  become 
a  stockholder  until  six  months  after  the  receiver  was  appointed ; 
at  the  same  time  it  was  declared  by  the  court  that  in  case  a  stock- 
holder of  a  corporation  in  the  hands  of  a  receiver  sought  leave  to 

take  possession,  but,  on  the  contrary,    of  New  York,   (1893)  56  Fed.   Rep. 
the  effect  of  the  order  was  to  direct   357. 

the  receiver  not  to  take  possession."  'American  Construction  Co.  i>.  Jack- 

»  Central    R.    R.    &    Bkg.   Co.    of  sonville,  T.  &  K.  W.  Ry.  Co.,  (1893) 
Georgia  v.  Farmers'  Loan  &  Trust  Co.    53  Fed.  Rep.  937. 


§547] 


RECEIVERS  IN  FORECLOSURE  SUITS. 


1197 


inspect  its  books,  it  would  be  no  ground  for  denying  him  the 
right  that  his  object  was  to  obtain  material  to  convince  the  other 
stockholders  that  a  plan  of  reorganization  which  had  met  the 
approval  of  a  majority  of  the  stockholders  should  not  be  carried 
out.     And  while  it  would  be  proper  for  the  receiver  to  refuse  to 
allow  such  an  inspection  of  the  books  of  the  corporation  until  it 
was  ordered  by  the  court,  it  was  no  part  of  his  duty  to  promote 
one  plan  of  reorganization  as  against  another,  either  by  opposing 
the  petition  to  be  allowed  such  inspection  or  otherwise,  but  he 
should  remain  absolutely  neutral.^     In  a  motion  for  an  attachment 
for  contempt  in  an  action  against  a  railroad  company  for  the 
appointment  of  a  receiver,  and  in  which  a  receiver  had  been 
appointed  by  order  of  the  court,  it  was  held  that  a  collection  by 
the  vice-president  of  the  company,  of  money  due  the  company 
under  a  mail  contract,  after  the  appointment  of  the  receiver,  and 
depositing  this   money  in  bank  to  the  company's  credit,   and 
attempting  to  dictate  what  disposition  the  receiver  should  made 
of  it,  constituted  contempt.^     The  mortgage  containing  a  provis- 
ion that  the  mortgagor  shall  remain  in  possession  until  default,  a 
receiver  appointed  in  an  action  for  its  forclosure  will  have  no 
right  to  earnings  of  the  railroad  corporation  prior  to  the  filing 
of   the   bill   for  foreclosure,   though  not  paid    until  after  his 
appointment.'* 

§  547.  The  relation  of  the  receiver  to  property  leased  by 
the  corporation  coming-  into  his  hands.—  In  this  case  an  oil 
company  manufacturing  oil  contracted  with  a  railway  company 
to  purchase  a  certain  amount  of  rolling  stock,  and  lease  it  to  the 
railway  company  at  an  agreed  rental,  the  railway  company  agree- 
ing to  purchase  the  rolling  stock  on  or  before  an  appointed  day, 
and  pay  for  it  in  cash,  or  if  it  should  be  unable  to  do  so  to  turn 
it  over  to  the  oil  company  at  the  expiration  of  the  contract,  in 
good  order  and  condition.  There  was  a  further  agreement  that 
the  charges  for  freights  carried  by  the  railway  company  in  trans- 
portation for  the  oil  company,  might  be  applied  to  the  payment  of 
the  rental  and  of  the  purchase  money.  The  railway  company  was 
insolvent,  and,  before  the  expiration  of  this  contract  for  rolling 

^Chable  t.  Nicaragua     Canal  Con-  sonville,  T.  &  K.  W.  Ry.  Co.,  (1893) 

struction  Co.,    (1894)    59   Fed,   Rep.  53  Fed.  Rep.  937. 

346.  'Hook  v.  Bos  worth,  64  Fed.  Rep. 

'American  Construction  Co.  u.  Jack-  443;  s.  c,  13  C.  C.  A.  308. 


■-  jf!l 


M 


1198 


BEOEIYEBS  IN  FOBECLOSURE  SUITS. 


! 


[§547 


I 

^ 


!i 


stock,  in  proceedings  instituted  by  mortgage  bondholders  for  fore- 
closure of  their  mortgage,  was  placed  in  the  hands  of  a  receiver, 
who  continued  to  use  the  rolling  stock.  There  was  an  intervention 
in  the  foreclosure  suit  by  the  oil  company  seeking  to  recover  the 
balance  of  the  purchase  money  from  the  receiver,  and  to  secure 
the  carrying  out  of  the  contract  by  him,  and  the  retention  of  the 
amount  of  charges  for  freights  due  from  the  oil  company,  and  their 
application  to  the  payment  of  the  rent  and  purchase  money.  The 
receiver  answered  the  petition  of  the  intervener,  declining  to 
complete  the  contract,  and  averred  that  the  rental  had  been  paid 
in  full,  and  that  there  was  a  balance  due  him  for  freight.  He 
also  tiled  a  cross-petition  to  recover  tlie  surplus.  There  was  a 
provision  in  the  contract  between  the  lessor  and  lessee  that  if  the 
latter,  the  railway  company,  became  unable  to  pay  its  current 
debts  in  the  ordinary  course  of  business,  it  should  be  released 
from  its  obligation  on  returning  the  property.  The  United 
States  Supreme  Court  held  that  the  receiver  had  the  right  to 
return  the  property  upon  complying  with  the  terms  of  the  con- 
tract in  respect  to  its  return.^      No  part  of  the  expenses  of  a 


»  Sunflower  Oil  Co.  v.  Wilson,  (1892) 
142  U.  S.  313.  Mr.  Justice  Brown, 
speaking  for  the  court,  said:  "The 
case  is  not  unlike  that  of  Express  Com- 
pany V.  Railroad  Co.,  99  U.  S.  191. 
In  that  case,  the  express  company 
agreed  to  loan  the  railroad  company 
twenty  thousand  dollars  upon  its  notes, 
to  be  expended  in  repairs  and  equip- 
ments. In  consideration  of  this,  the 
railroad  company  agreed  to  provide 
the  necessary  privileges  and  facilities 
for  the  transaction  of  all  the  business 
of  the  express  company  over  its  road; 
and  to  charge  a  certain  sura  for  trans- 
portation, which  was  to  be  credited 
monthly  toward  the  payment  of  the 
loan,  with  a  proviso  that  if  the  loan 
was  not  paid  within  a  year  the  con- 
tract should  continue  in  force  for  a 
further  period,  or  until  the  whole  had 
been  repaid.  A  mortgage  upon  the 
road  having  been  foreclosed,  the  re- 
ceiver repudiated  the  contract,  forbade 
:the  express   company    from   further 


using  the  cars  of  the  railroad  company 
unless  upon  conditions  whereby  the 
contract  was  virtually  surrendered  or 
ignored,  and  the  express  company  was 
compelled  to  abandon  the  road,  al- 
though the  money  loaned,  with  a  por- 
tion of  the  interest  thereon  was  still 
due  and  unpaid.  It  filed  a  bill  for 
specific  performance,  alleging  that  the 
railroad  company  having  conveyed 
away  its  property,  and  being  in  fact 
insolvent,  the  violation  of  the  contract 
could  not  be  compensated  b}'^  any  dam- 
ages that  might  be  recovered  at  law. 
This  court  dismissed  the  bill,  holding 
that  as  the  plaintiff  had  no  lien  and  the 
contract  was  simply  for  the  transpor- 
tation of  persons  and  property,  the 
court  could  not  require  either  a  spe- 
cific performance  by  the  receiver,  or 
the  satisfaction  of  the  plaintiff's  de- 
mand of  money;  and  that  the  express 
company  had,  therefore,  no  standing 
in  a  court  of  equity.  The  case  of 
Coe  «.  New  Jersey  Midland  Railway 


§547] 


BECEIVERS  IN  FOKECLOSURE  SUITS. 


1199 


receivership,  where  a  receiver  nas  oeen  appointed  for  the  benefit 
of  a  railroad  company  and  its  creditors,  can  be  properly  charged 
to  a  company  whose  roadway  was  leased  to  the  former.*  The 
United  States  Circuit  Court  for  the  eastern  district  of  Wis- 
consin has  declared  these  rules :  The  appointment  of  receivers 
for  a  railroad  system,  and  their  taking  possession  of  a  leased 
line,  does  not  of  itself  work  an  assignment  or  adoption  of 
the  lease,  so  as  to  make  the  receivers  liable  for  the  stipulated 
rentals.  Receivers  have,  as  a  general  rule,  a  reasonable  time  to 
determine  whether  they  will  adopt  a  lease,  or  will  merely  pay  to 
the  lessor  the  net  earnings  of  its  road,  subject  always  to  the  les- 
sor's right  to  enter  for  condition  broken.  But  where  the  lessor 
immediately  demands  of  the  receiver  and  of  the  court  either  an 
adoption  of  the  lease  or  a  surrender  of  the  road,  and  against  its  pro- 
test a  decision  was  delayed  for  several  months,  in  order  to  determine 
which  policy  was  expedient,  they  held  that  the  receivers  should 


27  N.  J.  Eq.  37,  is  also  instructive  in 
this  connection.  In  that  case,  the 
Rhode  Island  Locomotive  Works  Com- 
pany entered  into  an  agreement  with 
the  railway  company  to  furnish  the 
latter  certain  locomotives  and  tenders, 
as  upon  lease,  but  with  the  agreement 
that,  upon  payment  in  full  of  the 
rent  required,  they  should  become  the 
property  of  the  railway.  The  rent 
was  payable  in  installments,  for  which 
the  company  gave  its  notes;  at  the 
time  of  the  appointment  of  the  re- 
ceiver there  was  due  for  rent  about  one 
hundred  and  twenty  thousand  dollars, 
and  the  locomotives  were  then  in  pos- 
session of  the  receiver  and  in  use  upon 
the  road.  Petitioners  based  their  claim 
to  relief  upon  the  ground  that  the  re- 
ceiver requested  them  to  leave  the  lo- 
comotives in  his  possession  for  use  on 
the  road,  he  guaranteeing  to  keep  them 
in  good  order,  and  promising  to  apply 
for  authority  to  pay  the  claim.  In  de- 
fense, the  receiver  alleged  a  notice  by 
bondholders  not  to  pay  the  rent  or 
deliver  the  certificates  therefor,  which 
bad  been  issued  upon  his  application. 


because  the  property  was  not  worth 
the  amount  agreed  to  be  paid,  and  it 
was  not  for  the  interest  of  the  trust 
that  the  rent  should  be  paid.  It  was 
held  that  petitioners  had  no  equity 
arising  from  the  conduct  of  the  re- 
ceiver to  have  the  contract  specifically 
performed,  without  regard  to  the  ad- 
vantage or  disadvantage  of  the  trust 
fund;  that,  although  they  appeared  to 
be  willing,  up  to  the  time  they  were 
warned  not  to  do  so,  to  pay  for  the 
property  according  to  their  agreement, 
it  might  have  been  an  i^iprovident  act 
on  their  part;  that  the  fact  that  the  re- 
ceiver had  applied  for  leave  to  issue 
the  certificates  to  pay  the  rent  did  not 
bind  them;  and  that  the  court  would 
not  grant  the  prayer  of  the  petitioners 
until  satisfied  that  it  was  for  the  inter- 
est of  the  trust  that  it  should  be  done; 
but,  that  the  petitioners  would  be  al- 
lowed just  compensation  for  the  use 
of  the  property  while  held  by  the 
receiver." 

» Brown  v.  Toledo,  P.  &  W.  R.  Co., 
35  Fed.  Rep.  44i 


i 


1200 


RECEIVERS  IN  FORECLOSURE  SUITS. 


[§647 


.  > 


H- 


equitably  pay  tlie  full  rental  during  the  time  of  their  possession.^ 
This  Ohio  railroad  company,  the  road  of  which  constituted  one 
of  the  leased  lines  of  the  Erie  railway  system,  raised  this  same 
question  as  to  the  liability  of  the  receivers  of  the  Erie  Company 
on  account  of  the  lease  contract  on  its  part  of  the  Ohio  road 
before  the  United  States  Circuit  Court  for  the  northern  district 


^Farmers'  Loan    &    Trust    Co.    v. 
Northern  Pac.  R.  Co.  (Wisconsin  Cen- 
tral R.  R.  Co.,  Interveners),  (1893)  58 
Fed.    Rep.    257.      Jenkins,    Circuit 
Judge,  first  quoted  from  Oil  Co.  v. 
Wilson,  142  U.  S.  313,  322;   s.  c,  12 
Sup.  Ct.  Rep.  235.  and  then  said:  "In 
other  words,   when   the   court,   upon 
the  petition,  and  not  the  prayer  of  the 
complainant,  appoints  receivers,  who 
are  directed  to  take  possession  of  the 
leased    lines  of  railway  operated  in 
connection  with  the  main  line,  such 
receivers  take  by  order  of  the  court, 
and  do  not,  therefore,  by  the  mere  act  of 
such  possession,  become  assignees  of 
the  leases,  they  having,  so  to  speak,  a 
breathing  space  to  determine  whether 
or  no  they  will  assume  the  covenants 
of  the  lease.     This  is  because  of  the 
necessities  of  the  case.    There  is  no 
other  person  to  take  immediate  posses- 
sion from  an  insolvent  corporation  in 
the  interest  of  the  public;  and,  as  be- 
cause of  the  public  nature  of  the  enter- 
prise, the  road  must  be  kept  a  going 
concern;  the  performance  of  the  duties 
of  common  carrier  must  not  be  per- 
mitted to  be  interrupted;  the  mails  of 
the  government  must  be  transported; 
therefore,  temporary  possession  is  al- 
lowed to  be  taken;   and,  as  a  general 
rule,  compensation  for  such  possession 
must  be  measured  by  the  terms  of  the 
instrument  under  which  such  posses- 
sion was  originally  acquired  and  held. 
But  that  possession  does  not  ordinarily 
operate  to  render  the   receivers   as- 
signees of  the  leases.     Undoubtedly 
there  are  exceptions  to  the  rule,  aris- 
ing because  of  the  peculiar  circum- 
stances of  the  case,  which  equitably 


require  the  application  of  a  different 
measure  of  corapenstition."    The  court 
regarded  Railroad  Co.  v.  Humphreys, 
145  U.  S.  82;   s.  c,  12  Sup.  Ct.  Rep. 
787,   such  an  exception,  and  distin- 
guished it.      He  said:    "  There  is,  I 
think,  a  manifest  distinction  between 
that  case  and  the  one  at  bar.     There 
the  lessor,  the  inactive  lessor,  sought 
to  obtain  preference  over  a  mortgagee 
not  applying  for  the  receiver;  a  lessor 
who  sought  to  obtain  rental  pursuant 
to  the  terms  of  the  lease  when  he  was 
a  party  to  the  suit,  and  could  have 
asked  and  would  have  received  pos- 
session,  but  allowed  the  toad  for  a 
long  time  to  be  operated  by  the  re- 
ceivers knowingly  at  a  loss.      Here 
possession  of  these  leased  lines  was 
asked  for  by  the  trustees  of  the  mort- 
gage.    The  court  was  asked  by  the 
trustee  to  take  possession  of  this  leased 
line  and  operate  it  in  connection  with 
the  main  line  of  the  defendant  com- 
pany as  a  unit,  and  to  keep  and  main- 
tain in  its  integrity  and  operate  the 
entire  system  of  roads  from  Chicago 
to  the  Pacific.     In  other  words,   as 
plainly  as  language  could  state  it,  the 
trustee    *    *    «    asked  the  court  to 
adopt  this  course,  and  to  enter  into 
possession  and  operate  it  in  the  inter- 
est of  the  bondholders.    In  the  Quincy 
case  the  bill  was  filed  by  the  insolvent 
company.      It  was  unable  longer  to 
continue  the  operation  of  the  road, 
and  petitioned  the  court,  in  the  inter- 
est of  every  one  interested,  as  well  as 
its  own  interest,  to  take  possession  of 
the  leased  lines,  and  the  lessors  were 
parties  to  that  suit.     And  the  lessors, 
under  the  circumstances,  without  ap- 


§547] 


RECEIVERS  IN  FORECLOSURE  SUITS. 


1201 


of  Ohio.     This  latter  court  held  that  the  receivers  of  a  railroad 
company  have  no  power  to  abrogate  a  valid  lease  of  railroad 
property  made   to   the   company  by  another  company,  and,  as 
between  lessor  and  lessee,  the  lease  must  stand  until  abrogated 
under  some  of  the  conditions  contained  in  the  lease.     Further, 
the    mere    appointment  of  receivers  for  a  railroad   company 
embracing  a  system  of  leased  lines,  and  their  taking  possession  of 
a  leased  road,  did  not,  even  if  the  bill  showed  that  the  receiver- 
ship was  brought  about  for  the  purpose  of  preventing  a  disinte- 
gration of  the  system,  render  the  receivers  assignees  of  the  lease, 
or  require  the  adoption  of  the  lease  by  them,  so  as  to  make  the 
rental  a  preferred  claim  which  they  were  bound  to  discharge ; 
neither  did  the  fact  that  they  continued  to  operate  the  leased  line 
for  some  time  work  an  adoption  of  the  lease,  when  the  lessor  had 
never  demanded  a  surrender  of  its  road,  although  entitled  to  do 
so  because  of  breach  of  condition  by  non-payment  of  rent.     And 
rental  accniing  under  a  railroad  lease  prior  to  the  appointment  of 
receivers  for  the  lessee  was  held  to  be  an  unsecured  liability 
entitled  to  no  priority  to  the  mortgage  bondholders.^     A  raih-oad 
company,  in  the  hands  of  receivers,  had  been  operating  another 
company's  road  for  several  years  under  a  lease  by  the  terms  of 
which  it  was  to  pay  as  rental  thirty-two  per  cent  of  the  gross 

plication  to  the  court  for  possession,    sion   should    be   surrendered  to  the 
allowed  the  road  to  be  operated  from   lessors;  and,  also,  when  delay  became 
May  29,  1884,  to  July  15.  1885.  by  the   inevitable,  by  the  demand  and  act  of 
receivers  at  a  loss  to  its  knowledge,    re-entry  they  put  themselves  in  the 
and  without  the  slightest  attempt  to  legal  position  where  they  could  law- 
obtam  possession.    It  could  well  have   fully  require  the   surrender   of   th<- 
been  held  in  that  case  that  such  action   premises,    unless  the   court;   should, 
or  non-action  of  the  lessor  would  be  upon  principles  of  equity,  remove  the 
held  m  equity  to  be  an  assent  to  the   forfeiture  and  allow  the  possession  to 
operation  of  that  Une  by  the  receivers,    continue  in  the  receivers,  adopting  the 
But  here  possession  was  not  only  taken  lease  and  paying  all  past-due  rentals 
at  the  request  of  the  trustee  of  the   So  that  here  the  lessors  have  been  con- 
mortgage,  upon  tlie  assertion  that  the   tinuously  knocking  at  the  door  of  the 
severance  of  the  trunk  line  to  Chicago   court  demanding  possession  of  the  de- 
would  result  in  ruinous  sacrifice,  but   mised  premises,   and  possession  has 
It  has  been  continued  against  the  con-   been  withheld  from  them  against  their 
tinned  protest  of   the  lessors,   who,    consent  and  against  their  protest  " 
almost  from  the  date  of  the  filing  of       i  New  York.  P.  &  O.  R.  Co.  ..New 
the  bill,  have  sought  to  compel  the  re-   York,  L.  E.  &  W.  R  Co    (1893)  58- 
^r^'l^.   detennine  whether  or  no   Fed.    Rep.    268;    agreeing  'with  La- 
they   will   retam    possession,  adopt-   combe,  C.  J.    Park  t,.  New  York  L  E 
tag  the  lease,  and  if  not,  that  poses-   &  W.  R.  Co.,  (1893)  57  Fed.  Rep.  799! 
151 


*l 


1202 


KECEIVEKS  IN  FORECLOSURE  SUITS. 


[§547 


ll 


earnings.  It  was  also  provided  that  a  breach  by  the  lessee  com- 
pany of  any  of  its  covenants  should  be  cause  of  forfeiture,  at  the 
oj)tion  of  the  lessor  company,  and  that  thereupon  the  latter  might 
enter  into  possession  of  the  property.  When  the  receivers  were 
appointed  on  the  bill  declaring  the  lessee  company  insolvent,  the 
lessee  was  indebted  for  rental  more  than  $300,000.  The  receivers 
had  paid  for  the  use  of  the  property  out  of  the  assets  more  than 
that  amount  —  a  sum  a  little  more  than  the  net  earnings  of  the 
leased  property  for  the  same  period.  The  lessor  company,  in  a 
petition  to  the  court  showing  the  importance  to  it  of  collecting 
promptly  its  rental  in  order  to  enable  it  to  pay  its  obligations 
to  its  bondholders  and  to  subordinate  roads  leased  by  it,  asked 
that  the  court  instruct  the  receivers  to  perform  all  the  obligations 
of  the  lease,  and  to  pay  the  rent  then  due ;  that,  if  without  money 
to  make  the  payment,  the  receivers  be  ordered  to  issue  receivers' 
certificates  for  all  rent  due  or  to  become  due,  these  certificates  to 
be  deemed  a  charge  and  lien  upon  the  property  of  the  lessee 
company  in  the  possession  of  the  court  through  its  receivers, 
prior  to  the  outstanding  mortgages  of  the  lessee  company.  The 
petition  did  not  ask  a  forfeiture  of  the  lease  for  covenants  broken. 
The  United  States  Circuit  Court  for  the  southern  district  of  New 
York,  considering  the  petition,  held  that  the  receivers  did  not,  by 
taking  possession  under  the  order  of  the  court,  become  assignees 
of  the  terms  of  the  lease,  committed  to  the  obligation,  in  any 
event,  to  pay  the  full  sum  stipulated  as  rental  by  the  lease ; 
neither  had  they  retained  possession  for  such  an  unreasonable 
time,  or  under  such  circumstances,  as  amounted  to  an  election  on 
their  part  to  accept  the  lease ;  and  it  appearing  that  more  than 
the  net  earnings  of  the  leased  property  for  the  period  during 
which  the  receivers  had  been  in  possession  of  it  had  been  paid  to 
the  lessor,  the  comi;  declined  to  instruct  the  receivers  to  pay  any 
more  out  of  the  general  corpus  of  the  property  in  their  hands.* 


» Park.t>.  New  York,  L.  E.  &  W.  R. 
Co.,  (1893)  57  Fed.  Rep.  799;  citing  on 
the  first  point  Quincy,  etc.,  R.  Co.  v. 
Humphreys,  145  U.  S.  82;  s.  c,  12 
Sup.  Ct.  Rep.  787;  St.  Joseph,  etc., 
R.  Co.  v.  Humphreys,  145  U.  S.  105; 
8.  c,  12  Sup.  Ct.  Rep.  795;  on  the 
second  point,  Miltenberger  v.  Railway 
Co.,  106  U.  S.  286;   1  Sup.  Ct.  Rep. 


140;  Kneeland  v.  Trust  Co.,  136  U.  S. 
101;  8.  c,  10  Sup.  Ct.  Rep.  950; 
Central  Trust  Co.  v.  Wabash,  etc.,  R. 
Co.,  23  Fed.  Rep.  863;  34  Fed.  Rep. 
259.  When  receivers  will  be  held 
liable  for  the  rent  of  a  leased  line  and 
interest  during  the  term  of  their  re- 
ceivership. Brown  v.  Toledo,  P.  & 
W.  R.  Co.,  35  Fed.  Rep.  444. 


§548] 


BECEIVEES  IN  FORECLOSURE  SUITS. 


1203 


A  receiver  does  not  simply  by  virtue  of  his  appointment  become 
liable  upon  the  covenants  and  agreements  of  a  railway  comjmny 
of  which  he  may  be  receiver.^  Upon  taking  possession  of  prop- 
erty, for  instance,  leased  to  the  company  lie  is  entitled  to  a  reason- 
able time  to  elect  whether  he  will  adopt  the  contract  under  which 
it  was  leased,  or  whether  he  will  insist  upon  the  inability  of  the 
company  to  pay,  and  return  the  property  in  good  order  and  con- 
dition, if  the  contract  calls  for  that,  paying,  of  course,  the  stipu- 
lated rental  for  it  so  long  as  he  may  have  used  it.^  The  court 
has  power,  in  a  foreclosure  trial,  on  consulting  the  receivers,  and 
without  notice  to  the  mortgagees,  to  order  the  lease  of  another 
road  which  is  found  necessary  to  the  profitable  management  of 
the  mortgaged  property.^  A  receiver  of  a  railroad  embracmg  a 
leased  road,  cannot  recover  of  the  lessor  road  expenses  incurred 
in  running  it,  but  is  entitled  to  payment  for  betterments  of  its 
roadbed.* 

§  548.  Powers  of  receivers   as  to  contracts,    etc.—  The 

United  States  Circuit  Court  for  the  district  of  ]S"ew  Jersey,  in  which 
a  creditor  of  a  corporation  of  that  state  which  had  already  been 
placed  in  the  hands  of  a  receiver  by  a  court  of  the  state  brought 
his  action  against  the  receiver  and  others  to  set  aside  alleged 
fraudulent  conveyances  made  by  the  corporation,  held  that  he 
could  not  maintam  the  suit ;  for,  as  the  New  Jersey  statute  relat- 
ing to  corporations  vested  the  receiver  with  all  the  rights  and 
equities  of  the  creditors,  the  receiver  alone  could  enforce  them. 
Further,  the  mere  refusal  of  the  receivers  to  act  did  not  author- 
ize the  creditor  to  sue  in  person,  as  the  statute  of  ]^ew  Jersey 
gives  to  any  person  aggrieved  by  the  receiver  an  appeal  to  the 
chancellor  who  appointed  him.  Besides,  a  creditor  of  a  business 
corporation  which  had  been  placed  in  the  hands  of  a  receiver 
could  not,  without  leave  of  the  court  appointing  him,  maintain  a 
suit  in  another  court  to  set  aside  fraudulent  conveyances  of  the 
corporate  assets.  Furthermore,  a  creditor  having  a  claim  of  less 
than  $2,000  against  an  insolvent  corporation,  suing  for  himself 
alone,  could  not  maintain  the  suit  in  a  Federal  Circuit  Court  on 

»  Hoyt  V.  Stoddard,  2  Allen.  442.  »  Mercantile  Trust  Co.  r.  Missouri. 

•  Turner  t.  Richardson,  7  East,  335;  K.  &  T.  Ry.  Co.,  (1889)  41  Fed.  Rep.  a 

Commonwealth  v.  Franklin  Insurance  *Phinizy  v.  Augusta  &  Knoxville  R 

Co.,    115   Mass.    278;     Sparhawk   v.  R.  Co.,  56  Fed.  Rep.  273 
Yerkes,  142  U.  S.  1. 


i  I 


1204 


KECEIVERS  IN  FORECLOSURE  SUITS. 


[§548 


§548] 


RECEIVERS  IN  FORECLOSURE  SUITS. 


1205 


the  ground  of  diverse  citizenship,  notwithstanding  the  fact  that 
he  sought  to  set  aside  fraudulent  conveyances  of  corporate  assets 
greatly  exceeding  $2,000  in  value.*  The  receiver  of  the  property 
of  a  railroad  company  may  terminate  at  will  an  arrangement 
which  he  has  made  for  the  transportation  of  the  freight  and  pas- 
sengers of  another  railroad  company  over  the  line  of  road  under 
his  control,  where  there  is  no  provision  making  the  arrangement 
obligatory  on  either  party  for  any  stated  period  of  time,  without 
previous  notice  to  the  other  company.'  The  receiver  of  a  railroad 
in  Florida,  where  discrimination  in  freight  rates  is  a  criminal 
ofEense,  has  no  right  to  make  such  discrimination.'    On  a  petition 


>  Werner  v.  Murphy,  (1894)  60  Fed. 
Rep.  769.  In  the  opinion  Green,  D. 
J.,  gives  full  consideration  to  the  law 
of  New  Jersey  governing  receivers 
under  the  jurisdiction  of  its  laws  and 
courts. 

'Investment  Co.  of  Philadelphia  v. 
Ohio  &  N.  W.  Ry.  Co.,  (1889)  41  Fed. 
Rep.  378. 

'  Cutting  V.  Florida  Ry.  &  Nav.  Co. 
(Mallory  et  al.,  Interveners),  (1890)  43 
Fed.  Rep.  747,  following  Missouri 
lac.  Ry.  Co.  V.  Texas  &  Pac.  Ry.  Co., 
31  Fed.  Rep.  862.  What  kind  of  con- 
tract with  reference  to  transportation 
of  freight  over  railroad  in  his  pos- 
session a  receiver  cannot  make,  see 
International  &  G.  N.  R.  Co.  v.  Went- 
worth,  (Tex.  Civ.  App.  1894)  27  8.  W. 
Rep.  680.  In  Seibert  v.  Minneapolis 
&  St.  L.  Ry.  Co.,  (Minn.  1894)  where 
two  railroad  companies  agreed  that 
each  should  construct  or  cause  to  be 
constructed  a  specified  part  of  a  con- 
tinuous line  of  railroad  between  two 
terminal  points  and  make  certain  con- 
nections, and  that  each  should  have 
the  concurrent  use  of  the  whole  line 
and  have  certain  other  traffic  arrange- 
ments with  the  other,  and  that  this 
contract  should  be  in  force  for  a  cer- 
tain number  of  years,  the  line  was  so 
constructed,  and,  after  being  so  used 
for  some  time,  a  receiver  of  one  of 
said  comp)anies  was  appointed  in  a 


foreclosure  suit  brought  against  it. 
The  other  company  presented  a  claim 
for  rent,  switching  charges,  expense 
of  handling  freight  and  other  operat- 
ing expenses  accruing  to  it  under  the 
contract  before  the  receiver  was  ap- 
pointed, and  the  court  below  ordered 
the  payment  of  the  same  by  the 
receiver  with  interest.  The  Supreme 
Court  of  Minnesota  held  that  it  was 
proper  to  order  the  payment  to  be 
made,  it  being  fairly  to  be  inferred 
from  the  order  of  the  court  and  other 
proceedings  that  the  court  deemed  this 
contract  a  valuable  asset,  and  deemed 
it  for  the  best  interest  of  the  estate 
that  the  receiver  should  adopt  the  con- 
tract, and  that  it  was  necessary  to  pay 
the  claim  in  order  to  keep  the  contract 
in  force.  In  Central  Trust  Co.  v. 
Marietta  &  North  Ga.  Ry.  Co.  (Blue 
Ridge  Marble  Co.,  Intervener),  (1892) 
61  Fed.  Rep.  15,  it  appeared  that  the 
railroad  company  contracted  with  the 
intervener  to  carry  marble  from  one 
point  to  another  and  allow  the  same  to 
be  stopped  over  at  an  intermediate 
point  to  be  dressed  and  then  reshipped 
and  carried  to  a  terminus  of  the  road 
without  extra  charge,  the  entire  charge 
for  freight  being  paid  in  advance.  The 
United  States  Circuit  Court  held  that 
the  receiver  appointed  in  this  suit  of  the 
bondholders  to  foreclose  their  mort- 
gage on  the  railroad  could  not  be  com- 


by  contractors  against  the  receivers  of  a  railroad  to  secure  pay- 
ment for  the  erection  of  a  building,  the  court  referred  the  cause 
to  a  master  to  ascertain  the  amount  "  justly  and  equitably  due  as 
the  true  value  of  the  work  done  and  material  furnished."  The 
master  found  the  work  was  done  under  a  contract  between  the 
receivers  and  the  builders,  refused  to  hear  evidence  as  to  value, 
and  reported  the  contract  price  as  the  amount  due.  The  court, 
after  a  hearing  on  exceptions,  confirmed  the  report  and  entered 
judgment  thereon.  It  was  held  by  the  United  States  Circuit 
Court  of  Appeals  for  the  eighth  circuit  that  while  the  order  of 
reference  was  open  to  the  construction  that  the  actual  value  of 
the  work  and  material  was  to  be  ascertained,  yet,  as  the  trial  court 
had  held  that  it  was  not  intended  to  bear  so  broad  a  construction, 
and  had  confirmed  the  report,  an  appellate  court  would  not  be 
justified  in  holding  the  contrary  where  no  injustice  had  resulted. 
These  facts  appeared  in  the  case :  That  while  these  railroad  build- 
ings were  in  course  of  construction  a  foreclosure  suit  was  insti- 
tuted against  the  company,  and  two  receivers  appointed.  Shortly 
after  their  appointment,  by  a  joint  letter,  the  receivers  notified 
the  contractors  to  stop  work,  stating  that  they  would  later  furnish 
designs  and  directions  for  completing  the  work,  and  in  the  letter 
said :  "  And  you  will  name  a  gross  sum  for  the  performance  of 
the  same,  which  will  be  submitted  to  the  court  for  approval." 
New  plans  and  specifications  were  then  prepared  and  approved  by 
the  court,  and  an  order  was  entered  directing  that  the  buildings  be 
completed  in  accordance  therewith.  The  receiver  in  active  charge 
of  that  portion  of  the  road  notified  the  contractors  of  this  order, 
and  soon  afterwards  they  answered  by  letter  submitting  a  bid 
for  which  they  would  complete  the  work  on  the  new  plans.  The 
active  receiver  testified  that  the  receivers  accepted  the  bid,  and 
that  a  formal  contract  was  prepared  and  was  signed  by  the  con- 
tractors, but  was  never  signed  by  the  receivers.  Relying  on  this 
contract  the  contractors  completed  the  work.  The  other  receiver 
testified  that  he  knew  nothing  of  the  bid,  but  that  he  afterwards 
saw  the  work  going  on,  and  assumed  it  was  with  his  colleague's 
concurrence,  and  without  any  estimates  or  contract.  The  Court 
of  Appeals  held  that  these  facts  were  sufficient  to  justify  the  mas- 

pelled  to  transport  the  marble  on  the  portation  before  the  appointment  of 
terms  of  this  contract,  although  the  the  receiver.  Following  Express  Co. 
freight  had  been  paid  for  such  trans-   v.  Railroad  Co.,  99  U.  S.  191. 


} 


{   I 

.11! 


1206 


BECEIVERS  IN  FORECLOSUKE  SUITS. 


[§548 


ter  in  finding  that  the  work  was  completed  under  a  binding  con- 
tract witli  the  receivers.^  Where  a  l)ill  was  filed  by  the  president 
and  directors  of  a  railroad  company,  alleging  that  as  a  result  of 
an  unlawful  lease  and  the  diversion  of  its  income  it  had  been 
embarrassed ;  that  if  properly  managed  it  might  extricate  itself 
from  its  difticulties,  and  the  court  appoints  its  president  receiver  for 
the  purpose  of  preserving  the  property,  and,  with  the  aid  of  the 
court,  placing  it  upon  a  prosperous  footing,  and  no  lien  creditors 
are  parties,  it  is  competent  for  such  president  receiver,  with  the 
authority  of  the  court,  to  pledge  collateral  and  equitable  assets  of 
the  company  to  secure  loans  necessary  to  its  operation,  and  also  to 
incur  a  liability  for  the  expenses  of  a  refunding  scheme.  If, 
however,  before  such  expenses  are  paid,  creditors  holding  liens 
upon  the  property  are  made  parties,  the  court  will  not  ex  parte 
allow  the  expenses  of  such  refunding  scheme  to  be  paid  by  the 
receiver.^  A  receiver  of  a  railroad,  appointed  with  authority  "  to 
make  all  contracts  that  may  be  necessary  in  carrying  on  the  busi- 
ness of  said  railroad,  subject  to  the  supervision  [of  the]  court 
[appointing  him],"  has  no  authority  to  make  a  lease  for  a  term  of 
general  offices,  without  authority  from  that  court,  and  to  bhid 
his  successors  and  the  property  therefor  for  the  term,  without 
direction  from  or  sanction  by  the  court.  Further,  the  Supreme 
Court  of  the  United  States  held  that  the  facts  that  the  receiver's 
accounts  showed,  monthly,  the  payment  of  the  rent  of  such  a 
lease,  and  that  that  rent  was  reasonable,  and  that  the  accounts  as 
rendered  were  passed  by  the  master  and  reported  to  and  approved 
by  the  court,  did  not  amount  to  a  sanction  of  the  lease  for  the 
term.'    This  insolvent  railroad  company,  as  assignee  of  another 


'  Girard  Life  Insurance,  Annuity  & 
Trust  Co.  V.  Cooper,  (1892)  51  Fed. 
Rep.  332.  When  proper  to  extend  the 
receiver's  powers,  see  Mercantile  Trust 
Co.  V.  Missouri,  Kansas  &  Texas  Ry. 
Co.,  41  Fed.  Rep.  8.  When  an  appli- 
cation of  the  trustees  of  an  underly- 
ing mortgage  to  have  the  property  of 
the  company  turned  over  to  a  receiver 
appointed  in  their  suit  to  foreclose  by 
a  receiver  of  the  whole  system  of 
roads  should  be  denied,  see  Central 
Trust  Co.  V.  Wabash,  St.  Louis,  etc., 
By.  Co.,  25  Fed.  Rep.  693. 


"  Central  R.  R.  &  Bkg.  Co.  v.  Farm- 
ers' Loan  &  Trust  Co.  of  New  York, 
(1893)  54  Fed.  Rep.  556. 

'Chicago  Deposit  Vault  Co.  f>. 
McNulta,  (1894)  153  U.  8.  554.  Mr. 
Justice  Jackson,  in  the  opinion  of 
the  court,  said  :  "In  Cowdrey  v.  Gal- 
veston, Houston,  etc..  Railroad,  93  U. 
S.  352,  it  was  held  that  a  receiver  is 
not  authorized,  without  the  previous 
direction  of  the  court,  to  incur  any 
expenses  on  account  of  property  in 
his  hands  beyond  what  is  absolutely 
essential  to  its  preservation  and  use. 


§548] 


BECEIVERS  IN  FORECLOSURE  SUITS. 


1207 


railroad  company,  held  a  half  interest  in  a  certain  bridge  and 
piece  of  track,  the  maintenance  of  which  was  provided  for  in  a 
general  contract  with  the  other  joint  tenants.  Receivers  of  the 
insolvent  company,  including  its  leased  lines,  among  them  the 
assignor  railroad  company's,  were  appointed  and  made  a  special 
contract  for  specific  repairs,  which  were  made  by  the  joint  tenant 
in  accordance  with  this  contract.  Thereafter  a  special  receiver 
was  appointed  for  the  assignor  company.  Upon  the  intervention 
of  the  joint  tenant  the  federal  court  held  that  the  receivers  of 


as  contemplated  by  his  appointment. 
Accordingly,  the  expenditures  of  a 
receiver  to  defeat  a  proposed  subsidy 
from  a  city,  to  aid  in  the  construction 
of  a  railroad  parallel  with  the  one  in 
his  hands,  were  properly  disallowed 
in  the  settlement  of  his  final  account, 
although  such  road,  if  constructed, 
might  have  diminished  the  future 
earnings  of  the  road  in  his  charge. 
The  same  general  principle  is  recog- 
nized in  Union  Trust  Co.  v.  Illinois 
Midland  Ry.  Co.,  117  U.  S.  434,  479. 
where  debts  for  considerable  sums  of 
money,  borrowed  by  the  receiver  with- 
out previous  authority  from  the  court, 
were  not  allowed  any  priority  out  of 
the  trust  fund,  although  the  moneys 
borrowed  were  applied  to  pay  ex- 
penses of  the  receivership,  such  as 
supplies,  repairs  and  pay  rolls,  and 
to  replace  moneys  which  had  been  so 
applied,  for  the  reason  that  no  order 
of  the  court  had  been  obtained  to  bor- 
row funds  for  those  purposes.  In 
Lehigh  Coal  &  Navigation  Co.  v.  Cen- 
tral Railroad,  35  N.  J.  Eq.  426,  it  was 
said  that  *  the  receiver  may  undoubt- 
edly appropriate  moneys  in  his  hands 
belonging  to  the  trust  to  such  purposes 
connected  with  the  trust  as  he  may 
think  proper,  always  taking  the  risk 
that  the  court  will  finally  approve  his 
action;  but  he  has  no  authority  to 
bind  the  trust  by  contract  without  the 
authority  of  the  court.  Until  his 
contracts  are  approved  and  ratified  by 
the  court  the  court  is  at  hberty  to 


deal  with  them  as  it  shall  appear 
just,  and  may  either  modify  them  or 
disregard  them  entirely.  *  *  *  All 
persons  dealing  with  receivers  do  so 
at  their  peril,  and  are  bound  to  take 
notice  of  their  incapacity  to  conclude 
a  binding  contract  without  the  sanc- 
tion of  the  court.'  This  states  the 
correct  rule  upon  the  subject,  especi- 
ally in  respect  to  contracts  involving 
large  outlays,  and  which  may  extend 
beyond  the  life  of  the  receivership. 
The  same  general  rule  is  stated  in 
Beach  on  Receivers,  §  257,  as  follows : 
'  But  a  receiver  is  not  allowed  to  exer- 
cise his  discretion  in  applying  the 
funds  in  his  hands.  These  he  holds 
strictly  subject  to  the  direction  of  the 
court,  and  only  to  be  disposed  of  upon 
its  order.  Neither  can  he  enter  into 
contracts  without  the  approval  of  the 
court.  Although  as  receiver  he  may 
enter  into  negotiations  and  make  such 
agreements  as  would  be  binding  upon 
him  as  an  individual,  yet,  in  order  to- 
affect  the  fund  in  his  hands,  his  acts 
must  be  ratified  by  the  court.  The 
rule  is  so  well  established  that  it  has 
been  decided  that  all  persons  con- 
tracting with  a  receiver  are  chargeable 
with  knowledge  of  his  inability  to  con- 
tract, and  enter  into  contracts  with 
him  at  their  own  peril,  and  that  the 
court  has  unquestioned  power  to 
modify  or  even  vacate  his  agreements.' 
To  the  like  effect  is  a  statement  of  the 
rule  in  section  186  of  High  oa 
Receivers," 


1208 


KECEIVEKS  IN  FORECLOSURE  SUITS. 


[§549 


il 


I.   I 


I  I 


lii'  if 


■ »       Mi: 


ill 


the  insolvent  company  were  liable  as  sucli  for  the  repairs,  though 
as  against  the  assignor  company  they  might  have  had  a  good  claim 
therefor.* 

§  549.  Powers  of  the  court  and  its  receivers  as  to  regu- 
lating wages  of  employees.—  Where  the  property  of  a  railway 
or  other  corporation  is  being  administered  by  a  receiver  under 
the  superintending  power  of  a  court  of  equity,  it  is  competent 
for  the  court  to  adjust  difficulties  between  the  receiver  and  his 
employees,  which,  in  the  absence  of  such  adjustment,  would  tend 
to  m jure  the  property  and  to  defeat  the  purpose  of  the  receiver- 
sliip.     It  follows,  then,  that  it  is  in  the  power  of  the  court,  in  the 
interest  of  public  order  and  for  the  protection  of  the  property 
under   its   control,   to   direct   a   suitable    arrangement   with   its 
employees  or  officers,  to  provide  compensation  and  conditions  of 
their  employment,  and  to  avoid,  if  possible,  an  interruption  of 
their  labor  and  duty,  which  will  be  disastrous  to  the  trust  and 
injurious  to  the  public.^    The  power  of  a  court  appointing  a 
receiver  of  a  railroad  corporation  over  such  receiver's  action, 
being  under  consideration,  the  United  States  Circuit  Court  for 
the  northern  district  of  Ohio  declared  these  rules  :     The  court 
appomting  a  receiver  to  carry  on  the  business  of  the  corporation 
necessarily  commits  to  the  discretion  of  the  receiver  the  manage- 
ment of  all  administrative  details  relating  to  the  business,  and 
will  not  interfere  with  his  management  unless  an  abuse  of  his 
discretion  is  made  to  appear.     In  this  particular  case,  upon  the 
complaint  by  the  receiver's  employees  in  respect  to  a  reduction 
of  their  wages,  it  was  held  that  the  court  would  not  interfere  to 
reverse  the  receiver's  administration  by  settling  the  details  of  the 
complaints  involving,  as  this  would,  an  extensive  investigation  of 
administrative  details,  but,  in  case  an  abuse  of  discretion  on  the 
part  of  the  receiver  was  made  manifest,  the  court  would  select  a 
new  receiver,  to  whom  such  matters  might  more  satisfactorily  be 
intrusted.'    The  United  States  Circuit  Court  for  the  district  of 

^  Central  Trust  Co.  Yjf  New  York  v.'  ^ith  the  locomotive  engineers  in  his 

Wabash,  St.  L.  &  P.  Ry.  Co.  (St.  Louis,  employ,  subject  to  the  general  opinion 

K.&N.W.Ry.  Co.,  Intervener),  (1892)  of  the  decision  of  the  court  with  ref- 

53  Fed.  Rep.  908.  erence  to  rule  12  of  the  brotherhood 

« Waterhouse  v.   Comer,    (1893)    55  3  Consolidated    Trust  Co.   of   New 

Fed.  Rep.  149,  in  which  the  court  di-  York  v.  Toledo,  St.  L.  &  K.  C.  R.  Co 

rected  the  receiver  of  the  railroad  to  (1894)  59  Fed.  Rep.  514.                       ' 
enter   into   an   appropriate    contract 


§  549] 


BECEIVEES  IN  FORECLOSURE  SUITS. 


1209 


Washington  declined  to  make  an  order  that  the  receiver  appointed 
by  the  court  of  a  railroad  company  should  conform  to  the  terms 
of  a  certain  contract  made  by  the  company  with  its  employees 
prior  to  his  appointment  as  receiver,  whereby  the  employees  were 
not  to   be  discharged,   except  for  cause,  to  be  determined  by 
arbitrators,  holding  that  the   receiver  was  not  bound  by   such 
agreement.^     The  court  here  refused  to  confirm  the  action  of  the 
receivers  of  an  insolvent  railroad  system  in  reducing  the  wages 
and  changing  the  regulations  for  the  conduct  of  its  employees 
wliich  were  in  force  when  the  property  came  into  the  possession  of 
the  receivers,  the  employees  affected  not  having  been  notified  of  the 
proposed  changes,  and  given  an  ojiportunity  to  point  out  before  the 
receivers  any  inequalities  or  injustice  that  would  be  caused  by  these 
changes.2     It  appeared  here  that,  as  the  results  of  conferences 
beween  the  managers  of  this  railroad  company,  certain  rules,  regu- 
lations and  schedules,  which  had  remained  substantially  unchanged 
for  several  years,  determined  mainly  the  relations  between  the  com- 
pany and  its  employees,  as  well  as  their  rates  of  wages.     That  no 
change  sliould  be  made  in  them  or  in  the  rate  of  wages  without 
certain  notice  to  the  organization,  the  members  of  which  would 
be  affected,  was  one  of  those  rules  and  regulations.     The  receivers 
appointed  for  this  insolvent  railroad  company  had  a  set  of  rules 
and  regulations  and  schedules  of  wages  prepared  by  themselves 
api^roved  by  order  of  the  United  States  Circuit  Court  for  the 
district  of  ISTebraska,  and  authority  was  given  them  to  put  the 
same  in  force.     The  Circuit  Courts  of  other  districts  through 
which  the  road  extended  having  declined  to  give  effect  to  the 
order  in  those  districts,^  the  receivers  applied  to  the  Circuit  Court 
for  a  rehearing  before  the  Circuit  judges.     Upon  this  rehearing, 
the  court  held  that  the  schedules  of  wages  established  for  so  long 
a  time  between  the  company  and  its  employees  must  be  presumed 
to  be  just  and  reasonable,  and  that  the  new  and  reduced  schedules 
adopted  by  the  receivers  without  notice  to  the  employees  or  their 
representatives  would  not  be  approved  by  the  court,  although 
recommended  by  a  majority  of  the  receivers.*     In  another  case 

'In  re  Seattle,  L.  8.  &  E.  Ry.  Co.;  »  See  Ame^.  v.  Union  Pac.  Ry  Co 

trrievance  Committee  of  Brotherhood  60  Fed.  Rep.  674                                  " 

of  Railway  Trainmen.  Lodge  No.  196,  *  Ames  v.  Union  Pac.  Ry  Co    a894> 

V.  Brown.  (1894)  61  Fed.  Rep.  541.  62  Fed.  Rep.  7.                             ^    ^ 

*  Ames  V.  Union  Pac.  Ry.  Co.,  (1894) 
60  Fed.  Rep.  674. 

152 


'^K. 


if 


1210 


RECEIVERS  IN  FORECLOSURE  SUITS. 


[§550 


l!IP| 


I  f 


before  the  federal  courts,  it  appeared  that  a  raih'oad  company, 
the  property  of  which  was  tlie  equipment  and  leasehold  vi 
another  road,  passed  into  the  hands  of  a  receiver.  The  annujd 
rent  was  a  iirst  Hen  on  the  equipment,  and  tlie  leasehokl  was  sul)- 
ject  to  forfeiture  for  non-payment  of  the  rent.  The  earnings  of 
the  road  fell  off,  owing  to  general  depression,  until  they  were  not 
sufficient  to  pay  the  rent.  The  receiver  thereupon  ordered  a 
reduction  of  ten  per  cent  in  wages  of  all  employees.  Such  a 
reduction,  it  also  appeared,  had  been  before  then  made  by  com- 
peting roads,  and  that  the  working  time  of  each  one  of  the 
employees  had  been  lessened  by  the  receiver  in  order  to  avoid  a 
discharge  of  any  of  them.  The  Circuit  Court  held  that  this 
reduction  was  not  unreasonable  in  such  a  case.^  In  the  United 
States  Circuit  Court  for  the  northern  district  of  Georgia,  the  rule 
declared  as  to  the  proper  treatment  of  employees  of  a  railroad 
company  operated  by  a  receiver,  in  case  of  injury  to  those 
employees,  is  as  follows :  A  person  in  the  employ  of  a  receiver 
having  been  injured  while  in  the  discharge  of  his  duty,  without 
negligence  on  the  part  of  eitlier,  the  court  may  properly  order 
that  his  wages  be  paid  to  him  for  the  time  during  which  he  con- 
tinued disabled,  the  view  of  the  court  being  that  the  officers  of 
the  court  should  be  required  to  act  towards  their  employees  as 
persons  of  ordinary  humanity  and  right  feeling  would  act  under 
similar  circumstances.  The  usual  rule  was,  however,  limited  in 
this  wise :  The  compensation  should  be  confined  to  faithful  and 
deserving  employees  and  to  those  who  merit  such  consideration.* 

§  550.  Receiver's  certificates  —  when  they  will  be  author- 
ized —  the  lien  of  such  certificates  and  its  enforcement. — 
Here  the  receiver  had  been  appointed  on  the  petition  of  a  com- 
paratively small  holder  of  stock  in  a  small  local  narrow-gauge 
railroad  company.  The  court  which  had  appointed  him  refused 
to  authorize  him  to  issue  receiver's  certificates  to  provide  for 
new  equipment,  additional  sidings  and  permanent  structures,  in 
order  to  test  its  earning  capacity  if  fully  developed,  as  the  issuing 
of  such  certificates  was  opposed  by  all  other  interests,  and  the 

*  Thomas  r.  Cincinnati,  N.  O.  &  T.  Fed.  Rep.  7,  limiting  rule  in  Missouri 

P.  Ry.  Co.,  (1894)  62  Fed.  Rep.  17.  Pac.  Ry.  Co.  v.  Texas  &  P.  Ry.  Co., 

«  Thomas  v.  East  Tennessee,  V.  &  8.  33  Fed.  Rep.  701;  41  Fed.  Rep.  319. 
Ry.  Co.  (Cook,  Intervener),  (1894)  60 


§550] 


BECEIVEKS  IN  FORECLOSURE  SUITS. 


1211 


first  mortgage  bondholders  were   pressing  for  a  foreclosure  of 
their  past  due  mortgage ;  it  was  furthermore  apparent  that  the 
road  could  not  in  any  reasonable  time  cancel  the  certificates,  and 
resume  payment  of  interest   on   its   bonds,  and   that   the  first 
measure  of  the  new  owners  would  be  to  change  the  road  to  a 
standard  gauge,  thus  rendering  the  proposed  improvements  use- 
less.^    It  was  held  in  this  case,  where  a  receiver  of  a  railroad  had 
been  appointed  on  the  petition,  not  of  the  boi.dholders,  but  of  a 
stockholder,  and  no  earnings  had  been  diverted  to  pay  interest 
on  bonds,  there  was  no  lien  or  equity  requiring  the  payment  of 
past-due  labor  and  material  claims  out  of  the  corpus  of  the  prop- 
erty by  the  issuance  of  receiver's  certificates.     But  there  was, 
however,  an  equity   requiring    payment  of   those  whose  labor 
actually  kept  the  road  a  going  concern  out  of  any  net  earnings 
which  the  receiver  might  realize,  but  such  earnings  could  not  be 
anticipated  by  raising  money  on  receiver's  certificates  except  by 
agreement  of  the  parties.^     Should  all  parties  consent  that  the 
receiver  of  a  railroad  company,  though  not  engaged  in  operating 
the  road,  be,  and  he  is  authorized  by  order  of  court  to  issue 
certificates  which  shall  constitute  a  lien  on  the  company's  prop- 
erty superior  to  certain  prior  mortgages,  and  the  money  obtained 
on  such  certificates  is  used  in  preserving  and  improving  the  prop- 
erty, the  purchasers  of  the  property  at  a  subsequent  sale  to  fore- 
close said  mortgages  are  estopped  from  denying  the  validity  of 
the  certificates.^     The  order  for  certificates  of  the  receiver  in  this 
case,  on  his  ex  parte  application  had  been  modified  so  as  to  declare 
some  of  the  certificates  invalid,  with  the  privilege  to  the  holders 
of  such  certificates  to  intervene  in  the  suit  and  have  their  validity 
adjudicated.     It  was  held  that  a  petition  in  intervention  by  such 
certificate  holders,  which  recited  the  modified  order,  did  not 
thereby  admit  the  invalidity  of  the  certificates ;  nor  did  the  fact 
that  the  principal  of  such  certificates  was  not  due  make  the  inter- 
vention  premature,  if  the  interest  thereon  was  then  due  and 
unpaid.^     And  the  receiver  who  issued  the  certificates  and  who 
has  in  his  hands  the  funds  from  which  they  should  be  paid,  is  a- 
necessary  party  defendant  to  such  intervention.^     In  a  foreclosure 

'  Street  v.  Maryland  Central  Ry.  Co.,  (Anniston  Loan  &  Trust  Co.,  Inter-^ 

(1893)  59  Fed.  Rep.  25.  vener),  (1890)  44  Fed.  Rep.  536. 

'Ibid.  4iud. 

''Central   Trust  Co.   v.  Sheffield  &  ^jbid. 
Birmingham    Coal,   Iron  &   Ry.   Co. 


"f"'|| 


i    f 


1 1        i 


1212 


KECEIVERS  IN  FORECLOSURE  SUITS 


[§550 


I'  '     * 


(       111 


suit  of  a  mortgage  executed  by  a  railroad  company  which 
received  the  railroad  property  by  conveyance  from  a  purchasing 
committee  of  l^ondholders  of  a  former  railroad  company  carrying 
out  a  plan  of  reorganization  in  their  interest,  the  holder  of 
receiver's  certificates  which,  by  order  of  the  court  in  which  the 
mortgage  against  the  former  railroad  company  was  foreclosed, 
had  been  issued  and  sold  to  this  holder,  intervened  by  petition  to 
enforce  the  prior  lien  of  these  certificates.  The  court  declared 
these  rules  to  be  applicable  in  this  case,  to  wit:  The  lien  of 
receiver's  certificates  continues  as  long  as  the  order  authorizing 
their  issuance  remains  in  force,  though  such  order  was  made 
without  notice  to  parties  interested ;  and  the  fact  that  a  reference 
is  had  to  determine  all  claims  against  the  receiver,  and  a  report  is 
confirmed  which  makes  no  allusion  to  the  certificates,  is  not  an 
adjudication  against  them,  when  it  appears  that  they  were  not 
presented  or  considered,  and  that  their  holder  had  no  notice  of 
the  reference.^  Receiver's  certificates,  which  are  ordered  to  be 
paid  out  of  the  income  of  the  road  from  time  to  time,  are  in  the 
nature  of  call  loans,  and  the  holders  have  a  right  to  presume  that 
the  receiver  will  notify  them  when  the  loan  is  to  be  called  or  the 
money  paid.  Where  purchasers  of  receiver's  certificates  have 
paid  their  par  value  to  the  receiver,  without  notice  of  any  facts 
to  put  them  upon  inquiry,  their  lien  is  not  affected  by  the  fact 
that  the  receiver  appropriated  the  money  to  his  own  use.'  It 
appeared  in  this  intervention  in  a  foreclosure  suit,  which  was  to 
enforce  the  payment  of  receiver's  certificates  against  the  pur- 
chaser of  the  corporation's  property  at  foreclosure  sale,  that  the 
president  of  the  bank  in  which  the  receiver  kept  his  deposits, 
having  been  authorized  by  the  receiver  to  sell  certain  receiver's 
certificates,  made  the  sale  after  his  authority  had  been  revoked, 
and  caused  the  amount  realized  from  the  sale  of  certificates  to  be 
credited  to  the  receiver  on  the  books  of  the  bank,  and  on  the 
receiver's  pass  book.  The  receiver  did  not  repudiate  the  sale, 
but,  on  the  contrary,  drew  checks  against  the  deposits,  and 
reported  the  transactions  to  the  court,  which  in  the  foreclosure 

» As  to  the  validity  of  the  first  lien  N.  Y.  439.  451,  452;  s.  c,  13  N.  :E. 

of  such  certificates  upon  the  railroad,  Rep.  743. 

see  Wallace  v.  Loomis,  97  U.  S.  146,       « Mercantile  Trust  Co.  v.  Kanawha 

162;  Union  Trust  Co.  v.  Illinois  Mid-  &  Ohio  Ry.  Co.,  (1892)  50  Fed.  Rep. 

land  Ry.  Co.,  117  U.  8.  434;  s.  c,  6  874. 
Sup.  Ct.  Rep.  809;  Vilas  v.  Page,  106 


§550] 


RECEIVERS  IN  FORECLOSURE  SUITS. 


1213 


decree  recognized  the  validity  of  the  certificates,  and  directed 
that  the  sale  should  be  made  subject  thereto.  The  United  States 
Circuit  Court  of  Appeals  for  the  fifth  circuit  held  that  the 
receiver  was  estopped  to  question  the  validity  of  the  certificates 
as  against  an  innocent  purchaser.  They  also  held  the  fact  that 
the  receiver,  on  afterwards  learning  that  the  bank  was  insolvent, 
demanded  and  received  from  the  bank  and  from  the  president, 
personally,  certain  collateral  securities,  to  protect  his  deposits,  not 
to  be  a  repudiation  of  the  sale  of  the  certificates,  but  rather  a 
fresh  ratification  and  acceptance  of  the  deposits  as  the  proceeds 
of  the  sale.  The  deposits  representing  the  proceeds  of  the  sale 
of  certificates  having  been  placed  in  the  bank,  by  its  president, 
in  the  form  of  checks,  drafts,  etc.,  on  other  banks,  which  were  in 
fact  duly  honored  by  these  other  banks,  the  deposits  must  be 
held  to  have  come  into  the  receiver's  hands,  within  the  rule  which 
makes  the  receipt  of  the  proceeds  by  the  receiver  a  condition 
precedent  to  the  validity  of  the  certificates,  notwithstanding  the 
fact  that  the  bank  was  never  in  a  condition  to  pay  over  any  con- 
siderable proportion  of  the  deposits  to  the  receiver.  Further- 
more, the  court,  under  the  circumstances  of  this  case,  having 
recognized  the  validity  of  the  receiver's  certificates,  and  caused 
the  foreclosure  sale  to  be  made  subject  to  the  lien  of  the  certifi- 
cates, was  bound  to  recognize  the  estoppel  of  the  receiver,  as  the 
court's  agent,  and  to  protect  the  innocent  purchaser  of  the  certifi- 
cates by  enforcing  the  same  against  the  purchaser  of  the  property.^ 
The  Court  of  Civil  Appeals  of  Texas,  in  an  action  by  a  trustee  of 
a  corporation  mortgage  securing  bonds  to  foreclose  the  same  on 
lands  of  the  corporation  situated  in  that  state,  upon  an  interven- 
tion through  which  the  holders  of  certain  receivers'  certificates 
which  had  been  issued  under  order  of  a  court  of  I^ew  York,  in  which 
proceedings  to  wind  up  this  insolvent  corporation  incorporated  in 
that  state  were  pending,  sought  to  have  the  certificates  declared  a 
prior  lien,  held  that  a  court  of  another  state  having  no  jurisdic- 
tion to  appoint  a  receiver  for  property  situated  in  Texas,  it  could 
not  authorize  its  receiver  to  issue  certificates  which  should  be  a 
lien  upon  the  property  situated  in  Texas.     Further,  the  fact  that 

*  Alabama  Iron  &  Ry.  Co.  v.  Annis-  4  Dall.  234;  Koontz  v.  Bank,  16  Wall, 

ton  Loan  &  Trust  Co.,  (1893)  57  Fed.  196;  Oddie  v.   Bank.   45  N.   Y.   735; 

Rep.  25.    See  for  the  same  principle  Bank  t>.  Burkhardt,  100  U.  S.  686. 
as  declared  in  the  text,  Levy  v.  Bank, 


r  . 


I! 


il 


1214 


KECEIVEB8  IN  FORECLOSURE  SUITS. 


[§550 


§  551] - 


RECEIVERS  IN  FORECLOSURE  SUITS. 


1216 


}  > 


f  y 
t 

! 


t' 


in  such  case  the  president  of  the  insolvent  corporation  attempted, 
under  an  order  of  the  foreign  court,  to  convey  tlie  property  to 
the  receiver,  was  immaterial.^  It  seemed  that  certain  of  the  bond- 
holders of  this  corporation  had  entered  into  an  agreement  with 
the  purchasers  of  these  certificates  of  the  receiver  of  the  New 
York  court,  that  the  certificates  held  by  them  should  be  a  prior 
lien  upon  the  lands  in  Texas.  The  Court  of  Civil  Appeals 
affirmed  the  judgment  of  the  court  below  that  the  rights  of  these 
purchasers  of  certificates  could  not  be  adjudicated  under  the 
agreement  with  these  bondholders  in  the  foreclosure  suit  without 
making  those  bondholders  parties  to  the  action.^  The  main  ques- 
tion made  in  this  case  was  whether  the  lien  of  the  receiver's  cer- 
tificates upon  the  property  of  tlie  former  railroad  company, 
against  which  the  proceedings  in  foreclosure  were  conducted,  in 
which  these  certificates  were  issued,  had  been  discharged.     The 


>  Pool  D.  Farmers'  Loan  &  Trust  Co. , 
(Tex.  Civ.  App.  1894)  27  S.  W.  Rep. 
744. 

'Pool  V.  Farmers'  Loan  &  Trust 
Co..  (Tex.  Civ.  App.)  27  8.  W.  Rep. 
744.  The  court  said:  "  It  is  unques- 
tionably true  that  in  a  number  of  cases 
the  trustee  appointed  by  the  instru- 
ment creating  the  trust  will  be  held 
authorized  to  represent  the  beneficia- 
ries therein  in  suits  involving  the  title 
to  the  trust  property,  as  well  as  in  the 
execution  of  the  powers  expressly 
conferred  upon  him.  This  is  especi- 
ally true  where  the  parties  are  numer- 
ous, as  in  mortgages  given  to  secure 
railroad  bonds,  and  would  include  the 
mortgage  given  to  appellee  by  the 
copper  company  in  this  case.  *  ♦  » 
It  will  be  observed,  however,  that  the 
instrument  relied  upon  in  this  case  is 
not  signed  by  the  owner  of  the  prop- 
erty, and  no  power  is  attempted  to  be 
conferred  upon  appellee,  as  trustee  in 
the  original  mortgage,  to  represent 
them  in  reference  to  this  contract, 
e7en  by  the  bondholders  who  did  sign 
it.  It  seems  to  be  an  agreement  be- 
tween appellants  and  the  signing 
l)ODdholders    pure  and  simple.     We 


think  it  clear  that  the  agreement 
conferred  no  power  upon  appellee  to 
represent  the  signing  bondholders  in 
reference  to  any  of  the  matters  em- 
braced therein,  for  the  simple  reason 
that  it  attempted  to  give  no  such 
authority.  We  are,  therefore,  of 
opinion  that  these  bondholders  were 
necessary  parties  to  a  decree  giving 
appellants  priority  over  them  by  reason 
of  the  stipulations  contained  in  that  in- 
strument." Citing  Hudson  v.  Elevator 
Co.,  79  Tex.  401;  s.  c,  15  S.  W.  Rep. 
385.  The  court,  as  to  how  these  pur- 
chasers of  receivers'  certificates  might 
secure  their  rights,  said:  "  As  the  pro- 
ceeds of  the  sale  under  the  judgment 
rendered  by  the  court  below  will  be 
paid  to  appellee,  as  trustee  in  the 
original  mortgage,  we  see  no  reason 
why  appellants  cannot,  in  a  proper 
proceeding  in  the  New  York  courts,  in 
which  state  all  the  parties  are  domi- 
ciled, have  that  part  of  such  proceeds 
which  would  be  due  the  bondholders 
who  signed  the  instrument  above  set 
forth  first  applied  to  the  discharge  of 
these  receivers'  certificates,  in  compli- 
ance with  its  terms." 


suggestion  was  that,  by  virtue  of  the  sale  and  transfer  of  the  rail- 
road property  to  the  purchasing  committees  of  the  bondholders 
in  that  suit,  the  lien  was  transferred  fi'om  the  property  to  the 
fund,   which   was  paid   into  court  in   the   foreclosure   suit.     It 
appeared  that  the  decree  confirming  the  rule  directed  the  con- 
veyance to  be  made  expressly  subject  to  the  payment  of  any  sums 
in  cash  on  account  of  the  i3urchase  price  which  the  court  might 
afterwards  direct,  and  a  vendor's  lien  to  be  reserved  for  security. 
These  provisions  were  incorporated  in  the  deed  to  the  committee 
of  bondholders,  and  in  their  deed  to  the  new  corporation  organ- 
ized by  the  bondholders,  the  mortgage  of  which  new  corporation 
was  here  being  foreclosed.     The  court  held  that  the  reservation 
had  the  force  of  a  covenant  running  with  the  land,  and,  as  no 
cash  was  paid  in,  the  lien  of  the  certificates  w^as  not  transferred 
to  the  fund  arising  from  the  order,  but  was  continued  on  the 
property.^     It  has  been  held   that  where  receiver's  certificates 
have  been  issued  by  the  direction  of  a  federal  court  in  one  state, 
and  ancillary  proceedings  were  had  in  a  federal  court  of  another 
state  into  which  the  road  extended,  the  latter  court  had  jurisdic- 
tion to  enforce  the  lien  of  the  certificates  even  in  a  separate  suit 
and  against  a  company  which  purchased  the  road  after  the  sale 
in  the  original  proceeding.^ 

§  551.  Rules  as  to  claims  against  receiver  growing  out  of 
rolling  stock  coming  into  his  possession.—  In  a  case  before 
the  United  States  Circuit  Court  of  Appeals  for  the  fifth  circuit 
it  appeared  that  an  improvement  company,  interested  in  the  con- 


>  Mercantile  Trust  Co.  d.  Kanawha 
&  Ohio  Ry.  Co.,  (1892)  50  Fed.  Rep. 
874.  It  was  said:  "  The  precise  point 
was  adjudicated  in  Vilas  v.  Page,  106 
N.  Y.  439;  s.  c,  13  N.  E.  Rep.  743. 
Andrews,  J.,  at  page  454,  106  N.  Y. 
Rep.,  and  page  747,  13  N.  E.  Rep., 
says:  "  If  the  purchasers  on  the  sale, 
whether  bondholders  or  third  persons, 
had  paid  the  purchase  money  in  cash, 
or  secured  its  payment,  there  would, 
we  conceive,  be  no  doubt  that  the  lien 
would  be  transferred  to  the  proceeds. 
There  would  then  be  a  substitute  for 
the  thing  sold,  upon  which  the  lien 
would  attach,  relieving  the  land  in  the 
hands  of  the  purchasers.    But  it  could 


not  have  been  the  intention  of  the 
court  to  make  a  constructive  payment 
on  a  purchase  by  the  mortgagees, 
through  a  cancellation  of  the  mortgage 
debt,  equivalent  to  an  actual  payment, 
so  as  to  relieve  the  property  from  the 
charge.  Such  a  lien  would  be  illusory 
merely,  having  no  substantial  quality. 
The  purchasers  cannot  claim  to  have 
the  premises  purchased  discharged 
from  the  lien." 

2  Mercantile  Trust  Co.  v.  Kanawha, 
&OhioRy.  Co.,  (1892)  50  Fed.  Rep. 
874.  The  lien  of  receiver's  certificates 
was  enforced  in  an  independent  suit  in 
Swann  v.  Clark,  110  U.  S.  602;  s.  c, 
4  Sup.  Ct.  Rep.  241. 


:  '     ¥ 


tuiii 


^' 


1216 


I 


\l  r! 


RECEIVEES  IN  FORECLOSURE  SUITS. 


[§551 


struction  of  a  railroad,  and  the  president  of  which  was  a  stock- 
holder in  the  railroad  company,  and  largely  interested  as  a 
contractor  in  the  construction  of  tire  railroad,  equipped  the  rail- 
road with  rolling  stock,  and  caused  the  same  to  be  marked  with 
the  name  of  the  railroad  company ;  the  improvement  company's 
intent  was  to  enable  the  company  to  issue  certain  bonds,  secured 
by  mortgage  on  its  railroad  as  an  equipped  road,  and  such  bonds 
were  issued  and  placed  through  the  instrumentality  of  the  presi- 
dent of  the  improvement  company.  This  was  a  suit  by  a  holder 
of  the  bonds  to  foreclose  that  mortgage,  and  an  assignee  of  the 
improvement  company  intervened,  claiming  the  rolling  stock. 
The  Court  of  Appeals  held  that  the  improvement  company  and 
its  assignee  were  estopped  to  allege  that  the  transaction  in  ques- 
tion constituted  a  gratuitous  loan  of  the  rolling  stock,  or  to  deny 
the  title  of  the  railway  company  thereto,  as  against  the  bond- 
holders.^ The  original  vendor  of  this  rolling  stock,  who,  by  his 
contract  of  sale  to  the  improvement  company,  reserved  title  to 
the  rolling  stock,  until  payment  of  the  purchase  money,  intervened 
in  the  same  suit  for  foreclosure  of  the  railroad  mortgage  on  the 
railroad  and  its  equipments  which  the  improvement  company  had 
enabled  the  road  to  execute,  as  well  as  to  negotiate  its  bonds.  It 
was  held  by  the  same  Court  of  Appeals  that  this  original  vendor 
of  the  rolling  stock,  having  no  notice  of  equities  existing  between 
the  purchasers  of  the  bonds  of  the  railroad  company  and  the 
improvement  company,  was  entitled  to  the  possession  of  the 
rolling  stock,  the  title  to  which  he  had  retained.  But  in  such 
case,  the  improvement  company,  being  estopped  from  setting  up 
title  against  the  bondholders  by  the  fact  that  the  bonds  of  the 
railroad  company  were  placed  through  its  instrumentality,  the 
original  vendor  could  take  nothing  by  a  resale  to  him  by  the 
improvement  company  of   such  rolling  stock.^    The  rule   was 


» Central  Trust  Co.  of  New  York 
9.  Marietta  &  N.  G.  Ry.  Co.  (Hiawassee 
Co.,  Intervener),  (1891)  48  Fed.  Rep. 
850,  reversing  Central  Trust  Co.  of 
New  York  v.  Marietta  &  N.  G.  Ry. 
Co.  (Hiawassee  Co.,  Intervener),  (1891) 
48  Fed.  Rep.  32. 

*  Central  Trust  Co.  of  New  York  v. 
Marietta  &  N.  G.  Ry.  Co.  (Groome, 
Intervener),  (1891)  48  Fed.  Rep.  864, 
ordering    the    receiver  to  pay   this 


vendor  within  a  certain  date  the 
balance  due  him,  or,  if  he  was  unable 
to  pay,  to  deliver  the  property  to  him. 
There  was  a  similar  ruling  in  Central 
Trust  Co.  of  New  York  v.  Marietta  & 
N.  G.  Ry.  Co.  (Jackson  &  Woodin 
Mfg.  Co.,  Intervener),  (1891)  48  Fed. 
Rep.  865,  where  there  was  a  condi- 
tional sale  to  the  improvement  com- 
pany of  rolling  stock. 


§551] 


BECEIVEBS  IN  FOBECLOSUBE  SUITS. 


121T 


declared  by  the  United  States  Circuit  Court  of  Appeals,  in  a  case 
of  foreclosure  of  railroad  mortgage,  where  an  intervener,  who  had 
furnished  cars  under  a  contract  of  conditional  sale  to  the  railroad 
company,  and  was  held  entitled  to  be  paid  balance  of  unpaid  pur- 
chase money  by  the  receiver,  and  the  value  of  the  rolling  stock 
had  been  increased  ten  per  cent  since  the  same  was  furnished  by 
hun,  that,  in  determining  the  sum  which  the  receiver  wa«  to  pay 
in  order  to  retain  possession  of  the  rolling  stock,  ten  per  cent 
should  be  added  to  the  cost  thereof  before  deducting  a  percentage 
per  annum  for  wear  and  tear.^     The  mortgage  which  was  being 
foreclosed  in  this  case  covered  "  all  after-acquired "  as  well  aa 
existing  property  of  the  railroad  company,  and  was  duly  recorded. 
After  its  execution  the  railroad  company  purchased  certain  car^ 
from  a  carbuilder,  under  an  agreement  by  which  the  carbuilder 
retained  title  to  the  cars  until  they  should  be  fully  paid  for,  which 
agreement  was  in  writing,  but  was  never  recorded.   In  the  action 
for  foreclosure  of  the  mortgage  the  carbuilder  intervened,  claim- 
mg  the  cars  under  his  reservation  of  title.      The  trust  company 
foreclosing,  opposed  his  claim,  relying  upon  the  effect  of  the  stat- 
utes of  Georgia  concerning  conditional  sales.    The  United  States 
Circuit  Court  of  Appeals  for  the  fifth  circuit  held  that  the  trust 
company  was  not  a  third  party  within  the  meaning  of  the  Code  of 
Georgia,  section  1955a  (Laws  1881,  p.  143),  providing  that,  in  order 
to  retam  title  to  personal  property  sold  and  dehvered,  as  a^inst 
third  parties,  "  title  must  be  reserved  in  writing,  and  thepaper 
duly  executed  and  recorded  as  a  mortgage  on  personalty,"  and 
that  the  trust  company  could  derive  no  advantage  from  the  car- 
builder s  failure  to  record  his  reservation  of  title,  as  the  statute 
was  intended  only  for  the  benefit  of  subsequent  purchasers  and 
creditors  of  the  vendee.     Nor  were  the  rights  of  the  carbuilder 
affected  as  against  the  trust  company,  by  the  later  statute  of 
Creorgia,  which  vahdates  conditional  sales  of  rolling  stock  to  railroad 
companies  with  reservation  of  title,  but  requiring  that  such  reserva- 
tion shall  be  m  writing,  and  shall  be  recorded  within  six  months 
after  the  execution  thereof,  as  that  act  was  also  intended  only  for 
he  benefit  of  third  parties,  and  operated  to  repeal  the  statute  of 
1881  no  further  than  to  provide  a  different  method  for  the  execu- 

j»i»neMa<KJN.  ii.  Rj.  Co.  (Jackson  &  Rep.  875. 
153 


ifr 


f 


1218 


KBCEIVERS  IN  F0BECL08UEE  SUITS. 


[§551 


k   i 


.      .h 


f  K 


i. 


H 


tion  of  contracts  for  the  conditional  sale  of  railroad  equipments.* 
It  has  been  held  by  the  United  States  Circuit  Court  of  Appeals 
for  the  iiftli  circuit,  in  a  suit  for  foreclosure  of  a  railroad  mort- 
gage, that  the  statute  of  the  state  of  Georgia,  validating  contracts 
for  the  sale  of  rolling  stock  made  or  to  be  made  to  the  owner  or 
operator  of  a  railway  within  the  state  of  Georgia,  with  reservation 
of  title,  and  requiring  such  contracts  to  be  recorded  within  six 
months  after  execution,  had  no  application  to  such  a  contract, 
made  before  the  passage  of  such  act,  by  two  foreign  corporations, 
outside  of  the  state,  for  the  sale  of  rolling  stock  to  be  used 
within  the  state  of  Georgia,  neither  corporation  being  the  owner 
or  operator  of  a  railway  in  the  state.'  The  claim  for  rental  of  a 
leased  line  by  the  lessee  company  was  pressed  against  the  receiv- 
ers of  a  railroad  company  of  the  system  of  which  the  leased  line 
formed  a  part.  This  rule  was  declared  :  That  the  receivers  of  the 
system  could  not  set  off  as  against  the  claim  for  rentals  accruing 
to  the  leased  line  during  the  receivership  any  cross-demand 
alleged  to  have  accrued  to  the  lessee  prior  to  the  receivership  as 
the  two  claims  arose  in  different  rights.  Further,  in  such  case  it 
was  immaterial  that  the  lessor  was  insolvent,  when  the  lease  pro- 
vided for  an  arbitration  of  the  matters  claimed  as  a  set-off,  and 
expressly  declared  that  the  pendency  of  such  arbitration  should 
not  interfere  with  the  operation  of  the  lease,  and  that  all  pay- 
ments and  transactions  under  the  lease  should  continue  exactly  as 
if  no  controversy  had  arisen.^  Where  an  insolvent  railroad  com- 
pany, upon  its  own  petition,  procured  the  appointment  of 
receivers  to  take  possession  of  its  road  and  leased  lines,  and  in  the 
same  suit  trustees  of  a  mortgage  asked,  and  were  denied,  an 
appointment  of  receivers,  or  an  extension  of  the  receivership 
under  their  cross-bill,  but  obtained  a  decree  of  foreclosure  and  a 
sale  of  the  property  thereon,  it  was  held  in  the  federal  court  that 
the  rentals  of  the  leased  lines  while  in  the  possession  of  the 
receivers  did  not  become  a  charge  upon  the  corpus  of  tlie  prop- 


*  Central  Trust  Co.  of  New  York  ti. 
Marietta  &  N.  G.  Ry.  Co.  (Groome, 
Intervener),  (1891)  48  Fed.  Rep.  868. 

•  Central  Trust  Co.  of  New  York  v. 
Marietta  &  N.  G.  Ry.  Co.  (Jackson  & 
Woodin  Mfg.  Co.,  Intervener),  (1891) 
48  Fed.  Rep.  865.  As  to  claims  against 
receivers  for  the  rental  of  cars,  see 


Farmers'  Loan  &  Trust  Co.  v.  Chicago 
&  A.  Ry.  Co.,  42  Fed.  Rep.  6;  Knee- 
land  v.  American  Loan  &  Trust  Co., 
136  U.  S.  89;  s.  c,  10  Sup.  Ct.  Rep.  950. 
•Farmers'  Loan  &  Trust  Co.  v. 
Northern  Pac,  R.  Co.  (Wisconsin 
Cent.  Co.,  Intervener),  (1893)  58  Fed. 
Rep.  257. 


§552] 


BECEIVERS  IN  FOEECLOSFRE  SUITS. 


1219 


ei-ty  to  be  paid  in  preference  to  the  mortgage  debt.^  In  a  case  in 
the  United  States  Circuit  Court  for  the  northern  district  of 
Illinois,  upon  the  intervention  of  a  car  company  in  a  foreclosure 
suit  brought  by  bondholdere  claiming  rental  for  cars  furnished  to 
the  company  prior  to  the  receivership,  and  to  the  receiver  as 
they  claimed  after  his  appointment,  Mr.  Justice  Harlan  declared 
this  rule :  On  foreclosure  of  the  railroad  mortgage  in  this  case, 
and  the  adjustment  of  claims  of  intervening  creditors,  the  con- 
tract of  lease  of  cars  to  the  mortgage  company,  by  the  car  com- 
pany, dominated  by  the  same  persons,  cannot  be  made  the  basis 
of  an  accounting  for  the  use  of  the  leased  cars.^ 

§  552.  Application  of  earnings  of  the  road  during  receiver- 
ship.—  Where  the  road  of  a  railroad  company,  on  application  of 
second  mortgagees,  is  placed  in  the  hands  of  a  receiver,  after  it  has 
purchased  on  credit  rails  which  were  necessary  for  the  purpose  of 
keeping  its  road  going,  it  has  been  held  that  the  seller  of  the  rails 
had  an  equitable  right,  as  against  the  second  mortgagees,  to  have 
the  earnings  of  the  road  in  the  hands  of  the  receiver  applied  first 
to  the  payment  of  his  claim ;  but  he  had  no  such  right  against 
the  first  mortgagees,  even  thougli  they  had  filed  cross-bills  in  the 
suit,  since  they  were  not  the  ones  who  applied  to  the  court  of 
equity,    and   might,    therefore,    stand    on    their   legal    rights.* 


» Central  Trust  Co.  v.  Wabash,  St. 
L.  &  P.  Ry.  Co.  (Swayne,  Intervener), 
(1891)  46  Fed.  Rep.  26. 

•Thomas  v.  Peoria  &  Rock  Island 
Ry.  Co.  (Western  Car  Company,  In- 
tervener), (1888)  36  Fed.  Rep.  808. 
This  was  a  foreclosure  suit  by  bond- 
holders, and,  among  other  defenses 
of  the  petitioner  to  this  intervention 
was  that  the  controlling  directors  of  the 
railroad  company  organized  this  car 
company  for  their  own  benefit,  and, 
therefore,  contracted  with  themselves, 
with  intent  to  injure  the  bondholders. 
Upon  this  defense,  the  rule  in  the 
text  was  declared. 

'Bound  V.  South  Carolina  Ry.  Co., 
(1891)  47  Fed.  Rep.  30.  The  reason- 
ing of  SiMONTON,  J.,  to  sustain  his 
ruling,  was  as  follows:  "The  Su- 
preme   Court  has  established  that  a 


railroad  mortgage,  so  long  as  the  road 
is  kept  a  going  concern,  is  a  peculiar 
piece  of  property.     The  holder  of  a 
bond  secured    by  such  a   mortgage 
takes  it  with  notice  that  the  earnings 
of  the  railroad,  notwithstanding  that 
they  may  have  been  specially  pledged 
for  his  debt,  must  first  be  applied  to 
the  current  expenses,  labor,  supplies, 
equipments  and  such  permanent  im- 
provements as  are  absolutely  neces- 
sary before  they  can  be  used  for  the 
payment    of    his   interest.     And,   if 
perchance  he  be  paid,  leaving  these  or 
any  of   them  unpaid,  this  would  be 
a  diversion  of  the  fund,  and  a  per- 
son   holding   any     such    exceptional 
claim  has  an  equity  under  certain  cir- 
cumstances to  be  reimbursed  by  hav- 
ing such  diversion  corrected  out  of 
the  income  in  the  hands  of  the  com- 


I^f 


1220 


SEGEIVEES  IN  FORECLOSUBE  SUITS. 


[§552 


»■ 

t 

i 


I"  • 


I 


Here  a  ferry  company  had  a  contract,  by  which  a  railroad  com- 
pany was  to  have  the  use  of  certain  lands  as  approaches  to  the 
ferry,  and  on  its  part  agreed  to  transport  all  of  its  freight  and 
passengers  over  the  ferry  of  this  company,  which  was  over  a 
navigable  stream.  The  railroad  company,  becoming  insolvent, 
a  mortgage  it  had  given  was  foreclosed ;  it  having  been  first  placed 


pany,  and,  if  in  the  meantime  a  re- 
ceiver has  been  appointed,  out  of  the 
earnings  in  the  hands  of  the  receiver. 
This  is  an  equity  founded  upon  the 
doctrine  that  the  officers  of  a  railway 
company  are  trustees,  or,  perhaps,  we 
should  say,  the  recipients  and  holders 
of   a  trust  fimd,  applicable  first  to 
claims  of    this   character   and    after 
them  to  the  interest  on  the  mortgage 
debt.    The  origin  and  reason  for  this 
equity  are  found  in  the  fact  that  a 
railroad   is   of    public   concern   and 
must  be  kept  up.    Those  who  con- 
tribute to  keep  it  up  and  so  subserve 
the  public  weal  are  rewarded.     This 
equity  is  enforced  wherever  suit  is 
brought  by  the  mortgagee  to  enforce 
his  mortgage  and  is  held  superior  to 
the  legal  lien  of  the  mortgage.     This 
doctrine  was  first  distinctly  set  out  in 
Fosdick  V.  Schall,  99  U.  S.  235,  and  is 
sustained  by  a  current  of  authority. 
Miltenberger  v.  Railway  Co.,  106  U. 
S.   286;   8.  c,  1   Sup.  a.    Rep.   140; 
Trust  Co.  V.  Souther,  107  U.  S.  591; 
8.  c,  2  Sup.  Ct.  Rep.  295;  Burnham 
V.  Bowen,  111  U.  S.  776;  8.  c,  4  Sup. 
Ct.  Rep.  675.     It  seems  to  have  been 
shaken  in  Kneeland  t.  Trust  Co.,  136 
U.  S.  89;  8.  c,  10  Sup.  Ct.  Rep.  950; 
but   in    Kneeland   v.   Foundry,  etc.. 
Works,   140  U.  S.  592;  8.  c,  11  Sup. 
Ct.  Rep.  857,  the  court  quotes  with 
approval  Fosdick  v,   Schall  and  the 
authorities  following  it  and  reaffirms 
them.     The   only    qualification    laid 
down  is  that  this  equity  is  put  in  mo- 
tion as  to  such  claims  only  as  arose 
within  a  reasonable  time  before  the 
receiver  was    appointed.    The   term 
'a reasonable  time'  is  an  unknown, 


or,  perhaps,  an  uncertain  quantity;  at 
least  it  depends  somewhat  on  the  cir- 
cumstances of  the  case  and  somewhat 
on  the  idiosyncracies  of  the  chancel- 
lor.   See  Paine  v.  Railroad  Co.,  118  U. 
S.  159;  8.  c,  6  Sup.  Ct.  Rep.   1019. 
One  of  the  cases  fixes  the  limit  at 
ninety  days.     Miltenberger  t>.  Railway 
Co.,  106  U.  S.  288;  s.  c,  1  Sup.  Ct. 
Rep.  140.    In  Thomas  v.  Railway  Co., 
36   Fed.    Rep.    817,    six    months   is 
selected  as  the  limit.    Judge  Brewer, 
in  Blair  v.  Railway  Co.,  22  Fed.  Rep. 
471,  says  that  six  months  is  the  longest 
time  within  his  knowledge  that  has 
ever  been  given.     In  the  present  case 
eighteen  months  elapsed  between  the 
purchase  of  the  rails  and  the  appoint- 
ment  of   the   receiver.    But,  as  we 
have  seen,  this  claim  on  the  part  of 
a   materialman    is    protected    by    an 
equity.    The  officers  of  the  company 
hold  the  earnings  as  a  trust  fund  in 
which  claims  of  this  character  have  a 
preference.     The  payment  of  interest 
to  bondholders,  these  material  claims 
being  unpaid,  is  held  to  be  the  use  of 
money    belonging  to    them    for    the 
benefit  of  others,  and  the  diversion  of 
the  fund  entitles  them  to  recoup.     It 
is  difficult  under  these  circumstances 
to  see  how  any  creditor  of  this  class 
can  be  defeated  in  his  application  for 
reimbursement    unless  in  analogy  to 
the  Statute  of  Limitations,  or  unless 
such  circumstances  exist  as  will  in- 
duce the  court  to  treat  it  as  a  stale 
claim,  or  unless  he  has  lost  an  oppor- 
tunity of  recovering  his  debt  from  the 
company,  or  unless    his   kuiTies    has 
operated  some  change  in  the  position 
of  the  mortgage  creditor.    At  the  time 


§552] 


BECEIVEES  IN  FOBECLOSUBE  SUITS. 


1221 


in  the  hands  of  a  receiver,  its  property  was  purchased  by  another 
railroad  company,  and  this  latter,  having  executed  a  mortgage 
securing  bonds,  becoming  insolvent,  a  suit  for  foreclosure  was 
instituted  upon  this  mortgage  and  a  receiver  was  appointed  for  its 
property.  The  purchaser  of  the  property  of  the  original  con- 
tracting railroad  company  in  part  continued  this  contract  with  the 
ferry  company,  and  so  also  did  the  receivers  under  the  different 
foreclosures.  The  ferry  company  intervened  in  this  last  fore- 
closure suit  and  claimed  that  it  should  be,  besides  other  relief 
asked,  paid  for  certain  rails  which  had  been  removed  from  the 
land  by  the  receiver.  The  United  States  Supreme  Court  held 
that  the  ferry  company  was  not  entitled  to  recover  the  value  of 
the  rails  removed  by  the  receiver.^     In  a  foreclosure  suit  involv- 


this  debt  was  incurred  the  whole  rail- 
road property,  present  and  future, 
was  covered  by  a  statutory  lien,  by  a 
first  mortgage,  a  second  mortgage  and 
an  income  mortgage.  The  rails  were 
absolutely  necessary  to  keep  the  road 
a  going  concern.  The  Lackawanna 
Company  furnished  these  rails,  trust- 
ing to  the  statement  of  the  president 
of  the  railway  company  that  they 
would  be  paid  out  of  the  earnings. 
These  belonged  to  the  company  (Fos- 
dick V.  Schall,  8upra),&Tid  the  president 
could  so  dispose  of  them.  The  au- 
thorities quoted  show  that  the  Lacka- 
wanna Company  belongs  to  a  class  of 
creditors  who  had  an  equity  over 
these  earnings  even  as  against  bond- 
holders. When  the  notes  first  ma- 
tured the  railroad  company  had  de- 
faulted on  its  April  and  October  inter- 
est of  the  second  mortgage  bonds. 
No  action  in  the  court  on  the  part  of 
the  Lackawanna  Company  could  have 
collected  its  claim.  By  pressure  on 
the  company  it  was  paid  one  note. 
But,  as  the  end  of  the  struggle  of  the 
railroad  company  was  inevitable,  the 
Lackawanna  Company  had  the  right 
to  rely  upon  its  equity  and  to  look  for 
payment  out  of  the  diverted  funds. 
It  seems  to  me  that  this  claim  comes 
within  the  principle  and  the  protec- 
tion of  Fosdick  V.  Schall." 


*  Wiggins  Ferry  Co.  v.  Ohi(\  & 
Mississippi  Ry.  Co.,  (1892)  142  U.  8. 
396.  It  was  said  in  the  opinion:  "In 
the  case  of  Wagner  v.  Cleveland  Ss 
Toledo  Railroad,  22  Ohio  St.  563,  it 
was  held  that  the  stone  piers  built  by 
a  railroad  company  as  part  of  its  road 
on  lands  over  which  it  had  acquired 
the  right  of  way,  did  not,  though 
firmly  imbedded  in  the  earth,  become 
the  property  of  the  owner  of  the  land, 
as  part  of  the  realty,  and  that,  upon 
the  abandonment  of  the  road,  the  com- 
pany might  remove  such  structures  as 
personal  property.  So,  in  Northern 
Central  Railroad  v.  Canton  Co.,  30 
Md.  347,  it  was  held  that  rails  fast- 
ened to  the  roadbed  of  a  railroad, 
as  well  as  the  depots  and  other  build- 
ings, might,  under  certain  circum- 
stances, be  treated  as  trade  fixtures, 
and  removable  by  the  company,  if  the 
surrounding  circumstances  showed 
that  at  the  time  the  rails  were  laid 
upon  the  land,  it  was  not  intended  that 
they  should  be  merged  in  the  freehold. 
In  that  case  the  road  was  built  upon 
land  under  a  license  and  permission  of 
the  owner.  It  is  entirely  clear  that 
the  suits  in  the  case  under  considera- 
tion did  not  become  part  of  the  realty, 
and  that  the  receiver  was  not  guilty  of 
waste  in  removing  them  from  the  land." 
When  preferred  debts  for  labor  and 


1222 


KECEIVERS  IN  F0RECL08UBE  SUITS. 


[§552 


'    I 


n 


'.  ♦ 


i' 


'I 


r 


m 


p 


ing  the  mortgage  of  a  street  railway  company,  the  United  States 
Circuit  Court  for  the  northern  district  of  California  refused  to 
direct  tlie  receiver  to  petj  out  money  in  his  hands  for  the  purpose 
of  grading  and  macadamizing  the  street  along  and  between  the 
rails,  in  accordance  with  an  order  of  the  town  trustees  upon  the 
ground  that  there  was  no  lien  in  favor  of  the  town  for  such  an 
expenditure.^  A  railroad  company  operating  a  system  of  leased 
roads  through  several  of  the  states  was  placed  in  the  hands  of  a 
receiver  in  the  federal  court  for  the  eastern  district  of  Virginia. 
One  who  had  furnished  materials  that  were  used  in  the  roadbed  of 
one  of  these  leased  roads  which  was  operated  as  part  of  the  system  of 
the  lessor  road,  proceeded  in  the  state  court  against  the  lessor  road 

materials  furnished,  for  the  operation 
of  a  division  of  a  system  of  railroads 
owned  by  a  railroad  corporation,  are 
a  lien  upon  the  earnings  of  all  the 
roads  of  the  system  prior  to  underly- 
ing and  general  mortgages,  see  Central 
Trust  Co.  r.  Wabash,  St.  Louis,  etc., 
Ry.  Co.,  30  Fed.  Rep.  332.    When  the 
earnings  of  a  system  of  railroads  in 
the  hands  of  a  receiver  may  be  ex- 
pended in  a  greater  proportion  on  some 
of  the  liens  than  on  others,  if  neces- 
sary to  the  prosperity  of  the  whole 
system,  see  Central  Trust  Co.  v.  Wa- 
bash, St.  Louis,  etc.,  Ry.  Co.,  30  Fed. 
Rep.  332.     When  a  receiver  should 
pay  coupon  bonds  overdue  in  pref- 
erence  to   coupons  of   bonds  issued 
imder  a  mortgage  of  a  prior  date,  see 
Park  V.  New  York,  Lake  Erie  &  West- 
em  R.    R.   Co.,   64   Fed.   Rep.   190. 
When  a  receiver  will  not  be  directed 
to  pay  out  of  the  earnings  in  his  hands 
interest  on  bonds  secured  by  mortgage 
on  a  part  of  the  road,  merely  to  avoid 
foreclosure  proceedings  of  the  mort- 
gage, see  Cleveland,  C.  &  S.  R.  R.Co.  v. 
Knickerbocker  Trust  Co.,  64  Fed.  Rep. 
623.   That  coal  used  in  operating  a  road 
before  and  after  receivership,  should 
be  paid  for  out  of  the  surplus  where 
income    is   insufficient,   see  Clark  v. 
Central  R.  R.  &  Bkg.  Co.  of  Georgia, 
66  Fed.  Rep.  803;  s.  c.  14  C.  C.  A. 


§553] 


EEOEIVERS  IN  FORECLOSUKE  SUITS. 


1223 


112.     When  a  receiver  will  be  com- 
pelled  to  restore  funds  diverted  by 
paying  earnings  to  interest  on  bonds 
for  the  purpose  of  payment  of  taxes 
on  property  in  his  hands,  see  Clyde  v. 
Richmond  &  Danville  R.  R.  Co.,  68 
Fed.   Rep.   21.     For  a  declaration  of 
rules  by  Mr.  Justice  Harlan  as  to 
what  is  chargeable  to  income  during 
receivership,    see  Thomas   v.    Peoria 
&  Rock  Island  Ry.  Co.  (Western  Car 
Co.,  Intervener),  (1888)  36  Fed.  Rep. 
808-818 ;  citing  Fosdick  v.  Schall,  99 
U.    S.   235,   252-254;    Milterberger  v. 
Railway  Co.,  106  U.  S.  286,  311,  312; 
s.  c,  1  Sup.  Ct.  Rep.  140;  Trust  Co.  v. 
Souther,  107  U.  S.  591;  s.  c,  2  Sup.  Ct. 
Rep.  295;  Trust  Co.  v.  Railway  Co., 
117  U.  S.  434;  8.  c,  6 Sup.  a.  Rep.  809; 
Burnham  v.  Bowen,  111  U.  S.  776;  s. 
c,  4  Sup.  Ct.  Rep.  675;  Trust  Co.  v. 
Morrison,  125 U.  S.  591;  s.  c,  8  Sup.  Ct. 
Rep.  1004;  Railroad  Co.  v.  Cowdrey, 
11   Wall,   459;   Oilman  v.   Telegraph 
Co.,   91    U.   S.   603;    Bridge    Co.   v. 
Heidelbach,  94  U.   S.   798;    Sage  v. 
Railroad  Co.,  125  U.  S.  361;  s.  c,  8  Sup. 
Ct.  Rep.  887;  Trust  Co.  v.  Shepherd, 
127  U.  S.  494;  s.  c,  8  Sup.  Ct.  Rep. 
1250. 

*  Union  Loan  &  Trust  Co.  v.  South- 
ern Cal.  Motor  Road  Co.,  (1892)  49 
Fed.  Rep.  267. 


and  reduced  his  claim  to  judgment,  after  the  lease  was  annulled 
as  to  this  leased  road.     Pending  the  action,  the  receivers  were 
appointed  for  the  whole  system.     As  to  this  judgment,  it  was 
held   in  the  federal  court   for  the  district   of  South  Carolina, 
where  this  intervention  was  made,  that  the  judgment  could  not 
operate  as  a  judgment  against  the  receivers,  nor  bind  the  realty 
in  their  hands,  it  not  having  been  in  existence  when  they  were 
appointed.     A  question  was  raised  as  to  the  jurisdiction  of  this 
hitervention,  as  the  intervener  prayed  of  the  court  sitting  for 
South  Carolina,  that  his  claim  be  paid  out  of  income  in  prefer- 
ence to  any  mortgage  lien,  as  being  for  materials  that  had  assisted 
in  keeping  the  system  a  going  concern.     The  receivers  of  the 
lessor  road  were  originally  appointed  in  Virginia,  and  by  these 
ancillary  suits  in  the  different  states  their  authority  was  extended 
and  confirmed.     Simonton,  D.  J.,  of  the  United  States  Circuit 
Court  for  South  Carolina,  held  that  the  court  which  originally 
appointed  the  receivers  was   the  forum  in  which  the  claimant 
should  seek  relief.     But,  as  he  regarded  the  claim  a  meritorious 
one,  ho  did   not  order  the  petition  before  him  dismissed,  but 
retained  it,  in  order,  if  possible,  to  assist  the  petitioner  in  enforc- 
ing its  payment.^ 

§  553-  Jurisdiction  of  actions  against  receivers.— The  act 

of  congress  of  1887-1888,  permitting  receivers  of  railroad  cor- 
poration property  to  be  sued  for  acts  or  transactions  of  theirs  in 
carrying  on  the  'business  connected  with  the  property,  without 
leave  of  the  coUrt  appointing  them,  does  not  confine  those  bring- 
ing the  suits  to  the  courts  having  jurisdiction  of  the  receiver  and 
the  property,  or  to  the  federal  courts  generally.  They  may  be 
sued,  without  such  leave  of  court,  in  any  court  of  competent  jur- 
isdiction. Neither  is  there  any  power  in  the  court  appointing 
them  to  enjoin  the  bringing  of  such  suits  in  such  other  courts  of 
competent  jurisdiction.^     But  garnishment  proceedings  have  been 


^  Clyde  V.  Richmond  &  Danville  R. 
Co.,  (1893)  56  Fed.  Rep.  539;  Ex  parte 
Powell,  (1893)  56  Fed.  Rep.  539. 

*  Central  Trust  Co.  of  New  York  v. 
East  Tennessee,  V.  &  G.  Ry.  Co., 
(1894)  59  Fed.  Rep.  523.  Lurton, 
Circuit  Judge,  after  referring  to  cases 
prior  to  the  passage  of  this  act  of  con- 


gress, such  as  Davis  v.  Gray,  16  Wall. 
218;  Barton  v.  Barbour,  104  U.  S.  126, 
and  others,  said,  arguendo  :  '*  Whether 
it  was  the  intention  of  congress  to  per- 
mit receivers  appointed  by,  and  ac- 
countable to.  United  States  courts  to 
be  sued  with  respect  to  acts  and  trans- 
actions as  such  receivers  in  courts  of 


+ 


!|l 


1224 


KECEIVEES  IN  FORECLOSCEE  SUITS. 


[§  563 


i 


II 


-  I 


{' 


]\ 


i    \ 


held  not  to  be  suits  against  the  receiver  for  "  any  act  or  trans- 
action of  his,"  within  the  meaning  of  that  act  of  congress,  and 
the  court  appointing  the  receiver,  it  was  also  held,  might  enjoin 
the  bringing  of  such  proceedings,  as  well  as  suits  upon  causes  of 
action  originating  before  the  receivei-ship,  and  all  other  suits  not 
arising  from  some  act  or  transaction  of  the  receiver  in  carrying 

other  jurisdictions,   is  by  no  means   struction  ought  to  be  given  this  act 
clear.     Under  the  law  as  it  stood  the   which  would  have  preserved  the  equi- 
court,  having  custody  of  the  property   table  juristiiction  of  the  Circuit  Courts 
pendenU  lite,  had  exclusive  jurisdic-    over   property  in   custodia  Ugis,  and 
tion  of  all  suits  affecting  such  prop-   over  suits  affecting  it.     We,  however 
erty,  and  drew  to  itself  complete  jur-   feel  precluded  from  now  placing  such 
isdiction  with  respect  to  all  the  acts   a  construction  upon  the  act  in  conse- 
and    transactions  of  the  receiver  in   quence  of  the  decisions  of  the  Supreme 
mamtaming  or  operating  property  so   Court  of  the  United  States  in  McNulta 
sequestrated.     It  was  just  as  much  a   v.  Lochridge,  141  U.  S.  327-8  c    12 
contempt  of  court  to  institute  a  suit   Sup.   Ct.   Rep.  11 ;    Railway  Co'  t 
affecting  such  property  or  its  custo-   Johnson,  (1894)  14  Sup.  Ct    Rep  250 
dian,  as  such,  in  the  court  of  his  ap-   ♦    ♦    »    If  that  act  authorized  a  suii 
pomtment,  without  previous  leave  of  against  a  receiver  in  a  state  court 
court,  as  it  was  to  bring  such  suit  in   without  leave  of  the  court  appointin.^ 
another    jurisdiction.      A   judgment   the  receiver,  in  respect  to  a  li^ibilityi n't 
agamst  the  receiver  is  a   judgment   curred  while  c^irrying  on  the  operation 
agamst  the  receivership.     It  is  a  judg-   of  a  railroad  as  a  receiver  under  a  de- 
ment affecting  the  property  and  to  be   cree  of  a  United  States  Circuit  Court 
paid  therefrom.     To  properly  admin-   as  was  held  in  McNulta  v  Lochridge' 
ister  a  sequestrated  properi;y  the  lia-   supra,  then  a  right  of  suit  thus  con' 
bihties  should  be  determined  in  due   f erred  by  congress  cannot  be  restricted 
course  and  the  claims  ranked,  and  the   in  advance  of  its  exercise.     This  would 
property  marshaled    and    distributed   be,   in  effect,   to    nullify  the  act  of 
according  to  legal  or  equitable  priori-   congress,  and.  therefore,  in  excess  of 
ties.     The  act  might  well  have  been   jurisdiction.     The  power  given  by  the 
construed  as  only  permitting  suits  in    proviso  ["  but  such  suit  shall  be  sub- 
the  court  having  jurisdiction  of  the   ject  to  the  general  equity  jurisdiction 
propert;y  and  the  receiver.    This  would   of  the  court  in  which  such  receiver  or 
have  secured  to  the  suitor  the  right  of   manager  was  appointed,  so  far  as  the 
jury    tnal,   according    to   the    usual   same  shall  be  necessary  to  the  ends  of 
course  of  the  court,  where  the  demand   justice  "]  must  not  be  so  construed  as 
was  of  legal  character.     At  the  same   to  authorize  the  court;s  to  prevent  that 
tmae  such  judgment  would  have  been   which  congress  has  expressly  provided 
subject  to  the  equitable  jurisdiction   may  be  done.     That  it  was  intended 
^f  the  court,  and  be  given  its  proper   by  congress  that  some  meaning  should 
rank  m  the  distribution  of  the  prop-   be  attached  to  the  very  significant  pro- 
ert;y.     There  is  much  force  in  the  ar-   viso  [above  quoted]  is  most  obvious 
gument  that,  in  view  of  the  previous   It  was  not  intended  that  the  ri-hts  to 
exclusive  jurisdiction  of  the  court  ap-   litigate  with  the  receiver  in  any  court; 
pointing  the  receiver  over  him  and    should    be    an     unrestrained    right 
over  the  sequestrated  property,  a  con-   Whether  the  proviso  should  be  lim- 


§553] 


BECEIVERS  IN  FORECLOSURE  SUITS. 


1225 


on  the  business  connected  with  the  property  in  his  charge.'  The 
Supreme  Court  of  Minnesota  has  held  that  an  indebtedness 
incurred  by  the  receivers  of  a  railway  company  appointed  by  the 
federal  court,  while  operating  the  road  under  the  authority  of  the 
court,  may  be  garnished  in  a  state  court.  But  no  executory  pro- 
cess  can  be  issued  against  the  receivers  on  the  judgment  rendered 
therein.  It  can  only  be  satisfied,  as  other  demands  are  satisfied, 
by  an  application  to  the  court  in  which  the  receivership  proceed- 
ings are  pending  for  an  order  directing  its  payment.^     In  a  case 


ited  so  as  to  give  the  court  appointing 
the  receiver    power    upon    equitable 
grounds  and  upon  special  application 
to  restrain  proceedings  in  a  pending 
suit   brought   without   leave    of  the 
court,  or  whether,  after  judgment,  the 
court   would  exercise    its    equitable 
jurisdiction  by  inquiry  into  the  judg- 
ment, in  order  to  determine  its  justice 
or  its  place  and  rank  in  the  distribu- 
tion of  the  property  out  of  which  it  is 
to  be  paid,  are  questions  which  need 
not  now  be  settled.     A  wide  differ- 
ence of  opinion  has  been  entertained 
as  to  the  power  of    the  court  over 
property  obtained  against  the  receiver 
in  courts  other  than  that  appointing 
the  receiver.     Central  Trust  Co.   v. 
St.  Louis,  etc.,  Ry.  Co.,  40  Fed.  Rep. 
426;  Eddy  v.  Wallace,  49  Fed.  Rep. 
801;   s.  c,  1  C.  C.  A.  435;  Missouri 
Pac.  Ry.  Co.  «.  Texas  Pac.  R.  Co..  41 
Fed.  Rep.  311.     In  the  two  cases  first 
cited  it  was  held  that  such  judgments 
were  conclusive.     In  the  case  reported 
in  41  Fed.  Rep.  311.  it  was  held  that  it 
was   within  the  power  of  the  court 
when  such  judgments  were  filed  in  the 
case  in  which  the  fund  was  being  dis- 
tributed to  look  into  them  and  allow 
the  whole  or  half  or  any  part  as  jus- 
tice might  require.     The  latter  view 
seems  to  have  been  entertained  by  Mr. 
Justice  Jackson,  for.  while  judge  of 
this  circuit,  he  made  an  order  in  this 
cause,  which  has  not  been  revoked, 
154 


requiring  all  judgments  in  other 
courts,  obtained  in  suits  prosecuted 
without  leave  of  the  court,  to  be  filed 
by  intervening  petition  in  the  main 
cause,  together  with  a  full  bill  of  ex- 
ceptions showing  the  evidence  upon 
which  the  judgment  rested.  That  the 
j  udgment  is  conclusive  so  far  as  to  be  re- 
garded as  a  j  udicial  asceitainment  of  lia- 
bility and  of  the  amount  is  probably  the 
better  view.  Speaking  of  the  effect  of 
the  proviso,  the  learned  chief  justice,  in 
the  case  of  Railway  Co.  v.  Johnson, 
mpra,  said  that  'the  right  to  sue 
without  resorting  to  the  appointing 
court,  which  involves  the  right  to 
obtain  judgment,  cannot  be  assumed 
to  have  been  rendered  practically 
valueless  by  this  further  provision  in 
the  same  section  of  the  statute  which 
granted  it.' " 

»  Central  Trust  Co.  of  New  York  v. 
East  Tennessee,  V.  &  G.  Ry.  Co., 
(1894)  59  Fed.  Rep.  523. 

» Irwin  D.  McKechnie,  (Minn.  1894) 
59  N.  W.  Rep.  987:  Mitchell,  J., 
for  the  court,  said:  "  No  question  is 
made,  nor  could  well  be,  but  that,  un- 
der the  '  Removal  Act '  of  March  3, 
1887.  the  receivers  are  subject  to  suit 
in  respect  to  any  transaction  of  theirs 
in  operating  the  road,  the  only  point 
made  being  that  the  money  sought  to 
be  reached  was  in  custodia  legis,  and 
hence  not  subject  to  garnishment.  No 
one  will  question  the  correctness  of 


Wm 


«t: 


)i 


1326 


RECEIVERS  IN  FORECLOSURE  SUITS. 


[§553 


I 


¥% 


V  ' 


M 


in  the  United  States  Circuit  Court  for  the  southern  district  of 
Iowa,  the  receiver  of  a  railroad  and  its  property  appointed  by 
that  court  applied  to  the  court  for  an  order  and  writ  of  injunc- 
tion,  with   reference  to  garnishment   proceedings  about  to  be 
brought  in  the  state  courts  to  reach  wages  of  his  employees  in 
his  hands.     Tlio  court,  while  hesitating  to  attempt  a  process  of 
injunction  which  might  in  any  event  or  to  any  degree  affect 
actions   pending  or   about  to  be  brought  in  the  courts  of  the 
state,  did  direct  its  receiver,  upon  service  of  notice  of  garnisli- 
ment  upon  him,  as  receiver,  in  the  state  courts,  to  file  with  the 
officer  serving  the  process  an  uncertified  copy  of  an  order  made 
by  the  court,  and  thereafter  to  take  no  further  part,  as  such 
receiver,  in  the  action.    The  order  referred  to  was  finally  to  the 
effect  "  that  if  any  plaintiff  or  claimant  in  or  under  said  garnish- 
ment action,  notice,  writ  or  process  shall  thereafter  further  pro- 
ceed therewith  in  said  state  court,  such  plaintiff  or  claimant  shall 
not  be  granted  leave  nor  allowed  to  file  in  this  court  any  applica- 
tion or  claim  for  payment  of  or  with  reference  to  said  claim  so 
set  up  in  said  state  court  or  judgment  thereon  (if  any  rendered 
thereon),  nor  shall  he  be  decreed  or  permitted  to  receive  there- 
for from  said  receiver  or  through  this  court,  in  any  manner,  any 
wages  or  funds  that  at  any  time  may  be  in  tlie  hands  of  said 
receiver,  which  may  be  due  or  belong  to  any  alleged  debtor  in 

the  proposition  that  property  in  the  of  the  debt,  and  to  substitute  the  plain- 
hands  of  receivers  appointed  by  the  tiff  for  the  defendant  as  the  person  to 
court  is  in  cmtodia  legia,  and  not  sub-  whom  it  is  payable.  The  judgment 
ject  to  levy  or  garnishment.  This  against  the  receivers  would  not  be 
doctrine  receives  additional  force  in  against  them  personally,  but  against 
this  case  from  the  rule  of  j  udicial  com-  them  officially.  No  executory  process 
ity  between  state  and  federal  courts,  could  be  issued  on  it,  for  that  would 
by  which  each  will  refuse  to  interfere  interfere  with  the  control  of  the  prop- 
with  property  in  the  custody  of  the  erty  in  the  custody  of  the  federal 
other,  a  rule  which  we  are  always  so-  court.  The  manner  in  which  the 
licitous  to  observe.  But  in  this  case  it  judgment  so  rendered  shall  be  paid 
will  be  noticed  that  what  is  sought  to  must  be  under  the  exclusive  control  of 
be  reached  by  garnishment  is  the  prop-  that  court.  It  can  only  be  satisfied  as 
erty,  not  of  the  railway  company,  but  other  demands  may  be  satisfied,  viz., 
of  the  defendant,  viz.,  a  debt  due  from  by  an  application  to  the  court  in  which 
the  receivers.  Moreover,  while  gar-  the  receivership  proceedings  are  pend- 
nishment  of  a  debt  is  often  called  a  ing  for  an  order  directing  its  payment 
mode  of  attachment,  yet  it  does  not  in  the  due  order  of  the  settlement  of 
effect  a  specific  lien  on  any  property,  the  affairs  of  the  insolvent  company  by 
The  effect  of  the  judgment  is  merely  that  court." 
to  determine  the  existence  and  amount 


§654] 


BEOEIVERS  IN  FORECLOST7KE  SUITS. 


1227 


such  garnishment  proceedings,  nor  the  payment  of  any  costs  in 
such  proceedings  incurred."^ 

§  554-  Claims  against  receivers  for  injuries  to  persons  or 
property  during  receivership. —  Where  a  railroad  was  being 
operated  by  a  receiver,  the  receiver,  and  not  the  railroad  com- 
pany, has  been  held  liable,  under  the  provisions  of  the  Code  of 
Iowa,  for  the  value  of  stock  injured  on  the  railroad  company's 
unfenced  right  of  way  through  the  negligence  of  the  railroad 
employees.  And  in  such  a  case  the  service  of  notice  in  due  form 
of  a  claim  for  damages  for  an  injury  to  stock  upon  the  receiver 
and  a  station  agent  in  the  county  where  the  stock  was  injured 
was  held  sufficient,  under  that  provision  of  the  Code,  to  entitle 
the  claimant  to  recover  double  damages  foT  another  injury,  if 
payment  was  not  made  within  thirty  days  after  the  service  of 
such  notice.^    Another  action  for  damages  of  a  similar  kind  was 


*  In  re  Barnard;  United  States  Trust 
Co.  of  New  York  v.  Omaha  and  St. 
Louis  Ry.  Co.,  (1894)  61  Fed.    Rep. 
531.     It  was  said  by  the  court,  as  jus- 
tifying such   an    order:    "That  the 
bringing  of  actions  in  the  state  courts 
by  creditors  of  employees  engaged  in 
connection   with  said  railway,  to  be 
accompanied  with  garnishment  of  the 
receiver,  must  necessarily  be  attended 
with  trouble  and  expense  to  said  re- 
ceiver cannot  be  doubted.     These  ac- 
tions, it  is  well  known,  are  generally 
for  small  amounts,  and  are  brought 
mostly  before   justices  of  the  peace 
over   widespread    area    and    in    any 
county  in  which,  under  the  statutes 
of  the    state,   service   may  be    had. 
They  thus  become  to  the  receiver  a 
matter  oi  serious  inconvenience  if  not 
of    possible    hazard    because    of    the 
judgments  that  may  be  therein  ren- 
dered.    But  to  our  mind  there  is  a 
consideration  of  a  much  more  serious 
nature.     The  railway  company  is  in 
the   hands   of    this    court.     Its   em- 
ployees are  in  the  service  of  this  court. 
It  is  the  duty  of  the  court  through  its 
receiver  and  employees  to  maintain 
and  operate  said  road  as  efficiently  as 


practicable.      The    court    recognizes 
that  these  employees  are  generafly  de- 
pendent   for   their  living    upon    the 
wages  contracted  to  be  paid  them  for 
their  labor  upon  and  in  connection 
with    said    railway.     These    garnish- 
ment proceedings  are  instituted  for  the 
purpose  of    collecting    debts  due  to 
outside  creditors,  and  the  motive  is  to 
seize  and  appropriate  these  wages  — 
the  livelihood  —  of  these  employees  for 
the  payment  of  such  debts.     In  other 
words,  the  wages  of  the  employees  of 
this  court  necessary  for  their  present 
living  are,  in  these  garnishment  pro- 
ceedings, to  be   diverted  from  such 
use.     The  effect  must  be  to  diminish 
the  power  of  this  court  to  operate  the 
road.     To  take  away  the  support  of 
the  employees  is  to  cripple  the  effi- 
ciency of   such    operation,    and  this 
court  is  not  powerless  to  prevent  its 
employees  from  being  starved  out  of 
its  employ." 

'  Brockert  v.  Central  Iowa  Ry.  Co., 
(1891)  82  Iowa,  369.  Whether  in  the 
action  the  railway  company  was  a 
proper  or  necessary  party,  quoere.  As 
to  the  liability  of  receivers  in  such  ac- 
tions, see  Beach  on  Receivers,  g§  721- 


J  ; 


1228 


RECEIVERS  IN  FORECLOSURE  SUITS. 


[§554 


brought  in  the  Texas  courts  against  a  receiver  of  the  railroad 
property  appointed  by  the  United  States  Circuit  Court  and  the 
railroad  company  which  finally  purchased  the  property  from  the 
purchaser  at  the  sale  under  the  receivership  by  order  of  the  fed- 
eral court.  There  was  a  judgment  against  the  company,  but  in 
favor  of  the  receiver.  Upon  the  appeal  of  the  company  to  the 
Court  of  Civil  Appeals  of  Texas,  this  latter  court  held  that  the 
federal  court,  having  exclusive  jurisdiction  of  the  property  and 
assets  of  this  railroad  company,  appointed  a  receiver  there- 
for, and  ordered  that  all  claims  against  the  railroad  should  be 
by  intervention  in  the  receivership  proceeding  before  a  certain 
date,  the  claim  of  the  plaintiff  here  having  occurred  during  the 
receivership,  and  not  having  been  presented  before  the  federal 
court  within  the  time  allowed,  was  barred.^     On  the  ground  that 


723  and  notes;  Ohio  «fc  Mississippi  Ry. 
Co.  V.  Davis,  23  Ind.  553;  Memphis  & 
L.  R.  Ry.  Co.  V.  Stringfellow,  44  Ark. 
322;  Stephens  v.  Railroad,  36  Iowa, 
327. 

»  Dillingham  v.  Kelley,  (Tex.  Civ. 
App.  1894)  27  8.  W.  Rep.  806.     It  was 
said  by  the  court:     "  Under  the  gen- 
eral rules  of  law,  as  administered  in 
courts  of  equity,  a  railroad  corpora- 
tion is  not  liable  for  damages  sustained 
by  the  negligence  of  a  receiver  while 
operating  the  road  except  when  the 
road  is  returned  without  sale  to  its 
owner     with     improvements     made 
thereon  by  the  receiver  out  of  the  earn- 
ings of  the  road  while  in  his  posses- 
sion.    If  there  be  a  sale  of  the  prop- 
erty under  decree  of  the  court  the  pur- 
chaser takes  it,  together  with  whatever 
improvements  may  have  been  made 
by  the  receiver,  free  from  all  charges 
or  burdens  except  such  as  may  have 
been  imposed  by  the  decree,  or  such 
as  may  have  existed  prior  thereto.    In 
the  case  of  Railway  Co.  v.  Johnson, 
reported  in  76  Tex.  421;  a  c,  13  S. 
W.  Rep.  463,  and  in  151 U.  S.  81;  s.  c, 
14  Sup.  Ct.  Rep.  250,  and  upon  which 
appellee  seems  to  rely,  the  property  of 
the  company  was  returned  to  it  with- 
out  sale,   with   large   improvements 


made  thereon  by  the  receiver,  and  it 
was  held  by  both  the  Supreme  Court 
of  Texas  and  the  Supreme  Court  of 
the    United  States    that   a    recovery 
against  the  defendant  company  was 
right;  and  it  is  to  be  noted  that  in  the 
opinion  delivered    by  each  of  these 
courts  the  fact  that  there  was  no  sale 
of  the  property  is  emphasized.    The 
Circuit  Court  in  which  the  receiver- 
ship was  pending  had  exclusive  juris- 
diction of  the  property  and  assets  of 
the  railway  company,  and  while  the 
act  of  congress  of  1887-1888  gives  the 
right  to  any  one  aggrieved  by  a  re- 
ceiver to  sue  him  in  another  court 
without    first    obtaining     permission 
from  the  court  in  which  the  receiver- 
ship is  pending,  the  act  expressly  pro- 
vides that  the  latter  court  is  not  to  be 
deprived  of  or  impeded  in  the  exercise 
of  its  equity  jurisdiction;  and  in  the 
proper  exercise  of  its  powers  the  Cir- 
cuit Court,  by  appropriate  orders  and 
the  customary  notices,  took  steps  to 
provide  for  the  payment  of  all  just 
claims  against  either  the  receiver  of 
the  road  or  its  property,  and  required 
all  persons  having  claims  to  present 
the  same  to  that  court,  within  a  rea- 
sonable time,  for  adjudication,  and  to 
that  court  the  plaintiff  should  have 


§654] 


RECEIVERS  IN  FORECLOSURE  SUITS. 


1229 


it  was  just  and  good  policy  the  federal  courts  have  ordered 
receivers  of  railways  under  their  control  to  pay  wages  of 
employees  injured  while  employed  on  their  lines  of  road  during 
recovery  from  those  injuries.^  The  intervener  in  this  case,  where 
a  railroad  was  in  the  hands  of  receivers,  was  a  baggagemaster 
claiming  damages  for  an  injury  resulting  from  the  negligence  of 
other  trainman  under  the  statutes  of  Kansas,  which  provide  that 
"  every  railroad  company  organized  or  doing  business  in  this  state 
shall  be  liable  for  all  damages  done  to  any  employee  of  such  com- 
pany, in  consequence  of  any  negligence  of  its  agents,  or  by  any 
mismanagement  of  its  engineers  or  other  employees."  The  United 
States  Circuit  Court  of  Appeals  for  the  eighth  circuit  held  that  the 
right  of  the  intervener  under  that  statute  was  in  no  wise  affected 
by  the  fact  that  the  railroad  was  at  the  time  in  the  custody  of  a 
receiver,  and  operated  by  him.'*     In  an  action  against  receivers 


applied  for  compensation  for  the  al- 
leged injury  received  through  the 
negligence  of  the  receiver.  Neither 
the  legislature  nor  the  judiciary  of  a 
state  can  defeat  or  restrain  the  federal 
courts  in  the  legitimate  exercise  of 
their  jurisdiction.  The  act  of  the  leg- 
islature of  Texas  of  1889,  known  as 
the  '  Receivers'  Act,'  has  no  applica- 
tion to  receivers  appointed  by  the 
federal  courts;  and  a  judgment  ren- 
dered by  a  state  court  against  such  re- 
ceiver cannot  be  executed  by  the  state 
court,  but  must  be  referred  for  pay- 
ment to  the  federal  court  in  which  the 
receivership  is  pending.'  See  For- 
djcev.  Du  Bose,  (Tex.)  26  S.  W.  Rep. 
1050. 

*  Missouri  Pac.  R.  Co.  v.  Texas  «fe 
Pacific  Ry.  Co.,  (1888)  33  Fed.  Rep. 
701;  Missouri  Pac.  Ry.  Co.  v.  Texas 
&  Pacific  Ry.  Co.,  (1890)  41  Fed.  Rep. 
319. 

'Hornsby  v.  Eddy,  (1893)  56  Fed. 
Rep.  461,  following  Trust  Co.  v. 
Thomason,  25  Kans.  1.  Thayer,  D.  J., 
speaking  for  the  court,  said:  "  It  is  clear 
that  with  respect  to  persons  employed 
by  a  railway  company  as  railway  oper- 
atives the  statute    *    *    *    changes 


the  rule  of  the  common  law  that  the 
master  is  not  liable  to  a  servant  for  an 
injury  sustained  in  consequence  of  the 
negligence  of  a  fellow-servant.  Does 
the  fact  that  a  receiver  is  appointed  to 
temporarily  operate  a  railroad  forth- 
with alter  the  status  of  all  of  its  em- 
ployees, and  re-establish  as  to  them 
the  old  rule  of  the  common  law,  so 
long  as  the  receiver  remains  in  charge? 
Viewing  the  question  in  the  light  of 
those  circumstances  of  public  policy, 
which  probably  gave  birth  to  the  stat- 
ute, we  cannot  conceive  of  any  reason 
why  the  appointment  of  a  receiver 
should  have  such  effect.  It  is  a  fact 
of  which  we  may  well  take  judicial 
notice  that  great  railway  systems, 
which  employ  thousands  of  men,  are 
frequently  operated  for  a  term  of 
years  through  the  agency  of  a  re- 
ceiver. Such  receivers  do  not,  as  a 
general  rule,  change  the  working 
force  of  the  road,  or  the  rules  and 
regulations  by  which  trains  are  run 
or  by  which  the  other  business 
of  the  road  is  transacted.  The  men 
whom  they  employ  are  engaged 
in  the  same  quasi  public  service  as 
other  railway  employees  and  daily  en- 


il» 


1230 


M 


RECEIVERS  IN  FORECLOSURE  SUITS. 


[§564 


1^1   1i 


.(♦ 


id 


l\ 


of  a  railroad  company  for  damages  to  a  crop  of  hay  by  fire  caused 
by  sparks  from  the  locomotive  engine,  service  was  perfected  upon 
the  receivers  by  service  upon  a  station  agent  in  their  employ.    A 
motion  made  to  quash  the  service  was  overruled  and  an  exception 
served.     Before  the  United  States  Circuit  Court  of  Appeals  for 
the  eighth  circuit  it  was  contended  that  the  lower  court,  on  this 
state  of  facts,  did  not  acquire  jurisdiction  to  enter  a  judgment 
agamst  the  receivers.     The  Court  of  Appeals  disregarded  the 
contention  for  two  reasons:     Firstly/.    The   3d  section  of  the 
Judiciary  Act  of  March  3,  1887,  authorizing  suits  to  be  brought 
against  receivers  of  railroads,  without  special  leave  of  the  court 
by  which  they  are  appointed,  was  intended,  as  the  court  thought, 
to  place  receivers  upon  the  same  plane  with  railway  companies' 
both  as  respects  their  liability  to  be  sued  for  acts  done  while  oper- 
ating a  railroad  and  as  respects  the  mode  of  obtaining  service.^ 

counter  the  same  risks  and  hazards.    States  may  be  sued  in  respect  of  any 
Furthermore,  the  receiver  of  a  railroad   act  or  transaction  of  his  in  carrying 
operates  it  for  the  immediate  benefit   on  the  business  connected  with  such 
of  the  company  by  which  it  is  owned,    property,  without  the  previous  leave 
m  that  he  discharges  all  of  the  public   of  the  court  in  which  such  receiver  or 
duties  of  the  corporation  and  appro-   manager  was  appointed.'     24  U    8 
pnates  the  income  of  its  road  to  tbe   Stat,  at  Large.  554;  Eddy  v  La  Fay- 
preservation  of  its  property  and  fran-   ette,  49  Fed.  Rep    807  •   s    c     1  C 
chises.  and  to  the  payment  of  its  debts.    C.  A.  441.     The  general  constructioDs 
in  view  of  the  fact  that  many  railroads   warrant  the  conclusion  that    if    the 
have  been  operated  for  years  by  re-   rules  of  the  common  law  are  modified 
ceivers.  and  the  manner  in  which  it  is   for  the  benefit  of  the  employees  of  rail- 
customary  to  operate  them,  congress    way  companies,  either  because  of  the 
has  recently  recognized  both  the  jus-    extmordinaiy  dangers  to  which  they 
tice  and  expediency  of  placing  such   are  exposed,  or  the  quasi  public  na. 
receivers  on  a  plane  with  railway  cor-    ture  of  the  service  in  which  they  are 
porations,    by    declaring,   in  explicit   engaged,  or  for  any  other  reason,  then 
language:     'That    whenever   in    any    for  like  reasons,  the  old  rule  of  the 
cause   pending  in  any   court  of   the    common  law  should  not  be  held  appli- 
Umted  States,  there  shall  be  a  receiver   cable  to  the  emplovees  of  a  receiver 
or  manager  m  possession  of  any  prop-   who  is  engaged  in  operating  a  rail- 
erty  such  receiver  or  manager  shall   road,  and  we  can  scarcely  conceive 
m^age  and  operate  such  property  ac-   that  any  legislative  body  would  inten- 
cordmg  to    the  requirements  of  the   tionally  make  any  distinction  between 
valid  laws  of  the  state  in  which  such   the  two  classes  of  employees  last  re- 
property  shall  be  situated,  in  the  same   ferred  to  " 

manner  the  owner  or  possessor  thereof       ^  Following  and  concurring  in  what 
would  be  bound  to  do  if  in  possession   was   said    in    Central    Trust   Co    of 
thereof;    *    *    *    and  that  every  re-   New  York  v.  St.  Louis,  A.  &  T  Ry 
43eiver  or  manager  of  any  property  ap-   Co..  (1889)  40  Fed.  Rep.  426     Cald^ 
pointed  by  any  court  of  the  United   well.  J.,  said  in  this  case:  "This act 


§555] 


RECEIVERS  IN  FORECLOSURE  SUITS. 


1231 


Secondly.  By  answering  to  the  merits  and  going  to  trial  after 
the  motion  to  quash  the  service  had  been  overruled,  the  receivers 
submitted  to  the  jurisdiction  of  the  court,  and  should  not  be  per- 
mitted to  question  its  jurisdiction  in  this  court.* 

§  555.  Rules  as  to  actions  for  injury  to  persons  during 
receivership. —  The  United  States  Circuit  Court  for  the  district 
of  South  Carolina  refused  leave  for  an  action  for  personal  injuries 
sustained  before  the  appointment  of  a  receiver  of  a  railroad  com- 
pany within  its  jurisdiction,  upon  the  ground  that  such  an  action 
could  not  be  maintained  against  the  receiver,  but  must  be  brought 
against   the   corporation.^      Actions    are    maintainable    against 


was  intended  to  correct  abuses  that  had 
grown  up  under  the  old  practice,  one 
of  which  was  pointed  out  before  the 
passage  of  the  act,  in  the  opinion  of 
this  court  in  Dow  v.  Railroad  Co.,  20 
Fed.   Rep.   267.     The  act  abrogates 
the  old  rule  on  the  subject  of  suing 
receivers.     It  is  no  longer  unlawful  to 
sue  a  receiver  appointed  by  a  United 
States  court  without  leave  of  the  court 
appointing  the  receiver.     The    court 
had  had  no  discretion  to  say  when  its 
receiver  may  be  sued.     The  act  gives 
the  right,  without  condition  of  qualifi- 
cation.    It  is  a  right  not  to  be  nulli- 
fied, evaded  or  abridged.     No  condi- 
tions can  be  imposed  in  its  exercise. 
The  court  must  give  effect  to  the  act. 
It  has   no  discretion  to  do  anything 
else.     *    »    *    The  road  the  receivers 
are  operating  under  the  authority  of 
this  court  runs  clear  across  the  state,  a 
distance  of  three  hundred  miles;  but 
the  receivers  have    established  their 
office  in  St.  Louis,  Mo. ;  there  they  re- 
main, and  when  sued  cannot  be  found 
and  personally  served  with  process  in 
this  state.     The  right  to  sue  the  re- 
ceivers necessarily  carries  with  it  the 
right  to  serve  the  required  process  to 
make  the  suit  effectual.     This  is  im- 
plied  in  the  act.     Wffat  is  implied  in 
an  act  is  as  much  a  part  of  it  as  what 
is  expressed.     Process  need   not    be 


served  on  the  railroad  receivers  per- 
sonally. It  would  be  impracticable  to 
do  so  in  many  cases.  It  is  impracti- 
cable in  this  case.  The  receivers,  like 
the  railroad  company,  can  operate  the 
road  only  through  their  agents,  who 
must  always  be  within  the  jurisdiction 
of  the  courts  of  the  state  in  which  the 
road  is  operated.  For  a  court  to  per- 
mit its  receivers  to  remain  beyond  the 
jurisdiction  of  the  state  courts,  and  re- 
fuse to  give  effect  to  service  on  their 
agents  in  the  state  would  effectually 
preclude  the  citizens  from  suing  them 
in  the  state  courts,  and  would  bar  a 
complete  nullification  of  the  act  of 
congress." 

» Eddy  V.  La  Fayette,  (1892)  49  Fed. 
Rep.  807. 

*  Finance  Co.  of  Pennsylvania  d. 
Charleston,  C.  &  C.  R.  R.  Co.,  (1891) 
46  Fed.  Rep.  508;  citing  Davenport  v. 
Railroad  Co.,  2  Woods,  519;  Ex  parte 
Brown,  15  S.  C.  523.  As  to  liability 
of  receivers  of  railroad  corporations 
for  injuries  to  persons  during  the  re- 
ceivership, see  Missouri,  K.  &  T.  Ry. 
Co.  of  Kansas  v.  Chilton,  (Tex.  Civ. 
App.  1894)  27  S.  W.  Rep.  272.  As  to 
what  need  not  to  be  alleged  in  a  com- 
plaint against  receivers  of  a  railroad 
company  in  an  action  for  damages  for 
injuries  occurring  while  they  were  in 
possession,  and  the  effect  of  the  stat- 


mmM 


1232 


EECEIVERS  IN  F0RECL08UBE  SUITS. 


[§556 


1 


i»' 


pi 


■ 

1 

h 

WW 

1' 

I. 


receivers  for  injuries  to  employees  while  operating  the  road 

Tr  11  r  T  r'  "'  ^''f  ™*''°^  '^^^•'^'^  corpoiions  liatae 
for  snch.>    Negligence  of  a  receiver  in  operating  the  milroad  in 

liability  for  which  the  corporation  will  be  liable.' 

§  556.  Rules  as  to  allowances  to  receivers  for  counsel  and 
"»i!!fr  ^u'^T^  in  actions  where  receivers  are  appointed 
-  what  will  be  anowed  and  what  not.-  Receivers  are  officers  of 
the  courts,  entitled  to  apply  to  the  court  for  instruction  and  advice 
and  permitted  to  retain  counsel,  the  fees  of  which  counsel  being 
'mthm  the  just  allowances  that  may  be  made  by  the  court     The 
allowance  of  counsel  fees  on  behalf  of  a  receiver  is  made  to  the. 
receiver  and  not  to  the  counsel.    These  allowances  to  a  receiver 
for  counsel  are  largely  discretionary,  and  appellate  courts  have 
generally  treated  the  action  of  the  court  in  making  allowances  as 
presumably  correct.'     The  compensation  of  attorneys  for  receivers 
18  usually  determined  according  to  the  circumstance  of  the  par- 
ticular ca^e,  and  corresponds  with  the  degree  of  responsibility 

^Lrrr.^  '^  T^^^^^  '^^  *^^  management  of  the  affairs 
mtrosted  to  them,  and  the  perplexity  and  difficulty  involved  in 
that  management.*  In  this  foreclosure  suit  the  bill  aUeged  the 
utes  o(  Texas  as  to  actions  against  re-       •Howe  «.  St.  Clair  (Tex  nv  Ar>„  ^ 

^Te.r^  Paie  IZ^T ^y]    s^^^irc^rr^o"  "^^^  ^^  ^^^ 
(Tex.  Civ.  App.  1894)27  8.  W.  Rep.       » Stuart  v.  Boulware  (1890^  l^S  TT 
742,  where  the  court  found  that  a  re-   S  78  -"ouiware,  (1890)  133  U. 

ceiver  for  a  railroad  situated  wholly       ^u^n  v.  Boulware    (1890)  133  U 

withmthestateofTexaswasappointed  S.  78.    See  Trustees  ..GreenoiriS 

by  a  Federal  District  Court  of  another  U.  S.  527.  537,  where  the  subject  is 

Stete,  through  the  collusion  of  the  rail-  considered.     Cases  declaring  rules  as 

road  company,  the  Court  of  Civil  Ap-  to  compensation  to  receivers  expenses 

frl'i       .r  *^'  "f^^^  "^"^'  '^   ^^  ^^"°-l'  ^^-'  -t  of  theTi^Tst  funi 
treated  as  the  agent  of  the  company,    in  the  hands  of  the  court  appoint^ 

and  on  the  discovery  of  the  fmud  the  such  receivers:    Crumlish's  E  f 

company  might  be  substituted  as  de-  Shenandoah  Valley  R.  R  Co    (^yI 

fendant  m  an  action  for  the  death  of  1895)  22  S    E    Ren    Ql-    xuZl, 

plaintiff s  husband,  originally  brought  Packet  Co.!  4  Md  Ch.  3lV  ^g      I' 

against  the  receiver,  so  as  to  avoid  the  Cowperthwaite.  10  Ala.  966.  Gafdine; 

bar  of  the  Statute  of  Limitations.  ..  Tyler.   3  Keyes,  505;  Cowd  ey  ^ 

J  Rouse  V.  Harry,  (Kans.)  40  Pac.  Railroad  Co.,  1  Wftods  346- a  c    Fed 

^  D.  J3..  Kep.  d75.  CJo.  V.  Central  Railroad  of  Iowa,  8  Fed. 


§556] 


EECEIVEES  IN  FORECLOSURE  SUITS. 


123a 


railroad  company's  insolvency  and  the  insufficiency  of  its  assets 
to  pay  the  mortgage  bonds.     Tlie  validity  of  the  bonds  was  con- 
tested by  the  company,  and  during  the  litigation  the  company 
moved  the  court  to  order  the  receiver  to  pay  certain  sums  to  the 
company's  counsel  for  services  rendered  and  to  be  rendered ;  also, 
to  pay  its  office  expenses  and  the  salary  of  its  secretary,  claiming 
that  such  payments  were  absolutely  necessary  to  maintain  its  cor- 
porate existence  and  enable  it  to  defend.     The  United  States 
Circuit  Court  held  that  as  such  bonds  were  prima  facie  valid  the 
holders  of  the  bonds  were  entitled  to  all  the  assets,  and  to  make 
such  payments  would  be  to  impair  their  vested  rights.*     In  this 
foreclosure  suit  it  appeared    that  the    receiver  of  a  railroad 
employed    attorneys,   who,    after    protracted     Htigation,   much 
reduced  the  claims  of    a   certain  lienholder.     Afterwards  the 
property  was  sold  subject  to  that  lien,  and  the  receiver  was  dis- 
charged.    The  purchasing  company  recognized  the  claim  of  those 
attorneys  for  fees,  and  made  a  payment  on  account.     There  was 
another  receivership  afterwards  in  foreclosure  proceedings  brought 
by  one  claiming   under  a  lien   created   by  the   new  company, 
the  purchasing  company  above  referred  to.     Upon  a  petition  of 
those  attorneys  in  these  last  proceedings  for  an  allowance  of 
counsel  fees  the  United  States  Circuit  Court  for  the  district  of 
South  Carolina  held  that  they  had  no  claim  a^  against  the  ne^^ 
receiver  or  the  funds  in  his  hands,  as  their  services  had  nothing 
to  do  with  keeping  the  road  a  going  concern  ;  that  the  recognition 
of  their  claims  by  the  purchasing  company  amounted  to  no  more 
than  a  simple  contract  which  was  not  entitled  to  priority  to  the 
vested  hens  created  by  that  company.     Either  did  the  fact  that 


Rep.  60;  Central  Trust  Co.  v.  Wabash, 
St.  L.  &  Pac.  Ry.  Co.,  32  Fed.  Rep! 
187:  French  v.  Gifford,  31  Iowa,  428; 
Stuart  V.  Boulware,  133  U.  8.  78;  s.  c 
10  Sup.  Ct.  Rep.  242;   Tutt  v. '  Sand 
Hills  Hotel  Co.,  (Q&.  1894)  22  8.  E. 
Rep.  196.    For  a  case  where  it  was 
held  that  it  was  in  the  power  of  the 
court  to  render  a  final  decree  fixing 
and  allowing  the  compensation  of  the 
receiver,  counsel  fees  and  other  charges 
and  expenses  of  administration;  that 
every  party  to  the  entire  case  was 

155 


bound  to  take  notice  of  the  action  of 
the  court,  and  that  it  was  too  late  at  a 
subsequent  term  of  the  court  to  except 
to  the  decree  or  move  to  set  it  aside 
for  mere  error,  see  Clements  v.  Em- 
pire Lumber  Co.,  (Qa.  1895)  22  8  E 
Rep.  987. 

'  Union  Loan  &  Trust  Co.  v.  Southern 
California  Motor  Road  Co.,  (1892)  51 
Fed.  Rep.  106.  Denying  the  motion, 
the  court  cited  Beach  on  Rec.  §§  376,' 
752,  among  other  authorities  as  sup- 
porting its  conclusion. 


12M 


BECEIVERS  IN  FORECLOSURE  SUITS. 


[§556 


;! 


t 


'I' 


''  s- 


m 


1 1 


the  services  of  these  attorneys,  by  reducing  the  claim  of  a  prior 
lienholder,  incidentally  benelited  all  subsequent  lienholders  con- 
stitute any  ground  of  priority  in  the  absence  of  any  contract  of 
employment  by  them.^     The  mortgage  of  a  manufacturing  cor- 
poration had  been  foreclosed  by  a  decree,  and  a  petition  was  made 
therein  for  allowance  of  attorney's  fees.     The  trust  deed  or  mort- 
gage given  to  secure  the  bonds  of  the  corporation  provided  for 
payment  of  the  trustee's  expenses  upon  a  sale  by  him  under  the 
powers  contained  in  the  deed.     The  trustee  had  foreclosed  by 
suit,  a  course  which  was  probably  necessary  because  of  a  prior 
foreclosure  sale  in  the  state  court.     The  suit  was  brought  on 
request  of  certain  bondholders,  and  the  trustee  had  refused  to  act 
except  under  a  stipulation  that  he  should  not  be  liable  for  the  attor- 
ney's fees.     The  United  States  Circuit  Court  for  the  northern 
district  of  Georgia  on  the  petition  held  that  the  trustee  was  not 
entitled  as  a  matter  of  right  to  have  attorney's  fees  taxed.^    A 
trust  company,  which  has  been  compelled  to  come  into  court  to 
collect  from  the  receiver  of  a  railroad  company  certain  rentals 
justly  due,  cannot   claim  compensation  for  the  services  of   its 
solicitors  in  procuring  the  order  for  payment,  when  such  services 
were  entirely  for  its  own  benefit,  and  not   for  the  purpose  of 
saving  or  adding  to  the  fund  which  was  to  be  distributed  to  the 
creditors  in  general.^    There  was  a  contention  in  this  case  that 


§557] 


RECEIVERS  IN  FORECLOSURE  SUITS. 


1235 


» Bound  V.  South  Carolina  Ry.  Co., 
Ex  parte  Mitchell,  (1892)  51  Fed.  Rep. 
58.  See  Hand  v.  Railroad  Co.,  21  S. 
C.  162. 

'Robinson  v.  Alabama  &  Georgia 
Manufg.  Co.,  (1892)  51  Fed.  Rep.  268, 
following  Fowler  v.  Trust  Co.,  141  U. 
S.  384;  8.  c,  12  Sup.  Ct.  Rep.  1. 

3  Central  Trust  Co.  of  New  York  v. 
Valley  Ry.  Co.,  (1893)  55  Fed.  Rep 
903.  To  support  its  claim  for  com- 
pensation the  trust  company  relied 
upon  Investment  Co.  of  Philadelphia 
T.  Ohio  &  N.  R.  Co.,  46  Fed.  Rep. 
696,  and  Easton  v.  Railroad  Co.,  40 
Fed.  Rep.  189.  The  court  distin- 
guished these  cases  in  these  words: 
**  In  both  these  cases  the  party  claim- 
ing compensation  from  the  court  was 
a  trustee  named  in  the  mortgage  fore- 


closed, upon  whom,  by  virtue  of  that 
contract  relation,  certain  duties  de- 
volved connected  with  the  mortgages. 
In  the  [first  case]  the  trustee,  having 
declined  to  proceed  with  a  suit  of  fore- 
closure, and  that  duty  having  de- 
volved upon  the  complainant  for  him- 
self and  other  bondholders,  the  court 
disallowed  the  claim  of  the  trustee  for 
compensation,  but  did  allow  compen- 
sation for  the  complainant;  the  trustee 
in  that  case  had  been  made  a  defend- 
ant and  his  duties  were  merely  nomi- 
nal. No  active  service  in  his  behalf 
was  performed  in  executing  the  trust 
and  bringing  the  fund  into  court  avail- 
able for  distribution  to  the  beneficiaries 
under  the  mortgage.  In  the  [second 
case]  compensation  was  allowed  the 
trustees  of  the  several  mortgages  in 


the  receivers  ought  to  have  no  say  in  the  matter,  because  the 
claim  was  one  which  the  receivers  recognized  to  be  just,  as 
rentals  for  cars  which  they  had  in  their  possession  and  actual 
use,  and  because  the  receivers  did  not  move  in  these  proceedings, 
and  the  trust  company  was  compelled  to  do  so ;  therefore,  counsel 
fees  were  due  to  it  out  of  the  fund  to  arise  in  the  case.  But  the 
court  held  that  it  was  not  the  duty  of  the  receivers  to  proceed  affirm- 
atively and  procure  the  allowance  of  every  claim  preferred  against 
them.^ 

§  557.  Actions  allowed  a  receiver  for  the  protection  and 
benefit  of  the  property  in   his   hands.— These  rules  were 
declared  in  a  foreclosure  suit  against  a  railroad  company  in  the 
United  States  Circuit  Court  for  the  district  of  South  Carohna. 
A  federal  court  has  power  to  enjoin  a  sheriff  from  distraining 
property  in  the  hands  of  its  receiver  to  enforce  the  payment  of  a 
tax  which  is  alleged  to  be  illegal,  especially  where  the  property 
seized  many  times  exceeds  in  value  the  amount  of  the  tax.     The 
mere  fact  that  under  the  state  statute  authorizing  sheriffs  to  die- 
tram  for  non-payment  of  taxes  "  sufficient  personal  property  of 
the  party  charged  "  to  pay  the  tax,  a  sheriff,  in  order  to  collect  a 
tax  of  $1,200,  alleged  to  be  due  from  the  railroad  receiver,  had 
distrained  property  worth  $10,000,  much  of  which  belonged  to 
third  persons,  was  held  sufficient  to  require  the  interference  by 
injunction  of  the  court  which  appointed  the  receiver,  regardless 
of  any  question  as  to  the  validity  of  the  tax.     While  property  m 
the  hands  of  a  receiver  of  a  federal  court  is  bound  for  the  pay- 
ment of  state  taxes  in  the  same  manner  as  any  other  property, 
still,  should  the  receiver  beheve  the  tax  to  be  invalid,  it  is  his 
right  and  duty  to  apply  to  the  court  appointing  him  for  pro- 

that  case  because  it  appeared  from  the  authorized  to  pay.  The  claim  repre- 
report  of  the  master,  as  reviewed  by  sented  in  the  motion  now  under  con- 
thc  court,  that  active  duties  had  de-  sideration  was  one  which  required  the 
volved  upon  those  trustees,  and  that  issuing  of  receivers'  certificates,  and 
by  virtue  of  their  relation  to  the  mort-  for  which  affirmative  action  on  the 
gage  compensation  was  justly  due  part  of  some  one  was  necessary.  It 
w,'    ^    ,  »,        ^  was  no  part  of  the  receivers'  duty  to 

ValwT    n       nokf  ^""^  ^^'^  "•  °^^^"  affirmatively  in  this  matter,  but 

Valley  Ry.   Co     (1893)  55  Fed.  Rep.  it  is  the  duty  of  the  creditor  so  to  do. 

thP  J   ^^TI     "The  receivers  are  The  same  duty  devolves  upon  every 

the  officers  of  the  court,  and  the  order  creditor  having  a  claim  against  this  in- 

appointing  them  states  generally  the  solvent  railroad  " 
nature  of  the  claims  which  they  are 


:!ii 


1236 


EECEIVEKS  IN  FORECLOSUBE  SUITS. 


[§557 


pill 

i 


IfMif 


tection.  And  where,  in  his  application  to  the  court  in  such  case 
for  protection,  his  action  is  based  on  a  prior  decision  of  the  court 
appointing  him  that  the  tax  was  illegal,  the  court  should  extend 
such  protection  bj  enjoining  the  sheriff  and  requiring  the  prop- 
erty to  be  restored  to  the  receiver  until  the  presumption  of  the 
soundness  of  such  prior  decision  has  been  overcome.^  The  United 
States  Circuit  Court  for  the  district  of  South  Carolina  entertained 
jurisdiction  of  a  proceeding  by  receivers  of  a  railroad  company 
against  the  state  railroad  commissioners  for  relief  against  alleged 
unjust  and  unreasonable  rates  for  freight  transportation  estab- 
lished by  the  commissioners  over  the  objection  that  it  was  a  pro- 
ceeding against  the  state  within  the  eleventh  amendment  to  the 
Constitution  of  the  United  States,  inhibiting  the  exercise  of  juris- 
diction by  federal  courts  in  suits  brought  against  one  of  the 
United  States  by  citizens  of  another  state.'      The  bill   filed 

way  illegal  or  excessive.*  A  bill  was 
filed  in  Hewitt  v.  Railroad  Co.,  12 
Blatchf.  462,  by  receivers  to  test  the 
legality  of  a  tax.  It  was  heard  by  Mr. 
Justice  Blatchpord,  who  entertained 
the  question,  discussed  it  in  a  long 
and  elaborate  opinion,  and  sustained 
the  legality  of  the  tax.  The  same  re- 
ceivers came  before  him  again  in 
Stevens  v.  Railroad  Co.,  13  Blatchf. 
104,  and  asked  relief  from  the  same 
tax,  because  of  some  irregularity. 
Naturally  and  properly,  it  having 
been  decided  that  the  tax  was  legal, 
he  dismissed  the  petition.  As  we  have 
said,  a  receiver  must  pay  all  legal  taxes, 
and  the  court  will  not  interfere  to  pro- 
tect him  if  he  attempt  to  escape  from 
such  payment.  In  Georgia  v.  Atlantic 
&  G.  R.  Co.,  3  Woods,  437,  Mr.  Justice 
Bradley  did  interfere  with  the  sum- 
mary process  of  collecting  taxes  by 
the  state,  and  in  his  well-considered 
and  able  opinion  established  the  right 
of  interference  upon  the  highest 
grounds  of  public  policy." 

•  Clyde  V.  Richmond  &  Danville  R. 
Co.,  (1893)  57  Fed.  Rep.  436.  Simon- 
ton,  D.  J.,  said:  "  This  case  presents 
no  question  of  penalties.  The  state  is 
in  no  sense  a  party  to  the  record  or 


§557] 


EE0EIVER8  IN  FORECLOSUBE  SUITS. 


1237 


>Ex   parte  Chamberlain,   (1893)  56 
Fed.  Rep.  704.     It  was  said  in  the 
opinion:    "The  research  of   counsel 
on  both  sides  of  this  case  has  suc- 
ceeded in  finding  five  cases  in  which  a 
receiver  was  driven  to  seek  the  pro- 
tection of  the  court  in  the  matter  of 
taxation;   all  of  them  of  persuasive 
authority;  more  of  them  of  conclusive 
authority.     A  petition  was  filed  by  a 
receiver   before   Judge   Brewer   in 
Central  Trust  Co.  v.  Wabash,  St.  L. 
&  P.  Ry.  Co.,  26  Fed.  Rep.  11,  pray- 
ing protection  from  the  payment  of  a 
tax.    It  appeared  that  the  only  reason 
for  the  application  was  that  it  was  in- 
convenient to  the  receiver  to  pay  the 
tax,  and  that  its  validity  was  in  no 
way  questioned.    The  petition  was  re- 
jected.   But  the  learned  judge  shows 
distinctly  his  opinion  that  upon  proper 
showing  he  would  have  entertained 
the  petition.  This  is  his  language:  '  In 
levying  and  collecting  taxes  the  state 
is   exercising    its    sovereign    power. 
There  should  be  no  interference  with 
its  collection  of  these  taxes  in  its  pre- 
scribed and  regular  methods,  even  by 
a  court  having  property  in  the  posses- 
sion of  its  receiver,  unless  it  is  first 
charged  that  the  taxes  are  in  some 


here  by  the  receiver  of  a  railroad  company's  property  in  a 
foreclosure  suit  to  have  certain  leases  of  property  of  the  rail- 
road company  which  had  been  assigned  to  defendants  declared 
void,  based  on  allegations  that  this  property  which  was  land 
belonging  to  the  railroad  company  had  been  leased  to  a  director 
of  the  company  who  held  nearly  all  its  stock,  which  had  been 
assented  to  or  ratified  by  the  other  directors,  who  held  nearly 
all  of  its  remaining  stock,  was  dismissed,  the  federal  court  holding 
that  the  receiver  could  not  contest  the  validity  of  the  leases,  he 
not  representing  creditors  and  no  circumstances  being  alleged 
vesting  in  him  equities  to  maintain  such  a  suit  or  to  question  the 
lessee's  rights.^ 


privy  to  the  record.  The  constitu- 
tionality of  the  statute  under  which 
respondents  act  is  not  in  issue.  The 
learned  counsel  for  the  state  admit 
that  the  declaration  of  this  statute  that 
the  rates  fixed  by  the  commission 
shall  be  sufficient  evidence  that  they 
are  just  and  reasonable,  -does  not  pre- 
clude the  courts  from  examining  into 
the  fact  whether  they  are  just  and 
reasonable.    Under  the  statute  the  re- 


spondents are  authorized  and  directed 
to  make  just  and  reasonable  rates  for 
the  transportation  of  freight.  The 
petition  alleges  that  certain  rates  made 
by  them  are  neither  just  nor  reason* 
able.  In  this  issue  the  sovereignty  of 
the  state  is  in  no  way  involved."  See 
Railway  Co.  v.  Dey,  35  Fed.  Rep.  878. 
» Tyler  v.  Hamilton,  (1894)  63  Fed. 
Rep.  187. 


I 


§558] 


PRIORITIES  OF  LIENS  IN  FORECLOSURE  SUITS. 


123^ 


f 


,    t 


^  'f 


'  I 


t' 


t( 


CHAPTEK  XXX. 

PRIORITIES  OF  LIENS  IN  FORECLOSURE  SUITS. 


558.  Priorities  of  liens  —  general 
rules. 

659.  Debts  contracted  for  construc- 
tion. 

580.  Presumption  as  to  preferential 
character  of  a  claim. 

661.  Mechanic's  lien  as  viewed  by 

the  United  States  Supreme 
Court. 

662.  Furnishers  of  supplies  —  Ken- 

tucky statutes  construed, 
668.    The   rule   under    Ohio    stat- 
utes. 


§  564.     Contractors  —  Tennessee  stat- 
'  utes  construed. 

565.  Furnishers  of  supplies  —  Vir- 

ginia statutes  on  this  sub- 
ject construed. 

566.  Loans  of  money  to  corporation 

before  receivership. 

567.  Claims  for  services  rendered 

the  corporation  prior  to  the 
appointment  of  a  receiver. 

568.  When  cases  are  not  properly 

removable  to  United  States 
court  from  state  court. 


§  558.  Priorities  of  liens  —  general  rules.—  As  a  rule,  statu- 
tory liens  should  be  paid  out  of  the  proceeds  of  sale  of  mortgaged 
property  before  mortgage  bonds  and  equitable  liens  payable  from 
earnings  after  such  bonds.*  The  claim  of  an  owner  of  land  for 
damages,  resulting  from  the  construction  and  maintenance  on  a 
street  in  front  of  his  land  of  a  railroad  mounted  on  trestle  work, 
has  been  held  superior  to  the  claims  of  mortgage  bondholders.* 
It  has  been  held  that  persons  conveying  a  right  of  way  in  the 
state  of  Tennessee  directly  to  a  railroad  company  have  a  lien  for 
the  purchase  price  prior  to  that  of  the  mortgage  bonds  of  the 
railroad  company.'  A  railroad  company,  after  mortgaging  its 
real  estate,  purchased  from  interveners  rolling  stock,  to  be  paid 
for  in  installments,  the  vendors  securing  title  in  themselves  until 
paid  for.  A  receiver  was  appointed  in  a  judgment  creditor's 
suit,  the  mortgagees  not  objecting.    The  latter  afterwards  brought 


'Blair  v.  St.  Louis,  Hannibal,  etc., 
R  R.  Co.,  25  Fed.  Rep.  232. 

*  Mercantile  Trust  Co.  v.  Pittsburgh 
A  W.  R.  Co..  29  Fed.  Rep.  734.  A 
case  holding  certain  equipment  bonds 
of  a  railroad  company,  afterwards 
consolidated  with  other  companies,  to 
have  priority  to  consolidated  mortgage 
bmids,  under  the  Ohio  statutes,  see 
CJompton  t?.  Wabash,  St.  L.  &P.Ry.Co., 
(Ohio)  16  N.  E.  Rep.  110.    When  out- 


standing debts  of  one  of  the  constit- 
uent companies  consolidating  should 
have  priority  over  the  debt  secured 
by  first  mortgage  bonds,  see  Spence 
V.  Mobile  &  Montgomery  Ry.  Co.,  79 
Ala.  576.  That  a  receiver's  expendi- 
tures may  be  made  a  preferred  claim, 
see  Hale  v.  Nashua  &  Lowell  R.  R. 
Co.,  60  N.  H.  333. 

» Central  Trust  Co.  of  New  York  f>. 
Bridges,  (1893)  57  Fed.  Rep.  753. 


suit  to  foreclose  their  mortgage.     Before  a  decree,  the  cars  were 
returned  to  the  vendors.     The  United  States  Supreme  Court 
held  that  the  first  receiver  not  having  been  appointed  at  the 
instance  of  the  mortgagees,  the  vendors  of  the  rolling  stock  were 
not  entitled  to  have  their  claim  for  rental  of  the  rolling  stock 
during  the  first  receivership  paid  in  preference  to  the  mortgage 
debt  out  of  the  proceeds  of  the  real  estate  sold  under  the  mort- 
gage foreclosure.     But  they  were  entitled  to  have  their  reiital, 
after  the  commencement  of  the  mortgagees'  foreclosure  suit,  paid 
in  preference  to  the  mortgage  debt,  the  receiver  having  retained 
possession  of  it  and  used  it  for  the  benefit  of  the  property  mort- 
gaged.^    A  priority  of  lien  to  the  mortgage  was  claimed  in  a 
Virginia  case  of  certain  "  car  trust  claims,"  under  a  statute  of 
that  state,  which  statute  the  Supreme  Court  of  Appeals  held  to 
be  unconstitutional  as  to  that  part  of  it  including  the  furnishing 
of  cars  and  engines  to  a  railroad  company.     It  was  insisted  before 
the  court  that,  though  the  statute  was  invalid,  the  claims  in  ques- 
tion were  privileged  debts,  entitling  the  claimants  to  superior 
equities  to  the  mortgage  creditors,  according  to  the  doctrine  well 
established  in  this  country  that,  when  the  current  receipts  of  a 
railroad,  which  are  always  first  applicable  to  the  payment  of  its 
current  debts,  i.  e.,  debts  for  labor,  supplies  and  the  like,  are  used 
in  paying  the  mortgage  debt,  or  in  strengthening  or  protecting 
the  security,  it  is  competent  and  proper  for  a  court  of  equity, 
when  asked  by  the  mortgagees  to  take  possession  of  the  road,  and 
to  hold  and  operate  it  for  their  benefit  by  the  appointment  of  a 
receiver,  to  direct  that  the  fund  thus  diverted  be  restored  from 
the  income  of  the  receivership,  or,  under  some  circumstances, 
even  from  the  proceeds  of  the  sale  of  the  corpus  of  the  other 
property.2    The  court  held  that  these  "  car  trust  claims "  were 
not  within  the  principles  of  the  cases  referred  to,  and  were  not 
entitled  to  any  priority  of  lien  to  the  inortgage.^     The  United 
States  Supreme  Court  reversed  the  Circuit  Court  in  this  case,  and 


*  Kneeland  v.  American  Loan  &  Trust 
Co.,  136  U.  8.  89;  8.  c,  10  Sup.  Ct. 
Rep.  950. 

•  See  as  to  this  doctrine,  Fosdick  v. 
Schall,  99  U.  S.  235;  Union  Trust  Co. 
V.  Souther,  107  U.  S.  591;  Burnham  v. 
Bowen,  111  U.  S.  776;  St.  Louis,  etc., 
R.  R.  Co.  V.  Cleveland,  etc.,  Ry.  Co., 


125  U.  S.  658,  673;  Hale  v.  Frost,  99 
U.  S.  389;  Williamson  r.  Washington 
City,  Virginia  Midland  &  Great  South- 
ern R.  R.  Co.,  33  Gratt.  624. 

8  Fidelity  Insurance  Trust  &  Safe 
Deposit  Co.  v.  Shenandoah  Valley  R. 
R.  Co.,  (1889)  86  Va.  1. 


1240 


PRIORITIES  OF  LIENS  IN  FORECLOSURE  SUITS. 


[§558 


I'niiir 


held  that  a  debt  due  from  a  railroad  company  to  a  car  company 
for  rental  of  cars  prior  to  the  commencement  of  the  suit  to  fore- 
close a  mortgage  on  the  road  and  the  appointment  of  a  receiver 
was  not  a  preferred  debt,  having  priority  over  the  mortgage  debt.* 
In  this  case,  the  Supreme  Court  also  reversed  the  court  below  in 
its  allowance  of  interest  on  a  claim  for  car  rentals.*  Where  notes 
were  given  for  money  borrowed  to  pay  interest  on  the  bonded 
debt,  with  a  stipulation  in  each  note  that  a  certain  amount  of  the 
gross  earnings  of  the  road,  from  the  date  of  the  note,  "is  pledged 
in  liquidation  of  this  note,"  it  has  been  held  that  the  effect  of  the 
stipulation  being  ineffectual,  these  notes  were  not  entitled  to  any 
priority  of  lien  to  the  mortgage.  But  debts  incurred  by  the 
company,  within  six  months  before  the  receivership,  for  con- 
struction of  new  road  were  held  entitled  to  payment  out  of 
the  net  earnings  of  the  receivership,  in  preference  to  mort- 
gages executed   before    the    road   was  finished,  and    showing 

» Thomas  v.  Western  Car  Co.,  (1893) 
149  U.   S.   95,    reversing  Thomas  i>. 
Peoria  &  R.  I.  Ry.  Co.  (Western  Car 
Co.,  Intervener),  (1888)  36  Fed.  Rep. 
^08.     Mr.   Justice    Shiras,    speaking 
for  the  court,   after  quoting  largely 
from  Miltenberger  t?.  Logansport  Ry., 
106  U.  S.  286,  and  Kneeland  v.  Amer- 
ican Loan  Co.,  136  U.  8.  89,  97,  said: 
•*  Tested  by  the  principles  asserted  in 
these  cases,  the  claim  for  car  rental 
that  had  accrued  prior  to  the  receiver- 
ship cannot  be  maintained,  but  should 
have  been  disallowed.    The  case  of  a 
•corporation  for  the  manufacture  and 
sale  of  cars,  dealing  with  a  railroad 
company,  whose  road  is  subject  to  a 
mortgage  securing  outstanding  bonds, 
is  very  different  from  that  of  workmen 
and  employees,  or  of  those  who  furnish 
from  day  to  day  supplies  necessary  for 
the  maintenance  of  the  railroad.     Such 
B  company  must  be  regarded  as  con- 
tracting upon  the  responsibility  of  the 
railroad  company,  and  not  in  reliance 
upon  the  interposition  of  a  court  of 
equity.    In  the  present  case  it  appears, 
in  the  contract  between  the  car  com- 
pany and  the  railroad  company,  that 


§558] 


PRIORITIES  OF  LIENS  IN  FORECLOSURE  SUITS. 


1241 


the  former  reserved  the  express  right 
to  terminate  the  contract  and  demand 
possession  of  the  cars  forthwith  upon 
any  failure  by  the  railroad  company  to 
promptly  pay  the  interest  or  the  prin- 
cipal of  any  of  its  bonds  or  other  lia- 
bilities. Such  a  provision  shows  that 
the  car  company  was  aware  of  the 
existence  of  the  outstanding  bonds, 
and  protected  itself  by  other  methods 
than  relying  upon  the  possible  order 
of  a  court  which  might  appoint  a  re- 
ceiver. Moreover,  it  appears  in  thig 
case  that  the  principal  oflScers  of  the 
car  company  were  in  control  of  the 
railroad  company  and  its  operations, 
and  must  be  treated  as  having  full 
notice  of  the  financial  conditions  of  the 
milroad  company,  and  as  having  leased 
the  ears  to  it  in  reliance  upon  its  gen- 
eral credit,  rather  ihan  in  expectation 
of  displacing  the  priority  of  the  mort- 
gage liens." 

« Thomas  r.  Western  Car  Co.,  (1893) 
149  U.  S.  95.  They  said:  "As  a  gen- 
eral rule,  after  property  of  an  insolvent 
passes  into  the  hands  of  a  receiver  or 
of  an  assignee  in  insolvency,  interest 
is  not  allowed  on  the  claims  against 


that  it  was  contemplated  that  the  road  should  be  completed,  and 
that  the  mortgages  attached  to  the  road  as  fast  as  completed.^ 
It  appeared  in  a  foreclosure  proceeding  and  interventions  that  a 
railroad  company  had  purchased  on  a  credit  of  eight  months 
certain  rails  for  its  use,  promising  to  paj  for  them  out  of  its  earn- 
ings.    Only  a  part  of  the  purchase  money  was  paid  at  the  end  of 
the  eight  months,  the  notes  for  the  balance   being  extended. 
Before  the  expiration  of  the  credit  thus  extended  the  company 
had  paid   interest   on   certain   mortgage   bonds,  borrowin<y  the 
money  for  the  purpose  on  its  notes,  which  were  afterwards  paid 
out  of  its  earnings.     The  receiver  in   this  case  was  appointed 
eighteen  months  after  the  purchase  of  the  rails.     The  holders  of 
these  notes  given  for  the  purchase  of  the  rails  claiming  a  priority 
to  the  mortgage  out  of  the  proceeds  of  the  sale  on  foreclosure,  it 
was  held  by  the  United  States  appellate  court  that  the  giving 
of  the  credit  by  the  sellers  of  the  rails  to  the  company  indicating 
an  expectation  that  the  interest  on  the  bonds  becoming  due  in 
the  meantitne  would  be  paid,  the  payment  of  this  interest  was 
not  a  diversion  of  earnings  within  the  rule  giving  a  preference 
on  foreclosure,  to  current  expenses  incurred  on  the  faith  of  earn- 
ings shortly  before  the  appointment  of  a  receiver.^    The  United 
States  Supreme  Court  has  held  that  a  liquidated  claim  against  a 
railroad  company,  not  converted  into  a  judgment,  which  another 
railroad  company,  purchasing  its  road  and  property,  agreed  with 
the  selhng  company  to  assume  and  pay  as  part  of  the  considera- 
tion, did  not  thereby  become  a  Ken  upon  the  property  so  as  to 

the  funds.  The  delay  in  distribution  give  a  preference  forcert;ain  operating 
is  the  act  of  the  law;  it  is  a  necessary  expenses  over  the  bondholders  out  of 
w'^lv  °*  *^  ^^^  settlement  of  the  estate,  the  proceeds  of  a  foreclosure  sale-  St 
ZTTo  L  ^"^^"^^"^  ^°k'  4  Met.  Louis,  A.  &  T.  H.  R.  Co.  ^.  Cleveland; 
817.  323;  Thomas  v.  Minot.  10  Gray,  C.  &  C.  I.  Ry.  Co.,  8  Sup.  Ct.  Rep. 
M6.  We  see  no  reason  in  departing  1011,  following  Railroad  Co.  v.  RaU- 
from  this  rule  in  a  case  like  the  pres-  road  Co.,  6  Sup.  Ct.  Rep.  1094  In 
ent  where  such  a  claim  would  be  Porter  v.  Pittsburg  Bessemer  Steel 
paid  out  of  moneys  that  fall  far  short;   Co..  (1887)  120  U.  S.  649.  unsecured 

.Tll'if        "^"""T^"  ^'^'-'  ^^"'^°^    ^^^*«'   d"«  by  the   railroad 

Ren  8^5 '"""^  "'  '  ^       '^  ^^  ^^  ^'   "^^^^^^^  ^^^  construction,   were,   in 

8  D       J       o      ,  *^^    absence  of    statutory   provision 

t^l^f^       I  *^^-    ^'^  "'"'"*■   ^"P^ri»'-to  the  lien  of  a  valid  mart- 

iZTT         ^™°^'  "*   "  ""™^'^   •'"'"l^  ^'"•«d  thereby,  and  held  bv 
irom  toe  operating  expenses  as  not  to  bona  fide  purchasers  for  value. 
156 


1242 


PRIORITIES  OF  LIENS  IN  FORECLOSURE  SUITS. 


[§558 


take  priority  over  the  lien  of  a  mortgage  made  by  the  purcliasing 
company  to  secure  an  issue  of  bonds.^  Tliese  facts  appeared  in 
a  case  before  tlie  United  States  Circuit  Court  of  Appeals  for  tho 
sixth  circuit :  Under  the  authority  of  the  Michigan  statute  a 
railroad  corporation  sold  all  its  property  and  franchises  to  another 
corporation  and  this  latter  mortgaged  the  same  to  secure  an  issue 
of  bonds.  A  minority  stockholder  in  the  former  corporation, 
who  had  dissented  on  the  question  of  selling,  brought  an  action 
against  both  of  the  corporations  to  set  it  aside,  in  which  action  a 
decree  was  made  upholding  the  sale,  but  providing  that  this 
minority  stockholder,  on  tendering  his  stock  to  the  purchasing 
company,  should  have  a  right  to  receive  an  equal  number  of 
shares  in  the  latter,  or  to  have  an  execution  against  the  corpora- 
tion for  the  value  of  his  stock.  He  elected  to  have  the  execution, 
and  asked  that  it  be  declared  a  prior  lien  to  the  mortgage,  but 
this  the  court  denied  him.  In  a  suit  brought  subsequently  to 
foreclose  the  mortgage  executed  by  the  purchasing  corporation, 
he  intervened,  claiming  an  equitable  lien  prior  to  the  mortgage 
for  the  value  of  his  stock.  The  Court  of  Appeals  held  that  the 
effect  of  the  decree  in  his  action  to  set  aside  the  sale  was  to  con- 
vert him  from  a  stockholder  in  the  selling  corporation  to  a  judg- 
ment creditor  of  the  purchasing  corporation,  and  that  he  had  no 
lien  as  claimed.*  In  a  case  in  a  federal  court  it  was  held  that  a 
diversion  by  a  railroad  company  of  a  lixed  sum  from  the  payment 
of  claims  for  material  used  in  keeping  the  road  a  going  con- 
cern, to  the  permanent  improvement  of  the  road,  or  to  the  pay- 
ment of  interest  on  the  bonds,  must  be  made  good  by  the  bond- 
holders, and  the  bondholders  consented  to  make  it  good  by  the 
issue  of  receivers'  certificates  and  the  application  of  the  proceeds 
to  the  claims.  The  materials  here  were  held  to  be  entitled  to  no 
further  preference  from  the  proceeds  of  the  sale.^  There  having 
been  a  foreclosure  sale  in  this  case,  and  the  property  purchased 
by  a  committee  of  bondholders  under  a  reorganization  agree- 
ment, upon  a  distribution  of  the  funds  actually  in  court  arising 
from  such  sale  becoming  necessary,  there  were  various  interesting 
rulings  upon  the  various  claims  to  this  fund  set  up  by  the  differ- 

»Fogg  f^.  Blair,  (1880)  133  U.  8.  534.  'Finance    Co.   of  Pennsylvania  «. 

•Farmers'  Loan  &  Trust  Co.  v.  To-  Charleston,  C.  &  C.  R.  Co.  (Pocahon- 

ledo  &  8,  H.  R.  Co.,  (1893)  54  Fed.  tas  Coal  Co.,  Intervener),  (1892)  52 Fed. 

Sep.  759.  Rep.  524. 


I 


§  558] 


PRIORITIES  OF  LIENS  IN  FORECLOSURE  SUITS. 


1243 


ent  claimants.     It  was  held  upon  its  appearing  that  there  might 
be  claimants  against  the  old  company  to  an  amount  more  than 
there  was  in  the    registry  of  the    court,  that    the    reorganiza- 
tion committee  to  whom  a  cash  sale  of  the  road  was  made  and 
confirmed,  and   wlio   failed    to    make    good    their  bid,  not   for 
want  of    funds,  but   because   they  thought  the  price   too   high, 
could  not  be  excused,  on  a  resale   of  the  property  for  a  less 
price,   from     making    good    the   difference,    if    the  unsecured 
creditors    would   be   benefited    thereby.       This    reorganization 
committee,  having   in  its  hands  a  surplus  of  the  bonds  of  one 
division   of   this  company  after  paying  in  bonds   the   amount 
of  the  bid  on  that  road,  set  up  a  claim  that  they  were  entitled 
to  share  in  the  distribution.     Upon  this  claim  it  was  held  that 
when  a  reorganization  agreement,  to  which  all  the  bondholders 
and  stockholders  of  the  mortgagor  company  were  parties,  plainly 
showed  an  intention  that  the  new  securities  to  be  issued  after  the 
purchase  of  the  road  at  judicial  sale  should  extinguish  the  old 
bonds  for  which  they  were  to  be  exchanged,  the  consummation 
of  the  plan  of  reorganization  operated  as  a  payment  of  the  old 
bonds,  and  the  former  holders  of  those  bonds  had  no  claim  upon 
the  proceeds  of  the  sale,  on  the  theory  that  they  were  to  be 
regarded  as  unsecured  creditors  to  the  amount  by  which  the  sum 
realized  fell  below  the  amount  of  those  bonds.    Certain  judgment 
creditors,  whose  original  claims  were  for  money  advanced  pre- 
viously to  the  railroad  company,  having  been  included  in  the 
reorganization  agreement  on  the  same  basis  as  the  bondholders, 
were  held  to  be  in  like  position  to  the  bondholders  after  the  com- 
pletion of  the  scheme  by  the  delivery  of  the  road  to  the  new 
company  as  reorganized,  and  their  claims  were  also  to  be  con- 
sidered as  paid.^     This  reorganized  railroad  company  had  pur- 
chased and  received  possession  of  the  road,  and  thereafter  paid 
certain  taxes  and  indebtedness  incurred  by  the  receiver  in  the 
foreclosure  suit,  without  special  authority  from  the  court.     Such 
payments,  it  was  held,  could  not  be  regarded  as  loans  to  the 
receiver,  to  be  reimbursed  from  the  proceeds  of  the  sale.     The 
court  further  held  that  when,  by  the  conditions  of  a  railroad  fore- 
closure sale,  the  court  had  required  the  payment  in  cash  of  an 
amount  which  was  sufficient  to  meet  all  the  allowed  claims  and 

"Central  Trust  Co.  of  New  York  d.  Cincinnati,  J.  &  M.  Ry.  Co.,  (1892)  58 
Fed.  Rep.  500. 


1244 


PBIORITIES  OF  LIENS  IN  FORECLOSURE  SUITS. 


[§  558 


the  expenses  of  the  suit  (the  balance  of  the  sale  price  being  paid 
in  bonds),  tlie  subsequent  application,  by  consent  of  all  parties, 
of  part  of  the  money  paid  in  to  liabilities  not  properly  chargeable 
against  it,  amounted  to  a  waiver  by  the  owners  of  the  allowed 
claims  of  their  rights,  to  the  extent  that  such  an  appropriation  of 
the  money  reduced  the  ability  of  the  fund  to  discharge  their 
entire  claims,  with  interest,  and  they  could  not  afterwards  require 
the  purchasers  to  substitute  sufficient  cash  in  lieu  of  bonds  to  pay 
claims  in  full.  And  the  receiver  in  this  case,  who  resided  at  a 
distance  from  the  property,  and  committed  the  active  manage- 
ment of  the  railroad  business  to  others,  was  not  entitled  to  the 
full  compensation  usually  paid  to  railroad  presidents  and  receivers 
who  are  active  executive  heads  of  going  railroads.  He  was 
allowed  $2,600  per  annum.^  A  claim  against  a  railroad  com- 
pany for  causing  the  death  of  plaintiff's  intestate  has  been  held 
to  be  a  demand  arising  from  a  failure  of  duty,  and  one  that  could 
not,  by  its  creation,  benefit,  preserve  or  increase  the  corpus  of 
the  estate  of  the  company,  and,  therefore,  not  to  be  entitled  to 
priority  upon  the  foreclosure  of  a  mortgage  executed  by  such 
railroad  company.^  The  owners  of  long-time  railroad  bonds,  the 
company  issuing  them  being  solvent  and  having  secured  the 
bonds  by  mortgage  of  all  its  property,  and  promptly  met  all  its 
coupons,  guaranteed  as  to  the  principal  and  interest  by  a  manu- 
facturing corporation  which  subsequently  went  into  the  hands  of 
a  receiver,  it  has  been  held,  could  not  prove  the  guaranty  of  the 
insolvent  corporation  and  have  a  dividend  declared  thereon,  or  have 
money  retained  in  court  to  meet  a  possible  future  liability  on  the 
guaranty,  as  against  creditors  of  the  insolvent  corporation,  who 
were  pressing  for  a  sale  and  distribution  and  who  held  either  spe- 
cific and  general  liens  or  demands  past  due.^  The  property  of 
this  railroad  company  had  been  sold  under  foreclosure  proceed- 


» Ibid. 

'Farmers'  Loan  &  Trust  Co.  v. 
Green  Bay,  W.  &  St.  P.  Ry.  Co. 
(Franck,  Intervener),  (1891)  45  Ted. 
Rep.  664. 

3  Gay  Manfg.  Co.  v.  Gittings,  (1892) 
53  Fed.  Rep.  45.  When  arrears  of 
salary  of  a  president  of  insolvent  cor- 
poration will  not  have  precedence  in 
payment  to  a  first  mortgage  deed  out 
of  the  proceeds  of  a  sale  of  the  prop- 


erty, see  National  Bank  of  Augusta  v. 
Carolina,  K.  &  W.  R.  R.  Co.,  63  Fed. 
Rep.  25.  When  a  receiver's  right  to 
reimbursement  for  improvements  of 
the  roadbed  of  a  mortgaged  road  is 
subordinate  to  the  mortgage  lien,  see 
Phinizy  v.  Augusta  &  Knoxville  R.  R. 
Co.,  62  Fed.  Rep.  771;  Virginia  De- 
velopment Co.  V.  Crozer  Iron  Co.,  (Va.) 
17  S.  E.  Rep.  806. 


§558] 


PRIORITIES  OF  LIENS  IN  FORECLOSURE  SUITS. 


1245 


ings  and  the  proceeds  of  the  sale  were  in  court  for  distribution. 
One  having  a  judgment  obtained  in  a  North  Carolina  court 
against  the  railroad  company  for  injuries  inflicted  upon  him, 
claimed  priority  to  the  bondholders  in  the  distribution.  His 
action  had  not  been  brought  within  sixty  days  after  the  mortgage 
was  recorded.  The  Code  of  North  Carolina,  section  685,  referring 
to  corporations,  provides  as  follows:  "But  any  conveyance  of  its 
property,  whether  absolutely  or  upon  condition,  in  trust,  or  by  way 
of  mortgage  executed  by  any  corporation,  shall  be  void  and  of  no 
effect  as  to  the  creditors  of  said  corporation,  existing  priur  to,  or  at 
the  time  of,  the  execution  of  said  deed,  and  as  to  torts  committed 
by  such  corporation,  its  agents  or  employees,  prior  to,  or  at  the  time 
of,  the  execution  of  said  deed ;  provided,  said  creditors  or  persons 
injured,  or  their  representatives,  shall  commence  proceedings  or 
actions  to  enforce  their  claims  against  said  corporation  within  sixty 
days  after  their  registration  of  said  deed,  as  required  by  law."  It 
was  insisted  that  this  section  of  the  Code  governed  the  case  and 
that  the  judgment  could  not  be  given  preference  by  reason  of  the 
action  not  having  been  brought  within  sixty  days.  The  court, 
however,  ordered  that  the  claim  be  given  priority  to  the  bond- 
holders, holding  that  the  claim  was  protected  by  the  Code  of  North 
Carolina,  section  1285,  which  declares  :  "  Mortgages  of  incorporate 
companies  upon  the  property  or  earnings,  whether  on  bonds  or 
otherwise,  hereafter  issued,  shall  not  have  power  to  exempt  the 
property  or  earnings  of  such  incorporations  from  execution  for  the 
satisfaction  of  any  judgment  obtained  in  courts  of  the  state  against 
such  incorporation  for  labor  performed,  nor  for  material  furnished 
such  incorporation,  nor  for  torts  committed  by  such  incorporation, 
its  agents  or  employees,  whereby  any  person  is  killed  or  any  per- 
son or  property  injured,  any  clause  or  clauses  in  such  mortgage 
to  the  contrary  notwithstanding."  * 


^Finance  Co.  of  Pennsylvania  v. 
Charleston,  C.  &  C.  R.  Co.,  Ex  parte 
Hudson,  (1894)  61  Fed.  Rep.  369;  af- 
firmed by  U.  S.  Circuit  Court  of  Ap- 
peals in  Finance  Co.  of  Pennsylvania 
V.  Charleston  C.  &  C.  R.  R.  Co.,  62  Fed. 
Rep.  205.  SiMONTON,  Circuit  Judge, 
said:  "The  provisions  of  section 
1255  manifestly  recognize  that  equity 
which,  in  the  decisions  of  the  Supreme 


Court,  underlies  Fosdick  v.  Schall,  9d 
U.  S.  235,  and  the  cases  following  it. 
Whoever  contributes  to  keep  a  cor- 
poration a  going  concern  by  materials 
or  labor  must  be  provided  for  before 
mortgage  creditors  can  claim  out  of 
the  earnings;  and  so,  also,  all  expenses 
incident  to  the  keeping  it  a  going  con- 
cern, including  in  the  expenses  all 
damages  for  injuries  done  to  life,  per- 


1246  PBIOBITIES  OF  LIENS  IN  FOEECLOSURE  SUITS.  [§§  559,  660 

§  559.  Debts  contracted  for  construction.—  A  debt  con- 
tracted for  "  construction "  is  not  entitled  to  a  priority  of  pay- 
ment, in  proceedings  for  the  foreclosure  of  a  mortgage  of  the 
property  of  a  railroad  corporation,  which  is  recognized  in  Fosdick 
V.  Schall,  99  U.  S.  235,  as  the  equitable  right  in  some  cases  of  a 
creditor  for  "  operating  expenses."  ^  The  United  States  Circuit 
Court  of  Appeals  for  the  fifth  circuit  held  that,  upon  the  sale  of 
this  railroad  on  foreclosure,  it  was  error  to  direct  payment  of 
claims  for  supplies  furnished  prior  to  the  receivership  out  of  the 
purchase  money,  no  provision  for  such  payment  having  been 
made  when  the  receiver  was  appointed,  and  there  being  no  evi- 
dence that  current  earnings,  before  or  after  the  appointment  of 
the  receiver,  were  diverted  to  the  payment  of  interest  on  the 
bonded  debt.* 

§  560.  Presumption  as  to  preferential  character  of  a  claim 

—  In  this  action  for  foreclosure  of  a  railroad  mortgage,  the  Cir- 
cuit Court  allowed  an  intervening  claim  based  on  a  judgment 
recovered  in  a  state  court,  and  directed  its  payment  out  of  the 
proceeds  of  sale.  The  decree  in  the  case  recited  that  it  was  one 
of  those  claims  theretofore  adjudged  to  be  of  a  preferential  char- 
acter. This  adjudication  as  to  its  preferential  character  was  not 
appealed  from,  and  the  appeal  from  the  decree  allowing  its  pay- 
ment, the  nature  of  the  demand  on  which  the  judgment  was 
recovered,  was  not  disclosed  by  the  record.  The  United  States 
Court  of  Appeals  for  the  eighth  circuit  held  that  it  must  be  pre- 


son  or  property  in  keeping  up  this  life 
of  the  company,  enjoying  the  same 
preference."  Frazier  v.  East  Tenn,, 
Va.  &  Ga.  R.  R.  Co.,  88  Tenn.  138; 
8.  c.  12  s.  W.  Rep.  537. 

*  Mr.  Justice  Lamar  in  Wood  t. 
Guanintee  Trust  &  Safe  Deposit  Co., 
(1888)  128  U.  S.  416;  s.  c,  9  Sup.  Ct. 
Rep.  131. 

« Cutting ff.Tavares  0.&  A.  R.  Co., 
(Florida  Central  &  P.  R.  Co.,  Interven- 
ers), (1894)  61  Fed.  Rep.  150.  In  Ameri- 
can Loan  &  Trust  Co.  r.  East  &  West 
R.  R  Co.  of  Ala.,  (Jersey  City  Iron  Co.. 
Intervener),  (1891)  46  Fed.  Rep.  101,  it 
vras  held  that  a  debt  created  for  mate- 


rials for  original  construction  of  a  por- 
tion of  a  railroad  more  than  six  months 
before  the  appointment  of  a  receiver 
in  proceedings  for  the  foreclosure  of  a 
mortgage  was  not  within  the  rule  au- 
thorizing the  court  to  provide  for  ar- 
rears due  for  operating  expenses  of 
the  road  out  of  the  net  income  of  the 
property,  and,  in  the  absence  of  a 
showing  that  there  had  been  such  a 
diversion  of  current  funds  or  income 
which  should  have  been  applied  to  the 
payment  of  the  claim  for  such  mate- 
rials, would  not  be  given  a  priority 
over  the  rights  of  the  mortgage 
creditors. 


§561] 


PRIORITIES  OF  LIENS  IN  FORECLOSURE  SUITS. 


1247 


8umed  that  the  finding  of  the  lower  court  as  to  the  character  of 
the  claim  was  correct,. and  then  affirmed  the  decree  allowing  it.* 

§  561.  Mechanic's  lien  as  viewed  by  the  United  States 
Supreme  Court. — The  trust  company  which  had  accepted  the 
trust  created  in  this  railroad  mortgage  and  certified  the  bonds 
issued  under  the  mortgage,  which  were  sold  on  the  market,  upon 
a  default,  brouglit  action  to  foreclose  the  mortgage.  There  being 
a  conflict  betw'een  the  interests  of  the  bondholders  under  this 
mortgage  and  the  bondholders  under  another  affecting  some  of 
the  properties,  a  committee  of  the  bondholders  were  made  parties 
co-complainants  witli  the  trust  company.  A  question  was  made 
by  an  intervener  as  to  whether  his  claimed  mechanic's  lien  was 
not  a  lien  prior  and  preferable  to  that  of  the  mortgage.  Subse- 
quently to  the  execution  of  the  mortgage  he  had  contracted  with 
the  railroad  company  to  build  a  dock  on  a  river  in  one  of  the 
termini  of  the  roads,  a  city  in  Ohio.  He  had  built  the  dock, 
received  only  partial  payment,  and  filed  his  mechanic's  lien  for 
the  balance.  The  lot  in  which  the  dock  was  built  was  a  part  of 
the  railroad  property  covered  by  this  mortgage.  The  Supreme 
Court  of  the  United  States  reversed  the  Circuit  Court's  decree 
in  favor  of  the  holder  of  the  mechanic's  lien  giving  him  a  pri- 
ority, holding  that  a  recorded  mortgage,  given  by  a  railroad  com- 
pany on  its  roadbed  and  other  property,  created  a  lien  the  pri- 
ority of  which  could  not  be  displaced  thereafter  either  directly 
by  a  mortgage  given  by  the  company  or  indirectly  by  a  contract 
between  the  company  and  a  third  party  for  the  erection  of  build- 
ings or  other  works  of  original  construction.'^  The  master  who 
reported  upon  the  intervening  petition  of  the  holder  of  the 
mechanic's  lien  based  his  award  of  priority  in  this  case  upon  the 
ground  of  an  equitable  right  arising  from  the  construction  of  the 
dock  and  consequent  improvement  of  the  railroad  property.  The 
Supreme  Court  of  the  United  States  held  that  those  facts  did  not 
give  the  intervener  an  equitable  lien  prior  in  right  to  the  lien  of 
the  mortgage,  or  furnish  equitable  reasons  why  the  legal  priority 
belonging  to  the  mortgage  should  be  displaced.^  It  was  urged  in 
behalf  of  the  holder  of  the  mechanic's  lien  in  this  case  upon  the 

»  St.  Louis  8.  W.  Ry.  Co.  v.   Gra-  « Toledo,  Delphos  &  Burlington  R. 

ham,  Intervener,  (1S93)  56  Fed.  Rep.  R.  Co.  v.  Hamilton.  (1890^  134  U.  S. 

258,  following  Railviray   Co.  v.  Stark,  296. 

55  Fed.  Rep.  758.  '  Ibid. 


1248 


PKIORITJES  OF  LIENS  IN  FORECLOSURE  SUITS. 


[§561 


railroad  property,  in  objection  to  the  force  of  the  propositions 
of  law  adverse  to  his  claim  of  right  of  priority  over  the 
mortgage,  as  applied  to  the  facts  licre,  tliat  at  the  time  this 
mechanic's  lien  was  created  the  legal  title  was  not  in  the  railroad 
company,  but  in  a  third  party ;  that  as  the  mortgagor,  the  railroad 
company,  had  no  legal  title  the  mortgage  given  by  it  created  no 
legal  lien ;  that  while  by  the  decree  of  foreclosure  the  legal  title 
was  transferred  to  the  mortgagor,  it  was  transferred  subject  to 
the  burden  of  the  mechanic's  lien.  The  Supreme  Court  did  not 
regard  this  contention  of  the  appellee,  as  it  appeared  from  the 
testimony  and  the  decree  that  only  the  naked  or  legal  title 
remamed  in  this  third  party,  the  full  equitable  title  being  in  the 
railroad  company,  and  in  that  company  before  the  contracts  were 
entered  into.  They  said :  "  The  railroad  company  had  the  same 
title  when  it  made  the  contracts  that  it  had  when  the  work  was 
done  and  the  decree  rendered.  Hamilton's  contracts  were  with 
the  railroad  company,  and  of  course  gave  a  lien  upon  the  lands 
only  to  the  extent  of  the  title  that  the  railroad  company  had."^ 


*  Toledo,  Delphos  &  Burlington  R. 
R  Co.  V.  Hamilton,  (1890)  134  U.  8. 
296.  The  court  distinguished,  as  show- 
ing a  different  state  of  facts  from  that 
in  the  case  at  bar,  Williamson,  Trus- 
tee, V.  New  Jersey  Southern  Railroad, 
28  K  J.  Eq.  277,  and  29  N.  J.  Eq.  311, 
one  of  the  cases  especially  relied  upon 
to  sustain  the  contention  stated  in  the 
text,  thus:  "  In  [that  case]  the  defend- 
ant railroad  company  had  executed  a 
mortgage  with  the  'after-acquired 
property '  clause  in  it,  duly  recorded. 
It  was  also  the  owner  of  a  large  ma- 
jority of  the  stock  in  the  Long  Branch 
and  Sea  Shore  Company,  and  was  in 
possession  of  and  operating  the  latter 
company's  road.  No  consolidation  in 
fact  of  the  two  companies  had  taken 
place,  but,  being  in  possession  of  the 
latter  company's  road,  it  had  con- 
tracted for  the  building  of  certain 
docks,  walls  and  piers  at  the  terminus 
of  such  road.  Having  failed  to  make 
payment  for  such  work,  a  mechanic's 
Uen  was  perfected   upon   the  latter 


company's  road.  Upon  a  suit  to  fore- 
close the  mortgage  given  by  the  de- 
fendant railroad  company,  the  chan- 
cellor, laying  hold  of  the  fact  that  the 
defendant  railroad  company  was  the 
owner  of  the  large  majority  of  the 
stock  —  was  in  possession  of  and  oper- 
ating the  latter  company's  road  — 
decreed  that  such  road,  with  its  prop- 
erty and  franchises,  belonged  to  the 
defendant  railroad  company,  and  as 
after-acquired  property  was  subject 
to  complainant's  mortgage,  but  subor- 
dinate to  the  mechanic's  lien.  On  re- 
view in  the  Court  of  Errors  and 
Appeals,  as  reported  in  29  N.  J.  Eq. 
[311],  the  decision  of  the  chancellor 
was  sustained,  the  court  saying: 
'Until  that  decree  was  signed,  the 
right  of  the  complainant  in  the  lands 
of  the  Sea  Shore  Company  under  his 
mortgage  was  a  mere  unexecuted 
equity  to  have  the  benefit  of  such 
equities  as  his  mortgagor  had  in  the 
premises,  without  any  legal  title  in 
himself   or   in   his   mortgagor  upon 


§562] 


PBIORITIES  OP  LIENS  IN  FORECLOSURE  SUITS. 


1249 


§562.  Furnishers  of  supplies  —  Kentucky  statutes  con- 
strued.—  In  this  intervention  in  a  foreclosure  suit  it  was  held 
that  one  who  furnished  labor  and  materials  for  the  construction 
of  this  railroad,  under  a  contract  with  a  sub-contractor,  was  not 
embraced  within  the  provision  of  the  Kentucky  statute,  that  per- 
sons furnishing  labor  or  materials  for  the  construction  of  rail- 
roads and  other  improvements  "  by  contract,  express  or  implied, 
with  the  owner  or  owners  thereof,  or  by  sub-contract  thereunder, 
shall  have  a  lien  thereon  "  for  the  price  of  such  labor  and  mate- 
rials.^    It  was  also  held  in  the  same  case  that  the  language,  "  all 


which  his  mortgage,  as  a  consequence, 
could  operate.  *  *  *  When  the 
decree  of  the  chancellor  was  signed, 
which  established  the  lien  of  complain- 
ant's mortgage  on  the  property  of  the 
Long  Branch  and  Sea  Shore  Company, 
Berthoud  &  Co.  had,  by  force  of  the 
provisions  of  the  Mechanics'  Lien  Act, 
acquired  a  lien  on  the  premises  which 
related  back  to  the  commencement  of 
the  building,  and  was  entitled  to  pri- 
ority over  all  conveyances,  mortgages 
or  incumbrances  subsequent  thereto. 
This  lien  was  not  displaced  by  the 
chancellor's  decree,  which,  in  the  ab- 
sence of  fraud,  could  be  effective  only 
to  bring  under  the  complainant's  mort- 
gage the  lands  of  the  Sea  Shore  Com- 
pany, subject  to  such  liens  as  were 
lawfully  acquired  while  the  legal 
estate  was  in  that  company.  The 
chancellor's  decree  adjudging  the 
validity  and  priority  of  the  claim  of 
Berthoud  &  Co.  should  be  affirmed.' 
Unquestionably  such  ruling  was  cor- 
rect. The  owner  of  a  majority  of  the 
stock  in  a  railroad  corporation  has  no 
title  to  the  road.  The  title  is  in  the 
corporation,  and  he  is  not  the  corpora- 
tion. A  mortgage  by  the  owner  of 
such  stock  is  no  li3n  upon  the  road, 
and  does  not  prevent  the  casting  of 
any  legal  lien  upon  it.  So  that  while, 
for  tho  many  equitable  reasons  stated 
in  th-;^  opinion,  the  decree  vested  the 
property  in  the  latter  road  in  the  de- 
fendant railroad  company,  yet  it  per- 

157 


fected  and  transferred  that  title  sub- 
ject to  all  legal  liens  then  existing 
upon  it.     As  the  Court  of  Errors  and 
Appeals  well  said,  until  that  decree 
was  signed  the  right  of  the  complain- 
ant, the  mortgagee,  was  a  mere  unex- 
ecuted equity  to  have  the  benefit  of 
such  equities  as  his  mortgagor  had  in 
the  premises."    A  Connecticut  case, 
Botsford  V.  New  Haven,  Middletown, 
etc.,  R.  R.  Co.,  41  Conn.  454,  also  re- 
lied upon,  was  similarly  distinguished 
by  the  Supreme  Court  as  to  the  facts 
in  these  words:    "After  giving  the 
mortgage  the    railroad  company  de- 
sired to  erect  a  depot  on  land  adjoin- 
ing its  track.     The  owner  agreed  to 
give  the  company  the  land  provided  it 
would  build  a  depot.     Upon  the  build- 
ing a  mechanic's  lien  was  filed.     The 
owner  had  never  made  a  conveyance. 
Upon  a  foreclosure  of  the  mortgage 
the  mechanic's  lien  upon  the  building 
and  the  ground  upon  which  it  was 
constructed  was  held  prior  to  the  mort- 
gage.    The  decision  was  based  upon 
the  ground  that  the  full  equitable  title 
never  passed  to  the  railroad  company 
until  the  completion  of  the  building, 
and  then  passed  subject  to  the  burden 
of  the  mechanic's  lien.     Hence,  though 
«fter-acquired  property,  and  subject  to 
the  lien  of  the  mortgage,  it  was,  when 
acquired,   already   burdened    with   a- 
lien." 

'  Central  Trust  Co.  v.  Richmond,  N. 
I.  &  B.  R.  Co,.  (1892)  54  Fed.  Rep 


1250 


PKI0RITIE8  OF  LIENS  IN  FOEECLOSURE  SUITS. 


[§562 


persons  wlio  perforin  labor  or  furnish  labor,"  did  not  intend  only 

those  onlj  who  performed  manual  labor ;  and  the  words  would 

embrace  the  services  of  a  civil  engineer  who  actually  superin- 


723.     It  was  said  by  the  court:  "  The 
decisions  in  the  diflferent  states  are  in 
-seeming  conflict  [upon  this  point],  and 
it  is  unnecessary  to  review  all  of  them, 
as  each  state  has  its  own  peculiar  law 
and  state  policy.    In  some  of  the  states 
it  seems  to  be  the  policy  to  create  the 
lien  without  regard  to  any  contractual 
relation  with  the  owner  of  the  building 
or  structure,  and  in  other  states  to  con- 
fine the  lien  to  those  who  have  con- 
tractual   relations,    directly    or   indi- 
rectly, with  the  owners  of  the  building 
or  structure,  and,  in  some  others,  to 
combine  the  two  by  having  regard  to 
the  contractual  relations  of  the  parties, 
by  limiting  the  persons  who,  beside  the 
owners,  can  create  a  contractual  rela- 
tion under  which  a  lien  can  be  created 
under  the  statute.     The  late  Railroad 
Law  of  Wisconsin,  and  also  that  of 
Indiana,  seems  to  be  of  the  first  class 
mentioned  above.     See  Mundt  v.  Rail- 
road Co.,  31  Wis.  454;  also,  Redmond 
«.  Railway  Co.,   39  Wis.  426;  Colter 
V.   Frese,  45  Ind.  97.     The  laws  of 
other  states  are  to   the  same  eflFect. 
The   statute  of  New  Hampshire,   as 
construed  by  the  courts  of  that  state, 
seems  to  be  of  the  second  class.     See 
Jacobs  V.   Knapp,  50  N.  H.  71.     The 
[Kentucky]  act  of  1888,   as  we  con- 
strue it,  is  of  the  third  class,  as  are  also 
the  lien  laws  of  Pennsylvania,  West 
Virginia,   Illinois,   and  the  Mechanic 
Ljiw  of  Wisconsin.    In  Harlan  t.  Rand, 
27  Pa.  St.  514,  the  court,  after  stating 
the  great  inconvenience  of  an  indefinite 
extension  of  the  liens  under  the  con- 
struction of  the  statute  contended  for 
by  counsel,   asked,  'What,    then,  is 
the  limit  of  these  lien  rights?'  and 
said:  'We  must  look  to  the  law  for 
an  answer,  and  we  find  it  in  the  twelfth 
^section.    It  distributes  all  the  parties 


into  three  classes,  according  to  their 
several  functions:  First,  the  owner; 
second,  the  contractor  —  called,    also, 
architect  and  'builder;'  and,  third,  the 
workmen  and  materialmen.     The  law 
establishes  one  link,  and  only  one  link, 
between  the  owner,  on  the  one  hand, 
and  the  workmen  and  materialmen  on 
the  other.     It  requires  the  lien  to  be 
founded  on  contract,  and  it  recognizes 
no  one  as  having  power  to  contract  so 
as  to  make  a  lien  against  the  building, 
except  the  owner  and  the  contractor 
or  architect.'    Page  576.     The  West 
Virginia  statutes  provide    that    any 
mechanic,  etc. ,  who  performs  work  or 
furnishes  materials  '  by  virtue  of  any 
contract  with  the   owner  thereof,  or 
his  agents,  or  any  person  who,  in  pur- 
suance of  an  agreement  with  any  such 
contractor,  shall,  in  conformity  with 
the  terms  of  the  contract  with  such 
owners  or  agents,  do  or  perform  any 
labor  or  work,  or  furnish  any  material, 
in  the   erection  or  construction  of  a 
house,'  etc.,  shall  have  a  lien  thereon. 
In  McGugin  v.  Railway  Co.,  33  W. 
Va.  67;  s.  c,  10  S.  E.  Rep.  36,  the 
court  held  a  contractor  once  removed 
from  the  original  contractor,  had  no 
lien    under  this   statute.     In    Illinois 
the  Lien  Law  of  1869  provided  that: 
'  Every      sub-contractor,     mechanic, 
workman,   or  other  person  who  shall 
hereafter,    in  pursuance  of  the  pur- 
poses of  the  original  contract  between 
the    owner    of    any    lot    or  piece  of 
ground,  or  his  agent,  and  the  original 
contractor,  perform  any  labor  or  fur- 
nish materials  in  building,  altering, 
repairing,  beautifying  or  ornamenting 
any  house,    *    *    »    shall  have  a  lien 
for  the  value  of  such  labor  and  mate- 
rials upon  such    house,'    etc.      The 
Illinois  courts  held  that  the  statute  did 


§  562]  PRIORITIES  OF  LIENS  IN  FORECLOSURE  SUITS.  1251 

tended  and  directed  the  construction  of  the  work.^    Bj  the  inter- 
ventions in  this  foreclosure  suit,  the  question  of  the  rights  of  fur- 
nishers of  supplies  to  the  railroad  company  under  the  statutes  of 
Kentucky  giving  statutory  liens  to  certain  parties  to  be  preferred 
to  the  bondholders,  came  before  the  United  States  Circuit  Court 
of  Appeals  for  the  sixth  circuit.     This  rule  was  declared  by  the 
court :  Contractors  supplying  laborers  and  teams  for  the  construc- 
tion and  repair  of  a  railroad,  being  paid  for  the  same  by  the  day, 
and  either  party  having  the  right  to  stop  work  at  the  end  of  any 
day,  are  not  "  laborers  "  or  "  employees  "  with  the  terms  of  the 
statute  of  1876,  which,  among  other  things,  gives  a  lien  for  work 
done  and  materials  furnished  in  keeping  the  road  a  going  concern, 
but  must  rely  on  the  Contractors'  Act  of  1888,  which  gives  a  lien 
in  favor  of  persons  "  furnishing  labor  or  materials  for  the  con- 
struction or  improvement "  of  any  railroad,  canal  or  other  public 
improvement.2    In  the  same  case  this  rule  was  also  declared : 


not  extend  and  give  a  lien  to  a  con- 
tractor with  a  sub-contractor.  Smith 
Bridge  Co.  «?.  Louisville,  N.  A.  &  St. 
L.  R.  Co..  72  111.  506." 

'  Central  Trust  Co.  v.  Richmond,  N. 
L  &  B.  R.  Co.,  (1892)  54  Fed.  Rep. 
723. 

«Tod  V.  Kentucky  Union  Ry.  Co. 
(Rosser  et  al.,  Interveners),  (1892)  52 
Fed.  Rep.  241,  holding  that  the  peti- 
tion of  the  intervener  was  properly 
dismissed.    Jackson,   Circuit  Judge, 
speaking  for  the  court,  said:  "  In  Vane 
«.  Newcombe,  132  U.  S.  220;   s.  c,  10 
Sup.  Ct.  Rep.  60,  the  plaintiff,  having 
contracted  with  the  company  to  erect 
certain  telegraph  wires  on  the  com- 
pany's poles,  and  furnished  the  labor 
of  himself  and  others  in  doing  the 
work,  claimed  a  priority  lien,  under  a 
statute  of  Indiana,  which  gave  a  lien 
to  employees  of  corporations.      The 
Supreme  Court  said:    '  It  seems  clear 
to  us  that  Vane  was  a  contractor  with 
the  company  and  not  an  employee, 
within    the  meaning  of  the  statute. 
We  think  the  distinction  pointed  out 
by  the  Circuit  Court  is  a  sound  one, 
namely,  that  to  be  an  employee,  within 
the  meaning  of  the  statute,  Vane  must 


have  been  a  servant,  bound  in  some 
degree,  at  least,   to  the   duties  of  a 
servant,  and  not,  as  he  was,  a  mere 
contractor,  bound  only  to  produce  or 
cause  to  be  produced  a  certain  result 
—  a  result  of  labor,  to  be  sure  —  but 
free  to  dispose  of  his  own  time  and 
personal  efforts  according  to  his  pleas- 
ure,    without    responsibility    to    the 
other  party.'     The  lien  was  accord- 
ingly denied,  and,  in  Railroad  v.  Wil- 
son, 138  U.  8.  501;   8.  c,  11  Sup.  Ct. 
Rep.  405,  it  was  said  that  an  employee 
implies  continuity  of  service  and  ex- 
cludes those  employed  for  a  special  or 
single  transaction.     In  construing  the 
New     Jersey     statute,    which     gave 
laborers  of  corporations  in  case  of  an 
insolvency  a  hen  upon  corporate  assets 
for  the  amount  of  wages  due  them, 
the  Supreme  Court  of  that  state  held 
that  the  right  conferred  was  strictly- 
personal,  inhering  alone  in  the  person 
who  actually  performs  the  labor  or 
service,  and  that  he  who  furnishes  the 
labor  or  services  of  others  under  a 
contract  to  do  the  whole  business  of  a 
corporation,  or  a  particular  branch  of 
it.  was  neither  within  the  letter  nor 
spirit  of  the  act.     It  was  further  held 


1252  PKIORITIES  OF  LIENS  IN  FORECLOSURE  SUITS.  [§§  563,  564 

Where  supplies,  suitable  either  for  the  construction  of  the  unfin- 
ished part  of  a  railroad  or  the  carrying  on  of  the  finished  part, 
are  furnished  without  any  contract  as  to  how  they  shall  be  used, 
the  materialman  has  a  lien  under  the  act  of  1876  for  the  part  actu- 
ally used  in  operating  the  railroad  and  another  lien  under  the 
Contractors'  Act  of  1888  for  the  part  actually  used  for  construc- 
tion and  repairs ;  but  where  he  had  lost  the  lien  under  the  latter 
act  because  of  a  failure  to  file  his  statement  within  sixty  days,  the 
burden  of  proof  was  on  him  to  show  what  part  of  the  supplies 
was  actuaDy  used  for  the  operation  of  the  road.* 

I  563.  The  rule  under  Ohio  statutes. —  The  United  States 
Circuit  Court  of  Appeals  for  the  sixth  circuit,  in  the  opinion  nen- 
dered  by  Swan,  D.  J.,  has  held  that  the  right  to  a  lien,  under  the 
Ohio  statute,  relating  to  liens  against  railroads,  is  restricted  to  claims 
for  labor  performed  or  materials  furnished  for  the  construction  of 
the  road,  depot  buildings  and  water  tanks,  and  cannot  be  extended 
to  a  claim  for  fumishmg  an  electric  lighting  plant  to  hotel  prem- 
ises, at  the  instance  of  a  railroad  company  ;  also,  that  the  General 
Lien  Law  of  Ohio  gave  no  right  to  a  lien  upon  a  railroad  for 
materials  used  in  and  for  its  construction ;  nor  were  materials 
furnished  for  the  construction  of  the  electric  lighting  apparatus, 
railway  and  power  house,  within  the  provision  of  the  General 
Lien  Law  of  Ohio,  giving  a  right  to  a  lien  for  machinery  and 
materials  furnished  for  "  erecting,  repairing  or  removing  a  house 
*    *    *    or  other  structure.' " 

§  564.  Contractors  —  Tennessee  statutes  construed. —  In 
a  case  involving  the  right  to  priority  of  liens  of  persons  claiming 
as  contractors  in  the  construction  of  a  railroad  under  the  Tennes- 
see statute  over  those  of  the  mortgage  bondholders,  the  United 
States  Circuit  Court  of  Appeals  for  the  sixth  circuit  declared  these 
rules  :  Under  the  Tennessee  statute,  relating  to  raih-oad  contract- 
ors' hens,  the  contractor  must  deal  directly  with  the  company  in 

by  said  court  that  the  wages,  to  be 
within  the  protection  of  the  statute, 
must  be  due  to  a  person  in  the  employ 
of  the  corporation  at  the  time  when  it 
became  insolvent;  that  only  those  in 
the  employ  of  the  corporation  at  the 
time  of  its  insolvency  were  within 
either  the  words  or  policy  of  the  stat- 


ute. Delaware,  L.  &  W.  R.  Co.  v. 
Oxford  Iron  Co.,  33  N.  J.  Eq.  196." 

»Tod  V.  Kentucky  Union  Ry.  Co. 
(Rosser  et  al.,  Interveners),  (1892)  52 
Fed.  Rep.  241. 

« Industrial  &  Mining  Guaranty  Co. 
V.  Electrical  Supply  Co.,  (1893)58  Fed. 
Rep.  732. 


§564] 


PRIOKITIES  OF  LIENS  IN  FORECLOSURE  SUITS. 


1253 


order  to  secure  a  Hen  for  his  work  and  material.     If  a  sub-con- 
tractor, he  can  have  no  lien  unless  he  serves  notice  on  the  railroad 
company  of  the  principal  contractor's  failure  to  pay  him,  and 
unless,  at  the  time  of  such  notice,  the  company  shall  owe  money 
to  the  principal  on  the  contract  which  the  sub-contractor  has 
helped  to  perform,  and  the  lien  is  hmited  to  the  amount  so  due 
the  principal  contractor.     The  principal  contractor  for  the  con- 
struction of  this  road  was  a  dominant  stockholder  in  the  railroad 
corporation,  and  tho  sub-contractors  endeavored  to  fix  their  liens 
on  the  ground  that  the  principal  contractor  was  acting  in  this 
transaction  as  agent  of  the  corporation.     Upon  the  points  raised 
by  this  suggestion  the  Court  of  Appeals  declared  that  the  fact 
that  he  who  made  tliis  construction  contract  with  the  railroad 
company  was  its  principal  stockholder,  and  dominated  and  con- 
trolled its  action,  did  not  render  him  an  agent  of  the  railroad 
company,  so  as  to  make  his  individual  sub-contracts  in  law  the 
contracts  of  the  company,  where  neither  he  nor  the  company  held 
out  to  the  sub-contractors  the  existence  of  any  such  agency,  or,  as 
between  themselves,   had   any  intention    of    establishing    such 
agency.     Further,  while  construction  contracts,  made  by  a  domi- 
nating stockholder  with  a  railroad  company  for  his  own  benefit 
are  looked  upon  with  suspicion  and  have  the  condemnation  of  the 
courts  when  drawn  in  question  by  other  stockholders,  bondhold- 
ers, or  by  the  corporation  itself,  their  legal  existence  cannot  be 
questioned  by  third  persons  who  are  not  injured  by  them,  as  in 
this  case,  by  sub-contractors  who  dealt  with  the  contractor  in  his 
individual  character.^     The  dominant  stockholder  in  this  railroad 
corporation,  who  had  made  a  construction  contract  with  the  com- 
pany in  his  individual  character,  had  failed  to  pay  the  sub-con- 
tractors who  had  done  the  work  of  construction.     These  sub- 
contractors, afterwards,  in  order  to  give  them  and  materialmen 
a  lien  on  the  railroad  under  the  Tennessee  statute  in  relation  to 
such  liens,  through  their  representatives,  acting  with  the  principal 
contractor,  and  by  means  of  his  control  over  the  board  of  directors 
of  the  railroad  company,  obtained  an  acknowledgment  on  the 
minutes  of  the  railroad  company  of  an  amount  still  due  him, 
vastly  in  excess  of  what  was  really  due  him,  and  more  than  suf- 
ficient to  cover  all  the  claims  of  these  sub-contractors.     The  pi-in- 
cipal  contractor  sued  for  the  amount  mentioned  on  the  minutes 

» Central  Trust  Co.  of   New  York  v.  Bridges,  (1893)  57  Fed.  Rep.  758. 


4 


1254  PRIORITIES  OF  LIENS  IN  FORECLOSURE  SUITS.  [§  565 

of  the  railroad  company,  and  the  company's  attorney  consented 
to  a  judgment  for  that  amount.  As  to  tlie  priority  riglits  of  tliis 
judgment,  the  United  States  Circuit  Court  of  Appeals  for  the  sixth 
circuit  held  that  the  judgment  was  fraudulent  as  against  persons 
injured  thereby,  and,  as  an  evidence  of  its  rightfulness  as  a  claim 
was  of  no  force  when  the  claim  was  contested  by  holders  of  prior 
mortgage  bonds  of  the  company  in  a  foreclosure  suit  in  a  federal 
court.* 

§565.  Furnishers  of  supplies  — Virginia  statutes  on  this 
subject  construed—A  holder  of  the  bonds  of  a  railroad  com- 
pany,  a  Yirginia  corporation,  had  recovered  judgment  on  his 
bonds  against  the  railroad  company,  and  upon  his  execution  being 
returned  ''nulla  hona,^^  instituted  an  action  in   equity  in   the 
United  States  Circuit  Court  for  the  eastern  district  of  Virginia 
setting  forth  the  insolvency  of  the  company,  etc.,  and  for  the 
appointment  of  a  receiver,  to  which  the  trust  company,  trustee 
named  m  the  mortgage  securing  the  bonds,  was  admitted  as  a 
party,  and  a  sale  in  foreclosure  was  asked.     There  were  inter- 
jentions  in  this  suit  by  a  car  trust  company  and  others  who  had 
furnished  supplies  to  the  railroad  company,  and  out  of  these 
interventions  arose  questions  of  priority  of  liens  of  the  mort^a^e 
bondholders  and  the  furnishers  of  cars  and  supplies.    The  Code  of 
Virginia,  section  2462,  provides  that  a  conditional  sale  of  rolling 
stock  to  a  railroad  company  where  legal  title  is  reserved  to  the 
vendor  until   the  purchase  money  is  paid  shall  be  void  as  to 
creditors  and  honafide  purchasers  of  the  vendee  unless  the  con- 
tract ^  recorded  as  therein  required,  and  "  each  locomotive  and 
car    *     *     *     be  plainly    and  permanently   marked   with    the 
name  of  the  vendor  on  both  sides  thereof,  followed  by  the  new 
owner."     It  was  held  that  a  lien  for  the  purchase  money  of  roll- 
ing stock  reserved  by  contract  under  this  section  was  in  no  wise 
inconsistent  witli  the  existence  of  a  lien  under  the  Code  of  Vir- 
ginia, section  2485,  which  gives  to  all  who  furnish  supphes  neces- 
sary  to  the  operation  of  a  railway  "  a  prior  lien  on  the  franchise 
gross  earnings  and  all  the  real  and  personal  property "  of  the 
road  upon  condition  that  the  claim  be  recorded  as  required  by 
the  section  following  it.     The  cars  here  were  furnished  to  the 
railroad  company  under  a  contract  styled  a  "  lease,"  which  pro- 
» Ibid. 


§565] 


PRIORITIES  OF  LIENS  IN  FORECLOSURE  SUITS. 


1255 


* 


.vided  for  payment  of  the  purchase  money  in  monthly  installments 
with  the  right  in  the  vendor  on  default  to  take  possession  of  the 
cars  and  sell,  returning  any  surplus  after  payment  of  the  out- 
standing notes  to  the  vendee.     The  name  of  the  vendor  was  put 
upon  the  cars  as  *' owner,"  and  the  contract  was  recorded  as 
required  in  the  case  of  conditional  sales.     The  court  held  that  the 
cars  were   "furnished"  within   the   meaning    of  the  Yiro-inia 
statute  declaring  a  supply  lien  in  such  cases,  and  nothing  done  by 
the  vendor  amounted  to  a  waiver  of  such  lien.     As  to  the  bond- 
holders secured  by  the  mortgage  on  all  the  property  of  the  road 
before  the  cars  were  furnished,  the  sellers  of  the  cars  were  held  to 
be  entitled  to  a  prior  lien  on  the  property  of  the  railroad  com- 
pany whether  their  contracts  of  claims  of  liens  were  properly 
recorded  or  not,  as  the  mortgage  only  attached  to  the  cars  as 
after-acquired  property,  and  was,  therefore,  subject  to  all  existing 
equities   whether  there  was  notice  to   the   mortgagors   or  not. 
There  was  a  provision  in  the  statute  of  Yirginia  as  to  the  liens  of 
those  furnishing  supplies  to  railroad  companies  that  "  unless  [the- 
f urnisher]  shall  within  six  months  after  his  claun  has  fallen  due  " 
file  in  a  specified  office  a  prescribed  memorandum  of  his  claim  to 
be  recorded.     The  time  of  furnishing  the  supplies  was  held  to  b©^ 
immaterial  so  far  as  concerned  the  claim,  and  where  the  supplies 
were  to  be  paid  for  in  installments  the  claim  must  be  filed  and 
recorded  within  six  months  after  the  last  installment  falls  due. 
Before  some  of  these  cars  were  furnished  an  act  had  been  passed 
m  Virginia  giving  a  supply  Hen,  which  was  held  unconstitutional, 
as  its  title  did  not  cover  the  object  of  the  act.     Afterwards  the 
laws  of  the  state  were  codified,  including  that  act,  and  the  act 
adopting  the  Code  was  passed  before  these  cars  were  furnished, 
but  it  did  not  go  into  effect  until  a  time  later.     As  to  these  par- 
ticular cars  there  was  held  to  be  no  lien  prior  to  the  bondholders' 
lien,  there  being  no  valid  act  in  existence  creating  such  a  lien 
when  they  were  furnished.     It  was  also  held  that  a  creditor's  bill 
being  filed  against  the  railroad  company,  and  the  court  referring^ 
the  case  to  a  commissioner  to  determine  the  claims  and  their 
priorities,  the  effect  was  to  suspend  the  running  of  the  six  months 
within  which  the  claim  of  lien  was  required  to  be  filed  by  the 
Code  of  Virginia,  section  2486.^     Medical  services  rendered  and 

»  Newgass  «.  Atlantic  &  D.  Ry.  Co.    era),  (1893)  56  Fed.  Rep.  676.    On  this 
(Central  Car  Trust  Co.  et  aL,  Interven-   last  point  the  court  followed  Seventh 


1256 


PKIOBITIE8  OF  LIBN8  IN  FOBEOLOSUBE  SUITS. 


[§566 


board  furnished  by  a  hospital  to  au  employee  of  the  railroad 
company  injured  and  disabled  hi  its  service  were  held  not  to  be 
"  supplies  necessary  for  the  operation  of  a  railroad  "  withm  the 
statute  giving  a  lien  for  supplies.^ 

§  566.  Loans  of  money  to  corporations  before  receiver- 
ship.— The  mere  fact  that  money  loaned  to  a  railroad  company 
was  expended  in  payment  of  interest  on  its  first  mortgage  bonds,  or 
operating  expenses,  does  not  entitle  the  lender  to  preference  over 
the  first  mortgage  bonds  by  way  of  subrogation,  or  on  the  ground 
of  superior  equities.  Although  advances  may  have  enabled  a 
railroad  company  to  maintain  itself  as  a  going  concern,  that  fact 
alone  does  not  give  such  advances  priority  over  first  mortgage 
bonds  upon  the  theory  that  the  interest  of  the  public  and  of  the 
bondholders  were  subserved  by  such  advances.'     In  tliis  Virginia 

National  Bank  v.  Shenandoah  Iron  Co.,    them,  should  be  held  to  have  assented 
«5  Fed.  Rep.  436.  to  the  running  of  the  road  at  the  risk 

Newgass  v.  Atlantic  &  D.  Ry.  Co.  of  returning  the  mon.^y  thus  paid  if 
(Central  Car  Trust  Co.  et  al.,  Inter-  the  company,  by  reason  of  unrealized 
veners).  (1893)  56  Fed.  Rep.  676.  expectations  on  the  part  of  those  who 

'Morgan's    La.   &    Tex.   R.    R.  &   made  the  advances,  should  ultimately 
Steamship  Co.  v.  Texas  Central  Ry.    turn  out  to  be  insolvent  and  unable  to 
Co..  (1890)  137  U.  S.  171.     -From the   go  on.     By  the  payment  of  interest 
account   stated,"  said    Chief  Justice   the  interposition  of  the  bondholders 
FuiXEK,  speaking  for  the  court,  "it   was  averted.     They    could  not  take 
appears  that  the  gross  earnings  were   possession  of  the  property  and  should 
each  year  sufficient  to  pay  the  operat-    not  be  charged  with  the  responsibility 
mg  expenses  and  taxes,  and  that  the   of  its  operation.     It  is  true  that  a  rail- 
deficit  of  each  year  was  produced  by   road  company  is  a  corporation  operat- 
thc  payment  of  interest  on  the  bonded   ing  a  public  highway,  but  it  does  not 
debt.     But    if   the    advances    could,    follow  that  the  discharge  of  its  public 
therefore,  be  treated  as  having  been    [duties?]  excuses  it  from  amenability 
specifically  procured  for  or  specifically   for  its  private  obUgations     If  it  can- 
applied  to  the  payment  of  interest  as   not  keep  up  and  maintain  its  road  in 
such  (although  there  is  no  evidence  to   a  suitable  condition  and  perform  its 
that  effect),  still  such  payments  must   public  service  for  which  it  was  en- 
afford  no  basis  for  the  assertion  of  a   dowed    with  its  faculties  and   fran- 
preference  as  against  the  bondholders,    chises.  it  must  give  way  to  those  who 
So  far  as  disclosed,  the  interest  cou-   can.     Its  bonds  cannot  be  confiscated 
pons     were      paid,     not     purchased   because  it  lacks  self-sustaining  ability 
(Xetchum  V.  Duncan,  96  U.  S.  659;    To  allow  another  corporation,  which 
Wood  V.  Guarantee  Trust  Co..  128  U.    for  its  own  purposes,  has  kept  a  rail- 
S.  416),  and  cannot  be  set  up  as  out-   road  in  operation  in  the  hands  of  the 
standmg,  and  the  contention  is  wholly   original  company,  by  enabUng  it  to 
inadmissible  that  the  bondholders,  be-    prevent  those  who  would  otherwise  be 
cause   they  received  what  waa  due  entitled  to  take  it  from  doing  so  a 


/ 1 


§566] 


PRIOKITIES  OF  LIENS  IN  FORECLOSURE  SUITS. 


1257 


case  bankers  held  coupons  of  early  mortgage  bonds,  and  had  fur- 
nished the  railroad  company  money  which  was  used  to  pay  wages 
and  other  preferred  debts  and  received  its  promissory  notes. 
Bonds  were  afterwards  issued,  secured  on  the  income  of  the  rail- 
road company,  and  guaranteed  by  another  company,  to  fund  this 
indebtedness  which  was  outstanding.  These  bankers  took  at  sixty 
per  cent  the  amount  of  their  debt  in  these  income  bonds,  received 
prior  mortgage  bonds  as  collateral,  and  surrendered  the  coupons, 
which  were  canceled,  but  there  was  no  express  agreement  that 
their  original  claims  were  extingushed.  The  bankers  claimed 
that  they  were  entitled  to  a  preference  over  the  mortgage  bond- 
holders out  of  the  funds  to  be  distributed,  upon  the  ground  that 
as  to  the  coupons  there  was  a  mere  exchange  of  securities  with- 
out affecting  the  debt  of  which  the  coupons  were  the  evidence, 
and  that,  as  to  the  promissory  notes,  the  money  for  which  they 
were  given  was  used  in  the  payment  of  preferred  debts,  and, 
therefore,  they  were  entitled  to  be  subrogated  to  the  rights  and 
privileges  of  the  creditors  whose  debts  were  thus  paid.  Upon 
the  well-settled  principle  that  no  mere  change  in  the  form  of  the 
evidence  of  a  secured  debt  will  discharge  the  debt,  unless  so 
intended,  but  that  where  a  security  is  accepted  in  satisfaction  of 
another  the  debt  is  discharged,  and  this  would  in  general  be 
determined  by  the  surrender  or  retention  of  the  original  security, 
the  Supreme  Court  of  Appeals  of  Virginia  held  that  these 
bankers  were  not  subrogated  to  the  lien  of  their  original  debt, 
wliich  was  extinguished  by  the  receipt  of  the  promissory  notes.^ 


preference  in  reimbursement  over  the 
latter  on  the  ground  of  superiority  of 
equity  would  be  to  permit  the  specu- 
lative action  of  third  parties  to  defeat 
contract  obligations  and  to  concede  a 
power  over  the  property  of  others 
which  even  governmental  sovereignty 
cannot  exercise  without  limitation. 
And,  if  all  these  advances  should  be 
considered  as  applied  in  payment  of  the 
operating  expenses  only,  on  the  theorj", 
where  such  was  not  literally  the  fact, 
that  they  supplied  a  deficit  created  by 
the  payment  of  interest  out  of  the  gross 
earnings,  the  same  remarks  would 
be  applicable."  Where  loans  of  money 
to  carry  on  the  business  of  a  railroad 
158 


corporation  will  be  held  to  have  a 
priority  over  the  claims  of  the  mort- 
gage bondholders,  see  Farmers'  Loan 
&  Trust  Co.  V.  Vicksburg  &  Meridian 
R.  Co.,  33  Fed.  Rep.  778. 

^Fidelity  Insurance  Trust  &  Safe 
Deposit  Co.  V.  Shenandoah  Valley  R. 
R.  Co.,  (1889)  86  Va.  1.  As  to  the 
coupons  being  extinguished,  after 
referring  to  the  statement  made  by 
the  officers  of  the  company  when  they 
made  it  for  the  purpose  of  "listing" 
the  bonded  indebtedness  of  the  com- 
pany not  showing  any  claim  to  the 
contrary,  one  of  these  claimants  then 
being  the  president  of  the  company 
and  the  other   a  director,   the  court 


1268 


ill 


PRIORITIES  OF  LIENS  IN  FORECLOSURE  SUITS.  [§  567 

§  567.  Claims  for  services  rendered  the  corporation  prior 
to  the  appointment  of  a  receiver.- There  was  in  this  case  v:i 
order  appointing  the  receiver  which  authorized  him  to  payout  (-f 
income,  besides  current  expenses  and  charges,  all  wages  due  to 


said:    "Upon  the  strength  of  these 
representations,    sales   of   the   bonds 
were  no  doubt  effected   to  innocent 
purchasers,  and  it  would  now  be  the 
grossest  injustice  to  such  persons  to 
allow  the  claims  in  question  as  a  pre- 
ferred charge  on  the  mortgaged  prop- 
erty, and  thereby,  to  that  extent,  to 
impair  the  security  of  the  mortgages. 
Plainly  upon  no  just    principle  can 
this  be  done.     A  decisive   authority 
upon  this  point  is  Addison  v.  Lewis, 
75  Va.   701.     There  the   president  of 
the  railroad  company  intervened  and 
asserted  a  claim    for   several    years' 
salary  which  accrued  before  the  road 
went  into  the  hands  of  a  receiver,  but 
as  it  appeared  that  in  his  published 
annual    reports  as  president  fur  the 
years  in  question,  his  salary  for  those 
years  was  put  among  the  paid  items, 
it  was  held  that  any  right  which  he 
might  have  had  to  be  paid  in  pref- 
erence to  the   bondholders  had  been 
waived,  although  the  salary  in  point 
of  fact    had    not    been   paid.      This 
ruling,  it  seems  to  us,  is  eminently 
just  and  proper,   and  in  accordance 
with  public  policy,  inasmuch  as  the 
officers  of  a  railroad  company  are.  in  a 
general    sense,    trustees,    and    must, 
therefore,   act  in   the    strictest    good 
faith  in  putting  forth  statements  to  the 
public  as  to    the    condition    of   the 
affairs  of  the  company  upon  which 
innocent  third  persons,  in  their  deal- 
ings with  the  company,  have  a  right 
to   rely.      The    same    considerations 
apply  to  the  promissory  notes  in  ques- 
tion.    •    *    *    It  appears  moreover, 
that  when    the  notes  for   the    loans 
were  taken,  the  [claimants]  received 
general  mortgage  bonds  of  the  com- 
pany as  collateral  security  for  their 


payment,  which  goes  far  to  show,  if 
it  does  not    conclusively   show,    that 
the  idea  of  a  right  to  subrogation  is 
altogether  an  afterthought.     For  why 
take     general    or    second     mortgage 
bonds  as  collateral  if  the  understand- 
ing was  that  [claimants]  were  to  stand 
in  the  place  of  those  whose  equities 
were  superior  even  to  the  first  mort- 
gage ?    To  this  question  the  answer 
must  be,  that  the  mo^iey  was  loaned 
on  the  credit  of  the  company  and  the 
collaterals  so  furnished,  alone.     At  all 
events,  such  is  the  fair  inference  from 
the  record,  and  there  is  no  evidence 
to  repel  it.     In  Addison  v.  Lewis,    75 
Va.  701 ,  a  similar  claim  was  asserted 
on  the  part  of  a  bank  for  money  ad- 
vanced by  it  before  the  appointment 
of  a  receiver,  and  which  was  used  by 
the  railroad  company  in  paying  cur- 
rent expenses.     The  claim,  however, 
was  rejected.    The  court  said  :  '  The 
bank  discounted  the  paper  of  the  com- 
pany solely  upon  the  credit  of  the 
company   and    upon    collaterals   de- 
posited   by  the    company    with    the 
bank.     The  acceptance  of  these  col- 
laterals was  in  itself  a  recognition  of 
the  subordination  of  the  claim  of  the 
bank  to  the  lien  of  the  bondholders, 
and  is  sufficient  to  estop    the    bank 
from  setting  up  the  claim  preferred  in 
the  petition.*    The  case  of  Coe  v.  N. 
J.   Midland  Rwy.   Co.,   31  N.  J.  Eq. 
105,  and  Atkins  r.  Petersburg  R.  R, 
Co.,  3  Hughes,  307,  relied  on  by  the 
[claimants],  are  not  in  point,   as  in 
each  of  those  cases  the  advances  were 
made,  at  the  instance  of  the  debtor, 
on  a  distinct  understanding,   clearly 
established,  that  the  parties  by  whom 
they  were  made,  should  be  subrogated 
to  the  rights  of  the  creditors  whose 


§567] 


PRIORITIES  OF  LIENS  IN  FORECLOSURE  SUITS. 


1259 


employees  of  the  railroad  company  at  the  date  of  the  order  for 
services  within  ninety  days  theretofore.  It  was  held  by  the  United 
States  Circuit  Court  for  the  district  of  South  Carolina  that  a 
lawyer  employed  by  the  company  at  a  fixed  salary  per  month 
came  within  the  terms  of  this  order  and  gave  him  apriority  to  the 
bondholders  to  that  extent.  But  upon  his  claim  for  salary  for 
months  prior  to  the  ninety  days  and  for  money  advanced  by 
him  in  connection  with  rendering  his  services,  they  held  that  he 
was  not  entitled,  on  the  appointment  of  the  receiver  in  foreclosure 
proceedings,  to  receive  payment  out  of  the  proceeds  of  the  sale, 
prior  to  the  satisfaction  of  the  mortgage  bonds,  even  though  the 
earnings  of  the  road  had  been  improperly  diverted  from  cur- 
rent expenses  for  the  benefit  of  bondholders,  or  the  equity  to  a 
return  of  diverted  earnings  applied  only  in  favor  of  those  who 
have  helped  to  keep  the  road  a  going  concern.  He  was  allowed 
to  take  a  judgment  against  the  railroad  company  for  so  much  of 
his  claim  as  was  not  performed,  and  his  right  to  retain  papers  in  his 
hands  for  the  whole  claim  was  recognized.^  The  court  also  held 
that  legal  services  rendered  to  the  railroad  company  in  maintain- 
ing before  the  courts  the  validity  of  municipal  aid  bonds,  were 
not  of  a  character  to  take  precedence  of  the  company's  mortgage 
bonds,  within  the  doctrine  of  Fosdick  v.  Schall,  99  U.  S.  235, 
and  equity  had  no  authority  to  give  them  such  precedence,  especi- 
ally where  the  services  were  rendered  two  years  before  the 
appointment  of  the  receiver.  Nor  would  the  fact  that  such 
services  resulted  in  benefit  to  the  bondholders,  justify  displacing 
the  lien  of  the  bondholders  when  they  were  not  parties  to  the 
contract  of  employment.^  In  this  foreclosure  suit,  upon  the 
intervention  of  one  who  had  been  the  general  passenger  and 
freight  agent  of  a  navigation  company  which  had  a  business  con- 
nection with  the  railroad  company  involved  here,  the  United 
States  Circuit  Court  for  the  district  of  South  Carolina  held  that 
the  company  having  passed  into  the  hands  of  a  receiver,  the 
intervener  had  a  vaHd  claim  for  the  arrears  of  his  salary  as  gen- 
debts  were  paid  with  the  money  See  as  to  first  ruling.  Railroad  Co.  v. 
advanced."  See  3  Pom.  Eq.  §  1212,  Wilson,  138  U.  S.  505;  s.  c,  11  Sup. 
and  cases  in  the  notes.  Ct.  Rep.  405. 

*  Finance  Co.  of  Pennsylvania  v.  '  Finance  Co.  of  Pennsylvania  v, 
Charleston,  C.  &  C.  Ry.  Co.  (Moon,  In-  Charleston,  C.  &  C.  R.  Co.  (Shand  et 
tervener),   (1892)  52  Fed.    Rep.   526.   al..  Interveners),  (1892)  52  Fed.  Rep. 


\ 


M 


1260 


PSIOBITIES  OF  LISKS  IN  F0KECL08XJEE  SXIITS. 


[§  568 


eral  freight  and  passenger  agent,  but  had  no  equity,  as  he  claimed, 
to  be  paid  in  priority  to  the  mortgage  creditors.^ 

§  568.  When  cases  are  not  properly  removable  to  United 
States  court  from  state  court. —  Where  a  case  involving  rail- 
road bonds  had  been  removed  to  the  United  States  Circuit  Court 
by  order  of  a  state  court  upon  the  ground  of  "prejudice  or 
local  influence,"  Jackson,  Circuit  J.,  remanded  the  case  to  the 
state  court.  His  holdings  upon  the  questions  involved  were  that 
when,  in  a  suit  by  persons  owning  certain  "  equipment  bonds  "  of 
a  railroad  company,  the  United  States  Supreme  Court  decides 
that  such  bonds  constitute  no  lien  on  the  property,  and  subse- 
quently a  State  Supreme  Court,  in  a  suit  on  other  bonds  of  the 
same  issue,  reaches  an  opposite  conclusion,  this  latter  decision 
cannot  be  considered  as  showing  "  prejudice  or  local  influence," 
so  as  to  constitute  a  ground  for  removing  a  third  suit  in  a  subor- 
dinate court  of  the  state,  on  still  other  bonds  of  the  series,  to  the 
Federal  Circuit  Court.  As  to  the  interest  of  removing  defend- 
ants, it  was  held  that  in  a  suit  to  assert  the  lien  of  such  railroad 
equipment  bonds,  the  trustees  under  mortgages  to  secure  subse- 
quent issues  of  bonds  had  no  interest  in  the  controversy  as  parties 
defendant,  such  as  would  give  them  a  right  to  remove  the  cause 
to  a  federal  court,  where  their  mortgages  had  all  been  foreclosed 
and  the  property  sold  to  a  new  corporation.  Under  a  valid  decree 
of  a  court  of  competent  jurisdiction  as  to  citizenship  of  parties, 
it  was  held  that  where  in  a  suit  by  a  corporation  in  a  state  court 
against  several  railroad  companies,  their  trustees  and  mortgagees, 
on  certain  equipment  bonds,  the  lien  whereof  was  denied  by 
answer,  many  other  holders  of  the  same  series  of  bonds  were  per- 
mitted, with  plaintiffs  consent,  to  become  parties  defendant,  and 
by  cross-bills  to  set  up  the  lien  of  their  bonds ;  that  in  determin- 


678.  See  Hand  t>.  Railroad  Co.,  21 
8.  C.  162;  Bound  v.  Railway  Co.,  51 
Fed.  Rep.  60. 

*  Bound  V.  South  Carolina  Ry.  Co. 
(Quintard,  Intervener),  (1892)  50  Fed 
Rep  312.  The  district  judge,  Si- 
MONTON,  called  attention  to  the  fact 
that  the  doctrine  of  Fosdick  v.  Schall, 
99  U.  8.  286,  had  never  been  applied 
in  any  case  except  that  of  a  railroad, 


and  cited  Wood  v.  Guarantee  Trust 
&  Safe  Deposit  Co.,  128  U.  S.  421;  s. 
c,  9  Sup.  Ct.  Rep.  131,  involving 
water  works  bonds  and  coupons,  in 
which  the  point  was  pointed  out  by 
the  justice  delivering  the  opinion,  but 
the  court  did  not  find  it  necessary  to 
decide  it.  Simonton,  D.  J.,  held 
that  it  did  not  apply,  and  very  fully 
discusses  the  matter  of  the  distinction 


11 


§  568]  PEIORITIES  OF  LIENS  IN  FORECLOSURE  STJTTS.  1261 

ing  whether  the  citizenship  of  the  parties  was  such  as  to  warrant 
a  removal  to  the  Federal  Circuit  Court  on  the  ground  of  preju- 
dice  and  local  influence,  all  the  parties  asserting  the  lien  of  the 
bonds  should  be  considered  as  parties  plaintiff ;  and  that  when 
part  of  the  plaintiffs,  as  thus  arranged,  were  aUens,  and  others 
were  residents  of  the  same  state  with  some  of  the  remaining 
defendants,  the  federal  court  had  no  jurisdiction.* 


between  railroad  corporations 
other  private  corporations  in 
regard. 


and       »Adelbert  College  of  Western  Re- 

this  serve  University  v.  Toledo,  W.  &  W 

Bj.  Oa,  (1891)  47  Fed.  Rep.  836. 


~ 


f\ 


CHAPTER  XXXI. 

TAXATION  BY  PUBLIC  CORPORATIONS. 


§  569.    General  rules. 

570.  Exemption  from  taxes. 

571.  License  tax. 

672.  Assessment  of  taxes  for  bene- 
fits. 

573.  When  a  levy  of  taxes  by  a 
school  district  is  not  author- 
ized. 


§  574.    Irregularity   in   the   levy  of 
taxes. 

575.  When  an  assessment  cannot  be 

attacked. 

576.  Federal  taxation  of  incomes. 

577.  Injunction  of  a  collection  of 

taxes. 


§  569.  General  rules.- It  is  within  the  power  of  the  1p<W=1>. 
ture  to  authorize  a  city  to  i.npose  a  yearly  TxTpon  ci^po  £ 
domg  b  within  the  limits  of  the  city..    A  dtVw  K  pre 

eluded  fron,  levying  a  license  tax  on  an  express  colI„;  tS 
prov,s.on  in  a  statute  that  express  companies  shall  pay  a  privilege 

T!u      u        ^  P*^''"^  °*''"  **^  ^  the  state.'    In  determining 
whether  the  percentage  of  a  tax  levy  is  in  excess  of  the    Lrpre"^ 

Tted  as'^Jc^  dTt/^  *'^  ''''''  V-1^  'deposit  in  the  Jes  Z 

Ihe  makmg  of  a  subsequent  levy  of  taxes,  which,  together  with 

Lw  uZ°a    -r'  7'  '""^  "'^  ""•"  ">'  taxation  fmpoJby 
law  upon  a  city,  will  not  render  invalid  the  levy  originally  madT 

which  was  not  in  excess  of  the  li,„it.«    Though  a  mSn"c  pal  elec 
?or°s  ,     resulted  in  a  majority  of  votes  againft  the  iZT?  botdt 
for  school  purposes  mentioned  in  the  statute,  which  provided  for 

statutes  the  mayor  and  council  might  levy  an  annual  tax  for 
school  purposes.'  A  public  corporation  authorized  to  t^x  proft 
«.ons  trades,  mcomes  and  franchises,  has  been  held  not  tote 
bound  to  tax  them  uniformly  as  to  amount."  The  right  to^y 
taxes  IS  conferred  upon  a  town  by  a  provision  in  its  diartel.  Z 

» Harrisburg  City    v.   Pennsylvania       *  Bassett  «   Pit ^  ^f  is^i  i>        ,m 
Te^lephone  Co..  15  Pa.  Co.  Ct'  Rep.    SOS^Vp.^T        ^^^  ^"""^ 

(Ala.)  16  So.  Rep.  133.  •  Sfof^       xtr  ^^    ^.    ^ 

•Ba-ett  ..Z  of  E.  Pa«..  (Tex.   Kep'm'-  ^°'*'  <^-  ^"^  ''  ^-  ^ 
av.  App.)  28  &  W.  Bep.  554. 


"■"'■'--°'"° — -— in 


§  569] 


TAXATION  BY  PUBLIC  C0EP0RATI0N8. 


1263 


"  pass  such  rules  and  ordinances  as  may  be  necessary     *     *    * 
for  the  levying  of  taxes."  ^     The  statute  of  Missouri  in  regard  to 
the  levy  of  school  taxes  on  railroads  provides  for  tlie  furnisliing 
by  the  school  board  of  an  estimate  of  the  amount  of  funds  neces- 
sary to  sustain  the  schools  to  the  county  clerk,  "  stating  clearly  the 
amount  deemed  necessary  for  each  fund  and  the  rate  required  to 
raise  the  amount."    The  Supreme  Court  of  Missouri  has  held  that 
the  value  of  the  property  to  be  assessed  having  been  ascertained,  the 
failure  in  the  report  of  the  school  board  to  specify  the  amount  of 
each  fund  did  not  invalidate  the  tax,  if  the  rate  necessary  to  raise 
the  same  was  stated,  as  the  amounts  might  be  calculated  from  the 
data  given.2     School  directors  are  empowered  by  a  statute  of 
IlHnois  to  levy  taxes  not  exceeding  two  per  cent  for  educational 
purposes  and  three  per  cent  for  building  purposes.     A  tax  for 
educational   purposes   of    more   than    two   per   cent    has   been 
held  by  the  Supreme  Court  of  the  state  to  be  void  as  to  the 
excess,  even   though   the   taxes    levied   for   the    two    purposes 
did  not  exceed  five  per  cent.^     That  a  school  district  has  illegally 
levied  and  collected  taxes  on  .lands  in  another  school  district 
will  not  prevent  the  latter  from  levying  and  collecting  taxes 
on  the  same  lands.'*     The  trustees  of  a  school  district  having 
repaired  a  lawfully  condemned  school  house  out  of  their  own 
private  funds,  property  owners  cannot  avoid  a  tax  afterwards 
lawfully  imposed  to  pay  for  the  repairs.^     A  special  assessment 
on  the  property  of  a  school  district  to  raise  the  money  will  be 
authorized  by  a  vote  of  the  electors  of  the  district  to  appropriate 
moneys  for  school  purposes,  and  to  issue  bonds  for  raising  it.* 
Failure  to  prefix  to  their  tax  list  a  heading  "  showing  for  what 
purpose  the  different  items  of  a  tax  is  levied,"  required  by  the 
statute  of  JSTew  York,  by  the  trustees  of  a  school  district,  has  been 
held  not  to  vitiate  the  assessment  of  taxes  made  by  them,  the  pro- 
vision being  directory  only.''     The  object  of  a  meeting  of  the  voters 


>  State  «.  Hoff,  (Tex.  Civ.  App.)  29 
S.  W.  Rep.  672. 

2  St.  Louis  «fe  Santa  Fe  Ry.  Co.  v. 
Gmey,  (Mo.)  28  S.  W.  Rep.  736. 

'  Chicago  &  A.  R.  R.  Co.  v.  People, 
155  ni.  276;  s.  c,  40  N.  E.  Rep. 
602. 

*  Arthur  v.  School  District  of  Polk 
Borough,  164  Pa.  St.  410;  s.  c,  30 
Atl.  Rep.  299;  35  W.  N.  C.  289. 


^Louisville  &  Nashville  R.  R.  Co. 
V.  Trustees  School  District  No.  108 
(Ky.)  29  S.  W.  Rep.  340. 

•Chamberlain  v.   Board  of  Educa- 
tion of  Cranbury  Township  in  Middle- 
sex County,  (N.  J.)  31  Atl.  Rep.  1033 
See,  also.  State  v.  City  of  Omaha,  39 
Neb.  745. 

'  Thomson  v.  Harris,  34  N.  Y.  Supp. 
885. 


1264 


TAXATION  BY  PUBLIC  CORPORATIONS. 


[§570 


illi 


HI 


of  a  school  district  in  Oregon  was  stated  in  the  notice  for  the  meet- 
ing to  be  "  to  levy  a  tax  of  8^  mills  for  building  a  school  house, 
and  a  tax  of  IJ  mills  for  the  teachers'  fund."  A  motion  at  the 
meeting  that  "  we  proceed  to  vote  on  the  10-mill  tax  "  was  held 
by  tlie  Supreme  Court  of  Oregon  sufficient  to  indicate  that  the 
tax  referred  to  was  that  mentioned  in  the  notice.*  The  statutes 
of  Illinois  require  school  directors  to  certify  the  amount  of 
money  required  to  be  levied  by  special  tax.  A  certificate  of 
school  directors  that  "  we  require  the  amount  of  two  dollars  on 
each  one  hundred  dollars  to  be  levied  as  a  special  tax  for  that 
purpose,  and  one  dollar  on  each  one  hundred  dollars  for  buildmg 
purposes  on  the  taxable  property  of  our  district  for  the  year 
1894"  has  been  held,  though  irregular  in  form,  not  to  be  void.* 
A  school  district  having  power  to  levy  an  ad  valorem  tax  or  a 
poll  tax,  or  both,  should  the  trustees  levy  a  tax  on  the  property 
in  the  district  for  the  repair  of  a  condemned  school  house,  the 
tax  will  not  be  rendered  invalid  by  failure  to  levy  a  poll  tax.* 

§570.  Exemption  from  taxes.— Where  a  municipality  is 
authorized  to  tax  all  property  it  can  exempt  none,  as  delegated 
power  to  tax  does  not  imply  power  to  exempt  from  taxation.*    It 


>  Vaughn  «.  School  District  No.  81 
of  Tillamook  Coimty,  (Or.)  89  Pac. 
Rep.  393. 

•  Chicago  A  A.  R.  R.  Qo.  u.  People, 
156  m.  276;  8.  c,  40  N.  E.  Rep.  602. 

•Hunter  «.  Louisville  &  Nashville 
R.  R.  Co.,  (Ky.)  30  S.  W.  Rep.  645. 

*  Whiting  c.  Town  of  West  Point, 
(1892)  88  Va.  905,  awarding  a  writ  of 
mandamus  to  compel  the  municipal 
authorities  to  assess  the  property  of  a 
corporation  which,  by  ordinance,  had 
been  exempted  from  taxation.  The 
court  cited,  In  support;  of  the  t«ct, 
Cooley  on  Taxation,  200;  State  d. 
Hannibal  &  St.  J.  R.  Co.,  75  Mo.  209; 
Austin  V.  €Jas  Company,  69  Tex.  180; 
Wilson  'c.  Supervisors,  47  Cal.  91.  It 
was  then  said:  "These  authorities, 
which  are  only  a  few  of  the  many  that 
might  be  cited  to  the  same  effect,  show 
that  the  rule  requiring  all  municipal 
powers  to  be  construed  strictly,  ap- 
plies especially  to  a  case  like  the  pres- 


ent. And  the  reason,  as  already  sug- 
gested, is  this:  That  the  power  of 
taxation,  being  an  attribute  of  sov- 
erelgntv,  can  be  exercised  only  by  the 
sovereign.  Hence,  when  delegated  by 
the  legislature  to  a  municipal  corpora- 
tion, the  latter  is  considered,  as  pro  hoc 
vice  the  agent  of  the  state,  acting  for 
the  benefit  of  the  municipality.  In 
other  words,  the  municipality,  in  the 
eye  of  the  law,  is  the  hand  of  the 
state  by  which  the  tax  is  laid  and  col- 
lected. Therefore,  the  statutory  au- 
thority must  be  strictly  pursued;  for 
as  an  agency  to  sell  does  not  imply  an 
agency  to  buy,  so  neither  docs  a  dele- 
gated power  to  tax  imply  a  power  to 
exempt."  That  in  taxation  the  mimic- 
ipality  acts  for  the  state,  see  Gil- 
man  t>.  City  of  Sheboygan,  2  Black, 
510;  Langhorne  v.  Robinson,  20  Gratt. 
661:  City  of  Richmond  v.  Richmond  & 
D.  R.  R.  Co.,  21  Gratt.  604. 


§570] 


TAXATION  BY  PUBLIC  CORPORATIONS. 


1265 


was  attempted  in  this  case  to  restrain  a  city  of  Pennsylvania  from 
taxing  the  property  of  a  corporation  which  published,  bought  and 
sold  books  for  a  profit,  on  the  ground  that  it  was  a  purely  public 
charity.  The  Court  of  Common  Pleas  held  that  it  could  not  have 
total  exemption  from  taxation,  on  the  ground  that  it  sold  at  less 
than  cost,  or  evenly  gratuitously  distributed  some  books.^  The 
Supreme  Court  affirmed  this  decision,  holding  that  a  society 
organized  as  an  institution  of  purely  public  charity,  and  as  such 
exempted  from  taxation,  may,  as  an  aid  to  the  accomplishment  of 
its  primary  object,  carry  on  business,  or  use  part  of  its  property 
for  a  business  purpose,  which  will  render  such  business  or  such 
part  of  its  property  taxable.^  As  to  the  exemption  of  church 
property  from  municipal  corporation  tax  under  the  statutes  of 
Pennsylvania,  the  Supreme  Court  of  that  state  has  held  that 
under  no  circumstances  is  a  church  entitled  to  exemption  from 
taxes  on  its  property  for  more  than  the  portion  of  the  tax  year 
during  which  it  actually  holds  the  title  to  the  property ;  also,  that 
under  the  statute  of  May  14,  1874  (P.  L.  158),  where  church 
property  is  rented  out  and  produces  income  or  revenue,  it  is  sub- 
ject to  taxation,  although  for  a  part  of  the  time,  certain  days  or 
hours  of  the  week,  the  church  also  uses  the  rented  portion  for  its 
own  purposes.^  They  also  declared  the  further  rule  that  where  a 
part  of  a  building  may  be  used  solely  for  church  purposes,  and 
certain  rooms  in  the  building  be  rented  for  a  school,  the  building- 
may  be  divided  for  purposes  of  taxation,  and  the  portion  used 
solely  for  church  purposes  be  declared  exempt  from  taxation.* 
Under  the  Pennsylvania  statutes  a  library  building  is  subject  to 
municipal  taxation  upon  so  much  thereof  as  is  rented  and  pro- 
duces a  revenue,  although  it  might  be  otherwise  exempt.  Charg- 
ing a  price  for  the  use  of  its  books  when  they  are  taken  out  and 


*  American  Sunday  School  Union  v. 
Philadelphia,  (1894)  14  Pa.  Co.  Ct. 
Rep.  213. 

*  American  Sunday  School  Union  v. 
City  of  Philadelphia,  (1894)  161  Pa. 
St.  307.  In  Philadelphia  v.  Masonic 
Home  of  Penn.,  (1894)  160  Pa.  St.  572, 
it  was  held  that  a  home  limited  to  in- 
digent, afflicted  and  aged  Free  Masons, 
although  supported  by  voluntary  con- 
tributions, without  charge  to  the  bene- 

159 


ficiaries  and  with  no  profit  either  to 
the  corporation  or  its  officers,  was  not 
a  "purely  public  charity,"  exempt 
from  taxation  within  the  meaning 
of  the  Constitution  and  statutes  of 
Pennsylvania. 

3  Philadelphia  v.  Barber,  (1894)  160 
Pa.  St.  123;  Sewickley  Borough  v. 
Sholes,  118  Pa.  St.  165,  distinguished. 

<  Philadelphia  v.  Barber,  (1894)  160 
Pa.  St.  123. 


i 


1266 


TAXATION  BY  PUBLIC  CORPORATIONS. 


[§570 


I 


w 


I 


annual  dues  from  its  members  will  not  deprive  tlie  association  of 
its  exemption.^     Where,  by  the  opening  of  a  city  street,  a  part  of 
tie  land  used  for  a  charitable  institution,  and  not  taxed,  was 
cut  o£E  from  the  main  lot,  and  it  was  put  to  no  other  use,  it  has 
been  held  that  it  was  still  exempt  from  taxation  by  the  city .2    The 
case  stated  in  a  Pennsylvania  case,  and  agreed  upon  in  an  action 
by  a  county  to  secure  taxes  against  a  street  railway  company, 
declared  "  that  the  said  lot  and  stables  and  the  said  horses,  cars 
and  vehicles  are  used  only  in  and  about  the  business  of  carrying 
passengers  and  produce,  according  to  the  defendant's  corporate 
powers,  and  that  they  are  appurtenant,  necessary  and  indispen- 
sable therefor."     The  Supreme  Court  held  the  agreement  above 
stated  brought  the  case  within  the  principle  that  the  property  of 
canal  and  railroad  companies,  and  other  quasi  public  corporations, 
necessary  for  the  exercise  of  their  several  franchises  as  depots,' 
houses  and  water  stations,  is  not  taxable  for  local  purposes.     The 
reason  for  this  exemption  is  that  these  things  enter  into  the  very 
composition  of  the  works  of  these  corporations,  and  are  essential 
to  the  exercise  of  their  corporate  functions,  and  for  this  reason 
are  taxed  by  the  state  as  included  in  the  capital  of  corporations.^ 
This  court  in  another  case  declared  that  railroads,  canals  and  gas 
companies  must  have  the  right  of  eminent  domain  in  order  to 
perform  their  functions.     Their  property,  which  is  indispensable 
to  their  chartered  rights,  is  represented  by  their  capital  stock,  and 


^  Mercantile  Library  Company  v. 
Philadelphia,  (18»4)  14  Pa.  Co.  Ct. 
Rep.  204;  affirmed  in  Mercantile  Li- 
brary Co.  V.  City  of  Philadelphia  and 
Taylor,  Receiver  of  Taxes,  (1894)  161 
Pa.  St.  156,  upon  the  authority  of 
Philadelphia  v.  Barber,  (1894)  160  Pa. 
St.  123.  See  Donohugh  v.  Philadel- 
phia Library  Co.,  86  Pa.  St.  306; 
Young  Men's  Christian  Association  v. 
Donohugh,  7  W.  N.  C.  208. 

•Ladies'  United  Aid  Society,  etc. 
{Methodist  Home),  v.  Philadelphia, 
(1894)  14  Pa.  Co.  Ct.  Rep.  215.  The 
cases  upholding  assessments  upon  such 
property  for  improvements  were  dis- 
tinguished. Wilkinsburg  Borough 
V.  Home  for  Aged  Women,  131  Pa.  St. 
109;     Philadelphia  v.    Peonsylvania 


Hospital,  134  Pa.  St.  171,  and  143  Pa. 
St.  368.  The  court  said:  "This  is 
upon  the  ground  that  a  claim  of  that 
kind,  although  called  a  tax,  is  in  real- 
ity an  assessment  for  benefits  done  to 
the  property.  It  proceeds  upon  the 
theory  that  the  property  is  made  more 
valuable  by  the  improvement  of  the 
street  in  front  of  it.  It  is  charged  once 
for  all  time.'* 

*  Northampton  County  v.  Easton 
Passenger  Railway  Co.,  (1892)  148  Pa. 
St.  282;  citing  Westchester  Gas  Com- 
pany V.  County  of  Chester,  30  Pa.  St. 
232;  County  of  Erie  v.  Western  Trans- 
portation Ca,  87  Pa.  St.  434;  Coates- 
ville  Gas  Co.  v.  County  of  Chester,  97 
Pa.  St.  478. 


§571] 


TAXATION  BY  PUBLIC  CORPORATIONS. 


126T 


as  such  is  taxed  specially  by  the  legislature,  and  the  law  will  not 
subject  it  to  duplicate  taxation  by  mere  inference.* 

§  571.  License  tax. —  The  United  States  Supreme  Court  held 
that  an  ordinance  requiring  agents  soliciting  orders  on  behalf  of 
manufacturers  of  goods  to  take  out  a  license  and  pay  a  tax  there- 
for, made  by  a  municipal  corporation  under  authority  conferred 
by  a  statute  of  the  state  granting  to  such  corporations  power  to 
levy  and  collect  license  taxes  on  hawkers,  peddlers  and  merchants 
of  all  kinds,  was  an  exercise,  not  of  the  police  power,  but  of  the 
taxing  power,  and  when  it  was  enforced  against  an  agent  sent  by 
a  manufacturer  of  goods  in  another  state  to  solicit  orders  for  the 
products  of  his  manufactory,  it  imposed  a  tax  upon  interstate 
commerce,  in  violation  of  the  provisions  of  the  Constitution  of 
the  United  States.^  A  telegraph  company,  a  New  York  corpora- 
tion, which  had  accepted  the  provisions  of  the  act  of  congress,^ 
whereby  it  put  its  lines  at  the  service  of  the  United  States  for 
postal,  military  and  other  purposes,  and  gave  precedence  to  its 
business,  souglit  to  restrain  the  officers  of  the  city  of  Charleston, 
South  Carolina,  from  the  collection  of  a  license  of  $500,  imposed 
upon  it  by  an  ordinance  of  the  city,  made  under  power  conferred 
by  a  state  statute  in  the  United  States  Circuit  Court  for  that  dis- 
trict. On  appeal  to  the  United  States  Supreme  Court  the  latter 
court  held  that  the  imposition  of  the  license  fee  being  upon  busi- 
ness done  exclusively  within  the  city,  and  not  including  any 
business  done  to  or  from  points  without  the  state  and  not  including 
any  business  done  for  the  government  of  the  United  States,  its 


'  Schuylkill  County  v.  Citizens'  Gas 
Co,  (1892)  148  Pa.  St.  162,  holding 
that  the  gas  pipes  of  the  incorporated 
company  for  the  supply  of  natural  gas 
to  consumers  were  not  assessable  eo 
nomine  for  local  taxation  either  as  land 
or  as  a  part  of  the  company's  capital 
stock.  The  court,  however,  held  that 
a  house  upon  the  land  of  the  gas  com- 
pany occupied  by  a  tenant  was  not  a 
necessary  part  of  the  company's  works 
or  equipment,  and  was.  therefore,  tax- 
able. See,  also,  Allegheny  Co.  v.  Mc- 
Keesport  Diamond  Market,  123  Pa. 
St.  164. 

« Brennant).  Titusville,  (1894)  153  U. 


S.  289.  The  court  cited  and  com- 
mented upon  the  following  cases  in 
support  of  its  ruling:  Brown  v.  Mary- 
land, 12  Wheat.  419,  444;  Welton  v. 
Missouri,  91  U.  S.  275,  278;  Leloup  v. 
Mobile,  127  U.  S.  640.  645;  Bobbins 
V.  Shelby  Taxing  District,  120  U.  S. 
489;  Asher  v.  Texas,  128  U.  S.  129; 
Stoutenburgh  v.  Hennick,  129  U.  S. 
141;  Lyng  v.  Michigan,  135  U.  S.  161, 
166;  McCall  v.  California.  136  U.  S. 
104,  111;  Crutcher  v.  Kentucky,  141 
U.  S.  47,  61;  Ficklen  v.  Shelby  County, 
145  U.  S.  1. 

» Approved  July  24, 1866,  chap.  230; 
14  Stat.  221;  New  Be  v.  Stat.  §  5263. 


1268 


P 
it 

lili 


*f 


1 


TAXATION  BY  PUBLIC  CORPORATIONS. 


[§572 


officers  or  agents,  was  an  exercise  of  the  police  power,  and  was 
not  an  interference  with  interstate  commerce.^ 

§  572.  Assessment  of  taxes  for  benefits.—  It  is  within  the 
discretion  of  municipal  authorities  for  a  local  improvement  to 
require  the  special  benefits  accruing  from  such  improvement  to 
be  assessed  upon  the  property  specially  benefited,  or  to  impose 
the  same  by  way  of  special  taxation.  When  an  ordinance  is 
passed  authorizing  a  local  improvement,  it  has  the  effect  of  creat- 
ing a  taxing  district.  Such  a  taxing  district  comprises  all  the 
property  contiguous  to  the  improvement,  subject  to  special  taxa- 
tion for  making  the  improvement.  Special  assessments  and  spe- 
cial taxes  imposed  for  local  improvements,  unlike  general  taxes, 
are  based  upon  benefits  to  the  property  against  and  upon  which 
they  are  assessed  and  levied,  arising  from  its  increased  value  in 
consequence  of  the  improvement.  They  proceed  upon  the  basis 
of  benefits  to  the  particular  property,  and  are  authorized  only 
when  the  local  improvement,  either  actually  or  presumptively, 
benefits  the  particular  property  in  an  amount  equal  to  the  burden 
imposed.  The  levy  being  upon  the  basis  of  benefits  accruing  to 
the  specific  property,  it  becomes  a  charge  only  upon  and  against 
it,  and  liability  for  the  tax  is  confined  to  that  particular  property.' 
The  proceedings  in  the  matter  of  levying  assessments  for  a  public 
improvement,  it  was  contended  in  an  Illinois  case,  were  unwar- 
ranted, for  the  reason,  among  others,  that  the  supervisor  and 
assessor  of  the  town,  who  had  acted  for  the  town  in  the  matter, 
were  not  corporate  authorities,  within  the  meaning  of  the  Consti- 
tution of  the  state  authorizing  the  legislature  to  vest  the  corpo- 
rate authorities  of  cities,  towns  and  villages  with  power  to  make 
local  improvements  by  special  assessment.     The  Supreme  Court 


§572] 


TAXATION  BY  PUBLIC  CORPORATIONS. 


1269 


'Postal  Telegraph  Cable  Co.  v. 
Charleston,  (1894)  153  U.  S.  692.  Cases 
cited  by  the  court  as  to  taxation,  and 
whether  in  violation  or  not  of  the 
interstate  commerce  provisions  of  the 
Constitution:  Telegraph  Co.  v.  Texas, 
lOo  U.  S.  460;  Riitterman  v.  Western 
Union  Telegraph  Co.,  127  U.  S.  411; 
State  Freight  Tax.  15  Wall.  232; 
West.  Union  Tel.  Co.  v.  Alabama,  132 
U.  8.  472;  Pacific  Express  Co.  v.  Sei- 
bert,  142  U.  S.  339. 


» Lightner  v.  City  of  Peoria,  (1894) 
150  111.  80.  See  Davis  v.  Litchfield.  145 
111.  313;  Craw  r.  Village  of  Tolono,  96 
111.  256;  Bloomington  v.  Chicago  & 
Alton  R.  R.  Co.,  134  111.  452;  White 
V.  People,  94  111.  607;  Enos  v.  Spring- 
field, 113  111.  65;  McLean  County  v. 
City  of  Bloomington,  106  Dl.  209; 
English  t>.  City  of  Danville,  150  HI.  92; 
Dunham  v.  Village  of  Hyde  Park,  75 
HI.  371;  Fagan  v.  City  of  Chicago,  84 
lU.  231. 


held  that  the  supervisor  and  assessor  were  the  corporate  authori- 
ties of  a  town,  and  special  assessments  for  local  improvements 
made  by  them  were  made  by  the  corporate  authorities  of  the 
town   within   the  meaning  of  the  Constitution.^      A   statutory 
direction  that  an  assessment  for  benefits  shall  be  levied  upon  each 
separate  lot  or  parcel  of  land,  or  upon  the  several  lots  or  parcels 
of  land,  has  been  held  in  New  Jersey  not  to  authorize  the  assess- 
ors to  levy  distinct  assessments  upon  the  component  parts  of  a 
tract  of  land  which  the  owner  had  always  treated  as  an  entirety. 
And  it  appearing  that  the  commissioners  authorized  to  levy  an 
assessment  for  the  construction  of  a  sewer  upon  an  entire  tract  of 
land  on  which  were  buildings,  had  ignored  the  existence  of  the 
buildings  and  levied  distinct  assessments  upon  the  parts  of  the 
tract,  dividing  it  by  lines  which  intersected  the  buildings,  the 
court  held  the  assessment  illegal,  as  it  could  not  infer  that  the 
benefit  accruing  to  the  entire  tract  was  the  aggregate  of  these 
distinct  assessments.^     The  principle  of  frontage  assessment  is  not 
necessarily  wrong.     If  that  mode  properly  distributes  the  benefits 
among  the  owners  of  property  benefited,  there  can  be  no  objec- 
tion to  its  use.'    And   where  an   ordinance   provides  for    an 
improvement  complete  in  itself,  it  will  not  follow  that  the  ordi- 
nance is  to  be  deemed  void,  because  the  utility  of  the  improve- 
ment might  be   enhanced  by  the  addition  of  something  more 
which  has  been  omitted.*     It  is  no  vaHd  objection  to  a  special 
tax  for  grading  or  paving  a  street,  that  the  city  or  village  is  not 
required  to  pay  the  cost  of  improving  the  street  intersections.'' 
This  court  has  also  held  that  municipal  authorities  in  cities  and 
villages  organized  under  the  general  law  of  Illinois  for  the  incor- 
poration of  such  municipalities  have  no  power  to  provide  that  the 
cost  of  sprinkling  its  streets  shall  be  paid  by  special  assessment ; 
the  sprinkling  of  streets  not  being  a  local  improvement,  within 
the  meaning  of  the  statute  authorizing  cities  and  villages  to  make 


»  Jones  V.  Town  of  Lake  View,  (1894) 
151  111.  663;  citing  Hundley  d.  Lincoln 
Park  Commissioners,  67  111.  559;  People 
V.  Qage,  83  111.  486;  People  v.  Salomon, 
61  111.  37;  People  v.  Mayor,  51  111.  18. 

«The  State,  MuUer,  Prosecutor,  v. 
Mayor  &  Council  of  City  of  Bayonne, 
(1892)  55  N.  J.  L.  102. 

'The  State,  Raymond,  Prosecutor, 
«.  Mayor  &  Council  of  Borough  of  Ruth- 


erford, (1892)  55  N.  J.  L.  441;  Jersey 
City  V.  Howeth,  30  N.  J.  L.  521; 
State,  Pudney,  Prosecutor,  v.  Passaic, 
37  N.  J.  L.  65. 

*Vane  v.  City  of  Evanston,  (1894) 
150  111.  616. 

5  Holt  D.  City  of  East  St.  Louis, 
(1894)  150  111.  530;  upon  the  authority 
of  Walters  v.  Town  of  Lake,  129 
ni.  23. 


1270 


TAXATION  BY  PUBLIC  CORPOBATION8. 


[§572 


I 


W  tr^  T      ^^  '^'^"^  assessment.     Thej  further  held 

^at  the  power  of  a  cty  or  village  to  provide  for  the  sprinkling 
of  streets  by  special  assessment  was  not  expresslv  given,  nor  did 
It  anse,  by  implication,  from  the  powers  exUsIj tnf  rred  n^ 
was  It  essential  to  the  declared  objects  and  purposes  of  the  corpo 
ration      And  an  attempt  b,^  the  municipal  authorities  to  dec k^ 

yr^rrTi'u^'^^^  i^p,,,ement,  within  the  mean  ng 
of  the  statute  would  be  ultra  vires.     While  tlie  power  of  a  citf 
council  to  declare  what  shall  be  local  improvements  is  necessarily 
implied  from  the  power  to  make  the  same,  this  implication  can 
exist  only  m  respect  of  improvements  which  cities  and  villa"^ 
are  authorized  to  make  by  special  assessment  or  special  taxatW 
Assessments  by  commissioners  for  benefits  and  street  improve- 
ments, where  they  have  been  on  the  ground  and  examined  the 
premises  and  made  their  report  of  estimates  according  to  the 
pnnciples  prescnbed  in  the  charter  of  a  municipality,  will  not  be 
set  aside  upon  conflicting  evidence  of  the  justice  or  sufficiency  of 
such  assessments.^    But  when  the  proceedings  of  a  board  of  com- 
missioners  of  assessment  are  irregular  and  not  in  conformity  to 
the  municipal  charter,  the  landowner  may  have  them  reviewed 
by  cerhorar,  notwithstanding  the  fact  that  the  charter  gives  the 
landowner,  who  presents  to  the  board  of  public  works  written 

W  iT'i?         T"t  "^'^'  *"  *^^"^'  "  ''^^''  '^  bring  suit  and 
have  a  trial  by  jury.3    But  a  city  cannot,  by  accepting  and  adopt- 

mg  an  improvement  of  a  street,  compel  property  owners  to  pay 
for  It  by  special  assessment  or  special  taxation.* 

m  mo  ""^  ™'''^''  '■  ^^''''  ^'"^'^  ^'^   ^"°'^°'  ^'^  "^-  ^^2'  ^^'^^  -»^i°g  [eer- 
»  tkJ  q.  *      q.  «  ^^°  sections  of  the  law  authorizinjr 

•  The  State.  Simmons,   Prosecutor,    local  improvements!  we  said-  Trom 

L    If  "^'f ''  ^''''^  ''  ^-  '■  ^-  ^^- sections  of  the  srut't  is  apr 

485;   S^te^  Puduey.  r.  Passaic.  37  N.  ent  that  when  a  city  under  Ito  to 

J.  L.  65;  Hunt  ..  Rahway.  39  N.  J.  L.  make  a  public  improveZnt  the  cost 

646;  Hunt  ..  Rahway.  40  N.  J.  L.  615;  of  which  they  expect  to  r^se  t  M 

JelHff^/ N    "t   'J^'  /•   '-'  '''-'  ----tor  special  taxatron.S 

H—nfp       •  Zl  r'^-    ''''^  ^'^P^^  ^^'^^^-^«  the  passage  of  an 

State.  Walls    Prosecutor.  ..  Mayor   foundation  of  the  proceeding,  and  un- 

N  f  rTi°  R    .7  ''7'  ^''''^  ""   ''''  ''''  ^^'"-^^  ^«  P--d  there  is 
N.X^L.511;  State  r.  Caasidy.  38  N.  J.    nothing  upon  which  the   proceeding 

'4  cMtv  nf  Fact  Qf  T      •  a  ,u      .       ca^rest.     Scction  1  coufers  powcr  to 

^894  ^.n  m    .n;      r  '•   '^^'''^^'    "^"^^  ^"^^  improvements  by  special 

ZV^  n     r    ;  1     ''  r"^  ^^'^   '^"^^^"^"^  ^^  «P-^«^  taxation,  as  the 
In  City  of    Carlyle    v.   County    of   city  authorities  shall  by  ordinance  pre- 


§§  573,  574]  TAXATION  BY  PUBLIC  CORPORATIONS.  1271 

§  573'  When  a  levy  of  taxes  by  a  school  district  is  not 
authorized. —  In  a  case  where  the  board  of  education  of  a  school 
district,  consisting  of  a  president  and  six  members,  met  and  passed 
an  order  that  $10,000  be  raised  by  special  taxation  for  the  cur- 
rent year,  which  was  signed  by  three  persons  designated  as  direct- 
ors of  schools,  but  who  in  fact  were  members  of  the  board  of 
education,  the  Illinois  Supreme  Court  held  that  the  certificate 
did  not  authorize  the  levy  cf  any  tax,  and  that  the  proceedings 
to  levy,  extend  and  collect  such  tax  were  null  and  void.* 

§  574.  Irregularity  in  the  levy  of  taxes. —  The  same  court 
in  a  taxpayers'  suit  for  injunction  of  the  treasurer  of  a  county 
against  collection  of  certain  taxes  held  that  mere  irregularities  in 
the  levying  of  taxes  or  the  making  of  assessments  would  not 
avoid  their  collection ;  and  where  any  part  of  a  tax  or  an  assess- 
ment is  due,  that  part  must  be  paid,  or  at  least  an  offer  be  made 
to  pay  it,  before  suit  would  lie  to  enjoin  the  collection  of  what 
might  be  alleged  to  be  illegal.  In  this  particular  they  held  that 
an  injunction  would  not  lie  on  account  of  the  fact  that  provision 
was  made  for  collecting  a  part  of  the  assessment  for  the  con- 
struction of  a  free  gravel  road  before  it  was  actually  needed  for 
the  payment  of  bonds  or  interest  to  become  due.^ 

the  school  law  is  the  only  basis  for  the 
imposition  of  special  taxes  for  school 
purposes,  and  said  :  *  In  a  sense  such 
certificates  are  jurisdictional,  and  any 
tax  extended  for  school  purposes 
where  no  such  certificate  has  been 
returned  by  the  directors,  as  required 
by  the  statute,  is  without  authority  of 
law,  and  null  and  void.'  See,  also, 
Leach  man  v.  Dougherty,  81  111.  324  ; 
Peoria.  Decatur  &  EvansviUe  Railway 
Co.  V.  Commissioners,  116  111.  233; 
Ohio  &  Mississippi  Railway  Co.  v. 
Commissioners,  117  111.  280;  Lawrence 
V.  Traner,  136  111.  474." 

^Florer,  Treasurer,  v.  McAffee, 
(1893)  135  Ind.  540;  citing  City  of 
Delphi  V.  Bowen,  61  Ind.  29;  Fores- 
man  r.  Chase.  68  Ind.  500;  Mullikin 
V.  Reeves,  Treasurer,  71  Ind.  281; 
Stilz  r.  City  of  Indianapolis,  81  Ind. 
582;  Volger  0.  Sidener,  86  Ind.  545; 
Miles,   Treasurer,   v.    Ray,   100    Ind. 


scribe.  This  language  does  not  con- 
template that  the  city  council  shall  go 
on  and  make  the  improvement,  and, 
after  it  is  completed,  levy  and  collect 
a  special  assessment  or  tax  for  such 
improvement.  «  *  *  These  sec- 
tions of  the  statute  are  plain,  and  all 
point  in  one  direction,  that  the  first 
step  to  be  taken  when  a  local  improve- 
ment is  to  be  made,  and  to  be  paid  for 
by  special  assessment  or  special  taxa- 
tion, is  the  passage  of  an  ordinance  by 
the  city  council.  Until  an  ordinance 
is  passed  as  required  by  the  statute,  no 
work  can  be  done  or  expense  incurred 
which  can  become  a  charge  on  the 
property  of  the  landowner.'  " 

'People  ex  rel.Woody, Collector,  r. 
Smith,  (1894)  149  111.  549.  The  court 
said  :  "  We  held  in  Weber  v.  Ohio  & 
Mississippi  Railway  Co.,  108  111.  451, 
that  the  certificate  which  the  school 
directors  are  empowered  to  make  by 


)ii 


1272 


TAXATION  BY  PITBLIC  CORPORATIONS. 


[§5T5 


8575   When  an  assessment  cannot  be  attacked.— The 

action  of  a  county  board  of  equalization  in  Indiana  has  been  held 
not  subject  to  collateral  attack  by  injunction  or  otherwise,  unless 
tlie  assessment  be  void,  and  not  merely  erroneous,  and  the 
Supreme  Court  reversed  the  court  below,  which  had  granted  an 
injunction  to  the  corporation  complaining,  restraining  the  coUeo- 
tion  of  the  taxes  assessed  against  it.' 

166-  Bothwell  V.  MiUikan,  104  Ind.  argued  or  decided,  while  that  question 
162  The  court,  iu  Florer,  Treasurer,  in  this  case  is  squarely  made  "l  he 
,  McAflee,.«pr«.  said:  "The  dupli-  board  of  eq.mli«ition  not  only  )«s  the 
Le  being  ^ut  into  the  hands  of  the  power  to  assess  the  capital  stock  of  a 
U^o^lr^nd  being  legal  on  its  face,   corporation  where  the  value  of  such 

rs"ffldent  to  jLtify  the  treasurer  ''-'' «-<=f,t.™!";  ,"'*'' 7/;^*' 

in  collecting  the  assessments,  unless  it  property,  but  it  is  its  duty  to  do  so. 

Zt^TtL  some  essential  require-  Kev.  ^t-S  6^«;Hyland,  Auditor,^, 

ment  of  the  law  was  not  observed  in  Central  Iron  &  Steel  Co..  129  Ind.  68. 

Hs;lepa;ation  or  in  the  proceedings  The  board,  in  such  cases,  has  exdu. 

upon  which  its  preparation  was  based,  sive,  original  junsihction    and    while 

T^llfa^e  the  duplicate  is  suiBcient  its  action  is  not  strictly  judicial,  it  is 

fuhTritrfor  the   collection   of   the  at  least  »»«« judicial  and  binds  every 

a^ments      Noland    ..   Busby,  28  one  within  its  jurisdiction.    WUkins 

M.T^     Rutherford    ..    Davis.  95   -  8««'^.  "«  I"^:^!  '  "^rtf  tTue 
Tna    215-  Adams  t    Davis.   109  Ind.    tion,  Treas.,  11-    Ind.  1.     it  is  true 
0  •  ^'suptn  of  the  se;ondr.ling   that  such  board  cannot  legaUy  asse. 
it  was  said    -Those  having  charge  of   capital  stock  where  the  oipita   i     n- 
the  coSon  of  funds  to  meet  the   vested  in  tangible  property  hsted  for 
ol  igatntof  the  county  are  required   taxation  unless  such  ^to^k  e^^^^^^^^^^ 
to  use  diligence  and  they  must  also   value  the  property  in  which    t  is  in- 
to use  aiJigence,  a  J  „^ ,  •  ,^-     vested-  but  who  shall  determine  the 
be  allowed  the  exercise  of  good  ]udg-   vesica,  out  ofnok  is  of 
ment  in  providing  in  time  for  the  pay-    question  as  to  whether  the  «  o^™ 
meniinpro         &                              ^           ^^^j  ^j^ue  than  the  tangible  prop- 
ment  of  such  obh^tions  so  that  tnc   g                                  equaUzation.  we 
credit  of  the  county  may  not  be  ira-   ertyr     lue  uuai^         ^ 
Sr^     Kckets  ..  Spraker.  77  Ind,   think,  must  decide  that  q»««t'<>°-    « 
pairea.    kii«.              y                           .^  ^^j^^^  ^   mistake   and   reaches  a 

'^f  Tones  Treasurer  v  Bushville  Nat-  wrong  conclusion,  can  it  be  ^id  that 
ura?CclT8^i3oInd,595,  The  its  assessment  is  void?  We  think  not. 
L^rt^id  '  This  case  is.  we  think.  We  think  it  is  binding  on  the  corpom- 
easify  dUtinguished  from  the  case  of  tion  assessed  until  set  aside  or  vacated 
H%,  ludltor,  ..  Brazil  Block  Coal  by  appeals  or  some  other  authon^ed 
rl,  128  Ind  335  In  that  case  it  was  direct  proceeding,  •  *  *  We  th^nt 
^conc^d^  facTthat  the  capital  stock  it  is  settled,  by  abundant  authonty 
ira«  invested  in  tangible  property,  that  the  action  of  the  board  of  equali- 
wWch  had  been  returned  for  taxation,    zation.  in  a  matter  over  which  it  has 

ILdthaut  capita,  stock  did  not  ex-  i^^f'^'-^^'^  g:Z7Tt^ 

ceed  in  value  the  tangible  property,  in  such  matter.      See  Boa"!  j,  senn. 

^1  oueluo"    however  as  to  whether  117  Ind,  410-,  Cooley  on  Taxation,  7«^ 

ine  quesuuu,  ixu*^^.      ,  Cm«ii   Hec    r  City  of  Lawrence- 

the  action  of  the  board  of  equahzation  *48,  f  «^*"'  ^^f  •'^-  "^"^ 

could  be  attacked  collaterally  was  not  burgh.  128  Ind.  2dl. 


§576] 


TAXATION  BY  PUBLIC  CORPORATIONS. 


1273 


tfi 


8576.  Federal  taxation  of  incomes.- The  United  States 
Supreme  Court,  when  the  question  of  the  constitutionahty  of  the 
income  tax  imposed  by  the  government   upon  the  income  of 
corporations  and  citizens,  upon  a  bill  filed  by  a  stockholder  of  a 
tru^t  company  to  prevent  its  voluntarily  making  returns  for  the 
un,>osition  and  payment  of  such  tax,  upheld  the  jurisdiction  of 
a  court  of  equity  to  grant  the  relief  asked.'     Upon  the  merits  of 
the  ca^e  made  by  this  stockholder's  bil   to  restrain  a  voluntajy 
return  by  the  corporation  required  by  the  Income  Tax  Act,  the 
r^ajo™  ty^of  the  Supreme  Court  of  the  United  States  held  that 
the  income  tax  imposed  by  congress,  so  far  a«  it  proposed  to  levy 
a  tax  on  the  rents  or  income  of  real  estate,  was  a  direct  tax  withm 
the  meaning  of  the  Constitution,  and  not  being  apportioned  as 
required  by  that  instrument  was  repugnant  to  the  Constitution 
and  invalid.'     Upon  the  merits  of  the  case  made  by  this  stock- 
holder's bill,  the  United  States  Supreme  Court,  Haelan  and 
White,  JJ.,  dissenting,  held  that  the  income   tax   imposed  by 
congress,  so  far  as  it  levied  a  tax  on  the  rents  or  income  of  real 
estate,  was  in  violation  of  the  Constitution  o   the  Umted  States, 
and  invalid.'    The  Income  Tax   Act  provided    "that  nothing 

.  Pollock  V.  Farmers'  Loan  &  Trust  of  the  proceedings  ;  and    so  far  as  it 
eompa^     (1895)    157    U,    S,     429.   was  within  the  power  of  the  govern- 
Fu.  LER  Ch  J    rendering  the  opinion  ment  to  do  so,  the  question  of  juns- 
for  the  court  sa'id  :  "  The  jurisdiction   diction,  for  the  purpose  of  the  case, 
of  a  court  of  equity  to  prevent  any   was  explicitly  waived  on  the  agree- 
teatTn^  breach  of  trust  in  the  mis-   ment.      The    relief    sought  was   m 
aoDlication  or  diversion  of  the  funds   respect  of  voluntary   action   by   the 
of  a  corporation  by  illegal  payments  defendant  company,  and  not  mr^pect 
out    of    its     capital    or    profits    has   of  the  assessment  and  collection  them- 
been  frequently  sustained.    Dodge .,    selves.     Under   these  circumstances, 
Woolsev    18    How.    331;    Hawes    t.    we  should  not  be  justified  m  declining 
Oakland      104    U     8    450,     As   in  to  proceed   to   judgment    upon   the 
Dodee  i   Woolsey,  this  bill  proceeds  merits,    Pelton  v.  National  Bank,  101 
on  the  ground   that   the  defendants  U,  S,  143, 148 ;  Cummings  ^^Nat.onal 
would  be  guilty  of  such  breach  of  Bank,  101  U,  S,  1.53,  157;  Reynes  v. 
trust  or  duty  iu  voluntarily  making   Dumont,  180  U.  S,  354," 
r™  for  the  imposition  of.  and  pay-       '  Pollock  .,  Farmers'  Loan  &  Trust 
[ng     an    unconstitutional    tax;    and.    Co..  (1895)  157  U.  S.  429 
Jo     on    allegations    of    threatened       =  Pollock  ^,  Farmers  I^n&  Trust 
mul'.iplLy  of  suits   and  irreparable   Co.,  (189.5)  157  U.  S,  429,    The  case 
iniurv      The    objection  of   adequate   mainly    relied    upon    to  uphold    the 
remedy  at  law  was  not  mised  below,    constitutionality  of  the  Income  Tax 
nor  is  now  raised  by  appellees,  if  it   Act  was  Hylton  ..  Lmted  States^  3 
could  be  entertained  at  all  at  this  stage  Dall,  171,    Fuller,  Ch,  J,,  reviewed 

160 


.> 


1274 


TAXATION  BT  PCBLIC  COKPOBATIONS. 


[§576 


herein  conteined  shall  apply  to  states,  coui.ties  or  nuuiicipalities  » 
IWas  contended  before  the  United  States  Snpren.o  Z  To    the 
par   of  he  govenunent  that  although  the  pri, port v  or  revenue! 
o     he  states  or  the.r  instrumentalities  could  no    be  taxed  Zr 
theless  the   n^come  derived  from  state,  county  and  nn,,;;::;:! 


the  various  other  cases  to  which  the 
court's  attention  was    called   in  these 
words:  "In  Pacific  Insurance  Co  v 
Soule,   7  Wall.  433,   the  validity  of  a 
lax  which  was  described  as  '  upon  the 
business  of  an  insurance  company '  was 
sustained  on  the  ground  that  it  was 
'a  duty  or  excise,'  and  came  within 
the    decision  in  Hylton's  case.      The 
arguments  for  the  insurance  company 
were  elaborate  and  took  a  wide  range, 
but    the    decision    rested    on  narrow 
ground,  and  turned  on  the  distinction 
between  an   excise    duty    and  a  tax 
strictly    so    termed,    regarding     the 
former  a  charge  for  a  privilege,  or  on 
the  transaction  of  business,   without 
any  necessary  reference  to  the  amount 
of  property    belonging  to    those    on 
whom  the  charge  might  fall,  although 
It  might  be  increased  or  diminished  by 
the  extent  to  which  the  privilege  was 
exercised  or  the  business  done.     This 
was  in  accordance   with   Society   for 
Savings  V.  Coite.  6  Wall.  594  ;   Provi- 
dent   Institution  v.  Massachusetts.   G 
Wall.  611,  and  Hamilton  Company  r 
Massachusetts,  6  Wall.  632.  in  which 
cases  there  was  a  difference  of  opinion 
on  the  question  whether  the  tax  under 
consideration  was  a  tax  on  the  prop- 
erty and   not   upon   the   franchise  or 
privilege.     And  see  Van  Allen  v  The 
Assessors.  3  Wall.  573;    Home  Insur- 
ance Co.  V.  New  York,  134  U.  8.  594; 
Pullman    Company    v.  Pennsylvania' 
141    U.   S.  18.     In  Vejizie    Bank   r 
Fenno,  8  Wall.  533,  544,  546,  a  tax 
was  laid  on    the  circulation  of  state 
banks,  or  national  banks  paying  out 
the  notes  of  individuals  or  state  banks 
and  it  was  held  that  it  might  well  be 
classed  under  the  head  of  duties  and 


as  falling  within  the  same  citegory  as 
Soule's  Case,  7  Wall.  433.     It  was  de- 
clared to  be  of    the  same  nature  as 
excise  taxation    on    freight    receipts, 
bdls  of  lading  and   passenger  tickets 
issued  by  a  railroad  company.     And 
referring  to  the  discussion  in  the  con- 
vention which    framed  the  Constitu- 
tion.     Mr.      Chief      Justice     Ch^se 
observed   that   what   was    said    there 
'doubtless   shows    uncertainty  as  to 
the  true  meaning  of  the  term  direct 
tax  ;   but  it  indicates  also  an  under- 
standing that  direct  taxes  were  such 
as  may  be  levied  by  capitation,  and  on 
lands  and  appurtenances  ;  or  perhaps 
by  valuation  and  assignment  of  per- 
sonal   property   upon     general    lists. 
For   these    were    the   subjects   from 
which  the  states  at  that  time  usually 
raised  their  principal  supplies.'    And 
in  respect  of  the  opinions  in  Hylton's 
case,  the  chief  justice  said:  'It  may 
furt;her  be  taken  as  established  upon 
the  testimony  of  Paterson,   that  t'  e 
words  direct  taxes,   as  used    in    the 
Constitution,      comprehended       only 
capitation  taxes   and   taxes  on  land, 
and  perhaps  taxes  on  personal  prop- 
erty by  general  valuation  and  assess- 
ment   of    the     various     descriptions 
possessed   within  the  several    states ' 
In  National  Bank  v.  United  States.  101 
U.  8. 1,  involving  the  constitutionality 
of  section  3413  of  the  Revised  Statutes, 
enacting  that  'every  national  bankl 
ing  association,  state  bank,  or  banker 
or  association,  shall  pay  a  tax  of  ten 
per  centum  on  the  amount  of  notes  of 
any  town,  city  or  municipal  corpora- 
tion,   paid    out    by    them,'     Veazie 
Bank  V.   Fenno  was  cited  with   ap- 
proval to  the  point  that  congress,  hav- 


§576] 


TAXATION  BY  PUBLIC  C0RP0EATI0N8. 


1275 


securities  could  be  taxed.  The  majority  of  the  court  held  that 
in  60  far  as  the  Income  Tax  Act  proposed  to  levy  a  tax  upon  the 
interest  received  by  the  holders  of  municipal  bonds,  as  income, 
the  act  was  repugnant  also  to  the  Constitution,  and  such  tax 


ing  undertaken  to  provide  a  currency 
for    the   wholj    country,    might,    to 
secure  the  benefit  of  it  to  the  people, 
restrain,  by  suitable  enactments,  the 
circulation  as  money  of  any  notes  not 
Issued  under  its  authority ;    and  Mr. 
Chief  Justice  Waite,  speaking  for  the 
court,  said  :  '  The  tax  thus  laid  is  not 
on  the  obligation,  but  on  its  use  in  a 
particular  way.'    Scholey  v.  Rew,  23 
Wall.  331,  was  a  case  of  a  succession 
tax  which  the  court  held  to  be  plainly 
an    excise    tax    or   duty,    upon    the 
devolution  of  the  estate  or  the  right 
to  become  beneficially  entitled  to  the 
same,  or  the  income  thereof,  in  posses- 
sion or  expectancy.'    It  was  like  the 
succession  tax  of  a  state   held  con- 
stitutional in  Mager  v.  Grima,  8  How. 
490;  and  the  distinction  between  the 
power  of  a  state  and  the  power  of  the 
United    States    to  regulate  the    suc- 
cession of  property  was  not  referred 
to,  and  does  not  appear  to  have  been 
in  the  mind  of  the  court.     The  opinion 
stated     that    the    act    of  parliament 
from  which  the    particular  provision 
under  consideration  was  borrowed  had 
received   substantially  the  same  con- 
struction,  and    cases  under  that  act 
hold  that  a  succession  duty  is  not  a 
tax  upon  income  or  upon   property, 
but  on  the  actual  benefit  derived  by 
the    individual     determined    as    pre- 
scribed.    In  re  Elwes,  3  H.  &  N.  719; 
Attorney-General  v.  Sefton,  2  H.  &  C. 
362;  s.  c,  (H.  L.)    12  L.  T.  242;     11 
H.  L.  Cas.  257.     In  Railroad  Company 
V.   Collector,  100  U.   S.  595,  596,  the 
validity  of  a  tax   collected  of  a  cor- 
poration upon  the  interest  paid  by  it 
upon  its  bonds  was  held  to  be  '  essen- 
tially an  excise  on  the  business  of  the 
class  of  corporations  mentioned  in  the 


statute.'    And   Mr.  Justice  Miller, 
in   delivering  the  opinion,  said :  '  As 
the  sum  involved  in  this  suit  is  small, 
and  the  law  under  which  the  tax  in 
question  was  collected  has  long  since 
been    repealed,   the   case   is  of  little 
consequence  as  regards  any  principle 
involved  in  it  as  a  rule   of   future 
action.'      All     these    cases    are     dis- 
tinguishable from  that  in  hand,  and 
this    brings    us  to    consider    that  of 
Springer  v.  United  States,  102  U.  S. 
586,  602,  chiefly  relied  on  and  urged 
upon  us   as  decisive.     That  was  an 
action  of  ejectment  brought  on  a  tax 
deed  issued  to  the   United  States  on 
sale  of  defendant's  real  estate  for  in- 
come   taxes.      The    defendant    con- 
tended that  the  deed  was  void  because 
the  tax  was  a  direct  tax,  not  levied  in 
accordance     with    the    Constitution. 
Unless  the   tax  were  wholly  invalid 
the  defense  failed.     The  statement  of 
the  case  in    the   report   shows    that 
Springer  returned  a  certain  amount  as 
his  net  income  for  the  particular  year, 
but  does  not  give  the  details  of  what 
his  income,  gains  and  profits  consisted 
in.     The  original  record  discloses  that 
the  balance  was  not  derived  in   any 
degree  from  real  estate,  but  was  in  part 
professional  as  attorney  at  law,    and 
the   rest    interest    on    United    States 
bonds.     It  would  seem  probable  that 
the  court  did  not  feel  called  upon  to 
advert  to  the  distinction  between  the 
latter  and  the  former  source  of  income, 
as  the  validity  of  the  tax  as  to  either 
would  sustain  the  action.     The  opinion 
thus   concludes  :      '  Our    conclusions 
are,  that  direct  taxes,  within  the  mean- 
ing   of   the     Constitution,    are    only 
capitation  taxes,  as  expressed  in  that 
instrument,  and  taxes  on  real  estate. 


1276 


TAXATION  BY  PUBLIC  00EP0BATI0N8. 


[§576 


would  be  invalid.^  Upon  a  rehearing  of  this  case  the  United 
States  Supreme  Court,  by  a  majority,  adhered  to  their  former 
rulings,  and  their  conclusions  are  those  summed  up  by  Mr.  Chief 
Justice  Fuller:    First.    "We  adhere  to  the  opinion    already 


and  that  the  tax  of  which  the  plaintiff 
in*  error  complains  is  within  the 
category  of  an  excise  or  duty.'  While 
this  language  is  broad  enough  to  cover 
the  interest  as  well  as  the  professional 
earnings,  the  case  would  have  been 
more  significant  as  a  precedent  if  the 
distinction  had  been  brought  out  in 
the  report  and  commented  on  in 
arriving  at  a  judgment,  for  a  tax  on 
professional  receipts  might  be  treated 
as  an  excise  or  duty,  and,  therefore, 
indirect,  when  a  tax  on  an  income  of 
personalty  might  be  held  to  be  direct." 
*  Pollock  V.  Farmers'  I^oan  &  Trust 
Co.,  (1895)  167  U.  S.  429.  Mr.  Chief 
Justice  Fuller,  in  delivering  the 
opinion,  said,  upon  the  contention  of 
the  government:  "  We  think  the  same 
want  of  power  to  tax  the  property  or 
revenues  of  the  states  or  their  instru- 
mentalities exists  in  relation  to  a  tax 
on  the  income  from  their  securities, 
and  for  the  same  reason,  and  that 
reason  is  given  by  Chief  Justice  Mar- 
shall in  Weston  i\  Charleston,  2  Pet. 
449,  468,  where  he  said:  'The  right  to 
tax  the  contract  to  any  extent,  when 
made,  must  operate  upon  the  power  to 
borrow  before  it  is  exercised,  and  have 
a  sensible  influence  on  the  contract. 
The  extent  of  this  influence  depends  on 
the  will  of  a  distinct  government.  To 
any  extent,  however  inconsiderable,  it 
is  a  burden  on  the  operations  of  gov- 
ernment. It  may  be  carried  to  an 
extent  which  shall  arrest  them  entirely. 
*  *  *  The  tax  on  government  stock 
is  thought  by  this  court  to  be  a  tax  on 
the  contract,  a  tax  on  the  power  to 
borrow  money  on  the  credit  of  the 
United  States,  and  consequently  to  be 
repugnant  to  the  Constitution.'    Ap- 


plying this  language  to  these  municipal 
securities,  it  is  obvious  that  taxation 
on  the  interest  therefrom  would  oper- 
ate on  the  power  to  borrow  before  it 
is  exercised,  and  would  have  a  sensible 
influence  on  the  contract,  and  that  the 
tax  in  question  is  a  tax  on  the  power 
of  the  states  and  their  instrumentalities 
to  borrow  money,  and  consequently 
repugnant  to  the  Constitution.  Before 
this  it  had  been  said  by  the  chief  jus- 
tice, arguendo :  '  The  Constitution  con- 
templates the  independent  exercise 
by  the  nation  and  the  state,  and  sever- 
ally, of  their  constitutional  powers. 
As  the  states  cannot  tax  the  powers, 
the  operations,  or  the  property  of  the 
United  States,  nor  the  means  which 
they  employ  to  carry  their  powers  into 
execution,  so  it  has  been  held  that 
the  United  States  have  no  power  under 
the  Constitution  to  tax  either  the  in- 
strumentalities or  the  property  of  a 
state.  A  municipal  corporation  is  the 
representative  of  the  state  and  one  of 
the  instrumentalities  of  the  state  gov- 
ernment.' It  was  long  ago  determined 
that  the  property  and  revenues  of 
municipal  corporations  are  not  sub- 
jects of  federal  taxation.  Collector 
P.  Day,  11  Wall.  113,  124;  United 
States  V.  Railroad  Company,  17  Wall. 
322,  332.  In  Collector  v.  Day  it  was 
adjudged  that  congress  had  no  power, 
even  by  an  act  taxing  all  incomes,  to 
levy  a  tax  upon  the  salaries  of  judi- 
cial officers  of  a  state,  for  reasons 
similar  to  those  on  which  it  had  been 
held  in  Dobbins  r.  Commissioners,  16 
Pet.  435,  that  a  state  could  not  tax  the 
salaries  of  officers  of  the  United  States. 
Mr,  Justice  Nelson,  in  delivering 
judgment,  said:  '  The  general  govern- 


§576] 


TAXATION  BY  PUBLIC  CORPORATIONS. 


1277 


announced,  that  taxes  on  real  estate  being  indisputably  direct 
taxes,  taxes  on  the  rents  or  income  of  real  estate  are  equally  direct 
taxes.  Second.  We  are  of  opinion  that  taxes  on  personal  prop- 
erty, or  on  the  income  of  personal  property,  are  likewise  direct 
taxes.  Third.  The  tax  imposed  by  sections  twenty-seven  to 
thirty-seven,  inclusive,  of  the  act  of  1894,  so  far  as  it  falls  on 
income  of  real  estate  and  of  personal  property,  being  a  direct  tax 
within  the  meaning  of  the  Constitution,  and,  therefore,  uncon- 
stitutional and  void  because  not  apportioned  according  to  repre- 


ment  and  the  states,  although  both 
exist  within  the  same  territorial  limits, 
are  separate  and  distinct  sovereignties, 
acting  separately  and  independently 
of  each  other,  within  their  respective 
spheres.  The  power  in  its  appropri- 
ate sphere  is  supreme;  but  the  states 
within  the  limits  of  their  powers,  not 
granted;  or, in  the  language  of  the  tenth 
amendment,  'reserved,'  are  as  inde- 
pendent of  the  general  government  as 
that  government  within  its  sphere  is 
independent  of  the  states.'  This  is 
quoted  in  Van  Brocklin  v.  Tennessee, 
117  U.  S.  151, 178,  and  the  opinion  con- 
tinues: 'Applying  the  same  principles, 
this  court,  in  United  States  v.  Railroad 
Company,  17  Wall.  322,  held  that  a 
municipal  corporation  within  a  state 
could  not  be  taxed  by  the  United 
States  on  the  dividends  or  interest  of 
stock  or  bonds  held  by  it  in  a  railroad  or 
canal  company,  because  the  municipal 
corporation  was  a  representative  of 
the  state,  created  by  the  state  to  exer- 
cise a  limited  portion  of  its  powers  of 
government,  and,  therefore,  its  reve- 
nues, like  those  of  the  state  itself,  were 
not  taxable  by  the  United  States. 
The  revenues  thus  adjudged  to  be 
exempt  from  federal  taxation  were  not 
themselves  appropriated  to  any  spe- 
cific public  use,  nor  derived  from 
property  held  by  the  state  or  by  the 
municipal  corporation  for  any  specific 
public  use,  but  were  part  of  the  gen- 
eral income  of  that  corporation,  held 
for  the  public  use  in  no  other  sense 


than  all  property  and  income,  belong- 
ing to  it  in  its  municipal  character, 
must  be  so  held.     The  reasons  for  ex- 
empting all  the  property  and  income 
of  a  state,  or  of  a  municipal  corpora- 
tion, which  is  a  political  division  of  the 
state,  from  federal  taxation,  equally 
require  the  exemption  of  all  the  prop- 
erty and  income  of  the  national  gov- 
ernment   from    state    taxation.'      In 
Mercantile  Bank  v.  New  York,  121  U. 
S.  138,  162,  this  court  said:   'Bonds 
issued  by  the  state  of  New  York,  or 
under  its  authority  by  its  public  mu- 
nicipal bodies,  are  means  of  carrying 
on  the  work  of  the  government,  and 
are  not  taxable  even  by  the  United 
States,  and  it  is  not  a  part  of  the  policy 
of  the  government  which  issues  them 
to  subject  them  to  taxation  for  its  own 
purposes.'     The    question   in    Bona- 
parte V.  Tax  Court,  104  U.  S.  592,  was 
whether  the  registered  public  debt  of 
one  state,  exempt  from  taxation  by 
that  state,  or  actually  taxed  there,  was 
taxable  by  another  state  when  owned 
by  a  citizen  of  the  latter,  and  it  was 
held  that  there  was  no  provision  of  the 
Constitution  of  the  United  States  which 
prohibited  such  taxation.     The  states 
had  not  covenanted  that  this  could  not 
be  done,  whereas,  under  the  funda- 
mental law,  as  to  the  power  to  borrow 
money,  neither  the  United  States  on 
the  one  hand,  nor  the  states  on  the 
other,  can  interfere  with  that  power, 
as  possessed  by  each  and  an  essential 
element  of  the  sovereignty  of  each." 


1278 


TAXATION  BT  PUBUC  COEPORATIONS. 


[§577 


sentation,  all  those   sections  constituting  one  entire  scheme  of 
taxation,  are  necessarily  invalid."^ 

§  577.  Injunction  of  a  collection  of  taxes.— A  railroad 
company,  the  property  of  which,  by  its  acceptance  of  an  act 
of  the  territorial  legislature  of  North  Dakota,  was  exempted 
until  that  act  was  repealed  by  the  Constitution  adopted  when  the 
territory  became  a  state,  it  having  paid  the  percentage  of  its 
gross  earnings  in  lieu  of  the  taxes  for  certain  years  as  required  by 
the  act,  sought  in  this  case  to  restrain  the  officers  of  certam 
counties  of  the  state  from  enforcing  a  tax  upon  its  lands  within 
those  counties.  The  company  having  failed  to  make  the  payment 
for  this  particular  year  of  the  designated  percentage  of  its  gross 
earnings,  or  to  make  a  tender  of  what  was  due  under  one  or  the 
other  modes  of  taxation,  the  United  States  Supreme  Court  held 
that  it  was  not  entitled  to  relief  in  equity  to  enjoin  the  enforce- 
ment of  a  tax  upon  its  property  as  upon  the  property  of  individuals 
in  the  counties  in  which  the  property  was  situated.^ 


'  Pollock  V.  Farmers'  Loan  &  Trust 
Co.,  (1895)  158  U.   S.   601;   Hyde  v. 
Continental  Trust  Co.,  (1896)  158  U 
S.  601. 

» Northern  Pacific  R.  R.  Co.  v.  Clark, 
(1894)  153  U.  8.  252.  It  was  said  by 
the  court:  "In  State  Railroad  Tax 
Cases,  92  U.  S.  575,  616,  617,  the  rule 
is  established  that  before  an  injunction 
will  be  granted  in  such  cases  as  the 
present,  a  party  must  pay  or  tender 
what  can  be  seen  to  be  due  on  the  face 
of  the  bill;  and  speaking  for  the  court 
in  that  case,  Mr.  Justice  Miller  said 
that  the  duty  of  making  such  a  tender 
or  payment  before  any  injunction  will 
be  allowed  is  laid  down  '  as  a  rule  to 
govern  the  courts  of  the  United  States 


in  their  action  in  such  cases.'  This 
rule  was  repeated  in  National  Bank 
V.  Kimball,  103  U.  8.  732,  733,  where 
it  was  treated  as  a  fatal  objection  to 
the  bill  that  there  was  no  offer  to  pay 
any  sum  as  a  tax  which  the  party 
ought  to  pay;  and,  again,  speaking  for 
this  court,  Mr.  Justice  Miller  there 
said:  '  We  have  announced  more  than 
once  that  it  is  the  established  rule  of 
this  court  that  no  one  can  be  permit- 
ted to  go  into  a  court  of  equity  to  en- 
join the  collection  of  a  tax,  until  he 
has  shown  himself  entitled  to  the  aid 
of  the  court  by  paying  so  much  of  the 
tax  assessed  against  him  as  it  can  be 
plainly  seen  he  ought  to  pay,'  etc." 


CHAPTER  XXXn. 

TAXATION  OP  PRIVATE  CORPORATIONS. 


§578. 
579. 

580. 

581. 

582. 


General  rules. 

Exemption   from    taxation 

rules. 
Taxation    of    corporations  ■ 

rules  in  New  York. 
Taxation    of    corporations  ■ 

rules  in  Pennsylvania. 
Privilege  tax. 


§  583.     Computation  of  such  —  role. 

584.  Taxation  of  banks  and  shares 

of  bank  stock  —  rules. 

585.  Taxation  of  railroad  corpora- 

tions —  rules. 

586.  Taxation  of  insurance  corpo- 

rations. 


§  578.  General  rules. —  Stock  in  a  railroad  company  built  for 
use  in  its  mining  business,  owned  by  a  coal  mining  company,  the 
railroad  company  having  been  already  taxed  upon  its  value,  has 
been  held  not  to  be  subject  to  tax  as  the  property  of  the  coal  mining 
company.^  A  corporation  having  been  taxed  on  its  capital  stock, 
the  stock  in  the  hands  of  its  several  owners  is  not  liable  to  be 
retaxed  again.*  The  charter  of  a  New  Jersey  corporation 
exempting  its  property  from  the  imposition  of  any  tax  or  assess- 
ment, the  Supreme  Court  of  that  state  held  exempted  the  cor- 
poration not  only  from  taxation  generally,  but  also  from  assess- 
ments for  benefits  derived  from  public   improvements.^     The 


*  Commonwealth  v.  Fall  Brook  Coal 
Co.,  156 Pa.  St.  488;  s.  c,  26  Atl.  Rep. 
1071. 

'Commonwealth  v.  Lehigh  Coal  & 
Navigation  Co.,  (Pa.)  29  Atl.  Rep. 
664.  What  is  an  essential  part  of  the 
corporate  property  of  a  corporation 
chartered  for  transporting  and  storing 
oil  and  petroleum,  etc.,  and  not  tax- 
able, see  Mellon  Pipe  Lines  v.  Alle- 
gheny County,  3  Pa.  Dist.  Rep.  448. 
For  the  rule  under  the  statutes  of 
Pennsylvania  as  to  the  appraisal  of 
the  capital  stock  of  a  corporation  for 
taxation,  see  Commonwealth  v.  Pitts- 
burg &  W.  R.  Co.,  166  Pa.  St. 
453;  s.  c,  31  Atl.  Rep.  202;  36  W.  N. 
C.  137;  Commonwealth  v.  Edgerton 
Coal  Co.,  164  Pa.  St.  284;  s.  c,  30 
Atl.  Rep.  125;  35  W.  N.  C.  205.  How 
net  earnings  for  the  purpose  of  taxa- 
tion should  be  ascertained,  see  Com- 


monwealth r.  Philadelphia  &  E.  R.  R. 
Co.,  164  Pa.  St.  252;  s.  c,  30  Atl. 
Rep.  145;  35  W.  N.  C.  217.  For  rule 
in  ascertaining  the  net  income  of  a 
corporation  for  taxation  under  Penn- 
sylvania statutes,  see  Commonwealth 
V.  Minersville  Water  Co.,  2  Pa.  Dist. 
Rep.  738.  When  stock  of  a  corpora- 
tion is  "issued  and  outstanding" 
for  the  purpose  of  taxation  under 
New  Jersey  statutes,  see  Ameri- 
can Pig-iron  Storage  Co.  ».  State 
Board  of  Assessors,  (N.  J.)  29 
Atl.  Rep.  160.  When  franchise  of 
corporation  is  not  taxable  under  New 
Jersey  statutes,  see  Passaic  Water  Co. 
V.  City  of  Paterson,  (N.  J.)  29  Atl. 
Rep.  185. 

•Hudson  County  Catholic  Protec- 
tory V.  Board  of  Township  Committee 
of  Kearney,  (N.  J.)  28  Atl.  Rep.  1043, 
following   Protestant     Foster   Home 


■  I 


1280  TAXATION  OF  PEIYATE  CORPOEATIONS.  [§  579 

Nebraska  Supreme  Court  has  l.eld  that  the  constitutional  pro- 
vision in  that  state  exempting  property  of  religions  corporations 
from  general  taxation  did  not  exempt  it  from  special  assessments 
lor  local  improvements." 

§  579-  Exemption  from  taxation  —  rules.—  The  power  to 
exempt  railroad  corporations  from  taxation  is  within  the  scope  of 
legisative  power.'    The  grant  of  immunity  to  a  railroad  cor- 
poration  from  taxation,  to  be  recognized,  must  be  so  plain  as  not 
to  be  mwtaken  »    The  legislature  of  Tennessee,  in  the  exercise  of 
Its  power,  m  the  act  incorporating  this  railroad  company,  in  the 
year  1848  provided  for  an  exemption  from  taxation  of  the  com- 
pany m  these  words:  "That  the  capital  stock  of  said  company 
shall  be  forever  exempt  from  taxation,  and  the  road,  with  all  ite 
toures  and  appurtenances,  including  workshops,  warehouses  and 
vehicles  of  transportation,  shall  be  exempt  from  taxation  for  the 
penod  of  twenty-five  years  from  the  completion  of  the  road,  and 
no  tax  shall  ever  be  laid  on  said  road  or  its  fixtures  which  will 
reduce  the  dividends  below  eight  per  cent."    The  state,  as  well 
as  several  counties,  after  the  expiration  of  the  twenty-live  years 
assessed  the  road  and  fixtures  of  the  company  for  taxation,' 
and  the  State  Supreme  Court  allowed  these  taxes  which  were 
declared  liens  upon  the  property  of  the  company.    The  United 
8oc^.^Jfayor,  etc..  of  Newark,  36  K.   moawealth  ..   Savage  Fire  Brick  Co., 
■,„'.„    .  .        „     ,  157  Pa.  St.   512;  8.  c,  27  Atl.  Rep. 

fNeb     'iflT'w  T  ^^""«°  Church.    374;  33  W.  N.  C.  186;  Commonwealth 
(Neb.)  59  N.  W.  Rep.  932.    Rules  re-   ,..  Pottsville  Iron  &  Steel  Co.,  157  Pa 
toting  to  the  exemption  of  property  of   St.  500;  s.  c.  27  Atl.  Rep.  371-  33  W 
manufacturing     corporations     under  N.   C.   112;   Commonwealth    '„.    Easi 
statutes  or  ordinances  of  municipal   Bangor  Consolidated  Slate  Co    (Pa) 
corporations  for  their  encouragement,    29  Atl.  Rep.  706;  s.  c   34  W  "n   C 
8eeCommonw,^lthr  Keystone  Bridge   534.    For  a  constructi;;  of  the  con: 
^0.,   156  Pa.  St.  500;  8.  c,  27  Atl.    stitutional  provision  of  Louisiana  ex- 
Rep.  1;  Commonwealth  v.  Pittsburgh   empting  property  employed  in  manu- 
BndgeCo    156  Pa.  St.  507;  8.  c.  27   facturing.  see  State  ..  Board  of  Assess- 

^m?  Co  iTvZftt"-  '''^''-  ""•  ^^-^  ''  ^-  «*P-  ='8^=  E'«'ri« 
^  n  ,,"  ]f  ■  ^'-  *'*''  "■''••  ^  ''""'o"  *  '^"S-  Co.  V.  City  of  New 
Atl.  Rep.  13;  Commonwealth  v.  J.  B.    Orieans,  (La.)  14  So.  Rep.  231. 

Lippmcott  Co.   1^  Pa.  St.  513;  s.  c,  •  Neary  ..  Phil.,  Wil.  &  Bait.  R.  R. 

il  Ati.  Rep.  10,  following  Common-  Co.,  (Del.)  9  Atl.  Rep.  405 

wealth  V.  Wm.  Mann  Co.,  150  Pa.  St.  'Chicaeo    B  &  K   r'    n   n  n 

04,  8.  c,  ^  Atl.  Rep.  601;  Common-  Gufley.  122  U    8    561-  a  r     7  a.,„ 

wealth «.  JuniaU  Coke  Co.,  157  Pa.  Ct.  rI^    1»)0                         '          ^■ 

St.  507;  8.  c,  27  Atl.  Rep.  373;  Com- 


§579] 


TAXATION  OF  PRIVATE  CORPORATIONS. 


1281 


States  Supreme  Court  lield  that  it  clearly  had   jurisdiction  to 
review  the  decision  of  the  State  Supreme  Court,  in  view  of  the 
fact  that  the  exemption  was  within  the  constitutional  power  of 
the  legislature  to  grant  to  the  company,  and  was,  therefore,  a  con- 
tract between  the  state  and  the  company,  and  the  state  court  had 
decided  that  the  legislature  did  not  violate  or  impair  the  obliga- 
tion of  any  contract  with  the  company.^    Having  determined  that 
it  had  jurisdiction  to  review  and  revise  the  judgment  of  the  State 
Supreme  Court  in  this  matter,  the  United  States  Supreme  Court 
sustained  the  validity  of  the  exemption,  and  the  power  of  the 
legislature  to  exempt  upon  conditions  or  contingencies  which  were 
to  happen  in  the  future.     They  construed  that  portion  of  the  act 
of  incorporation  which  granted  the  exemption  to  have  this  effect : 
That  the  capital  stock  of  the  company  is  forever  exempt  from 
taxation  during  the  existence  of  the  corporation ;  the  road  and 
fixtures,  etc.,  were  exempt  for  twenty-five  years  after  the  com- 
pletion of  the  road,  which  term  had  now  expired ;  and  now  those 
portions  of  the  property  could  be  taxed  only  when  the  net  earn- 
ings  of  the  company  were  more  than  sufficient   to  pay  to  the 
stockholders,  on  the  present  basis  of  its  capital,  a  dividend  of 
eight  per  cent  a  year.     But  the  court  in  sustaining  the  validity  of 
the  exemption  did  not  mean  to  be  understood  as  holding  that  the 
railroad  company  had  the  right,  in  its  discretion,  hereafter  to 
issue  additional  stock,  or  to  increase  its  bonded  indebtedness,  even 
for  legitimate  purposes,  and  have  the  same  taken  into  considera- 
tion upon  the  question  of  its  liability  for  taxation  under  the  eight 
per  cent  dividend  clause  of  the  charter.^     It  appeared  in  this  case 
that  in  the  charter  of  a  railroad  company  chartered  in  Missouri 
in  1857,  there  was  a  provision  that  its  property  should  be  exempt 
from  taxation  for  a  period  of  twenty  years  after  its  completion. 
Its  road  was  completed  in  1872.     In  1870,  under  a  general  law  of 
Missouri,  it  was  consolidated  with  an  Iowa  corporation.     In  1886 
the  consolidated  road  was  sold  under  a  decree  of  foreclosure  of 
mortgage  to  purchasers  who  conveyed  it  to  an  Iowa  corporation. 
The  action  was  to  charge  the  property  in  the  hands  of  the  pur- 
chaser company  with  a  lien  for  state  and  county  taxes  levied  on 

» Mobile  &  Ohio  R  R.  Co.   v.  Ten-  "dividends."  "profits  "  "net  profits" 

nessee.  (1894)  153  U.  S.  487.  and  what  shall  be  deducted  before  the 

«  Mobile  &  Ohio  R.  R.  Co.  v.  Tennes-  "  net  profits  "  can  be  determined  quite 

see,  (1894)  153  U.  S.  486.    In  this  case  at  length,  citing  many  cases, 
the  court  discusses  the  questions  of 

161 


^ 


1282 


TAXATION  OF  PRITATE  CORPORATIONS. 


[§5T9 


the  property  of  the  former  company  in  1886.  The  question 
before  the  United  States  Supreme  Court  was  whether  the  com- 
pany succeeding  the  othere  by  purchase  at  foreclosure  was  enti- 
tled to  the  exemption  originally  granted  to  the  Missouri  corpora- 
tion in  its  charter.  The  court  held  that  the  consolidation  of  the 
Missouri  corporation,  under  the  general  statute. of  that  state,  with 
the  Iowa  coryx nation,  operated  to  extinguish  the  old  com- 
pany and  to  form  a  new  one  as  of  the  date  of  the  consolida- 
tion, and  other  provisions  concerning  exemption  from  taxa- 
tion  in   the   old  charter   did  not   pass   to   the   new   company.^ 

8.  c,  23  N.  E.  Rep.  721;  County  of 
Stevens  v.  St.  Paul,  M.  &  M.  Ry.  Co., 
3G  Minn.  467;8.  c,  31  N.  W.  Rep.  942; 
State  V.   Jersey  City,  (N.  J.)  9  Ail. 
Rep.  782;  Little  Rock  &  Fort  Smith 
Ry.  V.  Woithen,  120  U.  S.  97;  s.  c,  7 
Sup.  Ct.  Rep.  469;  State  v.  Morris  & 
Essex  R.  R.  Co.,  (N.  J.)    7  Atl.  Rep. 
826:   Louisville  &  Nashville  R.  R.  Co. 
r.  Commonwealth,  89  Ky.  531;  s.  c, 
12  S.  W.  Rep.  1064;  Marye  t.  Balti- 
more &  Ohio  R.  R.  Co.,  127  U.  S.  117; 
s.  c,  8  Sup.  Ct.  Rep.  1037;  St.  Paul, 
M.  &  M.  Ry.  Co.  V.  City  of  St.  Paul, 
(Minn.)  38  N.  W.  Rep.  925;  State   r. 
Northern  Par.  R.  R.  Co.,  39  Minn.  25; 
8.  c.  38  N.  W.  Rep.  635;  Atlantic  & 
P.  R.  R.  Co.  V.  Lesueur  (Ariz  )  19  Pac. 
Rep.  157;  State  v.  Webber,  (Minn.)  37 
N.  W.  Rep.  949;  Minnesota  Cent.  R. 
R.  Co.  r.  Donaldson,  38  Minn.  115;  s, 
c,  35  N.  W.  Rep.  725;  Wisconsin  Cent. 
R.  R.  Co.  t.  Comstock,  71  Wis.  88;   s. 
c,  36  N.  W.  Rep.  843,  following  Rail- 
road Company  p.  Price  County,  (Wis.) 
26  N.  W.  Rep.  93.     Exemption  from 
ta.xation;  when  it  does  not  pass  to  a 
purchaser  at  judicial  sale,  see  Kentucky 
Central  R.  R.  Co.  v.  Commonwealth, 
87  Ky.  661;  s.  c,  10  8.  W.  Rep.  269; 
Pickard  v.  East  Tennessee,  Va.  &  Ga. 
R.  R.  Co.,  130  U.  S.  637;  s.  c,  9  Sup. 
Ct.  Rep.  640;  State  t.  Hannibal  &  St. 
Jo  R.  R.  Co..  (Mo.)  13  S.  W.  Rep.  505; 
Philadelphia,  Wil.  &  Bait.  R.  R.  Co. 
V.  Neary.  5  Del.  Ch.  600. 


'  Keokuk  &  Western   R.   R.   Co.  r. 
Missouri,  (1894)  152  U.  S.  301.     As  to 
the  effect  of  consolidation  of  compa- 
nies, see  Tomlinson  v.  Branch,  15  Wall. 
460;    Philadelphia,    etc..    Railroad   r. 
Maryland,    10    Hun,    376;    Delaware 
Railroad  Tax,   18  Wall.  206;   Central 
Railroad   v.    Georgia,    92  U.    S.    665; 
Chesapejike  «&  Ohio  Railroad  v.  Vir- 
ginia, 94  U.  S.  718;  Green  County  r. 
Coaness.     109   U.   S.    104;  Shields  r. 
Ohio,  95  U.   S.   319;  Railroad  Co.   r. 
Maine,  96  U.   S.  499;  Railroad  Co.  r. 
Georgia,  98  U.  S.  359,  362;  St.  Louis, 
Iron  Mountain,  etc..  Railway  r.  Berry, 
113  U.  8.   465;  McMahan  r.  Morrison. 
16  Ind.   172;  Memphis  &  Little  Rock 
Railroad   r.    Commrs..  112  U.  S.  609; 
Louisville    &    Nashville    liailroad    r. 
Palmes.   109  U.    8.   244;    Morgan   v. 
Louisiana,   93  U.    S.   217;    Picard    v. 
Tennessee,  etc.,  Railroad.   130  U.    8. 
637;  Tennessee  i\  Whit  worth,  117  U. 
S.  139;  Wilmington  &  Weldon  Rfiil- 
road  r.    Alsbrook.  146  U.  S.  279.  297. 
As  to  exemptions,  see  Vicksburg  & 
Meridian  R.   R.    Co.    r.   Bradley,    66 
Miss.  518;   8.  c,  6  So.  Rep.  321;  State 
r.  Hannibal  &  St.  Jo  R.  R.  Co.,  (Mo.) 
11  8.  W.  Rep.  746;  Yazoo  &  M.  V.  R. 
R.  Co.  V.  Board  of  Levee  Comrs.,  37 
Fed.  Rep.  24;  Yazoo  &  M.  V.  R.  R. 
Co.  V.  Thomas,  65  Miss.  553;  8.  c,  5 
So.  Rep.  108;  State  v.  Keokuk  &  W. 
R.  R.  Co.,  99  Mo.  30;  8.  c,  12  8.  W. 
Rep.  290;  Norwich  &  W.  R.  R.  Co.  v. 
County  Commissioners,  151  IMass.  69; 


TAXATION  OF  PRIVATE  CORPORATIONS. 


1283 


§579] 

It  has  been  held  in  Texas  that  the  exemption  from  taxation  by  a 
statute,  for  good  consideration,  of  property  owned  or  to  be  owned 
by  a  railroad  corporation  or  its  successors,  could  not  be  withdrawn 
for  failure  to  exercise  corporate  powers  in  the  absence  of  a  pro- 
vision for  forfeiture,  as  such  exemption  attached  to  the  property.* 
In  Mississippi,  upon  payment  of  a  privilege  tax,  a  railroad  corpo- 
ration is  exempted  from  all  state  and  county  taxes  except  taxes  on 
land  owned  by  the  corporation  and  not  used  in  operating  the 
road.     Land  owned  by  a  railroad  corporation  separated  by  the 
track  from  the  buildings  of  the  road,  not  used  for  railroad  pur- 
poses, and  not  necessary  to  its  operation,  has  been  held  subject  to 
taxation.^     This  railroad  company  was  incorporated  under  an  act 
of    the   North    Carolina    legislature    with    a   capital   stock  of 
$3,000,000.     The  state  subscribed  for  two-thirds  of  the  shares 
and  paid  for  them  with  six  per  cent  bonds,  the  other  shares  being 
taken  by  private  persons.     By  an  act  afterwards  passed  the  char- 
ter of  the  company  was  amended  so  as  to  increase  the  capital 
stock   to   $4,000,000,   the   original   amount  being  found   to  be 
insufficient  to  complete  the  road,  and  the  state  subscribed  for  the 
additional  shares,  paying  for  them  with  bonds  as  before.     There 
was  a  provision  in  the  act  exempting  from  taxation  all  real  estate 
held  by  the  company  for  right  of  way,  stations  and  workshops, 
until   the  dividends  of  profits   should  exceed  six  per  cent  per 
annum.     A  majority  of  the  directors  represented  the  state's  inter- 
est.    Under  a  tax  law  passed  afterwards,  the  majority  directors 
ordered  the  president  to  list  all  the  property  of  the  company  for 
taxation.     Certain  shareholders  filed  a  bill  in  the  federal  court 
to  enjoin  the  president  from  such  listing  of  the  property.    Simon- 
ton,  Circuit  Judge,  held  that  the  exemption  provided  for  in  the 
act  amending  the  charter  of  the  railroad  company  was  a  part  of 
the  contract  between  the  state  and  the  corporation,  and  that  acts 
of  the  general  assembly  of  North  Carolina  repealing  that  pro- 
vision of  the  charter  and  providing  for  the  listing  of  such  prop- 
erty for  taxation  were  void,  as  impairing  the  obligations  of  a. 
contract.^     It  was  held,  therefore,  that  the  majority  of  the  board 

»  International  &  Great  Northern  3  games  ??.  Kornegay,  (1894)62Fed. 
Ry.  Co.  V.  State.  75  Tex.  856;  s.  c,  12  Rep.  671.  It  was  said  :  "The  precise 
S.  W.  Rep.  685.  question  arose  in  Tomlinson  v.  Jessup, 

•  Lewis  t>.  Vicksburg  &  Meridian  15  Wall.  458.  A  railroad  company 
R.  R.  Co.,  (Miss.)  6  So.  Rep.  773.  had  obtained   its   charter  and    com- 


1284 


TAXATION  OF  PRIVATE  CORPORATIONS. 


i 


t§579 

of  directors  of  this  railroad  company  could  not  list  for  taxation 
the  property  exempted  by  the  act  amending  the  company's  char- 
ter, against  the  protest  of  the  minority  stockholders.*     And  this 
majority  of  the  directors   representing  the   state   having  done 
everything  they  could  as  a  board  to  surrender  or  destroy  such 
exemption,  in  the  face  of  the  protest  of  the  minority,  and  the 
governor  and  the  state  desiring  such  surrender,  the  bill  of  the 
minority  stockholders  was  maintainable  for  the  injunction  prayed, 
without  first  going  to  the  board  of  directors  and  endeavoring  to 
induce  them  to  prevent  such  taxation.^     In   a  case  before  the 
United  States  Circuit  Court  for  the  eastern  district  of  Louisiana,  it 
appeared  that  by  the  charter  of  the  bank  which  it  was  sought  to 
collect  taxes   from  by   the   state,  the   state  had  loaned  several 
millions  of  dollars  of  its  bonds  to  the  bank,  which   bonds  consti- 
tuted the  capital  of  the  bank,  were  indorsed  by  it  and  sold.     The 
stockholders  were  not  immediately  to  pay  anything  upon  their 
subscriptions,  but  were  to  furnish  mortgages  upon  their  planta- 
tions and  slaves,  which  mortgages  were  to  be  held  as  security  for 
payment  of  the  lands  and  bear  a  certain  interest.     Certain  duties 
were  besides  imposed  upon  the  bank  in  the  construction  of  cer- 
tain public  works  to  be  afterwards  turned  over  to  the  state.     The 
profits  were  not  distributable  except  to  a  limited  amount  until  the 
payment  of  the  bonds  of  the  state  was  made.     The  stock,  secu- 
rities and  profits  of  the  bank  were  practically  pledged  for  the 


pleted  its  road  under  an  act  of  the 
legislature  containing  no   exemption 
from    taxation.      Some   years   after- 
wards it  obtained  an  amendment  to  its 
charter,  and  in  the  amending  act  was 
the  exemption.     The  state  adopted  a 
new  Constitution,  and  in  that  Consti- 
tution it  was  sought  to  repeal  all  such 
exemptions.     The  Supreme  Court  of 
the  United  States,  having  these  facts 
under  consideration,  says:    'In  these 
cases,  and  in  others  of  a  similar  char- 
acter,   the    exemption   is    upheld   as 
being  made  upon  considerations  mov- 
ing to  the  state,  which  gives  to  the 
transaction  the  character  of  a  contract. 
It  is  thus  brought  within  the  provis- 
iona  of  the  Federal  Constitution.    In 
the  case  of  a  corporation,  the  exemp- 


tion, if  originally  made  in  the  act  in- 
corporating it,  is  supported  upon  the 
consideration  of  the  duties  and  liabili- 
ties which  the  corporation  assumes  by 
accepting  the  charter.  When  made, 
as  in  the  present  case,  by  an  amend- 
ment of  the  charter,  it  is  supported 
upon  the  consideration  of  the  greater 
efficiency  with  which  the  corporation 
will  thus  be  enabled  to  discharge  the 
duties  originally  assumed  by  the  cor- 
poration to  the  public,  or  of  the 
greater  facility  with  which  it  will  sup- 
port its  liability  and  carry  out  the  pur- 
poses of  its  creation.' " 

*  Barnes    v.    Komegay,     (1894)    63 
Fed.  Rep.  671. 

^  Barnes    v.    Komegay,  (1894)    63 
Fed.  Rep.  671. 


§579] 


TAXATION  OF  PRIVATE  COKPOKATION8. 


1285 


payment  of  the  bonds.    The  act  incorporating  the  bank  exempted 
the  capital  of  the  bank  from  taxation  "  during  the  continuance  of 
its   charter."     The  court  construed   this  exemption,   as   it  was 
granted  for  the  purpose  of  facilitating  the  repayment  to  the  state 
of  the  capital  advanced  to  the  bank  in  the  state's  bonds,  to  con- 
tinue not  only  for  the  duration  of  the  bank's  charter  as  then  fixed, 
but  for  as  long  as  the  charter  should  exist  as  extended  by  the 
state  at  any  future  time,  for  tlie  purpose  of  securing  the  repay- 
ment of  such  advances."  and  the  charter  having  been  extended 
in  1874,  the  exemption  continued,  notwithstanding  the  denial  to 
the  legislature  by  the  Constitution  of  the  state  then  in  force  of 
the  power  of  exempting  property  from  taxation,  except  such  as 
was  used  for  church,  school  or  charitable  purposes.^     The  legis- 
lature of  Louisiana,  in  1880,  had  passed  an  act  authorizing  this 
bank  "to  compromise  and  settle  the  liability  of  the  mortgage 
stockholders  of  said  bank  arising  out  of   the   stock  mortgages 
granted  by  them  to  secure  their  subscriptions  to  the  capital  stock 
of  said  bank,  said  compromises  to  be  made  when  deemed  judicious 
by  said  bank  and  with  the  assent  of  the  bondholders,"  etc.     The 
act  also  made  provision   "  that  all  sums  realized  from  said  com- 
promise, as  well  as  from  the  enforcement  of  said  mortgages  by 
the  usual  legal  proceedings,  shall  be  held  and  applied  by  the 
banking  department  of  said  bank  to  the  satisfaction  of  the  bonds 
of  the  state,  issued  in  aid  of  the  bank,  and  to  the  legal  liabilities 
of  said  mortgage  stock  department,  and  to  the  necessary  expenses 
of    said    department."      The    tax    officers   in    the  case  before 
the     court    claimed    that    the    bank    had    waived    its    rights 
to    exemption    by    assenting    to    the    conditions    included    in 
the    fourth    section   of    this    act    which   were   to  this    effect: 
"  That    this  act  shall   not    be    binding    or    confer    any   right 
upon  the   bank   unless  accepted   within  twelve   months    from 
the  date  of  this  act,  and  under  the  conditions  prescribed  in  arti- 
cles 234  and  237  of  the  Constitution.     *     *     *     "     Article  234 
is  as  follows :  "  The  general  assembly  shall  not  remit  the  forfeit- 
ure of  the  charter  of  any  corporation  now  existing,  nor  renew, 
alter  or  amend  the  same,  nor  pass  any  general  or  special  law  for  the 
benefit  of  such  corporation,  except  upon  the  condition  that  such 

*  Citizens'    Bank    of    Louisiana    v.  refers  to  Tennessee  r.  Whitworth,  117 

Board  of  Assessors  for  the  Parish  of  U.  S.  145;  s.  c,  6  Sup.  Ct.  Rep.  649; 

Orleans,  (1893)  54  Fed.  Rep.  73.    The  Bank  v,  Bouny,  32  La.  A""  246. 
court  in  its  argument  upon  this  point 


;i|f 
■III 


1286 


TAXATION  OF  PRIVATE  CORPORATIONS. 


[§580 


corporation  shall  hereafter  hold  its  charter  subject  to  the  provis- 
ions of  this  Constitution."     The  court  held  that  as  it  appeared 
that  it  would  have  been  disastrous  to  the  interests  of  the  state  to 
attempt  to  enforce  those  mortgages  given  by  the  stockholders, 
the  act  of  the  legislature  authorizing  a  compromise  of  those  obli- 
tions  was  for  the  benefit  of  the  state  and  ultimately  to  secure  the 
payment  of  the  bonds,  and,  therefore,  not  a  privilege  or  favor 
granted  to  the  bank,  for  the  legislature  had  no  authority  to  impose 
upon  the  bank  the  condition  that  its  exemption  from  taxation 
should  be  thereafter  waived ;  and  though  the  bank  intended,  by 
acceptance  of  the  act,  to  waive  the  exemption,  the  attempt  to  do 
80  was  of  no  effect,  the  capital  of  the  bank  being  still  exempt 
from  taxation.*     In  this   case   a  corporation   which   had  been 
engaged  in  manufacturing  in  New  Jersey,  which  had  carried  on 
business  for  a  certain  period,  but  afterwards  ceased,  the  state  hav- 
ing imposed  a  tax  upon  it  because  it  was  not  engaged  in  the 
active  business  of  manufacturing,  claimed  exemption  under  the 
statute  passed  in  that  state  April  18,  1884.2     The  court  held  that, 
to  bring  itself  within  the  immunity  against  taxation  accorded  by 
that  statute  to  manufacturing  corporations,  the  corporation  must 
be  actively  engaged  in  the  business  of  manufacturing.^ 

§580.  Taxation  of  corporations  —  rules  in  New  York.— 

In  a  case  where  a  New  Jersey  corporation  was  assessed  for  taxa- 
tion upon  its  moneys  and  property  in  the  state  of  New  York,  it 
claimed  that  the  amount  of  its  debts  should  be  deducted.  The 
New  York  Court  of  Appeals  held  that  foreign  corporations  were 
included  within  the  statute  of  New  York,*  which  provides  as  fol- 
lows :  "  All  persons  and  associations  doing  business  in  the  state 
of  New  York  as  merchants,  bankers  or  otherwise,  either  as  prin- 
cipals or  partners,  whetlier  special  or  otherwise,  and  not  residents 
of  this  state,  shall  be  assessed  and  taxed  on  all  sums  invested  in 


'  Citizens'  Bank  of  Louisiana  v. 
Board  of  Assessors  of  the  Parish  of 
Orleans,  (1893)  54  Fed.  Rep.  73. 

•  Rev.  Supp.  N.  J.  1017. 

•State,  Edison  Phonograph  Co., 
Prosecutor,  v.  State  Board  of  Assess- 
ors, (1895)  55  N.  J.  L.  55;  citing  Con- 
struction Co.  V.  Board  of  Assessors, 
53  N.  J.  L.  564.  The  court  said:  "A 
corporation  wishing  to  withdmw  from 


active  business  must,  to  escape  taxa- 
tion, take  proceedings  under  the  thirty- 
fourth  section  of  the  Corporation  Act 
to  dissolve  and  surrender  its  charter 
and  wind  up  its  affairs;  but  if  it  elects 
to  continue  its  existence  and  retain  its 
franchises,  it  must  be  subject  to  the 
tax  which  has.  been  levied  in  this  case 
(a  tax  upon  its  capital  stock)." 
M  N.  Y.  L.  1855,  chap.  37. 


§580] 


TAXATION  OF  PRIVATE  CORPORATIONS. 


1287 


any  manner  in  said  business  the  same  as  if  thev  were  residents  of 
this  state,  and  said  taxes  shall  be  collected  from  the  property  of 
the  firms,  persons  or  associations  to  which  they  severally  belong.''^ 
As  to  the  right  to  deduct  delfts  it  was  said  :  "  We  are  of  the 
opinion  that  this  act  does  not  contemplate  the  deduction  of  debts 
from  the  sums  invested  in  this  state  by  non-residents.  As  the 
person  is  a  non-resident,  it  is  to  be  assumed  that  he  will,  at  the 
place  of  his  domicile,  have  all  of  what  might  be  termed  his 
equities  adjusted,  and  that,  if  entitled  to  it  anywhere,  it  will  be 
at  such  domicile  that  he  will  claim  and  be  allowed  to  have  the 
right  to  have  such  deduction.  In  his  case  the  statute  of  1855 
seizes  upon  the  certain  speciiic  sum  which  he  has  here  invested  in 
the  business  carried  on  by  him,  and  that  sum  is  to  be  assessed  and 
taxed  the  same  as  if  the  person  were  a  resident  of  the  state.  In 
using  the  expression  '  the  same  as  if  they  were  residents  of  this 
state,'  we  do  not  think  it  was  intended  that  exceptions  were  to  be 
allowed  here  the  same  as  if  the  party  were  a  resident,  or  that 
deductions  from  the  sum  thus  invested  should  be  made  as  if  that 
were  the  case.  It  meant,  as  it  seems  to  us,  that  the  sum  invested 
in  any  manner  in  business  in  this  state  should  be  assessed  in  the 
same  manner  and  form  as  a  resident  would  be  assessed."^  In  this 
case  the  Court  of  Appeals  of  Kew  York  reversed  the  General 
Term  of  the  Supreme  Court,  which  affirmed  the  dismissal  by  the 
Special  Term  of  a  certiorari  on  the  part  of  a  manufacturing  cor- 
poration to  review  an  assessment  of  its  property  made  by  the  com- 
missioners of  taxes  and  assessments  of  the  city  of  Xew  York.  It 
appeared  that  the  assessment  was  based  solely  upon  statements  of 
the  corporation  in  answer  to  questions  put  by  the  commissioners, 
which  statements  showed  that  the  capital  of  tlie  corporation  was 
impaired,  and  that  the  indebtedness  of  the  company  exceeded  the 
value  of  its  assets,  exclusive  of  real  estate,  and  did  not  disclose 
any  fact  or  circumstance  justifying  a  disbelief  of  the  answer  made, 
except  that  a  dividend  had  been  declared  and  paid  shortly  previ- 
ous to  the  statement  made.  The  court  held  that  this  statement 
as  to  a  dividend  having  been  declared  did  not  authorize  a  dis- 
belief in  the  statement  of  the  impairment  of  capital,  and,  in  the 

'  People    ex    rel.  Thurber-Whyland  Leather    Co.    v.   McLean,   80    N.    Y. 

Co.  V.  Barker,   (1894)  141  N.   Y.  118;  354,  259. 

citing  British  Com'l     Life  lus.  Co.  i\  '  People  ex    rel.   Thurber-Whyland 

Commrs.  of  Taxes,  1  Keyes,  303;  cited  Co.  v.  Barker,  (1894)  141  N.  Y.  118, 

in  People  ex  rel.  Bay  State  Shoe  &  121. 


1288 


TAXATION  OF  PRIVATE  CORPORATIONS. 


[§580 


i  fl 


'M 


absence  of  any  request  on  the  part  of  tlie  commissioners  for  fur- 
ther information,  did  not  justify  tliem  in  imposing  a  tax,  as  the 
statements,  if  accepted  as  true,  showed  that  there  was  no  basis  for 
imposing  the  tax.^  Under  the  provisions  of  the  New  York  Cor- 
poration Tax  Act,^  giving  to  the  state  comptroller  power  to  revise 
and  adjust  any  account  theretofore  settled  against  a  corporation  for 
taxes  arising  under  the  act,  and  authorizing  a  review  by  certiorari 
of  the  action  of  the  comptroller,  relief  may  he  given  as  provided 
where  a  tax  has  been  imposed  upon  and  paid  by  a  corporation 
which  was  exempt  from  any  taxation  under  the  act.  And  the 
corporation  will  not  be  deprived  of  the  relief  granted  by  the 
statute  by  reason  of  the  fact  that  the  payment  was  not  made 
under  coercion.''  Under  New  York  statutes  relative  to  the  tax- 
ation of  capital  stock  of  corporations,  the  actual  value  and  not 
the  market  value  of  its  stock  must  be  assessed."*  The  capital  and 
surplus,  and  not  the  share  stock,  is  tlie  subject  of  valuation  in 
assessing  a  corporation.^  A  corporation  cannot  be  taxed  upon 
stock  of  another  corporation  held  by  it,  where  the  capital  of  the 
latter  is  taxable.®  It  is  legal  error  to  refuse  to  decide  in  accord- 
ance with  evidence  presented  by  a  corporation  to  taxing  officers 
as  to  the  value  of  the  corporation's  assets,  the  evidence  being  so 
full  and  complete  as  to  establish  the  basic  facts  upon  which  its 
claim  for  reduction  of  tax  rests,  it  not  being  contradicted  by  facts 
within  the  knowledge  of  the  taxing  officers,  and  they  having  no 
good  reason  to  doubt  the  truth  of  the  evidence.'  The  indebted- 
ness of  a  corporation  should  be  deducted  from  the  valuation  of 


» People  ex  rel.  Edison  General 
Electric  Co.  r  Barker,  (1804)  141  N.  Y. 
251. 

«N.  Y.  Laws,  laSO,  chap.  542; 
amended,  N.  Y.  Laws,  1889.  chap.  463. 

'People  ex  rel.  Edison  Electric 
Illuminating  Co.  of  New  York  r. 
Wemple,  (1894)  141  N.  Y.  471.  See 
People,  etc.,  v.  Wemple,  133  N.  Y. 
617. 

*  People  V.  Barker,  146  N.  Y.  304; 
8.  c,  40  N.  E.  Rep.  996. 

» United  States  Trust  Co.  v.  Mayor, 
etc.,  of  New  York,  77  Hun,  182;  s.  c, 
28  N.  Y.  Supp.  344;  59  N.  Y.  St. 
Repr.  496.  See  Trimmer  v.  City  of 
Rochester,  130  N.  Y.  401;  People  ex 


rel.  Union  Trust  Co.  v.  Coleman,  126 
N.  Y.  433;  National  Bank  of  Che- 
mung r.  City  of  Elmira,  53  N.  Y.  49; 
Re  New  York  Catholic  P*rotectory,  77 
N.  Y.  342;  McLean  r.  Jephson,  123 
N.  Y.  143. 

•People  ex  rel.  Brooklyn  Traction 
Co.  V.  Board  of  Assessors,  61  N.  Y. 
St.  Repr.  480;  s.  c,  30  N.  Y.  Supp. 
448. 

'People  ex  rel.  German  Looking 
Glass  Plate  Co.  ©.  Barker,  75  Hun,  6; 
8.  c,  26  N.  Y.  Supp.  971;  57  N.  Y. 
St.  Repr.  1.  See  People  ex  rel.  Edison 
Electric  Illuminating  Co.  v.  Barker, 
139  N.  Y.  55. 


§580] 


TAXATION  OF  PRIVATE  CORPORATIONS. 


1289 


its  corporate  assets  in  assessing  its  capital  stock.^     In  assessing  a 
corporation  for  taxation,  the  deduction  of  ''  non-taxable  assets " 
has  been  held   to   be   illegal.^     There   is  no   authority   in   the 
comptroller  of  the  state  of  New  York  to  impose  a  tax  on  real 
estate  in  the  state,  purchased  by  a  corporation  from  its  surplus  as 
an  investment,  and  not  used  in  its  business.^      The  capital  of  a 
domestic  corporation   of   New  York,  invested  in  real  estate  in 
another  state,  in  bonds  of  the  United  States  deposited  under  a 
deed  of  trust  in  another  state  and  in  a  foreign  country  with  the 
minister  of  linance,  to  enable  it  to  do  business  in  the  other  state 
and  foreign  country,  as  required  by  the  laws  of  the  state  and 
country,  have  been  held  not  to  be  capital  employed  in  the  state 
of  New  York,  subject  to  taxation,  notwithstanding  the  fact  that 
the  interest  upon  the  bonds  was  received  and  used  in  New  York, 
and  all  the  property  was  subject  to  the  claims  of  all  creditors  of 
the  corporation.'^     Property  assessed  for  taxation  may  be  released 
from  the  assessment  by  the  legislature,  its  power  over  the  subject 
being  unlimited   and   exercisable  in  any  way,  and  at  any  time 
before  the  taxes  assessed  are  paid.^     A  special  statute  exempting 
the  property  of  a  corporation  from  local  taxation,  the  exemption 
includes  taxation  from  county  as  well  as  city  purposes.*'     Foreign 
corporations  have  been  held  not  to  be  entitled  to  a  deduction  of 


» People  ex  rel.  Second  Avenue  R. 
R.  Co  V.  Barker,  141  N.  Y.  196;  s.  c, 
56  N.  Y.  St.  Repr.  834. 

•People  ex  rel.  W.  &  J.  Sloane  v. 
Barker,  76  Hun,  454;  s.  c.  27  N.  Y. 
Supp.  1082;  58  N.  Y.  St.  Repr.  495. 
See  People  v.  Ryan,  88  N.  Y.  142. 

3  People  ex  rel.  Singer  Manufactur- 
ing Co.  V.  Wemple,  78  Hun,  63;  s.  c, 
29  N.  Y.  Supp.  92;  60  N.  Y.  St.  Repr. 
662.  See  Williams  v.  Western  Union 
Telegraph  Co.,  93  N.  Y.  162;  Burrall 
T.  Bush  wick  R.  R.  Co..  75  N.  Y.  211; 
Barry  v.  Merchants*  Exchange  Co.,  1 
Sandf.  Ch.  280;  Barclay  v.  Culver,  30 
Hun,  1;  People  ex  rel.  Southern  Cot- 
ton Oil  Co.  V.  Wemple.  131  N.  Y.  64; 
People  V.  American  Bell  Telephone 
Co.,  117  N.  Y.  241. 

<  People  ex    rel.  American    Surety 
Co.  V.  Campbell,  74  Hun,  101;  s.  c, 
162 


26  N.  Y.  Supp.  462.  Cf.  People  v.  New 
England  Mut.  Life  Ins.  Co.,  26  N.  Y. 
303;  People  ex  rel.  Postal  Telegraph 
Cable  Co.  v.  Campbell.  24  N.  Y.  Supp. 
208;  People  ex  rel.  American  Contract- 
ing, etc.,  Co.  i\  Wemple,  129  N.  Y.  558. 

'People  ex  rel.  American  Bible 
Society  v.  Comrs.  of  Taxes  &  As- 
sessments, 142  N.  Y.  348.  See  Sisters 
of  St.  Francis  v.  Mayor,  etc.,  of  New 
York,  112  N.  Y.  677;  Association  for 
Colored  Orphans  v.  Mayor,  etc.,  of 
New  Y'ork,  104  N.  Y.  581. 

« People  ex  rel.  Pratt  Institute  v. 
Board  of  Assessors  of  Brooklyn,  141 
N.  Y.  476.  In  19  Abb.  N.  C.  231, 
will  be  found  a  note  on  the  exemp- 
tion of  religious  corporations  from 
taxation.  The  statute  of  New  York, 
Laws  N.  Y.  1892,  chap.  399,  §  2, 
in  favor  of  religious  corporations  as  to 


< 


t 


1290 


TAXATION  OF  PRIVATE  C0RP0BATI0N8. 


[§581 


their  indebtedness,  in  the  assessment  of  their  property  invested 
in  business  in  the  state  of  New  York,  though  the  indebtedness 
may  be  due  witliin  the  state.* 

§  581.  Taxation  of  corporations  —  rules  in  Pennsylvania. 

—  Under  the  laws  of  Pennsylvania  imposing  a  tax  upon  the 
indebtedness,  as  bonds,  mortgages,  etc.,  of  corporations,  the  cor- 
poration is  not  liable  for  tax  on  so  much  of  its  indebtedness  as  may 
be  held  and  owned  by  Pennsylvania  corporations  in  their  own 
right,  or  by  persons  not  citizens  of  or  residing  in  that  state.^  The 
statute  making  it  tlie  duty  of  tlie  treasurer  of  the  corporation  to 
assess  and  retain  and  pay  over  to  the  state  the  tax  imposed  by  the 
law  under  whicli  tliese  taxes  were  claimed  upon  indebtedness  of 
the  corporation  on  so  much  of  indebtedness  as  was  held  by 
residents  of  that  state,  the  corporation  was  held  liable  for  his  fail- 
ure or  neglect  to  do  so.^  Certain  taxes  were  imposed  upon  a  New 
York  corporation,  which  had  also  been  granted  the  privilege  of 
constructing  and  operating  a  portion  of  its  road  through  Pennsyl- 
vania, under  the  statute  of  Pennsylvania  (P.  L.  Pa.  1885,  193, 
§  1),  which  assessed  an  annual  tax  of  three  mills  on  the  dollar  for 
state  purposes,  on  all  mortgages,  money  owing  by  solvent  debt- 
ors, whether  by  promissory  note  or  penal  or  single  bill,  bond  or 
judgment,  also  all  articles  of  agreement  and  accounts  bearing 
interest,  owned  or  possessed  by  any  person  or  persons  whatsoever 
(except  notes  or  bills  for  work  or  labor  done,  and  obligations  given 


exemptions  from  ttixation  applies  only 
to  corporations  incorpomted  in  the 
state  of  New  York.  Matter  of  Fayer- 
weather,  31  Abb.  N.  C.  287;  s.  c.  30 
N.  Y.  Supp.  273,  following  Matter  of 
Prime,  136  N.  Y.  347;  Vanderpoel  r. 
Gorman,  140  N.  Y.  563.  575.  As  to 
the  limit  of  the  exemption  of  manu- 
facturing corporations,  foreign  or  do- 
mestic, doing  business  in  the  state  of 
New  York,  see  People  ex  rel.  Tiffany 
&  Co.  V.  Campbell,  80  Hun,  95;  s.  c, 
30  N.  Y.  Supp.  70;  61  N.  Y.  St.  Repr. 
811,  distinguishing  People  ex  rel. 
Seth  Thomas  Clock  Co.  v.  Wemplc, 
133  N.  Y.  323;  People  r.  Horn  Silver 
Mining  Co.,  105  N.  Y.  76.  As  to  an 
exemption  from  taxation  which  was 
held  erroneous,  see  Matter  of  Tiffany 


&  Co.,  80  Hun,  486;  8.  c,  30  N.  Y. 
Supp.  494.  When  the  exemption  is 
not  operative,  see  People  ex  rel.  West- 
ern Electric  Co.  V.  Campbell,  80  Hun, 
466;  8.  c,  30  N.  Y.  Supp.  472. 

•  People  V.  Barker,  33  N.  Y.  Supp. 
1019;  People  v.  Barker,  86  Hun,  148; 
s.  c,  33  N.  Y.  Supp.  221.  As  to  the 
effect  of  volunrary  payment  of  tax 
ui)on  the  right  to  recover  it  back,  see 
United  States  Trust  Co.  v.  Mayor,  etc., 
of  New  York,  77  Hun,  182;  s.  c,  28 
N.  Y.  Supp.  344;  59  N.  Y.  St.  Repr. 
496. 

'Commonwealth  r.  Wilkesbarre  & 
Scranton  Railway  Co.,  (1893)  14  Pa. 
Co.  Ct.  Rep.,  205. 

»Ibid. 


TAXATION  OF  PRIVATE  C0RP0KATI0N8. 


1291 


§581] 

to  banks  for  money  loaned  and  bank  notes),  on  all  public  loans  or 
stocks  (except  tbose  issued  by  Pennsylvania  or  tlie  United  States), 
on  all  moneys  loaned  or  invested  in  any  other  state  and  on  all 
other  moneyed  capital  in  the  hands  of  individual  citizens  of  Penn- 
sylvania, the  property  and  interests  so  taxed  being  exempted  from 
all  taxation,  except  for  state  purposes,  and  the  act  not  to  apply  to 
building  or  loan  associations.     Upon  a  writ  of  error  from  the 
Supreme  Court  of  the  State  of  Pennsylvania,  which  had  affirmed 
the  judgment  of  a  lower  court  sustaining  the  taxes,  the  question 
presented  to  the  Supreme  Court  of  the  United  States  was  whether 
the  commonwealth  of  Pennsylvania  might,  consistently  with  the 
Constitution  of  tlie  United  States,  impose  upon  the  railroad  com- 
pany  the  duty  —  when  paying  in  the  city  of  New   York  the 
interest  due  upon    scrip,  bonds  or  certificates  of  indebtedness 
held  by  residents  of  Pennsylvania — of  deducting  from  the  inter- 
est so  paid  the  amount  assessed  upon  bonds  and  moneyed  capital 
in  the  hands  of  such  residents  of  Pennsylvania.     The  court  held 
that  it  could  not.     Also,  that  the  section  of  that  act  making  it 
"  the  duty  of  the  treasurer  of  each  private  corporation,  incor- 
porated by  or  under  the  laws  of  this  commonwealth,  or  the  laws 
of  any  other  state,  or  of  the  United  States,  and  doing  business  in 
this  commonwealth,  upon  the  payment  of  any  mterest  on  any 
scrip,  bond  or  certificate  of  indebtedness,  issued  by  said  corpora- 
tion to  residents  of  this  commonwealth,  and  held  by  them,  to 
assess  the  tax  imposed  and  provided  for  state  purposes  upon  the 
nominal  value  of  each  and  every  said  evidence  of  debt,  etc.," 
impaired  the  obUgation  of  the  contract  originally  made  by  the 
New  York  corporation  and  the  state  of  Pennsylvania,  as  disclosed 
by  those  statutes,  authorizing  the. construction  of  its  road,  etc., 
and  by  what  was  done  by  the  companies,  upon  the  faith  of  those 
acts.^     When  an  insurance  corporation  of  Pennsylvania,  at  the 
time  of  its  dissolution  by  decree  of  the  court,  is  a  debtor  to  the 
state  for  tax  on  gross  premiums,  the  debt  continues  to  exist  and 
is  a  charge  on  the  assets  passing  into  the  hands  of  the  receiver 
under  the  statute  of  1876  of  that  state.     And  such  a  corporation 
is  liable  on  the  principle  of  apportionment  only  for  the  tax  on  the 

» New  York,  L.  E.  &  W.  R.  R.  Co.  Bell's  Gap  Railroad  Co.  v.  Pennsyl- 

v.  Pennsylvania,  (1894)  153  U.  S.  628.  vania,    134  U.   8.   232;   reaffirmed  in 

The  court  did  not  consider  State  Tax  Jennings  v.  Coal  Ridge  Improvement 

on  Foreign-held  Bonds,  15  Wall.  300,  &  Coal  Co.,  147  U.  S.  147. 
820,  as  controlling,  and  distinguished 


1292 


TAXATION  OF  PKIVATE  CORPOEATIONS. 


[§582 


§582] 


TAXATION  OF  PRIVATE  CORPORATIONS. 


1293 


h 


gross  premiums  received  up  to  tlie  time  it  is  dissolved  and  not 
for  the  full  six  months.^  One  of  the  Courts  of  Common  Pleas  of 
Pennsylvania,  in  construing  the  Tax  Act  of  that  state  of  1891, 
imposing  taxes  upon  the  capital  stock  of  corporations,  has  declared 
the  following  rules :  Only  so  much  of  the  income  of  a  corpora- 
tion —  whether  called  net  earnings  or  amount  of  profit  made  — 
as  is  either  declared  in  dividends  or  carried  into  surplus  or  sink- 
ing fund,  is  made  the  measure  of  the  minimum  price  or  value  of 
the  capital  stock  by  the  act  referred  to.^  The  amount  of  profit 
made,  and  either  declared  in  dividends  or  carried  into  surplus 
or  sinking  fund,  does  not  furnish  an  absolute  measure  of  the 
actual  value  in  cash  of  the  capital  stock  of  a  corporation,  but  is 
to  be  considered,  with  all  otlier  pertinent  facts,  in  determining 
what  is  its  actual  value  in  cash.^ 

§582.  Privilege  tax.— A  franchise  tax  imposed  upon  a 
corporation  as  the  price  of  tlie  riglit  and  privilego  of  being  a  cor- 
poration, may  be  exacted  by  the  state  granting  the  franchise,  no 
matter  how  the  corporate  property  may  be  invested  or  employed, 
or  where  it  may  be  situate.*  Such  a  tax  levied  upon  a  manu- 
facturing corporation  of  New  Jersey  was  held  not  to  be  incon- 
sistent with  the  terms  of  its  charter  wliicli  exempted  from  taxation 
"  the  real  and  personal  property  of  the  said  corporation  not  actu- 
ally in  fact  within  the  state  of  New  Jersey,  and  the  stock  of  the 
said  corporation  held  or  owned  by  any  of  its  stockholders."^    The 

•Commonwealth  c.   American  Life  Jones  Mfg.  Co.  v.  Commonwealth  69 

Insurance  Co..  (1893)  14  Pa.  Co.  Ct.  Pa.  St.   137;  Commonwealth  v.  Penn 

Bep.  216.     See.  on  the  second  ruling,  Gas  Coal  Co.,  62  Pa.  St.  241;  Eyster 

Commonwealth  v.  Standard  Oil  Co.,  v.   Centennial  Board  of   Finance,  94 

101   Pa.    St.    119;  Commonwealth    v.  U.  S.  503. 

Pennsylvania  Coal  Co..  41  Leg.  Int.  'Commonwealth  v.   Edgerton  Coal 
125;  Commonwealth  v.  Western  Union   Co.,  (1893)  14  Pa.  Co.  Ct  Rep  449 

Telegraph  Co.,  15  W.  N.  C.  331 ;  Pull-  *  Honduras  Commercial  Company  v. 

man's  Palace    Car    Co.   t.   Common-  State  Board  of  Assessors  (1892)  54  N 

wealth,    107  Pa.   St.   156;    Common  J.  L.  278. 

wealth  t>.  Canal  Co..  50  Pa.  St.  410;  'The  State.  Singer  Manufacturing 

Commonwealth  v.  American  Machine  Co.,    Prosecutor,     v.    Heppenheimer 

Co.,  2  Ches.  Co.  186.  (1892)  54  N.  J.  L.  439.     The  court  said': 

'Commonwealth  v.   Edgerton  Coal  "The    question  is  evidently    one  of 

Co.,  (1893)  14  Pa.  Co.  Ct.  Rep.  449,  statutory   construction  in  each  case, 

following   Commonwealth   v.  Sharon  Admit  that  an  exemption  of  the  com- 

Coal  Co.,   Limited,  (1893)  14  Pa.  Co.  pany    or   its    property,   nothing  else 

Ct.   Rep.   222.     As  to  definitions  of  appearing,   implies  an  exemption  of 

"net  earnings "  and    '•income,"    see  the  shares  of  its  capital  stock,  and  that 


New  Jersey  Supreme  Court  on  certiorari  has  upheld  the  yearly 
license  fee  imposed  upon  miscellaneous  corporations  imposed 
under  the  statute  of  April  18,  188V  to  which  an  objection  was 
made  that  it  was  a  levy  upon  interstate  commerce,  and,  therefore, 
in  violation  of  the  Federal  Constitution. ^    The  United   States 


Ml 


an  exemption  of  the  shares,  nothing 
else  appearing,  implies  an  exemption 
of  the  company  and  its  property,  yet 
it  is  certainly  within  the  power  of  the 
legislature  to  exempt  the  company  or 
its  property,  and  reserve  the  right  to 
tax  the  company    and  its  property. 
The    corporation  and  the  individual 
stockholders  are  obviously  not  included 
under   the  same  description,  nor  are 
their  rights  identical  (State  v.  Powers, 
4  Zab.  400);   both  may  be  taxed,  or 
either,  as  the  legislature  wills.     State 
V.  Branin,  3  Zab.  484.     If,  therefore, 
it  appears  by  the  charter  of  the  prose- 
cutor that  the  legislature  in  exempting 
the  shares  of  its  capital  stock  held  or 
owned  by  individuals,  did  not  mean  to 
exempt  the  company  or  property,  the 
decisions  cited  from  3  Zabriskie  and  4 
Zabriskie,  become  inapplicable,  and  the 
legislative  purpose  must  prevail.   Such 
a  purpose  is,  I  think,  to  be   gathered 
from  a  consideration  of   all  the  pro- 
visions of  the  company's  charter.     In 
conjunction  with  the  clause  exempt- 
ing the  shares  is  an  express  exemption 
of  the  real  and  personal  property  of 
the  corporation  not  actually  within  the 
state.      Not    only  is    this    exemption 
superfluous,  if  the  exemption  of  the 
shares  was  understood  to  relieve  from 
taxation  all  the  corporate  property, 
but  this  express  immunity  conceded 
to  property  outside  of  the  state  affords 
the  clearest  implication  that  the  taxa- 
bility of  corporate  property  within  the 
state  was  to  be  preserved.     Thus  the 
implication  which  was  countenanced 
in  the  former  decisions  is  repelled  by 
the  statute  now  under  review.     The 
legislative  intent,  plainly  embodied  in 
this  company's  charter,  is  to  relieve 


from  taxation  the  shares  of  stock  in 
the  hands  of  its  stockholders,  but  to 
reserve  the  right  of  levying  upon  the 
corporation  itself  any  legal  imposition 
except  a  tax  on  its  real  or  personal 
property  outside  of  New  Jersey.    The 
present  tax,   being  levied    upon  the 
company  for  the  exercise  of  its  fran- 
chises within  the  state,  comes  under 
the  reservation." 
'  N.  J.  Rev.  Suppl.  p.  1016. 
'Lumberville  Delaware  Bridge  Co. 
v.  State  Board  of  Assessors,  (1893)  55 
N.  J.  L.  529,  citing  in  support  of  the 
holding,   Robbms  v.  Shelby  County, 
120  U.  S.  489;  Leloup  v.  Mobile,  127 
U.  8.  648;  The  State  Freight  Tax,  15 
Wall.  232;  Railroad  Co.  v.  Husen,  95  U. 
8.  465;  Cook  V.  Pennsylvania,  97  U.  S. 
566;  Brown©.  Houston,  114  U.  S.  622; 
Lyng«.  Michigan,  135  U.  S.  161;  Nor- 
folk &  Western  R.  R.  Co.  v.  Pennsyl- 
vania, 136  U.  S.  115;  Fargo  v.  :Michi- 
gan,     121     U.    S.    230;    Crutcher    v. 
Kentucky.  141  U.  8.  47:  Philadelphia 
St.   Ship  Co.  V.  Pennsylvania,  122  U. 
S.   326;  Moran  v.   New   Orleans,    112 
U.  S.  69;  Pickard  v.  Pullman  Southern 
Car  Co.,  117  U.  S.  34;  Pensacola  Tele- 
graph Co.  r.  Western  Telegraph  Co., 
96  U.  S.  1;  Western  Union  Telegraph 
Co.  V.  Texas,  105  U.  8.  460;  Wabash, 
St.  L.  &  Pac.  Ry.  Co.  v.  Illinois,  118 
U.  S.  557;  Western  Union  Telegraph 
Co.  V.  Pendleton,   122  U.  8.  347;  Rat- 
terman  v.  Western  Union  Telegraph 
Co.,  127  U.  S.  411;  AViggins  Ferry  Co. 
V.  East  St.  Louis,  107  U.  S.  365;  Maine 
i\  Grand  Trunk  Railway  Co.,  142  U. 
8.  217;  Packet  Co.  v.  Keokuk,  95  U.  S. 
80;  Packet  Co.  v.  St.  Louis,  100  U.  S. 
428;  Packet  Co.  v.   Catlettsburg,  105 
U.  S.  563;  Transportation  Co.  v.  Par- 


1294 


TAXATION  OF  PRIVATE  CORPORATIONS. 


[§582 


i 


I   ! 

w 


■ 


If'll 


IJ 


jl'lp 


Supreme  Court  considered  a  statute  of  Ohio,  under  which  there 
was  imposed  upon  a  railroad  company  a  fee  to  the  state,  and  lield 
that  if  several  railroad  corporations,  each  existing  under  tlie  laws 
of  separate  states,  consolidate  into  one  corporation,  the  statute  of 
one  of  the  states  imposing  a  charge  upon  the  new  consolidated 
company  of  a  percentage  on  its  entire  authorized  stock  as  the  fee 
to  the  state  for  the  filing  of  the  articles  of  consolidation  in  the 
office  of  the  secretary  of  state,  without  which  filing  it  could  not 
possess  the  powers,  immunities  and  privileges  which  appertain  to 
a  corporation  in  that  state,  was  not  a  tax  on  interstate  commerce, 
or  the  right  to  carry  on  the  same,  or  the  instruments  thereof ; 
and  that  its  enforcement  involved  no  attempt  on  the  part  of  the 
state  to  extend  its  taxing  power  beyond  its  territorial  limits.^ 

kersbiirg.  107  U.  S.  698;  Ouachita  state  board  to  ascertain  for  the  pur- 
Packet  Co.  f.  Aiken.  121  U.  S.  444;  poses  of  constitutional  assessment  On 
Coe  V.  Errol.  116  U.  S.  517;  Western  the  other  hand,  the  naked  right  of 
Union  Telegraph  Co.  r.  Mas&ichusetts.  existing  in  corporate  forms  is  taxed  as 
125  U.  8.  530;  Pullman  Palace  Car  in  the  case  before  us,  not  at  its  true 
r.  Pennsylvania,  141  U.  8.  18;  Dela-  value,  as  it  would  have  to  be  if  it 
ware  Railroad  Tax  Case.  18  Wall.  206;  were  property,   but  at   a    sura  arbi- 

f.^Tr^o'^on^'^'"^^'''-  ''■  N*^^  York,   trarily  imposed  by  the  legislature  as 
143  U.  8.  305;  Mmot  p.  Philadelphia,   an  annual  fee,  the  amount  of  which  is 
Wihnington  &  Baltimore  R.  R.  Co..   to  be  computed  by  reference  to  the 
18  Wall.  206;  State  Tax  on  Railway   capital  of  the  company  as  a  criterion 
Gross  Receipts.  15  Wall.  284.     The   It  is,  in  short,  a  poll  tax  levied  upon 
New  Jersey  court  said:    "The  fran-  domestic  corporations  for  the  right  to 
chise  that  is  taxed  as  property  is  the   be.     Such  a  tax  is  not  upon  property 
pnvilege  enjoyed  by  a  corporation  of  or  assets  and  does  not  in  any  way  con- 
exercising  certiiin  powers  derived  from   cern  the  nature  of  the  business  the 
the  stiite,  whereas  the  franchise  with   company  may  be  authorized  to  carry 
which  we  have  to  do  is  the  right  to   on.     If  the  business  chance  to  be  one 
exist  m  corporate  form  without  refer-   of  commercial  intercourse  with  other 
ence  to  the  powers  that  under  such"  states,  the  burden  incidental  to  corpo- 
form  the  company  may  exercise.    This   rale    existence   does   not.   under   the 
distinction,   although    formulated  by   federal  decisions  [already]  cited,  con- 
Mr.  Justice  Field  in  Home  Insurance   stitute  a  regulation  of  that  commerce  " 
Co.  V.  New  York,  134  U.  S.  594,  was       '  Ashley  v.  Ryan,  (1894)  153  U.  8 
not  strictly  adhered  to  in  his  subse-   4;J6.     The  court    &iid:    "As   it    was 
queot  expressions,  probably  because   within  the  discretion  of  the  state  to 
there  was  nothing  in  that  case  to  call    withhold    or   grant  the  privilege  of 
for  a  nice  use  of  terms.     In  this  state   exercising  corporate  existence,  it  was 
we  tax  each  of  these  so-called  fran-   as  a  necessary  resultant,  also  within 
chises.     The  power,  as  in  the  case  of  its  power  to  impose  whatever  condi- 
the  right  to  own  and  operate  a  rail-   tions  it  might  deem  fit  as  prerequisite 
road  is  taxed  as  property  having  a   to  corporate  life.     The  act  of  filing 
true  value,  which  it  is  the  duty  of  the  constituting,  as  it  did.  a  claim  of  a 


I' 


§§  583,  584]       TAXATION  OF  PRIVATE  CORPORATIONS.  1296 

§  583*  Computation  of  such  tax — rule. —  There  was  also  an 
objection  in  this  case  to  the  manner  of  computing  the  tax,  the 
contention  being  that  inasmuch  as  tlie  erection  of  the  bridge  was 
ii  joint  enterprise  requiring  the  concurrent  legislation  of  two 
states,  the  capital  to  be  taken  as  the  criterion  of  the  license  fee 
should  be  one-half  of  the  capital  the*  domestic  corporation  was 
authorized  to  have.  The  court  sustained  the  mode  of  computing 
the  tax  upon  the  total  capital  of  the  corporation.^ 

§584.  Taxation  of  banks  and  shares  of  bank  stock  — 
rules. —  On  certiorari  the  Supreme  Court  of  New  Jersey  set 
a-side  taxes  imposed  upon  shares  of  stock  held  by  the  prosecutor 
in  a  foreign  corporation,  liaving  its  principal  place  of  business  in 


right  to  the  franchise  granted  by  the 
state  law,  carried  with  it  a  voluntary 
assumption  of  any  burden  with  which 
the  privilege  was  accompanied,  and 
without  which  the  right  to  corporate 
existence  could  not  have  been  pro- 
cured. We  say  voluntary  assumption, 
because,  as  the  claim  to  the  franchise 
was  voluntary,  the  assumption  of  the 
privilege  which  resulted  from  it  par- 
took necessarily  of  the  nature  of  the 
claim  for  corporate  existence.  Having 
thus  accepted  the  act  of  grace  of  the 
state,  and  taken  the  advantages  which 
spring  from  it.  the  company  cannot  be 
permitted  to  hold  on  to  the  privilege 
or  rights  granted  and  at  the  same  time 
repudiate  the  condition  by  the  perform- 
ance of  which  it  could  alone  obtain 
the  privilege  which  it  sought." 

'  Lumberville  Delaware  Bridge  Co. 
r.  State  Board  of  Assessors.  (1893)  55 
N.  J.  L.  529.  The  court,  referring  to 
Easton  Delaware  Bridge  Co.  r.  Metz. 
(Collector.  32  N.  J.  L.  199.  which  sug- 
gested the  contention,  said:  "That 
case  has,  however,  no  application. 
The  tax  there  considered  was  imposed 
(Urectly  upon  the  capital  and  surplus 
which,  so  the  court  held,  was  intended 
by  the  legislature  to  embrace  one-half 
of  an  enterprise  resting  in  dual  legis- 
lation.    Since  the  last  amendments  of 


the  Constitution  such  a  tax  is  a  legal 
impossibility,  and  the  construction 
l)laced  by  the  court  upon  the  legisla- 
tive intent  with  respect  to  the  amount 
of  property  to  be  embraced  in  the  tax 
is  no  aid  in  the  present  case,  where  the 
tax  is  not  upon  cjipitiil  or  property  put 
to  the  common  use  of  a  domestic  and 
a  foreign  organization,  but  is  the  price 
the  domestic  company  must  pay  for 
the  right  of  corporate  life.  Such  a 
right  is  in  its  nature  indivisible,  and 
the  fee,  therefore,  must  necessarily  be 
an  entirety.  In  computing  such  a  fee 
the  board  of  assessors  has  no  discretion 
—  the  legislative  mandate  is  plain  and 
cannot  be  departed  from  by  the  asses- 
sors nor  modified  by  the  courts.  In 
The  Evening  Journal  Association  v. 
The  State  Board  of  Assessors,  47  N. 
J.  L.  36.  the  business  in  which  the 
cjipital  of  the  corporation  was  invested 
was  considered  by  this  court  for  the 
purpose  (»f  determining  whether  it  was 
a  "  manufacturing  company"  within 
the  meaning  of  the  statute.  And  in 
The  Press  Printing  Company  v.  The 
State  Board  of  Assessors,  51  N.  J.  L. 
75,  the  court,  finding  that  the  corpora- 
tion was  in  one  sense  and  as  to  a  dis- 
tinct part  of  its  capital  a  manufactur- 
ing company,  adopted  as  the  criterion 
for  the  ascertainment  of  the  amount  of 


1296 


TAXATION  OF  PEIVATE  COKPOEATIONS. 


[§584 


Hi 


another  state,  it  appearing  that  taxes  had  been  actually  assessed 
in  the  other  state,  and  paid  by  the  corporation,  within  twelve 
months  before  the  day  prescribed  by  law  for  commencing  the 
assessment  of  taxes  in  New  Jersey,  holding  them  exempt  from 
taxation  in  that  state.  They  also  set  aside  the  taxes  imposed  upon 
his  shares  of  stock  in  a  national  banking  association  located  in 
another  state,  holding  that  they  could  not  be  taxed  under  the  laws 
of  New  Jersey.^  The  laws  of  Washington,  providing  for  the 
assessment  of  bank  stock  for  taxes,  make  bankers  the  ajrents  for 
their  respective  shareholders,  and  authorize  the  collection  from 
each  bank  of  taxes  upon  its  stock  as  assessed  against  it  as  such 
agent.  The  assessments  upon  the  stock  or  shares  of  the  sharehold- 
ers in  this  case  were  assessed  separately  against  each  shareholder. 
The  bank  was  not  charged  upon  the  assessment  roll  as  agent  for 
its  shareliolders,  nor  charged  at  all  for  any  tax  upon  its  stock,  nor 
even  referred  to  by  its  proper  corporate  name  in  the  assessinents 
against  its  several  shareholders.  The  bank  brought  this  suit 
against  the  treasurer  of  the  county  to  restrain  tlie  collection  of 
the  tax  from  the  bank.  The  United  States  Circuit  Court  over« 
ruled  a  demurrer  to  the  bill,  holding  that  under  the  above  state- 


§584] 


TAXATION  OF  PRIVATE  CORPORATIONS. 


1297 


the  tax  which,  under  the  act  of  1881 
(Rev.  Supp.  p.  602),  the  court  was  re- 
quired to  impose,  the  capital  of  the 
corporation  not  within  the  exemption. 
In  the  present  case  no  such  questions 
arise." 

*The  State,  De  Baun,  Prosecutor. 
«.   Smith,    Collector   of    Washington 
Township,    (1892)    55  N.   J.   L.    110. 
Upon  this  last  ruling  it  was  said :  "The 
federal    statute  for    the  organization 
of  banking  associations  permits  shares 
in  them  to  be  taxed  under  authority  of 
the  state    within  which  the  bank  is 
located,  and  expressly    provides  that 
shares  owned  by  non-residents  of  the 
state  may  be  taxed  in  the  city  or  town 
where  the  bank  is  located,   nnd  not 
elsewhere.     This  statute,  by  fair  con- 
struction, excludes  all  state  taxation 
of  the  shares  of  stock  except  such  as 
it  expressly  permits,  and  this  exclusion 
is  constitutional  and  valid.    Van  Allen 
».  The  Assessors,  3  Wall.  573;  North 
Ward  National  Bank  ».  City  of  New- 


ark, 39  N.  J.  L.   380.     Consequently 
shares  of  stock  in  a  national  banking 
association   cannot  be  taxed  by  any 
state    except  that  within  which  the 
bank  is  located;  they  are  withdrawn 
from  taxation  under  the  authority  of 
other   states.     Tappan   r.    Merchants' 
National  Bank,  19  Wall.  490."    Upon 
the  first  ruling,  see  The  State,  Smith, 
Prosecutor,  v.  Ramsey,  Collector,  etc., 
(1892)  54  N.  J.  L.  546.    As  to  the  right 
of  a  state  to  tax  shares  of  stockholders 
in  national  banking  associations  within 
its  limits,  see  Van  Slyke  v.  Wisconsin, 
(1871)  154  U.  S.  581,  following  National 
Bank  v.  Commonwealth,  9  Wall.  353; 
Lionberger  v.  Rouse,  9  Wall.  468.     As 
to  the  state's  power  to  legislate  as  to 
taxation  of  bank  shares  and  fix  the 
situs  of  the  stock  for  purposes  of  taxa- 
tion,   see    Stockholders    of   Bank    of 
Abingdon  v.  Supervisors  of  Washing- 
ton County,  (1891)  88  Va.  293;  Tappan 
t\  Merchants'  National  Bank,  19  Wall. 
490. 


ment  of  facts  the  warrant  to  the  collector  conferred  no  authority 
upon  him  to  seize  the  property  of  the  bank  for  the  purpose  of 
enforcing  payment  of  the  taxes  charged  against  the  individual 
shareholders ;  neither  did  the  law  authorize  the  bank  to  pay  said 
taxes,  and  charge  the  same  to  the  shareholders.  The  court  also 
said :  "  Unjust  discrimination  in  the  valuation  of  national  bank 
stock,  as  compared  with  the  assessment  of  other  moneyed  capital 
in  the  hands  of  individual  citizens  of  the  state,  is  prohibited.* 
Nor  did  the  failure  of  the  bank  to  make  and  keep  good  a  tender 
of  so  much  of  the  tax  as  was  justly  due  bar  such  relief,  where 
nothing  was  due  from  the  bank,  there  being  no  assessment  against 
it,  and  the  county  officers  having  declared  that  they  wonld  not 
accept  less  than  the  whole  amount  levied.^  Shareholders  of 
national  bank  stock  have  this  statute  as  a  guaranty  that  they  can- 
not be  taxed  upon  their  stock  heavier  than  other  moneyed 
capital  in  the  state ;  and  when  appealed  to  in  their  behalf,  the 
courts  are  bound  to  give  effect  to  the  law.  If  inequality  is  shown 
to  the  prejudice  of  shareholders,  either  the  assessment  must  be 
declared  to  be  entirely  void,  or  at  least  the  excess  of  the  tax  above 
the  rate  imposed  upon  other  moneyed  capital  must  be  abrogated.^ 
A  court  of  equity  is  the  proper  forum  to  grant  relief,  and  an 
injunction  is  the  proper  remedy."*  It  was  also  held  that  failure 
to  exhaust  the  means  of  redress  afforded  by  the  laws  of  Washing- 
ton for  equalization  of  assessments  did  npt  preclude  a  national 
bank  from  obtaining  relief  in  a  federal  court  in  the  state,  against 
the  collection  from  it  of  taxes  on  its  stock,  on  the  ground  of 
unjust  discrimination  in  the  valuation  of  such  stock.''  A  portion 
of  the  capital  stock  of  a  national  bank  in  Iowa  being  invested  in 
real  estate,  and  such  real  estate  being  assessed  for  taxation,  the 
Supreme  Court  of  that  state  held  that  the  stock  of  the  bank  could 
be  taxed  to  the  extent  only  of  such  proportion  of  its  market  value 
as  might  remain  after  deducting  therefrom  the  actual  value  of 
the  real  estate.^     It  was  also  held  by  the  Supreme  Court  in  this 


»Rev.  St.  U.  S.  §5319. 

« First  Nat.  Bank  of  Walla  Walla  v. 
Hungate,  (1894)  62  Fed.  Rep.  548. 

*  Citing  People  v.  Weaver,  100  U. 
S.  539;  Pelton  v.  Bank,  101  U.  S.  143; 
Cummings  v.  Bank,  101  U.  S.  153 ; 
Boyer  v.  Boyer.  113  U.  S.  689;  s.  c,  5 
Sup.  Ct.  Rep.  706;  Puget  Sound  Nat. 
Bank«j.  King  Co.,  57  Fed.  Rep.  433. 
163 


*  First  Nat.  Bank  of  Walla  Walla  v. 
Hungate,  (1894)  62  Fed.  Rep.  548. 

5  First  Nat.  Bank  of  Walla  Walla  v. 
Hungate,  (1894)  62  Fed.  Rep.  548; 
Andrews  v.  King  Co.,  1  Wash.  St.  46; 
8.  c,  23  Pac.  Rep.  409,  followed. 

^  First  National  Bank  of  Albia  v. 
City  Council  of  Albia,  (1892)  86  Iowa, 
28.     It  was  said  in  the  opinion  of  the 


•i 


1298 


TAXATION  OF  PRIVATE  00EPOEATION8. 


[§584 


N 


H 


I 


iti 


ti 


■H- 


case,  wliicli  was  a  tax  imposed  upon  shares  in  the  stock  of  a  national 
bank,  that  the  shares  were  credits  within  the  meaning  of  the 
Code  of  Iowa,  section  814,  entitling  a  taxpayer  to  deduct,  from 
the  gross  amount  of  his  credits  listed  for  taxation,  all  debts  owing 
to  him  in  good  faith.*    Shares  of  stockholders  in  national  banking. 


court  :    "  Section  5219  of  the  federal 
statutes   authorizes  the  states  to  tax 
these  banks,  and  contains  the  restric- 
tion '  that  the  taxation  shall  not  be  at 
a  greater  rate  than  is  assessed  on  other 
moneyed  capital  in  the  hands  of  in- 
dividual citizens  of  such  state.'    The 
same     statute   authorizes    the   taxa- 
tion of  the  real  estate  held  by  such 
banks  '  to  the  same  extent,  according 
to  its  value,   as  other  real  estate   is 
taxed.'     It  is  said  in  National  State 
Bank  e.  Young.   25  Iowa,   311,   314: 
•  The  shares  of  the  stockholders  repre- 
sent the  capital  of  the  institution.     To 
tax  the  shares  and  also  the  property  of 
the  bank  would  be  double  taxation.' 
People  p.  Weaver,   100  U.  S.  539 ;  1 
Desty  on  Taxation,  pp.  199,  200,  379, 
383.     See,  also,  Tallman  v.  Treasurer 
of  Butler  Co.,  13  Iowa,  531,  where  the 
court  said  :  '  The  shares  of  stockhold- 
ers are  theoretically,  if  not.practically, 
measured  in  value  by  the  property  of 
the  corporation.     *    *    *      However 
held  [the  lands],   whether  in   fee  or 
otherwise  by  the  company,  they  are  a 
part  of  the  capital  —  affect  the  value 
of  the  stock  which  is  taxable  through 
the  shares.     To  tax  the  land  and  the 
stock   also  which  represents  it,   and 
which  is  enhanced  by  the  value  of  the 
land,  it  seems  to  us  would  be  double 
taxation.'    In  the  case  of  In  re  Appeal 
of  Des  Moines  Water  Co. ,  48  Iowa, 
324,  333.  it   is  held  the  stock    of  a 
corporation  must  be  taxed  as  the  prop- 
erty of  the  corporation  owners,   and 
the  question  as  to  whether  both  the 
shares  and  the  corporate  property  shall 
be  taxed  at  the  same  time   was  not 
determined.    In  Cook  v.  City  of  Bur- 
lington, 59  Iowa,  251,  the  case  last 


cited  is  approved,  and  a  majority  of 
the  court  held  that  the  property  of  a 
corporation  may  be  taxed,  and  that,  at 
the  same  time,  the  stock  can  be  taxed 
to  the  individual  owners;  and  after 
citing  Tallman  r.  Treasurer  of  Butler 
Co.,  12  Iowa,  534;  United  States  Ex- 
press Co.  t.  Ellyson,  28  Iowa,  370, 
378;  McGregor's  Exrs.  v.  Van  pel,  24 
Iowa,  436,  the  court  further  says  that 
it  has  never  held  'that  what  is  de- 
nominated '  duplicate  taxation  '  is  in 
excess  of  the  legislative  power.  The 
most  that  can  be  said  of  these  utter- 
ances of  the  courts  is  that  it  should 
be  held  in  disfavor  by  courts  and 
legislatures.'  In  Henkle  t>.  Town  of 
Keota,  68  Iowa,  338,  the  doctrine  an- 
nounced in  Des  Moines  Water  Co.'s 
Appeal  and  Cook  d.  City  of  Burling- 
ton is  approved,  and  it  is  expressly 
held  that  shares  of  stock  in  a  bank  in- 
corporated imder  the  state  law  were 
taxable  to  the  shareholders."  The 
court  cited  in  support  of  the  ruling  in 
the  text  People  r.  Weaver,  100  U.  S. 
539;  Supervisors  i\  Stanley,  105  U.  8. 
305;  1  Desty  on  Taxation,  383. 

*  First  National  Bank  of  Albia  v. 
City  Council  of  Albia,  (1892)  86  Iowa, 
28.  The  court  said:  "In  Equitable 
Life  Ins.  Co.  r.  Board  of  Equalization, 
74  Iowa,  181,  it  was  held  that  among  the 
debts  of  the  plaintiff  to  its  stockhold- 
ers was  the  amount  which  they  would 
be  entitled  to  recover  upon  a  present 
distribution  of  the  assets  of  the  com- 
pany. These  assets  clearly  must  in- 
clude the  stock,  and,  hence,  if  it  be 
treated  as  a  debt  owing  by  the  corpo- 
ration to  its  stockholders,  or  which 
would  be  due  to  them  if  the  business 
of  the  company  was  to  be  wound  up. 


§584] 


TAXATION  OF  PRIVATE  CORPORATIONS. 


1299 


associations  within  the  limits  of  a  state  are  subject  to  taxation  by 
the  state.^     But  a  state  cannot  tax  national  bank  stock  in  excess 
of  other  moneyed  capital  of  its  citizens,  as  by  refusing  to  deduct 
the  excess  of  its  debts  over  credits  of  the  stockholders  from  the 
amount  of  their  stock.^    Under  the  statutes  of  New  York,  with 
reference  to  taxation  of  shares  of  stock  of  banks,  it  has  been  held 
that  an  assessment  of  bank  stock  in  the  name  of  the  person 
appearing  on  the  list  furnished  the  tax  officers  by  the  officers  of 
the  bank  was  vaUd  as  against  the  real  owner,  to  whom  the  shares 
were  transferred  before  the  assessment  was  made,  the  assessment 
in  the  name  of  the  person  appearing  on  the  list  as  owner  being, 
in  effect,  an  assessment  on  the  shares,  against  whoever  owned  them 
at  the  time  of  the  assessment.^    A  shareholder  in  a  banking  cor- 
poration, it  has  been  held  in  Missouri,  is  not  liable  for  taxes 
assessed  against  the  property  of  the  bank  under  the  statutes  of 
that  state.*     The  statute  of  Iowa  provides  for  the  taxation  of 
shares  of  bank  stock,  and  requires  the  officers  to  furnish  the 
assessors  "  the  name  of  each  person  owning  shares,  and  the  amount 
owned  by  each."     Under  that  statute  an  assessment  on  the  capital 
stock  as  tlie  personal  property  of  the  bank,  without  mention  of  the 
shareholders,  has  been  held  to  be  void.^     The  statute  of  North 
Carolina  requires  the  officers  of  a  corporation  to  hst  for  taxation 
all  the  "  shares  of  stock  "  held  therein  and  the  value  thereof.     It. 
has  been  held  that  under  this  statute  the  capital  stock  must  be 


and  its  assets  distributed  to  those  en- 
titled thereto,  it  would  seem  to  us  to 
follow  that,  as  to  the  stockholders,  the 
stock  which  they  hold  must  at  least, 
so  far  as  the  matter  of  taxation  is  con- 
cerned, be  treated  and  considered  as 
'credits.'    *     *     *    If,  as  is  clearly 
held  in  this  case,  the  obligation  of  the 
corporation  to  repay  the  stockholder 
the  amount  paid  for  the  stock  is  a 
'debt'  of  the  corporation  to  the  stock- 
holder, it  is  certain  that  as  to  him  for 
taxation  purposes,  at  least,  it  must  be 
treated  as  a  '  credit.'    See,  also.  Hawk- 
eye  Ins.  Co.  V.  Board  of  Equalization, 
75  Iowa,  770,  where  the  doctrine  an- 
nounced    above     is    followed    and 
approved." 
>  Van  Slyke  v.  State  of  Wisconsin, 


154  U.  S.  581:  s.  c,  14  Sup.  Ct.  Rep. 
1168;  Bagnall  v.  State  of  Wisconsin, 
ibid.  See  Adair  v.  Robinson,  6  Tex. 
Civ.  App.  275;  Niles  v.  Shaw,  50  Ohio 

St.  370. 

2  First  National  Bank  v.  Chapman, 
9  Ohio  Cir.  Ct.  Rep.  79. 

"People  V.  Barker,  87  Hun,  194;  8. 
c,  33  N.  Y.  Supp.  1042.  For  an  illus- 
tration of  an  assessment  upon  the 
stock  of  a  national  bank  which  was 
held  to'be  illegal,  see  People  ex  rel. 
Sheldon  v.  Fraser,  74  Hun,  282;  s.  c, 
26  N.  Y.  Supp.  814;  56  N.  Y.  St. 
Repr.  888. 

*  State  V.  Catron,  118  Mo.  280;  s.  c, 
24  S.  W.  Rep.  439. 

'Farmers  &  Traders'  Nat.  Bank  «. 
Hoffmann,  (Iowa)  61  N.  W.  Rep.  418. 


V 


4 


1300 


TAXATION  OP  PKIVATE  COBPOEATIONS. 


[§585 


§585] 


TAXATION  OF  PEIVATE  CORPOEATIONS. 


1301 


III 


li 


!i| 


listed  by  the  officers  of  the  corporation  and  not  bj  individual 
Btockholders.^ 

§  585.  Taxation  of  railroad  corporations  —  rules.  —  A  pro- 
vision in  the  charter  of  a  railroad  corporation  that  it  should  pay 
to  the  state  a  fixed  sura  as  taxes,  "  and  no  more,"  has  been  held 
not  to  reheve  it  from  county  taxation.^  For  the  purpose  of 
county  taxation  the  roadbed  of  a  railroad  company  constitutes  "  real 
property."  ^  The  term  "  capital  stock  "  in  the  tax  law  of  Ken- 
tucky has  been  held  to  include  the  entire  property,  real  and  per- 
sonal, tangible  and  intangible,  as  well  as  the  value  of  the  fran- 
chise.* Where  rolling  stock  is  constantly  changing  the  amount 
for  taxation  may  be  fixed  by  the  average  amount  of  the  rolling 
stock  used  upon  a  road.*  The  part  of  a  tax  paid  by  a  railroad 
company  which  has  been  illegally  collected  of  it,  should  be  applied 
to  valid  taxes  subsequently  accruing  against  it.*  A  tax  upon  a 
railroad  corporation  which  has  purchased  a  railroad,  aided  by  a 
subscription  of  a  county,  for  the  purpose  of  meeting  that  subscrip- 
tion, is  limited  to  the  improvements  made  upon  the  road  after  its 
purchase.'  A  hotel  owned  by  a  railroad  corporation,  leased  by  it 
for  a  summer  resort,  has  been  lield  not  to  come  within  the  ordi- 
nary exemption  of  the  railroad  corporation  from  taxation  in  Min- 
nesota.^   The  United  States  Supreme  Court  has  held  that  the  act 

Pac.  Rep.  532;  United  States  Electric 
Power  &  Light  Co.  v.  State,  79  Md. 
63;  States.  Bank  of  Commerce,  (Tenn.) 
31  8.  W.  Rep.  993. 

^  Atlantic  &  Pac.  R.  R.  Co.  v.  Le 
Sueur,  (Ariz.)  19  Pac.  Rep.  157. 

» Northern  Pacific  R.  R.  Co.  v.  Ray- 
mond, (Dak.)  40  N.  W.  Rep.  538;  State 
T.  Missouri  Pac.  Ry.  Co.,  (Mo.)  6  S.  W. 
Rep.  862.  See,  also,  Boston,  C.  &  M. 
R.  R.  Co.  V.  State,  64  N.  H.  490;  8.  c, 
13  Atl.  Rep.  874. 

'  Louisville  &  Nashville  R.  R.  Co. 
V.  Hopkins  County,  87  Ky.  605;  s.  c, 
9  S.  W.  Rep.  497. 

*  County  of  Hennepin  v.  St.  Paul, 
M.  i&  M.  Ry.  Co.,  42  Minn.  238;  8.  c, 
44  N.  W.  Rep.  63.  Cases  in  which 
the  statutes  for  taxing  railroads  have 
been  held  to  be  unconstitutional : 
Central  Railroad  v.  State  Board  of  As- 


'  Charlotte  Building  &  Loan  Asso- 
ciation V.  Board  Comrs.  Mecklenburg 
County,  115  N.  C.  410;  s.  c,  20  S.  E. 
Rep.  526.  As  to  taxation  of  shares  of 
stock  in  banks,  and  statements  re- 
quired of  the  banks  in  connection 
therewith,  see  First  Nat.  Bank  v. 
Bailey,  (Mont.)  39  Pac.  Rep.  83; 
Eaton  V.  Union  County  Nat.  Bank, 
40  N.  E.  Rep.  668. 

•Kentucky  Central  R.  R.  Co.  v. 
County  of  Pendleton,  (Ky.)  2  S.  W. 
Rep.  176. 

'Neary  v.  Philadelphia,  Wilming- 
ton &  Baltimore  R.  R.  Co..  (Del.)  9 
Atl.  Rep.  405. 

*  Henderson  Bridge  Company  v. 
Commonwealth,  (Ky.)  31  S.  W.  Rep. 
486.  What  is  not  double  taxation  on 
property  of  a  corporation,  see  Pacific 
Coast  Ry.  Co.  v.  Ramage,  (Cal)  37 


of  the  legislature  of  Indiana  of  March  6, 1891,  concerning  taxation, 
under  the  provisions  of  which  there  was  an  assessment  upon  the 
railroad  company's  property  by  the  state  board  of  assessors,  not  to 
be  obnoxious  to  the  constitutional  objections  made  to  it  on  the 
hearing,  as  the  Supreme  Court  of  Indiana  had  decided  that  the 
Constitution  of  that  state  authorized  such  a  method  of  assessing 
railroad  property,  which  decision  was  binding  upon  the  United 
States  Supreme  Court.  Further,  the  act  gives  the  railroad  com- 
panies the  right  to  be  heard  before  final  determination  of  the 
question,  which  construction  was  also  conclusive  upon  this  court. 
Further  than  this,  a  tax  law  which  grants  to  the  taxpayer  a  right  to 
be  heard  on  the  assessment  of  liis  property  before  final  judgment, 


sessors,  49  N.  J.  L,  1;  s.  c,  7  Atl.  Rep. 
306.  Where  they  were  held  to  be  con- 
stitutional: Owensboro  &  N.  Ry.  Co.  v. 
County  of  Daviess,  (Ky.)  3  S.  W.  Rep. 
164.  Taxation  on  "  undivided  profits" 
for  a  railroad  company  under  federal 
statute  construed:  Marquette,  H,  & 
O.  R.  R.  Co.  V.  United  States,  123  U. 
S.  722;  8.  c,  8  Sup.  Ct.  Rep.  319. 
Taxation  upon  earnings  of  a  railroad 
corporation;  rules  as  to  computation 
of,  etc. :  State  v.  Northern  Pacific  R. 
R.  Co.,  36  Minn.  207;  s.  c,  30  N. 
W.  Rep.  663.  What  is  taxable  prop- 
erty of  a  railroad  corporation:  City 
of  Muscatine  v.  Chicago,  R.  I.  &  P. 
Ry.  Co.,  79  Iowa,  645;  s.  c,  44  N.  W. 
Rep.  909;  Nashua  &  Lowell  Railroad  v. 
City  of  Nashua.  62  N.  H.  602;  Boston, 
C.  &  M.  Railroad  v.  State,  62  N.  H.  648. 
Assessment  of  railroad  property  for 
taxation;  rules  for  ascertaining  value: 
People  V.  Hicks,  105  N.  Y.  198;  s.  c, 
il  N.  E.  Rep.  653;  Central  Railroad  ®. 
State  Board  of  Assessors,  49  N.  J.  L.  1; 
8.  c,  7  Atl.  Rep.  306;  Ohio  &  Mssis- 
sippi  Ry.  Co.  v.  People,  120  111.  200; 
8.  c,  10  N.  E.  Rep.  545;  People  v. 
Comrs.  of  Taxes,  104  N.  Y.  240;  s.  c, 
10  N.  E.  Rep.  437;  People  v.  Assessor, 
2  N.  Y.  Supp.  240;  State  v.  Union 
Trust  Co.,  (Mo.)  6  S.  W.  Rep.  867; 
Morgan's  La.  &  Tex.  R.  R.  & 
St.     Ship     Co.     V.     Board     of    Re- 


viewers, (La.)  3  So.  Rep.  507.  Rule 
as  to  computing  the  length  of  a  rail- 
road :  Herbert  v.  Baltimore  &  Phila- 
delphia R.  R.  Co.,  (Del.)  13  Atl.  Rep. 
902;  State  v.  Nashville,  C.  &  St.  L. 
R.  R.  Co.,  2  Pickle,  438;  s.  c,  (Tenn.) 
6  S.  W.  Rep.  880;  State  Board  of  As- 
sessors V.  Paterson  &  R.  R.  R.  Co., 
50  N.  J.  L.  446;  s.  c,  14  Atl.  Rep. 
610;  Todd  County  v.  St.  Paul,  M.  & 
M.  Ry.  Co.,  (Minn.)  36  N.  W.  Rep. 
109,  Assessment  for  back  taxes;  rules 
governing :  State  v.  Hannibal  &  St. 
Jo  R.  R.  Co.,  (Mo.)  11  S.  W.  Rep. 
746;  State  v.  Wabash,  St.  L.  &  Pac. 
Ry.  Co.,  97  Mo.  296;  s.  c,  10  S.  W.  Rep. 
434.  When  unauthorized:  Frank- 
lin County  Court  v.  Louisville  & 
Nashville  R.  R.  Co.,  84  Ky.  59. 
Where  and  by  whom  assessments  of 
taxation  on  railroad  companies  should 
be  made :  Oregon  Short  Line  Ry. 
Co.  V.  Yeates,  (Idaho)  17  Pac.  Rep. 
457;  Morgan's  La.  &  Tex.  R.  R.  & 
St.  Ship  Co.  V.  Board  of  Reviewers, 
(La.)  3  So.  Rep.  507;  Missouri  Valley 
&  B.  Ry.  &  B.  Co.  V.  Harrison  County, 
74  Iowa,  283;  s.  c,  37  N.  W.  Rep.  372. 
Assessment  of  tax,  upon  railroad  prop- 
erty, in  New  Hampshire,  see  Boston  C. 
&  M.  Railroad  v.  State,  62  N.  H.  648. 
Assessment  upon  railroad  track  in 
Illinois;  not  to  be  assessed  by  local 
assessor,  see  Chicago  &  A.  R.  R.  Co. 


1302 


TAXATION  OF  PRIVATE  CORPORATIONS. 


|i 


^1 

I.  ■ 


'i 


'.\ 


pfHi 


[§685 

provides  a  due  process  of  law  for  determining  the  valuation, 
although  it  makes  no  provision  for  a  rehearing.*  An  assessment 
made  upon  a  railroad  company's  property  in  Indiana  was  objected 
to  on  the  ground  tliat  it  was  based  partly  upon  property  outside 
of  the  state,  the  road  running  also  through  the  adjoining  state. 
The  United  States  Supreme  Court,  after  a  consideration  of  the 
questions  made,  determined  as  follows :  If  an  assessing  board, 
seeking  to  assess  for  purposes  of  taxation  a  part  of  a  railroad 
within  a  state,  the  other  part  of  which  is  in  an  adjoining  state, 


§  685] 


TAXATION  OF  PRIVATE  CORPORATIONS. 


1303 


V.  People,  129  111.  571;  s.  c,  22  N. 
E.  Rep.    8t$4.      When  corporation  is 
estopped  to  complain   of  assessment 
by  town  assessor,  see  Indianapolis  & 
St.  Louis  Ry.  Co.  u.  People,  130  111. 
62;    8.   c,   22  N.   E.   Rep.   854.     In 
Nebraska,  see  Red  Willow  County  v. 
Chicago,  B.  &  Q.  I^iilroad  Company, 
26  Neb.    660;    s.    c,    42  N.   W.  Rep. 
879.     In    New   Jersey,  see  Williams 
V.  State  Board  of  Assessors,  51  N.  J. 
Law,  512;  8.  c,  18  Atl.  Rep.  750.     In 
Iowa,  see  Missouri  Valley  &  B.  Ry,  & 
B.   Co.  V.  Harrison  County,  74  Iowa, 
283.     In  Kentucky,  see  Louisville  & 
N.   R.   R.  Co.  V.  Commonwealth,  85 
Ky.   198.      In  Tennessee,  see   Shelby 
County  V.  Mississippi  &  T.  R.  Co.,  16 
Lea,  401;  s.  c,  1  S.  W.  Rep.  32.     In 
Missouri,  see  State  v.  Hannibal  &  St. 
Jo  R.  R.  Co.,  (Mo.)  13  S.  W.  Rep. 
505.    In  New  York,    see   People  v. 
Cheetham,  45  Hun,  6;   s.  c,  20  Abb. 
N.  C.  44;    Atlantic  &  P.  Ry.  Co.  v. 
Yavapai  County,  (Ariz.)  21  Pac.  Rep. 
768.     The  right  to  attack  a  valuation 
of  its  property,  see  St.  Louis  Bridge  & 
Tunnel  R.  R.  Co.  r.  People,  127  111. 
627;  8.  c,  21  N.  E.  Rep.  348,  follow- 
ing Railway  Co.  v.  People,  10  N.  E. 
Rep.  397.     Rule  of  valuation  in  Ken- 
tucky, see  Owensboro  «fc  N.  Ry.  Co.  v. 
Logan  County,  (Ky.)  11  S.  W.  Rep.76. 
As  established   by  earning   capacity, 
see  People  v.  Haren,  3  N.  Y.  Supp.  86. 
When  a  railroad  bridge  must  be  as- 
sessed with  the  railroad,  see  State  v. 
Hannibal  &  St.    Jo.  R.  R.  Co.,  97  Mo. 


348;  8.  c,  10  S.  W.  Rep.  436.     When 
an  assessment  is  void,  see  St.  Louis  &  8. 
F.  Ry.  Co.  D.  Apperson,  97  Mo.  300; 
8.   c,   10  S.  W.   Rep.   478;  State  of 
California  v.  Central  Pacific  R.  R.  Co., 
127  U.  S.    1;  8.  c,  8  Sup.  Ct.  Rep. 
1073.     Return    of    miles  of   railroad 
in  Nebraska  for  taxation:  Cass  County 
r.    Chicago,    B.    &    Q.    R.    R.    Co., 
25  Neb.    348;  s.    c,   41  N.  W.   Rep. 
246;  Chicago,  B.  &  Q.  R.   R.  Co.  v. 
School  District  No.  1.  25  Neb.  359;  s. 
c,  41  N.  W.  Rep.  249.     Taxation  of 
lands     granted     to    railroads;    rules: 
State  V.  Central    Pacific  R.   R.   Co., 
(Nev.)  22  Pac.  Rep.  237;  St.  Paul  & 
Sioux  City  R.  R.  Co.  v.  Robinson.  40 
Minn.  367;  s.  c,   43  N.    W.  Rep.  75; 
St.  Paul  &  Sioux  City  R.  R.  Co.  v. 
Shanks.  40  Minn.  369;  s.  c,  42  N.  W. 
Rep.  83;  Sioux  City  &  St.  Paul  R.  R. 
Co.  V.  Robinson,  41  Minn.  452;  8.  c, 
43  N.  W.  Rep.  326;  Sioux  City  &  S^. 
Paul  R.  R.  Co.  V.  King.  41  Minn.  461; 
8.  c,  43  N.  W.  Rep.  329.    Taxation  of 
railroads  for  school  purposes  in  Mis- 
souri:     Chicago  «fe  A.   R.  R.   Co.   v. 
Lamkin,  97  Mo.  496;  s.  c,  10  S.  W. 
Rep.  200.      Taxation  of  foreign  rail- 
road corporations  running  into  Penn- 
sylvania:   Commonwealth  v.   Lehigh 
Valley  R.  R.  Co.,  (Pa.)  17  Atl.  Rep. 
179;  Delaware  &  Hudson  Canal  Co.  v. 
Commonwealth,    (Pa.)  17  Atl.    Rep. 
175. 

*  Pittsburgh,  Cincinnati,  Chicago  & 
St.  I^uis  Ry.  Co.  v.  Backus,  (1894) 
154  U.  S.  421. 


ascertains  the  value  of  the  whole  line  as  a  single  property,  and 
then  determines  the  value  of  that  within  the  state  upon  the  mile- 
age basis,  that  is  not  a  valuation  of  property  outside  of  the  state  ; 
and  the  assessing  board,  in  order  to  keep  within  the  Ihnits  of 
state  jurisdiction,  need  not  treat  the  part  of  the  road  within  the 
state  as  an  independent  line,  disconnected  from  the  part  without, 
and  place  upon  that  property  only  the  value  which  can  be  given 
to  it  if  operated  separately  from  the  balance  of  the  road.  Where 
an  assessing  board  is  charged  with  the  duty  of  valuing  a  certain 
number  of  miles  of  railroad  within  a  state  forming  part  of  a  line 
of  road  running  into  another  state,  and  assesses  those  miles  of 
road  at  their  actual  cost  value,  determined  on  a  mileage  basis,  this 
does  not  place  a  burden  upon  interstate  commerce  beyond  the 
power  of  the  state,  simply  because  the  value  of  that  railroad,  as  a 
whole,  is  created  partly  —  and  perhaps  largely  —  by  the  interstate 
commerce  which  it  is  doing.^  The  United  States  Supreme  Court 
declared  the  rule  as  to  ascertaining  the  value  of  railroad  property 
for  taxation  purposes  to  be  as  follows:  When  a  railroad  runs 
into  or  through  two  or  more  states,  its  value,  for  taxation  purposes, 
in  each  is  fairly  estimated  by  taking  that  part  of  the  value  of  the 
entire  road  wliich  is  measured  by  the  proportion  of  the  length  of 
the  particular  part  in  that  state  to  that  of  the  whole  road. 
Further,  they  held  that  the  judgment  of  a  state  board  of  assessors, 
empowered  to  fix  a  valuation  for  taxation,  could  not  be  set  aside 
by  the  testimony  of  witnesses  that  the  valuation  was  other  than 
that  fixed  by  the  board,  where  there  was  no  evidence  of  fraud  or 
of  gross  error  in  the  system  on  which  the  valuations  were  made.^ 


>  Cleveland,  Cincinnati,  Chicago  & 
St.  Louis  Ry.  Co.  v.  Backus,  (1894) 
154  U.  8.  439.  The  court  said:  "It 
has  been  again  and  again  said  by  this 
court  that  while  no  state  could  impose 
any  tax  or  burden  upon  the  privilege 
of  doing  the  business  of  interstate 
commerce,  yet  it  had  the  unquestioned 
right  to  place  a  property  tax  on  the 
instrumentalities  engaged  in  such  com- 
merce. See,  among  many  other  cases, 
Marye  v.  Baltimore  &  Ohio  Railroad, 
127  U.  S.  117;  Pullman's  Palace  Car 
Co.  V.  Pennsylvania,  141  U.  S.  18." 

'  Pittsburgh,  Cincinnati,  Chicago  & 
St.  Louis  Ry.  Co.  v.  Backus,  (1894)  154 


U.    S.    421.     Mr.    Justice    Brewer, 
speaking  for  the  majority  of  the  court, 
said:  "The  stock  and  the  indebted- 
ness represent  the  property.     As  said 
by  ]VIr.  Justice  Mfller  in  State  Rail- 
road Tax  Cases,  92  U.   S.   575,  605: 
*  When   you  have  ascertainai  the  cur- 
rent cash  value  of  the  whole  funded 
debt,  and  current  cash  value  of  the 
entire  number  of  shares,  you  have,  by 
the  action  of  those  who  above  all  others 
can  best  estimate  it,  ascertained  the 
true  value  of  the  road,  all  its  property, 
its  capital  stock  and   its  franchises, 
for  these  are  all  represented  by  the 
value  of  its  bonded  debt  and  of  the 


1304  TAXATION  OF  PRIVATE  CORPORATIOXS.  [§  585 

A  railroad  company  securing  a  state  franchise  to  operate  its  road, 
afterwards  obtaining  a  federal  franchise,  will  not  by  tlie  receipt 
of  the  latter  be  saved  from  the  right  of  the  state  to  tax  the  state 
franchise,  the  roadbed  and  other  property  of  the  company.* 
Taxes  on  the  right  of  way  of  a  railroad  company  cannot  be 
avoided  by  the  company  by  reason  of  errors  in  describing  it  in 
the  assessment  book.^  The  United  States  Supreme  Court  has 
held  that  the  sum  received  by  one  raih-oad  company  from  another 
for  the  use  of  its  tracks  was  a  toll  within  the  meaning  of  a 
Pennsylvania  statute,  taxing  gross  receipts  of  railroad  companies 
"  for  tolls  and  transportations."^      Land  belonging  to  a  railroad 


§585] 


TAXATION  OF  PRIVATE  CORPORATIONS. 


1305 


shares  of  its  capital  stock.'  In  Frank- 
lin County  V.  Nashville,  Chattanooga, 
etc.,  Railway,  13  Lea,  521,  539,  the 
Supreme  Court  of  Tennessee,  in  a 
well-considered  opinion,  which  was 
quoted  with  approval  by  this  court 
in  Columbus  Southern  Railway  v. 
Wright,  151  U.  S.  470,  479,  thus  re- 
ferred to  the  means  of  ascertaining  the 
value  of  a  railroad  track:  *  The  value 
of  the  roadway  at  any  given  time  is 
not  the  original  cost,  nor,  a  fortiori ,  its 
ultimate  cost  after  years  of  expend- 
iture in  repairs  and  improvements. 
On  the  other  hand,  its  value  cannot  be 
determined  by  ascertaining  the  value 
of  the  land  included  in  the  roadway 
assessed  at  the  market  price  of  adja- 
cent lands,  and  adding  the  value  of 
the  crossties,  rails  and  spikes.  The 
value  of  land  depends  largely  upon 
the  uses  to  which  it  can  be  put  and 
the  character  of  the  improvements 
upon  it.  The  assessable  value  for 
taxation  of  a  railroad  track  can  only 
be  determined  by  looking  at  the  ele- 
ments on  which  the  financial  condition 
of  the  company  depends,  its  traffic,  as 
evidenced  by  the  rolling  stock  and 
gross  earnings  in  connection  with  its 
capital  stock.  No  local  estimate  of 
the  fraction  in  one  county  of  a  railroad 
track  running  through  several  counties 
can  be  based  upon  sufficient  data  to 
make  it  at  all  reliable,  unless,  indeed, 
the  local  assessors  are  furnished  with 


the  means  of  estimating  the  whole 
road.  *  *  ♦  This  court  has  ex- 
pressly held  in  two  cases,  where  the 
road  of  a  corporation  ran  through  dif- 
ferent states,  that  a  tax  upon  the 
income  or  franchise  of  the  road  was 
properly  apportioned  by  taking  the 
whole  income  or  value  of  the  fran- 
chise, and  the  length  of  the  road 
within  each  state,  as  the  basis  of  taxa- 
tion. The  Delaware  Railroad  Tax 
Case,  18  Wall.  206;  Erie  Railway  v. 
Pennsylvania,  21  Wall.  492.' " 

'  People  ti.  Central  Pacific  R.  R.  Co., 
105  Cal.  576;  s.  c,  38  Pac.  Rep.  905. 

'  Cairo,  V.  &  C.  Ry.  Co.  v.  Mathews, 
152  111.  153;  8.  c,  38  N.  E.  Rep.  623. 
When  the  mode  of  computing  a  rail- 
road company's  tax  will  not  vitiate  the 
tax,  see  Cairo,  V.  &  C.  Ry.  Co.  v, 
Mathews,  152  111.  153;  s.  c,  38  N.  E. 
Rep.  623. 

«  New  York,  Lake  Erie  &  West.  R. 
R.  Co.  r.  Commonwealth  of  Pennsyl- 
vania, 158  U.  S.  431;  8.  c,  15  Sup.  Ct. 
Rep.  896.  See  State  v.  Stone,  119  Mo. 
668;  Herbert  x.  Railroad  Company,  8 
Del.  120.  For  rule  as  to  power  of  the 
court  in  an  action  by  a  city  to  recover 
taxes  of  a  railroad  company  upon  a 
part  of  its  road,  brought  within  the 
city  by  an  extension  of  its  boundaries, 
in  ascertaining  the  amount  of  taxes 
due,  see  Louisville  &  Nashville  R.  R. 
Co.  r.  Commonwealth,  (Ky.)  30  S.  W. 
Rep.   624.     As  to   the  effect  of   the 


I 


I 


on  which  was  situated  its  passenger  and  freight  depots,  round 
house,  side  tracks  and  terminal  facilities  has  been  held  in  Illinois 
to  be  properly  assessable  as  "  railroad  track  "  under  the  statutes 
of  that  state,  declaring  that  "  such  right  of  way,  including  the 
superstructures  of  main,  side  or  second  tracks  and  turnouts,  and 
the  stations  and  improvements  of  the  railroad  company  on  such 
*  right  of  way,  shall  be  held  to  be  real  estate  for  the  purpose  of 
taxation  and  denominated  '  railroad  track  '  and  shall  be  so  listed 
and  valued."  *  Trustees  of  bondholders  in  charge  of  a  railroad 
whose  main  track  was  all  outside  the  state  of  Illinois,  but  the 
trains  of  which  were  brought  into  the  state  over  the  tracks  of 
another  company,  have  been  held  to  be  "  operating  a  railroad  in 
this  state  "  within  the  meaning  of  the  statute  of  that  state  requir- 
ing those  "  owning,  operating  or  constructing  a  railroad  in  this 
state"  to  return  schedules  of  its  taxable  property.^  The  tax 
assessed  upon  a  railroad  company's  property  is  a  lien  on  all  the 
property  assessed,  the  property  being  assessed  as  a  unit  and  the 
%2^x  being  due  as  a  unit.^ 


Washington  statute  imposing  a  tax  on 
"  gross  earnings  "  of  railroad  corpora- 
tions in  lieu  of  all  other  taxes,  in  ex- 
empting the  property  of  the  corpora- 
tion from  taxation,  see  Columbia  &  P. 
8.  R.  R.  Co.  V.  Chilberg,  6  Wash.  612; 
8.  c,  34  Pac.  Rep.  163.  As  to  what 
erections  upon  its  land  and  improve- 
ments by  a  railroad  corporation  are  so 
necessarily  connected  with  its  general 
business  as  to  come  within  a  statutory 
exemption  of  its  property  from  gen- 
eral taxation,  see  Chicago,  St.  Paul, 
M.  &  O.  Ry.  Co.  V.  Bayfield  County, 
(Wis.)  58  N.  W.  Rep.  245.  As  to  rail- 
roads taxable  under  the  Constitution 
of  Florida  of  1868,  see  Bloxham  v. 
Florida  Central  &  P.  R.  R.  Co.,  (Fla.) 
17  So.  Rep.  902. 

iQuincy,    O.  &  K.   C.  Ry.  Co.   v. 
People.  (111.)  41  N.  E.  Rep.  162. 

'  Ibid.  That  a  railroad  corporation 
operating  a  railroad  from  a  point  in 
the  state  to  a  point  in  another  state, 
being  liable  to  the  tax  prescribed  on 
gross  earnings  under  the  New  York 
statutes,  as  a  tax  on  franchise,  see 
164 


People  ex  rel.  Dunkirk,  Alleghany 
Valley,  etc.,  R.  R.  Co.  «.  Campbell,  74 
Hun,  210;  8.  c,  26  N.  Y.  Supp.  8S2; 
56  N.  Y.  St.  Repr.  358;  citing  People 
ex  rel.  Pennsylvania  R.  R.  Co.  v.  Wem- 
ple,  138  N.  Y.  1 ;  People  v.  Home  Ins. 
Co.,  92  N.  Y.  328;  People  ex  rel. 
Southern  Cotton  Oil  Co.  d.  Wemple, 
131  N.  Y.  64.  In  Maricopa  &  PhcBnix 
R.  R.  Co.  V.  Arizona  Territory,  156  U. 
S.  347,  where  the  United  States  gov- 
ernment, through  congress,  had 
granted  to  the  railroad  corporation, 
organized  under  the  laws  of  the  terri- 
tory, a  right  of  way  over  an  Indian 
reservation  within  the  territory,  the 
road  being  constructed  entirely  within 
the  territory,  it  was  held  that  the  part 
of  the  road  within  the  reservation  was 
subject  to  taxation  by  the  territorial 
government. 

» Maricopa  &  P.  R.  R.  Co.  v.  Terri- 
tory of  Arizona,  156  U.  S.  347;  s.  c, 
15  Sup.  Ct.  Rep.  391.  As  to  exemp- 
tion of  a  railroad  company  from  taxa- 
tion for  five  years  under  Kentucky 
statute,  see  Commonwealth  r.   Louis- 


1306 


TAXATION  OF  PRIVATE  CORPORATIONS. 


[§586 


§  586.  Taxation  of  insurance  corporations. —  The  Kansas 
Supreme  Court  has  held  the  reserve  fund  of  a  mutual  life  asso- 
tion,  organized  on  the  co-operative  plan,  it  having  no  capital  stock, 
subject  to  taxation  in  that  state.*  They  also  held  that  the  con- 
tingent liabilities  of  the  association  to  the  holders  of  its  policies, 
were  not  such  indebtedness  of  the  corporation  as  could  be 
deducted  from  the  credits  of  the  association  subject  to  taxation.* 


ville,  St.  Louis  &  K.  Ry.  Co.,  (Ky.) 
31  8.  W.  Rep.  464.  For  illustrations 
of  exemptions  of  railroad  corporations 
from  taxation  which  would  not  relieve 
them  from  assessments  for  local  im- 
provements, or  special  taxes  for  street 
pavements  adjacent  to  their  right  of 
way,  see  Lake  Shore  &  Michigan 
Southern  Ry.  Co.  u.  City  of  Grand 
Rapids,  (Mich.)  60  N.  W.  Rep.  767; 
Illinois  Central  R.  R.  Co.  v.  City  of 
Decatur,  154  111.  173;  s.  c,  38  N.  E. 
Rep.  626.  See,  also,  Commonwealth 
V.  Railroad  Company,  95  Ky.  60;  Chi- 
cago, St.  P.,  M.  &  O.  Ry.  Co.  V.  Bay- 
field County.  87  Wis.  188;  State  v. 
District  Court,  54  Minn.  34;  Fargo  & 
8.  W.  R.  R.  Co.  T.  Brewer,  3  N.  Dak. 
34;  Commonwealth  v.  Railway  Com- 
pany, 93  Ky.  430. 

^  Kansas  Mutual  Life  Association  v. 
Ilill,  Treasurer  of  Brown  County,  51 
Kans.  636. 

'Ibid.  The  court's  attention  was 
called  upon  this  point  to  Insurance 
Company  d.  Lott,  54  Ala.  499,  and 
Equitable  Life  Ins.  Co.  r.  Board  of 
Equalization,  74  Iowa,  178;  s.  c,  37 
N.  W.  Rep.  141,  upon  which  the  asso- 
ciation's counsel  relied,  was  distin- 
guished by  the  court  in  these  words: 
"The  statute  of  Iowa  allows  a  tax- 
payer to  deduct  his  indebtedness  from 
the  amount  of  money  or  credits  which 
be  is  required  to  list,  and  in  that  re- 
spect is  quite  unlike  our  own,  which 
only  allows  such  deduction  to  be  made 
from  credits  not  secured  by  liens  on 
real  estate,  nor  due  from  a  bank  on  de- 
mand.    The  plaintiff  in  that  case  was 


a  stock  company  to  which  its  stock- 
holders had  contributed  on  their  shares 
flOO.OOO.  The  court  regarded  the 
shares  as  taxable  at  their  cash  value  in 
the  hands  of  the  stockholders,  and  that 
this  cash  value  would  be  augmented 
by  whatever  accumulations  of  profit 
the  company  held,  to  which  they 
would  be  entitled  in  case  of  distribu- 
tion. In  the  plaintiff  company  there 
are  no  stockholders.  The  policies  is- 
sued by  the  plaintiff  in  that  case  were 
not  forfeited  by  failure  to  pay  pre- 
miums after  two  payments,  but  a  paid- 
up  policy  was  issued  for  an  amount 
fixed  by  the  terms  of  the  policy.  The 
court  held  the  reserves  on  such  policies 
debts  owing  by  the  company.  In  this 
case  no  such  policies  are  outstanding. 
On  the  other  hand,  there  are  many  au- 
thorities which  hold  that  the  con- 
tingent liabilities  of  insurance  com- 
panies, both  life  and  other,  on  policies 
outstanding  before  loss  occurs,  are  not 
debts  within  the  meaning  of  the  stat- 
ute, which  may  be  deducted  from  the 
credits  of  the  company.  1  Desty  Tax. 
§  79;  Insurance  Co.  r.  Cappellar,  38 
Ohio  St.  560;  Kenton  Ins.  Co.  v.  aty  of 
Covington,  86  Ky.  213;  s.  c,  5  8.  W. 
Rep.  461;  People  v.  Davenport,  91  N.  Y. 
574;  People  ex  rel.  v.  Commissioners,  76 
N.  Y.  64;  Fire  Ins.  Co.  v.  Parker,  35  N. 
J.  Law,  575;  Sun  Mut.  Ins.  Co.  v. 
Mayor,  etc.,  of  New  York.  8  N.  Y. 
241.  The  general  rule  is  that  all 
property  must  bear  its  share  of  taxa- 
tion, unless  expressly  exempted  there- 
from. *  *  *  A  contingent  liability 
which  is  not  susceptible  of  computa- 


i 


1 


^^se] 


TAXATION  OF  PEIVATE  COEPORATIONS. 


1307 


An  insurance  corporation,  vested  by  its  charter  "  with  all  the 
powers,  privileges  and  immunities  "  of  an  older  existing  corpora- 
tion, the  Supreme  Court  of  Tennessee  held  to  be  vested  with  a 
valid  exemption  from  taxation  contained  in  the  charter  of  the 
older  one.^  But  should  the  charter  clothe  the  corporation  "  with 
all  the  rights  and  privileges  "  of  such  older  existing  corporation, 
without  more,  those  words  would  not  carry  the  exemption  of  the 
older  corporation  to  the  later  one.^  The  Supreme  Court  of  Ten- 
nessee has  held  that  under  a  clause  of  the  charter  of  an  insurance 
company,  that  "  there  shall  be  a  state  tax  of  one-half  of  one  per 
cent  upon  the  amount  of  capital  paid  in,"  the  capital  stock,  and 
not  the  shares,  was  taxed  ;  and  that  under  the  charter  provision 
the  capital  stock  was  exempted  by  implication  from  all  taxation, 
whether  state,  county  or  municipal,  other  than  the  charter  tax. 
This  exemption,  however,  they  held  did  not  extend  to  the  shares 
of  stock.8  Where  corporate  officers  were  in  default  in  furnishing 
to  the  assessor  of  taxes  the  names  of  shareholders,  the  assessor 
assessed  the  shares  of  stock  to  "  unknown  owners."  The  Supreme 
Court  of  Tennessee  held  that  the  tax  so  assessed  could  be  col- 
lected either  by  direct  suit  against  the  corporation,  especially  if  it 
was  a  dividend-paying  corporation,  or  by  suit  against  the  corpora- 
tion and  its  officers,  seeking  discovery  of  the  names  of  its  share- 
holders, in  order  that  they  might  be  made  parties  by  the  supple- 
mental bill.* 


tion  is  not  a  debt  owing  in  good  faith 
which  may  be  deducted  from  credits 
under  the  tax  law.    ♦    *    *" 

*  Memphis  v.  Phoenix,  etc.,  Insurance 
Co.,  91  Tenn.  566. 

*Ibid.  The  court  referred  to  Rail- 
road Co.  V.  Hicks,  9  Bax.  442;  State  i^. 
N.  C.  &  St.  L.  Ry.,  12  Lea,  583;  Rail- 
road Company  v.  Hamblen  County, 
102  U.  S.  273;  Wilson  v.  Gaines,  103 
U.  S.  417.  As  to  exemptions  of  insur- 
ance corporations  from  taxation  under 
statutes,  see  People,  etc.,  v.  Reliance 
Marine  Insurance  Co.  (Lim.),  70  Hun, 


554;    Brennan   v.    Mississippi    Home 
Insurance  Co.,  70  Miss.  531. 

'  Memphis  v.  Home  Insurance  Com- 
pany, 91  Tenn.  558;  citing  Memphis  f>. 
Union  &  Planters'  Bank,  91  Tenn.  546; 
Union  Bank  v.  State,  9  Yer.  490;  St. 
R.  Co.  t?.  Morrow,  87  Tenn.  406; 
Memphis  v.  Ensley,  6  Bax.  553;  Gas 
Light  Co.  V.  Nashville,  8  Lea,  406; 
Farrington  v.  Tennessee,  95  U.  S.  679; 
Tennessee  v.  Whit  worth,  117  U.  S. 
136. 

^Memphis  v.  Home  Insurance  Co., 
91  Tenn.  558. 


[End  of  Volume  II.] 


GENERAL  INDEX. 


> 


GENERAL   INDEX. 


[The  references  are  to  sections :  vol.  I  contains  §§  1-340;  vol.  II,  $8  841-586.] 


A. 

ABATEMENT: 

director  or  trustee  of  corporation,  personal  liability  under  New  York 
statutes,  making  false  statements  in  reports  required  by,  abatement  of, 
at  death  of  creditor,  353 

ACCEPTANCE: 

by  private  corporation,  for  accommodation,  68 

what  may  be  accepted,  85 
by  directors  in  name  of  corporation,  personal  liability  of  directors  for  loss 

resulting  from,  223 
cashier  of  bank,  by,  of  bill  of  exchange  for  accommodation  of  drawers,  307 

ACCOMMODATION: 

acceptance  by  cashier  of  bank  of  bills  of  exchange  for  accommodation  of 

drawers,  307 
indorsement  for  accommodation  ultra  vires  a  bank,  285 
indorsemement  or  acceptance  for,  by  private  corporation,  68,  80 

ACTION: 

against  bank,  deposit,  for  recovery  of,  316 

right  of  action  immediate  upon  stoppage  of  bank,  816 

demand  of  payment,  when  it  may  not  be  made,  316 
certificate  of  deposit,  issued  to  employee  of  owner  of  money,  action 
of  trover  for  conversion  of    his  money  cannot  be   maintained  by 
owner,  when,  321 
certificate  of  deposit,  right  of  action  on,  arises  after  demand  of  pay- 
ment, 321 
limitation  runs  from  demand,  321 
check  drawn  on  fund  in  bank,  bank's  refusal  to  pay,  drawer's  right  of 

action,  324 
special  deposit,  action  for  recovery  of,  no  demand  and  refusal  required, 

when,  322 
loan  on  time,  for  recovery  of,  money  used  by  cashier,  evidence  of 

custom  of  banks  admissible,  307 
note  signed  by  cashier,  on,  bank  liable  for  money  had  and  received, 
307 
officially  indorsed  by  cashier,  onus  on  holder  of  note  to  show 
cashier's  authority,  307 
papers  held  for  collection,  failure  of  bank  in  its  duty  to  owner, 

measure  of  damages,  333 
bill  held  for  collection,  bank's   failure  to  present  for  acceptance, 
measure  of  damages,  337 


jfl  i 


1310 


GENEKAL   INDEX. 


1 


[The  references  are  to  sections :  voL  I  contains  S$  1-840 ;  vol.  H,  SS  841-688.] 
ACTION—  Continued: 

money  deposited  by  county  treasurer,  action  by  county  for  recovery 
of,  that  deposit  had  been  paid  to  the  assignee  in  bankruptcy  of  the 
treasurer,  not  open  as  a  defense  to  the  bank,  317 
against  board  of  education  for  maUcious  and  wrongful  acts  in  connection 

with  their  office,  375 
against  corporations  before  appointment  of  receiver  may  be  prosecuted  to 
judgment  against  receiver,  528 
rule  as  to  costs,  528 

receiver  of  corporation,  by  assignee  of  director,  what  receiver  may 

show,  528 
contractor  with  manufacturing  corporation  for  delivery  of  goods,  by 
assignee  of  corporation  insolvent,  what  contractor  may  set  off,  528 
against  cashier  of  bank  for  wrongful  appropriation  of  bank's  money,  what 
is  not  a  defense,  308 
directors  of  bank,  statutory  liability  of,  to  enforce  rules  as  to,  802 
defenses  in,  302 

bank  in  hands  of  receiver,  right  of  action  in  receiver,  302 
against  city  by  purchaser  of  city  bonds  purchased  at  less  than  face  value, 
recovery  of  money  paid  for  them  as  for  money  paid  by  mistake,  411 
by  taxpayer  to  enjoin  issue  of  bonds,  409 

to  restrain  transfer  of  bonds,  409 
city  liable  on  quantum  meruit,  when,  93 
against  county  on  county  bonds  issued  for  judgments  against  county, 
validity  of  judgments,  questioning,  in,  401 
on  county  bonds,  defense  that  bonds  were  issued  when  county  was 
not  fully  organized,  not  open  to  the  county,  404 
plea  of  Statute  of  Limitations,  in,  406 
on  judgment  on  bonds  and  coupons,  407 

by  county  treasurer  for  erroneous  payments  into  county  treasury,  377 
for  money  paid  on  county  warrants  when  nothing  is  to  the  credit 
of  the  funds,  no  right  of  action  to  recover,  103 
against  officers  personally,  contract   in  name  of  corporation  not   com- 
pletely organized,  recovery,  rule  as  to,  231 
directors  of  corporations,  for  misfeasance  or  negligence,  may  be  legal 
or  equitable,  223 
corporation  proper  plaintiff,  223 
complaint,  what  it  may  not  negative,  223 
for  diversion  of  corporation  property,  when  not  barred  by  Statute  of 

Limitations,  225 
violation  of  statutory  provisions  and  causing  insolvency  of  corpora- 
tion, creditors  may  bring  action,  243 
corporation  joined  as  defendant,  242 
assenting  to  creation  of  indebtedness,  in  excess  of  capital  stock,  what 
is  not  sufficient  proof  in,  249 
when  the  remedy  is  in  equity,  250 
what  must  be  averred  and  proven,  254 
estoppel  to  make  defense,  254 
against  directors  for  deceit,  defense  of  lack  of  authority  not  open,  200 
evidence  in  such  actions,  200 


GENERAL   INDEX. 


1311 


TThe  references  are  to  sections  :  vol.  I  contains  S§  1-340;  vol.  n,  §$  841-586.] 
ACTION  —  Continued  : 

fraud  must  be  shown  to  justify  recovery,  201,  202 
by  holder  of  a  claim  for  loss  against  directors  of  an  insurance  corpo- 
ration, 209 
improperly  awarding  a  contract  for  construction   by  directors  of  a 
railroad  corporation,  in  case  corporation  refuses,  bona  jide  stock- 
holder may  bring,  207 
for  breaches  of  trust,  jurisdiction  of  court  of  equity  in,  207 

measure  of  damages  iu,  183 
issuing  fraudulent  stock  to  themselves,  action  to  cancel  the  stock, 

187 
for  signing  an  annual  report,  false  in  any  particular,  to  enforce  per- 
sonal liability,  director  cannot  defend  on  the  ground  that  he  was  also 
a  creditor,  251 
sufficient  to  show  that  the  writing  is  untrue,  251 
jury  governed  by  preponderance  of  evidence,  251 

measure  of  damages,  the  amount  of  the  debt  due  the  creditor, 
251 
that  report  was  signed  under  advice  of  counsel,  no  defense,  252 
based  upon  representations  founded  upon  fraud,  what  must  be  made 
to  appear,  251 
rule  as  to  director's  liability,  251 
jury's  finding  that  officer  signed  a  report  in  bad  faith,  knowing  it 

was  false,  what  will  justify,  252 
willful  misstatement,  rule  as  to,  252 

judgment  obtained  in  New  York,  no  action  lies  on  it  in  another  State, 
252 
against  national  fcank,  dividend  declared,  to  enforce  payment,  set  off  by 
bank  in,  291 
note  given  by  bank,  on,  that  note  was  made  in  violation  of  law  gov- 
erning national  bank,  open  as  a  defense  to  the  bank,  when,  285 
one  paying  usury  to,  only  action  allowed,  294 

right  of  action  passes  to  assignee  in  bankruptcy,  294 
measure  of  damages,  294 
illegal  interest  recovered  by  national  bank,  for  recovery  of,  limitation 
upon,  294 
president  of  a  spurious  bank,  extent  of  damages  recoverable,  224 
president  of  a  railroad  corporation,  false  representations  as  to  road  affect- 
ing sale  of  bonds,  200 
fraudulently  allowing  misapplication  of  proceeds  of  bonds,  200 
a^inst  receiver  of  bank,  to  control  conduct  of,  346 

trust  funds,  for  recovery  of,  set-off  by  receiver,  rule,  347 
against  savings  bank,  for  recovery  of  deposits,  in  assumpsit,  319 

what  is  not  a  defense,  319 
against  shareholders  of  an  insolvent  bank,  to  enforce  personal  liability, 

creditor's  bill,  proper  decree  in,  368 
against  school  district,  school  director  paying  a  teacher,  when  no  right 
of  action  against  district,  113 


♦ 


i\ 


iai2 


OENEBAL  INDBZ. 


I 


[The  references  are  to  aections :  vol.  I  contains  $$  1-840 ;  vol.  n,  t§  841-686.] 

ACTION  —  Continued  : 

against  trustees  or  directors  of  corporation,  for  enforcement  of  personal 
liability  under  New  York  statute,  judgment  against  corporation  not 
requisite.  236 
failure  to  file  annual  report  of  capital  stock,  etc.,  required  by  statute 
of  New  York,  how  brought,  245 
facts  to  establish 'liability  must  be  affirmatively  proven,  245 
defenses  allowed  trustees,  245 

Judgment  not  competent  evidence  to  establish  debt  of  corpora- 
tion, 247 
what  is  no  defense,  254 
waste  of  corporate  funds,  212 

when  directed  by  the  president,  212 
treasurer  of  corporation,  for  fraudulent  overissue  of  stock,  defense 
not  open  to  treasurer  that  his  act  was  illegal,  199 
by  assignee  of  national  bank,  on  note,  plea  of  usury  as  payment,  when 

not  allowed,  294 
by  attorney,  against  public  corporation,  for  legal  services,  54 
when  he  has  no  right  of  action,  57 

holder  of  check,  against  drawer,  drawer  of  check  has  no  funds  in  bank, 
action  on  check  maintainable,  without  presentation  for   payment, 
324 
against  bank,  for  recovery  of  amount  of  check,  onus  upon  holder 
to  show  that  there  were  funds  to  meet  it,  327 
by  bank,  guaranty  of  solvency  of  person  having  paper  discounted,  to 
enforce,  when  it  will  lie,  290 
overdraft  of  depositor,  for  recovery  of.  set-off,  rule,  316 

paid  by  bank's  cashier,  bank's  action  against 'drawer,  323 
payment  of  bad  check  upon  erroneous  statement  to  bank,  bank's  action 

for  money  paid  by  mistake,  327 
national  bank,  loan,  for  recovery  of,  that  bank  had  violated  law  in  pur- 
chasing shares  of  its  stock  pledged  as  security  for  loan,  no  defense, 
when.  288 
that  the  loan  exceeded  one -tenth  part  of  the  capital  stock,  cannot 
be  set  up  as  a  bar,  290 
note  on,  illegal  interest  paid,  in  advance,  cannot  be  recouped,  294 
pleaded  as  a  set-off.  294 
by  holders,  of  bonds  donated,  when  they  have  no  right  of,  64 

on  school  district  bonds,  when  defense  is  not  open  that  district  did  not 
own  school  site,  436 
that  proceeds  of  bonds  were  used  for  other  purposes,  437 
of  negotiable  certificates  of  indebtedness  of  municipal  corporation, 

unauthorized,  for  money  had  and  received,  when  maintainable,  32 
bona  fide,  of  town  aid  bonds,  what  not  shown  in,  483 
of  void  municipal  bond,  for  money  had  and  received,  when  not  main- 
tainable, 469 
innocent  holder  of  township  aid  bonds,  estoppel  of  township  to  urge 
invalidity  of  bonds,  471 


GENEBAL   INDEX. 


1313 


[The  references  are  to  sections  :  vol.  I  contains  §§  1-340 ;  vol.  U,  §§  841-566.] 
ACTION  —  Continued  : 

on  detached  coupons,  456 

on  county  aid  bonds,  when  county  cannot  raise  the  question  of  legal 
existence  of  corporation  aided,  440 
by  receiver  of  insolvent  national  bank,  personal  liability  of  directors  to 
enforce,  when  authorized,  302 
claims  due  bank  on,  set  off,  rules  as  to,  341,  345 
federal  court,  jurisdiction  of,  without  regard  to  amount  involved, 

845 
indorser  of  notes  against,  claim  for  deposit,  indorser  cannot  set  off,  341 
joint  makers  of  notes  against,  claims  against  bank,  rule  as  to  set 

off,  341 
shareholders,  against,  to  enforce  their  personal  liability,  rules,  368 
receiver's  action  at  law,  368 

legality  of  his  appointment  not  inquired  into,  368 
complaint  in,  allegation  of,  368 
by  selectmen  of  towns  against  town  for  damages  and  costs  of  litigation,  56 
by  stockholders  for  surrender  or  cancellation  of  stock  fraudulently  issued, 
209 
corporation  not  a  necessary  party,  209 

against  directors  for  depreciation  on  the  value  of  his  stock,  209 
when  demand  upon  directors  is  not  required,  211,  212 

for  waste  of  funds  preventing  a  dividend,  211 
alienation  of  property  of  corporation  by  officers,  manager  of  corpora- 
tion a  proper  party  to  such  an  action,  209 
to  set  aside  an  appropriation  made  to  salaries  of  officers,  when  not 

maintainable,  209 
waste  or  misappropriation  by  officers  causing  loss  to  stockholders, 
what  he  must  do  before  bringing  action,  209 
by  shareholder  of  national  bank  to  annul  his  subscription  to  increase  of 
capital  stock,  when  he  cannot  question  validity  of  bank's  proceedings 
for  increase,  289 
by  trustee  for  creditors  to  enforce  unpaid  subscriptions  to  stock,  530 
by  vendee  of  forged  school  district  bonds  to  show  right  to  bring  action 

against  vendor,  vendee  must  return  or  offer  to  return  bonds,  426 
on  coupons  of  bonds  of  private  corporation,  assumpsit,  503 

holder's  right  to  bring,  not  affected  by  waiver  of  right  to  foreclose 

mortgage,  503 
what  may  be  proven  in,  503 
when  demand  for  payment  is  not  necessary,  503 
Statute  of  Limitations  not  pleadable  when  coupons  are  not  detached, 
503 
on  promissory  notes  of  corporation,  affidavit  of  defense  in  Pennsylvania 

not  sustained.  385 
in  court  of  equity  to  restrain  expenditures  of  a  railroad  corporation  for 

the  extension  of  another  road,  269 
assignee  under  general  assignment  of  corporation  may  compel  payment 
of  unpaid  subscriptions  to  stock,  530 

165 


I 


,» 


1314 


GENEBAL   INDEX. 


[The  references  are  to  sections :  vol.  I  contains  SS  1-340  ;  vol.  U,  H  341-688.] 
ACTION  —  Continued  : 

creditor  of  corporation  against  director  liable  for  debts  under  charter  pro- 
visions, corporation  and  other  creditors  not  necessary  parties,  236 
for  foreclosure  of  mortgages  or  trust  deeds,  general  rules  as  to,  537 

See  FOBECLOSUBE  OF  MOBTGAGE. 

ACTS: 

criminal.    See  Criminal  Acts. 

fraudulent.    See  Fraudulent  Acts. 
ACQUIESCENCE: 

by  corporation  in  agent's  acts,  corporation  bound  by,  178 

by  stockholder,  when  not  precluded  by,  from  bringing  an  action  to  enforce 
the  rights  of  corporation.  213 

ADVANCES: 

of  money  to  mining  corporation,  by  foreman,  corporation  bound  for, 
when,  178 

AGENTS: 

private  corporations,  acts  of,  acquiescence  in,  114 
binding  force  of,  illustrations,  117 
rules  as  to,  115 
ratification  of,  115 
agreement  of,  as  to  rate  of  interest.  116 
appointment  of,  mode  of  making,  114 

when  it  may  be  inferred,  114 
borrowed  money,  obligations  for,  execution  of,  116 
fraud  in  misrepresenting,  price  of  property  purchased  by,  for  use  of 

corporation,  184 
general  rules,  114 
general  agents,  power  of,  118 

employment  of  counsel  by.  118 

when  authority  will  not  be  implied,  119 
powers  of,  to  what  they  may  be  extended,  116 
ratification  of  acts  of,  177 

failure  to  promptly  disavow,  177 
formal  vote  or  resolution  not  required,  177 
knowledge  of,  not  objecting  to,  177 
public  corporations,  for  negotiation  of  bonds,  when  his  acts  create  no 
liability  against  corporation,  260 
general  rules,  91,  92 
ratification  of  contracts  of,  94 
AID: 

to  private  corporations,  guananty  of  bonds  by  another  corporation,  69, 

70 
subscription  to,  by  president  of  a  bank,  not  binding  on  bank,  305 
by  public  corporations.     See  Municipal  Aid  ;  Municipal  Aid  Bonds  ; 
City  Aid  Bonds  ;  County  Aid  Bonds  ;  Town  Aid  Bonds. 
ALABAMA :  * 

statutes  construed,  city,  restriction  upon,  in  issuing  bonds,  409 
depositors  with  banks,  effect  of,  357 


GENERAL   INDEX. 


1315 


[The  references  are  to  sections :  vol.  I  contains  §§  1-340 ;  vol.  n,  §§  841-686.] 

ALABAMA  —  Continued : 

constitutional  provision,  county's  lending  its  credit,  19 

prohibiting  the  issue  of  stDck,  except  for  money,  labor  done,  or  prop- 
erty actually  received  and  all  petitions,  increase  of  stock,  its  effect 
on  stock  issued,  497 
requiring  subscriptions  to  railroad  stock  which  are  payable  in  labor 
or  property  to  be  taken  at  their  money  value,  497 
railroad  corporation,  subscription  to  stock  of,  under  Constitution,  440 
proposal  by  corporation  for  municipal  aid,  441 

denomination  of  bonds,    named  in  proposal,  change  of,  validity  of 
bonds  not  affected  thereby,  448 
ALMSHOUSE: 

building  commission,  town  in  Connecticut,  power  of,  374 
ANNUAL  REPORT : 

by  officers  of  private  corporations,  as  to  capital  stock,  assets,  debts,  etc., 
required  by  statute  to  be  filed,  failure  of  officers  to  file,  personal  liability 
growing  out  of,  244 

as  to  nature  and  character  of  property,  directors  failing  to  make,  per- 
sonal liability,  237 

APPROPRIATIONS: 

by  public  corporations,  celebration  of  holidays,  expenses  of,  28 
expenses  of  persons  inducing  legislation,  28 
general  fund,  from,  when  allowed,  258 
indenmity  of  officers  of  corporation,  56 
ARBITRATION: 

agreeing  to,  by  president  and  secretary  of  corporation,  156 
settlement  with  treasurer,  by  authorities  of  township,  submitted  to  arbi- 
tration, 235 

ARKANSAS: 

constitutional  provision  prohibiting  private  corporation,  issuing  stocks  or 
bonds,  except  for  money  or  property  actually  received,  or  labor  done, 
and  all  fictitious  increase  of  stock,  issue  of  stocks  and  bonds,  under 
reorganization  agreement,  not  prohibited  by,  499 

ASSENT: 

stockholders  of  manufacturing  corporation  of,  executiontof  mortgage  to, 
in  New  York,  506,  507 
in  North  Carolina,  507 
ASSESSMENT: 

of  shareholders  of  national  banks,    See  National  Banks. 
property  for  taxation.    See  Taxation. 
ASSETS: 

of  private  corporations,  barter  of,  by  directors  for  personal  gain,  182 

delivery  of,  by  one  of  the  board  in  payment  of  his  debts,  182 

directors  or  trustees,  failure  of,  to  file  annual  report  of,  required  by 

statute,  personal  liability  for,  244 
insolvent  corporation,  of,  how  far  a  trust  for  creditors,  521 
president  of  corporation,  transfer  of,  by,  144 


*:<( 


■^•i 


11 


}pli 


1316 


GENERAL   INDEX. 


fThe  references  are  to  sections :  toI.  I  contains  $$  1-340 ;  vol.  U.  $$  S41-S86.] 

ASSIGNEE : 

of  void  county  warrants,  his  rights,  383 

of  insolvent  corporation,  under  general  assignment  of  corporation,  righU 
to  unpaid  subscriptions  to  stock  passes  to  assignee,  530 
removal  of,  526 

rights  as  to  property  of  corporation,  527 
of  national  bank,  action  by,  on  note,  usury  cannot  be  pleaded  iu  payment 
when,  294 

ASSIGNMENT : 

account  due  to  its  debtor,  bank  may  take,  283 

assets  of  corporation,  of,  by  president  of  corporation,  144 

by  holders  of  several  offices,  158 
choses  in  action,  of,  authority  of  officers  to  assign,  how  shown,  134 
bank,  of,  for  benefit  of  creditors,  holders  of  notes  entitled  to  preference, 
over  holders  of  certificates  of  deposit,  341 
interest  on  claims  preferred,  341 
excessive  credit  by  correspondent  bank,  excess  may  be  recovered  by 

assignee,  341 
funds  in  bank,  of,  by  draft  on,  rules,  328 

mutual  beneficial  order,  by,  of  fund  deposited  with  a  trust  company,  271 
mortgage  and  note  secured  by  it,  of,  by  president  and  secretary  con- 
jointly, 157 
property  of  corporation,  of,  power  of  directors  to  execute,  522 

to  one  creditor,  creditors  wishing  to  attack,  remedy  iu  equity,  523 

ATHLETIC  CLUB : 

lease  of  land  for  buildings,  negotiating  a  loan  for,  74 

ATTACHMENT  : 

property  of  insolvent  corporation,  right  of  attachment,  524 

made  before  appointment  of  receiver,  not  dissolved  by  appointment, 

524 
lien  of,  524 

assignment  of,  to  party  on  receivership  proceedings,  524 
enjoining  the  enforcement  of  lien,  524 
property  of  insolvent  bank,  previous  to  appointment  of  receiver,  lien  of 
attachment  against  receiver,  349 
not  dissolved  by  appointment  of  receiver,  349 
receiver  of  insolvent  corporation  takes  property  subject  to  lien  of  attach- 
ment, 524 

AUDITING  BOARD : 

private  corporation,  contract,  rescinding,  165 

AUDITOR  OF  COUNTY : 

acts  of,  questioned  by  county  authorities,  96 
duty  of,  as  to  taxes,  98 

0* 
BANKS  AND  BANKING: 

acceptance  forged,  bank  paying,  323 

accommodation  indorsement  by  bank,  285  ' 


GENERAL   INDEX. 


1317 


[The  references  are  to  sections :  vol.  I  contains  §§  1-340  ;  vol.  n,  $$  841-586.] 
BANKS  AND  BANKING  —  Continued  : 

assignment  of  account  due  its  debtor,  bank  may  take,  283 

bills  of  exchange,  collection  of,  283 

bond  and  mortgage,  guaranty  of,  by  bank,  283 

borrowing  money  on  note  made  and  indorsed  for  its  accommodation,  288 

check,  raised,  bank  paying,  may  show  forgery  and  recover  money  paid 

on  it,  325 
bank  paying  on  forged  indorsement  may  recover  money  paid  on  it,  829 
bank  receiving  checks  with  forged  indorsements,  collecting  and  pay- 
ing out  proceeds  liable  to  owners  in  action  of  conversion,  329 
bank  paying  check  on  forged  indorsement,  entering  payment  on  pass 

book  of  depositor,  depositor  may  dispute  charges.  329 
bank's  duty  in  such  cases,  as  to  ascertaining  genuineness  of  indorse- 
ments, 329 

when  holder  in  such  cases  practices  no  fraud,  rule,  329 
forged  check  entered  on  depositor's  bank  book,  when  bank  must  bear 

the  loss,  314 
onus  on  bank  to  prove  itself  a  bona  fide  holder  of,  320 
teller  certifying,  bank  liable  to  payee,  324 
payment  of,  by  mistake,  324 

without  indorsement  of  payee,  324 
post-dated  check,  payment  of,  before  its  date,  325 

no  defense  against  an  assignee  in  good  faith  of  the  fund,  324 
bank  cannot  set  off  claim  against  one  puesentlng  it,  against  check,  324 
receiving  indorsed    check  for  a  special    purpose,  bank  liable  for 

erroneous  appropriation  of  proceeds,  324 
stamping  check  "  paid"  and  canceling,  when  drawer  will  not  be  dig. 
charged  by,  324 
collaterals  held  by  bank,  when  bound  to  reassign,  285 

stock  deposited  as  collateral,  when  bank  is  not  bound  to  protect  from 
forfeiture,  283 
collections,  bills  of  exchange  received  for  collection,  acceptance,  presenta- 
tion for,  337 
default  of  collecting  bank,  liability  to  payee,  337 
suspension  of  bank,  collection  after,  right  to  proceeds,  337 
transmitted  by  insolvent  bank  receiving   to  another  for  collection, 
owner  entitled  to  proceeds,  339 
collecting  bank  no  lien  on  proceeds  for  balance  due  from  the 
transmitter,  337 
checks  received  for  collection,  duty  of  bank,  rules,  337 
drawn  on  bank  receiving  it,  337 
negligence  of  bank,  illustration.  338 
payable  at  a  day  subsequent,  337 
payment,  presenting  for  payment,  delay  of  four  days,  bank  liable 

for  loss  resulting,  337 
remitted  by  another  bank,  when  collecting  bank  is  liable  to  remit- 
ting bank,  337 
when  liable  to  owner,  337 


f 


1818 


OBNEBAL  INDEX. 


GENERAL  INDEX. 


1319 


I 


4 


[The  referanoes  are  to  sections  :  vol.  I  contains  $$  1-340 ;  vol.  II,  $$  341-680.] 
BANKS  AND  BANKING  — Cantinned: 

when  bank  becomes  owner,  318 
when  agent  to  collect,  318 
commercial  paper  received  for  collection,  banks  must  take  all  itept 
for  protection  of  holders,  332 
may  select  agent  for  collection,  332 

not  the  bank  upon  which  paper  is  drawn,  33,0 
not  liable  for  default  of  the  agent,  332 

agent  correspondent  bank  failing,  transmitter  liable  to  holder 
332 

drafts  received  for  collection,  application  to  indebtedness  of  bonk 
887 

diligence  on  part  of  the  bank,  337 
holder,  liable  to,  when,  337,  339 

when  not,  337 
indorsement  "  for  collection,"  effect  of  the  words,  337 
rules  generally,  337 

sight  draft,  negligent  omission  of  duty,  337 
failure  of  bank  to  remit,  333 

failure  of  bank  to  collect,  when  liable  for,  illustration,  335 
mailing  certificate  of  deposit  received  for  collection  to  bank  issu- 
ing it.  336 

negligence,  what  will  relieve  bank  from  liability,  336 
general  rules,  332 
notes  received  for  collection  from  correspondent  bank,  when  they 
may  be  regarded  the  property  of  remitter,  333 
holder  of,  rule  as  to,  332 

indorser  discharged  by  bank's  neglect,  bank  liable  to  owner,  3:^ 
paper  deposited  for  collection,  depositor  chargeable  with  knowledge  of 
custom  of  banks,  332 
employment  of  another  bank  to  collect,  332 

transmission  to  agent  in  seasonable  time,  332 
failure  to  have  paper  protested,  when  not  liable  for,  332 
loss  or  disappearance  of,  presumptive  proof  of  negligence,  332 
payment,  in  what  currency,  332 

bank's  own  certificate  of  deposit,  333 
check  received  in  payment,  332 
protest  of  notes  or  bills,  duty  of  bank,  332,  333 

notary  failing  to  perform  his  duty,  333 
suspension  of  bank,  collections  after,  money  in  trust  for  owners 
333 

commercial  paper,  guaranty  of,  authority  of  officers  to  make, 
estoppel  of  bank  to  deny,  284 
depositors,  acceptance  by,  draft  payable  at  bank,  debts  of,  matured,  notes 
of,  payable  at  bank,  application  of  deposits  to,  323 
balance  due,  bank's  rights  to  tender  full  balance,  323 
certificates  of  deposit,  fraudulently  issued  as  obligation  of  officers, 
bank  responsible  for,  321 


[The  references  are  to  sections :  vol.  I  contains  §§  1-340 ;  vol.  II.  $$  341-586.] 
BANES  AND  BANKmQ  —  Continued  : 

payment  of,  demanded,  bank  may  insist  on  surrender  before  pay- 
ment, 321 
check,  drawn  by,  bank  not  bound  to  pay  in  anything  but  money,  324 
when  bank  may  refuse  to  pay,  323 
forged,  bank  paying,  depositor's  rights  against  bank,  330 
raised,  bank  paying,  331 
credit  on  books  of  bank,  an  acknowledgment  of  what,  315 
credit  of  check  of  another  depositor,  315 
credit  of  collections,  315 
credit  of  proceeds  of  discounted  paper,  315 
credit  of  bank  notes,  notes  taken  at  bank's  risk,  315 

knowledge  that  bank  issuing  them  is  insolvent,  duty  of  bank,  315 
implied  agreement  with,  that  his  checks  will  be  honored,  315 
insolvent,  bank  becoming,  depositor  comes  in  as  a  general  cre<litor, 

315 
note  of  depositor,  not  paid  at  maturity.  323 
obligations  of,  assumed  by  bank,  bank  may  retain  deposits  to  cover, 

323 
overdraft,  paid  by  cashier,  bank's  right  of  action  against  drawer,  323 
paper  deposited,  depositor  to  draw  against,  property  of  bank,  315 
paper  deposited,  infirmity  in,  when  bank  is  protected,  315 
paper,  overdue,  of  depositor,  bank  not  bound  to  apply  deposits  to, 

838 
relation  of  bank  to,  debtor,  315 
deposits,  adverse  claims  to,  notice  to  bank  of,  317 
application  of,  by  bank,  323 
duty  of  bank,  as  to,  323 
firm,  deposits  of,  323 
general  deposits,  rules,  315 

indemnity  against  possible  loss,  bank  no  lien  upon,  for ,  323 
liability  not  yet  matured,  bank  no  lien  upon,  for,  323 
money  of  principal,  deposited  in  agent's  name,  bank  no  lien  on,  for 
depositor's  debt,  317 
payment  to  depositor's  order,  justified  till  notified  of  another's 
claim,  317 
note  of  depositor  falling  due,  bank  failing  to  apply  deposits,  indorsers 

released,  323 
payment  of,  enjoined  by  court,  bank's  duty,  317 

to  others  than  depositor,  317 
received  with  knowledge  of  insolvency,  320 
responsible  to  real  owner  of,  when  bank  is  not,  307 
rights  of  bank,  as  to,  323 
special  deposits,  care  to  be  exercised  by  bank.  322 

lost  by  gross  negligence  of  bank,  bank  liable  for,  322 
stolen  by  robbers  or  burglars,  322 
transferring  to  another  bank,  322 
directors  of  banks,  rules  as  to,  299 


^ 


I 


M 


ij  > 


1320 


GENERAL  INDEX, 


rnie  referanoes  are  to  sections :  vol.  I  contains  $S  1-340 ;  vol.  O,  Sf  M1-68B.] 
BANKS  AND  BA^KIl^Q  -  CorUinued  : 
discount,  defined.  294 

of  notes,  limit  of  power,  287 
proceeds  of  discount,  application  of,  285 
bank  affected  by  knowledge  of  directors,  299 

note  sent  for  discount,  proceeds  for  overdraft,  bank  cannot  hold  aa 
collateral  for  overdraft,  323 
dividends  on  bank  shares,  291 
draft  on  bank,  when  it  fails  to  bind  the  funds  iu  bank,  388 

when  equitable  assignment  of  funds,  328 
fictitious  credit  to  county  treasurer,  bank  giving,  318 
insolvency  of  bank,  general  rules,  341 

See  Insolvency  of  Bank. 
interest,  reservation  of,  what  allowed,  294 

in  advance,  294 
lien  of  bank,  dividends  on,  293 

moneys  and  securities  of  its  customers,  for  further  advances,  292 
balance,  general,  292 

insolvent  bank's  draft,  for  payment  of.  293 
insolvent  depositor's  note,  for  payment  of,  292 
paper  remitted  for  collection,  on,  292 
shares  of  stockholders  on,  for  their  debts  to  bank.  293 
stock  transferrable.  on  face,  rule,  29:^ 
debts  of  partnership,  293 
liabilities  unmatured.  293 
subordinate  to  lien  of  pledgee,  29;J 
trust  funds  deposited,  does  not  extend  to,  293 
loan,  taking  produce  as  security  for,  283 

on  forged  paper,  bank  may  recover  money,  290 
misrepresentation  by  bank,  as  to  solvency  of  customer,  298 
notes  deposited  for  safe  keeping,  bank  not  liable  for  failure  to  hare 
protested,  333 

left  with  directions  as  to  appropriation,  bank  may  discount  or  collect 

at  maturity,  333 
payable  at  bank,  bank  may  apply  deposits  to  payment  of,  334 
custom  of  bank,  effect  of,  834 

"good,"  certifying  a  note,  mistake  may  be  corrected,  334 
indorser,  to  discharge,  must  be  presented  at  bank  for  payment,  384 
notice  to,  334 
bank's  rights  against  indorsers  of,  323 
officers  of  bank,  ageeement  by  officer  to  give  notice  of  default  to  surety 
on  note,  bank  not  bound  by,  314 
cashier,  statements  of,  bank  estopped  to  deny,  when,  307 
money  borrowed  by,  rule  as  to  bank's  liability  for,  307 
promise  of,  to  pay  draft  to  be  drawn  at  a  future  day,  not  binding 

on  bank,  312 
validity  of  acts  of,  drawing  drafts  on  correspondent  bank  or 
fraudulently  mdorsing  them,  bank  estopped  to  deny,  when,  313 


GENERAL   INDEX. 


1321 


[The  references  are  to  sections :  vol.  I  contains  §§  1-340  ;  vol.  II,  §§  341-586.] 

BANKS  AND  BA^Km Q  —  Continued  : 

check  fraudulently  certified  by,  when  bank  is  liable  to  bona  fde 
holder,  314 

debt  paid  to  officer  of  apparent  authority  to  receive  it,  when  bank  is 
bound  by,  314 

draft  altered  by  clerk,  bank  not  liable  for,  313 

powers  and  duty  of,  299-314 
president  of  bank,  acts  of,  when  bank  is  bound  by,  304 

when  bank  is  not  boimd  by,  305 
powers  of  banks,  general  rules,  283 
purchases  by  banks,  promissory  notes,  287 

real  estate,  287 

title  of  bank  to  paper  as  a  purchaser  in  good  faith,  311 
real  estate,  taking  mortgage  on,  287 

restrictions  upon  banks,  under  New  York  Banking  Law,  372 
securities  deposited  for  safe  keeping,  duty  of  bank,  295 

of  a  principal  pledged  by  agent,  bank  liable  for  value,  296 
signatures  of  customers,  banks  bound  to  know,  330 
stockholders,  liability  of,  general  rules,  756 

guaranty  of  bank  by,  stockholders  and  directors,  297 
sureties  on  paper,  guaranteeing  against  liability,  285 
surety,  becoming  surety  for  public  officers,  285 
idtra  vires  acts  of  banks,  illustrations  of,  285 
usury  by  bank,  what  constitutes,  294 

See  National  Banks. 

BANK  CHECKS: 

See  Checks;  Banks  and  Banking. 

BENEFICIAL  ASSOCIATION: 

becoming  insolvent,  appointment  of  receiver  for,  rules  as  to  disposition  of 
assets,  529 

BILLS  OF  EXCHANGE: 

agent  of  corporation,  execution  of,  by,  115 
bank  receiving  for  collection,  presentment  for  acceptance,  337 
See  Banks  and  Banking. 

BOARD  OF  AUDITORS: 

of  a  town,  judgment  against  town  for  interest  on  bonds,  ordered  to 
pay,  379 

BOARD  OF  EDUCATION: 

authorized  by  resolution  of  city  council,  433 
bonds  issued  by,  when  illegal,  426 
conditions  precedent  to  issue,  433 
de  facto,  bonds  executed  by,  bona  fide  purchaser  of,  427 
Connecticut,  in,  action  against,  malicious  and  wrongful  acts,  in  connecUoa 
with  their  office,  375 
use  of  public  funds  in  defense  of,  375 

BONA  FIDE  HOLDERS; 

of  municipal  bonds,  what  they  may  presume,  409 

166 


1322 


GENERAL   INDEX. 


IH 


ii 


rHie  references  are  to  sections :  vol.  I  contains  S$  i-S40 ;  vol.  H,  SS  841-586.  ] 
BONA  FIDE  HOLDERS—  Cimtinued: 

when  chargeable  with  notice  of  restrictions  of  statute  authorizing 
their  issue,  409 
See   Bonds;   City  Bonds;    County  Bonds,  School  District  Bonds; 
Township  Bonds;  City  Aid  Bonds;  County  Aid  Bonds;  Town  Aid 
Bonds. 

BONDHOLDERS: 
h&nafde,  when,  500 

when  not,  500 
bond,  action  on,  by,  when  default  in  Interest,  500 
rights  of,  500 

BONDS: 

private   corporations,    bearer,  payable   to,  when    subject   to    equitable 
defenses,  500 
bondholders,  rights  of,  500 
when  bona  fide,  500 
when  not  bona  fide,  500 
borrowing  money,  as  a  means  of,  490 
California,  Civil  Code  of,  effect  upon  bonds,  490 

constitutional  provisions  of,  as  to  increase  of  indebtedness  of  cor- 
porations,  not  applicable  to  bonded  indebtedness,  490 
certificate  accompanying,  statements  in,  a  part  of  the  contract.  490 
construction  of  road,  issued  for,  when  not  invalidated,  490 
construction  company,  contract  with,  as  to  payment  of  interest  on 

bonds,  490 
countersigned  by  mortgage  trustee,  495 
coupon  bonds,  defined,  490 
coupons,  actions  on,  assumpsit,  503 
right  of  holders  to  bring,  503 

not  affected  by  waiver  of  rights  to  foreclose  mortgage,  503 
what  may  not  be  proven  in,  503 
detached,  502 

dishonored,  before  coming  to  hands  of  holder,  502 
issue  of  scrip  for  interest,  502 
paid,  when  considered,  502 
rules  as  to,  502 
uncanceled,  502 

vice-president  of  corporation,  signed  by,  503 
covenant  in,  as  to  sinking  fund,  492 
debenture  bonds,  sale  of,  price  limited,  498 

subscription  to,  by  mortgage  bondholders,  in  effect  an  agreement 
to  loan  money,  490 

dividends,   scrip,  issue  of  bonds  for  payment  of,  prohibited  in  New 

York,  497 
general  rules,  490 

guarantor   paying  interest  on,  not  on   equal  footing  with  mortgage 

creditors,  504 
guaranty  of,  by  another  corporation,  power  to  guarantee,  504 


GENERAL    INDEX. 


1323 


[The  references  are  to  sections :  vol.  I  contains  %%  1-M) ;  vol.  II,  %%  341-586.] 

BONDS  —  Continued  : 

jurisdiction  of  court  of  equity,  action  to  cancel  guaranty,  504 
income  bonds,  defined,  490 

holders  of,  accounting  with,  rules  as  to,  501 

interest  on,  payable  from  net  earnings,  effect  upon  holder's  righti, 
501 

indebtedness  prior,  issued  for,  subsequent  purchasers  of,  when  they 
cannot  impeach  validity  of  prior  indebtedness,  500 

interest,  rate  of,  how  fixed,  492 

when  "issued,"  under  Wisconsin  statute,  494 

lease  of  another  road,  bonds  in  payment  for,  498 

lessor  of  bonded  road,  when  not  bound  on  bonds,  505 

meeting  of  stockholders,  authorizing  issueof  bonds,  where  held,  490,  491 

mortgage  bonds,  defined,  490 

mortgage,  when  bonds  constitute,  490 

misapplication  of,  by  ofllcers  of  corporation,  bonds  rendered  invalid 
by,  490 

negotiable,  490 

payable  abroad,  492 

payment  before  maturity,  bonded  corporation  no  right  to  make,  when, 

490 
pledge  of,  collateral  to  secure  loans,  holder  entitled  to  decree  for 
amount  of  bonds,  when,  496 
indebtedness,  antecedent,  for,  in  fraud  of  rights  of  stockholders, 

496 
rights  of  pledgee,  496 
pledged  bonds,  sold  for  small  amounts,  purchaser's  title  is  not  affected 

thereby,  500 
principal,  becoming  due  by  default  as  to  interest,  acceptanceof  interest 

after  default,  waiver  of  right  to  declare  bonds  due,  493 
proceeds  of,  use  of,  when  not  limited,  490 

prospectus,  pledging  first  mortgage  bonds  as  collateral  to  secure,  gen- 
eral mortgage  bonds  sold  under,  496 
proceeds,  use  of,  misstatements  in  prospectus,  as  to,  490 
purchase  of,  under  belief  proceeds  were  to  be  used  for  a  special  pur- 
pose, 490 
sale  of,  statements  of  agent  for,  creates  no  fiduciary  relation  between 

corporation  and  bondholder,  490 
stockholders,  when  they  cannot  complain,  bonds  issued  to  holder  of 

majority  of  stock,  490 
stockholders  and  directors,  purchase  of  bonds  by,  of  a  construction 

company,  498 
surrender  of  old  bonds  and  stock,  under  reorganization  agreement,  499 
trustee  of  mortgage  securing,  refusing  to  issue  bonds,  490 
validity  of,  as  affected  by  manner  of  sale,  498 
as  affected  by  character  of  purchasers,  498 

as  affected  by  corporation  issuing,  assuming  to  be  a  corporation 
when  not  incorporated,  490 


1324 


GENERAL   INDEX. 


hii 


[The  references  are  to  sections :  vol.  I  contains  f$  1-340 ;  vol.  U,  $$  841-i88.] 

BOND8  —  Continued  : 

as  affected  by  failure  of  trustees  to  certify,  496 
as  affected  by  statutory  or  constitutional  provisions,  4d7 
Alabama,  497 
Minnesota,  497 
public  corporation,  city.     See  City  Bonds. 
county.    See  County  Bonds. 
school  district.    See  School  District  Bonds. 
township.    See  Township  Bonds. 
aid,  city.    See  City  Aid  Bonds. 

county.    See  County  Aid  Bonds. 
towns.    See  Town  Aid  Bonds. 

BOOKKEEPER: 

of  bank,  application  of  money  of  bank  to  his  own  use,  cashier  assenting 
to,  liability  on  official  bond  not  released,  314 

of  national  bank,  false  statement  of,  statement  requested  by  bank  exam- 
iner, 370 

private  corporation,   compromise  of  claims,   releasing  debts,   etc.,  not 

within  ordinary  duties  of,  164 

BORROWINO  MONEY: 

private  corporations,  banks,  283 
banking  associations,  75 
general  rules,  65 
insurance  companies,  78 
land,  lease  of,  to  pay  for,  74 
manufacturing  corporations,  79 
mining  corporations,  80 
railroad  corporations,  81 
to  pay  dividends,  389 
officers  of,  by,  acting  conjointly,  156 
by  manager  of,  161 

treasurer  of  water  works  corporation  no  implied  power  to  borrow,  174. 
public  corporations,  borrowed  money,  contract  for,  binding  as  an  inci- 
dent to  powers  expressly  granted,  3 
bridges  and  roads,  for  building  and  repair  of,  19 
court  house,  erection  of,  electors  authorizing  county  officers  to  bor- 

row,  bonds  cannot  be  sold  for  what  they  will  bring.  9 
portion  of  money  borrowed  by  a  city  misappropriated  for  constructing 

improvements,  power  to  borrow  money  by  issue  of  bonds  to  pay 

balance  of  debt  unpaid,  409 
power  to  borrow  must  be  expressly  conferred  by  charter,  1,  4,  6, 
school  district,  257 

BREACHES  OF  TRUST: 

by  officers  of  corporations,  directors,  by,  181,  183 
accountable  to  stockholders  for,  181 
funds  of  corporation,  misapplication  of,  173 


GENERAL   INDEX. 


1325 


m> 


[The  references  are  to  sections ;  vol.  I  contains  §§  1-540 ;  vol.  II,  $S  841-686.] 

BREACHES  OF  TBJJ&T  —  Continued  : 
waste  of,  182 

pretended  claim,  settling,  with  knowledge  of  its  falsity,  183 
stock,  issuing  to  themselves,  186 
railroad,  contract  for  construction  of,  207 
securing  advantage  to  themselves,  207 
state  tax  levied  on  bank,  refusing  to  resist  the  collection  ot,  207 

BRIDGES : 

construction  of  free,  by  public  corporations,  19 
repair  and  building,  by  public  corporations,  19,  43 

BUILDING  AND  LOAN  ASSOCIATION  :  . 

becoming  insolvent,  appointment  of  receiver  for,  jurisdiction  of  federal 

court,  o»o 
loan  by,  to  stockholders,   not  strictly   in  conformity  to  by-laws,  when 

not  ultra  mres,  281 
note   taken   from  one  not  a  member,  action  on,   defense   not  open  to 

maker,  that  corporation  exceeded  its  powers,  281 

BUILDING  COMMISSION: 

town  in  Connecticut,  almshouses  in  connection  with,  powers  of,  374 

BURDEN: 

municipal  bonds,  showing  them  illegal,  upon  persons  impeaching  their 

legality,  409 
promissory  note,  owner  of,  upon,  to  show  authority  of  cashier  of  bank  to 

indorse,  307 

c. 

CALIFORNIA: 

Civil  Code,  effect  of,  upon,  bonds  and  mortgages  of  private  corporations, 

490 
constitutional  provisions  as  to  increase  of  indebtedness,  not  applicable  to 

bonded  indebtedness,  490 
what  it  does  not  prohibit,  85 

incurring  liabilities  by  city  under  statutes,  20 

school  houses,  bonds  for  building,  issued  by  city,  428 

statute  making  directors  personally  liable  for  debts  of  corporation,  con- 
tracted in  excess  of  capital  stock,  construed,  238 

statute  requiring  directors  of  mining  corporations  to  post  monthly  veri- . 
fied  statements,  and  making  them  liable  to  an  action  of  stockholder  in 
a  penal  sum  for  failure,  construed,  238 

CAPITAL  STOCK: 

private  corporations,  allowing  creation  of  debts  in  excess  of,  by  directors, 
directors  rendered  personally  liable  for  debts,  236,  238,  243,  248,  249, 

253,  254 

annual  report  of,  required  by  statute,  failure  to  file,  personal  liability 
of  directors  or  trustees  under  New  York  statutes,  244 

issued  for  property,  willful  misrepresentation  of  value  of  property 
in  report  required  of  officers  by  statute,  rules,  253 


iMt 


f' 


III 


I 


11 


I 


0EKERAL   INDEX. 

[The  references  are  to  sections :  toL  I  contains  $$  l-«40 ;  vol.  II,  f$  841-M6.] 
CAPITAL  STOCK— Continued: 

refusal  of  directors  to  enforce  collection  of,  264 
increase  of,  by  national  bank,  289 
CASHIER: 

of  bank,  accepting  bills,  for  accommodation  of  drawers,  307 

accepting  stock  of  corporation  in  payment  of  debt  due  bank,  307 

act  binding  on  bank,  illustration  of,  311 

advice  to  real  owner  of  deposit  to  consent  to  payment  to  apparent 

owner,  bank  not  bound  by,  307 
authority  of,  when  bank  cannot  question,  138 
applying  securities  of  bank  to  his  own  use,  308 
bond  of,  sureties  on,  rules  as  to  their  liabiUty  under  Indiana  statute 

308 
certification  of  checks,  307 

post-dated  check,  307 

of  his  own  checks,  307 
certificates  of  deposit,  issue  of,  to  himself,  307 
compromising  claims,  164 
debts,  collection  or  compromise  of,  307 

application  of  bank  funds  in  discharge  of,  307 
directors,  ratification  by,  of  acts  of  cashier,  310 
discounting  note,  307 
duty  of,  307 

drafts,  indorsement  of,  139 
extension  of  paper  of  bank,  307 

fraudulently  indorsing  names  of  payees  on  drafts  drawn  by  him.  313 
funds  of  bank,  misapplication  of,  308 

misappropriation  of,  299 
knowledge  of,  not  imputable  to  bank,  illustration,  809 
indorsement  of  notes,  137 

for  collection,  307 

binding  bank  for  cost  of  collection,  307 
judgments  belonging  to  bank,  transfer  of,  307 
loans  without  security,  losses  arising  from,  308 
non-negotiable  paper,  transfer  of,  307 

note,   giving  his  own,  for  money  borrowed  for  bank,  liability  of 

bank,  307 
official  indorsements  of  his  own  note,  307 
personal  liability  on  his  bond  for  his  acts,  308 
power  of,  137,  307 

purchasing  for  bank,  power  not  implied,  307 
purchase  of  securities,  receiving  offers  for,  307 
receipt  of  evidence  of  deposit,  315 
release  of  surety  on  note,   307 

representation  of  maker  of  note,  bank  bound  by,  when,  807 
robbed  of  money  when  in  discharge  of  his  duty,  308 

when  bondsmen  are  not  liable,  308 
securities  delivered  by,  collateral  for  loon  to  bank,  807 


GENERAL   INDEX. 


1327 


[The  references  are  to  sections :  vol.  I  contains  $§  1-340  ;  vol.  n,  $$  341-588.1 

CASHIER  —  Continued: 

transfer  in  payment  of  debts,  137,  307 
settlement  with  defaulting  cashier,  122 

statement  that  paper  has  been  paid,  estoppel  of  bank  to  deny,  307 
stock  of  bank  intrusted  to  him,  sale  of,  308 
CEMETERY  GROUNDS  : 

purchase  oi,  by  public  corporation  on  credit,  18,  35 

CERTIFICATES  OF  INDEBTEDNESS  : 
issue  of.  by  county  boards,  103 
labor  done  on  railroad,  issued  for,  82 
negotiable  form,  issued  in,  256 

CERTIFICATION  OF  CHECKS. 

by  oflicers  of  natioual  bank,  when  improper,  a  criminal  act,  371 
CHANGE  BILLS : 

issue  of,  by  city,  prohibited  in  Georgia,  13 

CHECKS: 

acceptance  of,   vhen  implied,  324 

formal,  binding  obligation  on  bank,  325 

telegraph  by,  326 
assignment  of,  324 
certification,  325 

bank  primarily  liable  on,  325 

cashier  certifying  his  own  checks,  307 

certified  "good,"  effect,  325 

certified  "good  when  properly  indorsed."  bank  not  liable,  307 

certified  check,  dishonor  of,  holder  may  look  to  drawer,  325 

forged  certification,  pronounced  genuine  by  teller,  bank  estopped  by, 
314 

fraudulently  certified,  when  bank  is  liahl-  to  holder,  314 

modes  of,  325 

national  bank,  by  officers  of,  371 

post-dated  checks,  certification  of,  307 

relief  of  drawer,  by  certification,  325 

representation  by  parol,  that  check  is  good,  325 

teller  certifying,  314 

when  bank  is  not  relieved  by  officer  improperly  certifying  check,  335 
demand,  payr.ble  on,  324 
drawing,  sum  named  transferred  to  payee  by,  324 

equitable  assignment  of  funds,  rules,  324 
drawn  just  previous  to  garnishment,  not  in  itself  evidence  of  fraud,  327 
drawer,  discharge  of,  rules,  327 

drawn  for  more  than  amount  of  deposit  creates  no  lien  on  actual  balance, 
324 

rule  in  Illinois,  324 
duly  notified  to  bank,  324 

drawee  accepting,  payee  consenting  to  extension  of  time  of  payment, 
drawer  and  sureties  discharged,  324 


1328 


GENERAL   INDEX. 


[The  references  are  to  sections :  voL  I  contains  $$  1-340  ;  vol.  11,  H  841^686.  | 
CHECKS—  Contimted: 

drawee  need  not  delay  pa3rnient,  till  advised  check  has  been  drawn,  824 
drawer,  having  no  funds  to  meet  check,  cannot  take  advantage  of,  want 

of  diligence  in  presenting  it,  327 
drawer  must  show  special  injury,  from  delay  in  presenting  check,  327 
forged,  entered  on  bank  book  of  depositor,  314 
forged,  bank  paying,  purchaser  and  indorser  liable  for,  329 
forged  indorsement,  no  title  passes  by,  329 
held  over,  bank  failing,  316 
holder  of,  when  not  entitled  to  preference,  324 
indorser  relieved  of  liability,  when,  340 
lost  or  stolen,  323 
nature  of,  324 
negot^bility  of,  324 
notice  not  to  pay,  324 
payable,  immediately,  327 

in  current  funds.  324 

on  demand  at  a  future  day,  327 

to  bearer,  324 
payee,  trust  in  favor  of,  328 
payment,  on  unauthorized  indorsement,  not  operative  as  an  acceptance, 

325 
payment,  notwithstanding  notice  not  to  pay,  drawer  inuy  recover  from 

the  bank,  325 
payment,  presenting  for,  duty  of  holder,  325 

presenting  for,  payee  or  legal  holder  becomes  owner  of  funds,  327 

sufficient,  demanded  day  after  it  is  drawn,  327 
post-dated,  324 

received  by  teller,  with  promise  to  hold,  314 
presenting  for  payment,  324 

excused  by  stopping  of  payment  by  drawer,  327 

extension  of  time  by  assent  of  drawer.  327 

in  accordance  with  usage  of  bank,  327 

in  reasonable  time,  327 

what  is  a  reasonable  time,  327 

neglecting  to  present,  right  to  funds  postponed  by  attachment,  327 

six  months'  delay,  effect  on  bona  fide  indorsee,  327 

unreasonable  delay,  bank  failing,  loss  the  holder's,  327 

when  not  required,  check  payable  at  future  day  or  protested,  327 

when  delay  in  presenting  check  will  be  excused,  327 
raised,  indorsement  of,  a  warranty  to  drawee  that  it  is  genuine,  835 
sent  to  bank  on  which  it  is  drawn,  324 
unaccepted,  may  be  countermanded,  324 

CHIEF  ENGINEER: 

of  railroad  corporation,  contracts  of,  when  binding  a  corporation,  176 

CHOSES  IN  ACTION: 

belonging  to  corporation,  assignment  of,  power  of  officers  to  make,  134 


GENERAL   INDEX. 


132a 


[The  references  are  to  sections :  vol.  I  contains  §§  1-840 ;  vol.  n,  %%  341-586.1 

CITY: 

agents  of,  power,  91.  92 

appropriations  from  general  fund,  when  allowed,  25H 

bonds,  issue  of,  for  debt  contracted  for  legitimate  purposes,  459 

attorney,  services  of,  when  not  bound  for,  57 

bonds,  issue  of,  proceeds  to  be  applied  to  taking  up  floating  indebteck 
ness,  8 

power  to  issue  in  Indiana,  7 
exchange  of  new  for  old.  8 
California,  in  bonds  for  building  school  houses,  428 
change  bills,  issue  of,  13 

city  commissioner,  contract  for  paving  streets,  91,  93 
comptroller,  his  duties  and  powers,  92 
electric  light,  securing  plant  for,  32 
hospital  for  small-pox,  purchasing  site  for,  27 

incurring  indebtedness,  with  provision  for  interest  and  sinking  fund,  259' 
lighting  streets  for  a  term  of  years,  23,  24 
marshal,  payment  of,  for  services  outside  his  duties,  21 
mayor  and  council,  powers  of,  92,  93 
mayor,  expenses  of,  in  litigation,  reimbursement  of,  56 
navigation  company,  subscription  to  stock  in,  20 
plank  road  or  bridge,  construction  of,  beyond  corporate  Umits,  43 
railroad  corporations,  aid  in  construction  of,  46 

bonds  of,  guaranty  of,  50 
scrip,  issue  of,  for  city  public  works.  13 
survey  of  railroad  route  to  another  city,  tax  for,  20 
treasurer  of,  payments  of  money  by,  93 
CITY  AID  BONDS: 

authorized  not,  when,  459 

bona  fide  holders,  what  does  not  affect  their  rights,  468 

conditions,  subsequent,  evidence  of  performance  or  waiver  of,  45» 

as  to  completion  of  road,  substantial  compliance  with,  459 
confirmed  by  subsequent  legislation,  462 
consolidated  corporation,  rights  of,  467 
delay  in  constructing  road,  right  to  bonds  lost  by,  463 
donation  of,  459 

election  as  to  granting  aid,  effect  of  curative  statutes,  464,  465 
claim  of  fraud  in,  when  it  must  be  made,  459 
submission  of  questions  to  electors  in  excess  of  power  granted,  459 
authorizing  a  specified  amount  of  bonds,  bonds  for  a  smaller  amount 
may  be  issued,  659 
estoppel  of  city  to  claim  bonds  were  improperly  issued,  467 
gratuity,  issued  as  a,  459 

injunction  of  tax  for  paying  interest  on,  only  grounds  for,  459 
interest,  bearing,  when  not  authorized,  459 

internal  improvement,  works  of,  issued  in  aid  of,  in  Nebraska,  470 
Illinois  statutes,  authorization  under,  462 

members  of  council  owning  stock  in  corporation  to  be  aided,  not  disquali- 
fied to  act  as  to  issue  of  bonds,  459 
I  167 


\ 


(ill 


1330 


GBNEBAL  INDEX. 


[The  references  are  to  sections  :  vol.  I  contains  H  l-«0 ;  vol.  II,  SS  841-C86.] 
€ITY  AID  BONDS— Continued: 

ordinance  to  issue,  city  bound  by,  470 
payable  in  a  contingency,  4d9 

in  gold  coin,  459 
petition  for  issue  of  bonds,  must  accord  with  statute  authorizing,  459 

withdrawal  of  names  from,  effect.  459 
power  to  issue,  under  general  law  of  Indiana,  459 
piurchasers  for  value,  459 

injunction  against  collector  of  taxes  to  pay  interest  on  bonds  passing 
to  taxpayers  not  entitled  to,  459 
purchaser  of  void  bonds,  action  for  money  bad  and  received,  when 

allowed,  469 
raihroad  outside  the  state,  466 

issue  of  bonds  to.  466 
road  through  a  city,  issued  in  aid  of,  459 
sale  of  bonds  below  par,  injunction  to  restrain,  459 
subscription  to  stock,  in  payment  of,  459 

not  invalidated  by  change  of  termini  of  road,  459 
power  to  issue  bonds  in  payment,  impUed  from  power  to  subscribe 
to  stock,  459 
terms  of  bond,  variance  in,  from  those  described  in  notice  of  election,  470 
village,  issued  in  name  of,  when  in  fact  a  city,  470 

CITY  BONDS : 

action  to  restrain  transfer  of,  409 
taxpayer's,  to  enjoin  issue  of,  409 

bona  Jide  holder,  what  he  may  presume,  409 
not  prejudiced  by  irregularities,  409 

constitutional  limitation  as  to  indebtedness,  bonds  exceeding,  who  cannot 
set  up  invalidity  of,  409 

current  expenses,  money  borrowed  for,  bonds  issued  for,  409 

election  as  to  issue  of,  resolution  of  council  ordering,  effect  of,  416 

extension  of  old  bonds,  issued  in,  409 

extension  of  bonded  debt,  in  New  York,  refunding  statute  construed,  410 

funding  indebtedness,  issued  for,  409,  411 

general  rules,  409 

limitation  upon  amount  to  be  borrowed,  by  issue  of  bonds,  409 

money  borrowed  for  construction  of  improvements,  portion  misappropri- 
ated, bonds  to  pay  balance  of  debt  unpaid,  409 

outstanding  indebtedness,  in  compromise  of,  issued  without  ordinance  or 
resolution,  413 

payable  at  city  treasury,  409 

person  impeaching  legality  of  bonds,  onus  on  him  to  show  illegality,  409 

public  improvements,  for,  limitation  on  power  to  issue  in  Texas,  415 

purchase  on  conditions,  real  estate  for  erection  of  public  buildings,  bonds 
for,  409 

purchase  of  bonds  issued  for  funding  indebtedness,  when  he  may  recover 
the  amount  paid  for  them,  411 

recitals  in,  when  city  is  not  estopped  by,  to  deny  validity  of,  418 


GENERAL   INDEX. 


1331 


[The  references  are  to  sections :  vol.  I  contains  $§  1-840 ;  vol.  n,  SS  841-686.] 

CITY  BONDS— Continued: 

refunding  bonds,  to  what  extent  binding,  411 
statute  legalizing,  its  effect,  414 
statutory  limitation,  effect  as  to  validity  of  bonds,  412 
validity  of,  as  affected  by  restrictions  in  charter,  418 
bonds  issued  as  part  of  general  indebtedness,  417 
voidable  only,  by  reason  of  defective  or  irregular  execution,  in  hands  of 

innocent  purchasers  may  be  enforced,  409 
void,  absolutely,  when  issued  without  authority,  non-enforceable,  409 

CITY  COMPTROLLER : 

bonds  of  city,  disposition  of,  93 
duties  of,  93 
powers  of,  93 

CITY  OFFICER: 

payments  to,  in  excess  of  salary,  recoverable  from,  381 

CITY  TREASURER: 

payments  of  money  from  county  treasury,  93 

profits,  making,  out  of  funds  of  city,  188,  note  3,  p.  262 

CLERK: 

of  bank  acting  for  cashier,  power  of,  307 

transferring  securities  or  notes  of  bank,  307 

COIN: 

pledged  to  bank,  bank  may  sell  or  assign  its  special  property  in,  283 

COLLECTIONS: 

by  banks,  paper  remitted  for  collection,  rules,  292  , 

general  rules,  332 

See  Banks  and  Banking. 

COMMERCIAL  PAPER: 

guaranty  of,  by  bank,  284 

COLORADO: 

statute  requiring  a  report  of  corporate  indebtedness  by  directors,  failure 
to  make,  jointly  and  severally  liable  for  debts  of  the  corporation,  239 
interest  reserved  by  banks,  rule  in  Colorado,  294 

COMPENSATION: 

by  directors  of  a  corporation  to  one  of  the  board,  rules,  399 

COMPROMISE: 

of  debts  of  corporation  by  officers,  164 

COMPTROLLER  OF  CURRENCY: 

appointment  of  receiver  for  insolvent  national  bank,  his  action  final,  342 
claims  against  insolvent  national  bank,  allowance  on,  rules  governing,  351 
what  claimant  may  be  charged  with,  352 

CONNECTICUT: 

board  of  education,  use  of  public  funds,  375 
building  commission  of  a  town,  its  power,  874 


( 


1332 


GENERAL  INDEX. 


[The  references  are  to  sections :  vol.  I  contains  $§  1-340 ;  vol.  n,  {§  841-686.] 
CONNECTICUT  --  Continued  : 

issue  of  bonds  for  improvement  of  a  public  park,  resolution  of  legislature 

authorizing,  construed,  423 
statute,  imposing  personal  liability  on  negligent  officers,  construed,  254 

CONSOLIDATION: 

statutes  of  Indiana,  authorizing  consolidation  of  railroads,  construed,  273 

CONSTITUTION: 

constitutionality,  statutes  authorizing  municipal  aid  to  railroads,  42 

statutes  authorizing  construction  of  a  railroad  by  cities  of  a  certain 
class,  46 
provision  of,  as  to  county's  lending  credit,  when  violated,  19 

as  to  providing  for  payment  of  debts  in  ordinance  creating  the 
debt,  24 
limitation  of  indebtedness  of  municipal  corporations,  coupon  bonds  for 
funding  debts,  not  prohibited  by,  8 

CONTRACTS: 

private  corporations,  agents  of,  power  to  make,  116,  117,  118,  119,  note  1 
corporation,  with,  having  the  same  directors,  198 
directors  de  facto,  binding  on  corporation,  124 

with  corporation,  182 
execution  of,  385 

what  would  be  conclusive  of,  886 
guaranty  of,  what  not  allowed,  73 

modified  by  directors,  125 
officers,  interested  in,  184 

made  by,  120,  121 

rules  as  to  such  contracts,  189,  190 
president  by,  209 

binding  on  corporation,  146 

counsel,  employment  of,  146 

lease  of  offices,  146 

promissory  notes,  authority  to  execute,  when  a  question  for  the 
jury,  149 

questioning  authority,  151 
promoters  by,  ratification  of,  121 
rescinding,  by  auditing  board,  165 
town  company,  of,  271 
trustees  of  corporation,  executed  by,  130 
public  corporations,  agents,  rules  governing,  92 
county  buildings,  erection  of,  or  repair,  96,  97 
corporation  attorney,  with,  262 
crematory  for  garbage,  erection  of,  36 
detection  of  criminals,  98,  99 
guaranty  by,  50,  69,  70.  71,  72,  82 
insurance  of  public  buildings,  103 
lighting  streets,  for  a  term  of  years.  23 
medical  services  for  convicts  or  poor,  100 


GENERAL  INDEX.  1333 

[The  references  are  to  sections :  vol.  I  contains  $§  1-340 ;  vol.  n,  SS  341-686.] 
CONTRACTS—  Contimied: 

ratification  of  its  vote,  31,  94,  95,  103,  105 
right  of  way  for  sewer,  37 
paving  of  streets,  91 
public  buildings,  materials  for,  99 
sidewalks,  construction  of,  92 
steam  heating  apparatus  lor,  34 
suretyship,  68 
water  supply,  62,  63 
by  village,  81 

CORPORATE  PURPOSES: 

defined,  30 

debts  incurred  for,  what  are,  32 

evidences  of  indebtedness,  on  contracts  to  accomplish,  8 

providing  site  for  state  institution,  not  a  corporate  purpose,  393 

CORRESPONDING  CLERK: 

compromise  of  claims,  releasing  debts,  etc.,  not  within  ordinary  dutief  oi, 
164 

COUNSEL: 

employment  of,  by  public  corporations,  22,  51,  52,  53,  54,  66 
by  managing  officers  of  private  corporations,  118,  131 

COUNTIES: 

agents  of,  general  rules  as  to  their  powers,  95 

agent  for  negotiation  of  bonds,  employment  of,  260 

boards,  governing,  powers  of,  as  to  elections  for  the  issue  of  bonds,  400 

attorney,  for  services  of,  when  not  bound  for,  58 

bonds,  issue  of,  authorized  by  vote  of  electors,  8 

for  what  they  may  be  issued,  8 

made  negotiable  without  an  order  of  court,  8 
borrowing  money,  legislature  must  authorize,  1 

to  meet  current  expenses  in  case  of  deficit,  1 

for  the  erection  of  county  buildings,  8 
bridge,  construction  of,  act  authorizing,  held  unconstitutional,  19 
certificates  of  indebtedness,  103 

donations  as  an  inducement  for  location  of  a  college,  21 
discounting  their  warrants,  263 

electors  voting,  power  to  commissioners  to  borrow  money  for  erection  of 
court  house,  0 

county  warrants  issued  for,  void  when  not  authorized  by  vote,  9 
epidemic  diseases,  employment  of  physician  to  treat,  22 
insurance  on  public  buildings,  21 
interest,  contracting  for,  10,  note  1 
promissory  notes  or  warrants,  to  be  paid  from  future  taxation,  muib 

be  expressly  authorized,  12 
judgment  against,  levy  of  tax  to  pay,  95 
stock  of  railroad  corporation,  subscription  to,  92 


1834 


GENERAL   INDEX. 


II 


[The  references  are  to  sections :  vol.  I  contains  S$  1-340 ;  voL  H,  fi  Ml-«6.] 
COUNTIES  —  Cmtinued  : 

suable  on  bonds  in  federal  court,  406 
uncollected  taxes,  anticipating,  258  * 

warrants,  payment  of,  mandamus  to  compel,  »5 

COUNTY  AID  BONDS : 

actions  on,  pleadings  in,  458 

agreement,  issued  upon  an,  county  to  return  stock  to  corporation,  bonds 

vitiated  by  the  fraud,  440 
authorized  by  statute,  statute  must  be  complied  with,  440 
bona  jide  holders,  rights  of,  450 
hona  fde  purchasers,  what  is  required  of  them,  454 
compromise,  proposal  to,  not  a  promise  to  pay,  which  will  relieve  from 

running  of  Statute  of  Limitations,  458 
condition,  that  work  be  done  in  county,  440 
consolidation  of  corporations,  eflfect  upon  aid  voted,  450 
coupons  of,  detached,  actions  upon,  456 

negotiable,  456 

payable  outside  of  county,  not  invalidatetl  by,  456 

rules  as  to,  456 
donation  of,  when  authorized,  444 
donated,  cannot  be  scaled  down,  445 
estoppel  of  county  to  deny  liability  for  accruing  interest  by  receiving 

stock  and  voting  it  and  paying  interest  on  bonds,  440 
elections  to  authorize,  called,  how,  441 

by  wrong  authority,  441 

fraud  or  illegality  in,  officers  of  county,  no  power  to  validate  election 
441 

informalities  in,  county  cannot  evade  liability  on  bonds  by  reason  of 
441 

railroad,  name  of  railroad  required  to  be  named,  441 

result  of,  how  determined,  441 

submission  of  questions,  in  what  form,  441 

votera  qualified,  441 
exchange  of,  440 
form  of  issue,  440 
funding  bonds  after  portion  of    county  is  detached,  a  charge    upon 

detached  portion,  440 
general  rules,  440 

Illinois,  bonds  of  county  in,  secured  by  mortgage  of  swamp  lands,  446 
issue  of,  when  it  will  not  be  compelled,  441 
issue  of,  imder  Mississippi  statutes,  441 

under  Missouri  statutes,  441 

under  Nebraska  statutes,  441 
mandamus  to  compel  issue  of  bonds,  majority  of  votes  authorizing,  made 

up  of  illegal  voters,  a  defense  in,  441 
payable  in  another  state,  rate  of  interest  different  from  that  of  state  of 
domicile,  bonds  not  void  for  usury,  440 


OENESAL   INDEX. 


1335- 


(The  references  are  to  sections :  vol.  I  contains  %%  1-340 ;  vol.  H,  §§  341-586.] 

COUNTY  AID  BO-^Jy^  -  ContimiM  : 

payment  of  interest,  agreement  for,  by  railroad  corporation,  until  road  is 

completed  into  county,  when  liability  to  pay  ceases,  440 
precinct  bonds,  447 

county  liable  upon,  457 
presentation  to  county  authorities  for  auditing  and  payment,  not  required 

before  an  action,  455 
proposal  by  corporation  for  municipal  aid  under  Alabama  statutes,  441 
recitals  on  face,  effect  upon  holders,  454 
ratification  of,  452 
sale  of,  below  par,  440 
statute  legalizing  prior  issue  of  bonds,  441 

curative  effect,  453 
subscription  to  stock,  authority  to  subscribe  gives  no  power  to  issue 
bonds,  443 
conditions  prescribed  in,  442 
as  to  route  of  railroad,  442 
proceeds  of  bonds  to  be  expended  in  county,  442 
not  complied  with,  ratification  of  issue  of  bonds  by  county  authori- 
ties. 442 
stock  sold  at  nominal  price  to  corporation,  fraud  to  invalidate  bonds,. 
449 
taken  by  corporation,  440 

validity  of  bonds,  not  affected  by  a  change  of  denomination  from  that 
named  in  proposal  of  corporation  under  Alabama  statute,  448 

COUNTY  BONDS. 

action  on,  county  not  fully  organized  when  issued,  a  defense  not  open  to 

the  county,  404 
constitutional  limit  of  indebtedness,  issued  in  excess  of,  393 
counties  suable  on,  in  federal  courts,  405 
county  and  city  constituting  same  territory,  400 
court  houses,  for  erection  of,  in  Texas,  395 
electora,  submission  of  issue  to  vote  of,  400 
general  rules,  393 

holders  of,  duty  of,  as  to  examination  of  record  of  indebtedness,  400 
indebtedness,  issued  for  refunding,  394 
interest  upon,  393 
issue  of,  enjoined,  393 
judgments  against  county,  issued  in  payment  of,  validity  of  judgments 

cannot  be  questioned  in  action  on  bonds,  401 
Limitations,  Statute  of,  plea  of,  406 
negotiable,  393 

notice  of  contents  of  order  to  issue,  holders  of  bonds  chargeable  with,  39S 
payable  outside  of  state,  sold  beyond  the  state,  398 
overissue,  when  county  may  plead,  403 
power  to  issue,  393 

presumption  that  legal  steps  have  been  taken  to  authorize  issue,  393 
public  buildings,  for  construction  of,  393 


*l^ 


I  m 


isae 


OENEBAL  INDEX. 


[The  references  are  to  sections :  toL  I  c<Hitain8  |S  1-340 ;  vol.  n,  §i  811-686.] 

COUNTY  BONDS  —  Ckmtinued  : 

purchaser  in  good  faith,  his  rights,  when  protected  against  illegality,  398 
recitals  in,  effect  of,  393,  400 

refunding  bonds,  statements  of  county  agent  in  sale  of,  not  an  estoppel 
of  county  to  defend,  402 
how  far  valid,  400 
state  institution,  providing  site  for,  issued  for  such  purpose,  void,  393 
statute  authorizing,  must  be  complied  with,  393 
statute  as  to  presentation  of  claims  not  applicable  to  judgments  on  bonds 

and  coupons,  407 
statute  authorizing  tax  to  be  levied  for  protection  of  bonds,  part  of  con- 
tract, 398 
validity  of,  as  affected  by  constitutional  requirements,  399 
as  affected  by  place  of  execution,  398 
as  affected  by  limitations  of  indebtedness,  400 
portion  of  bonds  valid,  portion  invalid,  proper  proceeding  of  court, 
408 
valid,  bonds  not  rendered,  by  levy  of  taxes  and  payment  of  interest  on,  398 

COUNTY  COMMISSIONERS : 
power  of,  in  Indiana,  21 
power  of,  in  Kansas,  22 
purchase  of  poor  farm  by,  in  Nebraska,  373 

COUNTY  TREASURER : 

bailee  of  public  funds,  liability  as,  233 

funds  may  be  followed  as  trust  funds,  233 
county  funds,  custody  of,  98 
county  warrants,  mandamus  to  compel  payment  of,  95 

no  power  to  dispute  validity  of  acts  of  county  board,  95 
court  orders,  paying  on  forged  indorsements,  rules  as  to  liability,  234 
receipts  to  collector  of  taxes,  money  not  paid,  232 
settlements  with,  96,  98 

surrender  of  bonds  of  county,  advertising  for,  96 
taxes,  as  to,  98 
warrants,  payment  by,  no  money  to  the  credit  of  fund  on  which  they  are 

di-awn,  103 
de  facto,  right  to  salary,  880 
errroneous  payments,  into  county  treasury,  his  right  of  action  to  secure, 

377 
taxes  levied  and  collected  for  payment  of  bonds,  restraining  treasurer 
from  application  of,  to  payment,  393 

COUNTY  WARRANTS : 

issue  of,  rules  as  to,  383 

under  Missouri  statutes,  383 
Limitations,  Statute  of,  not  applicable  to,  884 
payment  of,  when  demanded,  384 
statute  authorizing,  disregarded,  383 
validity  of,  rules  as  to,  383 


GENERAL  INDEX.  1337 

[The  references  are  to  sections :  vol.  I  contains  SS 1-340 ;  vol.  n,  SS  341-586.] 

COUPON  BONDS: 

private  corporations,  defined,  490 

COUPONS: 

private  corporations,  bonds  of,  actions  on,  assumpsit,  503 

right  of  holders  to  bring,  503 

not  affected  by  waiver  of  right  to  foreclose  mortgage.  503 

what  may  not  be  proven  in,  503 
detached,  502 

dishonored,  before  coming  to  hands  of  holder,  502 
issue  of  scrip  for  interest,  502 
paid,  when  considered,  502 
rules,  as  to,  502 
uncanceled,  502 

vice-president  of  corporation,  signed  by,  508 
pubUc  corporations,  bonds  of,  detached,  actions  upon,  456 

defenses  not  allowed  in,  456 

negotiable,  456 

payable  out  of  county,  not  invalidated  thereby,  456 

railroad  aid  bonds,  overdue  interest  on,  471 

COURTS:  .      ,^     t         .4.U     * 

jurisdiction,  federal  couri;s,  actions  by  receivers  of  national  banks,  without 

regard  to  amount  involved,  345 
actions  to  control  conduct  of  receivers,  346 
state  courts,  in  aid  of  directors  of  national  banks,  violating  their 

duty,  300 
court  of  equity,  301  .       . 

county  bonds,  in  actions  on,  portion  of  bonds  valid,  portion  invahd, 

proper  proceeding,  408 
dividends,  when  courts  may  order,  387 

COURT  OF  EQUITY: 

action,  for  breaches  of  trust,  jurisdiction  of,  207 

of  deceit  against  president,  making  false  statements  to  induce  sub- 
scriptions to  stock,  jurisdiction  of,  200 
for  cancellation  of  guaranty  of  bonds  of  another  corporation,  504 
complaint  of  stockholder,  when  not  open  to,  208 

directors  of  national  banks,  violating  their  duties,  jurisdiction  over,  301^ 
directors  misapplying  funds  of  an  insurance  corporation,  junsdictionin 

action  against,  209  ,    .     ,  .  i. 

diverting  property  so  that  creditors  cannot  enforce  their  claims,  grant- 
ing relief  to  creditors,  193 
saving  fund,  managers  of,  liable  in,  209 

intervention  of,  to  compel  a  division  of  the  assets  of  a  corporation,  196 
president  receiving  profits  of  a  corporation,  accountable  in  equity  to 
stockholders,  209 

CREDIT:  -  t„. 

loan  of,  by  corporation,  by  making  bonds  to  fall  due  in  the  future,  274 

168 


i 


1338 


GENERAL   INDEX. 


[The  references  are  to  sections  :  vol.  I  contains  H 1-340 ;  vol.  n,  H  Wl-586.] 

CREDITORS: 

private  corporations,  bill  of.  to  have  subscription  of  mortgage  bondholders 
to  debenture  bonds  applied  to  their  claims,  not  maintainable,  490 
against  insolvent  corporation,  equitable  jurisdiction  of,  531 
of  insolvent  corporation,  right  to  attach  property,  524 

lien  of  attachment,  524 
fniud  upon  bona  Jide,  confession  of  judgment  by  insolvent  corporation, 

523 
preference  of,  by  corporations,  633 
rule  in  Illinois,  523 
in  Michigan,  523 
in  Missouri,  523 
remedy  of,  in  equity,  to  compel  an  equal  distribution  of  property  by  cor- 
poration, 523 

CREMATORY  FOR  GARBAGE: 
building,  by  public  corporation,  36 

CRIMINAL  ACTS; 

officers  of  national  banks,  369-371 
certification  of  checks,  improper,  371 
false  entries  in  reports,  etc.,  370 

bookkeeper,  statement  of,  made  at  request  of  bank  examiner,  370 

what  is  not  a  false  entry,  870 

what  constitutes  the  offense,  370 
funds  of  bank,  misapplication  of,  369 

CUSTOM: 

of  banks,  crediting  avails  of  collections,  no  effect  upon  rights  of  owners 
of  paper,  837 

D. 

DAYS  OF  GRACE: 

checks  on  banks,  payable  on  demand,  or  at  a  future  day,  327 

DEBENTURE  BONDS: 

private  corporations,  sale  of,  price  limited,  498 

DEPOSITORS: 

authorizing  his  clerk  to  draw  against  deposits,  316 

bank's  agreement  to  honor  his  checks,  implied,  315 

bank  must  account  to  depositor  for  his  deposits  in  good  funds,  315 

bank,  debt  due,  extinguished  by  check  drawn  in  payment,  323 

bank  becoming  insolvent,  general  depositors  paid  pro  rata,  341 

general  creditors,  315 
bank,  crediting  depositor  with  check  of  another  depositor,  315 

with  check  left  for  collection,  check  proving  fraudulent,  bank  may 
charge  back,  315 
collections  by  bank,  credited  to  depositor,  315 
countermanding  instructions  as  to  application  of  deposits,  315 
creditors,  other,  preferred  to,  when  not,  320 

when  preferred  to,  320 


GENERAL   INDEX. 


1339 


[The  references  are  to  sections :  vol.  I  contains  §§  1-340 ;  vol.  II,  §§  341-586.] 

DEPOSITORS  —  Continued  : 

debits  charged  to,  when  they  may  be  found  to  be  false,  316 
delay  of  depositor  in  informing  bank  that  a  check  is  forged,  330 
deposit  of  money  or  check  in  bank  knowing  its  insolvency,  depositor's 

right  to  recover,  320 
duty  of,  316 

as  to  examination  of  pass  book,  329,  330,  331 
entries  in  pass  book,  depositor  omitting  to  examine,  when  estopped  to 

question  correctness,  316 
forged  checks,  money  paid  on,  right  of  depositor  to  recover  the  money, 

329 
when  depositor  loses  the  right  to  recover,  330 
forged  indorsement  of  checks,  detection  of  forgeries  in,  duty  of  depositor, 

829,  330,  331 
giving  directions  to  cashier  to  place  deposit  to  credit  of  another,  316 
interest  on  deposits,  when  depositor  is  entitled  to,  316 
matured  debts  to  bank,  application  of  deposits  to,  323 
notes  of,  payable  at  bank,  application  of  deposits  to,  323 
overdrafts  of,  transfer  of  securities  for  payment  of  by  depositor,  trust 

created  in  favor  of  holders,  323 
partnership  deposits,  316 
passbook,  entries  in,  forgeries  of  clerk  of  depositor,  depositor  liable  for 

loss,  316 
evidence  of  what,  315 
written  up  and  balanced,  when  it  constitutes  a  complete  settlementt 

323 
delay  in  questioning  accuracy,  323 
relation  of  to  bank,  creditor,  315 
revoking  directions  as  to  deposits,  316 

rights  of,  316 

savings  banks,  in,  cannot  set  off  his  deposits  against  debts  due  bonk,  81» 

DEPOSITS : 

bank,  application  of,  323 

to  notes  payable  at  bank,  334 
attorney  for  another,  in  name  of,  317 
board,  official,  subject  to  check  of  successors,  315 
bank  bills,  as  depreciated  paper,  324 
cashier,  receipt  of,  for,  315 
certificates  of,  assignment  of,  321 
cashier,  issued  by,  to  himself,  307 
consideration,  when  without,  321 
director,  issued  to,  payment  while  bank  is  insolvent,  when  payments  are 

not  void,  321 
equities,  subject  to,  transferee  takes,  321 
factor,  by,  with  knowledge  of  bank,  317 

fraud  in  procuring,  bank  paying,  when  bank  may  reclaim  money  paid,  321 
indebtedness,  prima  facie  evidence  of,  321 
law  merchant,  when  not  required  by,  321 


fll 


1340 


GENERAL    INDEX. 


[The  references  are  to  sections :  vol.  I  contains  S$  1-840 ;  vol.  n,  $$  841-686.] 
DEPOSITS  —  Omtinued  : 

name  of  another,  in,  real  owner  failing  to  dissent,  321 

payable  in  currency,  331 

payable  on  return  properly  indorsed,  bona  fide  holder,  right  to  recover,  321 

person  depositing  in  name  of  another,  321 

president,  issued  as  obligation  of,  estoppel  of  bank  to  deny  its  liability,  821 

principal,  money  of,  by  agent  with  knowledge  of  bank,  317 

promissory  note,  treated  as,  321 

received  years  after  payment,  indorsees  cannot  force  a  second  payment,  821 

check  on  bank,  imder  agreement,  316 

for  collection,  318 

passing  of  title  to  check,  318 
court  funds,  328 
credit  of,  on  books  of  bank,  307 

collections  by  bank  to  depositor,  315 
depositor,  agreement  of  bank  to  honor  his  checks,  implied,  315 

relation  of,  to  bank,  creditor,  315 
entry  of,  mistake  as  to  amount,  316 
funds,  which  become  depreciated,  316 

partnership,  316 
garnishment  of,  292 
general  rules,  315 

instructions,  with,  to  apply  to  claims  held  for  collection,  316 
interest  on,  rule,  etc.,  316 
minor,  of  a,  315 

money  for  investment,  investment  never  made,  bank  becoming  insolvent, 
relation  of  trustee  and  cestui  que  trust,  323 

to  be  transmitted,  rights  of  depositor,  316 
ownership  of,  prima  facie  presumption,  317 

question  of,  rules,  317 
paid  to  other  than  depositor,  what  bank  must  show  to  justify  payment* 

317 
pass  books  of  customers,  entered  on,  307 

by  bookkeeper  of  bank,  when  bank  is  not  liable,  315 
receivers  of  corporations,  302 
savings  banks,  in,  319 

assignment  of,  319 

deposit  book,  rules  as  to,  819 

general  rules,  319 

received  by  bank,  with  knowledge  of  its  insolvency,  320 

special,  319 
securities  for  safe  keeping,  duty  of  bank,  rule  as  to  care  required,  295 
special,  315 

&  bailment,  322 

care,  amount  of,  required  of  bank,  322 

depositor  entitled  to  identical  thing  deposited.  322 

lost  by  gross  negligence  of  bank,  bank  liable  for,  322 

stolen  by  robbers,  322 


GENERAL   INDEX.  1341 

[The  references  are  to  sections:  vol.  I  contains  Sf  1-340;  vol.  H,  §§  341-586.] 

DEPOSITS  —  Continued  : 

transferred  to  another  bank,  322 
treasurer  of  county,  317 
trustee,  as,  317 

trust  funds,  banker's  lien  does  not  extend  to,  292 
withdrawal  of,  by  director  of  insolvent  bank,  807 

DIRECTORS: 

of  banks,  allowing  overdrafts,  299 
assigning  securities,  299 
cashier,  settling  with,  bank  not  concluded,  299 
compensation  to  one  director  in  good  faith,  no  personal  liability  for, 

299 
contempt  of  court,  when  in,  302 
creditors,  liability  to,  under  Maine  statutes,  299 
due  diligence  in  perfecting  the  liability  of  indorsers,  299 
duty  of,  299 

guaranty  of  bank,  personal,  by  directors,  297 
knowledge  of,  what  they  are  bound  to  have,  299 

bank  affected  by,  299 
national  bank  of,  duty  as  declared  by  United  States  Supreme  Court, 

299 
withdrawal  of  deposits  by  a  director,  from  an  insolvent  bank,  liable 
for  return  of  the  amount,  307 
private  corporations,  acts  of,  questioning,  282 

advantage  over  other  creditors,  securing  personal,  182 
bonds  of  corporation,  purchase  of,  192 
borrowing  money  of  corporation,  192,  193 
breaches  of  trust,  liability  for,  181 
contracts  made  for  corporation,  182 
participating  in  benefits  of,  181 
contracting  with  syndicate  composed  of  themselves,  when  contract 

cannot  be  rescinded,  186 
defado  acts  binding  on  corporation,  124 
defense  that  contract  made  with  themselves  is  invalid,  w|ien  they  are 

not  entitled  to,  191 
duties  of,  181,  182, 521 
funds  of  corporation,  speculating  with,  188 
misapplication  of,  182 
waste  of,  182 
judgment  against  corporation,  purchase  of,   for  less  than  amount 
called  for,  192 
causing  sale  under,  his  conduct  must  be  fair,  192 
loaning  money  to  corporation,  192,  193 

loan  of  money  of  corporation  without  required  vote  of  directors,  271 
mortgage,  secured  by,  proceeding  to  have  property  sold,  192 
purchase  of  property  under,  when  in  bad  faith,  192 
when  sale  will  be  void,  192 


1342 


GENERAL   INDEX. 


[The  references  are  to  sections:  vol.  I  contains  $$  1-840;  Tol.  II,  {$  841-688.] 

DIRECTORS  —  Continued  : 

lack  of  power,  illustrations  of,  127 

assessing  stockholders  without  authority  from  corporation,  127 
binding  corporation  by  an  express  promise  or  parol  contract,  127 
donating  or  misappropriating  funds  of  corporation,  127 
increasing  capital  stock  without  authority,  127 
modifying  contract  for  construction  of  a  railroad,  127 
notes,  making  without  authority,  127 
ratifying  their  own  unauthorized  acts,  127 
stock  of  corporation,  selling  at  less  price  than  fixed  by  the  charter, 
137 
subscribers  to,  releasing  from  liability.  127 
power,  lack  of,  to  mortgage  or  consolidate  without  assent  of  stock< 

holders,  183 
preferring  themselves  to  other  creditors,  185,  521 
preferential  mortgage,  giving  to  one  of  the  board,  182 
price  excessive,  directors  paying,  for  work  done  with  reservation  of 

commissions  for  themselves  must  account  for  profits,  188 
profit,  private  agreement  for,  188 
promissory  notes,  authorized  by,  128 
property,  sale  of,  to  corporation,  when  not  fraudulent,  194 
purchaser  of  bonds  under  false  statement  of  directors,  personal  lia- 

bility  of  directors  to,  183 
power  of,  general  rules,  122-126 

rejection  of  offers  for  sale  of  bonds  of  a  land  company,  182 
fcpresenting  facts  falsely,  inducing  deposits  in  an  insolvent  bank,  200 
inducing  insurance  in  an  insurance  company,  200 
prospectus  in,  200 

personal  liability  to  those  injured  by,  200 
/iraiver  of  power  to  repudiate  contract  of  officers,  129 
note  of  corporation,  indorsement  of,  by  director,  when  held  liable  as 

guarantor,  227 
personal  liability  of,  acting  beyond  their  power,  causing  loss  to 
corporation,  223 
accommodation  paper,  accepting  in  name  of  corporation,  223 
general  rules,  223 
illustrations  of,  223 
malfeasanf-e.  223 
misappropriation  of  corporate  funds,  lack  of  care  to  prevent, 

223 
negligence,  when  not  liable  for,  223 
salary,  rating  to  themselves,  196 

.statutory  liability,  annual  statement,  nature  and  character  of  prop- 
erty, failure  to  make,  237 
false  statements  in,  237 
balance  sheet  of  mining  corporation,  under  California  statute, 

failure  to  post,  liability  in  an  action  by  stockholder,  238 
tCharter,  under  special  provisions  of,  or  statute,  236 


GENEBAL   INDEX. 


1343 


[The  references  are  to  sections:  vol.  I  contains  §§  1-340;  vol.  H,  $$  341-686.] 

DIRECTORS—  Continued: 

condition  of  corporation,  as  required  in  Massachusetts,  rules  as  to 

personal  liability,  241 
contracting  debts  in  excess  of  capital  stock,  liability  under  Massa- 
chusetts statute,  rules  as  to,  241 
what  are  debts  within  the  meaning  of  statute,  241 
corporate  indebtedness,  failure  to  tile  a  report  of,  personal  liability 
under  Colorado  statutes,  rules  as  to,  239 
salaries,  exorbitant,  paying  to  themselves,  211 
stockholders'  rights  of  action  against,  211 
sale  of  property  to  one  of  themselves,  vrhen  set  aside,  193 

of  patents  to  corporations,  directors  liable  for  profits,  209 
saving  fund,  directors  of,  maladministration  of  their  office,  liable  to 

depositors  for,  209 
stock,  issue  of,  to  themselves,  breach  of  trust,  187 
stockholders  allowing,  to  withdraw  their  subscriptions,  personal  lia- 
bility for,  183 
action  against  directors  for  depreciation  in  value  of  stock,  209 
accountable  to   stockholders    for  injuries  done  in  conducting 
business,  181 
torts  of  corporation,  damages  caused  by,  directors  liable  for,  212 
statutory  personal  liability  for  debts,  assenting  to  creation  of  indebt- 
edness in  excess  of  capital  stock,  rule  as  to  liability,  236 
under  Missouri  statute,  243 

capital  stock,  violation  of  statute  as  to  collection  of,  254 
failure  to  file  annual  reports  as  to  capital  stock,  assets,  etc.,  under 
New  York  statutes,  244 
what  debts  they  become  liable  for,  244 
what  is  compliance  with  the  statute,  244 
under  Michigan  statutes,  when  presumed  to  be  intentional, 
rendering  directors  liable,  254 
Tiolations  of  provisions  of  Minnesota  statute,  causing  insolvency  of 
corporation,  personal  liability  for  debts,  what  constitutes  such  a 
violation,  242 
personal  liability  generally,   diversion  of  property  of  corporation, 
rules  declared,  225 
declaring  dividend  when  corporation  is  insolvent,  254 
illustrations  of  personal  liability  under  English  statutes,  255 
transfer  of  stock  and  assets  of  an  insurance  corporation,  223 
waste  and  misapplication  of  assets  of  a  corporation  purchased, 
extent  of  personal  liability,  223 

DISCOUNT: 

promissory  notes  of,  by  bank,  to  what  the  power  is  limited,  267 
by  cashier  of  bank,  effect  of  ratification  by  bank,  307 
knowledge  of  director,  bank  affected  by,  299 

DIVIDENDS: 

borrowing  money  to  pay,  389 

declaring,  court's  interference  with,  rules,  387 


lUi 


GENERAL   INDEX. 


[The  references  are  to  secticms:  voL  I  contains  U  1-3^;  ^ol.  II,  {$  841-{ie6.] 

DrVTDENDS  —  Qmtinued  : 

directors,  discretion  of,  387 

mining  corporations,  by,  rules,  388 

I         rescinding  declaration  of,  390 

!        scrip  dividends,  issue  of  bonds  in  payment  of,  prohibited  in  New  York, 

497 
shares  of  bank  stock,  on,  291 

Action  to  enforce,  set  off  in  discretion  of  directors,  291 

in  declaring,  291 

court's  interference  with,  291 
illegal  as  to  creditors,  when,  291 
interest  on,  291 
payable  in  what,  281 

DITCH  COMPANY: 

contracts  of,  not  ultra  vires,  illustrations,  271 

DONATIONS: 

by  public  corporations,  college  to,  as  an  inducement  to  location  of,  20 

manufactory,  to,  as  an  inducement  to  location  of,  22 

water  power,  developing,  of  bonds  in  aid  of.  64 

See  City  Bonim;  County  Bonds;  City  Aid  Bonds;  County  Aid  Bonds. 

DRAFT: 

acceptance  of,  by  treasurer  of  corporation,  168 

indorsement  of,  by  treasurer,  166 

leceived  by  bank  for  collection,  presentment  for  acceptance,  337 
acceptance  refused,  not  necessary  to  present  for  payment,  337 
failure  of  bank  collecting,  owner  of  draft  shares  pro-rata  with  othei 

creditors,  337 

f 

DUTY: 

banks,  of,  332 

as  to  paper  received  for  collection,  332,  384 

when  fully  discharged,  382 

deposits.  323 
cashier  of  bank,  of,  307 
depositors  in  bank,  316 
teller  of  bank,  314  ' 

ELECTIONS : 

aid  to  railroad  corporations,  upon  granting,  441 
authority,  called  by  wrong,  441 
effect  of  curative  statutes,  404,  464 
fraud  in,  claim  of,  when  it  must  be  made,  459 
questions  in,  how  submitted  to  voters.  441 
result  of,  how  determined,  441 
rules  in  Alabama,  441 

Illinois,  441 

Kentucky,  441 


GENERAL   INDEX. 


134& 


[The  references  are  to  sections:  vol.  I  contains  S$  1-840;  vol.  II,  S$  341-686.] 

ELECTIONS  —  Continued  : 
Mississippi,  441 
Missouri,  441 
Nebraska,  441 
school  district  bonds,  ordered  by  resolution,  434 
town  aid  bonds,  notices  calling,  471 

irregularity  in,  effect  as  to  validity  of  bonds,  473 

legislature  no  power  to  validate  election  and  subscription  when,  471 

ELECTORS : 

issuance  of  coimty  bonds,  vote  of,  rules  as  to,  400 

ENGINEER: 

of  railroad  corporation,   contracting  for  corporation,   special  authority 
must  be  shown  to  bond  corporation,  150 

ENGLAND : 

winding  up  act,  compelling  directors  or  other  officers  to  repay  moneys, 
misapplied,  as  shown  by  proceedings  in  winding  up,  construed,  255 

ESTOPPEL: 

of  bank,  authority  of  officers,  to  guaranty  commercial  paper,  to  deny,  284 
cashier,  statement  of,  to  deny,  307 
certificate  of  deposit,  to  deny  its  liability  on,  321 
defense,  that  note  was  executed  in  violation  of  law  governing  bank,  not 

estopped  to  set  up,  when,  285 
forged  or  raised  check,  paying,  not  estopped  to  recover  the  money 

paid,  325 
national  bank,  to  deny  its  liability  as  holder  of  stock  of  savings  bank, 

288 
teller  pronouncing  forged  certification  of  a  check  to  be  genuine.  314 
of  city,  to  claim  that  boads  were  improperly  issued,  467 
depositor  in  bank,  to  question  correctness  of  his  account,  316 
of  private  corporation,  agent's  acts,  liability  for,  to  dispute,  177,  180, 

note  2 
by  accepting  benefit  of  work  done  or  materials  furnished,  151 
mortgage,  authority  of  officers  to  execute,  to  deny,  509 

having  knowledge  of  transaction,  failing  to  repudiate,  509 
promoter's  contract,  liability  on,  to  deny,  121 
of  railroad  corporation,  contracting  for  transportation  of  freight  before 
completion  of  its  road,  when  estopped  to  assert  lack  of  authority,  271 
ultra  vires,  to  plead  contract  was,  392 
stockholders  of  a  corporation,  authority  of  directors  to  execute  a  mort- 
gage, to  deny,  125 
trustees  of  a  corporation,  when  not  estopped  to  deny  validity  of  note.  1 33 
public  corporations,  county  receiving  stock,  voting  on  it  and  paying 
,'  interest  on  bonds,  to  deny  liability  for  interest,  440 

recitals,  in  town  bonds,  how  far  town  is  estopped  by,  to  claim  bonds 
are  invalid,  424 
in  city  bonds,  city  not  estopped  by,  to  deny  validity  of  bonds,  413 

169 


1346 


GENERAL   INDEX. 


[The  references  are  to  sections:  vol.  I  contains  $$  1-340;  vol.  U,  S$  &11^686.] 

ESTOPPEL  —  Continued  : 

refunding  bonds,  statements  of  agent  in  sale  of,  not  operative  as  an 

estoppel  of  county  to  defend,  402 
school  district,  when  not  estopped  to  deny  vuiidity  of  bonds,  431 
township,  to  deny  validity  of  bonds,  471 
ultra  vires,  estoppel  of  corporation  to  plead,  265,  279 

contiactor  with  corporation,  266,  281 
vendor  of  land  to  public  corporation,  estopped  to  avoid  contract 
because  of  corporation  exceeding  its  power  in  the  purchase,  264 

EVIDENCE: 

authority  of  president  of  a  bank,  evidence  showing  pledge  of  deposit  in 

correspondent  bank,  as  security  for  loan  to  bank,  354 
deposit  in  bank,  receipt  of  cashier  evidence  of,  315 

other  evidences  of,  315 
power,  exercise  of,  in  transferring  negotiable  securities  by  cashier  of  bank, 

prima  facie  evidence  of,  307 
pass  book,  evidence  of  what,  315 
receiver's  action  to  enforce  liability  of  stockholders,  sufficient  evidence  in, 

368 
return  of  ntUla  bona  upon  execution  against  bank,  evidence  of  insolvency, 

841 

EXEMPTIONS : 

from  taxation,  bank,  579 
canals,  570 

charitable  institutions,  570 
church  property,  570 
corporation  publishing  books,  570 
gas  companies,  570 
insurance  companies,  586 
manufacturlDg  corporations,  579 
railroad  corporations,  570,  579 
religious  corporations,  678 

F. 

PALSE  ENTRIES : 

by  officers  of  national  banks,  in  reports,  etc.,  required  by  law,  370 
what  constitutes  the  offense,  370 
what  is  not  a  false  entry,  370 

FEDERAL  COURT : 

jurisdiction  of,  appointment  of  receiver  for  insolvent  building  and  loan 
association,  525 
of  actions  against  a  county  on  its  bonds,  455 
when  it  will  not  interefere  with  proceedings  in  state  court,  527 
See  Courts  ;  Foreclosube  of  Mortoaoe  ;  Receiyebs. 

FEDERAL  TAXATION : 

upon  incomes,  act  of  congress,  held  constitutional,  by  reason  of  provis- 
ions, 57(( 


GENERAL   INDEX.  1347 

[The  references  are  to  sections:  vol.  I  contains  §S  1-340;  vol.  II,  §$  a41-586,] 

FIRE  ENGINES  AND  APPARATUS : 
purchase  of,  by  public  corporations,  33 

FISCAL  MANAGEMENT  : 

private  corporations,  385-394 
public  corporations,  373-384 

FORECLOSURE  OF  MORTGAGE: 
actions  for,  allowances  in,  543 
to  trustees,  543 

bondholders,  majority  of,  when  they  may  secure  control  of,  536 
action  by,  534 

intervention  of  stockholder  to  stay,  536 
commission  of,  petitioning  to  intervene,  536 
exercise  by,  of  option  to  declare  bonds  matured  on  default  in 

interest,  536 
intervention  in,  541 
consolidation  of  suits,  motion  for,  534 
cross  bill,  534 

decree  of  foreclosure,  stockholders'  bill  to  set  aside,  538 
time  allowed  for  redemption,  539 

providing  for  adjudication  of  creditors'  claims,  creditors  can- 
not complain  of,  539 
mechanics'  m  favor  of,  enforcement  of,  restraining,  538 
of  sale  free  from  liens,  537 
general  rules,  538 
federal  court,  jurisdiction  of,  534 

as  affected  by  residence  of  parties,  534 
state  court,  decree  in,  no  power  to  interfere  with,  534 
lienholders'  intervention,  extension  of  receivership,  534 
interest  for,  judgment  pro  confesso,  sale  under,  disposition  of  sur- 
plus, 542 
may  be  attacked,  542 
intervention  by  senior  mortgagees,  537 

petition  of  junior  lienors,  what  they  should  offer  to  do,  537 
parties  to,  536 

bondholders,  536 
trustee,  536 

refusing,  bondholders  may  bring,  536 
newly  appointed,  536 
petition  in,  who  may  be  heard  on,  541 
practice  in,  rules,  534 
premature,  when,  543 
prior  mortgagees  cannot  be  required  to  bring,  by  subsequent  mort* 

gagces,  535 
rules  governing,  537 

sale,  decree  for,  when  sale  should  be  decreed,  639 
when  it  should  be  made,  539 
how  moulded,  538 


1848 


GENERAL  IKDEX. 


Cihe  references  «re  to  sections:  vol.  I  contains  » 1-S40;  vol.  H,  |$  Wl-686.] 

ordered,  542 
judgment  creditors,  542 
pro  rata  payment  of  coupons,  542 
state  taxes,  ordering  payment  of,  542 
sale  of  property  as  an  entirety,  539 

what  property  comes  within  the  terms  of,  580 
sale  subject  to  standing  obligations  of  receiver.  539 

receiver  required  to  file  a  statement,  539 
free  from  liens,  when  too  late  to  object.  539 

:r„C  wtde«  "r^^Xraying  -  order  for  sale.  587 
^  ,^deTS,^r.nce,nent  at.  which  would  not  render  sale  .nvaUd, 

689 
ZSrs^trth^^ed  to  purchase,  purchasers  at  sales,  Hghts  and 

liabilities,  540  >  i  i_   sjn 

as  to  benefit  of  a  lease,  to  abandon  or  claim,  540 

payment  of  bids  on  bonds  iW  ^ 

"^r^2V^ZL'l'^f^^r^^^^<^-  to  creditor.. 
app4l  of  railroad  company  from,  542 
setting  aside  sale,  what  not  grounds  for,  538 

J^r-^^""^  -er^ene  .3  d.endants.  when  refused.  536 
supersedeas,  effect  upon  P^^ceedrngs,  53« 
trusiees.  action  by.  when  improperly  bought,  o35 

under  different  mortgages,  536 

bondholders  bound  by  decree  in.  when.  537 

::'Z^tT:^^^^^^rs^  -der  previsions  of  mortgage.  585 

yBAUBULENT  ACTS; 

ofiacers  of  corporations,  181-216 

^::;^yt^^''-  -P<>™«--  --pre-tatlon  as  ,o  amount  paid 

for,  184 

TV^T)S:  ^ipannlicfttion  of  by  directors,  182.  209 

private  corporations,  of,  °^^«*PP^'*^jf'^°J'' °^^  or  corporators.  209 

^S::::^ln"rrrrnr;rr i  personal,  liable  for 

jrtb^X?— -ion  oiM^^.^^ 
power  to  loan,  >rom  what  it  cannot  ^e  •■"Pl.^. J^* 

i     Hrt  tS'o:*rrormiirr;:;S«t,,  m 

't^"  "iXToanlng  deposit  of  bank,  to  outside  partiea. 
324 


GENERAL   INDEX. 


1349 


' 


IThe  references  are  to  sections:  vol.  I  contains  H  l-M);  vol.  II,  S$  841^.] 

FUNDS  —  ContinvM : 

waste  of,  by  directors,  182  ,  ,      ,      u        ii««^ 

„ubUc  corporations,  of.  appropriation  from  general  fund,  when  allowed 

dty,  258 
board  of  education,  usage  of,  375  .    ,   ,.         «- 

iChool.  management  of,  by  auditor  of  county  m  Indiana,  376 

G« 

GENERAL  AGENT: 

mining  corporation,  powers.  141 
purchase  of  timber,  141 

^^^b^Ss^  provision  in  charters  of,  requiring  contracts  to  be  signed  by  preri- 
dent  and  countersigned  by  cashier,  not  applicable  to  deahngs  and  trana- 
actions  usually  performed  by  cashier,  307 
change  bills,  issue  of,  by  city  prohibited,  13 
school  buildings,  incurring  debt  for,  17 

GUARANTY:  .    ^ .   ^       ^  i,^  oaa 

bond  and  mori^gage  by  bank,  when  bank  is  bound  by,  288 
borrower  from  bank,  of.  action  on  guaranty  by  bank,  when  it  may  lie.  290 
commercial  paper,  of,  by  bank.  284 
sureties  on  paper,  guaranty  of  bank  against  hability,  285 
corporation,  guaranty  by,  of  securities  of  another  corporation,   when 

allowed  271 
bank.  of.  by  directors  and  stockholders.  297 

bonds  of  one  corporation,  of.  by  another  corporation.  69.  70.  71,  504 
dividend  on  preferred  stock  of  another  corporation,  72 
dividend,  annual,  upon  stock  of  another  corporation,  guaranty  of,  modi- 

fled  by  directors,  125 

earnings,  as  to,  82  .  ,        ,       _x         „  Kt\A 

guarantor  paying  interest,  not  subrogated  to  nghts  of  mortgagee.  604 

guarantor,  contract  of,  50 

suit  in  equity,  for  cancellation  of  guaranty,  504 

what  not  allowed.  73 

L 

ILLINOIS : 

county  board,  power  of,  97 
counties,  issue  of  bonds  by,  8 

issue  of  bonds,  funding  indebtedness,  rate  of  interest,  10 
issue  of  bonds  by  city,  in  aid  of  railroad  corporation,  462 
Limitations,  Statutes  of,  check  or  bill  of  exchange  withm  meaning  of.  887 
municipal  aid  under  statutes  of.  petition  for  election,  441 
Dref erence  of  creditors,  by  private  corporations,  523 
statutes  construed,  imposing  liability   on  directors,  indebtedness  being 
incurred  in  excess  of  capital  stock,  249 
for  taxation  for  school  purposes,  569 


1350 


GENERAL   INDEX. 


i 


I 


i 


[The  references  are  to  sections:  vol.  I  contains  §§  1-340;  vol.  n,  $$  341-686.] 

INDEBTEDNESS : 

private  corporations,  power  to  incur,  general  rules,  66 
for  what  it  may  be  incurred,  79,  80,  81,  82 
purchase  of  road,  65 
works,  construction  of,  65 

directors  allowing  increase  of,  in  excess  of  capital  stock,  personal  lia- 
bility for,  243 
'  debts  voluntarily  incurred,  248 

judgment  for  damages  not  one  of  the  debts  contemplated,  248 

rules  as  to,  248,  249 
allowing  incurring  of  debts,  prohibited  by  statute,  236 

in  California,  238 

in  Colorado,  rules  as  to  personal  liability  for,  23|i> 

in  Indiana,  254 

in  Khodc  Island,  253 
public  corporations,  bridges  and  road,  building  and  repair  of,  19 
cemetery  ground,  purchase  of,  18 
counsel,  employment  of,  22 
crematory  for  garbage,  erection  of,  36 
criminals,  detecting  and  arrest  of,  evidence  of,  38 
evidence  of,  power  to  execute,  1,  3,  6 

may  be  issued,  6 
fire,  protection  against,  83 
finding  of  coupon  bond,  not  a  creation  of  new  indebtedness,  8,  note  6 

not  prohibited  by  limitations  of  indebtedness  in  Constitution,  8 
lighting  streets,  for  a  term  of  years,  28 
money  due,  vouchers  for,  6 
objects  of  corporation  for  carrying  out,  4 
physician,  employment  of,  22 
power  to  incur,  must  be  expressly  granted,  1 
restrictions  upon,  60,  61,  62,  63,  393 
school  building,  16,  17 
sewer,  right  of  way  for,  37 
steam  heating  apparatus,  purchase  of,  34 
water  supply,  31 

INDIANA: 

city  in,  power  to  issue  bonds,  7 

county,  auditor  of.  management  of  school  funds,  376 

treasurer,  erroneous  payments  into  county  treasury,  877 

county  commissioners,  their  power,  98 

coupon  bonds,  issue  of,  not  prohibited  by  constitutional  provision  limit- 
ing indebtedness,  7 

gravel  turnpike  roads,  aid  to,  21 

purchase  of,  by  townships,  issu.i  g  bonds,  420 

municipal  aid,  by  donation  and  issue  of  bonds,  459 

statute  authorizing  consolidation  of  railroad  companies,  construed,  273 

statutes  fixing  time  of  payment  of  capital  stock  into  treasury  of  corpora- 
tion, imposing  personal  liability  on  directors  for  allowing  violations  of 
itatute,  allowing  debts  to  accrue  in  excess  of  capital  stock,  construed,  254 


f. 


GENERAL   INDEX. 


1351 


[The  references  are  to  sections:  vol.  I  contains  §§  1-340;  vol.  11,  §§  841-586.] 

INDICTMENT: 

oflScers  of  national  banks,  false  entries  in  reports,  etc. ,  allegations  in,  370 
improper  certification  of  checks,  allegations  in,  371 

evidence  submitted  to  jury,  371 
misapplication  of,  funds,  allegations  essential  in,  369 

INDORSEMENT: 

accommodation  for,  by  corporation,  68 
accommodation  for,  tiltra  vires  a  bank,  285 
by  treasurer  of  corporation,  170 

note  of  another  corporation,  171 
cashier  of  bank,  of  his  own  note,  307 

notes  of  bank,  cashier's  power,  307 

notes  for  collection,  307 
promissory  notes,  indorsement  and  negotiation  of,  by  president  of  corpo- 
ration, 142 

by  manager  of  corporation,  163 
savings  banks,  power  to  indorse,  76 

INDORSER: 

of  notes  on  bank,  discharged  from  liability,  bank  failing  to  pay  deposita 
of  maker  to  note  when  due,  323 
protest  and  notice  to,  when  not  necessary  to  hold,  291 

INJUNCTION: 

bonds  of  a  city,  against  issue  of,  409 

building  contract,  to  restrain  county  board  from  carrying  out,  100 

county  bonds,  against  issuance  of,  393 

tax  levied  and  collected  for  payment  of,  to  restrain  payment  by  counl^ 
treasurer,  393 
levy  of  tax  to  pay  interest  on  bond,  grounds  for  injunction,  459 

when  taxpayers  cannot  have,  459 
public  officials,  against,  rules  as  to,  267 

INSOLVENCY: 

of  bank,  attachment  of  property  prior  to  appointment  of  receiver,  lien  of, 
against  receiver,  349 
claims  of  municipal  corporations  for  funds  deposited  by  officers,  their 

rank,  355 
claims  preferred,  illustrations,  356 
bank,  when  held  to  be  trustee,  356 
collections  made  for  other  banks,  356 
not  preferred,  illustrations,  357 

collections  for  others,  when  trust  funds,  357 

when  not  trust  funds,  357  * 

general  creditors,  rules  as  to  claims  of.  357 
depositors,  general,  paid  pro  rata,  341 
depositor  of  trust  funds,  when  no  preference,  341 
evidence  of,  341 
general  rules,  341 
jurisdiction  of  claims  against  bank,  court  appointing  receiver,  350 


i 


1S52 


GEKEBAL   INDEX. 


I 


[The  refermces  are  to  sectiona:  yoI.  I  contains  §$  1-340;  rol.  n,  |S  841-666.J 

INSOLVENCY  —  Continued  : 

eeceiver,  his  actions  on  claims  due  bank,  set-off,  341 
duty  as  to  check  held  by  bank  for  collection,  341 
proceeds  of  draft  collected  for  another  bank,  341 
when  entitled  to  interest,  341 
bank,  check  on  suspended  bank,  acquired  with  knowledge  of  sus- 
pension, 533 
deposits,  by  city  treasurer,  533 
special,  533 

certificate  of  deposit,  holder  of,  533 

principal,  money  of,  by  agent,  trust  upon  assets  in  favor  of  prin- 
cipal, 533 
received  with  knowledge  of  in^lvency,  right  to  recover  from 

receiver,  note  1,  p.  1146 
criminal   prosecution    of   officers  for  receiving  deposits,   rules 

governing,  note  1,  p.  1146 
set-off  of,  by  depositors  against  notes  due  by  depositors.  533 
equitable  set-off,  533 
in  general,  insolvent  corporation,  assets  of,  a  trust  fund  for  creditors, 
how  far,  521 
assignee  of,  rights  as  to  property,  527 

removal  of,  526 
attachment  of  property  of,  on  claim  of  officer,  who  is  also  a  creditor,  524 
creditor's  right  to  attach,  524 

lien  of,  524 
sale  under,  rights  of  purchaser,  524 
beneficial  association,  appointment  of  receiver  for,  529 

rules  as  to  distribution  of  its  assets,  529 
building  and  loan  association,  appointment  of  receiver  for,  jurisdic- 
tion of  federal  court,  525 
confession  of  judgment,  when  a  fraud  upon  bona  fide  creditors,  523 

sale  under,  when  it  cannot  be  restrained.  523 
creditors  of,  obtaining  preference  by  attachment,  524 
before  court  obtains  jurisdiction  over  property,  524 
preference  of,  by  corporation,  prohibited  in  state  of  corporation's 

creation,  prohibition  no  extraterritorial  effect.  523 
preference  of,  523 
in  niinois,  523 
in  Michigan,  523 
in  Missouri,  523 
distribution  of  assets,  lien  under  judicial  proceedings,  when  entitled 

to  preference,  524 
pledgee  of  property,  rights  of,  as  against  a  receiver,  o27 
receiver  for.  appointment  of,  when  justified,  525 
for  preservation  of  property,  525 
when  not  justified,  525 
upon  mere  allegations  of  insolvency,  525 

irregularities  in  management,  but  not  actual  fraud  intended, 
525 


GENERAL   INDEX. 


1353 


[The  references  are  to  sections:  vol.  I  contains  %%  1-340;  vol.  II,  %%  841-686.] 

INSOLVENCY  —  Continued  : 
removal  of,  526 

rights  of,  OS  to  property  of  corporation,  527 
sequestration  of  property  for  purpose  of  winding  up,  rules  in 

Wisconsin,  525 
Stockholders,  liability  of,  as  unpaid  subscriptions  to  stock,  530 
winding  up  by  court,  claims  against,  allowance  of.  ruleSi  682 
holders  of,  secured  by  collaterals,  532 
secured  by  mortgage,  532 
payable  out  of  net  earnings,  532 

INSURANCE  CORPORATIONS: 

borrowing  money,  power  of,  78 

directors  raising  a  guaranty  capital,  276 

guaranty  fund,  providing  for,  78 

loan  of  money  by,  taking  mortgage  as  security,  when  not  ultra  vira,  271 

taxation  of.    See  Taxation. 

INTEREST : 

agent's  agreement  as  to  rate,  116 

indebtedness  incurred,  without  provision  by  taxation,  for  payment  of,  359 

reserved  by  bank,  294 

advance  in,  not  usury,  294 

exchange,  taking  in  addition  to  rate  allowed,  294 

only  avoided  in  a  transaction  by  a  national  bank,  when,  286 

INTERNAL  IMPROVEMENTS : 

municipal  aid,  under  Nebraska  statutes,  441 

IOWA: 

constitutional  restriction  upon  indebtedness  of  municipal  corporations, 

effect  upon  school  district  bonds,  431 
county  boards,  power  of,  99 
criminal  acts  of  bank  officers,  statutes  relating  to,  applicable  to  officers  of 

national  banks,  note  1,  p.  1146 
statute,  construed,  imposing  upon  officers  of  corporations  personal  liability 
for  diversion  of  funds  or  payment  of  dividends,  so  as  to  leave  insuf- 
ficient funds  to  meet  liabilities,  240 
as  to  intentional  fraud,  or  failing  to  comply  substantially  with  the 

articles  of  incorporation,  240 
imposing  personal  liability  on  directors  of  railroad  corporations  voting 
to  bond  or  mortgage  the  road  beyond  a  limit  named,  240 

J. 

JUDGMENT : 

on  bonds  and  coupons  of  a  county,  statute  as  to  presentation  of  claims, 

not  applicable  to,  407 
confessed  by  insolvent  bank,  sale  under,  when  it  cannot  be  restrained,  523 

fraud  upon  bona  fide,  creditors,  523 
town,  against  a,  for  interest  on  bonds,  board  of  auditors  ordered  to  pay, 

379 

170 


1354 


GENERAL   INDEX. 


[The  references  are  to  sections:  vol.  I  contains  $S  l-M);  vol.  II,  SS  841-686.} 

JUDGMENT  NOTES : 

of  private  corporations,  giving  by  officers,  152,  153 
defective  execution  of,  how  cured,  154 
when  contract  of  purchase  includes  giving,  154 

JURISDICTION:    • 

court  of  equity,  cancellation  of  guaranty  of  bonds  of  another  corporation, 
504 
directors  of  national  banks,  actions  against  for  violation  of  duty,  301 
insolvent  national  bank,  disposal  of  trust  funds  in  hands  of  receiver^ 
341 
adjusting  claims  against,  350 
federal  court,  525 

See  Federal  Court;  Foreclosure  op  Mortgage;  Receivers 
state  courts,  directors  of  national  banks,  actions  for  violations  of  duty,  300 
See  Foreclosure  op  Mortgage;  Receivers. 

JURY: 

questions  for,  authority  of  officer  to  make  a  contract,  149,  161,  176 

indictment  of  officer  of  national  bank  for  false  certification  of  check, 
what  evidence  should  be  submitted  to,  371 
for  making  false  entries  in  reports,  etc,  what  may  be  considered 
by,  370 
instructions  to,  161,  163 

when  justified  by  the  evidence,  162 
president's  act,  ratification  of,  question  of,  instruction  as  to  knowl- 
edge of  affairs  of  corporation,  180 
raOroad  corporation,  authority  of  chief  engineer  to  bind,  submitted 

to,  176 
reasonable  and  proper  care  on  the  part  of  officers  of  a  bank,  when  & 

question  for,  313 
sale  of  products  of  a  corporation,  sale  by  treasurer,  a  question  for, 
166 

KANSAS: 

bonds  issued  by  township,  statute  as  to  signature,  471 

for  what  times  bonds  may  run,  480 

power  of  town  authorities,  480 

in  aid  of  works  of  internal  improvement,  489 
county  boards,  power  of,  100 
county  buildings,  indebtedness  incurred  for,  8 

bonds  issued  in  payment,  8 
municipal  corporations,  incurring  indebtedness,  under  statutes  of,  22 
poor  farm,  purchase  of,  county  warrants  issued  in  payment  for,  383 

KENTUCKY: 

county  courts,  powers  of,  101 
municipal  aid,  under  st4itute8  of,  441 
power  of  county  court,  441 

submission  of  questions  to  voters,  441 


GENERAL   INDEX. 


1355 


[The  references  are  to  sections:  vol.  I  contains  §§  1-340;  vol.  n,  SS  341-586.] 

KENTUCKY  —  Continued  : 

precinct  aid  bonds,  447 

supplies,  furnishers  of,  to  railroad  corporations,  statute  giving  liens  to, 
construed,  562 

KNOWLEDGE: 

directors  of  banks,  what  they  are  bound  to  know,  299 

knowledge  of,  bank  affected  by,  299 
president  of  bank,  of,  303 

bank  not  chargeable  with  constructive  notice  of,  306 

See  Banks  and  Banking;  Directors;  President;  Officers. 

L. 

LACHES: 

stockholders,  of,  what  will  show,  212 

in  complaining  of,  acts  of  directors,  effect  of,  183 

LAND  COMPANIES: 

subscription  to  stock  of  railroad  corporation,  77 

LEGISLATURE: 

power  to  authorize,  borrowing  money,  65,  note  8 

granting  of  aid  by  public  corporations  to  railroad  corporations,  40 

railroad,  construction  of,  by  a  city,  46 

scrip,  issue  of,  13,  note  2 
ratification  by,  of  act  of  county  authorities,  21 

LIBRARIES: 

buildings  for,  providing,  by  public  corporations,  15 

LIEN: 

attachment  of,  upon  property  of  insolvent  bank,  349 

upon  property  of  insolvent  corporation,  524 
bank,  on  general  assets  of,  in  hands  of  a  receiver,  356 
bankers,  upon  moneys  and  securities  of  customer,  292 
what  it  does  not  extend  to,  292 
trust  funds  deposited.  292 
on  dividends  of  shareholders,  293 
on  stockholders'  shares,  for  thdr  debts  to  bank,  293 
transferable  on  their  face,  rule,  293 
priority  of,  in  foreclosure  suits,  contractors  for  construction,  564 
equipments,  bonds,  owners  of,  558 
I  furnishers  of  supplies,  under  Kentucky  statutes,  562 

"'  under  Ohio  statutes,  563 

I  under  Virginia  statutes,  565 

*  materialmen,  558,  562,  563,  565 

mechanics,  561 
rolling  stock,  furnishers,  558 
sub-contractors,  under  Tennessee  statutes,  564 


1356 


GENERAL   INDEX. 


[The  references  are  to  sections:  vol.  I  contains  SI  1-M);  yoI.  n,  §§  841-580.] 

LIMITATIONS: 

of  indebtedness  of  public  corporations,  statutes  construed,  60,  61,  62,  68 
of  private  corporations,  88,  89,  90 

See  Statute  op  Limitations. 

LOANS: 

auditor  of  county,  Indiana,  school  funds,  power,  876 
by  national  banks,  rules  governing,  290 

on  forged  paper,  when  bank  may  recover  the  money,  290 

on  guaranty  of  borrower,  when  bank  may  have  action  on  guaranty, 

290 
to  correspondent  bank,  secured  by  pledge  of  balance  to  credit,  retea- 

tion  of  balances,  292 
unauthorized  loans,  personal  liability  of  directors,  302 
loan  to  bank,  securities  of  bank  delivered  by  cashier  as  collateral,  307 

LOUISIANA: 

promissory  notes  and  warrants,  to  cover  funds  to  be  set  apart  in  future 
for  parish  purposes,  must  be  expressly  authorized,  12 


MAINE: 

directors  of  banks,  liability  for  losses  to  creditors,  299 

necessary  charges  of  towns  in,  15,  note  2 

towns  in,  issue  of  notes  of  commercial  character,  8 

MALFEASANCE: 

of  directors  of  corporations,  personal  liability  for,  223  , 

MANDAMUS: 

aid  bonds,  to  compel  county  to  issue,  refused  for  fraud,  when,  440 
defense  that  majority  of  votes  was  made  up  of  illegal  votes,  441 
to  compel  town  to  issue,  what  must  be  shown,  471 
when  refused,  471 
board  of  auditors  of  a  town,  to  compel  payment  of  judgment  for  interest 

on  town  bonds,  379 
county  treasurer,  to  compel  payment  of  county  warrants,  95 
county  boards,  to  control  action  of,  when  it  will  not  lie.  102 
court  appointing  receiver  of  insolvent  bank,  to  compel  a  trial  of  claim 

against  bank,  350 
municipal  oflScer,  to  compel  distribution  of  fund  in  his  hands,  382 

MANAGER: 

private  corporations,  indorsement  of  corporation  paper,  163 
mortgage  bonds,  giving  as  collateral  for  a  loan,  161 
powers  of,  160,  161 
property,  power  to  sell,  141 

promissory  notes  of  corporation,  power  to  execute,  116 
purchases  at  discount,  claims  against  corj)oration,  must  account  to 
creditors  or  stockholders  for  profits,  188 


GENEEAL   INDEX. 


1367 


[The  references  are  to  sections:  vol.  I  contains  §8 1-340;  voL  II,  §§  341-586.] 

MANUFACTURING  CORPORATIONS: 
for  what  they  may  incur  indebtedness,  79 
power  to  borrow  money,  79 
president,  release  of  contract  by,  146 
stock  of  another,  taking  in  payment  of  a  debt,  27 

MASSACHUSETTS: 

statute  imposing  personal  liability  upon  officers  of  corporations  making 
false  statements  in  certificates  of  condition  of  corporation,  required 

by,  241 
creating  debts  in  excess  of  capital  stock,  241 
town  aid  bonds,  statutes  authorizing,  power  of  towns,  481 

MAYOR  AND  COUNCIL: 
powers  of,  93 

delegating  powers  to  a  committee,  93 

MICHIGAN : 

county  boards,  power  of,  102 

creditors,  preference  of,  insolvent  corporation,  523 

statutes  construed,  liability  of  stockholders  of  a  bank,  360 

liability,  imposing,  on  officers  of  corporation,  failure  to  file  reports, 

254 
pledge  of  lands  by  railroad  corporations,  right  of  corporation   to 

pledge,  496 

MINING  CORPORATIONS  : 

advances  of  money  to,  by  foreman,  acquiescing  in,  178 
dividends,  declaring,  388 
power  to  borrow  money,  80 
power  of  officers,  141 

MINNESOTA : 

insolvent  corporations,  enforcing  liability  of  stockholders,  unpaid  sub- 
scriptiorfs,  rules  under  statutes,  530 
appointment  of  receiver,  rules  in,  525 
statutes  construed,  imposing  personal  liability  on  directors  for  debts  of 
corporation  for  violation  of,  242 
liability  of  stockholders  of  a  bank,  859 
sale  of  shares  of  railroad  stock  unless  fully  paid,  issuing  stock  and 

bonds,  except  for  money,  labor  or  property  received,  497 
powers  of  towns  under  statutes,  authorizing  aid  bonds,  482 
limiting  the  issue  of,  471 

MISAPPLICATION : 

of  funds  of  a  national  bank  by  officers,  369 

MISAPPROPRIATION : 

of  corporate  funds,  directors  failing  to  prevent,  their  personal  liability  for 

losses,  223 

MISFEASANCE : 

officers  of  corporations,  rules  as  to,  255 

illustrations  of  their  liability  under  an  English  statute,  255 


1358 


GENEKAL  INDEX. 


[The  references  are  to  sections:  vol.  I  contains  ff  l-«40;  vol.  n,  $$  841-686.] 

MISREPRESENTATIONS : 

bank,  by  a,  as  to  solvency  of  a  customer,  298 

officers  of  a  corporation,  by,  as  to  value  of  capital  stock  issued  for  prop- 
erty, willful,  rules  as  to,  25d 

MISSISSIPPI: 

nmnicipal  aid,  effect  of  constitutional  provisions, •441 
effect  of  statutes,  443 

MISSOURI: 

bonds  for  improvement  of  public  roads,  8 

creditors,  preference  of,  by  private  corporations,  523 

check  of  bank,  payable  to  "order  of,"  a  bill  of  exchange  under  statute, 

326 
coiiuty  warrants,  rules  as  to,  383 
county  courts,  power  of,  103 

municipal  aid,  mode  of  submitting  questions  to  voters.  441 
school  buildings,  incurring  debts  for,  17 
statute  requiring  registration  of  municipal  bonds,  its  effect,  411 
tax,  imposing  on  railroads  for  school  purposes,  construed,  569 
imposing  personal  liability  on  directors  allowing  creation  of  debts  in 
excess  of  capital  stock  paid  in,  243 

MONTANA: 

record  of  railroad  mortgage,  508 

statute  imposing  personal  liability  upon  trustees  of  corporations,  failure 
to  file  annual  reports,  254 

MORTGAGE: 

private  corporations,  advances  of  money  to  be  made,  for  securing,  506 
after-acquired  property,  of,  506 

bank's  power  to  take  chattel,  for  previously  contracted  debt,  '283 
bank  may  hold  and  own,  through  a  trustee,  283 
bank  taking  on,  real  estate,  286 

acquiring  incidentally  an  interest  in,  286 
when  not  an  ultra  vires  act,  286 
chattel,  under  Michigan  statutes,  512 
under  New  York  statutes,  512 
how  authorized,  508 
directors,  securing,  when  properly  given,  51^ 
equitable,  illustration,  516 

estoppel  of  corporation  to  deny  authority  of  officers  to  execute  mort- 
gage, 509 
consolidated  corporation,  estopped  to  claim  invalidity  of  mortgage, 

on  the  ground  that  consolidation  was  not  legally  perfected,  617 
execution  of,  authorized,  how,  508 
mode  of,  508 
place  of,  508 
seal,  under,  presumption  that  it  was  authorized,  508 

attached  by  de  facto  secretary,  508 
year,  first,  directors  for,  execution  by,  128 


GENEBAL   INDEX. 


1359 


[The  references  are  to  sections:  vol.  I  contains  %%  1-340;  vol.  II,  %%  341-686.1 

MORTGAGE—  Continued: 

foreclosure,  actions  for,  534-543 

See  FORECLOSUBK  OF  MORTQAOB. 

foreign  corporation,  mortgage  by,  508 

fraudulent,  illustration  of,  518 

heating  company,  power  to  mortgage,  in  Massachusetts,  506 

how  authorized,  508 
laches  of  corporation  in  repudiating  mortgage,  510 
manufacturing  corporation,  power  to  execute  mortgage,  506 
money  borrowed  in  its  business,  to  secure,  506 

for  future  advances,  506 
stockholders,  assent  of,  statutes  requiring,  construed,  506 
mode  of  assenting,  507 
ratification  of,  by  stockholders,  123 
power  to  execute,  78,  79,  81,  87,  506 
provisions  in,  what  are  reasonable,  511 
purchase-money  debts,  mortgage  to  secure,  515 

railroad  corporation,  of,  to  contractors,  for  construction  of  work,  277 
what  is  covered  by,  519 
appurtenances,  519 
fixtures  to  realty,  519 
franchises,  519 

hotel  erected  for  eating  house,  519 
land  subsequently  purchased  near  a  depot,  519 
lease  of  railroad,  subsequently  acquired,  519 
legal  or  equitable  title,  property  held  under,  519 
property  subsequently  acquired,  519 
what  is  not  covered  by,  519 
record,  in  Montana,  508 
rolling  stock,  chattel  mortgage  in  California,  execution  and  record, 

when  void  against  subsequent  attachment,  508 
statutory,  securing  state,  does  not  extend  to  lands  granted  to  corpora- 
tion, 519 
stockholders,  meeting  of,  to  consider  execution  of  mortgage,  notice 

of,  in  Tennessee,  508 
taken  by  private  corporations  to  secure  loan  made,  271 
validity  of,  184 
when  good  in  equity,  385 

trustees  of,  action  by,  to  restrain  state  railroad  commissioners,  520 
default  in  interest  declaring  bonds  due,  520 

action  to  be  put  in  possession,  520 
duty  of,  520 

incumbrances,  prior,  may  pay  off,  to  prevent  forced  sale  of  prop- 
erty, 520 
lands  granted  to  corporation,  proceeds  of  sale  of,  may  apply  to 

payment  of  scrip  for  coupons,  520 
possession,  may  take,  when,  520 
powers  of,  520 
profits  of  road,  entitled  to,  for  what  time,  520 


/ 


1360 


GENERAL   INDEX. 


(The  references  are  to  sections:  toL  I  contains  S|  1-340;  vol.  II,  ||  341-686.] 

MORTGAGE  —  Continued: 

release  of  mortgage  by  trustees,  520 
surrender  of  property,  when  compelled,  520 
who  may  be,  508 
▼alidity  of,  recognized  by  payment  of  interest  on  bonds,  510 

restrictions  upon  indebtedness  to  be  incurred  by  corporation,  in 
statute  or  charter,  effect  as  to,  614 

MUNICIPAL  AID : 

bonds,  donation  of,  to  secure  location  of  manufactory,  22 
corporations,  private  to,  39,  40,  41,  42,  43,  45 
in  Indiana,  to  gravel  or  turnpike  roads,  21 

"internal  improvement,"  works  of,  Nebraska  statute  authorizing  aid  to, 
construed.  48 
water  grist  mills,  49 

water  power,  developing,  donation  of  bonds,  64 
railroad  corporations,  issue  of  bonds  in  aid  of,  42 

subscription  to  stock   of,  issue  of  bonds   in    payment    for,   when 

authorized,  11 
See  City  Aid  Bonds  ;  County  Aid  Bonds  ;  Town  Aid  Bonds. 

MUNICIPAL  AID  BONDS  : 

rules  as  to,  declared  by  United  States  Supreme  Court,  460 

See  CrTY  Aid  Bonds;   County  Aid  Bonds  ;  Town  Aid  Bonds. 

MUNICIPAL  BONDS  : 

bridges,  building  of,  issued  for,  valid  in  hands  of  bona  fide  holder,  9.  note  1 

free,  for  construction  of,  19 
cemetery  grounds,  for  purchase  of,  not  affected  by  subsequent  legisla- 
tion, prohibiting  their  issue,  35 
county  buildings,  erection  of,  8 
donation  of,  as  a  bonus,  when  void,  22 
exchange  of  new  for  old,  8 
indebtedness,  existing,  for  payment  of,  14,  note  6 

coupon  bonds  funding,  not  prohibited  by  constitutional  limit  upon 
indebtedness,  8 
when  authorized  by  vote  of  electors,  what  may  be  sold  at,  9 
rate  of  interest  on,  10 
power  to  issue,  7,  8,  note  5 

public  roads,  for  improvement  of,  power  to  make  negotiable,  8 
public  utility,  works  of,  construction  of,  may  be  made  payable  in  gold 

coin,  8 
purpose,  corporate,  issued  for,  32 

railroad,  subscription  to  stock  of,  bonds  in  payment  of,  power  to  issue,  11 
replacing  money  in  treasury  used  in  paying  prior  bonds,  8 
school  buildings,  for  site  of,  erection  of,  16,  17 

repair  of,  when  prohibited,  16 
town,  bonds  of,  must  conform  to  statute  authorizing  them,  3 
works,  the  construction  of,  which  is  authorized,  to  evidence  credit  price 
of,  8 
See  City  Bonds  ;  County    Bonds  ;  Township  Bonds  ;  School  District 
Bonds  ;  City  Aid  Bonds  ;   County  Aid  Bonds  ;  Town  Aid  Bonds. 


GENERAL   INDEX. 


1361 


[The  references  are  to  sections:  vol.  I  contains  §S  1-340;  voL  n,  $$  341-586.] 
MUNICIPAL  CORPORATIONS : 

claims  of,  against  insolvent  bank,  rules  as  to  priority  over  other  creditors 
355 

MUTUAL  BENEFIT  ORDER: 

assignment  of  fund  deposited  with  a  trust  company,  not  ultra  virei,  271 

N. 

NATIONAL  BANKS: 

bonds  purchased  by,  power  to  retain,  283 

bonds  of  one  class  for  conversion  into  another,  may  receive  from  custom- 
ers, 283 
capital  stock,  increase  of,  289 

chattel  mortgage,  to  secure  previously  contracted  debt,  may  take  and. 

enforce,  283 
coin  in  pledge,  may  sell  and  assign  its  property  in,  283 
directors  of,  duties,  299 

violation  of,  jurisdiction  of  state  courts,  300 
courts  of  equity,  301 
dividend  declared  by,  action  to  enforce,  set  off  by  bank,  291 
draft  with  bill  of  lading  attached,  may  purchase,  283 
insolvent  national   bank,  assets,  distribution  of,  ratable  and  equitable^ 
among  general  creditors,  341 
claims  against,  allowance  by  comptroller  of  currency,  351 
claimant,  what  he  may  be  charged  with,  352 
debts  due  savings  banks,  preferred  order.  New  York  statute,  354 
indorser,  paying  note  not  surrendered  to  him,  fiduciary   rela- 
tion established  by,  353 

debtors  and  creditors'  rights  fixed  at  time  of  appointment  of  receiver 

341 
receivers  for,  appointment  of,  action  of  comptroller  of  currency^ 
final,  342 
when  not  authorized,  343 
liabilities,  contracting  in  excess  of  paid-up  capital  stock,  285 
limit  of  their  powers,  283 
loans  by,  rules,  290 

loans,  securities  for,  what  may  be  taken,  283 
bank's  own  shares,  288 

to  correspondent  bank,  secured  by  pledge  of  balance  to  credit,  292^ 
mortgages,  real  estate,  purchase  of  or  taking,  286 
incidentally  acquiring  interest  in,  286 
acquiring  equity  in,  286 
taken  through  an  officer  of  the  bank,  286 
assignment  of  notes  secured  by,  286 
discount  of  note  secm-ed  by,  286 
'  note  of,  executed  in  violation  of  law  governing,  when  not  estopped  to- 
defend  on  that  ground,  285 
notes  and  mortgages,  may  hold  and  own  through  a  trustee,  283 
notes,  purchase  of,  287 

171 


\' 


1362 


GENERAL  INDEX. 


Il 


I 


• 


[The  references  are  to  sections:  vol.  I  contains  $$  1-340;  vol.  n,  H  841-^86.] 

l^ATIONAL  BANKS—  Cmtin'u^d  : 

ofBicers,  certification  of  checks  by,  improper,  371 

criminal  acts  of,  369-371 

false  entries  in  reports,  etc.,  making,  370 

defenses  to,  370 

funds,  misappropriation  of,  369 

indictment  for,  essentials  of,  369 
power  of,  question  of,  raised  only  by  the  government,  when,  285,  287 

raised  by  private  persons,  rules,  286 
railroad  bonds,  sale  of,  for  customer,  on  commission,  285 
real  estate,  purchase  of,  power  to  hold  and  convey,  286 

at  judgment  sale,  what  will  not  invalidate,  286 
shareholders  in,  liability  for  assessments,  358 

shares,  selling  their,  358 

shares  hypothecated,  358 

shares  transferred  to  one  without  his  knowledge,  358 

subscribing  for  "  proposed  increase  of  stock"  never  made,  358 
state  bonds  sale  of,  on  commission,  285 
■tock,  in  another  bank,  receiving  dividends  on  it,  estopped  to  deny  its 

liability  as  a  stockholder,  288 
Btock  of  other  corporations,  purchase  of,  rules,  288  • 

taken  as  collateral  security  for  loans,  288 

taken  in  compromise  or  readjustment  of  debt  with  a  view  to  sell 
again,  288 
stock,  purchase  of  its  own,  to  protect  itself  against  loss,  288 
stopping  payment,  debtor  of  bank  subsequently  acquiring  claim  against 

bank,  setting  off  such  claim,  341 
transfer  of  notes,  etc.,  in  preference  of  creditors  after  an  act  of  insolvency, 

292,  296 
usury,  taking,  subject  to  federal  laws,  294 

NEBRASKA: 

county  commissioners,  purchase  of  poor  farm  by,  407 

county  warrants,  issued  for  erection  of  court  house,  9 

municipal  aid,  under  statutes,  441 

statutes,  construed,  aiding  works  of  internal  improvement,  as  to,  48 
authorizing  donation  of  bonds  in  aid  of  railroad  corporations,  444 
auditor  detaching  coupons,  municipal  bonds,  what  applicable  to,  470 

school  district  bonds,  under  statutes  of,  429 
when  void,  430 

NECESSARY  CHARGES: 

upon  a  town,  defined,  15,  note  2;  29,  note  1 

NEGLIGENCE: 

gross,  on  the  part  of  directors  of  corporation,  when  it  renders  them  liable 
for  losses,  ^ 

NEGOTIABLE  SECURITIES: 

public  corporations,  power  to  issue,  8,  note  3 

must  be  expressly  conferred  or  clearly  implied,  6 


GENERAL   INDEX. 


1363 


[The  references  are  to  sections:  vol.  I  contains  S§  1-340;  vol.  n,  $S  341-^86.] 

NEGOTLABLE  SBCVmTIES—Contin'ued: 

boTiafde  holder,  in  hands  of,  protected  by  law  merchant,  8 
issue  of,  256,  393 

NEVADA: 

statutes,  as  to  presentation  of  claims  to  county  boards,  not  applicable  to 
judgments  on  bonds  of  county  and  coupons,  407 

NEW  JERSEY: 

corporations  and  other  governing  boards,  powers  of,  under  general  law 

of,  282 
insolvent  corporations,  appointment  of  receivers  f'^r,  r^les  declared,  525 
statute  imposing  personal  liability  upon  officers  falsely  certifying  that 

capital  stock  has  been  paid,  254 

NEW  YORK : 

bonds,  to  pay  scrip  dividends  prohibited,  497 

code  provisions,  construed  as  to  actions  by  creditors,  209 

constitutional  provision  limiting  indobtedness  of  county  containing  a  dty, 

construed,  400  * 

county  supervisors,  power  of,  104 

directors  or  trustees  failing  to  file  annual  reports,  as  to  capital  stock,  etc., 
personal  liability,  236 

assenting  to  creation  of  debt  in  excess  of  capital  stock,  248 

false  statements  in  certificates,  trustees  making,  251 
mortgages  by  manufacturing  corporation,  assent  of  stockholdere,  506 
savings  bank,  debts  duo  to,  by  national  banks,  preference,  354 
subscription  of  railroad  ccrporatioa  to  stock  of  another,  67 
refunding  act  authorizing  extension  of  municipal  bonds,  construed,  410 
restrictions  of  banking  law  upon  banks  and  officers,  372 
town  aid  to  railroads,  power  of  commissioners,  475 

curative  act,  effect  of,  on  town  aid  bonds,  486 
taxation,  under  statutes  of,  580 

by  school  districts,  569 
water  supply,  elections  under  statutes  providing  for,  31 

NORTH  CAROLINA: 

assent  of  stockholders  to  execution  of  mortgage  by  private  corporation,  507 
statute  as  to  contracts  during  coverture,  applied  to  holding  bank  shares 
by  married  women,  367 
protecting  claims  of  certain  classes  from  lien  of  mortgages,  558 

o. 

OFFICERS : 

bank  of,  duty  of,  299-314 
honoring  an  overdraft,  314 
note  pledged  as  collateral,  promise  of,  to  give  notice  of  default  to 

surety,  bank  not  bound  by,  314 
powers  of,  299-314 
restrictions  upon,  under  New  York  banking  laws,  378 


1364 


OENEBAL   INDEX. 


»l 


[The  references  are  to  sections:  toI.  I  contains  $S  1-WO;  voL  U,  S$  841-«80r] 
OFFICERS —Continued: 

national  banks,  of,  criminal  acts,  369-871 
private  corporations,  acting  conjointly,  166 
illustration,  158 
authority  of,  what  raises  a  presumption  of,  165 
common  seal  affixed  to  contract,  155 

bonds  of  corporation,  used  as  collateral  to  raise  money  for  corpora- 
tion. 132 
burden  on  corporation  to  show  act  of,  unauthorized,  121 
contracts  of,  binding  corporation,  121,  note  2 
counsel,  employment  of,  118,  131 
course  of  business  and  usage,  power  conferred  by,  120 
courts  of  equity,  interference  with  acts  of,  120 
personal  liabUity,  22»-225 

knowledge  of,  imputable  to  corporations.  180,  note  2 
contract  of,  before  complete  organization  of  corporation,  230 

rule  of  recovery  in  such  a  case,  231 
directions,  power  of,  general  rules,  122 
duties  to  corporation,  note  1,  p.  261 
false  representations  by,  200 
fraudulent  acts  of,  181-216 
general  rules,  181,  182 
interested  in  contracts,  184 
loans,  negotiating,  power  in,  80 
pledging  notes  of  corporation  as  collateral,  120 
presumption  as  to  power  of,  284 

sale  of  property  to  corporation  at  a  profit,  when  not  fraudulent,  184 
personal  liability  of,  agreement  to  contribute  money,  signing  in  name 

of  corporation,  224 
contracting  a  debt  not  within  the  power  of  the  corporation,  224 
false  certificate  of  stock,  issuing,  liable  to  all  holders,  199 
funds  of  corporation,  diversion  of,  or  paying  dividends,  leaving  insuf- 
ficient funds  to  meet  liabilities,  liability  for  damages  under  Iowa 

statutes,  240 
guaranty,  written,  execution  of  in  name  of  corporation,  224 
liability  of,  growing  out  of  manner  of  executing  promissory  notes,  224 
spiuious  bank,  giving  credit  to,  by  contributing  influence,  224 

OFFICIAL  BOND: 

cashier  of  bank  assenting  to  use  of  funds  of  bank  by  bookkeeper,  no 

relief  from  his  official  bond,  314 
teller  of  bank,  receiving  check  of  one  in  good  credit  not  honored,  no 

breach  of  his  official  bond,  314 

OHIO: 

statutes,  construed,  authorizing  construction  of  railroad  by  a  dty,  46 
aid  by  towns  to  railroads,  488 
bonds,  issue  of,  by  municipal  corporations,  3 
liens  for  labor  performed,  etc.,  in  construction  of  railroad,  568 


GENERAL  INDEX. 


1365 


[The  references  are  to  sections:  vol.  I  contains  §S  1-840;  vol.  II,  §$  841-688.] 

OHIO  —  Chntinued  : 

prohibiting  employment  of  "stock,  means,  assets  or  other  property" 
for  purposes  other  than  to  accomplish  objects  of  creation  of  corpora- 
tion, 275 

OVERDRAFTS : 

on  bank,  officera  honoring,  313 
directors  allowing,  299 
right  of  action  of  bank  against  drawer,  323 
transfer  of  securities  to  bank  for  payment  of,  trust  for  the  holders  of, 

323 

P. 

PASS  BOOK; 

depositor  in  bank,  of,  evidence  of  what,  315 

effect  of  entries  in,  316 

failure  of  depositor  to  examine,  316 

PENNSYLVANIA: 

county  supervisore,  power  of,  105 

constitutional  restriction  upon  amount  of  indebtedness  to  be  incurred  by 
corporations,  effect  on  bonded  indebtedness,  514,  515 

'III. 

PERSONAL  LIABILITY: 

cashier  of  bank,  applicauon  of  securities  of  bank  to  his  own  use,  308 
losses  arising  from  loans  without  security,  308 
misapplication  of  funds,  308 

directora,  223 

in  actions  of  deceit  for  false  representations,  200 

waste  of  funds  of  corporation,  207 

of  national  banks,  under  statutes,  actions  to  enforce,  302 

rules  governing,  302 
of  school  district,  voting  for  misapplication  of  funds  of  district,  113 
under  statutes,  directors  or  trustees,  failure  to  file  reports  required 
by  statute,  what  renders  them  liable,  254 
false  statements,  in  certificates  required  by  statute,  251 

illustrations,  252 
liability,  abatement  of,  on  death  of  creditor,  252 
officers  generally,  certifying  capital  stock  to  have  been  paid,  when  stock 
issued  for  property  of  an  uncertain  value,  liability  for  debts  of  corpo- 
ration, 254 
failure  to  file  certificates,  under  Rhode  Island  statutes,  253 

torts  and  judgments  for  torts,  not  included  in  "  debts  contracted," 
for  which  personal  liability  attaches,  253 
president  of  manufacturing  corporation,  false  statements  inducing  sub- 
scription to  stock,  200 
promotera,  making  secret  profits,  207 

PHYSICIAN: 

employment  of,  by  county  authorities,  22,  26 


1366 


GENEBAL   INDEX. 


[The  references  are  to  sections:  vol.  I  contains  $§  1^840;  vol.  U,  {§  841-686.] 
PLEDGE: 

bank  shares,  pledgee's  lien,  superior  to  bank's,  293 
bonds  of  corporation,  rights  of  pledgee,  496 

antecedent  indebtedness  for,  in  fraud  of  rights  of  stockholders,  496 
collateral  for  loans  of  money,  rights  of  pledgee,  496 
coin  of,  to  bank,  283 
deposit  in  correspondent  bank,  for  loan  to  bank,  292 

authority  of  president,  304 
mortgage  bonds,  as  collateral,  by  manager  of  corporation,  161 
promissory  notes  belonging  to  corporation,  by  oflacers,  120 
property  of  manufacturing  corporation,  to  secure  loan,  by  president  and 

secretary,  156 
securities  belonging  to  corporation,  87 
securities  of  a  principal  pledged  to  bank,  sale  of,  by  the  bank,  bank  liable 

to  owner  for  proceeds,  296 
securities  pledged  with  brokers,  pledged  by  brokers,  as  collateral  to  bank, 

«9o 
stock  of  corporation,  78,  87 

POOR: 

care  of,  by  public  corporations,  26,  26 

POWERS: 

•     of  bank,  generally,  283 

borrowing  money,  288 

officers  of,  287 
private  corporations,  aiding  other  corporations,  67,  69,  70,  77 
athletic  club,  74 
banking  associations,  75 
bonds,  issue  of,  65 
borrowing  money,  65,  74,  75,  76 
guaranty,  of  bonds  of  other  corporations,  69.  70,  71 

of  dividends,  on  preferred  stock  of  other  corporations,  73 
land  companies.  77 
manufacturing  corporations,  79 
mining  corporations,  80 
pledge  of  securities,  87 
purchasing  property,  66 
purchasing  stock  of  other  corporations,  66,  67 
railroad  corporations,  81,  82 
supply  store,  purchase  of,  66 
public  corporations,  bonds,  to  issue,  8,  note  5 
to  make  negotiable,  when  implied,  8 
to  make  payable  in  gold,  8 
sale  below  par,  9 

promissory  notes,  to  execute,  8,  note  1 

refunding  bonds,  power  to  issue,  what  it  does  not  carry  with  it,  8 
officers,  91,  92 

building  committee  of  town,  104 

city,  comptroller  of,  93 


GENERAL  INDEX. 


1367 


[The  references  are  to  sections:  vol.  I  contains  §§  1-340;  vol.  II,  §§  341-686.] 
POWERS  —  Continued  : 

mayor  and  common  council  of,  93 
counties,  agents  and  officers  of,  powers  generally,  95 
county  boards,  power  to  create  indebtedness,  95 
in  California,  96 

auditing  claims,  96 
county  treasurer,  settlement  with,  96 
in  Illinois,  97 
in  Indiana,  98 
in  Iowa,  99 

stolen  funds,  offering  reward  for,  99 
in  Kansas,  100 

borrowing  money,  100 

bridges,  purchase  of,  payment  in  county  warrants  or 

orders,  100 
claims  against  county,  allowance  of,  100 
contracts,  making,  outside  of  county,  100 
in  Kentucky,  101 

poor,  providing  for,  101 
in  Mchigan,  102 

action  of  board,  mandamus  to  control,  102 
incurring  indebtedness,  rules  as  to,  102 
power  cannot  delegate,  102  ^ 

voting  money  for  bridges  or  public  buildings,  102 
in  Missouri,  103   ' 

certificates  of  indebtedness,  issue  of,  103 
taxes,  as  to,  power  of,  103 
in  New  York,  104 

armory,  hiring  building  for.  104 
auditing  claims  against  county,  104 
contracting  in  advance  for  printing,  104 
delegation  of  powers,  104 

money  properly  raised,  devoting  to  other  purposes,  104 
in  Pennsylvania,  105 

contracts,  by,  how  made,  105 
elections,  expenses  of,  allowing,  105 
insane  prisoner,  removal  to  hospital,  contract  for,  105 
in  Wisconsin,  106 

poor  farm,  purchase  of,  106 
school  directors,  113 

selectmen  of  towns,  in  Massachusetts,  108 
in  New  Hampshire,  109 
in  Vermont,  111 
j       supervisors  of  townships,  in  Pennsylvania,  110 
j        town  agents,  111 

town  officers,  in  Wisconsin,  112 
township  trustees,  in  Indiana,  107 
county  commissioners,  in  Indiana,  21 


1368 


GKNEEAL   INDEX. 


[The  references  are  to  sections:  vol.  I  contains  §$  1-340;  vol.  n,  H  841-686.] 

POWERS  —  C&ntinti^  : 

in  Kansas,  22 

counsel,  employment  by,  22 

physician,  employment  by,  22  i 

by  trustee  of  town,  22 

TRECINCT  AID  BONDS : 

under  Kentucky  statutes,  447  # 

PRESIDENT: 

of  bank,  acts  binding  upon  bank,  when,  146 

acts  of,  in  taking  a  new  note  for  matured  indebtedness,  binding  on 

bank,  303 
agent  to  collect  a  note,  agreeing  upon,  308 
assets,  transferring,  144 

borrow  money,  authority  of,  when  exercising  functions  of  cashier,  354 
depositors,  contract  by,  to  obtain,  308 
drafts,  indorsement  by,  139 
duty  of,  803 

executing  warrant  to  institute  a  suit,  808 
funds  of  bank,  application  of,  directing,  808 
Illustrations,  acts  binding  on  bank,  304 

acts  not  binding  on  bank,  305 
judgment  in  favor  of  bank,  satisfaction  of,  146,  152,  158 

knowledge  of,  303 

when  bank  is  not  chargeable  with,  306 
loan  to  bank,  pledge  of  deposit  as  security,  what  shows,  804 
notice  to,  808 
overdrafts,  allowing,  803 
power  of,  303 

general  rules  as  to,  142 

illustrations  of,  146 
promise  to  holder  when  discounting  paper,  308 
promissory  notes,  execution  of,  142 

evidence  in  such  cases,  143 
securities  of  bank,  allowing  customers  to  take  away  for  inspection, 

303 
stock  of  bank,  receiving  in  payment  of  debt  to  bank,  303 
employing  broker  to  sell,  142 

to  collect  subscriptions  of,  142 
subscription  in  aid  of  private  corporation  not  binding  on  bank,  305 
ultra  vires  acts,  illustrations  of,  303 
using  bank  funds  in  payment  of  private  obligations,  305 
use  of  assets  of  bank  in  settling  debts,  must  be  authorized.  136 
private  corporations  generally,  authority  of,  when  it  cannot  be  quei- 
tioned  by  corporation,  151 
borrowing  money  conjointly  with  secretary,  156 
conspiring  with  secretary  to  wreck  corporation,  203 
with  a  stockholder,  204 


GENEBAL   INDEX. 


1369 


[The  references  are  to  sections:  vol.  I  contains  i%  1-M);  vol.  H,  $$  341-586.] 

PRESIDENT  —  Continued : 

contract,  execution  of,  by  authority  of  directors,  122 
authority  to  make,  what  would  show,  148 
when  a  question  for  the  jury,  149 

made  with  president  benefiting  corporation,  enforceable,  209 
debt  of  third  person,  assuming,  156 

false  certificates  of  stock,  issuing,  when  corporation  must  respond  In 
damages,  220 
when  it  may  not,  221,  222 
fraudulent  representations  by,  200 
judgment  notes,  giving,  203 

sale  under,  when  set  aside,  203 
loan,  negotiation  of  and  execution  of  mortgage,  ratification  of  act,  178 
malfeasance  of,  remedy  of  stockholders,  210 

manufacturing  corporation,  of,  false  statement  as  to  condition  of  cor- 
poration, inducing  subscription  to  stock,  200 
materials  for  business,  purchase  of,  121 

borrowing  money  to  pay  for  them,  121 
misapplication  of  proceeds  of  bonds,  200 

management  and  control  having,  when  accountable  in  equity  to  stock- 
holders, 209 
mining  corporation,  of,  payment  of  unauthorized  loan,  ordering,  147 
note  and  mortgage  given  to  secure  it,  assigning,  157 
power,  lack  of,  illustrations,  147 
claims,  releasing,  147 

contract  by  authority  of  directors,  modifying,  147 
real  property,  purchase  or  sale  of,  at  discretion.  147 
promissory  notes,  execution  of,  150 

for  money  advanced  to  prevent  a  lawsuit,  150 
indorsement  of,  when  not  personally  liable,  227 
purchase  of  claims  against  corporation,  192 

right  of  way  for  railroad  corporation,  intrusted  with  purchase  of,  184 
spurious  credit  to  bank,  giving,  by  contributing  his  influence,  person- 
ally liable  for  damages  caused  by,  224 
use  of  property  of  corporation  for  his  own  purposes,  liable  to  corpo- 
ration, 209 
waste  by  trustees  of  corporation,  when  president  may  direct  action 

against  them,  212 

PRIORITIES  OF  LIENS:  .      ^.    •  , 

in  actions  for  foreclosure  of  mortgage,  contract  claims  under  Virgmia 

statutes,  558 

interest  on  claims,  558 
contractors,  constructing  road,  liens  under  Tennessee  statutes,  564 
damages  for  causing  death,  558 
debts  incurred  within  six  months  before  receivership,  558 

for  construction  of  new  road,  payable  out  of  earnings  of  receiver- 

ship,  558 
contracted  for  construction  of  road,  559 

172 


II 


I 


1370 


GENERAL   INDEX. 


[The  references  are  to  sections:  vol.  I  contains  $S  1-340;  vol.  II,  {$  841-586.] 

PRIORITIES  OF  LlElii8  — Continued: 
equipment  bonds,  owners  of,  568 
equitable  lien,  558 
general  rules,  558 

guaranty  bonds,  future  liability  on,  658 
injuries  inflicted,  judgment  for,  558 
liquidated  claim,  not  reduced  to  judgment,  558 
material  used  in  keeping  the  road  a  going  concern,  558 
mechanic's  lien,  561 
money  loaned  before  receivership,  566 

notes  given  for  money  borrowed  to  pay  interest  on  bonds,  558 
presumption  as  to  preferential  character  of  claim,  560 
rails  purchased  on  a  credit  to  be  paid  out  of  earnings  of  road,  558 
removal  from  state  court  to  federal  court,  568 
reorganization  committee,  claims  of,  558 
rolling  stock,  rental  after  receivership,  558 
services  rendered  before  receivership,  567 
sub-contractors,  lien  of,  564 
supplies,  furnishers  of,  under  Kentucky  statutes,  562 

under  Ohio  statutes,  563  t 

under  Virginia  statutes,  565 
statutory  liens  prior  mortgage  bonds  and  equitable  liens,  558 
vendors  of  rolling  stock,  rentals  during  receivership,  in  judgment 

creditor's  action,  558 
way,  right  of  land  owner,  lien  for  purchase  money,  558 

PROMISSORY  NOTES : 

payable  at  bank,  rules,  334 

presentment  of,  to  bank  for  payment,  334 

sufficient  evidence  of  demand  and  refusal  to  pay,  384 
protest  and  notice,  291 
purchase  of,  by  banks,  rules  governing,  287 
power  to  discount  in  banks,  to  what  limited,  287 
private  corporations,  authority  of  president  to  execute,  162 
directors,  authorized  by,  128 

illustration  of  unauthorized,  133 
execution  of,  385 

authority  of  officers,  134 
how  authorized,  134 
from  what  inferred,  135 
when  corporation  is  bound,  172 

corporation  applying  proceeds  to  its  use,  bound  thereby,  178^ 
by  treasurer  of  water  works  company,  174 
j  by  treasurer  of  railroad  corporation,  175 

by  manager  of  corporation,  116 
»  discounted  by  agent,  117 

indorsement  of,  by  directors,  when  held  liable  as  guarantors,  227 

by  manager,  168 
pledged  as  collateral,  by  officers,  120 


GENERAL   INDEX. 


1371 


[The  references  are  to  sections :  vol.  I  contains  §§  1-340;  vol.  11,  §§  341-586.] 

PROMISSORY  NOTES  —  Continued  : 
personal  liability  of  officers,  224 

arising  from  mode  of  giving,  226 
president,  executed  by,  142,  150 
president  and  secretary  conjointly,  executed  by,  385 
superintendent  of  mining  corporatron,  executed  by,  141 
value,  holder  for,  without  notice  of  illegality,  385 
public  corporations,  when  authorized,  8 

PROMOTERS: 

contract  in  procuring  subscription  to  stock  before  organization  of  corpo- 
ration, 121 
contracts  preliminary  to  organization  not  binding  on  corporation,  190 
sale  of  property  to  corporation,  duty  of,  205 

accountable  to  corporation  for  profits,  when,  205,  255 
misrepresentations  as  to  cost  of  property,  188 
statements  to  induce  subscriptionn  to  stock,  205 
stock  of  corporation,  obtaining  for  nothing,  205 

PROPERTY  OWNERS: 

petitions  from,  to  authonze  an  issue  of  bonds  by  municipal  corporation, 
when  not  necessary,  16 

PUBLIC  BUILDINGS: 
insurance  on,  20 

labor  done  on,  extra  compensation  for,  15 
libraries,  public,  buildings  for,  15 
real  estate,  purchase  of,  on  credit,  14 
school  buildings,  purchase  of  real  estate  for,  16,  17 

repair  of,  issue  of  bonds  for,  when  prohibited,  16 
small-pox  hospital,  site  for,  purchase  of,  27 

PUBLIC  OFFICERS : 

injunction  of,  rules,  267 

PUBLIC  POLICY : 

contract  with  attorney  by  public  corporation,  irrevocable,  contrary  to,  59 
creation  of  a  trust  contra^  to,  282 
illustrations  of  financial  arrangements  contrary  to,  282 
lease  of  railroad  corporation's  franchise  and  property  for  a  term  of  years, 
when  in  contravention  of,  273 

PURCHASERS : 

at  foreclosure  sales,  assistance,  writ  of,  to,  640 
liabilities,  540 

acts  of  receivers  operating  property,  how  far  liable,  540 
sale  subject  to  liens  recognized  in  decree,  purchaser  estopped  to 
object  to  their  payment,  540 
of  school  district  bonds,  notice  of  invalidity,  when  not  chargeable  with, 
436 
in  action  by,  defense  that  district  did  not  own  school  site,  not  open 
to  district.  436 


i 


i 


1372  OSNEBAL  INDEX. 

[The  references  are  to  sections :  toI.  I  contains  |S  1-MO ;  toI.  n,  H  841-im.] 

R. 

RAILROAD  CORPORATIONS : 

bonds,  for  what  they  may  be  issued,  67,  81 

bonds  of  other  railroad  corporations,  guaranty  of,  69 

certificates  of  indebtedness,  issued  for  labor,  82 

county  aid  voted  to,  may  take  bonds  for  stock  subscribed,  440 

agreeing  to  pay  interest  on  bonds  till  road  is  completed,  when  liability 
ceases,  440 
engineer,  contracts  of,  when  binding  on,  176 

engineer's  authority,  must  be  specifically  shown,  160 
lease  of  property  for  a  term  of  years,  273 
mortgage  of  its  property  to  contractor  for  construction,  271 
president,  contract  by,  for  use  of  railroad  bridge,  146 

purchase  of  right  of  way  by,  184 
road,  for  use  of  another,  pay  in  advance  for,  in  aiding  in  its  construction, 
271 
purchase  of  another,  81,  82 
steamboat,  purchase  of,  in  connection  with  its  line,  82 
stock,  subscriptions  to,  by  municipal  corporations,  bonds  in  payment 

of,  11 
transportation  of  freight,  estopped  to  deny  authority  to  make  contract  for, 
271  • 

RATIFICATION: 

agent's  acts,  general  rules,  175,  177 

modes  of,  178 

acquiescence  in,  178 
by  bank,  of  discount  of  note  by  its  cashier,  307 
burden  of  showing  acts  of,  180,  note  2 
certificates  of  deposit  in  bank  by  real  owner,  321 
contracts  made  by  agents  and  officers,  94,  95,  103,  105 
contracts  of  municipal  authorities,  31.  note  2 
illustrations  of,  179 

loan  of  money  of  corporation  without  the  required  vote  of  directors,  271 
municipal  aid  bonds,  452  , 

promissory  note,  what  is  not  a  ratification  by  trustees,  133 

executed  by  secretary,  by  directors,  160 
promoter's  contract  in  procuring  stock  subscriptions,  121 

REAL  ESTATE: 

purchase  or  taking  mortgage  on,  by  national  bank,  286 
RECEIVERS: 

in  actions  for  foreclosure  of  mortgage,  actions  against,  jurisdiction  of,  558 
allowances  to,  for  counsel  and  expenses,  556 
appointment  of,  when  they  should  be  appointed,  544 

default  in  interest,  bondholders  not  in  harmony,  accumulation 

of  debt,  544 
default  in  payment  of  taxes,  sale  of  road  permitted,  corporation 
hopelessly  insolvent,  544 


GENEBAL  Iia)EX. 


1373 


[The  references  are  to  sections :  vol.  I  contains  §§  1-340  ;  vol.  n,  S$  341-586.] 
RECEIVERS  —  Continued  : 

who  may  be  appointed,  544 

one  residing  out  of  the  state,  544 
books,  papers,  etc.,  of  corporation  to  be  delivered  to  receiver,  546 
certificates,  receiver's,  authorized,  when,  550 

income,  payable  from,  550 

lien  of,  550 

enforcement  of,  550 

purchasers  of,  rights  of,  550 
claims  against,  for  injuries  to  persons  during  receivership,  554 

actions  on,  rules  governing,  555 
conditions  attached  to  appointment  of,  545 

recognition  of  claims  against  corporation,  liens  to  be  paid  off,  545 
contracts,  power  to  make,  548 

termination  of,  548 

operation  of  road,  loans  of  money  for,  may  negotiate,  when,  548 

sanction  of,  by  court,  548 
discharge  of,  544 

court  may  discharge  on  its  own  motion,  544 
earnings  of  road,  application  of,  during  receivership,  552 

receiver's  right  to,  546 
extension  of  receivership,  544 
possession  of  property,  rights  of  receivers,  546 

court  will  protect,  546 

against  receiver  appointed  by  another  court,  546 
protection  of  property,  actions  allowed  receiver  for,  557 
relation  of,  to  property  leased  by  corporation,  547 

right  to  reclaim  the  property,  547 

right  to  abrogate  lease,  547 
removal  of,  544 

grounds  for,  544 
rental  of  leased  property,  when  bound  for,  547 
rolling  stock,  coming  into  possession  of,  claims  growing  out  of,  551 
wages  of  employees,  regulation  of,  in  connection  with  court,  549 
in  insolvent  proceedings,  appointment  of,  when  justified,  525 

preservation  of  property,  525 

when  not  justified,  insolvency,  mere  allegations  of,  525 

irregularities  in  management,  no  actual  fraud  intended,  525 

In  federal  court,  525 
action   commenced    against   corporation,    prosecuted   to   judgment 
against  receiver,  rule  as  to  costs,  528 

against  receiver,   by  assignee  of  director,  what  receiver  may 
show,  528 
collecting  accounts  assigned  by  corporation,  compensation  for,  528 
deposits  of,  in  bank,  302 

property,  receiver  takes,  subject  to  all  valid  attachments,  524 
removal  of,  526 

of  one  appointed  at  the  instance  of  two  hostile  factions,  526 


1374 


OEITESAL  INDEX. 


[The  references  are  to  sections  :  vol.  I  contains  SS  1-340 ;  vol.  n,  $$  841-588.] 
BECEIVERS—  Continued: 

rights  of,  as  to  property  of  corporation,  527 

when   receiver   camiot  deny   authority   of   oflacers   to   execute  a 
mortgage,  509 
of  insolvent  national  bank,  actions  of,  contracts  with  attorneys,  345 
dismissal  of  attorney,  345 
general  rules,  345 

to  enforce  liability  of  shareholders,  rules  governing,  302 
actions,  to  control  conduct  of  receiver,  346 
actions  against,  for  recovery  of  trust  funds,  what  receiver  may  not 

set  off,  347 
appointment  of,  action  of  comptroller  of  currency  final,  342 
power  not  limited  to  time  after  bank  closes,  342 
when  not  authorized,  343 
compounding  statutory  liability  of  shareholder,  844 
funds  coming  into  hands  of  clearing  house  association,  disposition  of, 

receiver  cannot  question,  845 
powers  of,  844 
return  of  proceeds  of  checks  held  by  bank  for  collection,  318 

RECITALS  : 

on  face  of  bonds,  their  effect,  county  bonds,  396,  400 
municipal  bonds,  439 
school  district  bonds,  426 
town  bonds,  424 
town  aid  bonds,  474 

REFUNDING  BONDS : 
power  to  issue,  8 
of  county,  refunding  indebtedness,  894,  400 

RELEASE ; 

debts  due  corporations  by  officers,  164 
insurance,  claim  for,  by  treasurer,  166 
mortgage  of,  by  secretary,  166 

promissory  notes,  joint  and  several  makers,  of  one  of,  by  treasurer  of 
savings  institution,  180 

REMEDY : 

bank  receiving  bill  of  exchange  for  collection  from  another  bank,  failing 
to  pay  over  money,  against  the  bank  and  not  against  the  drawer  of  the 
bill,  337 
bill  in  equity  in  federal  court,  to  enforce  personal  liability  of  officers 
allowing  creation  of  debts  in  excess  of  capital  stock,  254 

See  Actions. 
REMOVAL : 

assignee  of  insolvent  corporation,  526 
receiver  of  insolvent  corporation,  526 

receivers  of  national  banks,  actions  against,  of,  from  state  to  federal 
courts,  354 


GENERAL   INDEX. 


1375 


[The  references  are  to  sections :  voL  I  contains  §§  1-340 ;  vol.  II,  $§  341-686.] 

REPORTS : 

capital  stock,  condition,  etc.,  of  corporation,  filing  of,  required  by  statute, 
failure  to  file,  directors  and  trustees'  personal  liability  for  debts,  254 

RHODE  ISLAND: 

statutes,   imposing  liability  on  officers  failing  to  file  reports  required, 
construed,  253 
allowing  debts  in  excess  of  capital  stock,  construed,  253 

ROADS: 

construction  and  repair  of,  by  public  corporations,  19,  43 

s. 

SALE: 

of  corporation  property,  judgment  confessed  by  insolvent  corporation, 
under,  when  it  cannot  be  restrained,  523 
judgment  in  attachment,  under,  purchaser's  rights,  524 
by  directors,  to  one  of  the  board,  when  set  aside,  193 
to  a  majority  of  stockholders,  minority's  right  to  set  aside,  213,  214 
rules  in  such  a  case,  215 
under  foreclosure  of  mortgage.    See  Fobeclosuee  of  Mortgage. 

SAVINGS  BANKS: 

dealing  in  futures,  272 

deposits  in,  319 

debts  due  to,  by  insolvent  national  banks,  preferred  under  New  York 

statute,  354 
forged    order,    paying  money  on,  without  requiring    compliance  with 

by-laws,  329 
insolvent  becoming,  depositors  and  general  creditors,  rules  as  to  priorities, 

319 
loans,  negotiation  of,  76 
promissory  notes,  purchase  of,  power,  287 
officers  of,  personal  liability  of,  228 
stock  of  manufacturing  corporation,  investment  in,  275 
treasurer  of,  pi>wers,  140 
transferring  notes,  121 
when  liable  lor  loss  to  bank,  228 
trustees  of,  improper  investment  of  funds  by,  228 

SCHOOL  DIRECTORS: 

borrowing  money,  113 

committee  appointed  by,  power  to  contract,  113 
mortgage  of  real  estate,  execution  of,  113 
school  houses,  erection  of,  113 

site  for,  contract  with  one  of  ihe  board.  113 
suit  against,  expenses  of  defense  not  chargeable  to  school  district,  113 
teachers,  contracts  with,  113 
voting  for  misapplication  funds  of  the  district,  personal  liability  for,  113 


^ 


1376 


GENERAL   INDEX. 


[The  references  are  to  sections :  vol.  I  contains  $§  1-340 ;  vol.  U,  SS  S41-686.] 

SCHOOL  DISTRICT : 

bonds  of,  general  rules,  426 

borrowing  money,  power  to  borrow,  257 

promissory  note,  execution  of,  in  payment  of  loan,  257 

receiving  and  using  property  purchased  under  an  uUra  tires  contract, 

estopped  to  deny  its  liability,  265 
ratification  of  contract  of  its  officers,  d4 
school  house,  erection  of,  vote  of  tax  for,  16 

steam  heating  apparatus  for,  34 
settlement  with  an  ex-assessor,  how  authorized,  in  what  it  may  be  paid, 

378 

SCHOOL  DISTRICT  BONDS : 

adoption  of  statute  to  authorize,  by  vote  of  citizens.  434  ,      . , 

bona  fde  purchasers,  constitutional   requirements   not   compUed  with, 

no  defense  against,  435 
conditions  precedent  to  issue  of,  433 
construction  of  school  buildings,  issued  for,  426, 428 
construction  of  dormitory  and  boarding  house,  issued  for,  Ulegal,  when. 

426 
dealers  in,  put  upon  inquiry,  as  to  power  to  issue,  426 

when  not  innocent  purchasers,  426 
de  facto  board  of  education,  bonds  executed  by,  427 
election,  to  authorize  issue,  resolution  calling,  434 
estoppel  of  district  to  deny  liability  on,  rules,  438 

when  not  estopped,  431 
negotiable,  governed  by  law  merchant,  426 
Nebraska  statutes,  under,  issued,  petition  for  election,  429 

when  void,  430 
purchasers,  not  chargeable  with  notice  of  invalidity,  435 
recitals  in,  effect  on  holders,  426 

rules,  general,  426  ,  v     >«q« 

school  funds  and  propert;y,  pledge  of,  bonds  secured  by  432 
validity  of,  as  affected  by  constitutional  restriction,  431 
vendor  of  false  and  forged  bond,  liable  to  vendee,  426 

SCHOOL  FUNDS: 

investment  of.  in  county  bonds,  under  Texas  statute.  397 
management  of,  by  auditor  of  county,  in  Indiana.  376 

SCHOOL  HOUSES: 

issue  of  bonds  for  repair  of,  when  prohibited,  16 

SCRIP: 

city,  issue  of,  by,  for  public  works,  13 

coin.  gold,  payable  in.  13 

investment  of  proceeds  not  immediately  needed.  13 

SEAL:  oQK 

use  of,  in  execution  of  contracts,  by  private  corporations,  385 


GENERAL   INDEX. 


1377 


[The  references  are  to  sections :  vol.  I  contains  %%  1-340 ;  vol.  II,  $$  341-586.] 

m<'ORET  ARY  * 

private  corporation,  secretly  purchasing  property  of  corporation,  at  judi- 

cial  sale,  when  held  a  fraudulent  act,  for  which  he  must  account.  193 
memorandum  of  indebtedness,  no  authority  to  give.  160 
promissory  note,  execution  of.  binding  upon  corporation,  159 

ratification  of.  by  directors,  160 
of  mining  corporation,  promissory  note,  power  to  assign,  141 

ftV  O  TTRIT  lES  * 

bank,  of  a  pledge  of.  by  cashier,  exercise  of  the  power,  pnrm  fiune  evi- 
dence of  his  power  307 
president  allowing  to  be  taken  away  for  inspection  303 
transfer  of.  by  cashier,  fairness  of,  controvertible  by  one  interested 

307  ,    ^^ 

cashier,  delivery  by,  as  collateral  for  a  loan  to  bank,  307 
receiving  offers  for  purchase  of,  307 
deposited  with  bank  for  safe  keeping,  bank's  duty.  295 
in  hands  of  brokers,  pledged  as  collateral  to  bank,  296 
pledged  for  a  specific  sum.  292 
stolen  by  officer  of  bank,  295 

SELECTMEN  OF  TOWNS: 

borrowing  money,  power  of,  108,  109 

building  for  town  meeting,  hiring  of,  108 

claims  against  town,  submitting  to  arbitration,  111 

contracts  for  town,  execution  of,  HI 

controversies  of  town,  adjustment  of,  109 

counsel  for  town,  employment  of,  111 

crime,  person  charged  with,  offering  reward  for,  108 

debts  of  town,  payment  of,  109 

epidemic  diseases,  persons  afflicted  with,  medical  services  for,  providing, 

109 
promissory  notes  of  town,  execution  of,  109 
suits  for  the  town,  bringing  of,  109 

SEQUESTRATION:  ^      ^^^ 

properiiy  of  insolvent  corporation,  for  winding  up,  rules,  525 

SERVICES  OF  AN  ATTORNEY: 

public  corporation,  when  bound  for,  54 

SET— OFF  • 

actions  by,  receiver  of  insolvent  national  bank,  on  claims  due  bank,  what 

may  and  what  may  not  be  set-off,  341,  345  .        ^ 

against  receiver  of  insolvent  national  bank,  for  recovery  of  trust 
funds,  what  receiver  may  not  set-off,  347 

SHAREHOLDERS: 

of  banks,  liability  of,  general  rules,  358 
holding  stock  in  pledge,  358 

married  woman,  holding  shares  in  her  own  right,  367 
pledgee  of  stock,  362 

173 


1378 


GENERAL   INDEX. 


[The  references  are  to  sections :  vol.  I  contains  $§  l-S-'O  j  vol.  H,  $$  841-586.] 

SHAREFTOLDERS—  Continued: 

relieved  from  liability,  when,  363 
rules  under  Minnesota  statute,  359 

under  Michigan  statute,  359 
sale  of  stock  through  a  broker,  361 
statutory  liability,  compounding  by,  receiver,  34.4 
subscriber  to  stock,  who  has  not  paid,  358 
survives,  366 
transfer  of  shares,  364 

not  a  relief  from  liability,  when,  365 
national  bank,  of,  questioning  validity  of  bank's  proceedings  in  increasing 
its  capital  stock,  289 

SINKING  FUND: 

public  corporation,  incurring  indebtedness,  without  providing  for,  by 

taxation,  259 
investment  of,  duty  of  managers,  261 

SOUTH  CAROLINA : 

consolidation  of  railroads  under  statutes,  effect  upon  consolidated  mort- 
gage, 517 

legislation  making  township  aid  bonds  a  legal  'ndcbtcdness  of  townships, 
effect  of,  487 

STATUTE  OF  LBIITATIONS : 

action  against  national  bank,  to  recover  illegal  interest  paid,  dates  from 

actual  payment  of  interest,  294 
action  on  county  bonds,  plea  of,  406 
action  against  directors  for  diversion  of  property  of  corporation,  when  not 

a  bar,  225 
county  warrants,  not  applicable  to,  384 
STOCK : 

bank  stock,  lien  of  bank  on  shares  for  debts  of  holders,  293 
subordinate  to  that  of  pledgee,  293 
transferable  on  its  face,  rule,  293 
private  corporations,  of,  capital  stock,  what  is  its  par  value,  89,  note  1 
common,  converting  into  preferred,  277 

laches  of  stockholders  in  complaining  of,  effect  of,  278 
deposited  as  security  with  a  bank,  bank  not  bound  to  protect  from 

forfeiture,  when,  283 
fraudulently  issued  by  officers  of  corporation,  stockholders'  rights 
of  action  for  its  surrender  and  cancellation,  209 
corporation  responding  for  damages,  when,  218,  219,  220 
overissue  of,  when  not,  221,  222 

liability  of  officers  for,  199 
pledge  of,  as  collateral  security,  78,  87 

to  bank,  notice  to  cashier  that  it  was  trust  stock,  notice  to  bank,  309 
preferred  stock  of  other  corporations,  guaranty  of  dividend  on,  72 
promoters,   stock    obtained    by    misrepresentations   of,    must    be 
accounted  for  or  its  proceeds  paid  to  corporation,  188 


GENERAL   INDEX. 


1379 


[The  references  are  to  sections :  vol.  I  contains  §§  1-340 ;  vol.  n.  §§  341-586.] 
STOCK—  Continued  : 

purchase  of  its  own  stock  by  corporation,  271 

stock  of  other  corporations,  subscription  to,  67,  77,  78 

what  it  may  be  issued  for,  65 
worthless  stock,  issue  of,  199 

STOCKHOLDERS : 

action  of,  against  directors,  for  depreciation  of  stock,  209 

against  officers,  to  set  aside  appropriation  of  salary  to  themselves,  209 
surrender  and  cancellation  of  stock  fraudulently  issued,  209 
against  officers,  for  waste  or  misappropriation  of  funds,  209 
against  president  of  corporation,  for  malfeasance,   when  entitled  to 
relief  in  equity,  209,  210 
rules  as  to  actions,  211 
approval  of  an  appropriation  of  funds,  effect  of,  not  allowed  to  complain 

in  court  of  equity,  208 
complaining  of  acts  of  corporation,  what  questions  he  cannot  raise,  282 
corporation  sole  stockholder,  having  properly  transferred  to  itself,  to  the 

prejudice  of  creditors,  271 
directors,  breaches  of  trust,  liability  to  stockholders,  182 
insolvent  corporation,  of,  liability  on  unpaid  subscriptions,  530 
laches  of,  in  complaining  of  conversion  of  " common  "  into  "preferred" 
stock,  effect  of,  278 

manufacturing  corporation,  assenting  to  execution  of  mortgage  mode  of 
507  o  .  , 

minority  of,  rights  to  complain  of  scheme  of  majority,  for  dissolution  of 
corporation,  213,  214 

SUBSCRIPTION  : 

to  stock  of  railroad  corporation  by  public  corporation,  authorized  by  legis- 
lature, 40,  41,  43 
validated  by  legislature,  45 

See  City  Aid  Bonds;  County  Aid  Bonds;  Town  Aid  Bonds; 
Municipal  Aid. 

SUPERINTENDENT : 

mining  corporation,  borrowing  money,  power,  141 
promissory  note,  execution  of,  power,  141 
of  private  corporation,  contracts  by,  160 

SUPERVISING  AGENT : 

of  private  corporation,  draft,  power  to  accept,  160 

SUPERVISORS: 

of  township,  cannot  disregard  the  conditions  of  an  issue  of  aid  bonds 
471 

SUPERVISOR  OF  TOWNSHIPS: 

bridges,  construction  of,  contract  for,  110 

constructing,  in,  majority  of  the  board  must  act,  lio.  112 
judgment  in  favor  of  town,  compromising,  112  ^ 

roads  and  bridges,  repair  of,  borro^ving  money  for,  110 


X^SO  GENERAL   INDEX. 

[Th«  references  are  to  sections:  vol.  I  containa  §§  l-«40;  vol.  n,  SI  841-6W.] 

SURETY: 

bank  becoming,  for  a  public  officer,  ultra  vira,  285 

guaranty  of  surety  on  paper,  by  bank,  against  liability,  filtra  tire;  285 

note  to  bank,  on,  release  of,  by  cashier,  307 

SUIiETYSHIP: 

contracts  of,  by  corporations,  68 

T. 

TAXATION: 

of  private  corporations,  banks,  upon,  584 
computation  of  tax,  rule,  583 
exemption  from,  bank,  in  Louisiana,  579 
manufacturing  corporations,  579 
railroad  corporations,  579 
religious  corporations,  under  Nebraska  constitutional  provisions, 

578 
foreign  corporations,  under  New  York  statutes,  580 

general  rules,  569 
insurance  companies,  rules,  586 

exempted,  when,  586 

reserve  fund  of  mutual  life  association,  586 
New  York  statutes,  under,  rules,  580 

assessment  of,  580 

capital  invested  outside  state,  580 

debts,  deduction  of,  580 

exemption  from,  580 

legislature's  power  to  release  propeitty  assessed  for  taxation,  580 

foreign  corporations,  upon,  580 
payments  made  under  coercion,  580 
stock  of  another  corporation,  held  by  a  corporation,  580 
subject  of  valuation,  580 
Pennsylvania,  under  statutes  of,  581 
bonds,  mortgages,  etc.,  upon,  581 
insurance  corporation,  581 

railroad  corporations,  road  running  into  the  state,  581 
stock  capital,  upon,  581 
valuation,  rules  as  to  valuation,  581 

privilege  tax,  582 

under  New  Jersey  statutes,  upon  manufactunng  corporation.  588 

railroad  corporations,  rules,  585 

capital  stock,  what  it  includes,  585 
hotel  owned  by,  585 
Illinois,  in,  585 

Indiana  statute  taxing  railroads  construed,  585 
property  of  another  railroad  purchased  by,  585 
shares  of  bank  stock,  rules,  584 
by  public  corporations,  assessment  of  landowners,  for  benefits.  5i3 
for  local  improvements,  572 


GENERAL   INDEX. 


1381 


[The  references  are  to  sections:  vol.  I  contains  %%  1-340;  vol.  n,  SS  341-586.] 

TAXATION  —  Continued  : 

officers,  proper,  to  make  assessments,  572 

frontage  assessment,  572 

grading  or  paving  streets,  572 

sprinkling  streets,  572 

streets,  improvement  of,  572 

proceedings  for,  by  commissioners  for  benefits,  etc.,  572 
when  it  cannot  be  attacked,  575 
corporation,  upon  doing  business  in  city,  569 
districts,  taxing,  572 
exemption  from,  570 

church  property  of,  under  Pennsylvania,  570 

corporation  publishing  books,  570 

charitable  institutions,  570 

railroads,  canals  and  gas  companies,  570 
express  company,  license  tax,  569 
federal  taxation  upon  incomes,  act  of  congress  construed,  570 

franchises  upon,  569 
general  rules,  569 
levy  of  taxes,  573 

irregularity  in,  574 
license  tax,  571 
limit  of,  569 
professions,  on,  569 
railroad  corporation,  injunction,  577 
right  to  levy  tax,  569 

conferred,  how,  569 
school  purposes,  for,  569 

TELLER: 

of  bank,  check,  cert;iflcation  of,  314  ^^  u  i^      qia 

fraudulent  certification  of,  liability  of  bank  to  honajUU  holder,  314 
raised  after  certification,  negligence  of  teller,  by  which  bank  becomes 

Uable,  314 
forged,  entering  on  bank  book  of  depositor,  314 
postdated,  promising  to  hold,  314 
erasure  of  name,  of,  one  of  the  makers  of  note,  314 

powers  of,  314  ,  ,        x.       u  ^# 

receiving  check  of  person  of  good  credit,  check  not  honored,  no  breach  of 

official  bond,  314 

TENNESSEE:  .        *        m      ^   kra 

statutes,  as  to  liens  of  contractors,  in  construction  of  a  rauroad,  564 
stockholders'  meeting  to  authorize  a  mortgage  notice  under  statute,  508 
subscription  to  stock  of  raikoads,  by  municipal  corporations,  451 

TEXAS' 

constitutional  provision  limiting  debts  of  a  city,  construed,  415 

court  houses,  erection  of,  bonds  for,  395 

holders'  rights,  396 
school  funds,  investment  in  county  bonds,  897 


138ii 


GENERAL   INDEX. 


[The  references  are  to  sections:  vol.  I  contains  $S  1-840;  vol.  U,  ${  M1-6H6.] 
TOWNS: 

borrowing  money,  3 
counsel,  employment  of,  by,  51,  53 
for  defense  of  town  officers,  55 
fire  engines  and  apparatus,  purchase  of,  33 
holidays,  celebration  of,  expenses  of,  28 

interest  on  bonds,  judgment  against,  for,  payment  may  be  ordered,  379 
necessary  charges,  what  are,  15,  note  2 
notes  of  commercial  character,  issue  of,  8 
officers,  expenses  of  litigation,  indemnifying,  56 
persons  inducing  legislation,  expenses  of,  28,  29 
physician,  employment  of,  for  treatment  of  epidemic  diseases.  22 
school  buildings,  purchase  of  real  estate  for  erection  of,  16 
town  houses,  voting  money  for  their  erection,  15,  note  1 
volunteers,  giving  bounties  to,  30 
statute  authorizing  bonds,  must  be  confined  to,  3 

TOWN  AGENTS: 
power  of,  111 

TOWN  AID  BONDS: 

actions  upon,  by  bona  fide  holders,  what  need  not  be  shown  in,  483 
conditions,  471,  489 

not  to  be  disregarded  by  supervisors,  471 

not  complied  with,  bonds  rendered  invalid,  472 

not  to  be  changed  by  subsequent  vote,  471 
curative  legislation,  486 
elections  as  to  issue,  notices  of,  471 

petition  for,  conditions  attached  to  signatures,  489 

vote  of  electors,  for  bonds,  in  absence  of  law  authorizing    not  bind- 
ing on  town,  471 
general  rules,  471 

holders'  rights,  depend  upon  what,  471 

irregularities  in,  not  to  the  prejudice  of  bona  fide  holders,  471 
mandamus  proceedings  to  compel  issue  of  bonds,  what  must  be  shown 

471 
overdue  interest  coupons,  interest  on,  471  * 

recitals  in,  their  effect,  471,  474 
suit  in  equity  to  restrain  payment  of,  471 
validity  of,  affected  by  what.  473 
void  absolutely,  effect  upon  holders,  484 
under  statutes,  issued,  of  Indiana,  471 

of  Kansas,  471,  480 

of  Massachusetts,  481 

of  Mississippi,  482 

of  New  York,  475 

of  Ohio,  488 

of  South  Carolina,  487 


GENERAL   INDEX. 


1383 


[The  references  are  to  sections:  vol.  I  contains  §§  1-340;  vol.  IT,  $§  341-586.] 

TOWN  COMPANY: 

contracts  of,  not  ultra  tires,  271 

subscription  to  stock  of  manufacturing  corporations,  274 

TOWNSHIP  BONDS: 

action  to  restrain  issue  of,  422 

JoTia,^  purchaser  of,  what  is  required  of,  425 

generally,  419-425 

gravel  road  in  Indiana,  issued  for  purchase  of,  420 

vote  of  townsliips  favorable,  duty  of  county  authorities,  421 

indebtedness,  incurring,  constitutional  restriction  upon,  effect  upon  bends, 
422 

interest  on,  judgment  for,  mandamus  to  compel  payment,  379 

ordinance  of  town  council  authorizing  issue,  not  being  published,  effect 
upon  validity  of  bonds,  419 

public  park,  for  improvements  of,  to  what  extent  authorized,  by  resolu- 
tion of  legislature,  423 

purpose,  for  what  issued,  must  be  specified  in  bonds,  where  required  by 
charter,  421 

recitals  in,  estoppel  of  tov.n  by,  to  claim  bonds  were  improperly  issued, 
rules,  424 

TOWNSHIP  TRUSTEES: 

borrow  money,  no  poAver  to,  107 
promissory  notes,  no  i)ower  to  e.xeeute.  107 
school  houses,  erection  of,  levy  of  tax  for,  107 

TREASURER  : 

private  corporation,  appropriation  of  funds  of  corporation  to  his  salary, 
fraudulent,  196 
borrowing  money,  174 

by  means  of  sterling  contracts,  169 
building  association,  of,  paying  orders  on  forged  indorsements,  rules 

as  to  his  personal  liability,  229 
claim  for  insurance,  release  of,  by,  166 
claim  of  his  own,  payment  of,  166 
compensation  of,  regulated  by  directors.  166 
corporation  bound  by  acts  of  treasurer,  when,  173 
when  not  bound,  174 

draft,  acceptance  of,  authority  inferred,  when,  166 
exorbitant  salary  retained  by  treasurer,  interest  recoverable  on,  196 
funds  placed  in  his  hands  for  a  purpose,  payment  for  another,  when 

not  personally  liable,  224 
funds,  deposit  of,  in  bank,   failure  of  bank,  when  not  personally 

liable,  224 
funds,  loaning  to  outside  persons,  personally  liable  for,  224 
indorsing  for  accommodation  the  name  of  corporation,  170 
indorsing  note  of  another  corporation,  170,  171 
interest,  extent  of  liability  for,    upon  ftulure  to  tiu'n  over   moneys 

collected  for  corporation,  209 


1384 


GENERAL  IKBEX. 


[The  references  are  to  sections:  toI.  I  contains  U  1-&40:  vol.  II,  ff  841-686.] 

TREASURER  —  Continued  : 

money  of  corporatiou  fraudulently  paid  out  by,  when  corporation 

may  recover  it,  217 
mortgage  belonging  to  corporation,  fraudulent  assignment  of,  when 

binding  on  corporation,  216 
powers  of,  general  rules,  166 
profit  on  purchase  and  sale  of  property  to  corporation,  when  not 

liable  for,  209 
promisory  notes  of  corporation,  execution  of,  168 
indorsement  of,  167 
transfer  of,  167 
railway  corporation,  of,  execution  of  promissory  note  by,  175 
stock  of  corporation,   fraudulent  issue  of,  when  corporation  liable 
for  damages,  218,  219,  220 
when  not,  221,  222 

overissue  of,  fraudulent,  treasurer  liable  on  quantum  meruit,  for 
what  he  received  for  it,  199 
of  savings  bank,  assigning  bond  and  mortgage  to  bank,  liable  for  loss  on, 
228 
borrowing  money,  power  in,  140 
debt,  release  of,  by,  140 

mortgage  belonging  to  bank,  assignment  of,  power,  140 
notes  belonging  to  bank,  transfer  of,  power  not  implied,  121 
promissory  notes,  indorsement  of,  140 
of  savings  institution,  joint  maker  of  a  note,  release  of  one  of,  what  is 

not  a  ratification  of  his  act,  180 
of  township,  settlement  with,  by  arbitration,  285 

TRUST  DEEDS: 

private  corporations,  authoriajed,  how,  508 
execution  of,  mode,  508 
place  of,  508 
power  to  execute,  508 
foreclosure  of.    See  Foreclosure  op  Mobtgags. 
record  of,  508 

securing  directors,  when  properly  given,  512 
securing  preferred  creditors,  508 

See  Mortgage. 

TRUSTEES: 

manufacturing  corporations,  capital  stock  issued  for  property,  false  state 
ments  as  to,  liability  under  statute,  251 
*•  fair"  value,  rule  as  to,  251 
illustrations,  252 
certificates  required  by  statute,  false  statements  in,  personal  liability, 

8S1 

failure  to  file  annual  reports  as  required  by  statute  of  New  York, 

personal  liability  for,  244 
when  no  liability  attaches,  344 
actions  to  enforce,  245 


GENERAL   INDEX. 


1385 


[The  references  are  to  sections;  vol.  I  contains  %%  1-340;  vol.  H,  $$  841-586.] 
TRUSTEES  —  C(mtinu6d: 

compliance  with  statute,  what  is  suflicient,  244 
"debts,"  what  are  and  what  are  not,  in  the  meaning  of  the  stat- 
ute, 246 
claim  in  tort  not,  247 
liability,  joint  and  several,  for  debts  of  corporation,  236 
penal  in  its  character,  247 

judgment  roll,  not  competent  evidence  to  establish  indebtedness 
247 

indebtedness,  creation  of,  in  excess  of  capital  stock,  assenting  to,  per- 
sonal liability  for,  under  New  York  statute,  248 
liability  one  of  contract,  248 

subsequent  failure  to  dissent,  not  assenting,  when,  248 
note,  ratification  of,  133 
power  of,  general  rules,  130 
raising  their  salaries,  to  force  stockholder  to  sell  his  stock,  spoUation 

of  the  funds  of  the  corporation,  196 
transfer  of  property  to  the  corporation,  195 
mortgage  or  trust  deed,  action  by,  foreclosure,  535,  536 
default  in  interest,  notice  of,  how  given,  536 
removal  of,  vacancy,  how  filled,  536 

vacancy  in  trusteeship,  bondholders  may  bring  action  for  foreclosure 
536 

of  savings  bank,  improper  investment  of  funds,  personal  liability,  228 
school  district,  negotiating  a  loan  of  money,  execution  of  note  for  loan 
corporation  liable  for,  when,  257 

u. 

ULTRA  VIRES: 

private  corporations,  contracts  within  the  power,  391 
contracts  beyond  the  power,  391 

corporation  exceeding  its  powers  in  contracting,  charter  may  be  for- 
felted  by  state,  270 
stockholders  may  avoid  the  contract,  270 

by  assenting,  may  lose  the  right  to  avoid,  270 
dividend,  guaranty  of,  to  induce  subscription,  391 
doctrine,  as  explained  by  courts  of  the  United  States,  270 
by  courts  in  England,  268 

applied  to  special  acts  of  corporations  by  courts  in  England,  269 
contract  of  corporation  to  furnish  railway  supplies,  for  pur- 

chase  of  concession  in  a  foreign  country,  269 
railway  corporation,  contract  by,  to  take  lease  of  another, 
pay  expenses  for  obtaining  a  right  co  extend,  269 
when  it  is  not  applicable,  280 
estoppel  of  corporation  to  plead,  279,  392 
illustrations  of  ultra  vires  acts,  futures,  dealing  in,  272 
insurance  corporations,  engaging  in  banking,  272 
directors  of,  raising  a  guaranty  capital,  276 
174 


13S6 


geio:bal  index. 


[The  references  are  to  secUons:  vol.  I  oontains  $f  1-340;  vol.  II,  H  841-686.) 
ULTRA  VIRES— C<mtinued: 

manufacturing  corporations,  acceptance  of  paper  for  accommodation 
272 
indorsement  of  notes  for  accommodation,  272 
railroad  corporations,  banking,  engaging  in,  272 
execution  of  paper  for  accommodation,  272 
guaranty  of  payment  of  expenses  of  a  musical  festival,  272 
lease  of  property  and  franchises  of  railroad  corporation  for  a 
term  of  years,  when  tdtm  vires,  273 
in  contravention  of  public  policy,  273 
savings  bank,  investment  in  stock  of  manufacturing  corporation,  275 
stock,  of  another  corporation,  subscribing  to,  275 
surety  in  a  bond  given  to  another  corporation,  272 
town  company,  subscription  to  stock  of  manufacturing  corporation,  274 
ustrations  of  acts  not  ultra  mres,  bank  taking  notes  payable  in  bills  of  a 
bank  in  another  state,  271 
corporation  may  loan  money  and  take  mortgage,  271 

may  receive  and  sell  notes  given  for  its  lands,  271 
corporation  with  power  to  take  and  dispose  of  securities  of  another, 

may  guaranty  payment  of  securities,  271 
insurance  corporations,  loan  of  money,  taking  mortgage  to  secure,  271 
manufacturing  corporations  may  take  shares  of  stocK  of  another,  in 

payment  of  a  debt,  271 
purchase  of  land  by  corporation,  erection  of  building  thereon  for 

holding  exhibitions  and  meetings  of  corporation,  271 
railroad  corporations,  contract  for  transportation  of  freight  before 
completion  of  its  road.  271 
estopped  to  assert  its  lack  of  power,  271 
stock,  its  own,  purchase  of,  271 
public  corporations,  distinction  between  public  and  private  corporations 
as  to  interposing  plea  of  ultra  vires,  265 
estoppel  of  corporation  to  deny  its  liability  on  ultra  tires  contracts,  265 
estoppel  of  contractor  with  public  corporation  to  enforce  an  ultra 

vires  contract,  266 
general  rules,  256-266 
illustrations  of  lUtra  mres  acts,  aiding  in  repairing  bridges  of  turnpike 
company,  264 
purchasing  realty  at  tax  sales,  264 

USAGE: 

of  bank,  as  authority  for  officers'  acts,  807 

presentment  of  cheek,  in  accordance  with,  327 

USURY: 

bank,  by,  what  constitutes,  294 

notes  renewed,  pleading  usury  as  a  satisfaction,  294 

notes  guaranteed  by  third  party,  usury  will  not  avoid  guaranty,  294 

reservation    of    unauthorized  interest  by  national  bank,   interest  only 

avoided,  286 
bonds,  aid,  county,  payable  in  another  state,  not  void  for  usury,  440 


GENERAL   INDEX. 


138T 


[The  references  are  to  sections:  vol.  I  contains  SS  1-840;  voL  II,  §$  841-586.] 
UTAH: 

statutes  as  to  incurring  indebtedness  by  county  authorities,  construed,  95 

V. 

^ALUE : 

capital  stock,  issue  for  property,  ryle  as  to  what  is  "  fair  value,"  imder 
statute  allowing  it,  251 
what  is  an  intmaterial  error  in  valuing,  252 
VERMONT : 

statutes  imposing  personal  liability  on  directors  of  corporations  for  debts 
contracted  before  publication  of  articles  of  association,  construed,  254 
contracting    indebtedness  for  more  than   three-fourths   of   capital 
stock,  254 

VIRGINIA  : 

liens  of  "  car  trusts"  under  statutes,  558 

of  furnishers  of  supplies,  etc. ,  to  railroads,  565 
statutes,  imposing  upon  directors  personal  liability  for  declaring  dividend 
out  of  net  profits  when  corporation  is  insolvent,  254 

VENDOR : 

of  false  and  forged  school  district  bonds  liable  to  vendee,  426 

w. 

WARRANTS: 

county,  discount  of,  103,  263 
issued,  for  what,  103 
mandamus  to  compel  payment  of,  95 

payment  of,  no  money  to  the  credit  of  the  fund  on  which  they  are 
drawn,  103 

WATER.  WORKS  CORPORATION. 

borrowing  money,  note  given  for  loan,  by  treasurer,  174 

WINDING  UP: 

private  corporation,  sequestration  of  property  for  the  purpose,  525 

WISCONSIN: 

bonds  of,  when  "issued"  under  statutes  of,  494 

county  authorities,  power  of,  106 
sequestration  of  property  of  insolvent  corporations  for  pupose  of  vrind- 
ing  up,  525 


[whole  number  of  pages,  1506.] 


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